BILL ANALYSIS Ó
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|Hearing Date:June 18, 2012 |Bill No:AB |
| |2237 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Curren D. Price, Jr., Chair
Bill No: AB 2237Author:Monning
As Amended:April 9, 2012 Fiscal:Yes
SUBJECT: Contractors: definition.
SUMMARY: Specifies that a "consultant" within the definition of
"contractor" as it relates to a home improvement contract, is a
consultant who schedules subcontractors, reviews and makes
recommendations on bids and the selection of contractors, or who
provides or oversees a bid, or who arranges for and sets up work
schedules for contractors and subcontractors and maintains oversight
of a construction project.
Existing law:
1)Licenses and regulates approximately 300,000 contractors under the
Contractors State License Law (Contractors Law) by the Contractors
State License Board (CSLB) within the Department of Consumer
Affairs. (Business and Professions Code (BPC) § 7000 et seq.)
2)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 perform contracting services, as specified. (BPC §
7026)
3)Further defines "contractor" to include, a consultant to an
owner-builder, firm, association, organization, partnership,
business trust, corporation, or company, who undertakes, offers to
undertake, purports to have the capacity to undertake, or submits a
bid, to construct a building or home improvement project, or part
thereof. (BPC § 7026.1 (b))
4)Classifies contracting in three different branches, generally
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Page 2
identified by letter identification:
A - general engineering contracting, B - general building contracting,
C - specialty contracting. (BPC § 7055 et seq.)
5)Defines "person" as an individual, firm, copartnership, corporation,
limited liability company, association or other organization, or any
combination thereof, and requires a person to be licensed as a
contractor if he or she engages in the business of contracting or
acts in the capacity of a contractor. (BPC § 7025)
6)Defines various terms relating to the home improvement business,
including:
a) "Home improvement contractor" as a licensed contractor who is
engaged in the business of home improvement. (BPC 7150.1)
b) "Home improvement" as including repairing, remodeling,
altering or adding to residential property, as specified. The
definition further includes installing home improvement goods or
furnishing home improvement services. (BPC § 7151)
c) "Home improvement contract" as an agreement, whether oral or
written, between a contractor (or salesperson) and owner or
tenant for the performance of home improvement. (BPC § 7151.2)
7)Makes it is a misdemeanor for any person to act as a contractor
without a license, and provides for enhanced penalties for a second,
third or subsequent conviction of contracting without a license, as
specified. (BPC § 7028)
This bill:
1)Further specifies that a "consultant" within the definition of
"contractor," is person, other than a public agency or an owner of
privately owned real property to be improved, who meets either of
the following, relating to work performed under a home improvement
contract:
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.
FISCAL EFFECT: The Assembly Appropriations Committee analysis dated
May 16, 2012, cites a minor increase in revenue for the CSLB due to
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requiring additional persons to obtain licenses. This revenue would
offset the minor and absorbable workload associated with increased
licensing and enforcement.
COMMENTS:
1.Purpose. This bill is sponsored by the Contractors State License
Board (CSLB) in order to require individuals serving as construction
managers or consultants with respect to a home improvement contract
to be licensed by the CSLB, if they exercise control over, or
maintain oversight of, a construction project.
The Author states that the bill would specify that the term
"contractor" includes any person, other than an owner of privately
owned real property to be improved, that meets any of the following
criteria: Provides or oversees a bid for a construction project;
arranges for and sets up work schedules for contractors and
subcontractors and maintains oversight of the project.
2.Background. The CSLB licenses and regulates the construction
industry in California. Anyone performing construction work that
totals $500 dollars or more in labor and materials must be licensed
by the CSLB. There are about 300,000 licensed contractors in the
state, in
43 different licensing classifications.
According to the CSLB, unlicensed contracting is part of California's
estimated annual $60 to $140 billion dollar underground economy. It
is illegal for an unlicensed person to perform contracting work and
the law applies criminal penalties to the conviction of acting as a
contractor without a license, which escalate as an individual has
multiple convictions. Besides being illegal, unlicensed contractors
lack accountability and have a high rate of involvement in
construction scams. They compete unfairly with licensed contractors
who operate with bonds, insurance and other responsible business
practices.
The CSLB's Statewide Investigative Fraud Team (SWIFT) is set up to
monitor and combat illegal activity. SWIFT has teams around the
state that conduct stings on a regular basis and sweep construction
sites. SWIFT also conducts joint operations and sweeps with other
state agencies dedicated to combating underground activity. The
partnerships with other agencies raise the penalties and fines for
violators by increasing the scope of violations to include taxes,
illegal payrolls, workers compensation and worker safety.
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In 2008, the CSLB adopted Precedential Decision No. 1, establishing
that someone acting in the capacity of a swimming pool consultant is
a contractor. In 2009, the Appellate Court decision The Fifth Day
v. Bolotin found that someone acting in the capacity of a
construction manager is not required to be licensed as a contractor.
The Fifth Day v. Bolotin decision undermines the CSLB's
Precedential Decision, and the CSLB believes the law should be
amended to clarify that an individual performing these services is
required to be licensed as a contractor and comply with the law.
The CSLB further indicates that recently, an unlicensed contractor
facing criminal prosecution for violating Business & Professions
Code Section 7028 (engaging in business of a contractor without a
license) claimed to have been a project coordinator and asserted
exemption from licensure, citing The Fifth Day v. Bolotin decision.
Although the unlicensed contractor was not overseeing a contract
between the project owner and a general contractor as in the Fifth
Day v. Bolotin case, the defense strategy was nonetheless of concern
to the prosecutor and ultimately resulted in a plea bargain
dismissing the BPC § 7028 charge, according to the CSLB.
3.Prior Legislation. SB 355 (Margett, of 2007) a similar measure,
which, as amended June 25, 2007, defined "consultant" to also mean a
person who executes direction and control of subcontractor schedules
or any other activity integral to the completion of any improvement
or project that is subject to licensure under the Contractors Law.
That bill also contained legislative intent language that the bill
was requiring construction consultants to be licensed under the
appropriate existing license classification not to authorize the
board to create a new classification of specialty contractor for
persons who provide construction consulting or construction project
management services. This bill died in Assembly Business and
Professions Committee.
AB 2723 (Connolly, of 1994) would have established a registration
program for construction consultants under the CSLB. This bill died
in Assembly Consumer Protection, Governmental Efficiency, and
Economic Development Committee.
AB 370 (Eng, Chapter 319, Statutes of 2009) increased the maximum
criminal fines for unlicensed contractors; required a mandatory jail
sentence for a third or subsequent conviction for unlicensed
contracting; clarified that the enhanced penalties for persons with
prior unlicensed activity convictions applies not only for
performing work, but also for offering to perform or submitting a
bid to perform contracting work.
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SB 797 (Ridley-Thomas, Chapter 33, Statutes of 2008) among other
things, provided that the misdemeanor penalties for unlicensed
contracting, including the enhanced penalties, also apply to an
unlicensed person who has been named on a previously revoked license
and was the person found responsible for the act or omission which
resulted in the revocation.
SB 488 (Soto, Chapter 205, Statutes of 2005) enhanced penalties for a
third and subsequent convictions for contracting without a license
and provides that it is a misdemeanor for the qualifying person of a
contractor's license to violate workers' compensation insurance
requirements.
SB 443 (Figueroa, Chapter 706, Statutes of 2003) required a court of
law to sentence repeat offenders of unlicensed contracting activity
to county jail for not less than 90 days.
4.Arguments in Support. The Contractors State License Board , sponsor
of this bill, indicates that the intent of this proposal is not to
license consultants or construction managers but to protect the
public from persons presenting themselves as 'consultants' but
acting in the capacity of a contractor by scheduling subcontractors
and exercising responsibility for the construction project.
California Spa & Pool Industry Education Counci l (SPEC) states that the
bill would require individuals serving as consultants to be license
by the CSLB, if they exercise control over, or maintain oversight
of, a construction project. This will clear any misconceptions
caused by the decision in The Fifthe Day v. Boltin, according to
SPEC.
California Landscape Contractors Association states that under
existing, law, a contractor is any person who undertakes or submits
a bid to construct any building or work of improvement. Supervision
and scheduling of work on a construction project is a commonly
understood function of a contractor. It stands to reason that
anybody who engages in these activities should be licensed and
subject to all of the obligations of contractors under the
Contractors State License Law.
California Business Properties Association , California Building
Industries Association , and Building Owners and Managers Association
of California , support the bill noting that the April 9, 2012
amendments clarify that the bill does not apply to commercial
construction projects.
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SUPPORT AND OPPOSITION:
Support:
Contractors State License Board (Sponsor)
Building Owners and Managers Association of California
California Building Industries Association
California Business Properties Association
California Chapter of the American Fence Association
California Fence Contractors Association
California Landscape Contractors Association
California Spa & Pool Industry Education Council (SPEC)
Construction Industry Legislative Council
Engineering Contractors Association
Flasher/Barricade Association
Marin Builders Association
Opposition:
None received as of June 13, 2012
Consultant:G. V. Ayers