California’s Business and Professions Code requires contractors to be licensed by the Contractors State License Board (“CSLB”). The CSLB issues licenses in 44 different classifications which are separated into three categories: “A” licenses are for general engineering contractors, “B” licenses are for general building contractors, and “C” licenses are specialty licenses that cover everything from installing boilers to installing ornamental metal.
Performing construction work without a license or without the requisite license is a misdemeanor and can lead to the imposition of fines and in certain instances, jail time. (California’s Business and Professions Code Section 7028(a).) While potential imprisonment is unlikely, contractors are frequently fined, or prohibited from filing suit to collect money for their work. Perhaps most onerous, a contractor who is unlicensed, or working with a suspended license or the wrong license, can be forced to return all of the money it was paid for its work. (See our alert: Performing Work with a Suspended CSLB License Costs Big: Subcontractor Faces $18,000,000 Disgorgement.)
Because of the strict licensing rules in California, contractors find they are unable to bid on lucrative jobs that require specialty licenses they do not hold. The CSLB has in fact addressed this dilemma by allowing two or more contractors to create a joint venture that holds the requisite licenses required for the project. The contractors bid and perform the work under a joint venture that has been issued a CSLB joint venture license.
The CSLB authorizes the issuance of a “joint venture license” “ . . . to any combination of two or more licenses issued to sole proprietors, partnerships, corporations, limited liability companies, or other joint licenses.” A joint venture licensee is subject to the same CSLB regulations applicable to any other licensee or person performing work that requires a contractor’s license. The joint venture license “may be issued in any classification held by at least one of the entities.”
As noted above, the joint venture may jointly bid for work, if, each of them holds the requisite licenses needed for the project. For example, if a project’s scope of work includes framing (which requires a C-5 license) and cabinetry (which requires a C-6) license, a C-5 licensee could not bid the work if it did not also hold a C-6 license. However, it could form a joint venture with a C-6 licensees, and the joint venture could bid on the project.
The joint venture between two licensees can be formed through a written or oral agreement and can be formed for the sole purpose of working on one project. The CSLB facilitates this by allowing a newly formed joint venture to bid on work prior to obtaining a joint venture license (Business & Professions Code sections 7029.1(b), 7028.15(c). It is, however, unlawful for the joint venture to accept a contract, or perform any work without first having secured a joint venture license. (Business and Professions Code section 7029.1).
To obtain a single classification joint venture license, the joint venture needs only to submit a one page CSLB form and pay an application fee of $480. Additional license classifications can be added for $75 per classification. The joint venture must also comply with all CSLB licensing requirements including the posting of required bonds.
It is important to note a joint venture license will be cancelled if the joint venture dissolved, or if any of the joint venturers withdraws from the joint venture. Additionally, the joint venture license will be suspended if any of the joint venturer’s individual licenses is suspended or becomes inactive. Finally, the joint venture licenses will automatically expire two years from issuance. It can be renewed if the licenses of each of the joint venturers are active and in good standing.
The CSLB joint venture license allows contractors to undertake new work without having to go through a lengthy application and examination process. It gives small players the opportunity to expand by allowing them to pair up with larger, better financed and better equipped companies. It also allows large specialty contractors to bid on work without having to obtain a general contractors license.
Of course, there are potential problems that can arise with joint ventures. Principal among these is the withdrawal of one of the parties from the joint venture. By operation of law, the joint venture license will be suspended, and the joint venture and its remaining member or members may no longer perform services, unless as individuals they hold the requisite licenses for the project.
Thus, while a joint venture has substantial upside, the parties should ensure that they enter into a well drafted written agreement prior to seeking work as a joint venture.
This document is intended to provide you with information about construction law related developments. The contents of this document are not intended to provide specific legal advice. This communication may be considered advertising in some jurisdictions.