Updated Experience Certifications, Additional Verifications & Interagency Cooperation in Enforcement

New processes, additional paperwork, certifications and more changes in regulation and licensing were top of the agenda as I recently attended a CSLB Board meeting. As a spike in rejected license applications shows it pays to have help when making the decision to apply, especially if time is a critical issue…

For those currently applying for a contractor’s license or considering obtaining a license, the CSLB addressed a new procedure recently instituted by the licensing division that has been causing some questions and concerns.  In the past applicants applying for a new license provided a Certification of Work Experience page (which is included in the license application package) in order to verify their four years of trade experience.  California Code of Regulations (CCR) 824 requires the CSLB to conduct a formal field investigation of a minimum of 3 percent of all applications.  In the past investigations were conducted by the enforcement committee at the CSLB and this practice would normally delay the processing of the application by several months.

 

In order to prevent applications being delayed, the CSLB has begun requesting “Additional Experience Verification” within the licensing division.  It seems as if this Additional Experience Verification is requested more often than before, and most frequently from applicants applying for what the CSLB considers “critical classifications”, which include the “A” (General Engineering), “B” (General Building), “C-10”(Electrical), and “C-36” (Plumbing) classifications.  When additional verification is requested applicants are given a list of acceptable documentation that may be submitted in order to support the applicant’s claimed experience.  Acceptable documentation includes things such as W-2’s, pay stubs, permits, contracts, etc.  Coming up with this sort of documentation has proved to be very difficult for applicants who gained their experience “illegally,” and who possibly did work “under the table” without pulling permits or creating contracts.  Be aware though, if this additional documentation is not provided within the allotted time frame the application will become Void.

Another noteworthy topic at the CSLB’s meeting was further details on how the Enforcement Unit continues to crack down on unlicensed activity.  Many recent cases have resulted in jail sentences, felonies, and restitution payments for unlicensed contractors.

Additionally, the CSLB continues to seek out and partner with other State agencies to battle the underground economy.  Currently they are trying out a pilot program with the California Highway Patrol (CHP) in which, if you are pulled over on a traffic violation and show signs of being “out on the job” (such as a truck full of construction materials), the officer may ask you for proof of a contractor’s license.

It is also worth mentioning that he licensing division reported over half of all license applications have been rejected since April 2013!!  In the month of July alone, 61% of license applications were rejected.  In order to prevent application delays it is important that the application is filled out correctly and completely. Application assistance is one of the primary services we’ve provided for more than 30 years.  Keep in mind that Capitol Services is here to help, providing expert consultation and application assistance with the goal to get the application accepted the first time around!

Defining “Incidental & Supplemental”, Contracts & Qualifying Multiple Licenses

While the law in contractor’s regulation is black and white, how those words are interpreted has always been a ‘gray’ area where expert advice is often advised. Can a Sole Proprietor keep some parts of his license active while also qualifying someone else?  Maybe, maybe not as we all learn from his question…

Q:  I frequently read your articles and often times you refer to certain trades being “incidental and supplemental” to the classification that a contractor holds.  How does the CSLB define incidental and supplemental?  It seems that contractors could use these terms broadly to perform work out of the scope of their license.

 

A:  Board Rule 831 states “for purposes of Section 7059, work in other

classifications is ‘incidental and supplemental’ to the work for which a specialty contractor is licensed if that work is essential to accomplish the work in which the contractor is classified.  A specialty contractor may use subcontractors to complete the incidental and supplemental work, or he may use his own employees to do so.”

 

Q:  I have a CA Contractor’s License with 3 classifications: “C-8”(Concrete), “C-27” (Landscaping), and a “C-29” (Masonry).  It is now a Sole Proprietor license.  I want to be a Responsible Managing Employee (RME) for a new corporation but the company only needs the “C-27”.  I know that since I’m an RME I am going to have de-activate the “C-27” classification on my individual license, but is there a way to still keep the other two classifications active?

 

A:  There are limited circumstances in which a RME can qualify two active licenses at the same time however the situation you described doesn’t appear to fall under those circumstances.  There is no way to inactivate particular classifications on a license while keeping the others active.  That being said, you will be required to inactivate your Sole Owner license in order to act as an RME for a new corporation.

Q:  We have made some structural changes to our corporation that involves adding several Officers.  We have already updated the Secretary of State with the changes.  We plan to file the changes with the CSLB to update our license as well, but it is my understanding that each of the new Officers will be required to get fingerprinted, so the process of adding them to the license could take several weeks.  In the interim, are those individuals permitted to sign contracts?

A:  To the best of my knowledge, your company ultimately decides who has the authority to sign contracts.  I am not aware of any CSLB law or rule that regulates who can and cannot sign contracts on behalf of the company.   With that said, as long as your corporation approves of the new Officers signing contracts, have them sign away!

“C-33”, General Building Rule & Background Checks

As suggested at the end of this column, knowledge or knowing is power, especially when you keep it under your hat! From our ‘fencing’ lesson we ‘brush’ up on some “C-33” rules for a consumer and then ‘identify’ an issue for Arizona license applicants to consider before heading south…

Q:  I have a question that I think you’ll know off the top of your head.  A “C-13” license is a specialty license for fencing, but can a contractor that holds a “B” license classification contract to just build a fence?

A:  A contractor who holds the “B” General Building license cannot take a job (with the exception of framing and carpentry projects) that involves only one building trade.  “B” contractors are required to be performing at least two unrelated building trades on a project unless that contractor holds the appropriate specialty license.  While the contractor cannot do the work himself, he can take the contract to build the fence if he subcontracts out to a properly licensed “C-13” fencing contractor.

 

Q:  I need the inside of my house re-painted and I plan to hire a C33 painting contractor to do the work.  However, I also have some holes in the drywall that I was planning to have the painting contractor repair, but I am now being told that I need to hire a drywall contractor to do that work prior to the painter coming in.  That seems like a bit of a waste.  Is there a limit to what a painter can repair?

 

A:  Thank you for contacting Capitol Services.  While there is certainly a limit as to what a painting contractor can repair, he/she can repair holes in the drywall in order to prepare the wall for painting.  Generally the rule is that if the work is incidental and supplemental to the main trade being performed then it’s allowed.  If the main goal were painting the wall repairing the holes would be considered incidental/supplemental to completing the project properly.

 

Q:  We are currently applying for an Arizona Contractor License and one of the requirements is that all individuals listed on the license application complete a background check.  When one of our Officers went to complete the form as required, he noticed that by completing the form it authorizes access to bank and credit records and even college records.  This appears to be very intrusive and above what a standard background check would include.  Is this standard operating procedure for AZ?  Is there any way around it?

A:  Yes, the background check is the new standard for everyone listed on a contractor’s license application.  We have heard several complaints about this particular aspect of the background check.  We have contacted the Registrar Of Contractors (ROC) to inquire about this and they have indicated that they will not be accessing bank records or college records, and that the background check is strictly for them to review each individual’s potential criminal background.

There is no way around this requirement.  We are hoping that the ROC will get enough complaints from applicants to remove the authorization to check bank and college records, especially if they have no intention of accessing that information.

Bids without Active Licensing & CA License Requirements

Competition is often tight in construction bidding so knowing the rules and regulations is often crucial to keeping ahead of the curve in winning bids. Getting your license can also be complex or confusing, and the advice we share today may be helpful to many who also want to ‘experience’ what it’s like to have your own contractor’s license…

Q:  First, let me say thank you for your wonderful service, we read your column every week.

Now for my questions, a situation has come up where an out-of-state contractor is in the process of obtaining their CA contractor’s license (“almost finalized”) but they currently have a private commercial project out to bid (they are a Prime Contractor and will be hiring Subs).  They’ve stated that their CA license will be issued before construction starts.  The following was copied from the CSLB website:  “All businesses or individuals who construct or alter any building, highway, road, parking facility, railroad, excavation, or other structure in California must be licensed by the California Contractors State License Board (CSLB) if the total cost (labor and materials) of one or more contracts on the project is $500 or more. Contractors, including subcontractors, specialty contractors, and persons engaged in the business of home improvement (with the exception of joint ventures and projects involving federal funding) must be licensed before submitting bids.”

Does this mean that only in residential work you have to have a license to ‘submit a bid’ but in commercial building you can bid without one and just have to have it by the time you sign contracts?  Or maybe not even at contract signing, but only once you start actual work?

This would be valuable information for us to know and I’d like to caution this out-of-state contractor if warranted.  Your help is greatly appreciated.

A:  Thank you for contacting Capitol Services and also for following the weekly column.  The key to that statement that you found on the CSLB’s website is “Contractors, including subcontractors, specialty contractors, and persons engaged in the business of home improvement (with the exception of joint ventures and projects involving federal funding) must be licensed before submitting bids.”

All contractors regardless of whether it is residential or commercial work, with the exception mentioned above, are required to be licensed before submitting bids.

Further, B&P Code Section 7028 states that it’s a misdemeanor for a person to engage in the business or act in the capacity of a contractor within the State without having a license (with very few exceptions as mentioned above). Bidding on work as well as signing contracts is considered acting in the capacity of a contractor and therefore a license is needed.

 

Q:  I’ve been selling construction for 7 years now and recently I wanted to get my own contractor’s license. I was told by the school I went to that I need to have 4 years of practical experience doing the actual work and not only selling.  Is that true? And if it is, is there a way around it?

A: Whomever you spoke with at the school you attended was correct in that some practical experience is required in order to obtain your contractor’s license in California.  You are required to document at least four full years of experience at a journey level, or as a foreman, supervisor, or contractor in the trade that you are applying for.  At least one full year needs to be practical experience.  There is no way around this requirement.  The CSLB will consider education credit toward the four years of required work experience.  The amount of time they will credit you depends on your education level, your field of study and the specific trade you are applying for.

LLC Liability Insurance, Inactive RME/RMO & RMO on Multiple Licenses

I have heard that ‘timing is everything’ in humor, but it is no joke when deciding on making changes in your contractor’s licensing as our first question illustrates. Timing is again the issue in our second question, but the answer goes well beyond his immediate need. Anyone with, or hoping to obtain, an LLC license will find good news in new legislation signed by the Governor…

Q:  We currently have two licensed corporations that we will be selling the assets of.  The buyer will form two new corporations and obtain new license numbers, however one of the conditions of the sale is that the Responsible Managing Officer (RMO) stay on as his Qualifier for the first few years of business.  I was reading that an RMO can be on up three licenses at a time as long as there is some common ownership (which there is). Once the sale is final we will cancel the existing corporations’ licenses, so he will no longer be listed as the RMO on those two licenses.  I just wanted to be sure that there will be no issues with transferring him over to the two new corporations.  Thank you for your expert advice.

A:  You are correct that when the ownership requirement is met an RMO can be on up to three active licenses at a time, but if you read that regulation further it states that an RMO can be up on three active licenses at a time within a one-year period.  Your Qualifier is currently on two active licenses, so the CSLB would allow him to qualify one of the new entity’s licenses, but it’s unlikely that they will allow him to qualify both.  In order to qualify the “fourth” entity, he would need to wait one year from the time he is removed from the current corporation’s license.

 

Q:  I am the RMO on my brother’s corporation’s license.   He recently went to work for another company so he inactivated his corporate license.  Since he’s not using the license, I would like to remove myself from the license to be released of any potential liability but I don’t want his license to go suspended as a result.  I assume he will have 90 days to replace me once I disassociate?

 

A:  Actually, Inactive licenses are not required to have an RME/RMO.  Likewise, Inactive licenses are not required to have Bonds or Worker’s Compensation on record with the CSLB.  If and when your brother decides to activate the license in the future he will be required to list a new RMO/RME as well as comply with bond and insurance requirements.

LLC Licensing Note:  AB 1236 was signed by Governor Brown, which will authorize contractors licensed as LLC’s to obtain liability insurance from a surplus line insurer.  Current law requires that licensed LLC’s maintain a certain level of liability insurance, and it is to be written by an insurance company admitted to underwrite insurance in California.  Many times LLC contractors are unable to obtain a contractor’s license due to the fact that they cannot obtain the required liability insurance because such coverage is unavailable from any California admitted insurer.  Many contractors in California that operate as corporations use a surplus lines carrier for their liability insurance.  The new legislation will allow those corporations to apply for LLC status without changing insurance carriers.

This new legislation authorizing LLC’s to obtain the required liability insurance from a surplus line insurer will go in to effect on January 1, 2014.

License Transfers to LLC & Adding Classifications by Waiver

Contractors come in all sizes. Some work close to home while some contractors need licensing across the country. Several quality answers ‘qualify’ as expert assistance to contractors large and small. But first we begin with an important question on an LLC licensing…

Q: I have been approached by another company interested in purchasing 60% of my construction company to form a new Limited Liability Company (LLC).  I currently hold a license as a Sole Owner/ Proprietor.  Can my license be transferred to the new LLC if I will only have 40% ownership of the new company?

 

A: You can transfer your qualification to the new LLC license, however because you only own 40% you will not be able to transfer the license number.  The CSLB allows a Sole Owner to transfer their license number to an LLC only if the following conditions exist:

  • The Sole Ownership license is in good standing;
  • The LLC was formed by the same licensee as the Sole Ownership license;

AND

  • The licensee maintains ownership directly or indirectly of membership interests evidencing at least 51% of the voting power of the LLC.

This can be confusing, so call my office if any further clarification is needed.

 

Q:  We are a large company with licenses all over the country.  In several States we have listed more than one Qualifier per classification to try and avoid a situation where someone suddenly leaves and we have to scramble to replace them.  We are currently in the process of obtaining a California license and I have heard that CA does not allow for more than one Qualifying Party per classification.  Is that accurate?

A: Yes, that is accurate.  Often times large companies will have one (or several) of their employees obtain their own Inactive Sole Owner licenses as a sort of “back up” license.  That way if the company’s Qualifier leaves, in which case you would have 90 days to replace them, than one of the licensed employees can jump on the license right away without needing to go through testing and fingerprinting.

 

 Q:  Our Company currently has a “C-10” (Electrical) license however over the past several years we have strictly been doing low voltage work.  As I’m sure you’re aware, the “C-10” license requires that our employees obtain an Electrical Certification to perform any work.  If we wanted to obtain a separate “C-7” Low Voltage license to avoid the electrical certifications, would our Qualifying Individual need to take an exam, or would he be eligible for a waiver based on the fact that he passed the full electrical exam for our current license?

 

A: If your company is applying for a separate “C-7” license and your Qualifier has never held the license before then he will not qualify for a waiver of the trade exam.

Under certain circumstances, B&P Code section 7065.3 allows an individual to request a waiver of an exam when adding the classification to an existing license. To request this, you have to be able to show that the classification being added is closely related to the classification currently listed on the license.  Additionally, you will need to show that low voltage work has been a significant part of the work you have done with your “C-10”.  The CSLB will want to see that you have at least four years of experience within the last ten performing “C-7” work at a journeyman level or above.

Since your work is strictly low voltage, once you add that classification, you may want request to have the “C-10” classification removed from the license in order to avoid the need for electrical certifications for your employees.

 

JV Workmen’s Comp, Family License Transfers & NV Bid Limits

Understanding the complex web of paperwork that is required of contractor’s isn’t easy. But, like a ‘house of cards’ when one piece of paper is ‘pulled from the deck’ the whole structure can fall. Who will take over your contracting business when you decide to retire? If it’s family there’s a waiver for that…

 

Q:  Our license is currently suspended based on the fact that our Worker’s Compensation policy on file is expired.  We have submitted a new certificate but the CSLB has not put it on record yet.  We have several Joint Venture (JV) licenses that are also showing suspended based on no Worker’s Comp policy on file.  Do we need to submit a certificate separately for each of the Joint Ventures?

A:  The only time you need to submit a separate Worker’s Comp policy for a Joint Venture is if the JV has employees of it’s own. The JV licenses are showing suspended because they are tied to each of the entity’s licenses that make up the Joint Venture.  Therefore, when one of those entity’s licenses suspends, the JV license goes down as well.  Once the CSLB puts your new policy on record your company license and the Joint Venture licenses should become active again.

 

Q:  I have worked with my father for 16 years.  Is it still true that I can just take over his license when he is done working?  I would definitely want to retain the number. How does this all work?  Thank you in advance for your help.

 

A:  There are certain circumstances that allow you to “take over” your father’s license when he retires.

If he has a Sole Owner license, you would need to apply for a new license and request that your Dad’s license number be re-issued to you.   If your intention is to obtain this license without taking the exams, you can request to waive the exams based on the fact that you have been actively engaged in the business for five out of the last seven years.

If your father’s business were a corporation then you would apply to replace your father on the license as the qualifying individual.  Again, you can request to waive the exams if you can show/prove that you have been actively engaged in the business in a supervisory capacity for five out of the last seven years.

Keep in mind that you can request to waive the exams based on the facts above, but it’s not guaranteed that it will be approved.   Please call us if you have any further questions or if you’d like our assistance with this process.

 

Q:  You helped our company obtain a Nevada contractor’s license last year.  At the time it was a brand new company without any assets so we had to have our Officers indemnify the company in order to qualify for the license.  I can see where it states in the indemnification instructions that the indemnification is good until revoked in writing.  Does that mean that we can just revoke the indemnification without additional support?  Or will we be required to submit financials for the company?

A:  If you remove the indemnification you will be required to provide new financial documents to support your bid limit.  Nevada requires that financial information be kept on file at all times.

 

Expired License, Family Waivers & Qualifying Multiple Classifications

Is it possible to ‘go back’ to the future with a contractor’s license? As the ‘boomer’ generation reach retirement who will take over the companies they have built in their lifetime? With opportunity rising in the state and national economy contractors are getting back to the business of ‘assembling’ the elements they need to build…

Q:  About 10 years ago I applied for a new contractor’s license and assigned my Sole Owner license to the corporation.  I’ve decided to close the corporation and for the future want to know if I can get this back in my name?

A:  Based upon the information you provided, it appears you did NOT assign your Sole Owner license to the corporation.  Your personal license simply expired.  To get this license back, you’ll need to file an Application for Original license, pay the required fees and post a new contractor’s bond.  For your information, had you opted to actually re-assign your Sole Owner license to the company, the CSLB would NOT re-issue it and the number would be lost as soon as you dissolved the corporation. An important lesson for other contractors who may also encounter a similar situation sometime in the future.

 

 

Q:  I am getting on in years (over 70) and want to pass on my contracting company to my daughter.  She has been working with me for over 10 years and has a real interest in continuing the business.  We have looked at the CSLB web site but still have a few questions.  In particular, do you think the Board will grant her request for a waiver of the state exam?  I know she could pass the tests but if she is eligible for a waiver, we would like to try this first.  Thank you for your advice.

 

A:  State law allows for an exam waiver under certain circumstances.  Under B&P Section 7065.1(b), your daughter (as an immediate member of the family) could take over the family business and should be eligible for a waiver if your individual license has been active and in good standing for five of the past seven years and she has been actively engaged in your construction business “for five of the seven years immediately preceding the application for licensure.”

Your daughter must file an application for original license in the same classification you currently hold and should write a letter requesting an exam waiver.  Her experience must include some fieldwork and cannot just be “administrative” in nature (i.e. bookkeeping, office work, etc.).  If you, your daughter or any of our readers have any questions or would like more information on how best to apply for an exam waiver, please contact my office.

 

Q: I am assembling a company with three partners and it’s going to be a corporation. All of us have licenses.  One partner has an “A” (General Engineering), one has a “B” (General Building), and the other has a “C-10” (Electrical) classification. Can we all be on the license so that company has all three licenses? Or does one person needs to have all three licenses/classifications?

A:  You can each be on the license as the Responsible Managing Officer/Employee (RME/RMO) for the specific classification that you currently hold.  Keep in mind that if the partners each have less than 20% ownership in the corporation they cannot qualify for more than one license at a time.

 

Multiple Sole Owner Licensing, AZ Fingerprinting & HIC Contracts

We give a ‘hand’ to a contractor interested in getting a license in another state where fingerprints aren’t first on the list for ‘background’ checks. However I must ‘point out’ that it involves a definite window of opportunity. Another inquiry helps put the ‘contract’ into contracting…

Q:  Your Company helped me obtain my General contractor’s license in CA and NV.  I am now interested in obtaining an Arizona license.  Will I qualify for reciprocity?  Secondly, when I applied for my CA and NV licenses I was required to get fingerprinted. Does Arizona also require that I get fingerprinted?

A: It’s nice to hear from you again.  If your qualifying individual has been licensed for the previous five years in CA or NV and they took the equivalent general building trade exam in CA or NV then yes, that individual would qualify for reciprocity and be granted a waiver of the trade exam in Arizona.

In most cases, you are not required to get fingerprinted for the State of Arizona however they just started a new program where they require individuals listed on the license application to complete a Background Check.  The Background Check can be completed online, and a copy of the receipt you receive after completing the background check must be submitted along with your license application.  The license application and its receipt will not be accepted until four calendar days after the date of receipt and no more than 60 days thereafter.  Please let us know if you’d like our assistance with the process of obtaining your Arizona Contractor’s license.

Q:  Can an individual have two sole owner licenses?

A:  Yes.  There is nothing in the CA Contractor law that prevents an individual from holding two sole proprietor licenses.

 

Q: I came across your website and I wanted to say you have a lot of useful information for people in the construction industry and as a contractor in CA, AZ, and NV I thank you for the insight you provide. I have a question I was hoping you could answer for me directly. I’m about to get contracts made for my California license and I haven’t had any made in quite a while.  With changes in law all the time I’m not exactly sure what I am supposed to have on my contract to be completely legal. Is there anything you know about this? In regards to mechanic’s lien stuff am I supposed to add something on my contracts regarding a situation like that?

A:  If you intend on handling home improvement projects, the law is very specific regarding what must be included in a contract.  You can go to the CSLB website (www.cslb.ca.gov) and check out the publication entitled “Contracting For Success, A Contractor’s Guide to Home Improvement Contracts”.  This should give you all the information you may require.  However, last July, the CSLB website also posted all the new Mechanic’s lien notices.  These all took effect 7/1/ 2012 and I would suggest going to their website for a list of these forms.

Finally, I would further suggest contacting a construction attorney who specializes in Construction/Contract law to review your contract (whether home improvement or not) to determine if you have dotted all your ‘i’s’ and crossed all your ‘t’s’.  I hope this helps point you in the right direction.

RME/RMO, Adding Qualifiers & Transferring License Numbers

Becoming a Qualifier has certain ‘qualifications’ in whatever form is chosen. Understanding the differences between RME/RMO may take an expert and an example of what can go wrong. A licensed corporate construction company can be ‘removed’ to create a new firm, but they will discover some thing’s can’t be ‘transferred’…

Q: My Company’s Responsible Managing Employee (RME) has resigned and I have been asked to be the Responsible Managing Officer (RMO) for the corporation’s license. However, I have my own personal license that I need to keep active for small jobs that I do on the side.

I understand that I need to have at least 20% ownership in the company in order to keep both licenses active, which isn’t a problem.  My concern is that if something goes wrong on a job that my company contracts for and there is a complaint filed, is that going to affect my Sole Owner license?  And will I be held responsible for judgments/claims against the other license?

 

A:  While it depends on the circumstance, as the Responsible Managing Officer you do hold some liability for claims, judgments, and complaints against the license.  If the company license has an unsatisfied judgment that results in the suspension of the license while you are the RMO, it is likely that the CSLB will also suspend your Sole Owner license until the judgment has been satisfied.

 

In fact, to give you an example of a case where problems with a company license trickled down to an individual license, in a recent case the CEO of a corporation entered in to a contract with a homeowner, took a down payment, and then never did any of the work.  This of course resulted in the homeowner filing a complaint.  The RMO of the company claimed to know nothing about the project and further claimed that he wasn’t involved in the business operations.  The company was cited with several violations that resulted in the license being revoked. A separate order was signed which provided for the revocation to be stayed on the RMO’s individual license provided that he comply with all terms and conditions including a 2-year probation, $15,000 disciplinary bond, and restitution to be paid within 90 days in the amount of the down payment that the homeowner paid.

 

As always, we recommend that you contact a construction attorney to discuss the legal liabilities associated with acting as a Responsible Managing Officer.

 

Q:  We are going to close our current corporation down and start a new one.  Since the current corporation will no longer need the contractor’s license number, is it possible to transfer the number to the new corporation?

 

A: License numbers cannot be transferred from one corporation to another.  When a new entity is formed you are required to obtain a new contractors license number for that entity.

Q: We currently have a General “A” license and we have an employee with an inactive “B” license.  Can we add that employee as the “B” Qualifier on our license, or do we need to use the same Qualifier that currently holds the “A”?

 A:  You can add your employee as the “B” qualifier on your license and you are not required to use the same Qualifying individual who currently holds the “A” classification.  You can have a different Qualifier for each separate classification on your license.