Back Up Licenses, Qualifiers and Liens

Would you consider not ‘backing up’ your computer files? What would happen to your contractor’s license if your qualifier quit like an outdated hard drive? I will ‘quantify’ the value of being ‘responsible’ and, finally cry out on another contractor’s ‘taxing’ situation…

Q: Thank you for speaking with me about securing a “back-up” license for our company. As we discussed, I want the license in case our Responsible Managing Officer (RMO) leaves. After we spoke, I thought of two more questions. 1) Our CA license holder has a NV license. Because of reciprocity, we are using the same (“C-20”) classification in California. Will this make a difference in what we are trying to do or will I still need to take the CA exams? 2) Can we have more than one license holder on our license in CA?

A: The “back-up” license is a good idea. I have spoken with a number of companies in the past who have had an officer or employee apply for an individual “back-up” license in case their RMO or Responsible Managing Employee (RME) leaves for any reason. If your current qualifier were to disassociate, the person holding this license could easily become the new qualifier with no further testing or fingerprinting.

Reciprocity would not apply to your situation so both the Law and Trade exams will be required. In answer to you second question, unlike Nevada, California only allows one qualifying individual per classification per license. Hence the need for the second back-up license as opposed to Nevada, which allows multiple qualifiers for each license class.

Q: What is the average rate or fee a Responsible Managing Employee (RME) charges for his/her license? As a RME I will be receiving compensation as an employee and also serving as a Director. I believe I should be paid an additional fee for the use of the license. Is there a web site that would have this kind of information?

A: I am not aware of any web site that deals with this issue. As with any employer/employee relationship you are paid a set rate or compensated by the hour. As the RME you can certainly try to negotiate additional compensation. If you are going to actually be a Director of the corporation, this would make you an “Officer” Responsible Managing Officer rather than an “employee” (RME).

Q: I was hit with a large lien due to unpaid employment taxes. This came as a shock since I had reported all my 1099 to the State and Feds. Apparently since these “employees” were not licensed I should have been withholding the applicable taxes. Now the CSLB has suspended my sole owner license. Someone at a license school told me that all I need to do is form a corporation and start over. I have read your columns for years and recall that it may not be that simple. Please let me know what my options are?

A: OUCH! Being hit with many thousands of dollars in back employment taxes certainly hurts. I am sorry to say that you do not have many options since the State holds all the cards. This license school misinformed you since any new license you apply for will be denied until this tax issue is fully resolved. The CSLB will not release the suspension until told to do so by the Employment Development Dept. (EDD) and EDD has told you that payment is required in full (or at least a history of several months of re-payment must be shown).

A Word of Caution to my readers: If hiring workers make sure they are bona fide employees or licensed contractors. As this example indicated there is little middle ground.

General Licenses, Disassociation & LLC Filing

We will get down to business by the ‘numbers’ as a contractor discovers he may “B” off the mark in getting that general license. What happens to the contractor’s license when a business is ‘dead’? Does the license ‘live on’ to cause problems in the future? Not knowing may be an expensive lesson to learn…

Q: I either want to add a “B” classification to my existing license or create a new corporation with a “B” license. I have been active in business continuously for 15 years with several classifications “C-2” (Insulation), “C-9” (Drywall), “C-33” (Painting) and “C-35” (Lathing/Plaster). Do I qualify for a “B” class and do I need to take the exam. Which scenario would be easier?

A: To qualify for a “B” license the CSLB requires that you show 4 years experience (within the past 10) in the building trades. By their evaluation standards this usually includes two or three of the following PLUS STRUCTURAL FRAMING OR CARPENTRY: concrete, roofing, electrical, plumbing, HVAC. Simply showing a background in insulation, drywall, etc. will not be enough to qualify. If you do qualify, the trade test WILL be required. Adding the new class to an existing license is likely the easier scenario.

Q: I am a long time fan of your column. I am the Responsible Managing Officer (RMO) for a recently issued license number 9xxxxx. This is my new company and my only current business focus.

I also have a couple of other licenses. One of which is number 8xxxxx, a sole owner license that is expired. In the near future I will probably bring this license to current and active status and just keep it there in case I ever need it. This seems to me to be a prudent idea just in case anything happens to our new corporation.

My real concern is license number 7xxxxx, an expired license of which I am also the RMO. My old partner and I are no longer conducting any business. He disassociated from this license and now I would like to also, but I’m not sure of the ramifications since there would be no Qualifier left.

Can you give me an idea as to whether or not there would be any negative impact to my new license or in keeping my sole owner license alive? Thank you in advance for your help and keep up the good work.

A: Thank you for your kind words and for reading the column. If this old corporate license is never going to be used again, I would recommend filing a “License Cancellation Request Form” with the CSLB. In most instances this would require the signature of two officers; however, as the only remaining officer, your signature should be sufficient. As an alternative, I do not see any problem disassociating from the license; however, you would not be able to make any changes or adjustments should you change your mind.

If you have not already done so, I suggest filing final dissolution documents with the Secretary of State so the corporation does not continue accruing taxes and penalties (at least $800 per year).

Canceling or disassociating from the license should have no impact on your remaining two licenses. Please contact me if you have further questions.

Heads Up Alert: I have received several calls recently from contractors who have used an internet-based firm to help them draft and file documents for a California Limited Liability Company (LLC). The problem is this company apparently does not realize that a LLC cannot obtain a CA contractor’s license. Period. The callers typically end our conversation with either: “Why didn’t they tell me” or “I just wasted hundreds of dollars”. ‘Caveat Emptor’, or buyers beware.

Unlicensed Penalties, Suspensions and LLC’s

The new calendar will put a smile on the face of many readers as it brings an ‘Unhappy New Year’ for unlicensed contractors. The ‘mystery’ of an unexpected letter from the CSLB sets a ‘suspense’ story in motion. Another general contractor wants to ‘root out’ some serious problems with his plan of action…

Q: I have an individual contractor’s license that the CSLB advised was suspended last week because a previous (corporate) license that I am associated with was suspended due to unpaid judgments. These were recorded a year ago. The previous license was dissolved (after the judgment) and unfortunately I did not cancel the license with the CSLB. We did not file bankruptcy and I’ve been told it’s too late to do so. How can I get my sole owner license reinstated?

A: Based on the information provided, it would appear that the only way for you to get the CSLB to lift their suspension would be to take care of the unpaid judgment. If Bankruptcy is not an alternative you may be able to work out a payment plan with whomever is owed the money. I am sorry but I do not know of any other way to get your license reinstated.

Q: I have a Class “A” license, but I have never really used it. I’m now starting a plumbing service business and would like to know your opinion about using my license in this business.

I am planning to take the “C-36” (plumbing) test; however, I’m thinking the Class “A” may be appropriate for this business. Most repairs inside buildings are small in size and value, but outdoor sewer line and water line repairs will most likely be the most intensive and higher priced repairs. Wouldn’t a Class “A” be more appropriate for this work?

Also, I formed a Limited Liability Company (LLC) before I noticed the board does not license LLC’s. I updated my license with the new company name and may have even told them it was a Limited Liability Company. Does this mean my LLC offers no protection? I am listed as a sole proprietor on the license and I’m assuming I can’t change it. What do you think?

A: First, you cannot do business as a LLC so it would appear this offers you little or no “protection”. Second, if you notified the Board of a name change using the LLC designation, they would reject it. Third, if you’re registered with the CSLB as a sole owner but actually doing business as a LLC, this could cause you a significant problem.

Finally to handle a plumbing service business you should have a “C-36” classification. The “A” would be proper if only handling outdoor sewer and water line repairs; however, this would not cover indoor residential or commercial plumbing service problems.

Unlicensed contractors caught in the act now face much greater peril in California with passage of new laws to punish them. The Legislature put ‘sharper teeth’ in the law to take a larger ‘bite out of unlicensed contractor’s crimes’ and protect consumers. FIRST offenders now face jail time and/or up to $5000 in fines. Previously, a first offense was considered a misdemeanor with no set penalty or fines. REPEAT offenders also face much greater peril in working unlicensed as jail time and fines go way up. For consumers, anyone hiring an illegal contactor can receive restitution for unfinished work whether they knew the “contractor” was unlicensed or not.

Electrical & General Licenses

I want to wish all my readers a Happy and Prosperous 2010. This last year has been a rough one for the construction industry. As we look forward to this New Year, let us hope that the perceived economic turn-a-round is real and the potential for recovery realized in the marketplace…

Q: I have heard of a situation where a license was transferred from one person to another and the receiving person did NOT take the license exam. Do you know of any special exemptions for this kind that we may be able to take advantage of? Thanks!

A: This exam waiver is only available to contractors whose license has been active and in good standing for 5 of the prior 7 years. Unfortunately your license was only issued a few years ago so you will be required to sit for the license exams.

Q: I have an “A” and a “B” license. I often bid on public work projects and do not list any electrical subcontractor since I intend on self-performing the “C-10” work. Losing bidders often challenge or protest the award on the basis that my bid is non-responsive because a licensed electrical subcontractor is not listed. They sometimes reference the requirement that my electricians must be certified. Do you have any literature / decisions from the CSLB showing that the holder of an “A” or “B” license can properly perform this specialty work?

A: Unsuccessful bidders have the right to make any claim they want even if it has no merit. They likely feel they have nothing to lose. I contacted the CSLB and they do not have any “decision” regarding this issue but did confirm what we discussed.

A General Building (“B”) contractor as defined in B&P Code 7057 can “DO OR SUPERINTEND THE WHOLE OR ANY PART” of a project including the electrical trade as long as the project uses at least two or more unrelated trades or crafts. General Engineering (“A”) contractors can self perform all or any part of an “A” project including the electrical portion. The issue of electricians being certified is only applicable to “C-10” contractors. General contractors using their own employees do not fall within this Apprenticeship standard.

Q: Where do I need to list my license number? I know most advertising requires it. Can you tell me if there’s a law I can look up that would answer my question?

A: Code Section 7030.5 states that “Every person licensed … shall include his license number in: (a) all construction contracts; (b) subcontracts and call for bids; and (c) all forms of advertising as prescribed by the registrar of contractors”. If in doubt, list your license number. You can’t go wrong by doing so but could run afoul of the law by leaving it off. You worked hard to get this license it’s an accomplishment you can be proud to share.