State licensing of construction contractors is prevalent. The purpose is to regulate the industry for the protection of the public, including homeowners, commercial project owners and even public project owners. A contractor must have the appropriate license prior to entering into and performing a construction contract.

The impact of performing construction work without a license varies from state to state, based on statute and case law. One common result is the inability of the unlicensed contractor to sue for payment under the contract. There are numerous limitations – the expiration of a previously valid license is a common exception – but as a general rule, an unlicensed contractor cannot enforce a construction contract against a project owner.

This leads to an interesting question. When a contract exists between two construction contractors, should the lack of an appropriate license be grounds for denial of payment? Maryland’s highest court recently answered this question in the negative. The state licensing statute was intended to protect the public. It was not intended to govern contractual relationships among knowledgeable members of the industry. A subcontractor could sue a prime contractor for payment under the subcontract even though the sub was unlicensed when it signed and performed that subcontract.

Another case this week addresses an alleged deal between a labor union and a municipal project owner to replace a non-union subcontractor with a union subcontractor. The displaced sub was allowed to sue the union for treble damages under the state antitrust statute for restricting competition on publicly funded construction work. The third case involves a claim of conflict of interest on a federal contract, allegedly resulting from participation in drafting the scope of work.