Board for Licensing Contractors Licensing & Bidding

1. Board for Licensing ContractorsLicensing & Bidding Carolyn Lazenby Katherine Holliman - Licensing Rhonda Emanuelson - Revisions Tennessee Board for Licensing Contractors 500 James Robertson Pkwy. Nashville, TN 37243-1150 615-741-8307 Email: Contractor.App@tn.gov

2. 1.Steps to Applying for a Contractor’s License, Renewing and Revisions AND2. Bidding Step by Step Guide available at: https://www.tn.gov/commerce/article/cont-how-to-become-a-licensed-contractor Tennessee Board for Licensing Contractors 500 James Robertson Pkwy. Nashville, TN 37243-1150 615-741-8307 Email: Contractor.App@tn.gov

3. WHY A LICENSE IS NEEDED? • Protect the safety and welfare of the public; and • Provide a “level playing field” for all contractors

4. Answer: Protecting the public!Reason #1 to require a license:

5. Reason #2 to require a license

6. Reason #3 to require a license

7. Reason #4 to require a license

8. Reason #5 to require a license

9. LICENSE REQUIREMENTS A “Contractor's” license is required for projects $25,000 or more to work as follows: • Prime(General) Contractor : Contracting directly with the “owner” (includes building homes, commercial buildings, electrical, mechanical, plumbing, HVAC, and construction land, highways or municipalities. • Subcontractor – Contracting directly with a “contractor “ (not with the owner) to perform the following: • Electrical, Mechanical, Plumbing, HVAC, Roofing; and • Masonry projects $100,000 and up (includes all materials, equipment, and labor). • Note:  “Subcontractors” performing: drywall, painting, landscaping, carpentry, etc., would not be required to obtain a contractor’s license whenever working for a contractor. License Application Requirements:Exams; Financial Statement prepared by CPA; and Proof of Insurance (General Liability and Workers’ Comp or Exemption); and if a corporation or LLC, registration with Secretary of State. Go to: http://www.tn.gov/commerce/topic/cont-contractors

10. New License Application Process Before a contractor applies for a license, the following information is needed to complete the license application: Step 1 - Contractor’s License Application • Fee: $250 (2 year) Step 2 - Exam (Open Book) • Fee: $57 • Reference Materials/ Code Books – Open Book Step 3 - Financial Statement • Reviewed – Monetary Limits up to $3,000,000 • Audited – Monetary Limits of $3,000,001 to Unlimited Step 4 - Certificate of Insurance • General Liability • Workers’ Comp (unless exempt)

11. STEP 1 – Contractor’s License Application Contractor’s will need to know the following: • License Name (Personal or Business name) • Mode of Operation (Sole Proprietor, Corporation, LLC, or Partnership) • Type of License / Classification - Based on Exam and Experience • Monetary Limit Needed • Reference from Past Client or Employer • List of Experience

12. STEP 2 – Exam Requirements • All licenses are issued with a license classification based upon the applicable trade exam and experience (BC; CE; CMC; etc.) • Exams (Open Book) • Business and Law - $57 • Trade (if applicable) - $57 • Building, Electrical, Mechanical, Plumbing, HVAC and Masonry • Trade exams are not required for roofing, excavating, landscaping, etc. • Reciprocal agreements available to have trade exam waived • Qualifying Agent (QA) • Person designated to pass exam(s) • May be the owner, officer or full time employee • Individual passing the exams is not the owner of the license, unless they own the licensed entity

13. Types of Contractors (Classifications) • Major Classifications: • Residential, Commercial & Industrial Building (BC); Heavy (HC); Highway, Railroad & Airport (HRA); Municipal and Utility (MU); Mechanical, Plumbing & HVAC (CMC); Electrical (CE); Environmental & Specialty Construction (S); and Masonry (LMC). • Various Specialties (Subcategories) • Building – BC-11 (Painting); BC-21 (Roofing); BC-4 (Floor Covering); BC-26 (Swimming Pools); BC-29 (Landscaping); • Electrical – CE (Full Electrical); E-F (Telephone Lines); etc. • Specialty - S-Equipment Installation; S-Cell Towers; etc. • Environmental - S-A (Asbestos); S-B (Underground Tanks); etc.

14. Register for Exams • Qualifying Agent (QA) will need to provide their SS# to register for an exam • Exam vendor is “PSI Services, LLC” • Offered in cities across the state by appointment • Open book exam (reference materials/code books) • Cost: $57 / Same day Score • Trade Exam Reciprocity • Trade exam may be waived for those licensed with a state agency having a reciprocity agreement (AL, AR, GA, LA, MS, NC, OH, SC) or passing the NASCLA commercial exam. • BC-A/r – Residential Limited License – Class in lieu of Exam • (Limited to $125,000 – No Commercial Work – No 10% bid tolerance)

15. Law Change – Effective April 28, 2017 Financial Statement Requirements for Contractor Licenses • Prior to this change, an “Audited” financial statement was required to obtain a license limit more than $1,500,000. • “Reviewed” financial statement can now be provided for a monetary limit up to $3,000,000. • Small commercial BC-b(sm) threshold has changed from $750,000 to $1,500,000 Law: Public Chapter 237 (Amended 62-6-111 and 62-6-112) Rules:http://publications.tnsosfiles.com/rules_filings/06-06-17.pdf

16. Law Change – Effective April 28, 2017 Summary of financial statement requirements are as follows: (Public Chapter 237 / TCA 62-6-111) • Initial (New) License Requirement $3,000,000 or less - CPA Reviewed More than $3,000,000 - CPA Audited • Renewal Requirement $3,000,000 or less – Self-prepared More than $3,000,000 – CPA Reviewed • Revision (Increase/Transfer) Requirement $3,000,000 or less - CPA Reviewed More than $3,000,000 - CPA Audited

17. STEP 3 – CPA Prepared Financial Statement • All licenses are issued in the exact name as on the financial statement, with a monetary limit. • Monetary limit is the dollar amount per project/contract • It is based upon 10 times the working capitalandnet worth (the lesser of the two) Examples: • Monetary Limit of $100,000 would require $10,000 in both working capital and net worth(plus experience) • Working Capital: $10,000 / Net Worth: $50,000 = $100,000 • May supplement Working Capital and Net Worth: • Line of Credit (LOC) from a Bank • Supplements Working Capital, only) • Guaranty Agreement with Personal /Parent Company Financial Statement • Supplements both Working Capital and Net Worth at 50% value • Supplemental statements are not required to be prepared by a CPA • Bond (in the Board’s format) • $500,000 / $1,000,000 CONT >

18. STEP 3 – CPA Prepared Financial Statement • Reviewed Financial Statement • Required for monetary limits up to $3,000,000 • Audited Financial Statement • Required for monetary limits exceeding $3,000,0000 • Unlimited – Requires a minimum of $300,000 in both working capital and net worth (plus experience)

19. STEP 4 - Insurance Coverage • General Liability (GL) is required by all contractors and requires providing a certificate of insurance (COI) for coverage in the minimum amount of: • $100,000 (contractors with limits up to $500,000) • $500,000 (contractors with limits up to $1,500,000) • $1,000,000 (contractors with limits over $1,500,000 to Unlimited) • Workers’ Compensation (WC) is required by all contractor employers to cover themselves and employees. • Owners and officers may register for WC exemption with the Secretary of State as a “Construction Services Provider”.

20. Indemnities The contractor is required to provide an indemnity agreement, such as a “Guaranty Agreement” with a supplemental financial statement or a “Contractor’s License Bond” in the Board’s format whenever: • Applicant’s financial statement is primarily cash (without any fixed assets); • Applicant is owned by another entity/parent company • May also be provided as an option to supplement both working capital and net worth (at 50%) More information at our website: http://www.tn.gov/assets/entities/commerce/attachments/ContBLC-GuarantyAgreementPolicy.pdf

21. Indemnities (continued) Indemnities such as Guaranty’s and Bonds are considered part of the financial statement. • Confidential; not a matter of public record (pursuant T.C.A. § 62-6-124) • May only be released by subpoena with a protective order • Limited to 10% of the amount needed • Supplemental financial statement would need to show enough working capital and net worth to cover the shortfall when needed to supplement, at 50% value • Expire at the time of renewal (two years)

22. Guaranty Agreement

23. Guaranty Agreement

24. License Issued! • All licenses are issued with the following: • Name • License ID# • Classification • Monetary Limit • Expiration Date • Information above is required to be listed on the outside of bid envelope or virtual envelope (except for monetary limit) • License Verify: • http://verify.tn.gov/

25. Renew Online! Need Entity# (Indv/Org) Call: 615-741-8307 Email: Contractors.Home-Improvement@tn.gov Renew online – Quicker! • Cannot work while license is expired! • Renewal rights are 12 months Website: http://core.tn.gov

26. Limited Licensed Electrician (LLE) The need for our state Limited Licensed Electrician (LLE) license is based upon the following. • The total cost is less than $25,000; and • Location of the project (accepted in only 65 counties) • Check with the local government in the city and county's Local Codes Enforcement office to see if the LLE is accepted for permits and inspections, or if a local journeyman/master license is required from their agency. • A "Business" tax license may also be required by local government https://www.tn.gov/revenue/article/register-with-revenue License Application Requirements:LLE Exam (40 question test); and $50.00 feefor a two (2) year license.  Go to: http://www.tn.gov/commerce/topic/cont-limited-licensed-electricians

27. Limited Licensed Plumber (LLP) The need for our state Limited Licensed Plumber (LLP) license is based upon the following. • The total cost is less than $25,000; and • Location of the project (accepted in only 65 counties) • Check with the local government in the city and county's Local Codes Enforcement office to see if the LLP is accepted for permits and inspections, or if a local journeyman/master license is required from their agency. • A "Business" tax license may also be required by local government https://www.tn.gov/revenue/article/register-with-revenue License Application Requirements: LLP Exam (40 question test); experience; and $75.00 fee for a two (2) year license.  Go to: http://www.tn.gov/commerce/topic/cont-limited-licensed-plumbers

28. Revisions – Add Class, Increase, Mode Changes, etc. • Licensees may amend their license by: • Adding a Classification • Increasing the Monetary Limit • Changing Mode of Operation • Name Change • BC-A/r – Must pass “Business & Law” as well as any applicable trade exam. • 34 Building Categories (painting, roofing, framing, landscaping, etc)

29. Business Operating Resources • Business Tax License • https://apps.tn.gov/bizreg/ • Small Guide for Starting a Business: • http://www.tn.gov/assets/entities/ecd/attachments/TNSmartStartupGuide.pdf • Workers' Compensation Requirements • http://www.tn.gov/assets/entities/labor/attachments/HandbookforEmployers2013.pdf • Workers’ Compensation Exemption for Owners/Employer “Construction Services Provider” • http://sos.tn.gov/business-services/wc • Employee vs Independent Contractor • http://www.tn.gov/workforce/article/emeef • Unemployment Insurance: http://www.tn.gov/workforce/topic/unemployment-insurance-tax • (Requirements for Employers) • Local Government Resource: http://tn.gov/local/ • (Find local government offices) • Board’s website at:http://www.tn.gov/commerce/topic/cont-contractors

30. Bid Requirements Listing on the outside of the bid envelope or electronic bid $25,000 or more: • Name of Prime Contractor • License ID# • Classification (pertaining to the bid) • Expiration Date • Subcontractors - Same as above • Electrical; Plumbing; HVAC; Geothermal Well Driller’s from TDEC; Roofing; and Masonry (when over $100,000) Exempt: Department of General Services does not require it to be on outside of bid envelope; may be provided inside bid.

31. Laws & Rules for Bidding • 0680-01-.13 MONETARY LIMITATIONS. Subject to such tolerance, no contractor shall engage, or offer to engage, in any project of which the cost (including all material and labor furnished by or through another source other than the owner) would exceed the monetary limitation placed on his license. If a contractor holds a license with more that one classification with different monetary limit, the monetary limits shall not be combined to bid a project. There is a 10% bid tolerance. TCA § 62-6-103 …It is unlawful for any person, firm or corporation to engage in or offer to engage in contracting for any project in this state, unless, at the time of such engagement or offer to engage, the person, firm or corporation has been duly licensed with a monetary limitation sufficient to allow the person, firm, or corporation to engage in or offer to engage in such contracting project under this chapter. The board for licensing contractors shall have the authority to grant or allow an exception, in an amount not to exceed ten percent (10%), to the monetary limitation of such license provided in subdivision (a)(1). • Example: Contractor with a $500,000 monetary limit may bid up to $550,000; anything over would be considered a violation of law. • FYI - Citation up to $1,000 may be issued for exceeding monetary limit (eff. April 24, 2015)

32. Bidding Rule (Cont). 0680-01-.24 BIDDING PROCEDURES. (2) Any prime contractor submitting a bid pursuant to T.C.A. § 62-6-119(b) shall list only one electrical contractor, one plumbing contractor, and one heating, ventilation air conditioning contractor with appropriate classification and monetary limit or the bid shall not be considered. Award of the subcontract to one not listed on the base bid envelope in violation of T.C.A. § 62-6-119 will be subject to review and disciplinary action by the Board.

33. Bid Law - Penalties • 62-6-120. Penalties • Additionally, no such person, firm or corporation shall be awarded any contract for the project upon which it engaged in contracting without a license or permitted to participate in any rebidding of such project. • (b)  Any person, firm or corporation who accepts a bid in excess of $25,000 from a contractor who is not licensed, with appropriate classifications and sufficient monetary limitations, or in the case of a limited licensed electrician where the amount is less than $25,000, in accordance with the provisions of this chapter, commits a Class A misdemeanor.

34. Bid Law (CONTINUED) c) Failure of any bidder to furnish the required information shall void such bid and such bid shall not be considered. Upon opening of the bid envelope or initial opening of an electronic bid, the names of all contractors listed shall be read aloud at the official bid opening and incorporated into the bid. Prior to awarding a contract, the awarding person or entity and its authorized representatives shall verify the accuracy, correctness and completeness of the required information, and any discrepancies found in the spelling of names of bidders, transposition of license numbers, or other similar typographical errors or omissions may be corrected within forty-eight (48) hours after the bid opening excluding weekends and state-recognized holidays.

35. MOST common bid question • Mowing Contracts – License not required and considered maintenance. • Board is currently in the process of drafting rules to help clarify mowing vs landscaping. • Mowing and Lawn maintenance is the upkeep of landscaping. • Includes incidental work such as weed eating, fertilizing, spraying herbicides to control weeds, re-mulching, and cleanup of trash, existing debris and removing fallen tree limbs (clearing to mow). • Revise rule from: HRA.E.2 (Landscaping – includes seeding, sodding, planting, and chemical weed and brush control, to: HRA.E.2 (Landscaping ). • A contractor’s license would only be required for mowing whenever it is in addition to landscaping on a contract for more than $25,000. • Landscaping is when the land designed and prepped by grading or excavated to install a lawn, edging, plants, trees, walkways, or retaining walls.

36. Bid FAQ – Prime’s subcontractor • Prime listed an improperly licensed plumbing subcontractor (did not have the monetary limit to cover the plumbing portion) • Entire bid must be rejected • Cannot rebid or participate on project (TCA 62-6-120)

37. Bid FAQ – One listed per sub Only one (1) contractor in such classification may be listed. • Prime contractor bidders who are to perform the masonry, electrical, plumbing, heating, ventilation and air conditioning must be so designated upon the outside of the envelope or in the electronic bid. Example: Prime listed more than one electrical subcontractor • Entire bid must be rejected • Cannot rebid or participate on project

38. Bid FAQ - Name on License • Licensed as: • John Jones • Listed on Bid Envelope: • Quality Construction, Inc.

39. Bid FAQ– Name of contractor • Name of Contractor 0680-01-.25 CONTRACTING IN CORRECT NAME; CHANGE OF NAME. Upon receiving a certificate of licensure from this Board, the licensee has an affirmative responsibility to enter into contracts and operate its related contracting business under the name in which it is licensed in order to notify and prevent confusion on the part of the public at large of an entity’s licensure status. Contracting in a name different than that in which an individual or entity is licensed by this Board is considered a violation of this chapter, and will be cause for appropriate disciplinary action.

40. CLASSIFICATIONS REQUIRED TO COVER PROJECT A contractor may bid on a contract requiring work in classifications other than as licensed if: • Commercial Building (BC or BC-B or BC-b(sm); or • 60% is covered by their classification Note: A contractor would be required to hire a licensed subcontractor to perform work when it is $25,000 or more for portions not classified. Example: A Commercial (BC) contractor could not bid without listing a properly licensed subcontractor for: Electrical, Plumbing, HVAC, Mechanical, when $25,000 or more; and Masonry, when $100,000 or more.

41. Frequent Violations • Prime contractor listed an improperly or unlicensed subcontractor (Prime’s bid gets rejected). • Bid was in excess of monetary limit (over 10%) • Split contracts into phases • Bid a 3 to 5 year contract with the total cost over their monetary limit • Bid over limit by not including profit, equipment, or the cost of land in the total contract • Bid prior to the license getting renewed (must wait until license is approved for issuance). No grace period to work. • Out of state contractors (licenses are not reciprocal).

42. Common Errors • Contract in name other than licensed • Example: Licensed as “John Jones” cannot contract as “Quality Plumbing, Inc.” • Family members cannot use parent’s license • Example: Jones Construction (Sole Proprietor) allows sons who own “Jones Brothers, Inc. (Corporation) • License Certificate (Similar Appearance) • Electrician using LLE license for $25,000+ projects • Fail to obtain other required licenses: Fire Marshal (Sprinkler); Alarm Systems Board, etc.

43. HELP DESK

44. Resource Board’s Main Website as a Resource Email: reg.boards@tn.gov

45. ??? QUESTIONS ??? Website Resources Contractors Board - http://www.tn.gov/commerce/section/contractors-home-improvement Online Services • License Search • Verify a License - http://verify.tn.gov/ • Roster (Data Reports) • Public Records request