Joint Venture Licensing in CA, Replacing a RMO & “Leaseback” License Requirements

Real world problems can sometimes be easy to solve. At other times, the complex nature of the problem seems to require a ‘by the numbers’ approach if you expect to reach your goal successfully. A contractor looking at a new ‘venture’ shows everyone the route to ‘jointly’ profiting…

Q: I’m the president of our company and we’ve had a “C-39” (Roofing) License for four years. It will expire at the end of this month and my Responsible Managing Officer (RMO) is leaving the company. We don’t have another RMO. What will happen to the corporation?

A: Once the RMO disassociates, your company will have 90 days to replace him. Normally, during this time, the license would remain in good standing. However, you may have problems renewing the license until the new Qualifier is officially on board since the current RMO cannot sign the renewal application. Nevertheless, for a number of reasons I would suggest sending in the renewal prior to the end of the month.

Unless you have someone who already holds the “C-39” classification an Officer or supervising employee will need to sit for the exam. Upon passing the law and trade test, and meeting the Board’s other licensing requirements, this person would become the new Responsible Managing Officer or Employee (RMO/RME).

Q: Is it your understanding that an organization (likely an LLC) that contracts with a public entity for a lease-leaseback project needs to hold a contractors license?

A: Based on my understanding of a “lease-leaseback” arrangement with a public agency (such as a school district), the contractor would be required to hold a CA contractors license. By year’s end the rush will be on to obtain contractor licensing for Limited Liability Companies or LLC’s in California. If you are considering this licensing avenue, getting in ‘line’ now is advised as a high volume of applications is expected. Capitol Services is already getting requests to help with this completely new application for LLC licensing.

Q: I have asked you several questions previously regarding my current company and our pursuit in securing a contractors license. You and your staff have been very helpful and I thank you for all the assistance. A couple more questions have come up that I am hoping you can answer.

We are in preliminary talks with a couple firms for a Joint Venture (JV) arrangement on a pending project. One of the entities is not a licensed contractor. They are a manufacturer and equipment supplier but have done some contracting. My understanding is that all partners on a JV must be licensed contractors. Is that accurate even if one of the proposed team members would not be involved in the “construction” activities, but only manufacturing and equipment supply?

My second question with regard to the license — is there any issue with applying for a JV license too soon after we secure our corporate license?

A: 1) You’re correct; all entities must have an active CA contractor’s license in good standing. 2) If the manufacturer were only a material supplier, they would not independently require a license. If a company were both a supplier and “contractor” a license would be necessary. Regardless, since the JV will be handling the actual construction their inclusion or exclusion as the “material supplier” is up to you. 3) Once your license # is issued, you can apply for the JV license the next day. This application can be prepared ahead of time for your review and signatures and be ready to submit to the Contractors Board.

Finally, The Governor has lifted the CSLB hiring freeze so they can begin filling long-vacant positions in both Enforcement and Licensing Divisions. At a recent CSLB meeting the Board publicly thanked all those who may have played a part in securing this policy change. Good work.

LLC Contractor Licensing in CA & CSLB Contractor Definitions

There was a lot of news for California contractors coming from the latest CSLB meeting. New regulation may extend the definition of who is a ‘contractor’ and those waiting for LLC licensing now have a date certain to apply. We begin with a contractor’s question that ‘qualifies’ as unusual…

Q: I have a client who is the sole Officer of a company that is going out of business due to some problem projects. My client is NOT the Qualifier for the company; however, he has his own Class “B” license. The company may file for bankruptcy (BK) protection but my client wants to be able to start a new company using his own license. Is there any need for him to disassociate as an Officer of the current company?

A: The only reason would relate to his current licensing issues. If his present license ends up with a judgment or any disciplinary action, it could impact your client’s ability to secure a new license (until the problem is resolved). If his new license was already issued, and the present license was suspended, the new license could be threatened with an “associated License suspension”.

The BK would likely resolve this but it adds one more layer to the process. If your client is off the license prior to any judgment, he can likely avoid this “associated” problem. Of course, the CSLB still retains jurisdiction over the contractor and could pursue him regarding the ‘problem’ projects.

Q: I was surfing the Internet and came across your web site and many of your prior columns. It was funny being told when I called your office that you were out all afternoon “attending a Contractors Board meeting”. This was after I had been watching the CSLB meeting streaming live for about 20 minutes.

My call was prompted by the Board’s brief mention of proposed legislation to regulate or license construction managers. This item went by very quickly. What can you tell me about the Board’s reasoning and discussion?

A: This is one of several legislative proposals discussed by the CSLB on December 6th at their bi-monthly meeting. Code Section 7026.1 defines the term “contractor”. An Appellate Court decision in 2009 found that someone acting in the capacity of a construction manager is not required to be licensed as a contractor. Therefore, to address what the Board views as overruling their related 2008 ‘Precedent-setting Decision’ they’re proposing to add Section (f) which would expand the definition of a contractor by adding: “provides a bid for a residential construction project; arranges for and sets up work schedules for subcontractors and maintains oversight of the project”. This would relate to home improvement contracts.

A second legislative proposal will seek to amend 7026.1. According to the Board’s Staff report, “It has become commonplace for contractors – licensed and unlicensed –to attempt to circumvent Contractors License Law and Public Contract Code requirements by asserting they are not subject to licensure as contractors because they are ‘Renters of Operated Equipment’”. An example would be a business that provides tractors, backhoes, or graders with a full crew to operate the equipment.

The proposed language would expand the definition of a contractor to include “vendors of operated equipment that exercise direction and control of work covered by this chapter”.

While on the subject of the CSLB meeting, there is BREAKING NEWS regarding Limited Liability Company (LLC) licensing. The Board has announced that LLC applications should be available on December 27th, four days prior to the statutory deadline. As I expect a rush, anyone interested in more information or assistance with newly created LLC applications should call me now.

Nevada Contractor License Applications & CA Partnership Licensing

We don’t think too much about government bureaucracy until something goes wrong. That’s usually when the complaints begin. In technology, the rule is ‘garbage in, garbage out’, because computers only know what they are told. You can’t fault government workers who must work with what they are given. Finally, some potentially troubling news from Nevada for contractor’s looking to become licensed in that state…

Q: Due to a mix up a few years ago, our Partnership license shows me as the Qualifying partner. It was supposed to show my corporation as the Partner. I want to fix this problem by filing a new Partnership application. I called the State Board and they said I might not be able to since I am listed on other licenses. Do you think there will be any difficulties making this switch? If not, can you tell me why?

A: You bring up two important topics. The first relates to applying for a Partnership license; the second pertains to how many licenses you can Qualify during a one-year period.

I have talked to other contractors that have experienced the same “mix-up” you describe; however, I don’t believe it happens too often. When it does occur, it is usually due to a misunderstanding regarding what information the State is looking for- combined with a poorly constructed State application for some General or Limited partnerships. When applying for a Partnership license, completing the application can be confusing. For instance, if the “partners” are corporations or LLC’s, you must list these in addition to the Officers or members of each entity. How you list them and in what order is critical. My best guess is that when the Board processed your prior application they assumed you were the Qualifying partner rather than an Officer of the corporation.

Although you want to “switch” to the correct structure, you are going to encounter a problem. As we discussed, you presently qualify three licenses (including this Partnership). That means that even if you remove yourself from one of these licenses’ today, you’ll need to wait a full 12 months before the CSLB will allow you to act as a Qualifier on another license. Code Section 7068.1(d) states that a “qualifying individual may act as the qualifier for no more than three firms in any one year period. This “rule of three” often trips up legitimate contractors like you, although this was not its original intent.

The CSLB requested this rule about 20 years ago to deal with a few companies that were abusing the system. These companies were “hiring out” Qualifiers’ to get licenses, and sometimes used the same Responsible Managing Officer (RMO) on a dozen or more corporations over a short period of time.

Q: I’m looking to apply for a contractors’ license in Nevada. Do they have the same experience requirements as CA? I only got my license here a year ago, so I know I’ll need to take the test. I look forward to your answer.

A: Thank you for your correspondence. It’s nice to see that you used our new email Contact page at cutredtape.com.

As you know, CA requires 4 years full-time experience at a journeyman level or above. This experience must have been during the past 10 years. In NV, their web site also indicates “you must have at least four years of experience to qualify…at a journeyman level or as a foreman, supervising employee or contractor”. What is not evident is their requirement that this experience have been within the past ten years AND, as Capitol Services was just told by a Henderson, NV Contractors Board licensing analyst, obtained during a CONSECUTIVE four-year period. Since the Reno and Henderson offices have different processing standards, this “consecutive year” requirement may not be statewide. I’ll update you on this ‘new’ policy when we learn more.

Disassociating General Qualifiers, Civil Judgement & Suspension

Parting may be ‘sweet sorrow’ but it’s also more paperwork for contractors. Nothing ‘ventured’, nothing gained. As a license qualifier departs it can also open up new avenues of individual opportunity. Another contractor faces a dire situation, and last I want your feedback to share…

Q: I am in the process of leaving my company. What steps do I need to take to remove myself from their license as I was the Responsible Managing Employee (RME) for the A & B. Being that I took and passed the tests is it possible for me to carry my own license forward into my next venture or do I need to re-test? Please let me know how to go about this. Thank you

A: The first step would be to complete and file a Notice of Disassociation to remove yourself from your present license. Since the license belongs to the corporation not you as the RME, you can take these classifications anywhere you want; however, you may not take the license number. If “your next venture” is to operate as a Sole owner, you’ll need to apply for a new original license. If you intend on qualifying as a RME on another corporation, you’ll need to file two applications for additional classifications. Either way there is no need to re-test.

Q: I have enjoyed reading your Q&A in the ‘California Builder & Engineer’ for many years.

About 10 years ago I was forced to bankrupt my Engineering Company. I also had an unrelated contracting company. One of the listed creditors was a bank. About the same time as I was making this filing, a company purchased what they thought was a recoverable obligation. They either did not know or did not care if they were violating an automatic stay.

Nevertheless, they failed to file a demand under a list of creditors and proceeded to secure a judgment from a Court. I knew nothing about the court action and was not served notice of the hearing. This is by way of background.

I am upset at the actions of the Contractors Board since they will not issue my ‘pocket card’, even though my fees are paid, and I requested ‘inactive’ status. After the Contractors License Board had deposited my renewal check, they sent me a letter saying they could not issue my pocket license, which is required when contracting.

Section 7071.17 of the B & P Code regarding judgments states “construction related”. What does a credit card issued to Engineering Company have to do with my contractor’s license? Any suggestions on what to do?

A: Your license has been renewed Inactive until 2013 but is suspended due to “an outstanding civil judgment”. I do not know why the Board would hold back issuing a pocket card with an “inactive” license. Conversely, with an Inactive license the pocket card is not critical since you cannot do any contracting.

I would suggest providing the CSLB with a copy of your BK, which lists the applicable bank creditor? Often this is the only thing the Board looks for. I do not believe it matters that someone else purchased the asset; however, I would consult with a bankruptcy attorney to see if this is an issue.

If this doesn’t work you might try making the argument that “a credit card issued to an Engineering Company” is not “construction related” however, it’s up to the CSLB to determine what does and does not fall into this category.

CONTRACTOR ALERT: If you have called or emailed the Governor’s Office regarding the CSLB hiring freeze, please contact me with the response you have received. Hardest hit are the Board’s enforcement efforts against the underground economy and the “phone units” ability to respond to everyday calls from contractors and consumers.