Know state licensure requirements

Generally, contractors are required to be licensed in the state in which they perform work.?If not licensed, they may be unable to enforce their construction contracts, and in certain instances, licensing requirements for subcontractors may be more relaxed than those for general contractors.

In B.D. Stephenson Trucking, LLC v. Riverbrooke Capital Partners, LLC, the contractor entered into an agreement with the developer under which the contractor was to perform water and sewer infrastructure work for a new subdivision in Alabama.?At the time of the agreement, the contractor did not possess an Alabama general contractor's license (the "License"). Notwithstanding, the contractor believed it could work under the developer's license until the contractor obtained its own License.

In reliance upon this belief, the contractor moved equipment onto the project site and applied for its License. Shortly thereafter, the developer informed the contractor the developer would not honor the agreement.?The contractor filed suit, alleging breach of contract.

The developer filed a motion for summary judgment. Among other arguments, the developer argued the agreement was unenforceable because the contractor had not obtained a License and was required to do so.

In addressing the developer's claim, the court noted that it was a crime to engage in the business of being a general contractor without obtaining a License. According to the court, "Alabama courts have taken this principle one step further, declaring that express or implied contracts with unlicensed general contractors are unenforceable." In addition, an unlicensed general contractor cannot meet its requirements under Alabama's statute by associating itself with a licensed general contractor or by obtaining a License after performance of the contract.?Thus, the developer was entitled to summary judgment on its no-licensure defense if the developer could demonstrate that (1) the contractor was unlicensed, (2) the cost of the work was $50,000.00 or more and (3) the agreement was for work covered by Alabama's statute.

However, the court noted that Alabama's licensing statute was more relaxed for subcontractors than general contractors. A subcontractor was not required to be licensed at the time that it bids on a project; it only had to be licensed prior to work being performed. Thus, a subcontractor could enforce the agreement if no work had been performed prior to obtaining a license.

The contractor conceded that it did not have a License and that the cost of the work was more than $50,000.00. Therefore, the only issue before the court was whether the agreement was for work covered by Alabama's statute. As such, the court had to determine if the contractor was a subcontractor or a general contractor.?And if the contractor was a subcontractor, the court had to determine whether any work was performed by the contractor.

The court found the contractor's work on the project consisted of a smaller portion of the larger project. Also, the contractor's affidavit indicated that the contractor believed that it was to perform under the developer's License.?Based upon these facts, the court found there was a genuine issue as to whether the contractor was a general contractor or a subcontractor.

The court then addressed whether the contractor had actually performed any work. Although the contractor had moved equipment to the subdivision in preparation for its work, the court found moving equipment without any substantive activity was not considered to be performing work within the meaning of Alabama's statute. Since there was an issue as to whether the contractor was a general contractor or a subcontractor, and whether the contractor actually performed any work, the developer's motion for summary judgment (based upon the contractor's failure to obtain a License) was denied.

As B.D. Stephenson demonstrates, a contractor's failure to follow a state's contractor licensure requirements can have an impact upon the ability of a general contractor and/or a subcontractor to enforce a contract.?Further, a state's contractor licensure requirements may be different for general contractors and subcontractors.?As such, general contractors and subcontractors must be aware of their specific licensure requirements for the states in which they perform work.

Gerald I. Katz is an attorney specializing in construction law throughout the United States with Katz & Stone LLP, Suite 600, 8230 Leesburg Pike, VA 22182.