Law Offices of Graden R. Tapley

What is the time limit for filing a complaint? 

A consumer complaint against a contractor generally must be filed in writing with the Contractor’s State License Board within four years after the act.  The CSLB website has a complaint form.   The California Attorney General (or assistant) can also file a complaint.  This generally comes in the form of an “accusation.”  An accusation must be filed within four years of the complained of act, or within eighteen months of the filing of a consumer complaint.  Thus, (with certain exceptions) the statute of limitations for filing an accusation recommending disciplinary action is four years and eighteen months.  (B&PC §7091)

 There is a longer statute of limitations for complaints of latent defective structural work.  An allegation that the contractor willfully departed from accepted trade standards with respect to a latent structrual defects may be filed up to ten years after the act.  A latent defect is one that is not apparent by a reasonable inspection.  The attorney general has eighteen months after a complaint is filed to make an accusation for the same. 

 What Does A “Willful Departure From Accepted Trade Standards” Mean?

The term “willful” might make you think of something more than a mere mistake that falls below the standard of care.  It might make you think the attorney general has to prove the contractor knew the right way to do it, but did it another way instead.  Instead, willful simply means the contractor intended to do what he did- even if he did not know it was not appropriate. 

 For example, in the 1979 case of Mikelson Concrete Co. versus the Contractors’ State License Board the attorney general filed an accusation against the contractor, Mikelson, for work alleged to be below “accepted standards for good and workmanlike construction.”  There was a hearing before an administrative law judge which resulted in an order of discipline against Mikelson.  He appealed the decision to his local county superior court.  Superior courts, which are normally trial courts, will make an independent review of the evidence at an administrative hearing and decide whether there was enough evidence to support the order.  The superior court does not retry the case.  In Mikelson’s case the superior court agreed with the administrative law judge so he appealed to the court of appeals.  That is as high as you can go, unless there is some interesting area of unsettled law involved in the case.  The supreme court does not normally hear administrative law appeals. 

 Mikelson had done a “pour-over” on top of an existing concrete slab.  The existing slab had just been poured by another contractor but was cracking and pooling.  The owner, who used a wheelchair, could not get to her car it was so bad.  The pour-over was not appropriate because the existing slab had been poured over ground that was not properly graded, was poured without expansion joints, and was poured in two layers that hadn’t bonded to each other.  Mikelson should have demolished the existing slab and started over. 

 The important part of Mikelson’s case is that the appeals court did not find Mikelson had known he was doing the wrong thing.  There was no finding of “willfulness” in the sense that he knew a pour-over was not an acceptable fix.  The court simply said that the work was below the standard of care because Mikelson should have known the pour-over would not work.  Here are the court’s words:

 “Mickelson’s representation that he could repair the first slab with a pour over, his inadequate preparation of the bottom slab to accept a pour over, his failure to use expansion joints in either the first or the second slabs, and his failure to adequately grade for the first slab indicates a purposeful departure from accepted trade standards which may be properly characterized as “willful.”

 The court of appeals cited the California Penal Code in support of its decision.  Section 7 defines willful as merely implying a willingness to commit the act.  It does not require any intent to knowingly violate the law, building code, or perform work below industry standards.  It could have been just that Mikelson was not very smart or experienced and did not know his pour-over would just make the problem worse.  That would not matter as long as he intended to do a pour-over and a pour over was not an acceptable solution as determined by the experts in the trade.   

 A Contractor’s Work Must Conform to Accepted Trade Standards

The lesson to learn from this is that a contractor is held to an accepted standard for good and workmanlike construction.  If the contractor falls below this standard he may be subject to a disciplinary action.  It does not matter that the contractor thought he was doing the best job possible. 

 Exception for Work Conforming to Plans and Specifications

As always, there are exceptions to every rule.  For example, if the contractor was merely following plans prepared by a licensed architect, and the plans call for a construction design that is below accepted trade standards the contractor may not be at fault for following those plans.  However, I think an argument could be made that if the plans were clearly in error and unacceptable, the contractor should not have followed the plans anyway but should have checked with the architect.  

The foregoing article is a generalization.  There are exceptions and details that apply to each situation and these laws must be analyzed in context with a larger legislative scheme that is beyond the scope of this article .   Also keep in mind that the law is constantly changing.  The laws and precedents cited by this article may change after I posted it.  To be sure of your rights and responsibilities you need to consult with an attorney in person.   If you think you have grounds for filing a complaint against a contractor you should seek the advice of a construction attorney or immediately file a compalint.  Do not wait.  If you are a contractor against whom a complaint or an accusation has been filed you should immediately seek the advice of an attorney.  Do not wait.   In either event you could lose rights by failing to promptly and properly take legal action.  

Attorney Graden Tapley represents contractors and property owners throughout Sonoma County, including Santa Rosa, Cotati, Healdsburg, Petaluma, Rohnert Park, Santa Rosa, and Windsor

At some time or another almost every contractor ends up with unpaid work. A decision must be made on how to handle each unpaid receivable. Sometimes, instead of making this decision based on the circumstances of the particular unpaid job contractors will decide whether to collect based on how their business is doing on other jobs. If business is generally good and other jobs are paying then a loss will simply be “written off.” If business is slow then a contractor may try to collect even if it doesn’t make good business sense.

How to analyze a collections decision.   The decision on whether to collect from a property owner should be based in terms of the following basic business principle: Is the collection investment likely to bring a return that is better than if the investment was spent elsewhere? In effect, how much investment is required and what is the likely gain? In deciding whether collection is a good investment the following five factors should be considered: (1) The total amount being claimed, (2) whether this amount is disputed, (3) whether attorney fees spent can be added to this amount, (4) whether there is strong supporting evidence, and (5) whether the mechanics’ lien procedures were correctly followed.

What is the total amount claimed? It seems like common sense that the larger the amount being claimed the more that stands to be gained. But, a large claim does not always mean collection will be a worthy investment. Large claims often mean the owner will be willing to spend more money to challenge it.
It might seem sometimes like owners know that a small claim is not worth pursuing for the contractor. If the amount that is unpaid is less than $5,000 the contractor can gamble on Small Claims Court but this requires time in preparation and the appearance. This investment cannot be recovered. The claim can be filed in Superior Court but there is a filing cost of $200 and usually the cost of an attorney. The Superior Court does not have to award attorney fees to the prevailing party even if the contract requires it if the claim could have been brought in Small Claims Court. A well tailored arbitration agreement (in addition to the mandatory arbitration language) requiring that actual attorney fees incurred be awarded might be the best scenario for a worthy small claim.

Can attorney fees be added? A signed contract with language to the effect that if there is a dispute the prevailing party can get his attorney fees reimbursed by the loser is enforceable for amounts over $5,000. The actual amount awarded is up to the Court. A collecting contractor is the prevailing party if he recovers any money at all. (Unless there is a cross-claim and the owner recovers a greater amount on this.)
If the owner and contractor reach an agreement before trial or arbitration there won’t be a prevailing party determined. Even so, an attorney fees clause can be beneficial because it provides a good bargaining chip for a claim that is strong otherwise. An owner will not want to pay for the contractor’s attorney fees and will be more likely to settle favorably if it thinks it will lose the claim.

Is the amount disputed? Will the amount that the owner is being asked to pay be disputed? If the only reason that an owner has not paid is because of poor financial management the claim may be uncontested. If the owner has complaints about the work or that the price was more than agreed then more time will have to be spent proving the claim. The more time that must be spent proving that the contractor correctly did the job for the price agreed the worse the choice to collect looks.

Is there good supporting documentation? The strength of the supporting evidence is the heart of a claim for payment. A contractor must be able to show there was an agreement for work that was fully and correctly performed for the agreed price.
The more documentation that is available the better. A detailed written contract is ideal for starters. But, even payment for work that was done without a written contract can be collected and should not be just written off.
Other evidence that is helpful includes saved letters, photos, daily logs, schedules, and other business records. What cannot be shown directly might be able to be shown using circumstantial evidence such as past business relationship and generally accepted trade standards. The bottom line is the more difficult a case is to prove the bigger the investment a contractor will have to make in order to collect. If parts of a claim don’t have good supporting evidence a contractor can expect that a settlement or judgment will not be as favorable.

Can a judgment be collected? A big factor in deciding whether to enforce payment for work depends on whether the contractor can actually collect on a judgment. The judgment is just worthless paper if the owner has no money, attachable income, or assets that can be sold.
The best way to force an owner to pay a judgment is a mechanics’ lien. A mechanics’ lien benefits a contractor who has improved an owner’s property because it allows the contractor to bypass the debtor-protection laws. Debtor-protection laws prevent a contractor from selling a debtor’s home even with a court judgment unless the debtor has a certain amount of equity in the home. A mechanics’ lien is a constitutional exception to these protections and attaches to the property as security in line with any mortgages the owner might have. The lien can be foreclosed and the property sold to pay the debt, even if all of the debt will not be paid for by the sale. Owners will rarely allow this to happen and will pay the debt first.
Because a mechanics’ lien is such a powerful tool the law requires contractors to strictly follow the procedural rules. These rules include serving preliminary notices, providing mechanics’ lien notices, recording liens at the county recorder’s office before deadlines have passed, and filing foreclosure actions within ninety days from the recording date.

Conclusion. Every unpaid invoice should be analyzed with these considerations in mind. If the contractor has kept a job file with good records and has followed the mechanics’ lien procedures collection can be a very good investment because the amount of investment and risk will be small and the likely return large. If a particular payment claim seems like a poor investment then perhaps a contractor should consider improvements to his contracting procedures. If nothing else good contracting procedures mean less unpaid work in the first place.

These are just some considerations.  A full analysis requires a consultation with an attorney.  Other considerations might include whether the owner will file bankruptcy, how the bankruptcy would affect a mechanics’ lien, and whether the owner is going to lose the property in a foreclosure.

Mechanics’ Liens are one of the basics components of construction law. A mechanics’ lien is a tool that a workman or materialman providing improvements to property uses to enforce payment.  If an owner of real estate does not pay for the improvements and materials received a mechanics’ lien can be recorded against the property and then foreclosed on to pay the debt.

A Mechanics’ Lien Is Not Proof Of The Debt 
A  mechanics’ lien is not used to prove that the debt is owed. This is a common misconception among contractors.  Before a lien claimant can foreclose on real estate using the mechanics’ lien it must first be proven that the debt is owed. This is done in court. The contractor must prove that the owner has a legal obligation to pay on an agreement and exactly how much is owed.  It might even be enough to show that the owner had knowledge of the improvements and did nothing to stop them even if there was no agreement.

The owner has a right to argue that the work was not done properly and the debt, if any, is subject to a set-off.  Often times filling a lawsuit for payment results in a cross-complaint for construction defects.  The court might even find there is defective work that will cost more to repair than the amount of payment being claimed.  The risks of filing a lawsuit are specific to each case. 

A Mechanics’ Lien Becomes Invalid 
A mechanics’ lien does not last forever. A contractor cannot just leave it recorded on title until the owner wants to sell the real estate or refinance.  The lien is good for 90 days from the time it is recorded.  Within this time the claimant must file an action for foreclosure in the proper court. After the 90 days the lien is considered “stale” and can no longer be used. The claimant must then provide a notarized mechanics’ lien release to the owner for recording.  If the claimant does not release the mechanics lien the owner can file for a quick hearing with a court to have it removed.  The claimant could end up being responsible for the owner’s attorney fees.

Deadlines on Filing a Mechanics’ Lien 
The rules on when a workman or materialman can file a mechanics’ lien are technical. The deadline is different for prime contractors than it is for subcontractors and materialmen.  It can be made significantly shorter if the owner records a “notice of completion” or a “notice of cessation” of work. There is a different deadline for jobs where the work stopped but was not finished.  Some lien claimants must provide to the owner a “20-Day Preliminary Notice” as a prerequisite to recording a lien. If the Preliminary Notice was never provided then lien rights are waived.  Consult with an attorney to see if rights exist in your case.

Don’t Waive Your Rights To A Mechanics Lien 
If you are a worker or materialman who believes that you are entitled to payment from owners you should record a timely mechanics’ lien and then file an action with the proper court before the lien becomes stale. Your right to the payment is not affected by failing to record a mechanics’ lien, but your ability to enforce that payment is compromised without one.

As you can see from the above analysis a person’s right to a mechanics’ lien requires a certain amount of consideration of the facts of each job and the relationships of the parties.  Unless you are up to speed on the rules you should contact an attorney to make sure your rights are not lost accidentally.

For free mechanics’ lien forms click here.  Each form is fillable on your computer.  You can save these forms on your computer after you have filled them out if you have Adobe Acrobat. 

From Sebastopol, the Law Offices of Graden Tapley represents clients throughout Sonoma County, California, including Santa Rosa, Cotati, Healdsburg, Petaluma, Rohnert Park, Santa Rosa, Windsor and neighboring communities.

A Mechanics’ Lien is Security for Work and Materials Provided

A contractor’s remedy for nonpayment is usually to sue the other contracting party for breach of contract or to foreclose a mechanics’ lien recorded against the property.  Without a mechanics’ lien the party seeking payment is limited to a money judgment with no security to enforce payment.   A lawsuit may be by the contractor against the owner or a subcontractor against the general contractor.   A mechanics’ lien claim is always against the person who owns the property subject to the lien.

A mechanics’ lien recorded against property is a cloud against the title.  Title companies will not issue title insurance unless any mechanics’ liens on title are cleared up.   Or they will issue insurance “except for” the mechanics’ lien.  When this happens the lender will not lend.  This is because anyone that buys a property with a mechanics lien recorded against it takes the property subject to the lien and the possibility that the lien will be foreclosed.   A loan that is recorded against property after a mechanics’ lien could be “wiped off” of the title if the mechanics’ lien is foreclosed.  This is a risk no lender will make.

Priority of Loans and Liens is Critical

An important concept to understand when using a mechanics lien to foreclose on property is that earlier liens (senior liens), mortgages, or deeds of trust are superior to ones recorded later.  If a senior lien forecloses the buyer at the foreclosure auction takes the property free of any junior liens.  All junior liens are wiped off of the title and the creditors they represent lose their with the exception of property tax liens and assessments, which stay on title.

A mechanics’ lien that is timely recorded is considered to date back to the commencement of work for the purposes of establishing lien priority.  That means if a lien is recorded on the last day of the job  (if allowed)  it will have priority to all liens recorded after the day work first started on the site.  However, the construction loan will usually have a lien (deed of trust) recorded against the property before construction began.  The loan that was used to buy the property will usually also be recorded before work began.  Thus, if either of these loans goes into default and forecloses a contractor’s mechanics lien will be worthless.  The buyer of the property at a foreclosure sale will take title without the lien.

In a Falling Market There is a Risk of Default on a Mortgage Senior to a Mechanics’ Lien

In today’s market there is a significant risk that a lender will foreclose on the project property either during the project or before the workers and suppliers are all paid.  This is especially true on subdivisions and large projects.  Large projects are so long in the making that the loans backing them were based on appraisals that are no longer valid.  A project based on an old appraisal may not be worth the price  of the land, the construction, and the financing combined.    The developer is likely to make a business decision to just let the project go into default instead of continue to service a loan that is more than he can sell the property for.  This is especially true if the whole project was done in the name of an “LLC” or corporation that has no assets of its own and is ripe for abandoning.

How Can a Contractor Protect Himself from Foreclosure?

What can a contractor due to protect himself?  One thing that can be done is to stay informed.  Before starting a job a contractor (including subcontractors and materialmen offering work and materials on credit) can record a “Notice of Request of Default.”  This Notice requires lenders to mail a notice to the contractor that a loan which will be senior to a mechanics’ lien is in default.  California Civil Code section 2924b specifically provides this right and provides the information that must be included in the Notice of Request.  If the contractor gets such a notice of default then the contractor can then decide whether he should stop work or not.  He might even put something in his contract that allows him to stop work if such an event occurs.

What Happens After the Owner Defaults?

If a contractor continues working after the owner has defaulted on a loan that was obtained before the commencement of work it is possible that the property will be sold at a foreclosure sale.  Any recorded mechanics’ lien will be “wiped off” the title.  When this happens the contractor has no security for the work he has provided.  Civil Code section 3264 prohibits any action against the lender except where there is a contractual relationship.  Since the contractor usually has no contract directly with the lender he cannot usually collect from the lender, even if there are still funds available in the loan.  The contractor is limited to a breach of contract lawsuit against the owner or the general contractor.  If the owner or general contractor has no money to pay then collection will be impossible and a lawsuit is a waste of money.

Investigate Whether the Lender Funded Optional Draws.

To try and avoid losing a mechanics’ lien in the event of a default by the owner on a mortgage one thing the contractor can do is investigate whether the lender gave draws on the construction project that were not required under the loan documents (like change orders that went beyond the original loan amount, or where the borrower defaulted and the lender had the option to cancel the loan).  Any payments made after default are deemed to be later in time than the mechanics lien.  Thus, a foreclosure would not wipe out the mechanics’ lien.  Usually it is the lender that buys the property at a  foreclosure sale.  If so the contractor can assert rights against the lender by alleging facts that show the mechanics’ lien was not wiped out.  The contractor could then move to foreclose on the banks’ title to the property.

Conclusion

It is important to understand the importance of priority of loans and liens against a property when deciding to advance your work and materials before getting paid.  If there are already loans (mortgages) against a property when you sign a construction contract there is a risk that the owner will default and your security for being paid (the mechanics’ lien) will be wiped out.  Proper precaution before signing onto a job can save your shirt somewhere down the line.  This article summarized general points.  There are other strategies that can be used to protect a contractor from losing his shirt on a project.

The California Mechanics’ lien is the only creditor’s remedy that stems from a constitutional right.
The first Mechanics’ Lien law was enacted on April 12, 1850.   At the time California had not been accepted into the Union and the California legislature was not yet federally recognized.  Admission would not come until September that year.  None the less the California Constitutional Convention had already been held and a California Constitution had been declared the previous December.  It was a document of only a few pages long and had no provision for a mechanics’ lien.
An 1855 “Act to provide for the Lien of Mechanics and Others” repealed this first act and became the first Mechanics’ Lien statute enacted by the officially recognized California government.  It was very similar to the Mechanics’ Lien law of today:

“All artisans, builders, mechanics, lumber merchants, and all other persons performing labor or furnishing materials for construction or repair of any building, wharf or superstructure shall have a lien on such building… for the work and labor done or materials furnished.”

It gave original contractors sixty days and others not directly contracting with the owner thirty days to record a lien at the county recorders office.  There was no such thing as a Notice of Completion to shorten the deadlines.  Presumably because the postal system was not as established as it is today the claimant had the duty to personally serve the owner within five days.  The Public Recorder did not do it.  The lien had to be brought to a court for foreclosure within six months.

Early Law Did Not Include All Of the Property
An interesting part of this early law was that the recorded lien did not include all of the property that the improved structure was built on but was limited to “such convenient space around (it) as may be required for the convenient use and occupation of the premises, not to exceed 500 square feet.”  Perhaps this was because at the time property was granted to private owners in huge land grants and it would not make practical sense to grant a lien on an entire tract for a small building.

Origin of the Stop Notice
In 1856 the legislature created a simple version of a stop notice for private projects.  It held that upon being “served with a notice by a subcontractor or materialman the owner shall withhold from the contractor out of the first money due…under the contract until the validity of the claim can be ascertained in a proper legal proceeding.”

There was no explanation about what rights the subcontractor had if the owner had already paid the contract price.  This was decided in 1860 in the case of McAlpin v Duncan where the court held a lien was limited to the contract price and if the sub didn’t give notice of the lien to the owner before the contractor was paid the sub was out of luck.  This case was consistent with early construction procedures in which typical safeguards required the owner to make payments personally, like the joint check method used today.  Preliminary Notices did not exist and a sub had to give a claim of lien on each job to be ensured of payment.

Problems with the 1862 Amendment
The 1862 amendment to the law revealed the problems that were appearing.  The amount of liens that could be perfected in favor of subs and suppliers was limited by the amount of the contract price.  It can be guessed that this amount became the subject of many disputes between subs and owners.  Subs would presumably argue that the original contract price was enough to pay them in full.  The new version of the law required that all contracts that exceeded $200 had to be in writing signed by the owner or else they were void and no payment was due to anyone.  The mandatory written contract itself created a lien in which subs had to be paid before the original contractor, and if there was not enough money for all then it was divided up proportionally depending on amounts due.

Origin of the 20-Day Preliminary Notice
To protect the owner this version also created the precursor to the modern Preliminary 20-day notice.  “It shall be the duty of the…laborer to give written notice to the original contractor before payment is due.”  Interestingly, the legislature also included in the 1862 version costs and attorney fees to the prevailing party in a dispute arising from a mechanics’ lien claim.  This is probably because even then legal fees were expensive enough that a claim for unpaid work would cost enough in attorney fees that it wasn’t worth the investment.  By allowing the worker to add his attorney fees to the amount due he would not lose anything if the claim was successful.  This is a clause that many contractors leave out of their contracts even today.

Notice of Non-Responsibility
There was still no clear procedure for an owner to claim that he did not know the work was being done so as to avoid having to pay for work done on the wrong property or otherwise.  The Notice of Nonresponsibility that we have now didn’t get enacted until 1868.  It started off as an exception to the lien law.  “Every building constructed upon any lands with the knowledge of the owner shall be subject to a lien…unless the owner shall within three days give notice that he will not be responsible by posting notice in a conspicuous place.”  This may also be were the modern consumer protection law giving homeowners a right to cancel the contract within three days originated.

The Constitutional Convention of 1878
Still, in 1878,.the year that the Constitutional Convention began in California to create a new constitution it was apparent that the existing Mechanics’ Lien laws were not working.  Congressman Beerstecher presented the convention with a petition signed by “a large number of mechanics, materialmen, and laborers of San Francisco,” which was the largest city of the state at the time.  It read:

“The undersigned respectfully represent that the practical working of the recent legislation and decisions of the Supreme Court regarding rights of mechanics, materialmen, and laborers to a lien for their labor and materials is such that those who depend upon such a law for just protection fail in nearly all cases to obtain it.”

This petition was presented the Convention six times to get it passed and resulted in substantially the same constitutional protection that contractors and materialmen enjoy today.

Did the New Constitution Apply to Pre-existing Liens?
The new Constitution created an immediate problem by requiring legislature to “provide by law for the speedy and efficient enforcement of liens” but the legislature did not make any new laws until 1885 because it was supposed that the existing laws were sufficient.  In 1880 owners of a building in Sacramento tried to get out of paying for materials supplied by the Sacramento Lumber Company by claiming that the new Constitution required new Mechanics’ Lien laws and therefore the old ones were no longer valid.  The Supreme Court disagreed in the case of Germania v. Wagner (1882).

In 1885 the legislature created yet another version of the Mechanics’ Lien law that was in harmony with the fact that it now had a constitutional basis.  The fact that it now stemmed from the constitution meant that it was a law to be interpreted liberally in favor of the worker and that it was a right that could not be waived by agreement or limited by the legislature.

Origin of the Recording Statute for Mechanics’ Liens to Protect Owners
The 1885 version provided that a contract between and owner and a contractor over $1,000 had to be in writing and filed at the county recorder’s office.  Twenty-five percent of the contract price had to be held by the owner in retention for thirty-five days from the date of completion of work.  Presumably this would protect the owner against liens after payment since subs and suppliers had only thirty days to record a lien.  If the owner did this then any liens would be limited to the amount held in retention and no lien could be placed on the property.

The problem with this new owner protection was that it did not harmonize with the new Constitutional status of the subcontractors’ rights.  The Constitution didn’t say anything about limiting rights to twenty-five percent of the contract price.  This was also corrected by the courts which held the limitation invalid and the legislature amended the law in 1911 to roughly what we have today.  “The liens provided for in this chapter shall be direct liens and other than the contractor shall not be limited in the case of any claimant as to amount by any contract price agreed upon by the contractor and the owner except that it shall not exceed the reasonable value of the labor and materials, nor the price agreed upon by the claimant and the employer.”  It provided that the subcontractor and materialmen should record their subcontracts in the county recorder’s office in effect as a Preliminary Notice before payment was due.

Conclusion
The Mechanics’ Lien laws have not changed much since 1911.  It is available to a broad group of workers and is subject to strict time limits.  Because it is of Constitutional origin the right to lien cannot be waived by agreement unless a certain form is used and only on condition of actual payment.

 What Is A Contractor?

A “contractor” is generally defined by the California Business and Professions code as any person who offers or undertakes to construct, alter, repair any building.  The definition also includes merely offering to have the capacity to do the job.  “Person” includes an organization such as a partnership or a corporation. 

“A” and ”B”  Contractors

A general contractor is someone licensed to do two or more trades on the same job.  For example, a small remodel would requiring carpentry and electrical could be performed by someone with a   general contractor’s license.  This is also called a “B” license.  A subcontractor is someone licensed to do one trade only.  An plumbing contractor can only perform plumbing.  A roofer only roofing, and so on.  A subcontractor’s license is called a “C” license. 

General Engineering Contractor – The “A” License

There is also an “A” contractors license for a general engineering contractor.  Don’t confuse an engineering contractor with an engineer.  An “A” license allows a person to build and work on streets, harbors, dams, sewage disposal plants, bridges, and other unusual projects such as chemical plants, refineries, and power plants. 

Acting as a Contractor Requires a License

California law wants everyone who acts as a contractor to be licensed unless the job  is $500 or less, including both labor and materials.  Acting as a contractor without a license is a misdemeanor.  More importantly, for civil law (which is all I handle) an unlicensed contractor is not entitled to be paid for the work- neither the labor or the materials.  The unlicensed contractor is also not entitled to record a mechanics’ lien.    

Unlicensed Work Carries a Penalty

Generally, the harshness of the penalty prevents people from contracting without a license. The issue usually arises when the deal was somewhat unusual.  For example, a work trade, a tenant making improvements, or a deal between “friends” or family members.  The unlicensed worker’s attorney will generally raise one of two arguments to try and get the worker paid.  The first argument is the employee exception to license law.  The second is the construction manager exception. 

The Employee Exception

A bona fide employee of the owner is allowed to do work that would otherwise require a license.  Owners are allowed to hire anyone they want to work on their property as their employee.  Typically, the only cases that make it to lawyers are ones in which the parties never formally discussed their legal relationship.  There was usually just an oral agreement and work done.  It is up to the contractor’s attorney to show facts proving there was an employee relationship. 

Proving an employee relationship depends on a number of factors.  These include the following:

• How was the person going to be paid?  Was it hourly? Was it a flat fee for the whole job?
• Was the owner’s occupation the same kind of work that the “employee” was performing?
• Who supplied the tools for the job?
• How much investment did the “employee” put into the job?  Was he paying for the materials and hiring others to work also?
• Did the “employee” take a risk in the investment?  Was profit or loss going to depend on the “employee’s” skills in managing the job?
• How much skill was required to get the job done?
• How much supervision by the owner occurred while the job was being done? 
• Was the job one that normally is done without supervision or with supervision of someone experienced in that kind of work? 

The worker’s lawyer must submit evidence to the court on each of these factors and the court will determine each case on an individual basis.  The owner’s lawyer will, of course, offer evidence that supports the argument that a license was required. 

Construction Manager Exception

The second argument to raise by a person without a license is the “construction manager” exception.  Although it would seem that a construction manager is a “consultant to owner,” which is included in the definition of a contractor, a construction manager has been held by the courts as a limited exception to the license requirement. 

In order to meet the exception a construction manager must not have performed any of the work.  He cannot hire or contract with anyone else to perform the work either, not even a licensed contractor.  A construction manager may only help to facilitate the relationship between the owner and the licensed contractor.  It may also help if the owner hires a licensed contractor to be responsible for performance of all the work.  However, this may not be necessary as the owner could have the work all performed “in house” by an employee.  As long as the construction manager has no responsibility or authority to perform any construction work on the project it is permissible to do certain things without a license.  These include:

1. Prioritizing the work.
2. Offering advice on the project strategy.
3. Coordinate and direct design professionals.
4. To obtain building permits- except for certain permits that must be obtained by contractors.
5. Provide opinions as to the budget and construction costs.
6. Provide cost performance evaluations.
7. Prepare a project development schedule.
8. Hold construction meetings.
9. To assist the contractor in developing bidders’ interest in the project and to assist in the bidding process.
10. To conduce on-site inspections and reviews during the construction.
11. To provide reports and summaries of the work and to document change orders.
12. To review inspection reports. 

If the claimant can show that no construction work was done then he may qualify as a construction manager and be entitled to be paid. 

Conclusion

A property owner generally does not bring a claim against an unlicensed contractor unless the work is defective.  If you are an unlicensed contractor, be warned that you are in a bad position.  If you are not going to get a license I recommend that you keep a great relationship with the owners and make sure there are no disputes as to the work.  Otherwise, you may need an attorney to try and find an exception to the license law.  This is a general article and there may be other exceptions which will apply in your case.