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


Blurred Lines

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.

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