Contracting Without A License

Attorney, Colby Kanouse talks about what contracting without a license means, what the penalities are, and what to do if you’re being investigated by the Registrar of Contractors Office.

Contracting Without a License

Arizona, like most states across the country, has enacted statutes and regulations requiring that contractors be licensed through the Registrar of Contractors. This article will explore the reason for the licensing requirement, one of the most commonly invoked (and abused) exceptions to it, as well as the potential criminal penalties faced by those who are found to have committed the crime of contracting without a license.

Construction projects both big and small require a large capital investment, and can have a huge and detrimental effect on public and personal safety. Imagine a skyscraper built on an unstable foundation, or an improperly built bridge and you will get the idea. Even smaller projects, such as the construction of a home or the renovation of a kitchen, if not performed properly, can result in a significant amount of death and destruction. Accordingly, Arizona’s legislature has enacted A.R.S. § 32-1151, which states:

It is unlawful for any person, firm, partnership, corporation association or other organization, or a combination of any of them, to engage in the business of, submit a bid or respond to a request for qualification or a request for proposals for construction services as, act or offer to act in the capacity of or purport to have the capacity of a contractor without having a contractor’s license in good standing in the name of the person, firm, partnership, corporation, association or other organization as provided in this chapter, unless the person, firm, partnership, corporation, association or other organization is exempt as provided in this chapter. Evidence of securing a permit from a governmental agency or the employment of a person on a construction project shall be accepted in any court as prima facie evidence of existence of a contract.

The plain language of the statute forbids someone without a contractor’s license from engaging in any portion of a construction job, beginning with the bidding process and continuing through the completion of the actual work. The licensing requirement is designed to protect the public against “unscrupulous and unqualified persons purporting to have the capacity, knowledge and qualifications of a contractor,” and “to regulate the conduct of those engaged in the business ofcontracting so as to discourage certain bad practices, which might be indulged in to the detriment of the public.”  Northern v. Elledge, 72 Ariz. 166, 172 (1951); Security Ins. Co. of New Haven v. Day, 6 Ariz.App. 403, 406 (1967).

Although A.R.S. § 32-1151 appears to provide a blanket prohibition against doing any work without first obtaining a contractor’s license, A.R.S. § 32-1121 contains several exceptions to the general rule. The most commonly invoked exception is contained in § 32-1121(A)(14), which is generally known as the “Handyman Exemption.” Under the Handyman Exemption, a person who does not hold a contractor’s license may bid for and accept work when the aggregate contract price, including labor and materials, amounts to less than one thousand dollars. The words “aggregate contract price” are key, because they make clear that one cannot take advantage of the exception by breaking a job up into parts so that each part has a contract price of less than one thousand dollars. People have tried, and those who have been caught have been convicted of contracting without a license.

Contracting without a license in violation of A.R.S. § 32-1151 is a class one misdemeanoroffense. A.R.S. § 32-1164(A). All class one misdemeanors carry a maximum term of incarceration of six months in the county jail, and a maximum fine of $2,500 plus an 83%. The minimum penalty for contracting without a license as a first offense is a fine of $1,000 plus an 83% surcharge. A.R.S. § 32-1164(B). Thus, courts and prosecutors have broad discretion to tailor a penalty to meet the needs of the case, but under no circumstances may they exceed the maximum penalties outlined above. In most cases an unlicensed contractor will simply face a fine, but jail time is not out of the question if the perpetrator is a repeat offender or the facts areegregious. In addition, it is worth noting that the act of contracting without a license can give rise to more serious charges. For example, if an unlicensed contractor falsely claimed to be licensed in order to obtain a job he might be charged with Fraudulent Schemes and Artifices, a class 2 felony. Or, in another hypothetical, assume that an unlicensed contractor improperly installed gas lines during a kitchen remodel and they caused a fire that led to the death of the home’s occupant. In that situation the unlicensed contractor might face felony charges for negligent homicide or even manslaughter, both of which could result in a sentence involving a lengthy prison term.

In addition to any criminal penalties imposed by the court, an unlicensed contractor will also be required to pay restitution to the extent anyone suffered economic loss as a direct result of the offense. Restitution in contracting without a license cases is typically the contract price minus the economic benefit received by the victim as a result of the work performed. See Town of Gilbert Prosecutor’s Office v. Downie, 218 Ariz. 466 (2008). However, restitution could be much more than that depending on the circumstances. For example, if an unlicensed contractor were to improperly install gas lines during a kitchen remodel and they caused a fire that destroyed the home, the restitution would likely be far more than the contract price.

In addition to the criminal penalties and restitution described above a conviction for contracting without a license will also come with collateral consequences. Collateral consequences are those that stem from the conviction, but are not imposed directly by the Court. Perhaps the most significant collateral consequence associated with a conviction for contracting without a license arises as a result of A.R.S. § 32-1122(D), which prohibits the registrar from issuing a contractor’s license to anyone who has been convicted of contracting without a license in the last year.

If you find yourself under investigation for contracting without a license you will likely be contacted by an investigator from the Registrar of Contractors. If this occurs do yourself a favor and shut up. You don’t have to answer questions, you don’t have to provide documents, and you can and should contact an attorney for help immediately. Scores of good men have died for your rights, so honor their sacrifice and exercise them. It may not prevent you from being charged criminally, but then again it might. At a minimum, your silence will prevent you from accidentally making the State’s case for them.