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