Inside the nation's varying contractor licensing rules — and how they impact business
In an effort to safeguard their residents against fraud and the chaos that can result from unprofessional behavior or lack of experience and knowledge, most states have some kind licensing procedure in place for professions like lawyers, physicians and real estate agents.
However, when it comes to construction contractors — who practice in an industry that is full of life and death scenarios — there is little state-to-state licensing uniformity.
How do these regulations vary across the U.S., and is there any indication that a strict regulatory scheme results in a higher level of professionalism and quality among contractors?
How licensing rules vary
"We see both extremes where it's extremely difficult to get a license, and then on the opposite side where anyone with a hammer and pickup truck can be a contractor," said Chuck Taylor, director of operations for Chicago-area Englewood Construction.
Taylor's assessment of the licensing landscape isn't an exaggeration.
Florida and California, for example, license a plethora of trades from pool maintenance technicians to drywall hangers to bridge builders. Along with extensive business and trade knowledge testing, both states have strict financial requirements, which include providing information about the person qualifying the applying company — the one who takes the required exams and assumes financial and professional liability for the its construction operations — other stakeholders and as the business itself.
California also requires a license bond, and Florida mandates that those qualifying a company have a minimum FICO score of 660. Both states also collect applicant fingerprints and run background checks.
Lee Weintraub, chair of the public private partnership practice at Becker & Poliakoff in Florida, said mother nature is partly to blame for the aggressive licensing agendas in these two states.
"My understanding ... is that it's because they are two of the biggest natural disaster zones," he said. "They get earthquakes, and we get hurricanes." And with extreme weather events come the predatory contractors who take the money and run, so the rationale behind the first laws was to protect consumers.
From those beginnings, he said, the scope of those licensing regulations grew into what the industry has today — a lot of licensed trades.
On the other end of the spectrum are states like Texas and Illinois, Englewood Construction's home state. Neither has a state-level contractor licensing system, with the exception of trades that are considered tied to public safety like roofing, fire protection, asbestos and electrical.
In a sector where exceptions are the rule, from state to state, there isn't one agency that is responsible for that type of licensing, either. It could be a state fire marshal's office, a public health agency or a financial services office.
But the differences aren't limited to states. Cities like Chicago and New York also have contractor registration and licensing programs of their own to fill in the gaps that state regulatory agencies leave behind. Even a state with far-reaching state licensing requirements like Florida still has county-level licensing for trades not covered by state law or for those who perform work in only one county.
In the case of, for example, a drywall contractor who only performs work in Pinellas County, FL, they can take an exam and get licensed locally, but, because there is an equivalent state-level license, they must still register with the state and meet the same financial requirements as a state contractor.
The impact of stricter requirements
The leaves the question: How do these rules impact contractors?
Taylor and Weintraub both said the extensive financial and application requirements of licensing systems, like there are in Florida and California, help weed out those financially unprepared to run a construction business.
Regarding the argument that such strict contractor regulations saddle contractors with too much paperwork and associated expense, Weintraub said, "There's no merit to the argument that it makes it worse for contractors. There are some restrictions that aren’t onerous like putting a license number on a truck … but there's no burden I see at all on your ability to run your company."
There are some local requirements, however, that Weintraub said could be considered more fundraising-minded.
For example, Florida licensed contractors are authorized to perform work freely throughout the state, but counties and municipalities still take a bite of the apple by levying registration fees or other charges, even if the contractor's base of operations is in another part of the state.
Englewood does work all over the country, and strict licensing requirements, he said, sometime seem like a purposeful barrier to entry.
For example, in Arkansas, one of the pieces of paperwork required with a general contractor's license application is an audited or reviewed financial statement, which can be a pricey proposition for a company the size of Englewood, as many accounting firms calculate their fees for this service based on company revenue. This is something that could derail a company's plans to enter the market, Englewood said, but it's difficult to ascribe motive.
New York doesn't have a major state licensing program either, according to John Patrick Curran, partner at Sive, Paget & Riesel. Contractors, he said, are licensed at the local level, with the exception of those working in the field of asbestos abatement.
In New York City, Curran said, along with some other cities, only contractor registration is required, but that's primarily for practical safety reasons. Registration assures the contractor has adequate insurance and complies with Department of Buildings rules.
For example, the DOB requires that projects between 10 and 14 stories have a Site Safety Coordinator on the job and that a Site Safety Manager must be present during construction on projects 15 stories and higher or more than 100,000 square feet. The DOB licenses both categories of safety personnel.
"It's more of a safety thing than anything else," Curran said of the contractor registration requirement.
Where quality comes into play
What about an impact on quality?
"Does the fact that you carry a license have any impact on your qualifications? I don't think so," said Andru Ramker, president of Hawkeye Construction of South Florida. His company performs work in many states where licensing requirements vary, and he doesn't believe there's a difference in skill level.
The primary reason for that, he said, is that the licensee is not usually the one performing the work, at least in commercial applications. Instead, there are layers of employees, subcontractors and independent contractors completing the actual construction. Quality control, he said, often comes down to whether supervisors have the training necessary to recognize if a crew is capable of doing the work.
Ramker added, however, that a positive license history can send a message to customers. "Where it would have an impact is that if a client comes to you and wants to select you, they have the ability to check and see your license is in good standing," he said.
In Ramker's case, he has been a licensed general contractor in Florida since 1979, and that demonstrated longevity, he said, can give clients assurance that he's not going anywhere until the job is done.
"From the standpoint of [many] of us who have a license," Ramker said, "we have it for all the right reasons and are proud to carry it."
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