California Appellate Court Holds That A Construction Manager on a Privately Owned Project Does Not Need a Contractor's License
William C. Last, Jr.
Attorney at Law
It has always been clear that California construction managers who contract with public agencies to provide construction management services must have a valid California Contractor's License. The issue of whether or not such a license is required for privately owned projects has not been as clear. In the case entitled The Fifth Day, LLC v. James Bolotin, et al. (March 2009), an appellate court has addressed that issue.
In this case The Fifth Day, LLC (CM) entered into an agreement with Industrial Real Estate Development Company (Owner) to provide certain "industrial real estate development and construction project management" services. The contract set out a lengthy list of the CM's duties and obligations relative to the contemplated project. Generally, the CM 's duties included coordinating the activities of various workers, maintaining records, keeping the Owner apprised of the project status respond to on-site issues as they arose, and to be owner's general agent. The CM was not responsible for nor did it have the authority to perform any construction work on the project or to enter into any contract or subcontract for the performance of such work. In keeping with those limitations, the Owner contracted with a licensed general contractor to perform and/or supervise all construction. The general contractor in turn contracted with subcontractors.
Eventually the CM sued the Owner, seeking compensation allegedly due for construction management services rendered on the project. In defense of these claims the Owner asserted that the CM was not entitled to receive any compensation because it did not have a California contractor's license, and was thus barred pursuant to Business and Professions Code ("B&P"), §7031 (which bars unlicensed contractors from maintaining an action for payment). The trial court agreed with the Owner, but the appellate court reversed that decision and concluded that the CM was not required to have a contractor's license.
The appellate court reviewed the statutory definition of a contractor (B&P §7026) and concluded that the services provided by the CM did require it to have a contractor's license. The decision notes, "that the Legislature provided that construction managers on public works projects must be licensed architects, engineers or general contractors (Govt. Code section 4525)." The court went on to conclude that since the Legislature has not enacted a similar statute for privately owned projects the Legislature had determined that licensure of construction managers was not necessary for private projects.
A strongly worded dissent was rendered by a dissenting appellate court justice. The dissent reviewed the strong public policy in favor of requiring licensure. It also noted that "requiring licensing of construction managers who undertake to supervise the work of other licensed construction professionals is consistent with the purposes of the Contractors State License Law."
The Fifth Day case makes it clear that if a construction manager who is providing services to a private owned project limits its services to those set forth in the Fifth Day case and does not contract for or perform construction work, a contractor's license is not required. From this author's point of view, he would not be surprised if the Legislature amends the relevant statutes to require a construction manager to be licensed. Due to the strong public policy favoring contractor licensing, the author would also not be surprised if the California Supreme Court reviews the Fifth Day case.
This article, ©2009, was written by William C. Last, Jr. Mr. Last is an attorney who has been specializing in Construction Law for over 30 years.. In addition to belonging to a number of construction trade associations, Mr. Last holds a California "A" and "B" license. He can be contacted at 415-764-1990 or 650-425-7679. A number of his past articles can be found on his website (lhfconstructlaw.com). This bulletin is published periodically to provide general information about current legal issues. The articles are not intended to be a substitute for the advice of an attorney as to a specific problem. If you have a specific legal question or need legal advice, you should contact an attorney.