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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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A sole proprietor contractor who uses wrong business name on contract is not barred from seeking payment under license laws
Posted by: Jonathan Bowne
June 21, 2011

As all contractors should know, Business and Professions Code section 7031 bars unlicensed contractors from seeking payment for work they have performed.  Cases interpreting this law are very strict, and courts have shown little mercy for even seemly small abnormalities in licensure.

For example, a contractor is not deemed licensed unless absolute unity exists between the party who holds the license and the party who enters into the construction contract at issue.  In one instance a court barred an unlicensed corporation from seeking payment even though its president and owner held a license in his own name, and manned the project regularly.  Opp v. St. Paul Fire & Marine Ins. , 154 Cal.App.4 th 71 (2007).  In this situation, the licensed president should have either contracted in his own name or had his license reissued to the corporation.  This would have created the requisite unity.         

Recently, a project owner sought to have that outcome extended to a sole proprietor contractor who accidently used a wrong business name on his contract.  The court refused to do so. 

 In David E. Ball v. Steadfast-BLK , Case No. C064357 (CA Dist. 3 Ct. App., Jun. 14, 2011) contractor David E. Ball, a sole proprietor, had a “sole owner” license in the name “Clark Heating and Air Conditioning”.  The CSLB allows sole owner contractors to put their individual license in the name of a “d.b.a.”.  He then contracted to perform work using the name “Clark Air Conditioning and Heating”, apparently accidently transposing the last four words.

Eventually Mr. Ball filed a collection lawsuit.  The project owner challenged the claim on the basis that Mr. Ball was unlicensed and therefore barred from seeking payment pursuant to Business and Professions Code section 7031.  The trial court agreed, and Mr. Ball appealed.

On appeal the owner pointed to the discrepancy between the names in the contract and on the license, asserting that “Clark Air Conditioning and Heating” (the name in the contract) could not rely on the “Clark Heating and Air Conditioning” license.  

The owner argued that this was akin to a corporation entering into a contract in reliance on its owner’s individual license, citing to the Opp case noted above.  They also cited code sections mandating that contractors shall not conduct business in more than one name, and must notify the CSLB if they change names.  The owner was implying that by using a different business name Mr. Ball was creating a new entity and therefore was obligated to transfer his license to that new name/entity.               

The court dismissed these arguments, and reversed the trial court’s decision, to the benefit of Mr. Ball.  The court recognized that a fictitious business name (or "d.b.a.") is not a separate legal entity apart from the individual holding the name, and that while the license was in the name of “Clark Heating and Air Conditioning”, it was in actuality held by Mr. Ball.  Accordingly, while the contract was entered into as “Clark Air Conditioning and Heating”, it was in actuality entered into by Mr. Ball.  Therefore, sufficient unity existed between the contracting party and the license holder.

 

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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