Contractors Licensing Basics and Bonding Requirements

Can a licensed California contractor work in Oregon? You can’t really compare multi-national ‘mega’ construction companies and a local sole proprietor, so why do they both pay the same in bonding? A good question from a large contractor leads us to some basic answers on choosing which license may be best for your company. A last inquiry for 2007 shows why ‘close to the mark’ really only applies when you’re pitching horseshoes…

Q: I know that all contractors are required to be bonded. Can you tell me why the bond is required? From what I’ve read, this bond appears to be only needed for small contractors. I handle large industrial and public works.

A: The CSLB requires some form of security deposit in order to maintain an active contractor’s license. Most contractors post a Surety bond (currently $12,500); however, my understanding is that well over 1000 license holders have a cash deposit on file in lieu of a contractor’s bond. Based on this relatively low amount, I can understand why you believe this bond is only necessary for small contractors; however, there is no delineation between a small sole owner grossing $100,000 per year and a huge billion $$ industrial contractor.

Claims on a bond (or cash deposit) are available to homeowners who may have suffered property damage to their residence or persons damaged as a result of willful violations of contractor license laws. Claims may also come from employees who are not paid or trust funds not paid as a result of a licensee’s failure to meet fringe benefit obligations.

Q: I’m an employee for a licensed general building contractor in CA. The sole proprietor has decided he no longer wants employees. Simultaneously, I’m now looking to start a new business and have been doing footwork to incorporate myself. My question is weather it would be better for me to become licensed as an individual then get incorporated, or to incorporate then become licensed as the qualifying individual. I’m trying to take better advantage of the tax loopholes.

A: My best suggestion is talking with a CPA or tax attorney regarding the subject of “tax loopholes. As for the type of contractor’s license to apply for, this depends on how you want to conduct business. If you want to contract as a sole owner, this is how you should apply. If your goal is to do business as a corporation, then apply as such with you as the Responsible Managing Officer (RMO). There is no need to apply for two licenses.

Q: How many years of experience do I need to apply for a “C-6” (Cabinet, Millwork and Finish Carpentry) contractor’s license? If I have about 3 years and 9 months, can I start filling the application today? Thanks.

A: Since the Board is processing exam applications within three weeks of submission; I would wait until you have the required 4 years. If you were to apply today and documented only 3 yrs 9 months, the application would be rejected.

Q: I’ve emailed you a few times and appreciated your quick response. I now have one more question… We are looking into bidding a job in Oregon…What would need to be done to do that legally?

A: Oregon has contractor licensing requirements; however, I am not familiar with licensing in this state. I suggest that you contact the Construction Contractors Board in Salem, OR. Their phone number is (503) 378-4621, or visit them on the web (you can find a link on my web site, www.cutredtape.com).

Regular readers know you can find the contact information for construction licensing in all 50 states in my book. Readers who call me directly before December 31st will receive an autographed copy of, “What Every Contractor Should Know”, at a special discount while they last. Happy Holidays!

California Contractors License Renewal

Some ‘surprises’ are nice, while some others in life and business, not so much. Sometimes avoiding a ‘surprise’ is just as nice as receiving one. Another contractor caught unaware will find there are sometimes no good answers to share…

Q: I got your phone number from a local contractor who says he reads your column.

I am trying to do some research on my husband’s Contractor’s License. He obtained his “B” General Building Contractor’s License in 1989. He has not used his license (since that date), but it has expired. I would like to have it reinstated for him, as a surprise for Christmas. Can you please tell me what I have to do to get this done? Thank you in advance!

A: Sorry, but your husband’s sole owner license expired more than 5 years ago. Therefore, for his prior license to be re-instated, he will be required to retake and pass the law and trade exams. He’ll first need to complete — and personally sign — an application for original contractors license, which obviously would ruin the element of surprise. Even if his license had expired within the past 5 years (rather than in 1997) it could still not be renewed without his signature.

While this idea would make for a very nice gift, I know of no way to make it a ‘surprise’. Nevertheless, I hope you and your husband have a nice holiday season.

Q: I have been employed in upper management with a company for close to 5 years. Is it still possible to be grandfathered in, so to speak, so I can obtain my own license without taking any exams? Please advise.

A: The CSLB no longer grants waivers for a new license based on having been listed on an existing contractor’s license for 5 years. In 2003, the Registrar of Contractors discontinued waivers under B&P Code Section 7065.1(a). The Board will however still grant a waiver for replacing the qualifying individual under sub-sections (b) — the so-called “family” replacement — and (c) replacement by an employee (or officer) of a corporation.

Q: I was recently ‘surprised’ by an unexpected notice that my license was just suspended due to an associated judgment on another license. I have not been involved with this other company for nearly 5 years; yet I’m being held responsible for judgments that are several years old. I am no longer listed on the license but the CSLB says I am still liable. Any ideas how I can fix this?

A: There are 4 ways to fix this problem – unfortunately none of them good. 1) Have the company declare bankruptcy (which I understand is not feasible in this case); 2) pay the large debt even though you have no direct responsibility; 3) work out a payment arrangement with the company that has the judgment; or 4, somehow get a stay from the court stating the judgment was not valid (this is extremely difficult even under the best of circumstances).

You may think that removing (disassociating) yourself from the license would allow for your current license to have the suspension lifted. This only works if the date of disassociation is prior to the judgment date. As we discussed, the critical date is when the judgment was obtained from the court, not the date it’s reported to the Board.

As I have warned many times, as soon as you leave a contractor’s license, whether you’re listed as the officer or partner, immediately notify the CSLB in writing. This is the best way of protecting yourself from future licensing ‘surprises’.

Readers who call me directly before December 31st will receive an autographed copy of my book, “What Every Contractor Should Know”, at a special discount while they last. Happy Holidays!

Contractors Bonds: New California Contractors Licenses

Some people are going ‘old school’ and giving up their PDA’s for pencils and paper. It’s just easier to write it down, rather than spend time pecking notes into a tiny keyboard. While you can find almost anything online these days, it still makes sense to also have some information in a more convenient form. For contractors who need a quick answer on a license question a handy reference on the bookshelf is a good idea.

The last copies of my book, “What Every Contractor Should Know”, are now available at a special price for readers. While some questions require more discussion, many solutions are just a page away. Readers who call me directly before December 31st will receive an autographed copy of my book at a special discount while they last…

Q: Thank you for speaking with me the other day regarding my contractor’s bond. I want to make sure I understand the main point of our discussion. Our bond expired on November 15, 2007 and the new bond will likely be filed during the first week of December. Can the effective date of the new bond be the same day the other bond expired?

A: Yes, the CSLB will backdate the effective ‘date’ so long as the bond is filed within 90 days of the prior bond expiration (i.e. in this case on or about February 14, 2008). This is important since the current suspension will be removed retroactively and should not appear on the company’s permanent record.

Q: Can a problem with someone’s sole owner license impact an unrelated corporate license? What if the sole owner is not the Responsible Managing Officer (RMO) on the second license?

A: If someone qualifies two licenses, there is automatically some connection between the entities – especially if a problem develops. If your RMO has an unresolved problem on another license, which leads to a suspension or judgment, this would likely impact all licenses he is listed on — regardless if the person is the qualifying individual. If the person will not clear up the issue on his sole owner license, you may want to consider removing him as your RMO.

Q: I currently have a sole proprietorship business with an “A” license with additional classifications. I will be incorporating soon with a partner who also has his “A” license, and additional classifications that are different from mine. We were looking at 50/50 ownership. Can we use one of these license numbers for the corporation and whose number should we use? Thanks.

A: Since you will both own 50% of the corporation, the CSLB will not allow you to use one of your licenses for this new company. The corporation will be issued a new license number. A sole owner has the option of transferring his or her license to a new corp. only if ownership is 51% or more.

It’s up to both of you, regarding who should be the qualifier for the “A” classification. It will not matter to the CSLB who is listed as RMO for general engineering.