ConstructionPro Week, Volume: 6 - Issue: 26 - 06/30/2017

Should Licensing Laws Shield Sophisticated Owners from Payment?

The cynical view of contractor licensing requirements is that they are intended to generate revenue and restrict competition. The broader view – and official public policy – is that licensing schemes protect consumers and project owners. And, the statutes are effectively enforced through provisions that make it impossible for an unlicensed contractor to sue for payment for its work.


This can produce some harsh results. A project owner can benefit from the labor and materials of a contractor, knowing full well of the contractor’s unlicensed status, and then refuse with impunity to pay the contractor. Given this draconian scenario, should licensing statutes protect sophisticated business entities as well as unsophisticated consumers such as homeowners?


A California construction company, which acknowledged it lacked a license, recently argued that the large corporate project owner with whom it did business should not be shielded from its payment obligations. The owner was quite capable of protecting its interests. An appellate court rejected this argument. The state licensing statute makes no such distinction and the California courts have repeatedly allowed large, sophisticated business entities to refuse payment to unlicensed contractors.


Not all states are as strict as California. Some state statutes limit the right to withhold payment to residential owners. For contractors, however, the message is clear. Prudence dictates a current appropriate license in the jurisdiction where the work is located. Otherwise, the contractor may be in jeopardy.



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