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California Contractor License Law

California Appellate Court Holds That A Construction Manager on a Privately Owned Project Does Not Need a Contractor's License

By

William C. Last, Jr.

Attorney at Law

It has always been clear that California construction managers who contract with public agencies to provide construction management services must have a valid California Contractor's License. The issue of whether or not such a license is required for privately owned projects has not been as clear. In the case entitled The Fifth Day, LLC v. James Bolotin, et al. (March 2009), an appellate court has addressed that issue.

In this case The Fifth Day, LLC (CM) entered into an agreement with Industrial Real Estate Development Company (Owner) to provide certain "industrial real estate development and construction project management" services. The contract set out a lengthy list of the CM's duties and obligations relative to the contemplated project. Generally, the CM 's duties included coordinating the activities of various workers, maintaining records, keeping the Owner apprised of the project status respond to on-site issues as they arose, and to be owner's general agent. The CM was not responsible for nor did it have the authority to perform any construction work on the project or to enter into any contract or subcontract for the performance of such work. In keeping with those limitations, the Owner contracted with a licensed general contractor to perform and/or supervise all construction. The general contractor in turn contracted with subcontractors.

Eventually the CM sued the Owner, seeking compensation allegedly due for construction management services rendered on the project. In defense of these claims the Owner asserted that the CM was not entitled to receive any compensation because it did not have a California contractor's license, and was thus barred pursuant to Business and Professions Code ("B&P"), ??7031 (which bars unlicensed contractors from maintaining an action for payment). The trial court agreed with the Owner, but the appellate court reversed that decision and concluded that the CM was not required to have a contractor's license.

The appellate court reviewed the statutory definition of a contractor (B&P ??7026) and concluded that the services provided by the CM did not require it to have a contractor's license. The decision notes, "that the Legislature provided that construction managers on public works projects must be licensed architects, engineers or general contractors (Govt. Code section 4525)." The court went on to conclude that since the Legislature has not enacted a similar statute for privately owned projects the Legislature had determined that licensure of construction managers was not necessary for private projects.

A strongly worded dissent was rendered by a dissenting appellate court justice. The dissent reviewed the strong public policy in favor of requiring licensure. It also noted that "requiring licensing of construction managers who undertake to supervise the work of other licensed construction professionals is consistent with the purposes of the Contractors State License Law."

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Class A (General Engineering) licensed subcontractor deemed duly licensed even though the contract required C-12 license (Earthwork and Paving)
Posted by: Jonathan Bowne
November 03, 2011

Any contractor seeking to assert a claim for payment in a lawsuit or arbitration must show that it was "duly licensed" to perform its work. In Pacific Caisson & Shoring Inc. v. Bernards Brothers, Inc., 198 Cal.App. 681 (2011) (published August 19, 2011) the question was whether a subcontractor was "duly licensed" when it held only a Class A license (General Engineering) even though the contract documents required a C-12 license (Earthwork and Paving).

The case arose from a public works project to construct a medical center. The claimant subcontracted to perform temporary excavation and support work. The subcontractor also agreed to provide certain engineering calculations and design parameters. The prime contract documents (which were incorporated into the subcontract) provided that this work was to be performed by a C-12 (Earthwork and Paving) licensed contractor. The subcontractor did not have a C-12 license but it did have a Class A license (General Engineering).

Eventually the subcontractor filed a lawsuit to collect allegedly unpaid amounts due for its work. At trial the prime contractor sought to invalidate the claim on the basis that the subcontractor was not "duly licensed" because it did not hold the specified C-12 license. The trial court agreed, judgment was entered in favor of the prime contractor, and the subcontractor appealed.

On appeal, the subcontractor argued that the specified C-12 license was essentially a "lesser" license, and would have been superfluous on this project as it is fully encompassed within the Class A license requirements. The prime contractor none of that mattered because the C-12 license was explicitly specified in the contract documents.

The court of appeals agreed with the subcontractor and vacated the trial court's judgment. The court focused its analysis on the formal license classification descriptions for each license (see them here: Class A and C-12), and how they each qualified the subcontractor to perform the scope of work. The court essentially determined that the activities required in the subcontract fell beyond the purview of the C-12 license. The subcontract required specialized engineering knowledge and skill, along with the provision of calculations and temporary shoring work. The court concluded that these tasks were not the expertise of a C-12 contractor, but could be performed by a Class A contractor. Accordingly, the court held that the subcontractor was duly licensed notwithstanding its lack of the specified C-12 license.

The court also addressed the prime contractor's argument that the contract document requirement of a C-12 license should control the analysis. The court discarded this theory, noting that the laws allowing public entities to specify license classifications in contract documents were meant to facilitate the evaluation of bidder qualification not determine proper licensure in third-party payment claims.

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Conclusion

The Fifth Day case makes it clear that if a construction manager who is providing services to a private owned project limits its services to those set forth in the Fifth Day case and does not contract for or perform construction work, a contractor's license is not required. From this author's point of view, he would not be surprised if the Legislature amends the relevant statutes to require a construction manager to be licensed. Due to the strong public policy favoring contractor licensing, the author would also not be surprised if the California Supreme Court reviews the Fifth Day case