Selecting a contractor is one of the most consequential decisions an owner or developer makes during a construction project. Whether the work involves a residential renovation, a commercial tenant build-out, or a larger development effort, owners reasonably expect that contractors performing the work are properly licensed, insured, and qualified. Unfortunately, and despite the best intent from contractors, these safeguards often fail to exist.

Before contracting for any construction project, owners should execute a certain degree of diligence. First, and most easily, an owner should conduct a license lookup search with the Virginia Department of Professional and Occupational Regulation (“DPOR”). A DPOR search can quickly validate whether or not your expected contractor is, in fact, licensed. It can also ensure the contractor is in good standing with the Commonwealth. Finally, a DPOR search will provide information as to any disciplinary actions your expected contractor has previously dealt with.

Next, an owner should ensure that the construction agreement contains the terms required by Virginia law. Such terms, e.g., contractor’s license, address, required written change orders, notice of Virginia’s Contractor Transaction Recovery Fund, provide further protections for the owner. For more information about the legally required terms, see What Contract Terms are Legally Required for Virginia Residential Contracting Projects?

An owner should also ensure that the contractor has the standard and commercially acceptable level of insurance, including general liability insurance. Proof of insurance, including a certificate of coverage, should be requested before entering into a binding agreement.

All the foregoing diligence should be recorded and discussed in writing with the contractor.

Protecting Unsuspecting Contractors

Many contractors – even the most reputable ones – often run into inadvertent licensing issues. Construction companies often operate in numerous jurisdictions and across state lines, and while maintaining proper licensure is an utmost priority, it can be, admittedly, challenging. For example, a contractor may innocently believe, in good faith, that it can utilize the license of a parent company or subsidiary of the company. Simple oversights like these can lead to expensive headaches if a dispute arises.

Contractors should first always ensure they are properly licensed in the jurisdictions in which they perform and ensure their construction contracts contain the terms mandated by the relevant jurisdictions. In Virginia, failure to do so may result in civil liability and a disciplinary proceeding with DPOR. This duty also includes ensuring that the contractor’s subcontractors are also properly licensed where such license is required for the work being performed.

Notably, Virginia law provides that a construction contract entered into by a company or person without a valid contractor’s license cannot be enforced against a homeowner under certain circumstances. In other words, a simple licensing violation could jeopardize efforts to recover payment for legitimate services and goods rendered.

However, Virginia law also recognizes an exception to this rule. The contractor may recover if (i) it gives substantial performance under the contract in good faith; and (ii) it did not have actual knowledge that a license was required.

The burden of proof as to this exception will lie with the contractor. But these issues of fact are often enough to allow a contractor to avoid their case being dismissed on a dispositive pleading in the event that a contractor is forced to sue a homeowner over unpaid invoices. In other words, these may be issues to be resolved at trial. However, again, the costs of litigating a case through trial will substantially outweigh the nominal costs of ensuring compliance with applicable law before contracting in the first place.

In conclusion, it is equally important for owners and contractors to be mindful of Virginia’s licensing regulations and laws before contracting. Open discussion between owners and contractors prior to contracting can save both parties time, money, and headaches down the line in the event a dispute arises.

If you have questions about contractor licensing requirements, construction contracts, or how to address compliance issues on an active or completed project, please contact Stephen Caruso at (703) 284-7242 or scaruso@beankinney.com, or Harrison Clinton at (703) 526-5587 or hclinton@beankinney.com.

This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors and are not necessarily the views of any client.