By Steven Simas

We hear some version of this question all the time: “I’m not swinging a hammer. I’m just lining up the subcontractors and sending the invoices. Why would I need a contractor’s license?”

It’s an understandable assumption. Plenty of businesses act as the go-between on a project, whether they are developers, property managers, consultants, or companies that sell a “turnkey” solution and hire out the actual work. But in California, if you contract for construction work and bill for it, the law generally treats you as a contractor, even if every bit of the work is done by someone else.

What the Law Says

California’s Contractors State License Law defines a “contractor” broadly. Under Business and Professions Code section 7026, a contractor is anyone who undertakes, offers to undertake, or claims the ability to construct, alter, repair, add to, or improve a building or other project, “whether by himself or herself or through others.”

Those last three words do a lot of work. If you are the party that agrees to deliver the construction work and gets paid for it, you are “undertaking” the work, and hiring subcontractors to perform it is doing it “through others.” Courts have generally applied the license requirement to these pass-through arrangements.

Why It Matters: You Might Not Get Paid

The consequences of working without a license are serious, and they land where it hurts most: your bank account.

• You can’t sue to collect. Under Business and Professions Code section 7031, an unlicensed contractor generally cannot bring a lawsuit to recover payment for work that requires a license, even if the work was done well and the customer is happy with it.
• You may have to give the money back. Section 7031 also allows the person who hired you to sue to recover everything they already paid. That can mean returning the full contract price, not just your profit.
• Criminal and administrative penalties. Contracting without a license is a misdemeanor, and the Contractors State License Board (CSLB) can issue citations and fines.
• Trouble for the people you work with. A licensed contractor that knowingly uses an unlicensed subcontractor can face discipline, and unlicensed participants can create real problems on public works projects.

When You Don’t Need a License

There are some important exceptions, but they are narrower than many people expect:

• True billing or payment agents. If you only process invoices or payments for a licensed contractor and are not a party to the construction contract, you are probably not “undertaking” the work. The details matter: who signs the contract, who is responsible for performance, and who the customer looks to if something goes wrong.
• Material suppliers. Selling materials without installing them generally does not require a license.
• Employees. People working as employees of a licensed contractor do not need their own license.
• Minor work. Very small jobs below the dollar threshold in section 7048, counting labor and materials together, are exempt. That threshold has been raised in recent years, so check the current amount.
• Licensed design professionals. Architects and engineers performing design work within their own licenses are covered by their own licensing laws.

Joint ventures should also take note: a joint venture generally needs its own license, even if each partner is licensed individually.

A Quick Self-Check

• Does your company sign contracts promising that construction work will be done?
• Does your company send the invoices and collect payment for that work?
• Would the customer look to your company if the work were late or defective?
• Is the project above the minor-work threshold?

If you answered yes to these questions, you very likely need a license, or you need to restructure the deal so that a licensed contractor holds the contract directly.

Getting It Right

The good news is that these problems are usually preventable. Options can include obtaining the right license classification, having a licensed contractor contract directly with the owner, or forming a properly licensed joint venture. The time to sort this out is before you sign the contract, not after a payment dispute arises.

Simas & Associates helps contractors, developers, and consultants with licensing questions, CSLB investigations, and payment disputes. If you have questions about whether your business needs a license, give us a call at (805) 547-9300 or email info@simasgovlaw.com.

This post is general information, not legal advice. Every situation is different, so please talk with counsel about your specific circumstances.