by Hanna Lee Blake, Associate

When visiting a doctor’s or lawyer’s office for the first time, one typically looks for the framed and conspicuously-placed license from the applicable state regulatory board.  For most, that piece of paper provides security, ensuring that the person you seek to place your trust –even your life – is properly qualified in his or her field.  Many state legislatures have determined that the construction industry is no less important and that contractors should likewise be regulated; although that degree of regulation varies from state to state.  In Virginia, the legislature has enacted licensing regulations designed to “protect the public from inexperienced, unscrupulous, irresponsible and incompetent contractors,” as a lawful exercise of its police power.  These Virginia contractor licensing regulations carry hefty penalties and even the most skilled contractors may find themselves facing grave consequences of witting or unwitting violation.  For instance, unlicensed contractors may be unable to recover compensation for work performed because Virginia courts will not enforce construction contracts entered in violation of the Commonwealth’s licensing regulations.  Unlicensed contractors in Virginia are also at risk of criminal penalties under Virginia Code § 54.1-1115.  Given the harsh consequences of noncompliance, contractors bidding for and performing construction in Virginia should be aware of the applicable licensing requirements.  This article will provide an introduction to Virginia’s contractor licensing requirements found in Virginia Code § 54.1-1100, et.  seq., and the penalties unlicensed contractors face.  In addition, this article will provide some suggestions for avoiding common pitfalls of noncompliance with the licensing regulations.

Contractor Defined

The Virginia Code defines “contractor” as follows:

[A]ny person, that for a fixed price, commission, fee, or percentage undertakes to bid upon, or accepts, or offers to accept, orders or contracts for performing, managing or superintending in whole or in part, the construction, removal, repair or improvement of any building or structure permanently annexed to real property owned, controlled, or leased by him or another person or any other improvements to such real property.

While the statute’s definition of “contractor” is extremely broad, the legislature has carved out certain exemptions to the application of this regulatory legislation.  Any person falling within an exemption is not bound by the regulations discussed in this article.  Among others, the following are exempt:

1.    Work for the armed services of the United States under the Armed Services Procurement Act;

2.    Work for the Department of Transportation on the construction, reconstruction, repair or improvement of any highway or bridge;

3.    Material suppliers who do not provide construction or installation services; and

4.    Any person who performs or supervises the repair or improvement of industrial or manufacturing facilities, or a commercial or retail building, for his own use.

The interpretation and application of the statute and, more specifically, whether a person is exempt from the licensing requirements, is often a question for the courts.  Virginia courts have considered many arguments propounded by unlicensed contractors attempting to recover compensation pursuant to a construction contract despite their failure to obtain proper licensing in accordance with the statute.  For example, some contractors have argued that they are “construction managers” as opposed to “contractors” in order to avoid the licensing requirement.  This argument, however, has been largely unsuccessful.

The contractor in Bowers Family Enterprises, L.L.C. v. Davis Brothers Construction, Co., 55 Va. Cir. 11 (Va. Cir. Ct. 2001) argued that it was not required to be licensed because its duties under an oral contract would have consisted of monitoring, scheduling and costs, ensuring that quality objectives were met and that the activities of subcontractors were coordinated, and authorizing and making payments to subcontractors.  The Virginia Circuit Court, however, rejected the contractor’s arguments and held that those duties fell squarely within the statutory definition of “contractor” and, thus, the contractor was required to obtain a license to even bid on work in the Commonwealth.  As a result of its failure to do so, the contractor was denied recovery.

Classes of Licenses

Another common issue facing Virginia courts is whether a licensed contractor has obtained and maintained the proper class of license under Virginia law. The Board for Contractors issues licenses in three classes: Class A, Class B and Class C. The type of license is dependent upon the value of the projects being bid upon and/or performed, as well as annual value of contracts undertaken.

Class A contractors are eligible to perform work on or manage single projects that are greater in value than $120,000 or collectively greater than $750,000 annually.

Class B contractors are eligible to perform work on or manage single projects that are greater in value than $7,500, but not more than $120,000, or collectively greater than $150,000, but not more than $750,000, annually. 

Class C contractors are eligible to perform work on or manage single projects than are greater in value than $1,000, but not more than $7,500, and collectively not more than $150,000 annually.

Exceeding the monetary limits of a license may prove a bar to recovery.  The Fairfax County Circuit Court in Daniel Jones Remodeling, LLC v. Johnny Cheng-The Chiu, et al., CL-2007-14511 (April 24, 2008), addressed this very issue.

The contractor in Daniel Jones Remodeling was involved in a residential renovation project for the contract price of $128,600.  The contractor, however, held a Class B license, which limited the value of its single contracts to $120,000.  After completing the project and receiving payment in the amount of $128,913.51, the contractor attempted to recover an additional compensation for alterations requested by the owners.  To avoid the certain consequences of performing unlicensed construction, the contractor argued that no Virginia case law addressed the discrete issue involved in the case, i.e., a contractor exceeding the monetary restrictions of its license, as opposed to performing work without a license.  The contractor also attempted to invoke the statute’s “safe-harbor provision,” arguing that its actions should be excused because it was unaware of the monetary limitations of its Class B license.  The contractor’s arguments did not persuade the Court.

In a letter opinion, the court held that the legislature’s intent was clearly “to protect the public from contractors who exceed their authorization just as it protects the public from contractors without licenses.” Moreover, the court held that the “safe-harbor provision” did not apply because that section was designed to protect innocent contractors and did not create an exception for contractors who exceed the monetary limits of their licenses.  Accordingly, the contractor’s case was dismissed.  The contractor in the Daniel Jones Remodeling case was unable to recover for extra work it performed because the contract was void from the outset since the original contract price exceeded the limitations of its Class B license.  The case demonstrates the importance of not only being licensed, but also having the right class license and abiding by the monetary limitations thereto when contracting in the Commonwealth.  The ruling begs the question, though, whether the result would have been the same if the original contract price had been under $120,000, i.e., within the limitations of a Class B license? What if the owner changed the scope, causing the contractor to exceed the monetary limitations of its license, after contract award? Would that make the difference? While that particular issue has not been settled by Virginia courts, it could be argued that the Daniel Jones case stands for the proposition that contractors will not be excused for exceeding the monetary limitations whether “innocently or otherwise.” As such, contractors must consider the possibility of an increase in the value of their contracts and the limits of their licenses of Class B or C.  If there is any foreseeable chance that they will exceed the limits of their license, contractors should seek to obtain a higher class license, before entering into the contract.

Safe-Harbor Provision

Virginia Code § 54.1-1115(C) creates an exemption to contractors that are unaware of Virginia’s licensing requirements.  This exemption, known as the “safe-harbor” provision, is designed to excuse those who perform in good faith and whose violations are inadvertent.  This exemption has been utilized to preserve the right to recover compensation for construction work performed by contractors who lacked actual knowledge of Virginia’s licensing requirements, and in some cases, claims of contractors who honestly misinterpreted the meaning or application of the statute.  In one case, a plaintiff corporation performed work under the erroneous belief that the personal contractor license held by its president satisfied Virginia’s licensing requirements.  See J.W. Woolard Mech. & Plumbing, Inc. v. Jones Dev. Corp., 367 S.E.2d 504 (Va. 1988).  Under the statute, however, the contractor corporation had to be licensed.  As a result of the contractor’s good-faith performance and lack of actual knowledge, the court determined that the contractor’s claim was not barred pursuant to the safe-harbor provision of the version of the statue then current.

Conclusion

Contracting for or bidding on work in Virginia without the appropriate contractor license is a Class 1 misdemeanor.  In addition to criminal penalties, unlicensed contractors will likely find themselves without civil recourse in the event that they are not properly compensated for the work they perform on a given project.  The following tips may help to avoid the harsh penalties of Virginia’s licensing statute:

•    Be familiar with the licensing regulations.  See Virginia Code § 54.1-1100, et. seq.

•    Prior to bidding on a contract, evaluate whether you hold the proper class license.  This is determined by the value of the project you are bidding on and/or the collective value of contracts you have performed within a 12- month period.  It there is a chance that you will exceed the  monetary limitations of a given license class, consider applying for a higher class license.

•    Ensure that the license you hold has not expired and will be current throughout the anticipated duration of your project.

•    Should you have any questions regarding the legal effect or practical application of the licensing statute, consult a legal professional.

For more information regarding licensure eligibility and application procedures, visit: www.dpor.virginia.gov.


The information or opinion provided in this article is the author's own and not necessarily that of Watt, Tieder, Hoffar & Fitzgerald, LLP. The author is solely responsible for the information and opinion that he or she has provided. The information contained herein does not replace seeking specific legal counsel to directly address individual client needs.

Watt, Tieder, Hoffar & Fitzgerald is one of the largest construction law firms in the world, with a practice that encompasses all aspects of construction contracting, claims and disputes resolution, and transactional legal services. WTHF principally represents large general contractors, design firms, and sureties throughout the country and internationally.