Importance of Proper Licensing for Contractors

Imagine your dreams of owning a brick-and-mortar store are happening in front of your eyes. Construction begins and things are going well. However, you did not have proper permits and licensing for this construction. Things halt and before you know it, it takes longer to fix the issues than building the store. Without proper licensing before starting construction, punishments can be severe.

Examine licensing requirements for your state

Each state has different requirements when it comes to obtaining a license for construction. There is a different type of jurisdiction depending on the state and the intention to perform work. In Missouri and Illinois, general contractors do no not need licenses, but other contractors that specify in a certain type of work will need licenses. To even bid on a project the contractor must have a license present and valid in that state. When the bid is won and construction is set to begin, the contractor will, again, need its license present.

What governing body has a licensing requirement that may apply to construction companies?

State boards for contractors, engineers, and architects are set in place for those specific licenses. Cities and counties may have specific restrictions or requirements, especially in states that have no specific licensing requirements. Illinois is one state does not have specific requirements for general contractors. However, Chicago requires specific licenses for specific projects.



If the company is not considered construction, engineering, or architecture, is it still required licensing for the work being asked to perform?

It depends. Developers may have to be licensed for certain circumstances if they agree to provide construction services, even someone else performs the work. The license requirements that have to do with contractors, architects and engineers often include construction management. Lastly, equipment sales contracts that also provide for design and construction as part of installation may require licensing.

Does the company fall under any exemptions?

There are several types of exemptions but only if the company qualifies for them. There are owner and utility exceptions. If you are working on a federal project, there are exemptions for that before working. There are also exemptions for cross-over practice by design professionals or licensed contractors.

Who would be the license holder?

First, you have to determine if the license has to be in the company’s name before working on a specific project. Second, determine if an employee or principal of the company may have to have a license in their name, especially for design professional licenses and also for qualifiers for contractor's licenses. Lastly, whether both the company and an employee/principal must have a license is important to note before starting a job.

If the company has the wrong type of license, can it be obtained?

Consider the most relevant board or specific licenses the type of company it is. In the case of architecture or engineering, some percentage of the firm must be owned by licensed design professionals. In the case of architecture or engineering, there are limitations on the name of the firm, especially when the firm name contains the names of individuals who are no longer practicing.

How does a company obtain the correct licenses?

It requires paperwork such as applications and registration forms. There needs to be some experience to reach requirements in order to qualify for licenses. There are examinations as well as bonds and insurance that are needed before starting the project. In the State of Illinois, insurance is needed, no matter the city, to continue or begin working.

Is the company that is performing the work licensed?

Consider whether the project will involve a joint venture, other special, or one-time entity. Whether joint ventures and other such entities must have licenses of their own, it must be separate and apart from their parent firms. It is also important to note whether a joint venture or other new entity is being created to perform a design-build project.

What obligations does the law firm have once the license is obtained?

Law firms are obligated have specific aspects to look after.

• Requirements concerning abandoning work (that may come into play on a problem job)
• Required notices to customers
• Advertising requirements
• Language and information that must be included in contracts, bids or proposals
• Requirements to make progress payments and to pay other debts
• Requirements that only licensed subcontractors be used
• Requirements that worker’s compensation and/or liability insurance be maintained
• For architecture or engineering, what documents have to be stamped and by whom
  

After obtaining the license what must a company do to keep it in full effect?

There is periodic renewal processes and fee requirements, continuing education requirements, keeping required bonds and insurance in place, setting up a calendar to remind the company of those things, and keeping up with changes of licenses law in your state and where the company is licensed.

Example

There are several North Carolina cases where courts have refused to permit contractors to recover payments in excess of the allowable limit for which the contractor was licensed. This rule applied even though the original contract amount fell within the contractor’s allowable limit. The contractor was denied recovery on change order work that it performed when such change order work caused the contract to exceed the allowable limit under its license See e.g. Sample v. Morgan, 311 N.C. 717 (N.C. 1984), overruled on other grounds; McK Enterprises, LLC v. Levi, 219 N.C. 647 (Ct. App. N.C. 2012).



It is important to note that the requirement to obtain a license is separate and distinct from the requirement for a business entity to register with the state in which it is performing work. Additional penalties and prohibitions will apply if a business entity does not properly register to do business with the jurisdiction in which it is performing work.

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