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Do “Construction Managers“ Need to be Licensed Under California Law?

“Construction Managers” are used by many public and private property owners to oversee construction work on their property, particularly where owners do not have the skill or the personnel to do so, where the design professionals do not or cannot perform this work, or as a further supplement to the limited “construction administration” services typically performed by the project architect or engineer on many projects.

Do these “Construction Managers” need a license of any kind to perform such work?

On public works projects on public property, the answer is “yes”.

On public jobs or work on public property, construction management services may only be “provided by a licensed architect, registered engineer, or licensed general contractor”. Gov Code § 4525(e)

On private jobs done on private property the answer is “no”, provided that the construction manager does not contract to perform, hire others to perform, or perform itself any actual construction work.

A contractor’s license is required in California under the Contractors State License Law (Bus. & Prof. Code §§ 7000 et seq.) where one engages in the business of, or acts in the capacity of a “contractor”, as that term is used in the Act.

“(a) Unless exempted from this chapter, it is a misdemeanor for a person to engage in the business of, or act in the capacity of, a contractor within this state under either of the following conditions: (1) The person is not licensed in accordance with this chapter. . . .” (Emphasis added)

Bus & Prof Code § 7028

The term “contractor” is defined in the Contractors’ State License Law

"Contractor," for the purposes of this chapter, is synonymous with "builder" and, within the meaning of this chapter, a contractor is any person who undertakes to or offers to undertake to, or purports to have the capacity to undertake to, or submits a bid to, or does himself or herself or by or through others, construct, alter, repair, add to, subtract from, improve, move, wreck or demolish any building, highway, road, parking facility, railroad, excavation or other structure, project, development or improvement, or to do any part thereof, . . . .” (Emphasis added)

Bus & Prof Code § 7026. See also, Bus & Prof Code § 7026.1.

Thus, a person is not acting “in the capacity of a contractor” unless that person has contracted to or does “construct, alter, repair, add to, subtract from, improve, move, wreck or demolish any building . . . .”

Also, there are a number of exemptions or exceptions to the License requirement.

One is the “Owner/Builder” exemption:

(a) This chapter does not apply to any of the following:
(1) An owner who builds or improves a structure on his or her property, provided that both of the following conditions are met:
(A) None of the improvements are intended or offered for sale.
(B) The property owner personally performs all of the work or any work not performed by the owner is performed by the owner's employees with wages as their sole compensation.
(2) An owner who builds or improves a structure on his or her property, provided that both of the following conditions are met:
(A) The owner directly contracts with licensees who are duly licensed to contract for the work of the respective trades involved in completing the project.
(B) For projects involving single-family residential structures, no more than four of these structures are intended or offered for sale in a calendar year. This subparagraph shall not apply if the owner contracts with a general contractor for the construction. . . . .” (Emphasis added)

Bus. & Prof. Code § 7044

Licensed Architects and Engineers acting in their professional capacities are also exempt.

“This chapter does not apply to a licensed architect or a registered civil or professional engineer acting solely in his or her professional capacity or to a licensed structural pest control operator acting within the scope of his or her license or a licensee operating within the scope of the Geologist and Geophysicist Act.”

Bus. & Prof. Code § 7051

Under this exception, and under statutes regulating the practice of architecture and engineering, a licensed architect or engineer may exercise some supervision or administrative authority over construction projects on which they have prepared designs or done engineering work, so long as they have not agreed to perform and do not perform or control actual construction work or operations.

“A registered civil engineer may also practice or offer to practice, either in a public or private capacity, construction project management services, including, but not limited to, 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.” (Emphasis added)

Bus. & Prof. Code § 6731.3

“[S]upervision is within the scope of the professional capacity of engineers, as in the case of architects, . . . ( Wallich v. Salkin (1963) 219 Cal.App.2d 157, 162-163 [33 Cal.Rptr. 125].)”

Wynner v. Buxton (1979) 97 Cal. App. 3d 166, 176.

The same is true for architects.

“All California decisions which dealt with the question in any particular are in complete accord. They make it clear that, although an architect is not under a duty to supervise construction ( Payne v. DeVaughn, 77 Cal.App. 399, 402 [163] [246 P. 1069]), they do so supervise as a matter of common practice ( Peak v. Richmond Elementary Sch. Dist., 161 Cal.App.2d 366, 368 [326 P.2d 860]), and such supervision is properly within the scope of their professional capacities. ( McDowell v. City of Long Beach, 12 Cal.App.2d 634, 637-638 [55 P.2d 934]; Payne v. DeVaughn, supra, p. 402; Peak v. Richmond Elementary Sch. Dist., supra, p. 368.)”

“When architects do undertake supervision of construction in addition to the preparation of plans, they generally are compensated separately or additionally, and if they perform their supervisory duties in a negligent fashion, their liability therefor is separate and distinct from the liability of the party who negligently performs the actual building process. ( Alexander v. Hammarberg, 103 Cal.App.2d 872, 879-880, 882-883 [230 P.2d 399].)”

From the agreement in issue in the instant action, it is clear that respondent actually was contracting to perform as appellant's agent and in a supervisory capacity. He did not contract to build a building for a specified total cost. The contracts to be made with the actual builders, contractors and subcontractors were subject to the owner's prior written approval, and all payments were to be made directly by the owner. Such duties manifestly were within the scope of an architects "professional capacity." (Emphasis added)

Wallich v. Salkin (1963) 219 Cal. App. 2d 157, 162-163.

Further, more recent case law indicates that even someone who is not licensed as an architect or engineer may also act as a “construction manager” on a project without a Contractor’s license.

In a 2009 case from the Second District California Court of Appeal a business entity agreed with a developer “to provide certain “industrial real estate development and construction project management” services with respect to real property . . . .” to the owner/developer. The Fifth Day, LLC v. Bolotin (2009) 172 Cal. App. 4th 939, 940.

The owner/developer had its own design team and hired its own general contractor to perform the construction work.

In the contract with the owner/developer, the “construction management” company was to perform the following duties, “as Owner may specifically and expressly direct”:

—To provide a project development schedule setting forth Plaintiff's “good faith estimate of how long the regulatory and construction phases of the Project will last.”
—To hold and document regularly scheduled preconstruction meetings with Owner to “update the Owner, discuss issues, plan strategies to meet objectives and solve problems.”
—To provide “opinions or advice on administrative and management matters that relate to the coordination of work among and between the Contractors, Subcontractors, Disbursement Agent, Owner and the Design Professional(s).”
—To provide advice or opinions with respect to (1) “developing the budget for construction costs” and “controlling the overall budget for the Project,” and (2) “Owner's efforts to keep the Project moving forward” on budget and on time.
—To update the budget regularly, including a comparison between anticipated and actual expenses.
—To “provide cost and performance evaluations of alternative materials and systems … .”
—To assist the general contractor in “developing bidders' interest in the Project, establish bidding schedules and assist the Owner in preparing construction contract document —To “identify critical and high priority matters and promptly report the same to Owner,” and with respect to matters “requiring any immediate action” to “make recommendations for a short-term contingency plan to minimize Owner's exposure to loss or damage.”
—To provide “advice or opinions with respect to the development of an overall strategic plan for the management and administration of the Project.”
—To “coordinate and direct” the activities of design professionals hired by Plaintiff.
—To obtain building and special permits, “except for permits required to be obtained directly by the various contractors.” packages.”
—To assist the general contractor in the subcontractor bidding process and to ensure that the general contractor performs its duties with respect to bids from subcontractors and material suppliers.
—To maintain the financial books and records for the project.
—To report cash disbursements related to the project.
— To maintain contact information for the project team.
—To receive and review required certificates of insurance from the design professionals and contractors.
—To “use commercially reasonable efforts to achieve satisfactory performance from each of the Contractors and Subcontractors.”
—To conduct daily “on-site inspections and reviews” during construction, and to attend and report to Owner on “all on-site Project status meetings … .”
—To provide to Owner summaries of and to document all change proposals and change orders.
—To “ensure that the contract documents contain all necessary independent testing and inspection” and to “regularly review the testing and inspection reports … .”
—To report to Owner monthly “regarding the status of all or part of the Project.”
—To review with Owner monthly a draw request package, including approved applications for payment.
—To “coordinate the completion and correction of the work” and to “assist the Design Professional(s) in conducting substantial final inspections.”

172 Cal. App. 4th at 943-945.

In analyzing whether a contractor’s license was required to perform these “construction management” services, the Court looked to the statutory definition of a “contractor” under the License Law.

“ A “contractor”—a term “synonymous with ‘builder’” according to section 7026—is required to hold one of three categories of contractor's license: Class A (general engineering contractor), class B (general building contractor), or class C (covering “specialty” licenses). (§§ 7055–7058.) Section 7026 defines “contractor” as “any person who undertakes to or offers to undertake to, or purports to have the capacity to undertake to, or submits a bid to, or does himself or herself or by or through others, construct, alter, repair, add to, subtract from, improve, move, wreck or demolish any building, highway, road, parking facility, railroad, excavation or other structure, project, development or improvement, or to do any part thereof, … whether or not the performance of work herein described involves the addition to, or fabrication into, any structure, project, development or improvement herein described of any material or article of merchandise. ‘Contractor’ includes subcontractor and specialty contractor.”(Emphasis added)

172 Cal. App. 4th at 947.

In holding that no contractor’s license was required to perform these construction management services, the Court noted that those services did not fall within the essential functions of a “contractor” defined in Bus. & Prof. Code § 7026:

“[Construction Manager] neither contracted with Owner to perform any of the activities listed in section 7026's definition of a contractor, nor performed any of those activities. Indeed, Owner entered into a construction contract with Fullmer Construction, a licensed general contractor, to perform and/or supervise all construction on the project, and Fullmer Construction hired all of the subcontractors who performed construction services with respect to the project. In no way did the DMA contemplate that Plaintiff was to perform construction services, or assume the general contractor's responsibilities under the construction contract.” (Emphasis added)

172 Cal. App. 4th at 948.

In reaching this conclusion the Court also noted that there is an express statute (Gov. Code § 4525(e)) which requires that construction managers on public works construction projects be licensed as either architects, professional engineers or general contractors, but that there was no such similar statute requiring construction managers on private project hold any license of any type, much less a contractors license.

“We note as well that the Legislature provided that construction managers on public works projects must be licensed architects, engineers or general contractors. (Gov. Code, § 4525, subd. (e).) The Legislature determined that licensure was required for public works projects, and so enacted a statute to that effect; the fact that a similar statute applicable to privately owned real estate development projects was not enacted strongly suggests that the Legislature determined that licensure of construction managers was not necessary in that arena.

In short, the Legislature has not defined the term “contractor” to include persons who perform construction management services such as those set forth in the DMA. Fn.6, It is within the sole purview of the Legislature to determine whether private construction project managers should be licensed. To this end, the Legislature is empowered to conduct public hearings on the merits of such licensure, to solicit the views of the various players in the building industry who would be affected by such a requirement, and to amend the licensing law if it concludes that the public interest would be better served by such a revision. Unless and until the Legislature does so, its failure to expressly address the issue must be the last word.”(Emphasis added)

The Fifth Day, LLC v. Bolotin, supra, 172 Cal. App. 4th at 949-950. See also, Ahdout v. Hekmatjah (2013) 213 Cal. App. 4th 21, 31-32; 78 Ops. Calif. Atty. Gen. (1995) 48, 50-51; 57 Ops. Cal. Atty. Gen. (1974) 421, 422.

The State Supreme Court denied review of this case.

At this date it does not appear the General Assembly has created any contractor’s license requirements which apply to such “construction managers” on private construction jobs.

However, parties to construction contracts or persons proposing to hire “construction managers” or perform “construction management” services should be aware that this opinion does not apply where the construction manager contracts to perform, hires others to perform, or performs itself any actual construction work, or does “construct, alter, repair, add to, subtract from, improve, move, wreck or demolish any building . . . .”.

In those situations even licensed architects or engineers would also need a contractors license.

Thus, for example, although some contracts are labeled “Construction Manager” contracts, the services described in them involve the performance of actual construction work, for which a contractor’s license IS required.

Examples of such contracts are American Institute of Architects forms “2009, Owner/Construction Manager as Constructor Agreement - Cost of Work Plus Fee with GMP”, and “A134-2009, Owner/Construction Manager as Constructor Agreement - Cost of Work Plus Fee No GMP” and others, along with the related A201CMa.

N.B. The contents of this Article do not constitute legal advice or create an attorney-client relationship, and you may not rely on it without seeking legal advice regarding your particular situation and contract from a competent construction attorney.

Please also note that statutes and case law are frequently changing and these materials may become outdated.

For further information on this topic and how the current law may apply to your particular project and issues, Contact Us via email, phone (415)788-1881 or visit our website at www.wolfflaw.com for other contract information.

© George W. Wolff (2015), all rights reserved.