Knowledgebase-City Contract with Unlicensed Contractor
August 1, 2001
You have the following question: Where a city has let a bid on a certain construction project (resurfacing a tennis court), the project is in progress, the contractor notifies the city that his contractor’s license has been suspended and offers to reduce the cost of the project to less than $25,000, can the city legally accept his offer?
In my opinion, the answer is probably no.
The obvious reason that the contractor has offered to reduce the original $35,000 + cost of the project below $25,000 is that the definition of “contracting” under the Tennessee Contractor’s Licensing Law excludes contracts below $25,000. [Tennessee Code Annotated, § 62-6-102].
There is a missing fact that might be important to the analysis of the question: The status of the contractor’s license when he bid on the project. You indicate that from the correspondence between the contractor and the Contractor’s Licensing Board that you have read, you cannot tell whether the contractor’s license was suspended at the time he bid on the project.
I cannot support my answer with any hard and fast law; there are no cases in this area. My answer is generated by a concern for the potential criminal liability on the part of the city officials who would make the decision to let the contractor proceed with the project. Under the Contractors Licensing Law it is a Class A Misdemeanor for an “official” to let a contract covered by that Law to an unlicensed contractor. [Tennessee Code Annotated, § 62-6-120].
There is no question but that the contractor could not have bid on the project, and city officials could not have let the bid to the contractor, had the former not been a licensed contractor. In that case the contractor would have been in violation of the Contractor’s Licensing Law. In addition, if the city officials knowingly awarded the contract to an unlicensed contractor, they may also have been in violation of the Contractor’s Licensing Law.
You told me that the contractor discovered during the progress of the project that he could not get his license “renewed” for six months. In light of the penalties prescribed by Tennessee Code Annotated, § 62-6-120, for violations of the Contractors Licensing Law, I suspect there is a possibility that the contractor may not have had a license when he bid on the project. I refer to subsection (a) (2), of that statute, in which it is said that,
Any person, firm, or corporation who engages or offers to engage in contracting without a license as required by § 62-6-103 is ineligible to receive such license until six (6) months after a determination by the board that a violation has occurred. Additionally, no such person, firm or corporation shall be awarded any contract for the project upon which it engaged in contracting without a license or permitted to participate in any rebidding of such project. [Emphasis is mine.]
It seems to me worthwhile for the city to check with the Contractors Licensing Board to determine the status of the contractor’s license when he bid on the project. I feel safe in saying that if he did not have a valid license at that time, neither he nor the city can by agreement reduce the project cost to $25,000 for the purpose of making legal that which would have been illegal.
But let us assume either one of two propositions:
1. That the contractor had a valid license at the time he bid on the project, but lost his license during the progress of the project; or
2. That city officials unknowingly awarded a contract covered by the Contractors Licensing Law to a contractor who held no valid license.
Under either proposition, could the city agree to a reduction of the cost of the project below $25,000, and permit the contractor to complete the project?
In both cases there is a possibility that permitting the contractor to proceed with the project under an agreement to reduce the cost of the project below $25,000 would constitute a “rebidding” of the project. Surprisingly, neither the Contractor’s Licensing Law, nor the Rules issued by the Contractors Licensing Board (Rules and Regulations of the State of Tennessee, Chapter 0680-1) expressly prohibit a contractor who either had no contractor’s license when he bid on the project, or who lost his license during the project, from completing the project. Likewise, they do not expressly forbid a government from agreeing to reduce the cost of a project below $25,000. But an agreement to reduce a project cost to less than $25,000 for the plain purpose of circumventing a contractor’s licensing problem does not appear to me to constitute a valid change order. Arguably at least, the city would have a new contract and a new project on its hands. What the contractor is essentially saying to the city is this:
My contractor’s license has been suspended. There are two kinds of contracts, one of which is covered by the Contractors Licensing Law, one of which is not. I want to convert a project that is covered by the Contractors Licensing Law into a project that is not covered by the Contractors Licensing Law. I need the city’s agreement to make that conversion, and the city will benefit by a lower cost project.
If the city agrees to that conversion it will have aided the contractor in circumventing the Contractors Licensing Law, and may have very nearly engaged in a “rebidding” of the project, at least within the meaning of that Law.
That may be more of a problem with respect to the civil remedies available to the Contractors Licensing Board under the Contractors Licensing Law. Those remedies appear to be directed more at offending contractors rather than government officials or other parties that might violate the Contractor’s Licensing Law, but they may also cover such officials. Rule 0680-1-.18 provides that:
No person, firm or corporation who engages or offers to engage in “contracting’ (as defined in T.C.A. § 62-6-102) without a valid contractor’s license, or in violation of the terms and conditions of such license, shall be awarded any contract for the project, upon which it engaged in contracting without a license, or permitted to participate in any re-bidding of the project. [Emphasis is mine.]
The re-bidding prohibition in that Rule, like the similar provision in the Contractors Licensing Law, appears directed at officials who have the authority to “re-bid” the project.
[Rule 0680-1-21 also provides that, “The Executive Director of the Board for Licensing Contractors may issue citations against persons acting in the capacity of or engaging in the business of a contractor without a license in violation of T.C.A. § 62-6-103.” That rule appears directed solely at the contractor.]
Both those rules authorize penalties from $50 up to $1,000 for violation of the Contractors Licensing Law and the Contractors Licensing Board’s rules or orders. While the courts might under the facts related be reluctant to hold criminally liable city officials who permit an unlicensed contractor to convert a project covered by the Contractors Licensing Law to one not covered by that Law, I doubt the Contractors Licensing Board would be as reluctant to issue citations and impose civil penalties against such officials under that Law and the rules it adopted in accordance with that Law.
Let me know if I can help you further in this or any other matter.
Sidney D. Hemsley
Senior Law Consultant