State licensing of construction contractors is prevalent. The purpose is to regulate the industry for the protection of the public, including homeowners, commercial project owners, and even public project owners. A contractor must have the appropriate license prior to entering into and performing a construction contract.
The impact of performing construction work without a proper license varies from state to state, based on statute and case law. But one common result is the inability of the unlicensed contractor to sue for payment under the contract. There are numerous limitations – the expiration of a previously valid license is a common exception – but in many states an unlicensed contractor cannot enforce a construction contract against a project owner.
This leads to an interesting question. When a contract exists within the industry, between two construction contractors, should the lack of an appropriate license be grounds for denial of payment? Maryland’s highest court recently answered this question in the negative. The state licensing statute was intended to protect the public. It was not intended to govern contractual relationships among knowledgeable members of the industry. A subcontractor could sue a prime contractor for payment under the subcontract even though the sub had been unlicensed at the time it signed and performed that subcontract.
How do you feel? Wouldn’t consistent denial of payment to unlicensed contractors encourage compliance and isolate unlicensed “outlaw” contractors? Or would it simply encourage general contractors to utilize unlicensed trade contractors in order to gain the inherent leverage that would result from the arrangement? I welcome your comments.
Featured in Next Week’s Construction Claims Advisor:
- Government Allowed to Pursue Architect for Construction Cost Escalation
- Pay-If-Paid Clause Negated by Language in Prime Contract
- Florida Court Interprets Bid Protest Filing Rules