Multi-Jurisdictional Licensing in the Expanding Solar Industry

Construction and Procurement Law News, Q1 2018

Firm Alert

Author(s)

As the solar industry expands into new jurisdictions, developers and contractors seeking to break into a new market should carefully evaluate their risks and opportunities. Contractor licensing, in particular, presents challenges to developers and contractors seeking to comply with widely varied state statutes and local regulations. When considering a project in a new jurisdiction, it is important to consider the following licensing questions:

Is there a state or local licensing requirement? If so, does it apply?

If the new jurisdiction has a licensing requirement, the first issue to confirm is whether it applies to the parties on a potential project. Although developers often assume contractor licensing regulations do not apply to developers, this question is not settled law in every state, and depends on highly varied situations and regulations. 

As one example, a recently-issued (but as yet unpublished) opinion from California’s Second District Court of Appeal provides useful guidance to developers or any energy provider. In Reed v. Sunrun, Inc., a homeowner brought a class action alleging Sunrun (an energy provider who entered into a PPA and then contracted with homeowners to “arrange for the design, permitting, construction, installation and testing” of a solar energy system from which the homeowner purchased energy) was an unlicensed contractor. The court found that Sunrun was not a contractor under California’s Business and Professions Code, because Sunrun did not perform, supervise, or oversee, or agree to be solely responsible for construction – Sunrun instead merely coordinated construction services performed by licensed contractors.

In other jurisdictions, or in a different situation, developers may need to obtain a contractor’s license. A developer who takes an active (for example, on-site, or supervisory) role in managing a contractor may be deemed a construction manager under some state contractor licensing statutes. The Commonwealth of Virginia requires construction managers to comply with all licensing standards that apply to general contractors. Va. Code Ann. § 54.1-1100 (contractors “perform or manage construction”). The Washington, D.C. Code of Municipal Regulations also requires construction managers to obtain a contractor’s license. D.C. Municipal Regulation § 17-390.1 (license requirement expressly covers persons engaged in “general contracting or construction management”). Tennessee also includes a “construction manager of any kind” in its broad statutory definition of contracting. Tenn. Code Ann. § 62-6-102(4)(a)(iii).

When is the license required?

If a state or municipality requires a contractor license, the second issue to confirm is when the license is required. Many if not most U.S. states require contractors to obtain a license prior to offering to perform construction work (in other words, before submitting a bid). Unlike corporate registration requirements, contractor licensing is not usually an obligation that may be cured retroactively. Penalties for violation of contractor licensing statutes are often harsh and unforgiving. These penalties are also often both civil and criminal.

For example, Florida will not allow an unlicensed contractor to enforce contract, lien, or bond rights in court. Fla. Stat. §489.128. And, California is a widely-known “disgorgement” jurisdiction, in which an unlicensed contractor may be forced to pay back all amounts received for work performed. Cal. Bus. & Prof. Code § 7031.

What is the correct classification of required license?

An increasing number of states have contractor license classifications specific to the solar industry: Utah, for example, has a Solar Photovoltaic Contractors classification, which requires certification from the North American Board of Certified Energy Practitioners. Virginia has an Alternative Energy Systems (AES) classification.

Other states – such as Alabama, South Carolina, and Louisiana – cite the significant portion of electrical work required for a solar project to require even general contractors (not self-performing electrical scopes of work) in the solar industry to employ licensed master electricians to supervise projects as license qualifiers.

As the solar industry evolves, licensing laws and regulations are constantly changing. States that see increasing volumes of solar projects have begun to issue guidance specific to solar installations. Developers and contractors considering expansion should always consider contractor-licensing issues in each new jurisdiction, and should consult state licensing boards and qualified counsel to ensure compliance with licensing laws.