Construction Dive Magazine

This article originally appeared in Construction Dive Magazine, May, 2017, Reprinted with Permission.

Lee Weintraub, Florida Construction Defect AttorneyIn an effort to safeguard their residents against fraud and the chaos that can result from unprofessional behavior or lack of experience and knowledge, most states have some kind licensing procedure in place for professions like lawyers, physicians and real estate agents.

However, when it comes to construction contractors — who practice in an industry that is full of life and death scenarios — there is little state-to-state licensing uniformity.

How do these regulations vary across the U.S., and is there any indication that a strict regulatory scheme results in a higher level of professionalism and quality among contractors?

How licensing rules vary

“We see both extremes where it’s extremely difficult to get a license, and then on the opposite side where anyone with a hammer and pickup truck can be a contractor,” said Chuck Taylor, director of operations for Chicago- area Englewood Construction.

Taylor’s assessment of the licensing landscape isn’t an exaggeration.
Florida and California, for example, license a plethora of trades from pool maintenance technicians to drywall hangers to bridge builders. Along with extensive business and trade knowledge testing, both states have strict financial requirements, which include providing information about the person qualifying the applying company — the one who takes the required exams and assumes financial and professional liability for the its construction operations — other stakeholders and as the business itself.

California also requires a license bond, and Florida mandates that those qualifying a company have a minimum FICO score of 660. Both states also collect applicant fingerprints and run background checks.

Lee Weintraub, chair of the public private partnership practice at Becker & Poliakoff in Florida, said mother nature is partly to blame for the aggressive licensing agendas in these two states.

“My understanding … is that it’s because they are two of the biggest natural disaster zones,” he said. “They get earthquakes, and we get hurricanes.” And with extreme weather events come the predatory contractors who take the money and run, so the rationale behind the first laws was to protect consumers.

From those beginnings, he said, the scope of those licensing regulations grew into what the industry has today — a lot of licensed trades.

On the other end of the spectrum are states like Texas and Illinois, Englewood Construction’s home state. Neither has a state-level contractor licensing system, with the exception of trades that are considered tied to public safety like roofing, fire protection, asbestos and electrical.

In a sector where exceptions are the rule, from state to state, there isn’t one agency that is responsible for that type of licensing, either. It could be a state fire marshal’s office, a public health agency or a financial services office.

But the differences aren’t limited to states. Cities like Chicago and New York also have contractor registration and licensing programs of their own to fill in the gaps that state regulatory agencies leave behind. Even a state with far-reaching state licensing requirements like Florida still has county-level licensing for trades not covered by state law or for those who perform work in only one county.

In the case of, for example, a drywall contractor who only performs work in Pinellas County, FL, they can take an exam and get licensed locally, but, because there is an equivalent state-level license, they must still register with the state and meet the same financial requirements as a state contractor.

The impact of stricter requirements

The leaves the question: How do these rules impact contractors?

Taylor and Weintraub both said the extensive financial and application requirements of licensing systems, like there are in Florida and California, help weed out those financially unprepared to run a construction business.

Regarding the argument that such strict contractor regulations saddle contractors with too much paperwork and associated expense, Weintraub said, “There’s no merit to the argument that it makes it worse for contractors. There are some restrictions that aren’t onerous like putting a license number on a truck … but there’s no burden I see at all on your ability to run your company.”

There are some local requirements, however, that Weintraub said could be considered more fundraising-minded.

For example, Florida licensed contractors are authorized to perform work freely throughout the state, but counties and municipalities still take a bite of the apple by levying registration fees or other charges, even if the contractor’s base of operations is in another part of the state.

Englewood does work all over the country, and strict licensing requirements, he said, sometime seem like a purposeful barrier to entry.

For example, in Arkansas, one of the pieces of paperwork required with
a general contractor’s license application is an audited or reviewed financial statement, which can be a pricey proposition for a company the size of Englewood, as many accounting firms calculate their fees for this service based on company revenue. This is something that could derail a company’s plans to enter the market, Englewood said, but it’s difficult to ascribe motive.

New York doesn’t have a major state licensing program either, according to John Patrick Curran, partner at Sive, Paget & Riesel. Contractors, he said, are licensed at the local level, with the exception of those working in the field of asbestos abatement.

In New York City, Curran said, along with some other cities, only contractor registration is required, but that’s primarily for practical safety reasons.

Registration assures the contractor has adequate insurance and complies with Department of Buildings rules.

For example, the DOB requires that projects between 10 and 14 stories have a Site Safety Coordinator on the job and that a Site Safety Manager must be present during construction on projects 15 stories and higher or more than 100,000 square feet. The DOB licenses both categories of safety personnel.

“It’s more of a safety thing than anything else,” Curran said of the contractor registration requirement.

Where quality comes into play

What about an impact on quality?

“Does the fact that you carry a license have any impact on your qualifications? I don’t think so,” said Andru Ramker, president of Hawkeye Construction of South Florida. His company performs work in many states where licensing requirements vary, and he doesn’t believe there’s a difference in skill level.

The primary reason for that, he said, is that the licensee is not usually the one performing the work, at least in commercial applications. Instead, there are layers of employees, subcontractors and independent contractors completing the actual construction. Quality control, he said, often comes down to whether supervisors have the training necessary to recognize if a crew is capable of doing the work.

Ramker added, however, that a positive license history can send a message to customers. “Where it would have an impact is that if a client comes to you and wants to select you, they have the ability to check and see your license is in good standing,” he said.

In Ramker’s case, he has been a licensed general contractor in Florida since 1979, and that demonstrated longevity, he said, can give clients assurance that he’s not going anywhere until the job is done.

“From the standpoint of [many] of us who have a license,” Ramker said, “we have it for all the right reasons and are proud to carry it.”

The law now requires that Home Inspectors be licensed by the Department of Business and Professional Regulation (“DBPR”). Inspection services through a corporation or partnership is allowed provided that all personnel of the corporation or partnership who act on its behalf as Home Inspectors are licensed by the DBPR. Licensed home inspectors are treated by the DBPR similar to licensed contractors. Home Inspectors are now subject to disciplinary actions and must maintain a commercial general liability insurance policy in an amount of not less than $300,000.00. 

Of note is the fact that the Home Inspectors law requires that after completion of a home inspection for compensation, the Home Inspector must provide a written report to the client. The report must indicate (1) the systems and components inspected that in his professional opinion are significantly deficient or are near the end of their useful life; (2) if not self-evident, the reason why the system or component reported is deficient or near the end of its useful life and (3) any systems and components that were present at the time of the inspection but were not inspected and the reason for the lack of inspection. Failure to provide the report as set forth above is a violation of law.

 

     All construction contracts entered into with contractors lacking state licenses are unenforceable. The contractor also loses lien rights and the ability to claim under a bond. However, the consequence of unlicensed subcontracting is less clear and made more so by a recent court case. 

     A subcontractor’s failure to maintain the required license may not deprive it of payment from the general contractor for whom they worked. Poole & Kent Co. v. Gusi Erickson Const. Co., 759 So.2d 2, 6 (Fla. 2d DCA 1999), held the unlicensed subcontractor was entitled to payment because it was the general contractor’s responsibility to ensure its subcontractors are licensed and, if the contractor could avoid paying unlicensed subcontractors, then contractors would be encouraged to hire unlicensed subs. However, there is at least one case holding to the contrary. Deep South Systems, Inc. v. Heath, 843 So. 2d 378, 381 (Fla. 2d DCA 2003).

     The new case of MGM Const. Services Corp. v. Travelers Casualty & Surety Co. of America, 2011 WL 710191 (Fla. 3d DCA 2011), is a landmark case in which the court reversed a trial court’s finding that a subcontract with an unlicensed drywall subcontractor was unenforceable. The appellate court correctly determined that section 489.128 of the Florida Statutes, rendering contracts with unlicensed contractors unenforceable, only applied to state licenses and had no bearing on local licenses like drywall. However, the court went on to hold that, where the Legislature has not added the penalty of non-enforceability to a licensing provision, the courts may nevertheless still do so after weighing the relative strength of the policies behind the local licensure requirement and any competing policies of injustice. Therefore, in summary, although local ordinances requiring local licenses like drywall may not expressly make a contract with an unlicensed subcontractor unenforceable, the courts may nevertheless do so with their own powers after weighing various policy considerations on a case by case basis.

 

I’m sure by now all of you are aware of the new licensing codes governing home inspections and mold assessors and remediators. They became effective July 1, 2010. Section 468.83, Florida Statutes, governs licensing of home inspectors and section 468.84 governs mold-related services.

Contractors licensed under Chapter 489 of the Florida Statutes are not qualified to provide home inspection, mold assessment or mold remediation services unless they hold those respective licenses. The same is true for building inspectors, architects and engineers.

 

Sections 468.83 and 468.84 and the statutes that are part of those codes, impose certain requirements. For instance, home inspectors must provide the consumer a written disclosure of the scope and exclusions of the inspection pursuant to §468.8321 and must maintain a CGL policy of at least $300,000 pursuant to §468.8322. Mold assessors must maintain general liability and errors and omissions coverage in an amount at least $1,000,000. Mold remediators must maintain CCL coverage in at least that same amount and must specifically include coverage for mold related claims. §468.8421, Florida Statutes. Mold assessors are not permitted to perform remediation on a structure on which his or her company provided an assessment within the last year and the reciprocal is true for mold remediators participating in assessments. §468.8419.

 

Many contractors, building inspectors, architects and engineers have been providing home inspection services and mold assessment and remediation services for years. But now that these new licensing requirements have kicked in, continue performing those services without a license at your own risk!

Downsizing of personnel is an unfortunate reality in the current economy. Most companies have already downsized and consolidated less important positions, but I’m starting to see more companies having to go to the next step and release some of their construction qualifiers. If you find yourself doing so as well, pay close attention to the requirements and ramifications under the Licensing Code.

First, make sure you are retaining at least one licensed contractor who can qualify your company. Second, both you and the released qualifier must notify the Construction Industry Licensing Board of the loss of the qualifier. Pursuant to §489.119(3)(a) of the Florida Statutes, you will have 60 days in which to replace the qualifier, which requires filing the appropriate licensure applications with the CILB. This 60 day period can usually be extended an additional month upon a showing of good cause. Until you are newly qualified, you can complete work in progress or proceed with contracts for bids you have already submitted, but you can’t bid for new work.

You should also notify in writing all building departments from which open permits have been issued under the qualifier’s license.