By Casey Jenkins
Congratulations! Your specialty subcontracting business is taking off, and you just won your first large contract in Kansas City! After years of hard work and development, you are expanding your business into a new major metropolitan region. This exciting new opportunity includes a design-build contract with both design and installation work.
What is the first thing you should do before signing your new contract? We suggest you talk to your business attorney, preferably one who focuses on Construction and Contract Law.
The first step is to ensure your company is qualified to do business in your new project location and holds the appropriate licenses and certifications to complete this project.
You will want to check state, county, and city licensing requirements for each discipline (engineering work and any trade licenses required). Suppose you are performing design or engineering services as part of a design-build contract. In that case, you will also need to ensure that you have the appropriate corporate structure and hold the correct licenses to perform the work. In the typical scenario, licensing is not even an issue early in the project. What often happens is a payment or contract dispute arises. It is then discovered that the contractor or designer did not hold the appropriate license, or a technicality exists, causing the license to be ineffective. This can have disastrous results for the business.
For example, if your company is not properly licensed to provide design services, you may not be able to enforce your contract. In Missouri, architectural and engineering companies must register with the state before entering into a contract and must hold the appropriate corporate licenses. A license requirement is consistent in most states, in one form or another.
Smaller companies are not the only ones to fall victim to licensing mistakes. In California, a large international company went through a series of corporate reorganizations. In the process, the original entity’s contractor license expired. Even though the new entity performing the work held the correct license, the contract in this case remained in the name of the prior entity when the license expired. Eventually, the company internally assigned the contract to the new entity holding the correct license. Despite the fact that an entity was appropriately licensed the entire time the company performed work (under one entity or another), it was a technical violation in nature. The company potentially lost 18 million dollars in fees.
The next time your business ventures into a new jurisdiction that you have not operated in before, you should seek competent counsel for all matters, especially in the complex area of professional and trade licensing law.