Scope of Work, Not Contract, Governs License Requirements

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In Pacific Caisson & Shoring, Inc. v. Bernards Bros. Inc., 198 Cal.App.4th 681 (August 19, 2011), the California Court of Appeals for the Second District held that a subcontractor on a public works project was not required to hold a C-12 specialty license despite the fact the prime contract between the general contractor and public owner required that the subcontractor hold a C-12 license.  Note: although the opinion does not expressly indicate, presumably, there was an integration clause in the subcontract integrating the terms of the prime contract.

The subcontractor, Pacific Caisson & Shoring, Inc. (“Pacific”), entered into a subcontract with Bernards Bros. Inc. (“Bernards”) to provide “temporary excavation and support work” for a medical center being constructed by the County of Ventura (“County”).  Under the terms of the  subcontract, Pacific agreed to excavate the site for footings, grade beams, plumbing and utility lines, backfill and grade, and provide temporary support, as well as to prepare and submit “calculations [of] subsurface conditions and geotechnical design parameters, factors of safety, assumptions, design criteria, overstress values and serviceability/deflection tolerances.”  Bernards’ prime contract with the County required the bidder for “temporary excavation and support work” to hold a C-12 specialty license.  Pacific, however, did not hold a C-12 license, but rather, Class B (General) and Class A (Engineering) licenses.

Pacific later filed a lawsuit against Bernards seeking $544,567 under the subcontract.  In response, Bernards argued that: (1) because Pacific did not hold a C-12 specialty license as required under its subcontract, Pacific was not properly licensed, and Pacific could not seek recovery for work it performed on the project; and (2) because Pacific was not properly licensed, that Pacific was actually liable to Bernards for all amounts Bernards had paid to Pacific on the project in accordance with Business and Professions Code section 7031.  The trial court, finding that Pacific did not hold a C-12 license, dismissed Pacific’s complaint against Bernards and awarded Bernards $206,437.91, representing the amount Bernards had paid to Pacific on the project.  The Court of Appeals, however, disagreed.

The Court of Appeals, citing an earlier Second District decision in which it had held that a general contractor with a Class A license was not required to hold a Class B license to construct a beachside residence, found that Pacific’s Class A license permitted it to engage in the same work as a C-12 specialty licensee, including “temporary excavation and support work” and that, in fact, because the subcontract required “specialized engineering knowledge and skill” only a Class A licensee could perform such work.  The Court of Appeals also rejected Bernards’ argument that Business & Professions Code section 7059 (which provides that for public works contracts the awarding authority shall determine the license classification necessary to bid and perform the project) precluded Pacific from performing the work under a Class A license, on the ground that Section 7059 only involves the bidding process and does not apply to a contractor’s  dealings with third parties.

This is a troubling case for public owners and contractors.  Certainly, no one is suggesting that contracting parties arbitrarily require contractors to hold licenses that do not relate to their scope of work. However, owners already have a built in incentive to want to ensure that contractors hold licenses that demonstrate that they have the skills and experience necessary to deliver their projects.  After all, isn’t this the underlying premise of Section 7059?  Moreover, the decision creates ambiguity as to whether contracting parties can rely on, and ultimately enforce, contractual provisions contained in their agreements, at least when it comes to license requirements.

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