Electric Specialty, Mechanic Liens and Qualifiers

I will help a contractor getting the ‘cold shoulder’ on his bids. Are you up to date on changes in the mechanics lien laws? A quick update for contractors will help you catch up. We also offer good advice for anyone who may have to replace an aging Qualifier…

Q: We hold a “C-38” contractor’s license. In the course of our work, my company actively pursues projects involving energy efficiency retrofits as they relate to refrigeration. Typical projects include installing highly efficient electric motors and anti-sweat heater controls, as well as simple things like gaskets and strip curtains. We also install new LED lighting in glass door walk-in coolers and freezers.

Our problem is we’re being shut out of some upcoming stimulus funded projects that involve refrigerated case lighting because we do not have a “C-10” license. Why can’t we do this work with our “C-38”?

A: I don’t know why your company is being “frozen out” of this program. By definition, a Refrigeration contractor can “construct, fabricate, erect, install, maintain, service and repair refrigerators, refrigerated rooms and insulated refrigerated spaces”. This means you should be able handle the entire project or any related portion of the project – including retrofitting the electrical portion of these units.

Q: I’ve heard there have been some changes in the CA mechanic’s lien law. Can you tell me anything about this and how I might be impacted?

A: Legislation passed last year made several changes in the mechanic’s lien law. Starting January 1st 2011, contractors, subcontractors and suppliers will need to take additional steps to ensure that their lien rights are protected.

For many years, filing a mechanic’s lien has involved a set of procedures and filing deadlines giving contractors and material suppliers the right to sell property where work was performed in order to obtain a payment that was never made. Starting next year, these liens will be required to include an Affidavit showing that it has been served by Certified Mail, return receipt requested or personal service. This can be delivered to the property owner’s residence or place of business; address shown on the building permit or another address as allowed under the preliminary notice statute.

As reported in the Sacramento Business Journal, “under current law there is no requirement that a claimant inform a property owner that a mechanic’s lien has been recorded on the owner’s property,” according to William Porter a Sacramento attorney who has served as a consultant and helped craft new construction industry law.

Since there is also a requirement that a notice of mechanic’s lien include very specific language notifying owners of their rights, I would strongly recommend contractor’s consider contacting a lawyer prior to the end of this year.

Q: My father is getting on in years (he’s over 80), and we’ve been looking at having someone else be the company’s Responsible Managing Officer (RMO). He is not very involved in the business any longer but wants to still be listed on the license. What do you recommend?

A: Life is fragile. One day we’re here and the next day we could be gone. This isn’t a tag line from a life insurance commercial but rather a heart-felt plea to my readers that planning for succession of your contractor’s license is one of the smartest business decisions you can make.

I‘ve received a number of calls and emails over the years from contractors like you where the qualifying individual has suddenly passed away or become disabled. Qualifying someone as a “back-up” licensee is one option. A second is to designate a family member or long-term employee as the eventual successor to ease the transition. In your specific case, I would be proactive and consider replacing your father as the Responsible Managing Office now while still keeping him as a listed company officer.

CA General, Corporate licensing & Business Names

There are several good lessons in these past questions about corporation licensing. Many contractors are making the leap into this new business structure during this recession to reduce their costs. Others are looking into opportunity farther from their traditional base…

Q: I incorporated a year ago as the downturn hit us but have continued to use my individual license. I just found out this may not be legal. What could happen?

A: Every contractor should operate exactly as they are registered with the CSLB. For instance, if you have a sole owner license under the name “PDQ Electric” this is the name you should use when advertising and signing contracts. Additionally, to make sure you are properly licensed you should have filed and published a Fictitious Business Name (FBN) with your city or county government. Since you’ve incorporated, the name you use should be as it was registered with the Secretary of State. For those who operate under a Fictitious Business Name, make sure that your filing is up-to-date.

To answer your most immediate question, if you do not operate properly, you may 1) not be allowed to go to court to collect on a lien; 2) sue to collect money owed; or 3) have a default judgment entered against you for failure to be properly licensed.

Q: Can I quality for a license in Nevada? We have been licensed in California for over 5 yrs, in good standing and are looking at conducting business in Nevada. Would I qualify?

A: There is a ‘limited’ reciprocity agreement between California and Nevada. Nevada will waiver some trade exams if the applicant has been licensed in good standing in CA for 5 of the previous 7 years”. This agreement also extends to Arizona and Utah.

Many but not all classifications come under this agreement. For instance, the Nevada Board will not waive the plumbing, electrical and drywall exams, nor will CA waive these for a NV contractor. Looking at Nevada specifically, the applicant must still provide financial, bank, reference, employment background and other personal information as part of their comprehensive 26-page license application package. The qualifying individual must still pass the business/management test and provide an “out of state” license verification from CSLB.

Q: I have been attempting to get a license for a new corporation. An employee has offered to be the qualifying employee but from my understanding cannot because he has been with the company less than five years in the last seven. Is this only for the RME or can the qualifying employee be listed as an officer. I have been having some confusion about this and would appreciate your help.

A: Your employee can become the RME or RMO for the corporation if he has at least 4 years experience (at a journeyman level or above) and can pass the required law and trade exams.

There is no requirement that your employee have “been with the company five of the last seven years”. This would only be an issue if you had an existing corporation and the employee hoped to get a waiver of the exam to replace the present qualifier.

C-61’s, LLC & Contractors License

A General finds opportunity right under his feet as we share issues from contractors working across the West. Another question helps clarify a common misconception about corporate officers wearing multiple hats on the same license. With no budget to sign, another new bill from the Legislature gives the ‘Governator’ the chance to kick open a ‘door’ long closed to California contractors…

Q: I just formed a corporation where I am the President. I have designated two family members as the Secretary and Treasurer. I only did this because I was told I was required to have three officers and one person could not serve as all three. To your knowledge, is this correct?

A: California Corporations must designate a President, Secretary and Treasurer. When applying for a contractor’s license the CSLB will look to see that all three officers are listed. The Secretary of State also requires that corporations file a Statement of Information, which the CSLB will review. I am unaware of any limitation on how many positions one person can hold. You may wish to consult an attorney; however, my understanding is that you can hold one, two or three officer titles.

Q: As a “B” contractor, I was just offered the opportunity to do a flooring job. I’ve personally done this trade before but always as part of an overall remodel. This project is only flooring and I intend on hiring a licensed “C-15 sub”. Do you foresee any problems with me taking this flooring job?

A: I do not see any problem with you taking a flooring project. As a “B” you can take a prime or sub-contract for only one trade (like the “C-15”) as long as you use a properly licensed subcontractor to perform all the work.

Q: I hold several licenses and want to apply for a “C-61” classification to expand my business (specifically the “D-52”). Can you tell me what the CSLB requires and whether there is any test (I have heard there isn’t). Also, do you have a list of all the “C-61” classifications?

A: Back in 2002, the Board eliminated all exams for the “C-61” classification. This means that as a licensed contractor you can apply for any “C-61” category with no further testing. For new contractors, the law exam is still required. Like any license, the CSLB will want to see at least 4 years full time experience (within the past ten) in the category you’re applying for. Go to the Online Resources page on my website for a complete list of all 30 active “D” categories, or pick up a copy of my book, “What Every Contractor Should Know” (www.cutredtape.com).

Readers of my column know that over the years I have responded to many a question on licensing a Limited Liability Company (LLC). My answer was always the same – until now. With the recent passage of SB 392 (Florez), Contractors will be able to obtain a LLC license — if the Governor signs this bill.

The existing Beverly-Killea Limited Liability Company Act was amended to authorize the Contractors State License Board to begin issuing these licenses no later than January 1, 2012. However, unlike all other types of entities, this one will carry with it some severe financial requirements.

A Limited Liability Company licensee must carry a liability insurance policy of at least one million dollars ($1,000,000) and up to five million dollars ($5,000,000) depending on the number of members listed on the personnel of record. Where the license of a LLC is suspended by the Secretary of State, each person within the company may be personally liable, up to one million dollars each, for damages in connection with the company’s performance, during the period of suspension. Further each LLC applicant or licensee will be required to file a $100,000 surety bond.

CSLB Directors & Worker’s Comp

Striving to get contractors the best information possible means getting it right from the source in Sacramento. As most of you have other plans on the agenda, I go to these meetings where government decisions are made which are important to working contractors. Spend a moment to learn what you missed at the most recent meeting of decision makers at the CSLB…

The NO VACANCY sign was posted at this meeting of the Contractors State License Board (CSLB). On August 26th, the Board welcomed it’s most recent member, Pastor Herrera Jr. along with 4 returning members who were reappointed by Governor Schwarzenegger. For the first time in recent memory, all 15 positions were filled and as one member noted, it’s great not having to “dial for a quorum”.

Mr. Herrera, in introducing himself noted that Pastor is his name not a title. He has served as the Director of Consumer Affairs for Los Angeles County since 1991 and as Assistant Director for the decade before that. He started as an investigator with the agency in 1976. According to Mr. Herrera, he and his Dept. have helped tens of thousands of county residents on a variety of issues related to consumer protection and fraud prevention.

After many years of ups and downs, the CSLB is currently up to date on processing most applications. Board Member Joan Hancock, Chair of the Licensing Committee, congratulated CSLB staff who have been working diligently to reduce their workload as part of the Governor’s Job Creation Initiative. For instance, as of late August, renewals and exam applications are being processed in about a week.

Also of note, is the CSLB’s new email alert! For the first time, contractors and other interested parties can sign up for email alerts including press releases, public meeting notices and Industry Bulletins. As a cost saving measure, the ‘California Licensed Contractor’ newsletter, which for years has been mailed to every contractor, will now only be available online. To view the Summer 2010 edition, visit the CSLB web site or Capitol Services at www.cutredtape.com. The most recent newsletter is posted on my Online Resources page.

The Legislative Committee reported on several bills of interest to contractors. The most significant piece of legislation — SB 1254 (Leno) — was sponsored by the CSLB, and is headed to the Governor for signature or veto. This bill would authorize the Registrar of Contractors to issue a Stop Work Order to any licensed or unlicensed contractor who, as an employer, has failed to secure Worker’s Compensation Insurance coverage for his or her employees.

This bill would also provide for an increase from 3 to 12 in the number of CSLB peace officers. By putting more teeth into enforcement, the CSLB hopes to level the playing field for those licensed contractors who are playing by the rules (i.e. they cover all their employees).

In addition to forgoing Worker’s Comp coverage, more contractors in this down economy may be cutting corners including not paying withholding taxes, underreporting Worker’s Comp or paying cash “under the table”. This move to the “Dark Side”, as expressed by one Board member, should be a concern to all legitimate contractors. For those tempted to take this short cut, be aware that not only are the Employment Development Dept (EDD) and other State agencies’ investigating these abuses, but also recent Court decisions could jeopardize your ability to be paid for work performed.

While there are no vacancies on the CSLB, all Board meetings are open to the public and contractors are encouraged to attend. Details on future Full Board meetings and various Committee meetings will be covered in later columns.

CA License Exam Waivers, Fingerprinting

Getting the best information in a timely fashion is a key to success in almost any endeavor. When licensed by the government, this information is crucial to operating legally and can be a ‘good news – bad news’ situation when uncertain of the facts. I’ll share the ‘low’ down with a contractor seeking to keep his current number…

Q: Just a quick question as I am getting conflicting information. Our CEO who has been with the company 30+years needs to become the new Qualifier. The current Qualifier, although still active in the company, is semi-retired (we are trying to be proactive in order to keep our low license number).

Our attorney told us that since he is an officer of the company and is listed on the license with the CSLB we can fill out a form, pay a fee and have him become the license holder and Responsible Managing Officer (RMO) under our current number. My secretary then called the CSLB yesterday to inquire about the form and fees and was told that the above approach is no longer acceptable and he will need to take the exams in order to become the new RMO. Your input would be greatly appreciated.

A: You are the third person to recently email me about this issue. The ‘bad’ news is that effective September 1, 2003, the Registrar used his discretion regarding exam waivers pursuant to section 7065.1(a). This section of law previously permitted a waiver of the exam for applicants who had been listed on a license in good standing for five of the past seven years and were pursuing a NEW original contractor’s license. The ‘good’ news is that exam waivers under Contractors License Law section 7065.1(b) – the so-called “family waiver” — and 7065.1 (c) – the so-called “supervisory waiver” ARE still available. I know this for a fact since I was part of the industry group that met with the Registrar of Contractors and his staff in 2003 to discuss the overall topic of exam waivers. The situation you describe is covered under subsection (c) and allows for an officer or other supervisory employee to replace an existing RME or RMO with a waiver.

However, it’s not quite as simple as your attorney indicated since the applicant (i.e. new Qualifier) must: have someone certify his background; clear fingerprinting, and go through a few other steps to become the Qualifying individual. While the law allows for a waiver, IT IS NOT REQUIRED and is subject to review by CSLB staff. I have seen instances where the CSLB has refused to grant a waiver because the applicant had not made the proper written request; showed a Worker’s Compensation exemption on file while requesting a “supervisory employee” waiver or had various license suspensions that resulted in the applicant having less than 5 of 7 years credit as experienced. The best news is whether or not an exam is required the company’s license number will remain the same.

Q: We have sent in the application to change the Responsible Managing Employee (RME) on our license. The new RME “Jim” is listed on our other license that was issued in 2000. He received the fingerprinting kit for this application. Is there a way that the state can use the existing fingerprints they have on file?

A: Not possible. This license from 2000 was prior to the CSLB fingerprint program, which started in 2005. If they had fingerprints on file for “Jim” the computer would not have printed out new forms. Unless he can show proof of having had this done through the CSLB, he’ll need to get this taken care of to complete the current application process.