Chapter 2 Contractor Licensing Requirements

• Library: Arkansas Construction Law Manual (2016 Ed.)

Contractor Licensing Requirements

Lizabeth Lookadoo^* and Gregory L. Crow^**© 2016

2.1 ...... Scope of Chapter.......................................... 2-2

2.2 ...... General Requirements for Both Commercial

........... and Residential Licenses.............................. 2-2

2.3 ...... Requirements for a Commercial License........ 2-6

2.4 ...... Requirements for a Residential License....... 2-12

2.5 ...... Organization of the Commercial Board........ 2-14

2.6 ...... Organization of the Residential Committee.. 2-15

2.7 ...... Powers of the Commercial Board and

........... Residential Committee............................... 2-16

2.8 ...... Enforcement of Licensing Laws and

........... Regulations; Unlicensed Contractor Barred

........... from Suit................................................... 2-17

2.9 ...... Duties of Investigators................................ 2-19

2.10 .... Hearings Before the Commercial Board

........... and Residential Committee......................... 2-20

2.11 ..... Penalties for Violations of the Licensing

........... Laws and Regulations................................. 2-23

2.12 ..... Additional Criminal and Civil Penalties

........... for Violations............................................. 2-24

2.13 ..... Other Reasons a Licensee May Be Asked

........... to Appear Before the Commercial Board

........... or Residential Committee........................... 2-25

2.14 .... Steps a Contractor Can Take to Avoid

........... Violations and Otherwise Being Called

........... before the Commercial Board or

........... Residential Committee .............................. 2-26

__________

2.1 Scope of Chapter

This Chapter covers the different categories of contractor licenses, requirements for licensure, and penalties for violation of the licensing laws. It includes a discussion of the statutes, rules, and regulations for licensing of both commercial and residential contractors, including remodelers. The chapter concludes with steps a contractor can take to avoid violations and being called before the Contractors Licensing Board (“Board”) or Committee to defend itself or explain its business practices.

2.2 General Requirements for Both Commercial and Residential Licenses

On a commercial project, a “contractor” is anyone performing construction of $50,000 or more.¹ This threshold amount includes the total costs of both labor and materials.² On a residential project, the only contractor exempt from having a license is “a person or entity acting as a residential building contractor or a home improvement contractor on any project when the cost of the work done or to be done does not exceed two thousand dollars.”³ Exemptions for (1) owners acting as their own contractors, (2) manufacturers of installed equipment, (3) architects or engineers performing non-construction work, and (4) subcontractors of licensed residential contractors are discussed later in this chapter.

All applications for a Contractor’s license must be filed in one of five categories: (1) individual, (2) partnership, (3) corporation, (4) limited liability company, or (5) limited liability partnership. Each application must be supported by a qualifying party who has satisfactorily completed such examination as may be required by the Board. Should the qualifying party (business and law or trade) leave a licensed entity, written notice shall be given within 15 days to the Board. The notice shall state the name and position of the individual leaving and the name and position of the individual who will replace the departing qualifier. The replacement qualifier must be fully qualified within 30 days of the departure of the previous qualifier.⁴

In order to determine what rules apply, the first issue to be decided on any construction project is whether the project is “Commercial” or “Residential.” The commercial law has long contained an exception for “single-family residences.”⁵

“Single family residence” means any project consisting of one but not more than four units of new construction for residential occupancy.⁶ Therefore, a “single-family residence” is a traditional home, a duplex, a triplex, or a quadplex. Anything larger is not residential construction, but commercial. The definition of residential construction is narrow and cannot be used to “boot strap” a larger project out of the commercial licensure requirement. For example, contractors have attempted to build an apartment complex as a series of quadplexes and then claim an exemption from the law. The Board looks at the project as a whole, and if the project contains more than four units, it is considered a commercial project and subject to the commercial licensure requirements. Further, the Board has held that “residential” is limited to truly “residential occupancy.” While this term certainly includes structures built as a rent house, it does not include a bed and breakfast, a motel, or even a vacation or resort property that is rented weekend to weekend.⁷ Further, a project that is both commercial and residential, such as living quarters in one section and commercial space in another, has been held to be a commercial project.⁸

Lastly, the Board has held that a single contract including more than four homes is a commercial project. The case presented to the Board concerned a city that issued a request for bids to construct approximately 20 low-income homes. The homes were on separate lots spread out within the city in question. However, because the city was issuing one contract for the construction of all 20 homes, the Board held that the project consisted of more than four units and was therefore commercial and not residential.

Architects and engineers whose only financial interests in a project are fees for preparing plans, specifications, surveys, and supervision that is customarily furnished by architects and engineers are exempt from the licensing laws.⁹ This exemption allows an architect or engineer to perform the normal and customary supervision of a project required to carry out their design professional duties. It is not intended to allow architects or engineers to work as contractors or construction managers without a license.¹⁰

In Gore Engineering Associates, Inc. v. Arkansas Contractors Licensing Board the Arkansas Court of Appeals upheld the Board’s decision to find Gore Engineering in violation of the licensing law for working as a contractor without a license. Gore was originally hired as an engineer to investigate problems at a building and design plans to fix the problems. The owner also employed Gore Engineering to manage the remediation project. The Board found that Gore, among other things, selected and supervised the subcontractors, determined their work schedule, and approved the work for payment. It was undisputed that the contractors were paid directly by the owner, not by Gore. The Court found substantial evidence to support the Board’s finding that Gore acted as a contractor as defined by law. The engineers exception did not apply because Gore’s responsibilities exceeded the supervision that is customarily furnished by engineers.¹¹

There is also an exemption for “[m]anufacturers who produce equipment to be installed in the State of Arkansas and have the responsibility for the installation of the equipment, which would require a license, if the installation is performed by a properly licensed contractor.”¹² The purpose of this exemption is to allow an owner to contract with a manufacturer both to supply and install equipment. “Manufacturer” is limited to the actual manufacturer of the equipment. It does not include the wholesaler, retailer, or supplier. The manufacturer must manufacture the equipment that it has the contractual responsibility to install. A manufacturer of part of a machine cannot install the whole machine without obtaining a license.

2.3 Requirements for a Commercial License

If a commercial contractor is doing projects for less than $50,000, the contractor does not need a license.¹³ Of course, the contractor would still need any trade licenses otherwise required by the State. Ark. Code Ann. § 17-25-305 states:

(a) The Contractors Licensing Board, in determining the qualifications of any applicant for an original license or any renewal license, shall, among other things, consider the following:

(1) Experience;

(2) Ability;

(3) Character;

(4) The manner of performance of previous contracts;

(5) Financial conditions;

(6) Equipment;

(7) Any other fact tending to show ability and willingness to conserve the public health and safety; and

(8) Default in complying with the provisions of this chapter or any other law of the state.

To obtain a “Commercial” license, an applicant must show five years of experience in the field covered by the license; make a passing score on the business and law test; post a bond in the amount of $10,000 payable to the State; provide an audited or reviewed financial statement; and pay an initial fee of $100.00. When applying for a new license, half of the required net worth must be in cash. This means that if the application is for the Building Classification, then the financial statement must show cash on hand of at least $25,000. This requirement is only for new applications and does not have to be met when renewing the application.

All contractor’s licenses are issued under the name and address listed on the front of the application form. It is the responsibility of the contractor to inform the Board in writing of any name, address, ownership, or any other change relating to the licensing within 15 days of such change.

A contractor may be licensed in any or all classifications. A contractor licensed as: Heavy Construction; Highway, Railroad & Airport Construction; Municipal & Utility Construction; Building; Light Building; Mechanical; or Electric is authorized to perform any of the “specialties” associated with the classification in question. A...