Do Construction Managers Need to be Licensed in California? A Case of Blurred Lines

Blurred LinesIf this Summer had an anthem it would likely be Robin Thicke’s hit single Blurred Lines (or, perhaps, more accurately, its music video of models who appear to have forgotten to get dressed). Number 1 on the billboard charts, fodder for Freudian-like criticism, and the inspiration for numerous parodies, it’s quite catchy. Everybody get up . . . hey, hey, hey!

But for us more staid, buttoned-up types, what gets our blood pumping (as opposed to leggy models purring “meowww” in our ears), are the big questions in life: Like what number comes before infinity? Why are paintings of Adam and Eve shown with them having navels? Has anyone really killed two birds with one stone? And, do construction managers need to be licensed in California?

Ok, so the last one may not break into the Billboard Top 20 big questions in life, but it’s an important one for many in the construction industry, and shares, like many other big questions, a not so straightforward answer. Thanks to California Construction Law Blog reader and long time acquaintance, David Ross of David Ross Associates, for posing this question which sparked my interest, and subsequent ire when I couldn’t find a straight forward answer (we more buttoned-up types also tend to be a bit fussy).

Construction Managers

Construction Managers or “CMs,” are one of those construction professionals where it’s hard to say whether they’re a relatively new development or whether they’ve been around forever but simply never given a formal name. Whether new or old, it appears that CMs are here to stay, and often fill the gap between design professionals and general contractors, offering pre-construction and construction advice on constructability, scheduling, project costs, contract administation, project safety, and construction operations.

But if they do all these things, yet they don’t put pen to drawing board or pick up a hammer, do they need to be licensed?

Public Works Projects

The answer depends, at least in part, on the type of project.

On state and local public works projects, Government Code sections 4525 et seq. provides that only licensed architects, registered engineers, or licensed general contractors can perform “construction project management” services, which is in turn defined as including construction project design review and evaluation, construction mobilization and supervision, bid evaluation, project scheduling, cost-benefit analysis, claims review and negotiation, and general management and administration of a construction project.

So, for state and local public works projects the answer is yes.

Home Improvement Projects

However, when it comes to private works projects the lines get . . . well, a bit blurred.

Assembly Bill 2237, which took effect January 1, 2013, was intended to help clarify that construction managers performing work in connection with residential home improvement contracts are required to be licensed by the California Contractors State License Board (“CSLB”). After the passage of A.B. 2237, attorneys representing homeowners associations (“HOAs”) began to ask whether A.B. 2237 applied to HOA community managers and most concluded that it does not unless the HOA community manager performs actual physical work.

The distinction they made was this –

Assembly Bill 2237 amended the California Business and Professions Code to add subsection 7026.1(a)(2)(B) which defines a “consultant” (i.e., a CM) as a person other than a public agency or owner-builder who performs work pursuant to a home improvement contract and either: (1) provides or oversees a bid for a construction project; or (2) arranges for and sets up work schedules for contractors and subcontractors and maintains oversight of a construction project:

(a)(2)(B) For purposes of this paragraph, a consultant is a person, other than a public agency or an owner of privately owned real
property to be improved, who meets either of the following criteria as it relates to work performed pursuant to a home improvement contract as defined in Section 7151.2:

(A) Provides or oversees a bid for a construction project.

(B) Arranges for and sets up work schedules for contractors and subcontractors and maintains oversight of a construction project.

Although Subsection 7026.1(a)(2)(B) does not expressly state that a CM has to do actual physical work before it is required to be licensed, the HOA attorneys have argued that Subsection 7026.1(a)(2)(B) must be read in conjunction with Subsection 7026.1(a)(2)(A) which requires anyone who undertakes, offers to undertake , or purports to have the capacity to undertake , or submits a bid to construct any building or home improvement project, or any part thereof, to have a contractor’s license:

(a) (2)(A) Any person, consultant to an owner-builder, firm, association, organization, partnership, business trust, corporation, or company, who or which undertakes, offers to undertake, purports to have the capacity to undertake, or submits a bid to construct any building or home improvement project, or part thereof.

Thus, according to the HOA attorneys, a CM does not need a license if he or she merely provides or oversees a bid for a construction project or arranges for and sets up work schedules for contractors and subcontractors and maintains oversight of a construction project so long as the CM does not actually physically “construct” anything.

I suppose that’s a reasonable interpretation, but judges and juries apply the laws, not us lawyers. So, I called a contact I have at the CSLB enforcement division to get her take. Her take, was that a CM needs a license whether or not he or she performs actual physical construction so long as he or she: (1) provides or oversees a bid for a construction project; or (2) arranges for and sets up work schedules for contractors and subcontractors and maintains oversight of a construction project, otherwise, Subsection 7026.1(b)(1) would swallow Subsection 7026.1(b)(2) whole and essentially make Subsection 7026.1(b)(2) meaningless.

So, where does that leave us? It leaves us in the thickets. And, here’s why –

The HOA attorneys are essentially reading an “and” into the statute, as in, a CM only needs to have a contractor’s license if he or she performs actual physical construction “and” either provides or oversees a bid for a construction project or arranges for and sets up work schedules for contractors and subcontractors and maintains oversight of a construction project. My CSLB contact on the other hand is essentially reading an “or” into the statute, as in, a CM needs to have a license if he or she performs actual physical construction “or” either provides or oversees a bid for a construction project or arranges for and sets up work schedules for contractors and subcontractors and maintains oversight of a construction project.

The problem, of course, is that the statute doesn’t use “and” or “or.”

[Update: On September 20, 2013, Senate Bill 822 was enacted which amended Business and Professions Code section 7026.1 by reorganizing the section and adding a new subsection (b) which provides that the term “contractor” or “consultant” does not include a common interest development manager, as defined under Business and Professions Code section 11501, and that a common interest development manager is not required to have a contractor’s license when performing management services, as defined in Business and Professions Code section 11501(d). Thus, the State Legislature has cleared a way out of the thicket and to permit common interest development managers to perform management services (which includes administering construction contracts so long as the common interest development manager does not actually perform construction work) without having to have a contractor’s license.]

Other Private Projects

So, what about other private projects, like commercial projects and residential projects not involving home improvement contracts?

This would appear easier to answer since Subsection 7026.1(a)(2)(B) only applies to home improvement contracts. Therefore, only Subsection 7026.1(a)(2)(A) applies. And, as discussed, Subsection 7026.1(a)(2)(A) only requires a license if a CM “undertakes, offers to undertake, purports to have the capacity to undertake, or submits a bid to construct any building or home improvement project, or part thereof.”

However, even this is subject to some debate. As some legal commentators have suggested – “the courts and the CSLB have consistently interpreted the state’s licensing scheme to require that CMs with active construction-phase roles hold a contractor’s license,” leaving the only exception, CMs performing “only contractually well-defined design-phase [work] and purely advisory construction-phase services.”

However, this may be based less on cases and administrative decisions clearly articulating when CMs need to be licensed, but rather, on the potentially severe penalties a CM faces if he or she is found to need a license and doesn’t. The cases and administrative decision are few, but if you were to try to connect the few dots out there, I would agree that it does appears that the courts have taken a task-based approach (although not always consistently) and looked at whether the tasks being performed by a CM are advisory in nature (i.e., no licenses needed) or directive (i.e., license needed). And, while this provides some guidance to CMs, it is far from a bright line that CMs can rely on to know whether they’ve crossed or are about to cross the proverbial line.

Conclusion

So, there you have it. On state and local public works projects CMs need to be licensed, but on other types of projects the answer is decidedly less clear, and until this issue is clarified by the State Legislature by amendment, the CSLB by regulation, the Attorney’s General Office by opinion, or the courts . . . proceed with caution . . . as the lines are blurred.

23 Responses to “Do Construction Managers Need to be Licensed in California? A Case of Blurred Lines”

  1. Scott Wolfe Jr

    Garret – Excellent job with this article. I like the approach of breaking down which types of projects definitely required construction managers to be licensed, and which are in a legal gray zone. I think this is a messy situation nationwide, especially now that courts and licensing agencies are stumbling onto the issue with different interpretations.

    We just published an article about this issue and AB 2237 because someone commented on our original blog post about the Fifth Day case suggesting that AB 2237 legislatively reversed the decision. Upon close inspection, however, while the legislation was clearly passed in response to Fifth Day, it actually fails to address the larger question of construction management licensing.

    I conclude in my article that AB 2237 ignoring of the “construction manager” tag, and ignoring Fifth Day’s larger conclusion and focusing simply on home improvement contracting actually underscores the relevancy of Fifth Day. I think construction managers on non-home improvement and non-public projects will have a pretty compelling article that the legislature has not regulated them by citing: (1) The Fifth Day case; and (2) The lack of legislative action after the case even after passing a law in response thereto.

    Interested in you taking a look at my thoughts in this article and letting me know what you think about my conclusion:
    http://www.zlien.com/blog/new-california-law-passed-in-response-to-fifth-day-that-affects-construction-managers/

    Reply
    • Garret Murai

      Thanks Scott. As you point out in your post, AB 2237 further defines the term “consultant,” but does not specifically identify construction managers as being consultants or use the term “construction manager” in place of “consultant.” As you also suggest, definitional terms are only as problematic as their definitions, and that’s where the problem lies.

      AB 2237 added a new Business and Professions Code section 7026.1(b)(2) which defines “consultant” as a “person, other than a public agency or an owner of privately owned real property to be improved, who meets either of the following criteria as it relates to work performed pursuant to a home improvement contract . . . (A) Provides or oversees a bid for a construction project. (B) Arranges for and sets up work schedues for contractors and subcontractors and maintains oversight of a construction project.” That’s all fine and good.

      However, Subsection 7026.1(b)(2) must be read in conjunction with Subsection 7026.1(b)(1), which says that a license is required by “[a]ny person, consultant to an owner-builder, firm, association, organization, partnership, business trust, corporation or company, who or which undertakes, offers to undertake, purports to have the capacity to undertake, or submit a bid to construct any building or home improvement project, or part thereof.” And therein lies the problem.

      Is a construction license required only if you provide or oversee a bid for a construction project or arrange or set up work schedules for contractors and subcontractor mantain oversight over a construction project, as set forth in Section 7026.1(b)(2), or is a construction license only required if you do either of those two things as well as construct any building or home improvement project or part thereof, as set forth in Section 7026.1(b)(1)? Under the first scenario, a construction manager may need a license even if no actual physical construction work is performed. In the second scenario, a construction manager would only need a license if it performed actual physical construction work. This distinction is an important one.

      Reply
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    Reply
  3. brian shields

    So what keeps every individual project manager who works for a company who holds a license from falling into the requirement of needing a license whether they are bidding and performing home improvement work or scheduling a public works project? Project managers perform these tasks independently (if they are worth their salt) all the time.

    Thanks for the help and insight.

    Reply
    • Garret Murai

      Hi Brian. If it’s the company bidding and performing the work it would be doing that work under its license irrespective of whether the project manager holds his own individual license when performing work for the company. I hope this helps. Cheers.

      Reply
  4. Terry

    Here’s a wrinkle, a CM cannot get a contractor license unless they have 4 years experience in the field as a journeyman. Even if you have a Bachelors of Science degree in construction management and 10 years experience in public CM under a licensed CM.
    So how can you require a CM to have a license to manage if there is no current way for them to get one?

    Reply
    • Garret Murai

      Hi Terry. Good point. It’s a conundrum. If you’re currently working as a CM and trying to get a license, you can’t. But, if say, you’re working as a journeyman and want to become a CM, you can.

      Reply
  5. july1962

    I’m terrible with legal stuff, but, it seems that you left the header portion off of 7026.1 when describing a “consultant,” or maybe it’s been changed since this article was written?

    7026.1 says:

    (a) The term “contractor” includes all of the following:

    and then goes to:

    (2) (A) Any person, consultant to an owner-builder…

    and then goes to:

    (B) For purposes of this paragraph, a “consultant” is a person other than…

    and finishes with the definition you list above. However, it falls under the term “Contractor.” So then we have to go back to your first definition which said:

    “Government Code sections 4525 et seq. provides that only licensed architects, registered engineers, or licensed general “contractors “…

    So if you follow the logic, a “consultant” is considered a “contractor” via 7026.1 and a “contractor must be licensed via 4525.

    No?

    Reply
    • Garret Murai

      Thanks for your comment and sorry for my delay responding. I had to muster the courage to delve back into the whole “are CM’s required to be licensed or not” debate. As the article mentions, AB 2237 amended Business and Professions Code section 7026.1 effective January 1, 2013. However, a few months later on September 20, 2013, SB 822 was enacted which again amended Section 7026.1 but this time to make it clear that common interest development managers do not need to hold a contractor’s license so long as they don’t engage in actual construction. I’ve updated the post to add this update. Thanks for reading.

      Reply
      • july1962

        But from what I read about SB822, it only applies to “community association managers.”

        “By way of background, last year Section 7026.1 of the B&P Code was amended by the passage of AB 2237 mandating that a consultant overseeing home improvement construction projects have a contractor’s license. This amendment caused concern among some community association managers who were involved in common area maintenance and repair projects or bid compilation for their communities. If community association managers were considered “consultants,” then they too would have to have a contractor’s license under Section 7026.1. The Contractor’s State Licensing Board (CSLB) responded to the community manager concerns raised by clarifying that the intent of last year’s amendment (AB 2237) was not to include community association managers within the definition of a “consultant.” The CSLB accepted the proposed amendment to Section 7026.1, leading to its inclusion into SB 822.”https://rhopc.com/sb-822-managers-are-not-contractors/

        So it seems that there would be other types of “consultants” that are not affected by SB822?

        I had my kitchen remodeled by a small company. They sent out a guy to supervise the job that was unlicensed. No one from the company that was licensed ever stepped foot on my property. One RMO left the company during the job and there was a period of time when the company was without an RMO before another one went into the business. Regardless, the RMO never stepped foot on my property or had anything to do with my contract. Only the unlicensed guy that worked as my contractor.

      • Garret Murai

        I agree. In your case, however, it appears simpler. If you had a kitchen remodel done (and the value of the work was in excess of $500) the company performing the work would have to be licensed. This doesn’t mean that the individual performing the actual labor had to be licensed, but if the company was operating without an RMO or RME, during any part of your project they would be in violation of the Licensing Law.

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  7. Kay Costa

    Great reading MANY thanks in advance but all still confusing stuff! If person A consults with various private clients doing commercial construction projects doing the following: reviewing plan documents, preparing documents, reviewing bids, reviewing weekly progress, observing and reporting, do they need to be licensed today? I want to do the right thing for my clients!

    Reply
    • Garret Murai

      Hi Kay. Thanks for reading. That was the point of the post, that for commercial construction, the law is less than clear when an individual or company providing construction management services is required to be licensed. The safe thing to do would be to obtain a contractor’s license.

      Reply
  8. Bobby

    What if a property manager (other than an HOA manager) hires workers to perform work that requires a contractor’s license?

    In that situation, is the property manager acting as a contractor under B&P Section 7026 or Section 7026.1 (i.e., by “undertaking” to make repairs by or through others), such that the property manager must also hold a contractors license?

    Reply
    • Garret Murai

      Hi Bobby. I assume you are referring to existing residential projects (i.e., not new ground up residential construction projects). If so, the answer is yes with a caveat, which I will explain in a bit. If a property manager (but not a HOA manager) either (1) provides or oversees a bid for a construction project; or (2) arranges for and sets up work schedules for contractors ad subcontractors and maintains oversight of a construction project, the property manager would need to hold a California contractor’s license if the work has a value of $500 or more. But here’s the caveat: while I think Business and Professions Code section 7026.1(a)(2)(B) is clear on its face in requiring this, there are no cases I am aware of which have directly addressed whether property managers (other than a HOA manager) must hold a contractor’s license when they simply provide or oversee bids for a construction project or arrange for and set up work schedules for contractors and subcontractors and maintains oversight of a construction but do not do any actual construction work.

      Reply

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