BlogConstruction Licensing Compliance Best Practices
By James Gilmer
It’s no secret that construction licensing compliance for construction firms and contractors is complex. Understanding what is needed to legally operate presents a challenge for even the most established organizations.
On one hand, falling out of compliance can lead to a wide range of concerns, including government fines and penalties, delays in starting work, and even delays in getting paid on work you have already completed. On the other hand, adopting a proactive compliance strategy can help you avoid costly delays and damage to your reputation, while improving profitability.
Here are five tips for maintaining construction licensing compliance.
1. Research Your Requirements and Secure Licenses Proactively
Licensing requirements for the construction industry vary by state, specialty trade, and whether your firm operates as a prime or subcontractor on a project. Additionally, individual license and examination requirements present additional hurdles to entering a new jurisdiction. Proof of licensure is often required before bidding on a project, much less breaking ground.
Many firms react to opportunities and scramble to procure the proper licenses, only to face delays with government agencies. And it’s often too late.
Instead, firm management should periodically review their business development horizon and assess where opportunities are poised to occur. Then, they get a jump start on determining which requirements apply to their business and qualifiers.
Tip: State agencies can take weeks or months to approve license applications. Be sure to consider this processing time when deciding when to apply.
Tip #2: Ensure Subcontractors Are Licensed
Depending on the specifics, a general contractor may rely on subcontractors for one or more elements of the project. In many states, not only must a firm obtain a license within its industry or specialty, but the subcontractor must, as well.
Not only can an unlicensed subcontractor trigger fines and penalties for the prime contractor, but in many states, subcontractors must also be licensed for a firm to bid, operate, and be compensated.
When vetting subcontractors, firm management should ensure licensure alongside other vital criteria, such as work experience and good project fit. And again, plan and give subcontractors enough time to obtain the needed licenses to operate.
Tip #3: Establish Internal Roles and Processes
When it comes to licensing for construction firms and contractors, the application process can be anything but simple. Firms can expect to submit detailed information on their ownership, past and planned activities, and current legal and regulatory standing.
Along with the application, firms may need to submit proof of insurance, surety bonds, financial statements, and other corporate records, such as articles of incorporation.
As a result, firms that manage licenses internally must establish roles that address the following, at a minimum:
- Researching requirements
- Sourcing information and records, both internally and from vendors
- Preparing applications and obtaining signatures from management or ownership
- Submitting applications and ensuring approval
- Renewing licenses and any ancillary items, like surety bonds, on time
Because of the nature of the work, management should have oversight of every aspect. As resources allow, some redundancy may be necessary to ensure tasks are completed even during the absence of responsible individuals.
Tip: Everyone plays a part, beginning with the example set by management. Regular training helps employees do their jobs better. And periodically reviewing internal processes improves the success of the entire compliance program.
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Tip #4: Invest in Systems to Maintain Compliance
As the firm grows, so does the complexity of managing licenses. Across multiple states, firms are tasked with researching requirements, storing information and records, and ensuring they meet regulatory deadlines. Legacy systems, such as spreadsheets and calendar reminders, simply no longer suffice for multi-state companies—especially those with administration working remotely.
An ideal system offers secure, cloud-based storage for firm information and records. Licenses and entity data are immediately visible to all stakeholders, including management, legal counsel, and business development personnel. And the firm can see critical deadlines and assign and action any tasks needed to meet them.
Remember, technology supports existing processes. Firms that establish defined roles and responsibilities should then see where gaps arise. When existing technology doesn’t support the firm’s needs, management should consider an outsourced solution.
Tip #5: Choose Reliable Vendors
Construction licensing compliance is a team effort. Regardless of who handles the management of your licenses, multiple parties are involved. These might include:
- Insurance companies, which write policies and issue surety bonds
- CPAs and auditors
- Attorneys and legal counsel
- Registered agents to receive service of process
- Partners for continuing education
Each vendor must be reliable and know the role they play. As a firm’s compliance strategy evolves, management should periodically review which vendors handle specific elements and make changes as necessary.
Multi-state compliance presents a unique challenge for construction firms. However, firms that invest in a robust compliance program see improved efficiency and are better prepared to compete. With a proactive mindset and dedication to proper license management, those firms are positioned for greater profitability.
Harbor Compliance does not provide tax, financial, or legal advice. Use of our services does not create an attorney-client relationship. Harbor Compliance is not acting as your attorney and does not review information you provide to us for legal accuracy or sufficiency.