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OUTLINEContractors License Law September 17, 2006

I. Relationships Between Parties in a Construction Setting A. Owner - Public Entity/ Private Party - Developer/ Homeowner 1. Architect 2. Contractor/Builder a. Subcontractors 3. Lender 4. Partnerships

II.

Obtaining a Contractors License A. Classifications 1. Class A - General Engineering Contractor - principal business requiring specialized engineering skills 2. Class B - General Building Contractor - principal business in constructing building[s] which will use at least two unrelated business trades. Framing or carpentry may be performed w/out limitation. 3. Class C - Specialty Contractor - 41 separate specialty licenses - principal business involves use of specialized building trades. General Requirements: 1. At least 18 years of age; 2. At least 4 years (w/in the last 10) of experience at one of the following levels: a. Journey level - completed apprenticeship or experienced worker, not a trainee, qualified to perform w/out supervision; b. Foreman, supervising employee- skill of journeyman plus supervising experience; c. Contractor - manages daily activities of a construction business, including field supervision; or d. Owner-builder - skills & knowledge of journeyman and works on his/her own property. e. The experience must be verifiable and certified by individuals who have knowledge of it. f. Applicant may get credit for education, but must have at least 1 year of practical experience. 3. Must pass written exam: Law and Business and trade exam. a. Requirement may be waived if: 1) applicant already holds license; 2) has passed the exam w/in last 5 years; 3) been a member of official personnel listed on the CSLBs records for any license that was active and in good standing w/in last 5 years; 4) member of immediate family of a licensee, actively engaged in licensees business for 5 of past 7 years and Page 1 California Contractors License Law

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license required to continue business because of absence or death of licensee. Must have more than $2,500 worth of operating capital. Must file a contractors bond or cash deposit in amount of $10,000. b. NOTE: on January 1, 2007 the bond amount increases to $12,500 w/ $5,000 reserved for consumers. If a Qualifying Individual is used a Bond of Qualifying Individual or cash deposit of $7,500 is required a. Not required if Qualifying Individual is RMO and certifies that he/she owns 10% or more of voting stock or equity. Fee of $400 to CSLB (subject to change) for each classification. a. $250 is application fee and $150 is initial 2 year license fee. b. Additional classifications require additional $50 fee each. c. Renewal fee is $300 Proof of Workers Compensation Insurance required, unless there are no employees. If exempt, certification of exemption must be filed with the Registrar. Must be fingerprinted after January 1, 2005 a. All new applicants and each officer, partner, owner and responsible managing employee b. All home improvement salespersons c. Individuals who are currently licensed by the CSLB and do not apply for any changes to his/her license, and applicants for a joint venture license will not be required to submit fingerprints. d. After submitting License Application, applicant will be sent Request for Live Scan Service. Must go to Live Scan location. e. Fees: i) Live Scan Rolling Fee (set by location); ii) $32 Dept of Justice fingerprint processing fee; iii) $24 FBI fingerprint processing fee.

E. Certain specialties require additional certification: a. Work with asbestos or other hazardous materials F. Active licenses must be renewed every two years. G. License may be issued to 1. An individual 2. A partnership 3. A corporation - a corporation registered with California Secretary of State a. Qualifying officers and individual do not have to remain the same

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4. A joint venture - two or more joint licensees working together may obtained a Joint Venture License H. Qualifying Individual - person listed on CSLBs records who complies with above stated requirements. 1. For individual license, QI may be owner or Responsible Managing Employee (RME). 2. Partnership - either one of the general partners or designated RME; 3. Corporate - any of the officers listed on CSLBs records who is designated as the Responsible Managing Officer (RMO) or a designated RME. I. Responsible Managing Employee (RME) - must be bona fide employee of the firm, may not be qualifier on other active license. 1. Regularly employed by and actively involved in the business operations for at least 32 hours per week or 80% of the time. J. Criminal Convictions may preclude individual from obtaining license. 1. Even if you think your record has been wiped out, you may still have to disclose it. III. Bonds A. $10,000 required for license plus $7,500 for each RME and RMO 1. Unless RMO owns 10% or more of stock or assets. B. Disciplinary Bond - For reinstatement of a suspended or revoked license, the licensee must file bond in amount determined by registrar, but not less than $15,000 or greater than 10 times the amount of the Contractors Bond. 1. Must remain current for at least 2 years C. General Bond Requirements 1. Bonds are not transferable. 2. Business named, and license number on bond must correspond exactly to CSLB records. 3. License number on bond of Qualifying Individual must match firm for whom individual is acting as QI. 4. Must be in the correct amount. 5. Must have signature of attorney-in-fact. Must be filed with CSLB w/in 90 days of effective date of bond. D. Bond Alternatives 1. Certificate of Deposit a. Issued by bank or S&L doing business in Cal.; b. Show business name of applicant/licensee; c. Payable to Contractors State License Board; e. Issued for period of at least 1 year and automatically renewable; f. Must state that interest will be paid to the depositor;

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2. Cash deposit may be made to CSLB directly a. Cashiers Check or bank certified check. b. Does not earn interest. 3. Bearer Bonds - Must be issued by the U.S. Government or State of California and delivered directly to a bank in Sacramento. a. Have an amount equal to or greater than required. b. Bank must deliver bonds to Treasurer of the State of California. E. Bond related suspensions 1. Surety company cancels any required bonds. 2. Exempt RMOs stock falls below 10%. 3. Judgment or payment reduces the amount of bond. 4. Failure to maintain a disciplinary bond or cash deposit for the entire required time. IV. Civil Court Judgements A. Contractor required to report construction related judgment within 90 days of the judgment date. Judgment must be substantially related B. Judgment information is entered on contractors license record and notice sent to contractor. C. Notice gives contractor 90 days to resolve judgment D. If judgment not resolved, license is suspended and remains so until judgment is resolved. E. If contractor fails to report timely, reporting results in automatic suspension. a. Anyone can report a judgment by sending a copy of the judgment to CSLB. F. Once judgment is entered on record, it can affect other licenses. G. Satisfactory proof of payment: 1. Acknowledgment of Satisfaction of Judgment; 2. Copy of the front and back of cancelled check. a. Include phone number for judgment creditor. V. Complaints against Licensed Contractors A. Complaint filed with local CSLB Intake and Mediation office. B. Consumer Services Representative (CSR) contacts both parties for info. C. CSR attempts mediation, if unsuccessful - complaint referred to arbitration or assigned to enforcement representative (ER) for investigation. 1. If complaint is under $7,500, parties may participate in binding arbitration. D. Once probable violations are determined specifics of the complaint will be disclosed to the public upon request.

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VI.

Violations Established A. If violation is minor, CSLB may choose to send a warning letter only. B. If violation is more critical, the Registrar of Contractors may issue a citation 1. Can include an order to correct a project, make restitution to injured party and/or pay civil penalty up to $15,000. 2. Service of citation must be made by registered mail w/in 4 years. C. If licensee complies with order of citation, no further action required. D. If licensee contests citation, hearing is set before administrative law judge. 1. If licensee prevails, no further action; 2. If licensee does not prevail, must comply 3. Non-compliance may result in suspension and revocation of license. E. If violation is serious, the Registrar may file an accusation with the Attorney General stating the boards intent to suspend or revoke license. 1. Licensee may defend himself at hearing, law judge issues recommendation to Registrar; 2. Licensee and Registrar may negotiate a settlement or stipulation 3. If licensee does not respond the case is in default and Registrar will determine appropriate action. a. Revocation of License b. Suspension of License c. Stay of suspension (Probation) d. Recovery of Investigation and enforcement costs e. Dismissal of the matter with no penalties f. Injunction against unlawful activities. g. Criminal Charges F. Citations are disclosable to public for 5 years from the date of compliance. G. Monetary penalties can be cumulative. H. Registrar may assign a monetary judgment to an outside collection agency. 1. Collection costs can be added to fine.

VII.

Complaint against unlicensed contractor A. Misdemeanor in Cal. - Business and Professions Code 7040 through 7054.5 B. After complaint is filed with CSLB registrar may issue citation or refer the case to the local district attorney or Attorney General. 1. Citation includes: a. Order of abatement (cease and desist) b. Civil penalty up to $15,000. c. $500 fine and/or 6 mos in jail. 2. If Board does not receive a written appeal within 15 working days after issuance of citation it becomes a final order payable to CSLB. 3. Appeal heard before administrative law judge. C. If CSLB brings criminal charges, case appears in local criminal court. D. CSLB may apply for injunction. F. If fraud is committed on persons who are contracting for construction because of damage from a natural disaster, in an area that has been declared a state of emergency, fines shall be doubled and criminal enhancements may apply.

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VIII. Civil consequences of acting without license A. An unlicensed contractor has no right to sue an owner for compensation in any court in state. B. An owner can sue the unlicensed contractor ro recover all compensation paid to that contractor. C. Unlicensed contractor may not use Mechanics Lien or any other security. D. Exception if contractor meets following conditions: 1. duly licensed prior to performance; 2. Acted reasonably and in good faith to maintain license; 3. Did not know (reasonably) that he/she was not licensed; E. If unlicensed contractor is caught advertising, they must immediately cease advertising and disconnect any phone #s listed in the ad. IX. General license requirements A. License number must be included in all advertising. 1. Misdemeanor. 2. Includes the issuance of any card, sign or device, including airwaves. 3. Fine of not less than $700 and not more than $1,000. 4. If incorrect license number is fraudulently used, fine is $10,000. B. License number needed for construction permit. C. License required for award of public works projects. X. Special Requirements for Home Improvement Contracts A. Job over $500 must have written contract B. Progress payments can be required, but limited 1. Down payment may not exceed $1,000 or 10% of contract price, whichever is less. (Swimming pools is $200 or 2%) 2. Payment schedule must reference work done or materials supplied. 3. Building permits and preparation of plans is considered work performed C. Contract must state that owner is furnished with unconditional releases of mechanics liens before payment for whole or part of work. D. Statement close to signature that owner has right to require performance bond. E. Notice that failure to complete work within 20 days of stated date is violation of CSLB law. F. Must also include Notice to Owner forms and Notice of the Right to Cancel. G. Homeowner and builder may choose to use a Joint Control company. 1. The CSLB may approve of the joint control company if the specified addendum is used. H. Unlicensed contractor may do work under $500, but must disclose, in specific language, that they are not licensed.

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XI.

Home Improvement Salesperson A. Any person employed by a home improvement contractor to sell, negotiate or execute contracts for home improvements, must register as a Home Improvement Salesperson. B. Must be 18 years of age. C. Exceptions: 1. If person is an officer of record of licensed corp. 2. If sales negotiations were initiated by prospective buyer at or with a general merchandise retail establishment operating from a fixed location were good and service are offered for sale. 3. A person who contacts prospective buyer only to set appointments. 4. Bono fide service repair person in the employ of licensed contractor. D. Contractor who employs an unregistered salesperson subject to disciplinary proceedings. E. Unregistered person acting as salesperson is committing misdemeanor and citation can be issued. F. A home improvement salesperson can work for more than one contractor. G. A home improvement salesperson cannot offer kickbacks or excessive incentives to homeowners as inducement to contract (over $5). H. May not be compensated by anyone but contractor.

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