LLC’s, “C-8”, WBE Certification & CA Contractor’s Licensing

Like the State goals in procurement for our disabled veterans, some entrepreneurs are seeking special status to bid those contracts dedicated to other groups. Some innovators are looking to build their profits by adding new classifications to exapand their bid opportunities. They are using their years of experience as ‘concrete’ proof of their capabilities. Very soon, I expect a rush of new opportunities to grow from a change in contractor’s licensing law that has been years in the making. If you haven’t heard, LLC’s are coming…

Q: My husband has been a licensed contractor for almost 30 yrs. I just recently passed the California State exam to get my license. We now want to form a company showing us as a “woman-owned” business to qualify for opportunities with the Federal Government, but would like to keep his license number to show the many years of experience. What are the proper steps to take in order to accomplish this task?

A: Having passed the license exam is a good start since this is virtually required to secure “woman-owned,” or Women Business Enterprise (WBE) status.

If your husband has a Sole Owner license, it can only be transferred to a new corporation if he owns 51% or more of the stock or equity. Unfortunately this would likely exclude you from declaring ownership as a “woman-owned” business because you’re required to own at least the same percentage of the corporation.

If your husband has a corporate license, you can replace him as the Responsible Managing Officer (RMO); however, there may be a problem with taking over an existing license of 30 years and suddenly declaring it to be “woman-owned”.

I would recommend starting your own business with you as the only Officer and Qualifier as well as 100% owner. This is probably your best chance of securing the WBE designation. You’ll need to file an Original Contractors License – 7065 Waiver Application complete with a $12,500 Bond and proof of Worker’s Compensation coverage (or Exemption if you have no employees). The State fee for a single classification is $480.00. I hope this information helps.

Q: Hello Mr. Kalb. I’ve been reading your columns for years but until now did not have a reason to write. In this economy I have found it necessary to expand so I applied for an additional “A” license. I presently have a “C-8” (Concrete) but the Board is investigating my application saying my work experience was too close to the “C-8” and not close enough to the General Engineering classification. I believe I have the required qualifications and even passed the “A” test. Could you take a look at my application and let me know what you think?

A: After reviewing your application it appears you’re in a gray area. While you have experience in certain aspects of the “A”, much of this is, as you stated concrete related. This being said, I see where you have done culverts, sidewalks, curb/gutters, site work and asphalt paving. It also appears you have constructed underground utility vaults and portions of sanitation projects. Based on everything we discussed as well as my review, I believe you meet the qualifications under B&P Code Section 7056. Therefore, I think the case can be made that the Board should allow you to add the “A” classification.

It’s expected the Contractor’s Board will begin granting LLC licenses around January 1, 2012. It also appears the CSLB will consider allowing a corporation to transfer its existing corporate license to the new LLC entity. However, there are a few restrictions so not every company will be able to take advantage of this provision. Any reader interested in receiving a periodic LLC update, should contact my office by phone, fax or email.

LLC Contractor Licensing, Corporate Licenses and Business Names

Having many years experience assisting contractors, it’s always a pleasure to hear from them again. In this particular case, my answer will likely be of interest to an unlimited number of contractors. Another contractor knows that the company name you’re using has a direct impact on what kind of business comes through the door…

Q: I have worked with you several times applying for our Contractors Licenses. Our parent firm is a Limited Liability Company (LLC), which does business in Arizona, Nevada and other states. Our corporation was created solely for the purpose of contracting in California. With the change in California that will soon allow LLC’s to hold Contractor’s Licenses we’re wondering whether there might be a provision for an entity like our corporation to transfer its licenses to its Parent Limited Liability Company? I would be interested in any information you might have regarding the upcoming change in California.

A: Thank you for your email and past use of our firm. I have written a letter, which I recently sent to a number of my clients (and others) who have expressed interest in securing a LLC license. This summarizes where the CSLB is at and when we expect the Board to allow LLC licenses to move forward (likely around January 1st). I have added your name to this list for future updates.

It does appear the CA Contractors Board will consider allowing a corporation to transfer its existing corporate license to the new LLC entity. However, there are a few restrictions so not every company will be able to take advantage of this provision.

Any reader interested in receiving a periodic LLC update, should contact my office by phone, fax or email.

Q: Hello, rather than trying to get someone on the phone at CSLB, which is nearly impossible…I was hoping you might be able to help. We are looking to incorporate our Sole Owner construction business. We currently carry a “B” license and 2 specialty classes. Can the corporation have one name and the other 2 companies operate under different names but the same license number (i.e. XYZ Construction Inc.; XYZ Painting, XYZ Plumbing) or is there only ONE name allowed per license number? We only have “construction” in our name and feel it deters people who think we may not be legit painters or plumbers (even though we are!).

A: Thank you for the email inquiry. You have the option of incorporating and doing business under various names. Using your example, this means you’d end up with 3 licenses, each with a different name and number.

Coordinating these can be tricky due to a recent change in CSLB policy. For example, you may want to first secure a new license number for XYZ Construction Inc. or have your Sole Owner license transferred to the corporation. Once this is completed, the two other original license applications can be filed (for XYZ Painting, XYZ Plumbing). To reiterate, each business name must have it’s own license number.

Q: I would like to reactivate my corporate license and keep my personal license on ice. Can I do this? I remember a time when it was required that your personal license be active to qualify a corporate license.

A: I am not aware of any time in the last 30 years (which is as far back as my direct knowledge goes) where it was a requirement to have both licenses active. This being said, it is up to you, as the contractor, to make a personal decision on whether you want to reactivate one or both licenses. If you are unsure of the consequences, let’s talk further.

HIC, Fingerprinting, Down Payments and Out of State Contractors

You don’t have to get a tattoo when you want a contractor’s license in California, but you do get ‘inked’. That’s often where the trouble starts. An out-of-state builder doesn’t think he needs a license but his lawyer does. Our last contractor inquiry gets a full 100% answer for his ‘ten percent’ question…

Q: I want to apply for a contractor’s license; however, I was convicted of a felony about 8 years ago. I’ve heard that someone with a criminal record will likely not be given a license. What do they look at?

A: According to a recent report released by the CSLB, the Criminal Background Unit has received more than 242,000 transmittals from the Department of Justice since the CSLB’s fingerprinting program began in January 2005. Of the applicants fingerprinted, they have received “hits” on over 41,000 applicants or about 17%. The Board has denied just over 1,000 applications and issued nearly 1,100 probationary licenses.

The CSLB considers a number of factors when evaluating someone’s criminal background. Among other things, they’ll look at when the crime was committed; is someone a repeat offender; what crime was committed and how recent was the offense. In your case, with only one incident in your background, I would say you have a very good chance of ultimately being issued a license.

Q: My attorney told me I need a contractor’s license. I have an upcoming project in California where I need to sign a contract, however I don’t plan to self-perform the work. In my home state, no license is required unless you actually handle the construction. Could you confirm whether in fact a license will be necessary? I don’t want to go through the hassle if I don’t need to.

A: One of the primary reasons your attorney told you to get a license is because it’s not worth the potential financial consequences if your construction project runs into problems. The key is whether you have a signed contract with the owner to handle the construction. Whether you decide to self-perform all or none of the work has little bearing on whether a contractor’s license is required.

Acquiring a license may look like a “hassle” in the short run but failure to do so could cost you dearly down the road. For instance, a dispute may develop where you need to go to court. Without a license your case could be tossed out so any money you hoped to collect will be out the window. Further, if it’s determined a license was required to work in CA and you don’t have one, the other side in this theoretical dispute could ask the court to order the return of all monies you’ve already been paid. Welcome to CA Code Section 7031.

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Q: I have what I hope to be a pretty cut and dry question…We are General contractors who do a lot of business with subs. Legally how much can a subcontractor ask for work they “plan” to do? My understanding is that no one can charge for work that had not been completed. Does the 10% down payment rule apply in this case?

A: As it relates to home improvement contracts, B&P Code Section 7159.5(a) is pretty ‘dry’. In response to your first question, yes, subsection (5) clearly states that except for the down payment a contractor may “neither request nor accept payment that exceeds the value of the work performed or material delivered”. Your second question is clearly addressed in Subsection (3): “…the down payment may not exceed $1000 or 10% of the contract amount, whichever is less.” As the General contractor, the down payment would relate to your contract with the home owner, regardless of whether you self-perform or hire subs to do the work.

Expired Contractor Licenses, Renewals & Change of Address To CSLB

Like the old school crime drama, Dragnet, the CSLB wants, “just the facts” –including your address changes. Like Detective Joe Friday they now also get your fingerprints! Truth and keeping your information current is your ‘shield’ in avoiding any problems with your contractor’s license. Failure to keep current ‘courts’ potential disaster down the road…

Q: My contractor’s license is due to expire this month. I’m concerned that I have not received the renewal in the mail. After several dry months, work is picking up and I cannot afford to have an expired license. I called the Contractors Board and they are going to send me my renewal. Anything else you can suggest?

A: As we discussed, the reason you did not receive your renewal application is because you moved and failed to notify the CSLB. Mailings from the Contractors Board are typically not forwarded by the postal service so it’s vitally important to file an address change with the Board.

Alternatives to waiting for the renewal to arrive at your new address include: flying or driving to CSLB headquarters; re-contacting the Board to see if they will fax the renewal; or having someone pick up the renewal on your behalf (so it can be sent overnight or emailed to you the same day). When returning the renewal application make sure it’s signed by the Responsible Managing Employee (RME) — and yourself as the Officer of record – and includes the correct fee.

It is presently taking the Board up to two weeks to process renewals. Therefore, your license may show “expired” for a short period of time. This “expiration” should be erased from your record assuming the renewal is postmarked or delivered in person to CSLB Headquarters no later than the expiration date.

Q: I have been licensed for about 16 years. I have never had any complaints against my license; I have always kept my bond up to date; made sure my Worker’s Compensation was always in force and never had any problems with the Contractors Board – until now.

Apparently last year when I sent in my renewal it was not processed until a week after my expiration date. This lapse was just discovered because I am in a lawsuit and my attorney tells me this is a problem. I’m certain I renewed the license on time. Is there any way you can find out what may have caused this?

A: Your attorney is correct. Having an expired license for even a few days can cause serious problems for contractors. A Certified License History from the CSLB, which your attorney undoubtedly has in hand, would show each and every expiration or suspension.

To delve deeper into the cause of this license lapse, your attorney will need to review your entire file. Have him contact my office and we’ll make such a request on your behalf. I can also personally review this document, and give your attorney some insight into what may have happened with your renewal. If it’s determined that the Board made an error, a request can be made to correct the record.

AB 397 (Monning) is sitting on the Governor’s desk awaiting his signature or veto. This bill hopes to stem the tide of contractor’s claiming a Worker’s Compensation exemption when in fact they have employees. If signed, an active licensee would be required, at the time of renewal, to either recertify they are still exempt or provide a current and valid Certificate of Worker’s Compensation Insurance. As it is today a contractor who may have filed an Exemption at the time his or her license was first issued is never required to reconfirm they are, in fact, still exempt.

Business Names, Fire Sprinklers “C-16” and Plumbers “C-36”

One thing you can be sure of in business – or life – is things are going to change. For contractors, this means keeping up on the latest changes in rules that govern what you can do; where you can do it; and when it can be done. Just such a change is a hot topic in the ‘pipeline’. Unfortunately, dodging bureaucratic barriers often begins with your business name…

Q: I recently applied for a contractor’s license and my application was rejected. The Contractors Board stated that the business name I want to use was not compatible with the license classification I applied for. Can you look at the letter they sent and give me your opinion as to why they won’t accept my name? I filed a fictitious business name statement with my county and they had no problems.
A: The CSLB will disallow a business name if they perceive it to be in conflict with B&P Code Section 7059.1(a). This reads, “A licensee shall not use any business name that indicates the licensee is qualified to perform work in classifications other than those issued for that license, or any business name that is incompatible with the type of business entity licensed.”

In your case it appears the Board has two problems with your business name. First, you may only use “Construction” by itself with an “A” or “B” classification (you applied for a “C-39”). Second, they do not believe you’re a partnership since the business name only contains your name rather than both- you and your partner. To deal with both these issues, try “John and Jim’s Roofing Construction” rather than just “John’s Construction”.

The fact that you filed a fictitious business name (dba) statement with your county is a good thing; however, this has no impact on what the CSLB considers acceptable. For anyone else contemplating a name change of their existing business or filing for a new contractor’s license, please realize that 7059.1 can be somewhat subjective and gives the CSLB a great deal of latitude over which name you can and cannot use. Feel free to give me a quick call to advise on the ‘moniker’ you’re considering for your business.

Q: We hold a “C-36” license. The majority of the California builders we work with are now requiring fire sprinklers. The problem is they want the plumbers to add that to their scope of work or they will find new plumbers that can. My question is how do we go about getting a fire sprinkler license on the quick side of things? We don’t want to lose any business in the today’s tough market.

A: Over the years I have fielded questions about “C-36” contractors wanting to add the “C-16” classification for fire sprinklers. This issue has arisen recently due to the code adoption in 2009 by the California State Building Standards Commission that includes fire sprinkler requirements in all new one- and two-family homes and townhouses. The new requirement became effective January 1, 2011.
A few decades ago, plumbers could install fire sprinklers. When the law was later changed, there was a limited time period where plumbers were allowed to grandfather into qualifying for the “C-16”. Sorry, you have missed that ‘window’. Today, you’ll need to hire someone who has 4 or more years experience in the Fire Protection trade or currently holds a “C-16” license. Completion of an Application for Additional Classification will be required and I can help make it ‘quick’.

Sec. 7057, General Contractors & Self Performing Work

While not a lawyer, I am often asked to provide expert interpretation regarding contractor’s license law. With nearly 30 years assisting contractors in Sacramento this is often enough experience to settle a ‘bet’. These two contractor questions demonstrate why it’s important to know the answer before you play your ‘cards’…

Q: Dear Mr. Kalb: I am a member of the Santa Barbara Contractor’s Association and represent a number of General contractors. A friendly dispute has arisen over the interpretation of Business & Professions Code 7057. Half of the contractors believe that a GC may only self-perform (either by himself or with his crew) a maximum of 2 specialty trades on a project and the other half believe that a GC can self-perform all of the work under their license. The statute seems to be pretty vague as to whether or not a contractor can do all of the specialty trade work on a single project and there is no case law interpreting this specific issue that any lawyer I know can find.

Subsection (a) seems to say that a GC can do the whole of the project and Subsection (b) seems to say that if the GC does do more than 2 trades they need to be licensed for that additional specialty work. I believe that a GC can do all the trades (except fire sprinkler & well drilling). There is a cup of coffee riding on your interpretation of the statute. If you could let me know or publish the response it would be greatly appreciated.

A: I am happy to provide you with this interpretation of 7057 and break the 50/50 tie. The half that “believe that a GC can self-perform all of the work under their license” can collect that ‘cup of java’.

B&P 7057 states that a “B” contractor must perform “at least two unrelated building trades or crafts other than framing or carpentry”. In other words, two trades are the base, or minimum. There is nothing in the law that limits the “B” to self-performing as many trades as he or she wants (except, as you noted, “C-16” fire protection and “C-57” well drilling). Alternatively, as many GC’s know, they can take a General building contract and sub-contract 100% of the job as long as they use properly licensed sub-contractors for EACH trade or craft.

Granted, the law can appear to be contradictory. It does not allow a GC to handle carpentry or framing and ONLY one other trade; yet they can legally self-perform framing or carpentry ONLY even though this is only one trade. Confusing? Yes but this is what the law states. These seeming contradictions are also the reason why I regularly receive questions on Section 7057 so please tell the other half who thought 2 trades was the maximum that they are not alone.

I hope this resolves the dispute and the victors enjoy their ‘win’. If you have further questions, please contact me by phone or email.

Q: I am the Responsible Managing Officer (RMO) on an existing license (“A” and “B”) and have an offer to become the Responsible Managing Employee (RME) for a new contractor (“B” only). Can I split the licenses and stay on as the “A” only so I can be their new “B” qualifier?

A: Sorry, you would need to disassociate totally from the existing license in order to become the RME for the new company. It is not the number of classifications you hold that determines who can qualify a given contractor’s license. In other words, in your case you cannot split the license classifications.

However, like all rules exceptions exist, and there are several circumstances where an individual can be both the RME and RMO at the same time. Any reader in this situation should contact me personally to discuss your specific situation on a case-by-case basis.