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On Friday, April 11, 2014, the California Contractors State License Board issued a News Release confirming that drywall work on the “$150 million, 45-story Pinnacle Towers construction project in downtown San Diego has stopped after the [CSLB] determined the sub-contractor hired for the work, Clayton Wall & Ceiling Systems Inc. (Clayton), is not properly licensed in the state of California.” The News Release further confirmed that “[o]n April 4, 2014, investigators with CSLB, California Department of Industrial Relations (DIR), and the San Diego District Attorney’s Office, responded to an industry lead and performed an unannounced inspection of the construction site.” They “determined that drywall work began in January 2014, even though the company has not yet completed the licensing process.” The CSLB issued an administrative citation to Clayton for acting in the capacity of a contractor without a license and assessed a civil penalty of $15,000, as permitted by Cal. Bus. & Prof. Code § 7028.7. DIR’s Division of Labor Standards Enforcement (DLSE), also known as the Labor Commissioner’s Office, also cited Clayton for performing services without a valid state contractor license and assessed a $64,000 fine.

The News Release reported that the primary contractor, Pinnacle International Development Inc. (Pinnacle), contracted with Clayton on August 8, 2013 for the $6.34 million drywall job. Then, on December 3, 2013, Clayton applied for a California’s contractor’s license. “When it comes to contracting without a license the law is very clear,” said CSLB Registrar Steve Sands. “You cannot enter a contract to work, or actually do any work until you’re licensed. There’s no gray area here.” 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, including the erection of scaffolding or other structures or works in connection therewith …” It includes subcontractors and specialty contractors.

“An employer operating without a license creates an unfair advantage over businesses that follow the rules,” said DIR Director Christine Baker. “This case shows how the Labor Commissioner’s Office works effectively with other state agencies to enforce the law and protect workers and business in California.” Pinnacle may also face administrative action for contracting with a non-licensee.

The News Release further confirmed that Clayton’s license application will be on-hold until the fines are paid or until an appeal is heard. This will delay Clayton’s ability to work on the San Diego project, or any other project in the state. In addition, the Labor Commissioner’s investigation of the business will remain active.

Labor Commissioner Julie A. Su warned that “Scofflaws should know that state agencies are sharing information and finding violations that might have previously been overlooked.” “In challenging economic times it’s important to protect honest businesses from being put at a competitive disadvantage, and workers from being given less than their earned wage.” Su said.

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Although not all states regulate contractors by requiring either licensure or registration, Virginia, like California, is one that does. In late March, at the Virginia Board for Contractors (Board) meeting, the Board issued 24 license revocations. Copies of the file orders are available online using the Board’s website’s License Lookup tool, a tool that permits users to look up disciplinary actions occurring on or after April 1, 2002 by searching using key terms. For additional information about contractors’ licenses that have been revoked and other actions by the Board, visit the Board’s Press Release Archives.

The Board is responsible for licensing businesses engaged in the construction, removal, repair, or improvement of facilities on property owned by others. Virginia contractor licenses consist of two parts: (1) the class of license (A, B, or C), which determines the monetary value of contracts/projects that may be performed, and (2) the classification/specialty, which determines what type of work is allowed. The Board also licenses individuals and firms engaged in residential building energy analysis, which involves evaluation of energy consumption and recommendations to improve energy efficiency. It also regulates individual tradesmen who engage in the trades of electrical; plumbing; heating, ventilation, and air conditioning (HVAC); gas fitting; water well construction; elevator mechanics; backflow prevention; and building energy analysis.

Virginia also has reciprocal licensing/examination agreements with other jurisdictions. For more information, check out its website.

Additional Sources: North Dakota Joins California in Cracking Down on Unlicensed Contractors; CSLB Zaps More than 120 Unlicensed Contractors In Simultaneous Undercover Stings; Fall California Licensing Blitz Stings 75; R-E-C-I-P-R-O-C-I-T-Y ~ Find Out What It Means To You

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For any contractors who have ever considered manipulating disadvantaged business enterprise (DBE) requirements as a way to obtain work, this recent FBI press release provides a cautionary tale.

According to the press release, in 2007 a Connecticut contractor was awarded a highway project, funded by state and federal sources, based on its low bid of $39.6 million. In its bid documents, the contractor had represented that a certain DBE subcontractor would perform about $3.1 million of the work, furnishing all supervision, labor, and materials. Instead, the government claims the contractor used the DBE subcontractor as a shell to pass through payment to other subcontractors that the contractor negotiated with and supervised in actual performance of the work.

Under the non-prosecution and civil settlement agreement reached between the government and the contractor, the contractor agreed to a number of reforms, such as establishing an Ethics and Compliance Officer and removing the personnel directly involved in the scheme, in addition to paying a $2.4 million fine. The non-prosecution agreement only addressed the contractor’s corporate criminal liability–the government’s investigation of individuals continues.

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In its Newsletters, the California Contractors State License Board (CSLB) includes a short licensing quiz at the end. Below are the questions in its Spring 2014 Newsletter. How many questions can you answer correctly?

“1. True or False: An applicant can get a new ‘B’ license without testing if he or she is already acting as an ‘A’ class qualifier on an existing license.

2. True or False: If an applicant doesn’t meet the experience requirements, CSLB will refund the application fee.

3. If education or apprenticeship time is granted to an applicant, what is the minimum amount of hands-on journey-level work experience that must be verifiable? a. 1 year b. 2 years c. 4 years
4. A licensee has ______ days to comply with an outstanding liability entered on a license? a. 90 days b. 60 days c. 30 days
5. True or False: You are forbidden by law (B&P Code section 7071.13) from listing in your ‘advertising, soliciting, etc.,’ that you are bonded.

6. May a home improvement salesperson[] work for more than one contractor?
a. Yes b. No”

For the answers, Spring 2014 Newsletter.
For additional licensing quiz questions, CSLB Newsletter Archives.

Additional Resources: A + B + C (40 + 30) = California Contractor License Classifications (and Subcategories); CSLB Laws and Regulations

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In its Spring 2014 newsletter, the California Contractors State License Board announced that “[w]ithin the next year, CSLB will have issued one million licenses since its creation in 1929. That means someone who is obtaining, renewing or changing a license status with CSLB during this time will be license recipient No. 1000000.” As of the date it published its Newsletter, the CSLB had issued “nearly 992,000 licenses.” It projected that, “[a]t its present rate, the one millionth license likely will be issued around Jan. 1, 2015.” Will you be the one to end up with the bragging rights that your California contractor’s license number is 1,000,000? The CSLB confirmed that “[w]hoever is the ‘lucky’ one millionth license holder will get a mention and picture in a future newsletter.”

Additional Source: CSLB, One Million Licenses: CSLB Nears Milestone Mark (Apr. 3, 2014)

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The California Contractor State License Board (CSLB) recently issued notice of its upcoming Legislative Committee Meeting. The agenda for the meeting indicates that a legislative update will include review of pending Assembly Bills 1702, 2165 and 2396, and Senate Bill 1467. The meeting will be held at the CSLB’s headquarters located at 9821 Business Park Drive, Sacramento, CA 95827, in the John C. Hall Hearing Room. The teleconference location for the meeting will be at 265 Hegenberger Rd., Suite 200 Oakland, CA 94621. (The meeting may be canceled without notice. For verification of the meeting, call (916) 255-4000 or visit the CSLB’s website. Webcasts of the CSLB’s earlier Legislative Committee Meetings are available on its website.]

The California State Legislature website provides the public with access to the full text of the current legislative bills. Below are summaries from Assembly Bills 1702, 2165 and 2396, and Senate Bill 1467:

Assembly Bill 1702 (Maienschein) – “This bill would provide that an individual who has satisfied any of the requirements needed to obtain a license while incarcerated, who applies for that license upon release from incarceration, and who is otherwise eligible for the license shall not be subject to a delay in processing the application or a denial of the license solely based on the prior incarceration, except when the incarceration was for a crime substantially related to the qualifications, functions, or duties of the business or profession.”

Assembly Bill 2165 (Patterson) – “This bill would require each board to complete within 45 days the application review process with respect to each person who has filed with the board an application for issuance of a license, and to issue, within that 45 days, a license to an applicant who successfully satisfied all licensure requirements. The bill also requires each board to offer each examination the board provides for the applicant’s passage of which is required for licensure, a minimum of 6 times per year.”

Assembly Bill 2396 (Bonta) – “This bill would prohibit a board from denying a license based solely on a conviction that has been dismissed [as contemplated by select provisions of existing law].” As explained in the bill, existing law “prohibits a board from denying a license on the ground that the applicant has committed a crime if the applicant shows that he or she obtained a certificate of rehabilitation in the case of a felony, or that he or she has met all applicable requirements of the criteria of rehabilitation developed by the board, as specified, in the case of a misdemeanor.” It also “permits a defendant to withdraw his or her plea of guilty or plea of nolo contendere and enter a plea of not guilty in any case in which a defendant has fulfilled the conditions of probation for the entire period of probation, or has been discharged prior to the termination of the period of probation, or has been convicted of a misdemeanor and not granted probation and has fully complied with and performed the sentence of the court, or has been sentenced to a county jail for a felony, or in any other case in which a court, in its discretion and the interests of justice, determines that a defendant should be granted this or other specified relief and requires the defendant to be released from all penalties and disabilities resulting from the offense of which he or she has been convicted.”

Senate Bill 1467 (Lieu (Chair), Berryhill, Block, Corbett, Galgiani, Hernandez, Hill, Padilla, Wyland, and Yee) – Under the Contractors’ State License Law, the CSLB licenses and regulates contractors. Under existing law, there is within the board a separate enforcement division that is required to rigorously enforce the Contractors’ State License Law. As the bill explains, “[e]xisting law specifies that persons employed as enforcement representatives in this division, and designated by the Director of Consumer Affairs, are not peace officers and are not entitled to safety member retirement benefits. This bill would make technical, nonsubstantive changes to these provisions.”

Additional Resource: California Contractors State License Board

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Hard Hat Workforce Solutions, LLC v. Mech. HVAC Servs., Inc., 406 S.C. 294, 750 S.E.2d 921, 922 (2013).

How confident are you that the payment bond your subcontract required you to obtain falls within your state’s payment bond statutory scheme? Bonds.jpg In Hard Hat Workforce Solutions, LLC v. Mech. HVAC Servs., Inc., 406 S.C. 294, 296, 750 S.E.2d 921, 922 (2013), the Supreme Court of South Carolina reversed the Special Circuit Courts decision granting summary judgment relief for a surety defendant on the theory that the plaintiff, a fourth-tier subcontractor, need not provide notice as required by statute because the bond at issue was a common-law, not statutory, bond. (Full write up, after the jump.)

This dispute arose out of the construction of a high school in York County (the “Project”). Ediface, Inc. (“Ediface”) was hired by York County to serve as the general contractor and Ediface hired Walker White, Inc. (“Walker”) to perform mechanical and plumbing work on the Project. As part of the agreement between Ediface and Walker, Ediface required Walker to furnish a payment bond which Walker in turn procured from Great American Insurance Company (“GAI”).

Walker later subcontracted with Mechanical HVAC Services, Inc. (“MHS”) to install ductwork for the Project. MHS subcontracted with Hard Hat Workforce Solutions, LLC (“Hard Hat”) for temporary skilled labor on MHS’s ductwork portion of the project.

By 2010, with the Project well under way, Walker had paid MHS the full value of their subcontract. However, MHS failed to pay $85,000 allegedly owed to Hard Hat for its work on the Project. In January of 2010, Hard Hat contacted Walker informing the company that MHS owed it $85,000. A month later, Walker told MHS it was in default under its subcontract with Walker due to its lack of performance; MHS abandoned the project thereafter.

Hard Hat brought a claim against Walker and received a default judgment. Hard Hat also filed a claim to collect on the payment bond Walker obtained from GAI pursuant to Walker’s subcontract. GAI argued that Hard Hat could not collect on the payment bond because it failed to provide Walker adequate notice pursuant to Section 29-5-440 of the South Carolina Code of Laws (“Section 29-5-440”). GAI filed a motion for summary judgment stating it could only be liable to Hard Hat for the amount Walker owed MHS at the time Hard Hat informed Walker of its claim on the bond. GAI was able to easily prove it paid MHS well before Hard Hats notice of its intent to pursue payment under the payment bond and thus could argue it owed nothing to Hard Hat as a result.

GAI made that argument in its motion for summary judgment and the Special Circuit Court found it persuasive. The Special Circuit Court reasoned that Hard Hat’s bond claim was subject to Section 29-5-440‘s notice provisions, stating that “South Carolina statutory law is party of every contract.” Hard Hat, 750 S.E.2d at 923. The court determined that Hard Hat did not provide proper notice, as required by the statutory scheme, and thus granted GAI’s motion for summary judgment.

In a decision of first impression, the South Carolina Supreme Court reversed the circuit court’s decision. After an analysis of South Carolina’s payment bond statutes, the Court held the payment bond at issue was not a statutory payment bond and thus not subject to the notice requirements under Section 29-5-440.

Looking to the statute, the Court developed a definition that distinguished statutory and common-law bonds under South Carolina law. Statutory bonds are defined as those either:

  1. provided because required by statute and in accordance with the minimum guidelines set out in Section 29-5-440 of the South Carolina Code, or
  2. that contain express or implied reference to the provisions detailed in the statute.

Id. at 925.

In contrast, common-law bonds are defined as either:

  1. any bond not required by statute (i.e., voluntarily provided, perhaps to meet a contractual provision in the agreement between the parties), or
  2. any bond required by statute but that specifically varies the statutory requirements so as to provide broader protection.

Ibid.

In applying this rule, the Court found that GAI’s bond was a common-law bond. It was not required by statute, but instead, only required by Walker’s contract with Edifice. Further, the bond made no specific mention of Section 29-5-440 or any other notice requirement. As such, the Court enforced the bond by its terms and held that Hard Hat had no duty to comply with any notice provision as no such provision existed pertinent to its action on the bond. Buttressing this decision was South Carolina’s policy of treating payment bonds issued by a surety for consideration as an insurance policy. See U. S. for Use of Wheeling-Pittsburgh Steel Corp. v. Algernon Blair, Inc., 329 F. Supp. 1360 (D.S.C. 1971) (stating bonds, like insurance, are construed in favor of coverage) (internal citations omitted).

While this decision is rooted in South Carolina public policy and South Carolina-specific statutory interpretation, the broader lesson is clear: contractors, subcontractors and sureties alike should be as versed in the terms of their payment bonds as they are in the statutory scheme under which those bonds fall. Had the surety and the subcontractor required to procure the bond known that an action to collect on the payment bond fell outside South Carolina’s payment bond statutory scheme, the surety and contractor would have included notice provisions or at minimum referenced the statutory scheme in the text of the bond. As such, this decision should strike the curiosity of a party to a contract requiring a payment bond. What kind of bond is it?

Photo: www.LendingMemo.com – Creative Commons

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On February 12, 2014, President Obama issued an Executive Order to raise the minimum wage for Federal contractors and subcontractors under certain contracts, as he had foreshadowed in this year’s State of the Union. The Executive Order sets forth the new wage rate, when it may take effect, and what contracts will be affected by this minimum wage increase.

Click here for a link to the full alert, which I co-authored with my colleague Meghan Doherty.

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California is not the only state that actively cracks down on unlicensed contractor activities. As recent as March 18, North Dakota Attorney General Wayne Stenehjem announced that Cease and Desist Orders had been issued against 7 unlicensed contractors for violations of North Dakota’s consumer fraud laws, banning them from doing any business in North Dakota. The Attorney General’s Consumer Protection Division investigates consumer complaints about unlicensed contractor activities. The recent investigation was initiated in connection with consumers reports that, not withstanding that they had been paid in advance for work, the contractors’ failed to properly complete the work and, in some cases, to even commence work.

Attorney General Stenehjem warns consumers:

“Never put down any money until you have made sure the contractor is properly licensed. Hiring an unlicensed contractor may prove to be very expensive as it is extremely difficult to recover money once they have fled the state.”

Additional news releases are available on the North Dakota Attorney General’s website.

Additional Source: Unlicensed Contractors Banned from Doing Business in ND (Mar. 18, 2014); Twenty Arrested in Law Enforcement Operation in Northwest ND (March 14, 2014); Stenehjem Bans Two Unlicensed Contractors (Feb. 12, 2014); Fall California Licensing Blitz Stings 75; California Contractors State License Board

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UPDATE: Sacramento Business Journal, Planning commission gives Kings arena a big thumbs-up (Apr. 11, 2014) — “With a unanimous vote, the board recommended approval to the City Council both for the arena and entitlements for surrounding development.”

The Sacramento Bee confirmed yesterday that the City of Sacramento (City) announced that Sacramento’s Planning and Design Commission (Commission) is scheduled to vote on the planned downtown Sacramento Kings’ arena project at its April 10 meeting. Among the issues the Commission will debate include:

  • The arena’s environmental impact report
  • The project’s design
  • A development agreement between the Sacramento Kings and City
  • Guidelines for the 1.5 million sq. ft. of development the Sacramento Kings are planning around the arena
  • Various zoning permits
  • A plan for the Sacramento Kings to construct 7 electronic billboards around the City

If the Commission approves the arena project, it will head to the City Council in late April or early May. In addition to the development plans and environmental report, the City Council will have to approve a proposal to commit $258 million in public money to the $448 million arena project.

Additional Source: The Sacramento Bee, Sacramento arena plan goes to Planning Commission April 10 (Mar. 28, 2014); Latest Concepts for Sacramento Kings Arena Unveiled; Turner Construction Company to Build New Sacramento Kings Arena; Sacramento Kings Announce They Will Be The First Pro Sports Franchise To Accept Bitcoin