Senior Scam Stopper & Mechanics Lien Statements and Notification

When contractors must be on-the-job you can count on the Capitol Connection to keep you up on the latest meeting of the California Contractor’s State License Board. We learned a great deal of interest to contractors directly related to getting paid…

Over the years we’ve received many questions regarding the state’s Mechanics Lien laws.  As discussed at the Contractor Board’s recent meeting in Sacramento, a number of legal revisions took place on July 1, 2012, which mainly changed the wording and format of the Mechanics Lien notices. Because of these changes, the CSLB has updated release forms to reflect the new language and made them available on their website (www.cslb.ca.gov).

Contractors can use these documents to protect their lien rights on construction projects.   Among the forms included by the CSLB are: the Notice to Property Owner statement, required as part of the Preliminary Notice (formally known as the 20-day Preliminary Notice); Notice of Mechanics Lien; and the Conditional and Unconditional Release of Progress and Final Payments.

As most subcontractors and suppliers know, it is important to use the proper forms in order to protect your lien rights.  As a refresher, the CSLB has summarized some of the requirements including that The Preliminary Notice should be delivered to the homeowner in person or by certified, registered, or express mail, or overnight delivery, with a receipt of the mailing as proof.  “Notice can be given at any time before work starts or products are delivered, and up to 20 days after. If notice is given more than 20 days after work or delivery, your lien rights only apply to the work or products provided 20 days before the notice was given, and anytime thereafter.”

The Notice of Mechanics Lien must accompany the lien claim and be sent via certified, registered, or First Class mail (proof of mailing is required). As indicated in a CSLB Industry Bulletin, “Failure to send the properly worded Notice with the lien claim could result in the lien being unenforceable.”

If you have any specific questions regarding lien laws, it would be advisable to discuss this with your legal counsel.

Also highlighted at the recent CSLB meeting was the Senior Scam Stoppers program aimed at providing information about construction-related scams and how seniors can protect themselves when hiring a contractor.  The CSLB offers these seminars several times a month featuring expert speakers from many local, state, and federal agencies.

In line with the Senior Scam Stopper program, the CSLB has also launched the “Consumer Scam Stopper” program.  This new program provides valuable information to consumers of all ages and audiences to help them make informed choices related to construction and home improvement, and also provides information about current scams in the local region.

Check out the CSLB’s website or call Capitol Services for more information regarding the dates and locations of these upcoming seminars.

Expired Licenses and Qualifiers, Asset Sales, LLC’s & DBA’s

We assist contractors, industry officials and many attorneys that serve the construction world. These ‘lessons’ are best learned when someone else has the problem, before you become one.  Keeping your CA contractor’s license up-to-date is the first rule. It’s often ‘lock, stock and barrel’ when buying a business, but what about using the existing contractor’s license? As businesses take advantage of the new LLC opportunity in CA there is also a new learning curve…

 

Q:  My company would like to obtain a California contractor’s license, and we have an employee that we have brought on board that was previously licensed in CA to use as our Qualifying individual.  He thought his license was ‘Inactive’ but come to find out it’s actually ‘Expired.’  Does the fact that he previously had a Sole Owner license provide him the opportunity to serve as the Qualifying individual on a company license at any time in the future?  Or does an individual who lets their license expire find they are back at square one with the same status as someone who has never Qualified before?

 

A:  The fact that an individual has been licensed in CA does not provide them the opportunity to serve as a Qualifying individual (RME/RMO) at any time in the future; the status of that license is definitely important.  An individual who lets their license expire and goes for a period of more than five years without Qualifying a license does find themselves back at ‘square one’ with the application/testing process.  They would be required to show their work experience again and re-take the exams.  In order to prevent re-testing, the Qualifying individual would need to ensure that they keep their license on either Active or Inactive status.

 

Q:  Hello, I am an attorney and my client currently has a California license (for the purpose of this conversation we’ll call it ABC Inc).  If ABC Inc. purchases the assets of another existing licensee and wants to continue operating the existing licensee’s business, but under ABC Inc., could the license be amended to identify more than one dba name, or would they be required to obtain a separate license?

 

A:  In an asset sale you cannot continue to operate under the same license number that the company currently has.  When purchasing the assets of a licensed business, your client as the buyer will be transferring the assets to ABC Inc. and from that point can either obtain a new license for ABC Inc. with a dba name attached (which may be the current business name reflected on the seller’s license), or they can form a new entity, purchase the assets, and continue operating the business.

 

Q:  We currently have a General Building Contractors license in CA for our Limited Liability Company (LLC) but we also frequently do specialty-plumbing work.  We want to semi-separate this plumbing division so that we would be able to sign contracts for the plumbing work under a different license number.  Is it easier to obtain a new license for our existing LLC with a dba name attached to reflect plumbing operations, or is it easier to create an entirely new LLC and obtain a license for that new entity?

 

A:  Strictly from a licensing perspective, there are a few less steps that would be involved in obtaining the license for your existing LLC and then adding a dba.  Your second scenario of forming an entirely new LLC would require registering that entity with the CA Secretary of State and filing a Statement of Information.  You would also need to meet the Liability and Worker’s Comp insurance requirement in the name of the entity.  With either scenario, new bonds would be required.  Ultimately you should consult with your CPA or attorney when making this decision, as obviously the taxes/bookkeeping will affect your ultimate decision.

 

Absentee Qualifiers, Responsible Managing Member & Subcontractor Payment

How often have you heard something that later turned out to be untrue or way off base? You’d be surprised at how often we do, but for contractors getting it right is the only way to profit. That’s why our first contractor may be a little unhappy with the truth. We map out the directions on LLC operations and take a ‘prime’ cut at  subcontractor paydays…

 

Q:  I would like to get a contractor’s license but I lack the required 4 years of work experience.  My buddy told me that I could use a retired contractor or someone who isn’t currently using their license as Qualifier on my license.  Do you know how that works?

A:  You can hire an individual who has already gone through the CSLB application process to act as your Qualifying Individual, however be aware that this individual must exercise direct supervision and control of your construction activities.  Many times contractors are looking to act as your Responsible Managing Employee (RME) or Responsible Managing Officer (RMO) for a fee, but without the intention of taking part in the every day operations of the business.

In a recent newsletter, the CSLB warned contractors about the risk of using “absentee Qualifiers” and stated that they are aware of “retired” licensees who are serving as Qualifying Individuals for a monthly fee, but do not have direct involvement in the company’s construction activities.  The article stated that the “CSLB is aggressively and stringently taking enforcement actions against those involved in this trend, and is in the process of legislatively enhancing violations to make them a criminal offense.”

Q:  We are applying for a contractor’s license for our Limited Liability Company (LLC).  We currently have a license for our corporation so I am familiar with the terms RMO and RME.  However in addition to those titles, the LLC application also has “Responsible Managing Member” and “Responsible Managing Manager.”  What is the difference between the two?

A:  The difference between a member and manager is that members have ownership/equity in the LLC, similar to a shareholder of a corporation, and Managers are individuals who don’t necessarily have ownership, but are chosen to manage the everyday operations of the business, similar to Officers or Directors of a corporation.  Whether your LLC is member-managed or manager-managed is usually outlined in your LLC operating agreement.  I am not a legal advisor, so you may also want to consult with an attorney when making these decisions.

 

Q: Can you please tell me what the current law is with regards to contractors withholding money from subcontractors on public and private jobs for current contracts?

A:  I believe what you are referring to is B&P Code Section 7108.5, requiring a prime contractor to pay their subcontractors no later than 7 days after receipt of each progress payment, unless otherwise agreed to in writing.  In the event that there is a good faith dispute over all or any portion of the amount due on a progress payment, the prime contractor may withhold no more than 150 percent of the disputed amount.  According to the statute, any violation of this can constitute a cause for disciplinary action and can also subject the licensee to a penalty payable to the subcontractor, of 2% of the amount due per month for every month that payment is not made.  Further, with any action to collect funds that are wrongfully withheld, “the prevailing party shall be entitled to his or her attorney’s fees and costs.”

Replacing a Qualifier, Qualifiers & JV Licenses, NV General and Lead Paint Alert

When your business is ‘married’ to a Qualifier for your contractor’s license, can you ‘divorce’ them and keep the license if trouble develops? When you replace a Qualifier is your Joint Venture license still legit? A contractor’s plan may go ‘down the drain’ if he can’t get the right answer in Nevada…

 

Q:  I have a question regarding our electrical license.  We obtained the license by hiring a Responsible Managing Officer (RMO) who already had the electric classification.  I would like to know how we could separate ourselves from the RMO.  Are we able to apply independently after a certain number of years?

 

A: You can replace your RMO at any time with an employee or Officer of your company that can show at least four years of electrical experience, and pass the law and trade exams.   In certain circumstances, an Officer who has been listed on the license for at least five years can apply to replace the RMO and request a Waiver of the exams.   In order to qualify for the Waiver, the Officer would need to show that they have been continually employed by the company in a supervisory capacity in the same classification being applied for.

 

Q:  We used your company to help us obtain our company license and also several Joint Venture licenses.  We recently replaced our former Qualifying individual on our company license with a new one.  Is there anything we need to do with regards to the Joint Venture (JV) licenses?

 

A:  Thank you for contacting us again.  When you replace your Qualifying individual there is nothing that you need to do to update your JV licenses.  A Joint Venture license is made up of two or more entities, and as long as each entity’s license remains active and in good standing, the Joint Venture licenses will also remain active and in good standing (assuming you continue to renew the JV licenses of course!)

 

Q: My Company currently has a General Building license in Nevada.  We have been asked to do a large plumbing job.  I am aware that we cannot self-perform the work without the specialty plumbing license, so do we need to have one of our employees take the exam to obtain that license for the company, or can we sub-contract the job out to a licensed “C-1d” plumber?

 

A: In Nevada, according to NRS 624.215, unless your company holds the appropriate specialty license, a General Building contractor may only contract to perform specialty contracting if he or she is a prime contractor on a project upon which the construction or remodeling of a structure or building is the primary purpose. A General Building contractor shall not perform specialty contracting in plumbing, electrical, refrigeration and air-conditioning or fire protection without a license for the specialty.  Therefore, if you wanted to take on this job your company would need to obtain the “C-1d” classification.

 

Contractor Alert: Please be aware that the Environmental Protection Agency (EPA) recently sent out information to contractors about the Renovate, Repair, and Painting (RRP) rule, which has to do with safe workmanship standards when working around lead-based paint.  The campaign is aimed at a range of contractors from plumbers and painters to home improvement/remodeling contractors.  You can find more information about the RRP Rule by going to http://epa.gov/lead/rrp/index.html.

‘Loaning’ Your License, B&P 7031 & Fire Protection

A California contractor has a ‘scary’ offer that unlike those made by the ‘Godfather’ he can refuse.  We often assist attorneys and industry execs with research and explanation of how contractor’s regulations work. This time the lesson is one everyone can benefit from learning, before it costs you dearly…

 

Q:  I have been approached by an out-of-state company wanting to use my CA contractor license number.  What they proposed is the following: they want me to add their company name as a ‘doing business as’ or dba on my license.  They then want to use my license to contract work.  I would be performing the work, and they offered to pay me an hourly wage plus an extra monthly fee for the use of my license number.  The company has other employees that will be on site besides me, and the company has Worker’s Comp and a business license.  But can this be done or does this sound as bad as it looks?  I know I can set up as a Responsible Managing Employee (RME) or Responsible Managing Officer (RMO) and do this but I have never heard of this dba approach before.  So is this legal but scary or just plain illegal??

 

A: Thank you for contacting us.  You are correct in thinking that the method they proposed is not the correct way to go about the process.  Another entity cannot simply add their name to your license as a dba and then be allowed to use the license.  A license is issued to a particular entity, whether a sole proprietor, partnership, corporation, or LLC, and only that entity can contract with the number.  The company who approached you can utilize you as the RME or RMO as you suggested, but they would need to apply for a new license and get a new license number issued for their company.

 

Q: I am an attorney and I regularly read your column.  I have a client whose workers compensation policy is currently expired and therefore their contractor’s license is suspended.  I’m trying to stress to them the urgency of this and I remember reading one time in your column awhile back about contractors who are not properly licensed not being able to collect money for the entire project, even if their license is only suspended for part of the project.  Can you refresh me on this?

 

A: You are referring to B&P Code 7031, which states that one cannot collect for work for which a contractor’s license is required unless that person is duly licensed at all times during the performance of that act or contract.  Further, if the project owner brings the action to court, they can recover all compensation paid to the unlicensed contractor during the entire course of the project, even if the license was invalid for only one day!

 

Q: My company currently has a General Building license and we’d like to add the “C-16” Fire Protection classification to the license.  Can our Qualifier request to waive the trade exam since he has held the “B” license for over 10 years?

 

A:  In certain circumstances the CSLB will consider granting a waiver of particular trade exams if they are closely related to the current classification on your license, however the “C-16” Fire Protection is not a classification that the CSLB considers closely related to General Building.  Your Qualifier will need to show at least four years of experience doing that type of work and sit for the trade exam in order to add that classification.