The Two-Piece Contract and the Unlicensed Framing Crew
Marcus Hale has operated as a sole proprietor under a Class B Virginia contractor license issued to "Marcus Hale t/a Tidewater Builders." He has now formed Tidewater Builders LLC and has already signed a $190,000 warehouse office buildout in the LLC's name. The owner's representative suggested writing the work as two $95,000 contracts "so it stays under your Class B limit." Tidewater's volume last year was $640,000, and Marcus already has $300,000 of work booked in the current license year. He also plans to use a framing crew whose only credential is a city business license.
1. Does splitting the $190,000 project into two $95,000 contracts keep the work within the Class B limit? Analyze both the single-contract test and the annual-volume test.
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No - on two independent grounds.
1. The single-contract test. Virginia license classes are set by dollar thresholds:
- Class C: $10,000 or less per contract and $150,000 or less per year
- Class B: $120,000 or less per contract and $750,000 or less per year
- Class A: no dollar limit
The threshold is applied to the contract or project, not to the number of documents the parties sign. Dividing one project into phases or parcels to stay beneath a class limit defeats the statute and is treated as a single contract for the full $190,000. The $190,000 figure exceeds the Class B ceiling of $120,000, so this project requires a Class A license.
2. The annual-volume test. Prior year $640,000 plus $300,000 booked = $940,000, which exceeds the $750,000 Class B annual ceiling. Even if the project were $95,000, the company's aggregate volume requires Class A.
What Class A requires: at least five years of experience in the classification, passage of the Virginia contractor exam, and a financial statement demonstrating minimum net worth (currently $45,000 for Class A, versus $17,000 for Class B). Marcus should not sign or continue performance in reliance on a class he does not hold.
2. Does Tidewater Builders LLC need its own license, and what is the risk of having already signed the contract in the LLC's name?
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Yes. A Virginia contractor license is issued to a specific regulant - an individual, sole proprietorship, partnership, corporation, or LLC - and it is not transferable or assignable. Forming an LLC does not carry Marcus's license into the new entity. The LLC must apply for and be issued its own license, with Marcus identified as the designated employee (the individual whose experience and exam qualify the entity).
The consequence of contracting first is serious:
- The LLC has been contracting without a license, exposing it to Board for Contractors disciplinary action, monetary penalties, and potentially criminal exposure for unlicensed contracting.
- Virginia courts generally will not assist an unlicensed contractor in collecting on a contract it was not licensed to perform, so the $190,000 receivable and any lien claim are at risk.
- The surety and insurer may take the position that coverage was underwritten on a licensed operation.
Correct sequence: qualify and license the LLC, obtain the license number, then either novate the existing agreement to the licensed entity with the owner's written consent or re-execute it - and do no further work in the LLC name until the license issues. Marcus's sole-proprietor license should be maintained separately until the transition is complete.
3. What should Marcus do about the framing crew that holds only a city business license, and what is his exposure if he proceeds?
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A city business license is not a Virginia contractor license - they are issued by different authorities for different purposes. Framing is construction work; a crew performing framing on a $190,000 job is doing far more than $10,000 of work and must itself hold at least a Class B license (or be a properly licensed Class A/B entity).
Exposure to Tidewater as the prime:
- The Board can act against Tidewater's own license for subcontracting to an unlicensed entity; the prime is expected to verify credentials it relies on.
- Workers' compensation and general liability gaps: an unlicensed, uninsured framing crew on the site creates liability that flows back to the controlling contractor.
- Payment-chain problems: if the crew is unpaid it will pursue Tidewater, and its own lien rights (however imperfect) create cloud on the owner's title.
- The sub's workers who are injured become Tidewater's problem in practice, insurance arguments notwithstanding.
Practical steps before mobilization: verify each subcontractor at DPOR and keep a dated copy of the license record in the job file; obtain a certificate of insurance naming Tidewater as additional insured plus a workers' comp certificate; execute a written subcontract with scope, insurance, indemnity, and safety obligations; and confirm the license classification actually covers framing rather than assuming a commercial build-out classification covers everything. If the crew cannot produce a license, replace it or require it to work under a properly licensed entity.