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CT Expert Insights: Tackling Construction Business License Compliance

Tight regulations in construction require licensing in both state and local municipalities. These licenses are designed to protect consumers and penalties for non-compliance range from a small fine to jail time.

Regulations are constantly changing without notice, which means construction companies need to constantly stay on top of current licensing requirements to avoid losing compliance.

Expanding construction businesses should start applying for new licenses a few months ahead of time to allow for due diligence when researching license requirements. These requirements can be extensive, including background checks, fingerprinting and submission of a qualified person.

Alexis Brachel, CT Corporation Senior Manager of Business Licenses in Governance and Risk Compliance, talks about the critical importance of compliance when it comes to business licenses, specifically for construction businesses.

 

TRANSCRIPT

 

Greg: Hi, I’m Greg Corombos. Our guest this week is Alexis Brachel, Senior Manager of Business Licenses in Governance and Risk Compliance at CT Corporation. She joins us today to talk about the critical importance of compliance when it comes to business licenses, specifically for construction businesses. And Alexis, thanks so much for being with us.

Alexis: Thank you.

Greg: Let’s start with the big picture here and explain for our audience why compliance is so important, particularly when it comes to construction business licensing.

Alexis: Construction is a highly regulated industry, and the business licenses you will find associated with construction companies are really there and designed to protect the consumers. Because this is an industry that’s in your home, that’s in your business, they’re touching consumers every day. So states and local municipalities really want to make sure they’re protecting the consumer more than anything with their licensing regulations with construction companies. If a construction company is not compliant with all of their license requirements in any given jurisdiction, we have seen penalties in the range of a few thousand dollars up to tens of thousands of dollars, really depending on the size of the company and also the amount of work that your construction company is potentially doing in that specific location or in that state.

We have also seen penalties against responsible parties in the form of jail time, so something as severe as jail time can be a potential penalty. So these are just some of the reasons why it is so important for construction companies to be fully compliant with license requirements.

Greg: That’s a really good point, Alexis. Massive fines and jail time should provide some pretty good incentives for business owners to comply, even though it’s not the most fun task in the world. So let’s turn now to looking at some of the different scenarios construction business owners might find themselves in. First of all, if you’re expanding. What are some of the important things to have on your checklist then?

Alexis: There’s really a couple things to keep in mind if you’re expanding to new locations. One is really the lead time. That’s going to be the first thing you want to keep in mind if you’re expanding to new locations. So having a few months notice is going to be crucial, and there are two different reasons for that. First, you obviously need to have time to work with a trusted partner to conduct research of exactly what license requirements you’re going to see in that state and any local municipalities that you’re bidding on that new work in. While a lot of the contractors' licenses specifically are regulated at the state level, you’re going to run into some, here and there, that are actually regulated at the local level. And in addition to those contractor specific licenses, you’re also going to have local level, just basic business license requirements that are really required just for having the pleasure of conducting business or operating on that job site within a city’s limits. So that’s the first.

The second thing to keep in mind, that’s really crucial for having enough lead time—I say at least a couple months lead time would be ideal, if at all possible—is once you know which requirements you are faced with, you then need to obviously proceed with obtaining those licenses and having them approved and issued by the filing authorities. So with contractors licenses, they are a little more complex than some industries. Not only are they time consuming, but there are a lot of specific requirements that need to be meet in order to have that contractor license application submitted for review to the filing authority.

A few of those filing requirements can be a fingerprint, background check requirements. You’re going to see probably a lot of authorities asking for company financial statements, depending on specific reporting periods. You’ll also run into jurisdictions that are going to ask you for surety bonds, and the amount of those surety bonds will vary by jurisdiction. So again, making sure you’re working with a trusted partner that can not only help notify you of the potential requirements, you’re going to have to...so you get those obtained and ready ahead of time, but also help navigate you through the process of really compiling that application, getting all those requirements in place and ready to go and submitting them to the filing authority.

The last thing I would say about those initial contractor license applications is that you’re going to need to have a qualified party listed on the application. And while that may sound so easy, it’s really not; it’s a little more complex than that, and a little more detailed. So an individual you’re going to list as a qualified party not only needs to have a certain amount of work experience, typically, maybe ranging from 4,000 to 8,000 hours of work where they were on a job site with a licensed contractor in their specific classification, but also, they need to have passed an exam for that jurisdiction before they can even submit an application to be a qualified party, and then be listed on your company-level contractor license.

Greg: Alexis, let’s talk about existing locations now because there might be the temptation to conclude, well, I’ve already setup shop, I was complying when I set up my business in this location, so I don’t need to worry about that anymore. But the rules can change, so how do you stay on top of that?

Alexis: Yes, regulations can always change. Authorities can change their statutes or regulations at any time without providing any notice. So it’s really important you have a trusted advisor that you’re working with and partnering with every day to make sure that as those regulations or statutes may change, you’re being kept in the forefront of those changes that are occurring to make sure you don’t fall out of compliance unknowingly.

Greg: So in addition to what could be happening with your physical locations, there could be internal changes going on as well, whether it’s being bought out, merging, what have you, how does that process impact whether you’re in compliance with the proper business licenses on a construction site?

Alexis: We run into this a lot. And what we typically see are that most companies—not all, but most companies—when they think about undergoing a large organization change, such as a name change or a potential merger or acquisition that may be coming down the pipeline, they really only consider that change and what needs to be done or what that means for their Secretary of State level registrations. However, it’s crucial to know that any change, really, that’s made at the Secretary of State level on those registrations also needs to be updated or changed on any business licenses as well. And that is the same for any state level licenses—you know the contractor licenses—or local level, city or county level basic business licenses.

Greg: What kind of help is out there, specifically with CT, or with other experts to help guide folks through this if this is not an area they feel especially comfortable with?

Alexis: There is a lot to know, and a lot to be aware of before you jump into a large organizational change. So you really want to make sure you’re working with a partner or have a solid plan in place internally to ensure that you are kind of navigating through the change and are aware of all the obstacles and challenges that you might face along the way beforehand. I would definitely suggest conducting research with a trusted partner or have somebody in house that does that research for you up front, so before this change is undergone.

If your company is just going through a simple name change, a lot of times we will see that the licensing authorities will allow you to amend or update an existing license just by virtue of the kind of amendment to that license, if that makes sense...Other times if you’re undergoing a larger organizational change—let’s say a name change that was because of the result of a merger, or an acquisition, or a merger acquisition without a name change at all—if your FEIN number is changing, most jurisdictions, I would say 8 or 9 out of 10, are actually going to require you to obtain a completely new license and then also cancel your previously existing license.

So it’s not going to be as cut and dry as just making an amendment to an existing license. And if you do submit your paperwork incorrectly, not only are you going through all that time and effort for what will end up being a rejected filing by the authority, but you’re really wasting time when potentially you may have a grace period of 30 days from when your Secretary of State filing was made to when that same change needs to be reflected on your contract or license or on your local level business license. So you have a little leeway, depending on the jurisdiction again because not all are going to give you that same grace period. But those that do offer the grace period, if you are not meeting the requirements and don’t have the proper filings and requirements in place within that time period to have that new license issued or updated, then again you’re allowing yourself to fall out of compliance with that authority and opening yourself up to those same fines and penalties we discussed earlier.

Greg: Good place to close on, Alexis, because while any business owner has a lot on their plate, construction business owners especially, making sure you don’t get bogged down with some of those severe penalties if obviously very critical, so your advice today, I’m sure, is very helpful to much of our audience. Thanks very much for your time today.

Alexis: Thank you so much.

Greg: Alexis Brachel, Senior Manager of Business Licenses in Governance and Risk Compliance at CT Corporation. I’m Greg Corombos.

 

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