In North Carolina, contractors are required to be licensed in order to bid on, construct, manage or superintend the construction of any building, highway, public utility, structure, grading, or any improvement the cost of which is $30,000.00 or more. Those entering into such construction contracts are called “general contractors” or “GCs.”
There are three licensing levels for GCs in North Carolina: limited, intermediate, and unlimited. A contractor with a limited construction contractor license may act as a GC on a project valued at a maximum of $500,000.00. An intermediate level licensee is authorized to act as a GC on any single project not exceeding a total value of $1 million. Lastly, a contractor holding an unlimited license is not limited by cost and he may act as a GC on a single project of unlimited value. As a reminder, one does not need a license if the project cost is under $30,000.00. 
With these guidelines in mind, consider the following scenarios: what happens if you aren’t licensed and the project ends up costing over $30,000.00? Can you be “penalized” for entering into a construction contract without a license? What if you have a construction contractor license but the project exceeds your permitted cost limitation? If a GC files a lawsuit against his customer, how can he be sure he will win? If the GC wins, how much will he be awarded? In exploring these questions, we will consider the hypothetical situations below.
Scenario #1: A contractor has entered into a contract with a homeowner to build a residence. The total contracted cost to complete the project is $25,000.00.
- The Unlicensed General Contractor Scenario:
You have entered into the above contract and are not licensed. You do not think you need a license because the total cost of the project is expected to be under $30,000. However, after beginning construction, the owners decide to “upgrade” their selections with heated floors, a fully finished basement, and marble countertops throughout the home. The cost to complete is now $400,000.00. When you’ve completed the job to the owner’s specifications, and they refuse to pay you, what can you do? Can you get paid for the new upgrades that were later added?
Unfortunately, it could be difficult. North Carolina follows a strict compliance theory with the licensing statutes pertaining to general contractors. In North Carolina, an unlicensed general contractor usually may not recover on a contract or in quantum meruit. In Daye v. Roberts, plaintiff-contractor had contracted with defendants to make repairs to their home for the amount of $32,900.00. Defendants had signed a promissory note “for work to be done to restore [their] home.” Defendant’s made partial payment to plaintiff, however they eventually ceased payments. The court found that plaintiff was not entitled to recover the unpaid balance under the contract because plaintiff was an unlicensed general contractor under the North Carolina General Statute 87-1 since the work subsequently exceeded $30,000.
Additionally, North Carolina has continued to not allow unlicensed general contractors to recover amounts owed to them for work done even where the general contractor as subsequently obtained a license in compliance with North Carolina law. In Jenco v. Signature Homes, Inc., the court found that a subsequent transfer of a contract from an unlicensed contractor to a licensed contractor did not cure the illegal contract, which existed at the time that the contract was signed by the unlicensed contractor. Therefore, the court found that the contract was an unenforceable illegal contract.
Furthermore, courts have found that unlicensed contractors may not recover from owners even where the unlicensed contractors have all of the work supervised by a licensed general contractor. In Sager v. W.M.C. Inc., plaintiffs and defendants entered into a contract in which plaintiff purchased a “log home package” and defendant W.M.C. as “contractor,” agreed to furnish a “log package.” The work to be completed exceeded $30,000. Subsequently, defendant Log Systems, Inc., assumed the obligations of W.M.C under this contract. W.M.C alleged that having their work supervised by a licensed contractor relieves them of the licensing requirement. However, the court found this to be an incorrect interpretation of the statute. Specifically the court noted that to allow this ‘supervision’ defense would eliminate the purpose of the licensing requirement and would not protect the public from incompetent builders. Therefore, the court found that supervision by a licensed contractor over an unlicensed general contractor would not supersede the licensing requirements of the North Carolina statutes.
Please note that unauthorized practice of contracting may result in a Class 2 misdemeanor.
Scenario #2: GC is licensed contractor. The home construction project has a contract value of $500,000.00. Requested modifications bring the final cost to $1.5 million and the homeowner refuses to pay for all of the work including the modifications. After the GC files a suit against the homeowner, how much can the GC recover?
- The Limited and Intermediate General Contractor License Holders:
After completing the entire project the homeowner refuses to pay you. You, the GC, decide to sue. Will you win? Likely, however, the amount of your recovery is limited to the amount for which you are licensed.
For example, in the case of Sample v. Morgan, a contractor was licensed up to a cost of $125,000.00 for a single project and entered into a contract to build a residence where the estimated total was $115,967.81. During the course of construction, the homeowner requested modifications that brought the total cost to $139,998.90. The Supreme Court of North Carolina determined that the contractor was entitled to be paid no more than $125,000.00 as that was the amount authorized by his construction contractor license.
Therefore, a licensed GC who performs work that exceeds the parameters of his license is allowed to recover payment up to their licensed amount. What this means is that if you have a limited license and the cost of your project exceeds $500,000.00, a court may award you a maximum of $500,000.00 in damages. As applied to an intermediate license holder, a court will not award you any amount over $1 million.
- The Unlimited General Contractor: This GC may seek recovery of any amount owed because cost is not a limitation for this GC.
The “lessons learned” from these scenarios are to stay within the parameters of your license, do not complete a project with a modified contract value over your licensed amount, and do not contract for a project totaling more than the dollar amount authorized by your construction contractor license. If you exceed your authorized amount or do not have a license, the North Carolina Legislature and Courts have determined that you may not get paid and may be charged with a Class 2 misdemeanor. If you would like more information or need assistance on a related matter, please contact your local construction attorney.