Gravel2Gavel Construction & Real Estate Law Blog

Those are words no one ever wants to hear. Hearing them is no doubt worse when, in fact, you don’t have one. In the last two months, two construction projects were brought to a halt when an unlicensed subcontractor was discovered. On April 11, the California Contractors State License Board (CSLB) issued a press release confirming that work on the drywall portion of the $150 million, 45-story Pinnacle Towers construction project in downtown San Diego has stopped after the CSLB determined the drywall sub-contractor is not properly licensed as a contractor in California. Yesterday, it announced (CSLB #14-15) that it has ordered Nova Drywall Systems Inc., based in Vancouver, British Columbia, to halt work on a $100 million apartment and retail center that is being constructed by Onni Group, a Canadian developer, in downtown Los Angeles after finding that Nova Drywall is not properly licensed in California; the drywall subcontract is reportedly worth $5.5 million. Nova Drywall applied for a CSLB license last January, but it has not yet completed the licensing process.

Acting on a tip, on May 7, the CSLB and California Department of Industrial Relations/Division of Labor Standards Enforcement (DLSE) investigators made an unannounced visit to the 32-story tower being constructed at 888 South Olive Street. An inspection revealed that Nova Drywall does not have a contractor license for the drywall work being performed by its 28 employees on the project since January. Onni Contracting California has a valid California contractor license.

California law defines “contractor” broadly to include “any person who undertakes to or offers to undertake to, or purports to have the capacity to undertake to, or submits a bid to, or does himself or herself or by or through others, construct, alter, repair, add to, subtract from, improve, move, wreck or demolish any building, highway, road, parking facility, railroad, excavation or other structure, project, development or improvement, or to do any part thereof … ” (emphasis added). “Contractor” also includes subcontractors and specialty contractors.

The DLSE cited Nova Drywall for performing services without a contractor’s license, including a $180,400 fine based on when it started work and the number of its employees on the project. The CSLB levied a $15,000 civil penalty, its maximum, against Nova Drywall for acting in the capacity of a contractor without a license, as permitted by Bus. & Prof. Code § 7028.7. In turn, DLSE fined Onni Contracting California $10,800 for contracting with an unlicensed contractor, as permitted by Bus. & Prof. §7118. The CSLB warned that Onni Contracting California may also face CSLB administrative action and a fine for contracting with a non-licensee.

Steve Sands, the CSLB Registrar of Contractors, warned: “To perform contracting work in California, a company must be licensed by CSLB,” and “This company should not have been working until its license was in place.” In turn, Julie A. Su, the California Labor Commissioner, further warned: “Those who hire contractors are obligated to make sure they are dealing with contractors who play by the rules. If they do not, we will work with CSLB and other law enforcement to level the playing field.”

Additional Source: CSLB Breaking News: Part of $150 Million San Diego Construction Project Stopped After Discovery Of Unlicensed Subcontractor; A + B + C (40 + 30) = California Contractor License Classifications (and Subcategories); California CSLB Registrar of Contractors Announces Departure; R-E-C-I-P-R-O-C-I-T-Y ~ Find Out What It Means To You

The California Contractors State License Board posed this question in its California Licensed Contractor Newsletter, Fall 2013 edition Quick Quiz:

“Can I do anything to have my application processed right away so I can start bidding and working on new jobs?
a. Yes, but only if you send enough money to pay CSLB employees for their overtime wages.
b. Maybe, depending on the detail in your expedite request letter that describes why the rush is needed, and if the cause/situation is justifiable.
c. No, CSLB won’t consider expedites.”

Many of you may not know that the answer is “b.”

If you are an unlicensed contractor in California and you would like to bid on and to perform work that requires a California contractor’s license, if you can articulate why the CSLB should rush your application, consider submitting your license application with a letter requesting that it be expedited. There is no harm in asking. The same does not hold true if you bid for or perform work requiring a license without a license.

Additional Source: I’m gonna need to see your license…; CSLB Breaking News: Part of $150 Million San Diego Construction Project Stopped After Discovery Of Unlicensed Subcontractor; A + B + C (40 + 30) = California Contractor License Classifications (and Subcategories); R-E-C-I-P-R-O-C-I-T-Y ~ Find Out What It Means To You

The U.S. Chamber of Commerce Foundation recently published its Enterprising Cities Regulatory Climate Index 2014 (Index), assessing 5 areas of regulation across 10 cities in the United States: (1) Dallas, Texas, (2) St. Louis, Missouri, (3) Raleigh, North Carolina, (4) Boston, Massachusetts, (5) Atlanta, Georgia, (6) Detroit, Michigan, (7) Chicago, Illinois, (8) Los Angeles, California, (9) San Francisco, California, and (10) New York, New York.

The Index’s 5 areas of regulation represent the life cycle of a business: (1) starting a business (see Table 5), (2) dealing with construction permits (see Table 6), (3) registering property (see Table 7), (4) paying taxes (see Table 8), and (5) enforcing contracts (see Table 9). To measure the regulatory burden, it looked at (A) the number of procedures, (B) time to comply with the requirement, and (C) the costs and fees paid to the government or service providers that are required by the local laws. The Index’s scores and ranks are the simple average of ranking of all 5 areas of business regulation in each of the 10 cities; each of the 5 areas of business regulation is again the simple average of the normalized values of procedures, time, and costs; and each component in an area of business regulation is ranked relative to the other 9 cities.

The Index concludes that “[a]mong these 10 cities, Dallas and St. Louis impose the lightest regulatory burden on small businesses. Raleigh, Boston, Atlanta, and Detroit have moderate overall scores. New York City, San Francisco, Los Angeles, and Chicago, on the other hand, are marked by high regulatory requirements to open and operate small businesses (Table 3).” The overall scores of the 5 areas of regulation for the 10 cities indexed (see Table 4) are:

1. Dallas — 89.5
2. St. Louis — 85.2
3. Raleigh — 73.7
4. Boston — 73.3
5. Atlanta — 72.7
6. Detroit — 64.9
7. Chicago — 52.9
8. Los Angeles — 47.9
9. San Francisco — 41.3
10. New York — 34.7

With regard to the second are of regulation — dealing with construction permits — the Index recognizes that obtaining construction permits varies substantially across the nation, including the cost, time and required procedures depending on the zoning approval process, environmental reviews and building permit reviews. It reported that the regulatory costs average 1% of the construction costs and 3 months of processing to complete a set of 15 standard procedures for both pre- and post-construction phases for small commercial buildings.

It also reported that the costs of construction permits varies substantially across the nation — Dallas, Raleigh, and St. Louis have the lowest fees for administrative compliance, ranging from 0.3% to 0.7% of the total cost of construction; Atlanta, Boston, Chicago, Detroit, and New York City have moderate costs of permits, ranging from 0.8% to 1.3% of total construction costs; and Los Angeles and San Francisco have the highest costs of permits at more than 3.0% of total construction costs. It estimated that the costs to obtain construction permits in San Francisco and Los Angeles are about 10 times the permit costs in Dallas and Raleigh, and the waiting times for permits are as low as two months in Raleigh, Dallas, and St. Louis, but at least twice that in Chicago, Los Angeles, and San Francisco. It concluded that these costs are largely driven by the additional procedures required by those cities (e.g., San Francisco requires builders to submit a city environmental quality review that would cost an extra $50,000 in fees (the equivalent of 1.6% of the construction costs) and it takes (at least) an extra 66 days to review; Los Angeles has a similar procedure, but with a lower cost). In contrast, Atlanta, Dallas, and Raleigh offer expedited and streamlined services for construction firms when applying for permits and provide express services for inspection.

Additional Source: The U.S. Chamber of Commerce Foundation, Enterprising Cities Regulatory Climate Index 2014 (May 11, 2014); The Business Journals, Hey business owner – you want easy? Try Dallas. Want hard? Try New York (May 12, 2014)

Yesterday, Pillsbury attorneys Peter Wyckoff, Mike Barr, Jeff Knight, Anthony Cavender, and Matt Morrison published their advisory titled The U.S. Supreme Court Upholds EPA’s Cross-State Air Pollution Rule in EPA v. EME Homer City Generation, L.P., Paving the Way to Further Use of Cap-and-Trade Programs to Control Emissions of SO2 and NOx from Electric Power Plants. The Advisory discusses the U.S. Supreme Court’s April 24, 6-2 decision, in EPA v. EME Homer City Generation, L.P., No. 12-1182, 572 U. S. ____, 2014 WL 1672044 (2014), upholding EPA’s latest version of a regional cap-and-trade program under the federal Clean Air Act to control those electric power plant emissions of sulfur dioxide (S02) and nitrogen oxides (NOx) that contribute to interstate formation of fine particle and ozone (smog) pollution.

If you have any questions about the content of this blog, please contact the Pillsbury attorney with whom you regularly work or Peter Wyckoff, Mike Barr, Jeff Knight, Anthony Cavender, or Matt Morrison, the authors of this blog.

Biz2Credit identifies the top 25 cities for small business in 2014 and 5 of them are in California, 4 are in Florida, and 3 are in Texas. For its analysis, Biz2Credit defined “small businesses” as “companies having fewer than 250 employees or less than $10 million in annual revenues.” Cities are rated based on “a weighted average that includes annual revenue, credit score, age of business (in months), cash flow, debt-to-income ratio, incorporation (C-Corp or LLC vs. sole proprietorship), and business owners’ personal credit scores.” Biz2Credit reports that it analyzed 12,000 businesses with less than 250 employees and less than $10 million in annual revenues from across the country that have been in operation for more than 1 year.

Its top 25 cities for small business in 2014 are:

1. San Jose-Sunnyvale-Santa Clara, CA
2. Detroit-Dearborn, MI 3. Denver, CO 4. Los Angeles-Long Beach-Anaheim, CA
5. San Francisco-Oakland, CA
6. Las Vegas, NV 7. New York metro area 8. Atlanta, GA 9. Washington, DC metro area 10. Miami-Fort Lauderdale-West Palm Beach, FL 11. Riverside-San Bernardino, CA
12. Tampa-St. Petersburg, FL 13. Sacramento, CA
14. Indianapolis, IN 15. Houston, TX 16. Chicago, IL 17. Portland, OR 18. Dallas-Fort Worth, TX 19. Phoenix-Scottsdale, AZ 20. Charlotte, NC 21. San Antonio, TX 22. Seattle-Tacoma, WA 23. Jacksonville, FL 24. Philadelphia, PA 25. Orlando-Kissimmee, FL

Additional Sources: Biz2Credit Identifies 2014’s Best Small Business Cities in America; Surprisingly, California Didn’t Make The Top Out-Bound Or In-Bound States Lists … But, You Might Be Surprised By Which Did

UPDATE: Washington Department of Labor & Industries, Electrical Safety Standards, Administration and Installation WAC Rule 296-46B (F500-039-222) effective on July 1, 2014
The Washington State Department of Labor & Industries is considering amendments to the electrical rules based upon new safety code requirements from the 2014 edition of the National Electrical Code (NEC). The 2014 NEC was adopted by the Department on March 1, 2013 to replace the current 2008 NEC standards and will become effective on July 1, 2014. The proposed changes would amend all sections of Chapter 296-46B of the Washington Administrative Code (WAC), excluding the Scope of Work requirements in WAC 296-46B-920.

From October 1 through October 31, 2013, the Department accepted rule proposals from external stakeholders and internal department proposals. On March 4, 2014 a Notice of Proposed Rulemaking (CR-102) was filed, and the Proposed Rules published for public comment. On April 10, 2014, the Department held a public hearing on the Proposed Rules. The tentative adoption date for the Proposed Rules is May 20, 2014 and the tentative effective date is July 1, 2014.

Additional Sources: Washington Department of Labor & Industries, Electrical Safety Standards, Administration and Installation WAC Rule 296-46B (F500-039-222); Washington State Department of Labor & Industries, Rules Under Development: Electrical safety standards, administration, and installation

UPDATED: On July 8, Hawaii’s Governor signed into law H.B. 1814 and it is effective immediately. Among other things, it authorizes employers to pay wages to an employee using a pay card if certain requirements are met.

Employers’ use of payroll cards to pay employee wages and other benefits is tremendously popular, for among other reasons, the convenience that the cards provide for both employers and employees. If you pay your employees by payroll card in Hawaii, keep an on eye on House Bill 1814. On April 3, 2014, the Hawaii Department of Labor and Industrial Relations issued an Amended Notice Re: Department of Labor and Industrial Relations Guidelines on the Use of Payroll Debit Cards, warning that, effective September 1, 2014, it is suspending its April 13, 2006 Declaratory Ruling, which administratively allows the use of payroll, pay, or debit cards for the payment of wages to employees. (A copy of the April 13, 2006 Declaratory Ruling is appended to the Amended Notice.) Unless the pending legislation permits it, employers will no longer be permitted to use payroll cards starting on September 1, 2014. The Department acknowledged that legislation on point, specifically H.B. 1814 (2014 Reg. Sess.) relating to payment of wages currently is being deliberated. H.B. 1814 was introduced on January 17, 2014, passed by the House on March 4, 2014 and the Senate on April 8, 2014, and transmitted to the Governor on May 5, 2014.

Additional Sources: Consumer Financial Protection Bureau Bulletin 2013-10; Comptroller of the Currency, Payroll Cards: An Innovative Product for Reaching the Unbanked and Underbanked (June 2005); Construction Executive, To Pay, Or Not To Pay, By Payroll Debit Card (Oct. 28, 2013)

Before submitting your contractor’s license application in Tennessee, check to make sure you can use the chosen company name…

On March 12, 2014, Tennessee Governor Bill Haslam signed into law House Bill 1464, a bill that amends Tennessee Code § 62-6-111 to require the Tennessee Department of Commerce and Insurance, Board for Licensing Contractors, to “deny any application for licensure as a contractor if the board determines that the name under which the applicant will be trading is identical with the name being used by an existing licensee, or is so nearly similar to the name being used by an existing licensee that it is likely to cause confusion on the part of the public at large” (emphasis added). TN Code § 62-6-111(m). This does not apply to any applicant who has acquired an exclusive right to use the name as a registered trademark pursuant to 15 U.S.C. § 1051. This law became effective March 12, 2014.

Additional Sources: Tennessee Department of Commerce and Insurance, Board for Licensing Contractors; Tennessee General Assembly,