(Written by Jack Milarch – NMHBA EVP/CEO – Originally published in the December 2009 Housing Journal)
Contractors May Forfeit Their Fees If Subcontractors Are Not Properly Licensed – More Information
Recently NMHBA’s Weekly Update featured a report on a NM Supreme Court ruling which allows customers to skip paying their contractor when the general contractor was in fact licensed; however the work involved use of an improperly licensed sub. This was reported in the Albuquerque Journal as a triumph for consumer protection. A summary of the Regulation and Licensing Department’s press release is noted below.
In a New Mexico Supreme Court case, the court found that consumers may refuse to pay for work performed by unlicensed subcontractors and that construction subcontractors are not exempt from state laws requiring a contractor to be licensed even when working under contract with a licensee. The case focused on an attempt by an Albuquerque contractor to collect payment from Rio Rancho homeowners for stucco work they found unsatisfactory. The homeowners contracted with the general contractor, a licensed contractor, to re-stucco their home. Without their knowledge, the general contractor contracted with an unlicensed subcontractor to do the work.
When the stucco job proved unsatisfactory and attempts by the licensed contractor to remedy the problems failed, the homeowners refused to pay on the grounds that the work had been performed by an unlicensed contractor. Under New Mexico law, consumers are not required to pay unlicensed contractors.
In a following lawsuit, District Court ordered the homeowners to pay the general contractor. The Court of Appeals upheld this opinion. However last week the New Mexico Supreme Court reversed the Court of Appeals and vacated the District Court’s judgment in favor of the general contractor. The court concluded that the subcontractor was not an employee of the general contractor as defined under the Construction Industries Licensing Act and could not operate legally under contractor’s license. “This ruling closes a significant loophole in New Mexico law and emphasizes the importance of always choosing a licensed contractor,” said RLD Superintendent Kelly O’Donnell.
RLD filed an amicus brief in the case, which the court cited as influential in their decision to reconsider the lower court rulings.
Unfortunately for our contractors, New Mexico’s licensing classifications can be confusing even for industry professionals. As more types of work overlap several categories (think solar installers with a little electrical, a little structural, a little plumbing, etc.), it is getting even more difficult. Many contractors have been trapped in this quagmire because even license holders are often confused about what they can do with their license. Obviously if a contractor in question is simply unlicensed in any classification, as apparently was the case reviewed by the Supreme Court, the problem should be obvious. Following this new ruling, general contractors who utilize subcontractors would be well served by a periodic check to be sure the subs are properly licensed. This is relatively easy to do: Simply go to the licensing website at www.public.psiexams.com then click on Licensee Search, and fill in either the company name or the person (“certificate holder”) holding the license to check. That’s easy. More difficult is making sure the licensed contractor has the proper license for the work you are undertaking. I often urge specialty contractors, such as GS-type license holders particularly, to actually read the description of the work their license allows them to do. When a contractor actually reads their long-held license classification description it is not unusual for that contractor to call back very alarmed that their license doesn’t seem to cover the type of work they have been doing for years! Every Construction Industries Commission agenda is littered with the names of contractors who have agreed to pay fines because they have been caught operating outside the scope of their license. Improperly licensed work is viewed by CID’s rules and law (and probably by the courts now, too) as unlicensed contracting. Check your own license at http://www.rld.state.nm.us/cid, go to the Rules and Laws section, then onto the link under Chapter 6 noted as NMAC 14.6.6 Classifications and Scopes. Scroll down to your license category. The exact address for that is more tedious, but here it is anyway:
The potential for problems caused by scope limitations, especially on specialty licenses, is solved for many contractors by holding the GB-98 license, which functions as New Mexico’s “uni-license” for general residential and commercial construction work. I agree that holding the “uni-license” can be cheap insurance against problems caused by New Mexico’s licensing classification quagmire. You say you just install rain gutters with a GS-32 so this doesn’t apply to you? What about when you pull off that rotten trim board and replace it? You probably just worked outside the scope of your GS-32 license! The GB-98 solution too has its limits, so don’t forget that the GB-98 does not cover such things as utilities, plumbing, mechanical, electrical, or road type work. For that you need one of the other “98” level or an applicable specialty license.
NMHBA supports the concept of properly licensed contractors, so at the policy level it is difficult to argue with the Supreme Court’s ruling on this case. The ruling does put more pressure on general contractors to make sure their subs are properly licensed. The last thing a contractor needs, especially now, is more reasons for their customers to skip paying what is due. General contractors may wish to visit with whoever drafts the contracts they use with their subs for amendments to put responsibility for being properly licensed for the work being undertaken onto the subcontractor who is bidding the job. Specialty contractors must be keenly aware of the limits of their license classification. Consider obtaining a GB-2, or better yet, a GB-98 license as quiet insurance against murky classification dangers.
Here is the text of the Law:
“60-13-30. Suit by contractor for compensation; pleading and proof of license.
- No contractor shall act as agent or bring or maintain any action in any court of the state for the collection of compensation for the performance of any act for which a license is required by the Construction Industries Licensing Act [this article] without alleging and proving that such contractor was a duly licensed contractor at the time the alleged cause of action arose.
- Any contractor operating without a license as required by the Construction Industries Licensing Act shall have no right to file or claim any mechanic’s lien as now provided by law.”
If you have questions or need more information on this subject please contact Jack or Melanie at the NMHBA office.