As a general rule, contractors, architects, and engineers must be licensed in order to engage in the erection of a new structure or in the repair, remodeling, or alteration of an existing structure. Licensing requirements are a matter of state law and depend upon statutes that have been enacted in the various states.
If a state requires a contractor, an architect, or an engineer to be licensed, the contractor, the architect, or the engineer will be subject to civil and criminal penalties for designing or for performing construction work without a license. Such civil and criminal penalties include fines and even imprisonment. The contractor, the architect, or the engineer may also be precluded from engaging in his or her profession for a certain period of time.
If a contractor, an architect, or an engineer performs construction work without a license, the contractor, the architect, or the engineer cannot maintain an action in a court of law to recover for his or her labor and materials. The failure to obtain the license is a defense to any action against an owner.
Contractors, architects, and engineers are required to be licensed for construction work even if the work is to be performed by others who are licensed. If the contractor, architect, or engineer merely hires a licensed subcontractor for the work, he or she must still be licensed.
In some states, if contractors, architects, or engineers perform construction work without a license, they may not only be precluded from recovering for their labor and materials, but they may also be required to "disgorge" their compensation, that is, pay back any compensation that they received while they were unlicensed. The compensation that must be paid back includes compensation for labor and materials and for profits, as well as payments that have been made to subcontractors and suppliers. The compensation that must be paid back is not dependent upon the quality of the work. The compensation must be repaid even if the work was satisfactory.
In other states, if contractors, architects, or engineers perform construction work without a license, they may be required to pay restitution to their victims as part of their criminal fines and penalties.
In addition, one state, the State of Hawaii, requires unlicensed contractors, architects, or engineers to forfeit their tools and equipment that are used in connection with their unlicensed construction work.
Unlicensed contractors, architects, and engineers were previously allowed to avoid the penalties for failing to obtain a license for construction work by claiming that they substantially complied with the requirements for obtaining the license. In other words, they could claim that they thought that they were licensed and did not know that they were unlicensed. The substantial compliance defense is now limited to cases where the failure to obtain the license occurred as a result of a clerical or an administrative mistake and where the contractor, the architect, or the engineer promptly corrected the mistake upon being informed of the mistake.
In some states, developers, suppliers, and construction managers may be required to be licensed. The requirements are based upon a person's involvement or participation in the construction process.
Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.