This is the question that was likely asked by an improperly licensed subcontractor (to its attorney) after a trial court entered judgment for the general contractor against the subcontractor, potentially denying the subcontractor the half-million dollars it expected for work it already completed.

In Pacific Caisson & Shoring Inc v. Bernards Bros., Inc. (Mar. 3, 2011) No. B219199, 2011 DJDAR 3381, subcontractor Pacific Caisson & Shoring, Inc. (Pacific) sued its general contractor Bernards Bros. Inc. (Bernards) in Los Angeles County Superior Court for the sum of $544,567 for work performed under Pacific’s subcontract with Bernards, for which it had not been paid.

Under its subcontract with Bernards, Pacific was to provide temporary excavation and support work on a construction project for the County of Ventura. The prime contract required the bidder for the temporary excavation and support subcontract to maintain a class C-12 specialty earthwork and paving contractor’s license under the Contractor’s State Licensing Law (CSLL §7000 et. seq.). Pacific held a Class A general engineering contractor’s license and a Class B general building contractor’s license, but never obtained a Class C-12 specialty license. Furthermore, for nearly three months (during the fifteen months Pacific was performing work at the construction site), Pacific’s licenses were under suspension and/or allowed to expire. However, the licenses were reinstated well before Pacific had completed its work under the subcontract.

The trial court granted Bernards’ motion for judgment, ruling that, because Pacific did not maintain a Class C-12 specialty license, it was not “a duly licensed contractor” and was hence not entitled to bring its action. (Bus. & Prof. Code § 7031, subd. (a).) The trial court judgment also ordered Pacific to disgorge the $206,437.91 that Pacific had already received from Bernards. Pacific appealed the trial court judgment in favor of Bernards, claiming that it had “substantially” complied with procedures to maintain its proper license throughout the subcontract’s period.

Under Section 7031 of the CSLL, no person engaged in the business of a contractor, may bring or maintain any action for the collection of compensation for the performance of any contract where a license is required without alleging he or she was a duly licensed contractor at all times during the performance of that contract, regardless of the merits of the cause of action. The CSLL is designed to protect the public from incompetent or dishonest providers of building and construction services. The purpose of section 7031 is to enforce the CSLL.

Fortunately, for Pacific, the reviewing court reversed and remanded, holding that Pacific’s Class A license sufficed for the project because the Class C-12 specialty license was a lesser license that was fully encompassed within the Class A license requirements, which permitted licensees to engage in the same work as Class C-12 licensees. The appellate court concluded that the case should be remanded, as a trial was necessary to determine whether Pacific had substantially complied with procedures to maintain its proper license throughout the subcontract’s period.

Construction lawyers in California whose practice involves advising subcontractors and/or general contractors should pay close attention to the legal nuances of this case, along with Section 7031 of the CSLL. If you represent those in the construction industry, you should advise them to pay close attention to any licensing requirements of any contract or subcontract they may enter into. Construction clients should also be advised to closely monitor their licenses to ensure that they remain active and are not permitted to expire during the period of time they are performing work under a construction contract. You don’t want your client to be anxiously looking at you (after it has performed substantial work on a construction project and has not been paid) and asking, “you mean I might not get paid anything?”

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