Newland's Business Notes

Subcontractor Dirty Pool

Volume 12 Issue 3 -- May/June 2008

Brut El (“Brut”), a general contractor, successfully bids on building a new church in Manassas called Our Lady of Lifted Eyebrows.  Various parts of the project such as framing, drywall and masonry are “subbed out” to Hispanic subcontractors. 

Virginia, as many other states, has various licensing requirements for contractors.  There are “A,” “B,” and “C” class licenses, which are based on the monetary size of the contracts undertaken. 

Brut knows that A-Z Drywall Inc., the contractor retained to do the drywall in the new church, is not licensed under Virginia law.  Brut allows A-Z to complete 95% of the drywall work, at which time Brut asks A-Z if it has a Virginia contractor’s license.  The answer is “No.”  Brut then informs A-Z Drywall that it cannot pay A-Z because it is not in compliance with Virginia law. 

Many companies engaged in business may not be aware that if they are not properly licensed they cannot lawfully perform certain services and in some cases may be subject to criminal penalties. Aside from potential sanctions, there are practical reasons to be properly licensed to do business where services are performed. 

For example, if an unlicensed contractor enters into a contract in a state where they are required to be licensed and is not paid some or all of the contractor price, the contractor may be unable to institute a collection suit for the unpaid amounts.

Frequently, minority workers will learn a trade as an employee and then go out on their own without the knowledge that they need to be licensed.  Another problem is language.  Those who do not speak English well have considerable difficulty in obtaining licenses because often the exams are given only in English.  Despite the abilities of many of the subcontractors and the good work done, they are sometimes brutalized financially by the failure to have a license.  Many such contractors have performed good work and then been unable to get paid because they did not have a license.

Virginia legislators apparently saw that this type of advantage might be gained by some unscrupulous general contractors such as Brut. A law was enacted which states that if there has been “substantial performance” of a job or contract without actual knowledge that a license was required, it is not permissible to raise the lack of a license to avoid payment for the services provided.

In this example, could Brut block A-Z from maintaining a lawsuit to claim amounts due for the services provided if the work is substantially completed? There is little reported case law in Virginia addressing that question.

Could A-Z file a Mechanics’ Lien and prosecute it if Brut refuses to pay A-Z in this example?   Since A-Z would be prohibited from instituting a legal action except possibly under the exception referred to above, it would not generally be able to enforce a Mechanics’ Lien. Readers may want to see our January/February 2001 issue of Newland’s Business Notes entitled “Has a Mechanic Liened on You Yet? 

The Mechanics’ Lien law requires that after the lien itself has been filed against the property, it must be enforced within six months.  If the subcontractor is prohibited from taking legal action in the state of Virginia because it is not licensed, then it is dubious whether a lien could be successfully enforced by an unlicensed subcontractor. 

The simple answer might be to state that all contractors need to be licensed or they should not be providing services in the state.  Unfortunately, that is too simplistic. There are many contractors from many backgrounds which let their licenses expire or in some cases never got their licenses, particularly if they are working in a jurisdiction other than their home jurisdiction.  If an immigrant contractor has sufficient language skills to obtain a license, he or she should do so, and failing to get a license where required may put the contractor in a position where he can be brutalized by companies such as Brut. 

The interplay between subcontractors and general contractors presents many problems.  The lack of licenses by some subcontractors and the desire of some general contractors to be exploitive create such situations that could be described as “dirty pool.” 

If you have questions about this area or need business assistance, please contact Newland & Associates.  

Copyright 2008

Published by the law firm of Newland & Associates, PLC
9835 Business Way
Manassas, VA 20110
Call us at (703) 330-0000 for a full range of business law and tax-related services.

While designed to be accurate, this publication is not intended to constitute the rendering of legal, accounting, or other professional services or to serve as a substitute for such services.

Redistribution or other commercial use of the material contained in Newland's Business Notes is expressly prohibited without the written permission of Newland & Associates, PLC.

Return to Newsletter List
Return to Content Index
Home Page