Subcontractor Licensing – Recovery Allowed Where Subcontractor Held Class A General Engineering License Rather Than Class C Specialty License Required by Contract

California law provides a stiff penalty for unlicensed contractors. They may not sue to recover payment. California Business & Professions Code ("BPC") § 7031(a) states:

"No person engaged in the business or acting in the capacity of a contractor may bring or maintain any action or recover in law or equity in any action in any court of this state for the collection of compensation for the performance of any act or contract where a license is required by this chapter without alleging that he or she was a duly licensed contractor at all times during the performance of that act or contract, regardless of the merits of the cause of action brought by the person." (Emphasis added)

Thus, even if the job is completed competently and to the owner's satisfaction, the owner may still refuse to pay the unlicensed contractor and there is nothing the unlicensed contractor may do.

There are three general classifications of contractors licenses under California's licensing scheme. Class A licenses are general engineering contractor's licenses. Class B licenses are general building contractor's licenses. Class C licenses are specialty trade licenses, e.g. stucco, roofing, grading, etc. BPC § 7055.

In a recent California Court of Appeals decision, Pacific Caisson & Shoring, Inc. v. Bernards Bros., Inc., 2011 DJDAR 12647, the court considered whether a subcontractor who possessed a general engineering license, but not a specialty license, was entitled to recover for work performed under a subcontract which required a specialty license. The court ruled that recovery was allowed, on the theory that the specialty license was subsumed within the greater requirements of the general engineering license.

In the case, the general contractor, Bernards Bros., had a contract from the City of Malibu to build a medical center. Bernards' contract with the City included a requirement that the subcontractor hired by Bernards to excavate the foundation and prepare the ground for the medical center hold a C-12 grading contractor's license. Bernards hired Pacific Caisson & Shoring to perform the excavation work. Pacific did not possess a C-12 license. Instead, it possessed a Class A general engineering contractor's license.

Due to a dispute which is not detailed in the appellate opinion, Bernards Bros. refused to pay Pacific at the conclusion of the work. Pacific filed suit seeking payment of $544,000 owed to it under the contract. Bernard Bros. moved for judgment on the grounds that Pacific did not hold the requisite license, i.e. a C-12 grading contractor's license, and therefore was barred by BPC Code 7031(a) from bringing suit to recover payment. The trial court granted Bernard Bros.' motion, entering judgment against Pacific.

The trial court's ruling was reversed on appeal. The appellate court ruled that Pacific's possession of a Class A general engineering license was more than sufficient to qualify it to perform work expected of a C-12 grading licensee. Accordingly, it was entitled to be paid for its work.

The appellate court carefully detailed the statutory definition of a general engineering contractor. BPC section 7056 states that a general engineering contractor:

"Is a contractor whose principal contracting business is in connection with fixed works requiring specialized engineering knowledge and skill, including the following divisions or subjects: irrigation, drainage, water power, water supply, flood control, inland waterways, harbors, docks and wharves, shipyards and ports, dams and hydroelectric projects, levees, river control and reclamation works, railroads, highways, streets and roads, tunnels, airports and airways, sewers and sewage disposal plants and systems, waste reduction plants, bridges, overpasses, underpasses and other similar works, pipelines and other systems for the transmission of petroleum and other liquid or gaseous substances, parks, playgrounds and other recreational works, refineries, chemical plants and similar industrial plants requiring specialized engineering knowledge and skill, powerhouses, power plants and other utility plants and installations, mines and metallurgical plants, land leveling and earthmoving projects, excavating, grading, trenching, paving and surfacing work and cement and concrete works in connection with the above mentioned fixed works. (Emphasis added).

In contrast to a general contractor, "a specialty contractor is a contractor whose operations involve the performance of construction work requiring special skill and whose principal contracting business involves the use of specialized building trades or crafts." BPC § 7058(a). Specialty licenses are established by the California State Contractors Licensing Board; the criteria for each specialty license is published in the California Code of Regulations ("CCR"). An earthwork and paving contractor (License C-12) "digs, moves, and places material forming the surface of the earth, other than water, in such manner that a cut, fill, excavation, grade, trench, backfill, or tunnel (if incidental thereto) can be executed." 16 CCR 832.12.

Finally, the court detailed the scope of work performed by Pacific under its subcontract with Bernard Bros. Under the subcontract documents, Pacific agreed to excavate the site for footing, grade beams, plumbing and utility lines, backfill and grade, and provide temporary support. It also agreed to prepare and submit "calculations of subsurface conditions and geotechnical design parameters, factors of safety, assumptions, design criteria, overstress values, and serviceability/deflection tolerances." In short, Pacific contracted to perform both grading work and engineering work. The court stated, "The subcontract required of Pacific activities that fall beyond the purview of a C-12 contractor but within the expertise of a Class A licensee."

The importance of this case is its emphasis on the broad qualifications required of a Class A general engineering contractor or, by implication, of a Class B general building contractor. It is difficult to imagine a scenario where the possessor of a Class A or a Class B license would be considered unqualified to perform work under any specialty license.