Sunday, February 20, 2011

Do CM Contractors Need a License?

Last month I listed advantages of construction management (CM) contracting over traditional general contracting. For example, construction contracting is a highly regulated occupation – liens, payments, codes, inspections, bonding, insurance, etc. CM contractors avoid most of these headaches. But if your state requires construction contractors to be licensed, do CM contractors need a license?

That’s a very good question. Remember that CM contractors are consultants. They don’t install materials and don’t have subcontractors. Why would they need a license?

Don’t answer that question before looking carefully at the licensing statute in your state. Usually the term construction contractor is defined very precisely. Sometimes that definition includes construction management and sometimes it doesn’t. For example, Washington D.C. Code of Municipal Regulations § 17-3905.2 requires that construction managers comply with all standards that apply to general contractors. The same is true in Virginia. VA Code Ann, § 54.1-1100.

Licensing statutes in other states don’t mention construction management. That leaves the issue open for courts to decide. Tennessee courts have decided that CM contractors need a license (Lowrey v. Tritan Group Ltd., 2009 U.S. Dist. LEXIS 60312). The same is true in New York (Liberty Management & Construction v. Wasserman, 1996 U.S. Dist. LEXIS 4408).

California courts have decided (at least for now) that CM contractors don’t need a contracting license. If you’re interested, the case is The Fifth Day, LLC v. Bolotin. The case was decided in March of 2009 by a court split 2 to 1 and includes a well-reasoned dissent. Expect the Bolotin decision to be overruled the first time a homeowner brings suit against an unlicensed CM home improvement contractor.

In other states where general contractors need a license, the licensing of CM contractors will remain an open question until the legislature speaks or a court has to decide the issue.

Even if your state doesn’t require a license, I think there are at least three reasons why a CM contractor should have the same license that a general contractor needs. First, having the appropriate license is reassuring to everyone concerned – the owner, trade contractors, suppliers, lenders and design professionals. Second, I believe courts and legislatures are going to recognize the growing popularity of CM contracting and close any loophole that permits CM contractors to work without a license. You don’t want to be caught in that loophole just when the loophole gets plugged. Finally, the penalty for operating without a license is severe. In many jurisdictions, an unlicensed contractor has no right to collect. Don’t take that risk.

I also recommend that your CM contracts include all notices and disclosures required in your state for the particular type project. Here’s a state-by-state list.

The AIA, AGC and CMAA publish model CM contracts. None include the notices and disclosures required by state and federal law. That makes these model contracts illegal for most jobs in most states. The free download of Construction Contract Writer includes a sample CM contract that complies with both federal law and the law in your state, regardless of the type of construction – residential, commercial or home improvement.

4 comments:

  1. Comment from Chris Galvez:

    First off I would like to say I love your [craftsman book company] products and trade info,

    That being said, I don't like the fact that "Paper contractors" don't need to be licensed for several obvious reasons.

    The major one being, most unlicensed contractor impostors have never framed and taking over a General contractor’s job without experience is a real problem. A general MUST be journeyman level carpenter and should have at least been a foreman running a crew of some sort. Although being a foreman unfortunately isn’t an actual requirement, it should be as it helps develop management skills.

    There is already a huge amount of unskilled so called contractors out there taking jobs from unlicensed GC's (and specialty contractors) and screwing up people’s homes, while making a bad name for real contractors all over the place.

    I'm not saying that CM don't have a place, but just because one knows how things work on paper does NOT mean they have the skill to take over the General’s job.

    Another reason to require a license is, paper contractors are making decisions with no responsibility for the decisions they have made. This is a very bad combo for people out there who don't care about the quality of their work (decision making) because they can cause problems and just leave.

    Finally, to manage a construction site one MUST have a clear understanding of structure, electrical, plumbing, HVAC, and water proofing. If not, the less knowledgeable CM may cause serious health (mold, etc.) problems, structural damage, fire hazards, etc.

    I know a paper contractor that is really good; however, he was a GC for over 30 years is licensed, and understands the "Big picture" when building a structure. By big picture I mean he knows when the trades are in sync and if they are doing their jobs correctly. If one hasn't ever been in the trades and is making decisions about the construction of a structure, it's asking for problems. I've seen engineers and architects screw things up and us "blue collar" workers would catch these mistakes and fix them all of the time... the idea worked on paper but was either not so easy to execute, or just plain didn’t work in a real world application.

    There will be some great CM that emerge from this but there will be more idiots that show up than good ones and California already has a problem with incompetent unlicensed so called contractors...

    There needs to be some sort of license or certificate that should be required for the CM (that didn't go to college for his or her degree).

    Chris Galvez
    Valiant General Contracting
    lic: 955166

    ReplyDelete
    Replies
    1. Gary W. Moselle, You are right most of general contractor doesn't have license. And also few of them don't know how to take license I hope these kind of article is really helpful.

      Delete
  2. I have heard that there is a specilaization called "construction management".........is it true?
    construction management

    ReplyDelete
  3. The law has changed, if you are a Construction Manager/Consultant for a construction company or Homeowners Association in California you now need to be licensed!

    Unfortunately, while Construction Managers did not need to be licensed at the time this blog post was written, this is no longer the case! Assembly Bill 2237 was by the State of California as a direct result of The Fifth Day, LLC v. James P. Bolotin. It came into effect January 1, 2013. The amendment broadens the definition of a licensed contractor to include a consultant, or a person who “provides or oversees a bid for a construction project” OR who “arranges for and sets up work schedules for contractors and subcontractors and maintains oversight of a construction project.”

    More information can be found at http://ab2237.com/

    The full language of the bill can be found at http://www.leginfo.ca.gov/pub/11-12/bill/asm/ab_2201-2250/ab_2237_bill_20120919_chaptered.pdf

    ReplyDelete