Change is inevitable, even in the construction
industry. One of those changes is construction
consulting, sometimes called CM (construction management) consulting – or CM
for short.
Veteran builders will remember a time
when residential contractors did most framing and finishing with their own crews.
Today, a residential contractor with payroll is the exception. Most let subs handle
nearly all work.
CM consulting takes this trend one step beyond.
A CM contractor is a consultant to the owner, pure and simple. No subcontractors.
No payroll. No payroll taxes. No risk. The CM recruits contractors and subs, schedules the work,
orders materials, supervises the job and tells the owner when it’s time to pay bills.
But all decisions and contracts are in the name of the owner. Simple and easy.
Now
the Hard Part
Is a CM consultant
a “contractor” for licensing and contracting purposes? Only a few states have decided
the issue. Washington
D.C. Code of Municipal Regulations § 17-3905.1 to § 17-3905.14 requires that CM
consultants comply with standards set for general contractors. Tennessee (Lowrey
v. Tritan Group Ltd., 2009 U.S. Dist. LEXIS 60312) and New York (Liberty Management
& Construction v. Wasserman, 1996 U.S. Dist. LEXIS 4408) are the same. In nearly
all other states, whether a CM consultant is a contractor is anybody’s guess. So
if there’s no answer, you might ask, “Why should I care?”
Here’s why. Where contractors are
licensed, an unlicensed contractor has no right to collect. So a CM with no contracting
license might not be able to collect. That gets the attention of anyone working
as a CM. But it’s only the beginning. A consultant needs only an employment contract
– or no written contract at all. If your state considers CM consultants to be contractors,
every CM agreement has to include the notices and disclosures required in construction
contacts – up to 18 pages of fine print in some states. Without those notices and
disclosures, the CM contract is probably void.
Maybe you’re beginning to understand
the problem. Use the CM loophole and you risk getting pinched if the loophole closes without warning.
States have an interest here. They’re
not going to let the increasing popularity of CM consulting knock state regulation of contractors
into a cocked hat. California is an example. A March 2009 appellate decision (172
Cal. App. 4th 939) allowed CM consultant Fifth Day to collect from Bolotin like any contractor even
though Fifth Day did not have a contracting license. To stop an end-run around licensing law, the California
legislature clawed back. Last month, Governor Jerry Brown approved a revision of California Business and Professions Code § 7026. The law goes into effect on January
1, 2013. The new definition of “contractor” includes what every CM consultant does:
(A) Provides
or oversees a bid for a construction project.
(B) Arranges
for and sets up work schedules for contractors and subcontractors and maintains
oversight of a construction project.
That settles it, at least in California
and at least for home improvement work. Starting January 1, 2013, CM consultants
in California need a contracting license and have to work under a legal construction
contract. Expect other states to fall into line one by one.
Protect
Yourself
The AIA and CMAA publish model CM contracts.
Neither includes the notices and disclosures required by state and federal law. That
makes these model contracts illegal for most jobs in most states. Construction Contract Writer drafts CM contracts that comply with both federal law and the
law in your state, regardless of the type of construction – residential, commercial
or home improvement.
