Referral, Finder’s Fee or Kickback, CSLB & Enforcement Action

While one of my missions in life is to assist contractors, I often hear from attorneys and others with questions about construction industry issues.  First, I field a question and ‘kickback’ new guidance on getting paid for ‘referrals.’ We also catch up on the latest CSLB discussions…


I have responded to questions about Referral Fees in the past and have read  related articles written by attorneys and the CSLB.  These questions have generally originated with contractors; however, realtors or others who regularly deal with the construction industry have also been curious about what is acceptable.


While B&P Code Section 7157(d) clearly states that it is not legal for one contractor to pay any type of inducement (i.e. kickback) to another contractor, the law apparently does not include non-contractors.  The CSLB recently clarified this in their newsletter and I wanted to make sure my readers had the most accurate and up-to-date information.


At a recent CSLB Enforcement Committee meeting in Sacramento, one of the agenda items dealt with this very issue.  According to the Board, the practice of paying “inducements” or what are often called, ‘finder’s fees’ is apparently prevalent in several industries including water damage/restoration, plumbing, pool builders, and re-modelers.  The Board’s Enforcement staff held a sting operation in Riverside in March and all 9 contractors (licensed and unlicensed) who showed up to bid clearly stated that referral fees would be paid once the “homeowner” signed a contract.  These offers of “inducements” cost these contractors up to $2000 in fines. Call it what you will, but if you are a contractor beware any offer to ‘kickback’, pay for referrals, provide finder fees or ‘inducements’ for a contract because they are all illegal in California.


Other topics discussed at the August 23rd CSLB Committee meetings included: Enforcement partnerships with 2 dozen cities and counties as well as a number of other state agencies; licensing requirements for solar and other alternative energy projects; and the latest on licensing for a Limited Liability Company (LLC).



Q:  This really is not as much a question as it is a statement.  I regularly read your column in my Exchange newsletter and find your information very helpful.  I’ve learned a great deal from your answers and appreciate your providing this service.  The construction industry can use all the help it can get.


I know you often write about the CSLB doing stings and their Enforcement efforts but it’s not enough.  There are too many unlicensed guys running around taking jobs from the legitimate contractor.  What can you suggest that we can do to help the Board and help ourselves at the same time?


A:  Thank you very much for the kind words and reaching out to help combat unlicensed activities.  In our present economy, it’s tough enough staying busy without having to battle unlicensed individuals who are undercutting the legitimate contractor. The CSLB is doing what they can with their present resources; however for one thing they have 29 vacant Enforcement positions that are subject to the current State hiring freeze.


In January of this year, the Board’s Statewide Investigative Fraud Team (SWIFT) launched a new task force to battle the underground economy.  There are a number of areas where contractors can help themselves and the entire construction industry including identifying unlicensed individuals and reporting them to one of the SWIFT representatives throughout the state.


Because this is such a huge issue, I am going to devote an entire upcoming column to what we, as an industry, can do to win the battle against unlicensed activities. Please send your thoughts on this issue to share and be on the lookout for this important information.


While knowledge is power, knowing where to go for the answers is half the battle. Get expert assistance immediately when you call 866-443-0657, email, or write me at Capitol Services, Inc., 1225 8th St. Ste. 580, Sacramento, CA 95814. Research past columns at






Electrical Certification, DAS, RMO/ RME & Contractor’s Licensing

I’m back to work with a ‘jolt’ of renewed energy! Good thing, as our first contractor has an electrical problem. For some contractors work has been scarce and many are looking at options for expanding their base. Some are exploring new specialty classes, starting new businesses, allying with other contractors and finding other means to make a dollar. Another contractor has offered an idea that makes good sense…


Q: My question is as follows:  being a licensed electrical contractor in the State of CA I know electrical work must be done by licensed/certified electricians.  Does a General contractor fall into that parameter if they self-perform the above- mentioned work?  Shouldn’t the licensing and registration be the same for the “C-10” and “B”? Is there any movement towards the state enforcing licensing certification? It seems that “anyone” who can say “electrical” can do the work then.


A: Only “C-10” contractors fall under the Division of Apprenticeship Standards (DAS) “licensed/certification” regulation.  It does not pertain to the “B” even if they self-perform the work.  The law clearly specifies that the certification process pertain only to “C-10” contractors.  The Board is enforcing this portion of the law — i.e. going after electrical contractors whose employees are not certified — but cannot do anything about other trades that perform electrical work (assuming they are properly licensed).  For instance, a “C-20” can do electrical work related to a HVAC system but cannot do other types of electrical projects simply to avoid the certification process.



Q: Is there a requirement that the Responsible Managing Officer (RMO) for a corporation be an employee of that corporation?  Or, can a RMO be employed by, for example, a subsidiary of the corporation, but nevertheless serve as the qualifying individual for that company?


A: The CSLB would say that the qualifying individual — RME or RMO – should be employed by the entity for which he or she is the Qualifier.  This is not to say that the individual cannot also be employed by a subsidiary but in order to comply with the various CSLB rules and regulations, this individual should be on the corporation’s payroll.



Q:  I heard a suggestion for getting contractors back to work that sounded great.  I know you concentrate on licensing questions but I was curious about your opinion.  The idea was to take the many thousands of foreclosed homes in the State and hire contractors to fix them up then rent them out and use the rental income to pay for the construction work that was already done.  What do you think?


A:  While I do write a Q&A column each week primarily on contractor licensing, I also occasionally write about legislation, legal decisions, training,  enforcement, etc. as it relates to the construction industry.


Personally, I like the idea.  This type of a program would certainly be costly at first, but sounds like it could conceivably pay for itself over time and would certainly put a lot of contractors to work.  Of course the ‘devil is in the details’ and how to turn over tens of thousands of homes might be problematic.


An Internet search turned up several articles from 2009 that dealt with this topic although the homes in question were put up for sale rather than rented.  Contractors repairing foreclosed properties that the banks and other lenders want to include in foreclosure listings or sell through auctions are certainly one potential market that contractors can tap.   Depending on what if anything happens in Washington in the upcoming months, we hopefully will see programs that generate construction jobs.  These might be related to renovating public schools or fixing our State’s infrastructure or even repairing foreclosed homes. We can hope good sense prevails.


While knowledge is power, knowing where to go for the answers is half the battle. Get expert assistance immediately when you call 866-443-0657, email, or write me at Capitol Services, Inc., 1225 8th St. Ste. 580, Sacramento, CA 95814. Research past columns at






HAZ Certification, Disassociation of Qualifier, Stock Ownership for RMO

One of my greatest pleasures is hearing from readers who often respond to a particular column they’ve read. Here’s some feedback from readers like you…


In a recent column your answer to the question on the HAZ CERTIFICATION is not complete.  For instance, a General Building (B) contractor could bring a qualifier for the “C-36” on board whom also holds/obtains the HAZ MAT for the purpose of installing/removing underground tanks.


I appreciate your clarification.  The question I was asked was, “could someone come on board with the Hazardous Certification only”? They did not want to withdraw as RMO, but also, did not want to take the Haz. exam.  Nonetheless, your point is well taken since the above example would certainly be a workable alternative. Thanks for taking time to help us all better understand State law and it’s ongoing interpretation. As my space is limited, I ‘m often only able to provide answers focused on the exact question the contractor asked.



Q.   I understand that our RMO must own 20% of the company.  We are starting a new business and this person will have less than 5% ownership.  I do not know if it matters, but he has been licensed in the past. I came across one of your columns that contradicts what I was told.  What do you suggest?


A.   What you may have heard through the sometimes unreliable “grapevine’ is considered by many to be the law.   In reality, there is no rule or regulation that requires the Responsible Managing Officer (RMO) to own any stock in the company.  The “20%” rule applies if your RMO is presently a qualifier for another company and wants to qualify BOTH licenses.  Your qualifier appears to have been the RMO for his previous employer but this license expired last year.  There should no problem with him being your RMO regardless of his ownership percentage.



Q: My Responsible Managing Employee, or RME. is not working out. I would like to fire him but cannot because he has said he’ll take the license when he leaves. He dangles this over me and I feel like I’m being held hostage. Do have any suggestions on what I can do to resolve this situation?


A: I am sorry your Qualifier is a. . . problem. However, be assured that when a RME is fired, or leaves your company for any reason, he cannot “take the license”. This license belongs to your corporation, NOT the RME.


You should start by completing a Notice of Disassociation informing the CSLB that your Qualifier is no longer employed by the firm. The corporation will then have 90 days to replace him. During this time, the license remains in good standing as if the RME were still listed. Part of the reason this law exists is to insure that a company cannot be “held hostage” and has adequate time to find a new qualifying individual. If it appears it will take longer than 90 days to replace your Qualifier, I suggest petitioning the CSLB for additional time.


For those in this situation, you may want file an application to replace the Qualifier, since the Board is sponsoring legislation to amend this “90 day extension” rule.

While knowledge is power, knowing where to go for the answers is half the battle. Get expert assistance immediately when you call 866-443-0657, email, or write me at Capitol Services, Inc., 1225 8th St. Ste. 580, Sacramento, CA 95814. Research past columns at

RME, RMO & Federal Property Bids & Contracts

If you are not a regular reader, you may not know that you can access this column and others going back years with a single word search on my website, which our first contractor found useful…

Q: First, let me thank you so much for the resources on your website.  I’m new to the industry and they’ve been very helpful.  I have one question, which I’m hoping you may be able to direct me to an answer:

We have a Responsible Managing Employee (RME) who is the qualifying individual for our “C-10” and “B” licenses.  If we were to replace our current RME with another person who had those licenses PLUS an  “A” would the new RME have to inactivate ALL his licenses to become our RME, or only the license for which he’s serving as our Qualifying individual?  In other words, would he be able to keep his Sole Owner “A” active?  Is there any specific statute or provision you could direct me to that addresses these issues?

A: I appreciate the feedback and am glad you find my website to be a valuable resource.  Unfortunately, you cannot separate a RME’s classifications in the manner you describe.  Whether you use the new RME for one classification or all three, he must still inactivate his ENTIRE Sole Owner license.

B&P Code Section 7068.1 addresses this issue.  It details the circumstances under which someone may act as a qualifying individual for more than one license.

Q:  Read your book and found it very informative.  I am curious:  If we perform work on a military base or other federal property, such as office buildings or courthouses (Federal), do local licensing laws apply?  I know some contractors working those locations who are not licensed by the state.  Do in fact state laws apply to federal property?

A:  Thank you for reading my book.  In many instances local and state licensing laws do apply to the renovation or construction of federal structures such as courthouses and office buildings. These are typically located in a city where everything surrounding the building would be subject to licensing regulations and the property may in fact be leased. It has been my experience that many regulatory agencies distinguish this from work on military bases (for instance military housing) that are fully encompassed by federal property.

Regardless, Federal project administrators will sometimes require or impose standards to comply with local or state government licensing in the jurisdiction where the work is being handled.  I suggest that you contact the CSLB and the jurisdiction where this work is taking place in writing regarding specific projects to determine what regulations or licensing may apply.


Q: We have an employee that used his license to qualify for our company in California but he did it as a Responsible Managing Officer (RMO).  He was supposed to be listed as RME! What are the implications of this mistake?

A: First off, I highly recommend that you either: a) file the appropriate form to change your Qualifier to the proper RME designation or b) immediately appoint this person as an officer to match his present corporate title (this would have been listed on the application).

It’s difficult to say what the “implications” are if any.  If your Qualifier has been involved in the day to day operations of the company; has been overseeing company projects; and working at least 32 hours per week (as required for a RME), then it’s unlikely the CSLB would take any action against your license. Administrative errors occur!  On the other hand, if your RMO/RME has not been very involved — and your company becomes embroiled in some legal action — this ‘mistake’ could have a serious impact. Whatever you choose, this situation requires immediate attention to correct.

While knowledge is power, knowing where to go for the answers is half the battle. Get expert assistance immediately when you call 866-443-0657, email, or write me at Capitol Services, Inc., 1225 8th St. Ste. 580, Sacramento, CA 95814. Research past columns at