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Generally, contractors are required to be licensed in the state
in which they perform work. If not licensed, contractors may
be unable to enforce their construction contracts. And in certain
instances, licensing requirements for subcontractors may
be more relaxed than licensing requirements for general contractors.
As B.D. Stephenson Trucking, L.L.C. v. Riverbrooke
Capital Partners, L.L.C., 2006 U.S. Dist. LEXIS
73170 (S.D.Ala. 2006) demonstrates, a contractor’s ability to
maintain a lawsuit depends on whether the contractor has
complied with a state’s contractor licensing requirements—which
also may depend on whether the contractor is deemed
to be a general contractor or subcontractor.
In B.D. Stephenson Trucking, the contractor entered into an
agreement with the developer under which the contractor
was to perform water and sewer infrastructure work for a
new subdivision in Alabama. At the time of the agreement,
the contractor did not possess an Alabama general contractor’s
license (the "License"). Notwithstanding, the contractor
believed it could work under the developer’s license until the
contractor obtained its own License.
In reliance upon this belief, the contractor moved equipment
onto the project site and applied for its License. Shortly
thereafter, the developer informed the contractor that the
developer would not honor the agreement; the developer
found another contractor willing to perform the work for a
lesser amount. The contractor then filed suit, alleging breach
of contract and seeking specific performance of the agreement.
The developer filed a motion for summary judgment.
Among other arguments, the developer argued that the agreement
was unenforceable because the contractor had not obtained
a License and was required to do so.
In addressing the developer’s claim, the court noted that it
was a crime to engage in the business of being a general contractor
without obtaining a License. According to the court,
“Alabama courts have taken this principle one step further,
declaring that express or implied contracts with unlicensed
general contractors are unenforceable.” In addition, an unlicensed
general contractor cannot meet its requirements under
Alabama’s statute by associating itself with a licensed general
contractor or by obtaining a License after performance
of the contract. Thus, the developer was entitled to summary
judgment on its no-licensure defense if the developer
could demonstrate that (1) the contractor was unlicensed, (2)
the cost of the work was $50,000.00 or more, and (3) the
agreement was for work covered by Alabama’s statute.
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However, the court noted that Alabama’s licensing statute
was more relaxed for subcontractors than general contractors.
A subcontractor was not required to be licensed at the
time that it bids on a project; it only had to be licensed prior
to work being performed. Thus, a subcontractor could enforce
the agreement if no work had been performed prior to
obtaining a license.
The contractor conceded that it did not have a License and
that the cost of the work was more than $50,000.00. Therefore,
the only issue before the court was whether the agreement
was for work covered by Alabama’s statute. As such,
the court had to determine if the contractor was a subcontractor
or a general contractor. And if the contractor was a
subcontractor, the court had to determine whether any work
was performed by the contractor.
The court found that the contractor’s work on the project
consisted of a smaller portion of the larger project. Also, the
contractor’s affidavit indicated that the contractor believed
that it was to perform under the developer’s License. Based
upon these facts, the court found that there was a genuine
issue as to whether the contractor was a general contractor
or a subcontractor.
The court then addressed whether the contractor had actually
performed any work. Although the contractor had moved
equipment to the subdivision in preparation for its work, the
court found that moving equipment without any substantive
activity was not considered to be performing work within
the meaning of Alabama’s statute. Since there was an issue
as to whether the contractor was a general contractor or a
subcontractor, and whether the contractor actually performed
any work, the developer’s motion for summary judgment
(based upon the contractor’s failure to obtain a License)
was denied.
As B.D. Stephenson demonstrates, a contractor’s failure to
follow a state’s contractor licensure requirements can have
an impact upon the ability of a general contractor and/or a
subcontractor to enforce a contract. Further, a state’s contractor
licensure requirements may be different for general
contractors and subcontractors. As such, general contractors
and subcontractors must be aware of their specific licensure
requirements for the states in which they perform work.
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