Overcoming Regulatory Barriers When Bidding in a New State
From the back office to the job site, technology is transforming construction, facilitating new levels of collaboration, efficiency and speed among project teams. Yet when it’s time to expand into a new jurisdiction, it often feels like Throwback Thursday, with mountains of paperwork to complete and nothing but an automated phone line for assistance on the long and winding path to licensure.
But contractors don’t have to move at the speed of state bureaucracy when pursuing new opportunities, and they shouldn’t have to miss a bidding opportunity over government licenses and permits. With the right tools and support, contractors can ensure that they always have the licenses they need to pursue prime opportunities in new locations.
Regulatory Requirements Before Bidding
Every construction project requires a unique mix of licenses and permits, with potential requirements at the federal, state and local levels, as well as by specialty trades and license classes. In most cases, all requirements must be met before bidding or even advertising services, including everything from lettering on your company vehicles to business cards and websites. Before you begin offering services or working in a new state, you need to address two basic aspects of regulatory requirements: registering the business with the secretary of state and obtaining contractor’s licenses and permits where required.
Registering with the secretary of state qualifies you to do business as an out-of-state or “foreign” company. The process involves providing basic information about your company’s structure and ownership and appointing a registered agent to receive service of process. You’ll also need to register for all applicable taxes and generally provide a certificate of good standing from your home state. Because your business was set up to meet requirements in your home state, you may need to adjust your name, structure or ownership to foreign qualify. Once your application is approved, the secretary of state will issue a certificate of authority to work in the state.
In addition to these general entity management requirements, 34 states require a general contractor’s license. Three additional states issue licenses just at the county level, and 14 more issue contractor’s licenses at the county and city levels. In 20 states, contractors must have a qualifier sit for exams, and in some cases, this requires prior approval from the state licensing board.
Once the contractor qualifies, the license application requires extensive documentation such as descriptions of experience, background checks, financial information and bonds.
Obviously, it takes longer than a few weeks to complete all of these steps in a new state. As a result, contractors are often faced with the dilemma of identifying an opportunity, applying for a license and then watching the wheels of state government turn while the clock runs out on the bid. Too often, contractors take the chance and submit a bid before the license is in hand, which can backfire in costly ways.
Hazards of Unlicensed Bidding
Unlicensed contracting is a misdemeanor in most states and state and local authorities are actively enforcing licensing requirements. In California, a dedicated task force conducts weekly undercover stings, while Florida collects consumer tips on a dedicated unlicensed practice hotline.
For contractors, the penalties are particularly steep, as many states have “no license, no recovery” laws that prohibit contractors from collecting payment for their work if they miss any licensing requirements over the course of a project — in some cases, even if it’s just a momentary lapse. With the stakes that high, it doesn’t pay to gamble with state licenses.
Compliance in the Cloud
So how can contractors overcome the regulatory hurdles on the road to bidding in a new jurisdiction? You can’t file overnight, but there are many steps you can take to expedite and streamline the process:
Plan early for licensing: The biggest step you can take to position your company to move more quickly on opportunities is to include licensing as an early consideration in sales and growth plans. Licensing is time-intensive, but relatively inexpensive, so it makes sense to identify prime states for expansion, do the research and license proactively.
Research foreign qualification and licensing side by side: Make sure to consider both aspects of licensing and the order of steps between state authorities to reduce the chance of wasted paperwork and circling back because of missed steps.
Track company licenses and corporate records in a cloud-based interface: Consolidate all of your licenses and registrations in a single interface. Use the system to track the status of your state filings and trigger reminders whenever updates or renewals are due. Dedicated licensing and entity management software is best, but any interface that can manage the information for sharing among your teams is a step in the right direction.
Disclaimer: Harbor Compliance is not an accounting or law firm and does not provide tax, financial, or legal advice.
Christian Haring is an account executive at Harbor Compliance, specializing in professional licensing for engineering, architecture and construction firms. With a focus on mid-sized and large firms, Christian understands the need for precision and clarity in managing multi-jurisdictional licensing. Christian’s core focus is providing compliance as a growth enabler for his clients.
If you run into an obstacle on the road to licensing and registration, he and his team are happy to help with any aspect of regulatory requirements or take the entire task off your plate so you can focus on your projects. He is available to answer your questions at 1-717-298-8128 or [email protected]