RMO & Qualifiers, SWIFT Stings and the Underground Economy

The CA Contractor’s Board is making decisions that will have ramifications for all who ‘qualify’.  More than one Registrar is also ‘aiming’ high in defeating some low-down activity…


At it’s September meeting in Sacramento the CSLB took action on a number of issues, including setting up a Task Force to look at the duties and responsibilities of qualifying individuals.  The discussion centered around a perceived lack of “understanding by license applicants, licensees and the public on the minimum requirements of the individual qualifying on behalf of a firm (Responsible Managing Officer (RMO) or Qualifying Partner (QP)”.


The CSLB has determined that some “retiring” licensees are serving as an RMO on a corporate license for a monthly fee but have “no direct involvement in the construction and business activities”.  To address this problem, the Board has recommended that: 1) information be distributed clarifying the duties and responsibilities of the qualifying individual; 2) pursue legislation to amend B&P Code 7068.1(d) to provide for disciplinary action “when a licensee or qualifier fails to comply with the duties and responsibilities the qualifying individual certified he/she would perform”; and 3) “establish a task force to further identify the scope of the problem; investigate suspected individuals who attempt to qualify multiple licenses; and explore administrative and legislative remedies.”

We would also like to see the Task Force look at a fourth area to make clear that a Responsible Managing Officer is in compliance with the Board’s rules and regulations where, for instance, there are multiple ongoing projects some of which are overseen by his or her director of operations, project manager, superintendent, etc.


The task force may want to look at what we perceive as a disturbing trend where attorney’s go to court to challenge a contractor’s legitimate compliance with Code Section 7068.1 in order to make a case for using what might be described as ‘draconian’ penalties in B&P Code 7031 (the section of law that deals with recovering compensation and/or forcing a contractor to pay back all monies received on a contract if they’re determined to be “unlicensed”).

Also, according to a recent Press Release, for the second time in three months, the California Contractors Board (CSLB) and Arizona Registrar of Contractors (ROC) joined with several other state licensing boards, including Nevada, Utah, and Oregon in a sting of unlicensed contractors advertising on Craigslist.    The combined effort led to over 150 unlicensed contractor investigations.   In CA alone, 36 individuals were arrested and now face misdemeanor charges of contracting without a license, illegal advertising and/or requesting an excessive down payment.  According to the Board, “eight of the phony contractors were issued Stop Orders”.


Additionally, the participating Contracting Boards along with the National Association of State Contractors Licensing Agencies (NASCLA) again issued a nationwide consumer alert regarding irregularities on the Internet. According to CSLB Registrar Steve Sands, “While Craigslist serves as a valuable free tool for legitimately licensed and insured contractors, the number of illegal and deceptive ads is growing like wildfire”.

The Arizona sting led to 9 unlicensed contractor investigations. The ROC routinely refers unlicensed contracting cases to the Maricopa County Attorney’s office for prosecution.

Not only are these State agencies trying to protect consumers by deterring illegal construction activities, but they also aim to level the playing field for legitimate contractors in the industry.

NV Financial Requirements, HIC rules on Inducements, Incentives, Finder Fees, etc.

With more than 30 years assisting contractors you might think we have heard it all, but that’s not likely to happen. Our first question is a good example of why we never rest on our reputation but always look for changes in practice or interpretation of contractor’s regulation. Like France has a different word for everything, each state has it’s own rules for contracting…



Q:  I’ve recently read an article at your cutredtape.com website which stated in part:  “…According to the Board, the practice of paying “inducements” or what are often called, ‘finder’s fees’ is apparently prevalent in several industries…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…”


I was interested in finding out more about this as I have couple friends who are interested in having me help them find leads for construction.   They have licenses but I don’t know if the above applies, as I would only be handling the leads sort of like what a national Service company does.  Any information or direction that I can take to find out more would really be appreciated.


A:  We cannot tell you how this national “service” company handles referrals or “leads”; however, our guess is that their business model has been reviewed by the CSLB and deemed to be proper (i.e. not involving “inducements”).  That said, if you enter into a home improvement contract with a homeowner that involves kickbacks or inducements with other contractors, you might be subject to a fine. If you have not already done so, I would suggest checking out the CSLB web site link on this subject (http://www.cslb.ca.gov/Newsletter/2010-Fall/page3.htm).


You also want to be careful that you’re not operating as a “home improvement salesperson” for these contractors.  If “finding these leads” involves visiting a person’s home and or negotiating the work to be performed, this could trigger the HIS rules and require you to be registered with one or more of these licensed contractors.  If you have any further questions, I would suggest contacting the CSLB and asking them for a second opinion.  You’ll want to tell the Board exactly what you intend on doing to gather these leads and how you will be compensated for locating them. Good luck in your endeavor.


Q:  You helped me get my Nevada license about a year ago.  I’m not sure if you remember but I had some difficulty with the application process specifically because I was a new start-up company with little financial strength and as you know, Nevada has very strict financial requirements.  I was able to get the license with a minimal bid limit, but I have had a difficult first year financially.  My problem is that the Nevada Contractors Board sent me a request to review my financial information again even though I’m not up for renewal until next year.  Is this normal?  Will they pull my license if my financials aren’t as strong as they were a year ago when I originally applied?


A:  You are not alone in having difficulty with the financial requirement in Nevada, we hear from contractors every day in the same predicament!  Nevada requires that all residential contractors in which the qualifying party has been a qualifier for less than two years in Nevada provide financial information on an annual basis.  If your financial statement and bank forms do not support the bid limit you currently have, you have the option to lower your bid limit or possibly have a financial review hearing.  The financial review hearing officer will give you some other options such as indemnification, or he/she may even just accept your information as it stands.  Good luck!


Replacing Qualifiers, “B”, Asset Sales and Stock Transfers

Our first contractor is 99% sure he knows the answer. We’re here to give him the assurance he needs in providing our answer as we do 100% of the time! New business poses new problems for an aspiring California entrepreneur…



Q:  I think I know the answer to this question, but I thought I’d better check with the expert!  Contractor’s licenses in AZ, NV, and CA are not transferable, correct?  We are in the process of selling the assets of a business and I’m trying to determine if the licenses would transfer.  This is not a stock transaction where the license holder would be the same and just the owners would change.  We will retain the entity that holds the license (but essentially there would be no assets so it wouldn’t be operating) and the purchasers would be forming their own company to conduct business.  I’m assuming the new entities would have to file for their own licenses?  And as always, thank you for your help!


A: As always, thank you for your question!  You are correct, in an asset sale since a new entity is being formed, the new company would need to apply for a new contractor’s license and they would be issued a new license number in all those states.  Let us know if you’d like our assistance with that process in CA, NV or AZ.


Q: We are starting a new business in CA and we want to provide contracting services to homeowners such as HVAC, plumbing, pool and spa repair, handyman work, electrical, etc.  We won’t be self-performing any of the work, we are just acting as a “one-stop shop” for homeowners to call for their home improvement needs.  Will the General Building (“B”) classification be sufficient for our company, or will we be required to have an employee sit each “C” specialty classification?


A: As long as you won’t be self-performing the work, the General Building classification appears to be sufficient.  According to the Business and Professions Code 7057(b) “a general building contractor shall not take a prime contract for any project involving trades other than framing or carpentry unless the prime contract requires at least two unrelated building trades or crafts other than framing or carpentry, or unless the general building contractor holds the appropriate license classification or subcontracts with an appropriately licensed contractor to perform the work.


Q: I am an out-of-state contractor and we currently have a license in CA for our corporation but haven’t been getting much work lately.  Our qualifying individual has informed us that he is disassociating from the license and we have 90 days to replace him.  Can we just go without a Qualifier since we aren’t really using the license?


A:  You do in fact have 90 days to replace your Qualifier once he/she disassociates from your license. After the 90 days your license will be Suspended.  If your intent is not to use the license, we recommend you file  as Inactive.  In this way you don’t need to have a Qualifying individual, bond, or Worker’s Comp Insurance (as long as there are no employees).

CSLB Meeting Update, Fingerprinting & Continuing Education for Contractors

We polished a couple of seats at the latest Contractors State License Board Committee meeting on behalf of contractors out there getting the real work done. At the latest get together of decision-makers it was recommended that ‘retroactive’ fingerprinting be rubbed out; an hour added to the exam clock and the notion of ‘continuing education’ flunked! These and other important issues and a reminder that your chance to speak directly to the Board is coming up. We begin with a ‘good news/bad news’ statistic…


The number of license applications filed by contractors continues to decrease on a year-to-year basis.  There has roughly been a 40% decline in the number of applications received by the CSLB over the past 6 years. The decrease for total applications received for FY 2011-12 alone, as compared with 2010-11, is down 14%.


These and other topics were discussed at the Contractor Board’s Licensing Committee meeting in Sacramento on August 28th.  One benefit however, of the application decrease, is processing times.  On average, most applications are currently processed in 2 to 3 weeks from the day they’re received at CSLB headquarters.


One thing that hasn’t changed much over the past 30 years is the number of applications rejected due to errors in completing the forms.  It was reported that, on average, 45% of all applications (Original License, adding a class or replacing the Qualifier) are returned for corrections.  Just as trained professionals often complete state tax forms, successfully preparing contractor license applications may require input from an expert to reduce the chance of it being rejected. This is especially true when time is of the essence in obtaining your number.


Those who are required to sit for a test may be happy to learn that starting immediately, you’ll be given an extra hour to complete the exam process.  Applicants will now have 3 ½ hours to finish.  The Testing Division update also specified that the wait time for an exam is three weeks statewide and that “on any given day, walk-in applicants have an excellent chance of finding an available seat” in one of the 8 CSLB testing centers.


The Licensing Committee discussed several policy recommendations.  One involved “retroactive” fingerprinting while a second dealt with continuing education requirements for all existing contractors.  In both cases, after careful study and consideration, the Committee adopted the recommended staff position to NOT require either.


Legislation to require all contractors to be fingerprinted was introduced in 2009 but failed to pass. Since fingerprints were first required in 2005, approximately 40% of current licensees have been required to submit prints when applying for a new license or modifying an existing license (such as a change in qualifying individual or additional class).  This proposal would have required ALL existing licensees (even some who have been licensed for more than 50 years) to submit a set of fingerprints to the CSLB.  It was determined that for a host of reasons, it was very impractical to adopt this requirement.


Continuing Education (CE) requirements have been discussed off and on for decades.  It was determined that since there is “no identified problem with the construction industry that CE would address, and due to the significant cost impact of such a requirement on licensees and the Board, (the) CSLB cannot support a CE requirement”.


All the above items will be discussed and voted on by the FULL CSLB at their 1:30pm meeting in Sacramento on September 11th.  The meeting is open to the public and contractors are urged to attend.  Many other topics including potential legislation, and updates on various enforcement actions will also be discussed.  At the beginning of each CSLB meeting, members of the public may address the Board on any topic.