Two Wrongs Don’t Make a Right: Unlicensed Contractors Can Pursue Designers for Negligence

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The North Carolina Court of Appeals recently determined that a builder who fails to comply with state licensing requirements may still pursue a negligence claim against design professionals. In Wright Construction Services, Inc. v. The Hard Art Studio, PLLC, the owner contracted with architecture firm Olive Architecture to develop plans for a mixed-use complex in Raleigh, North Carolina. Olive, in turn, contracted with Collins Structural Consulting and Scott A. Collins (the “Collins defendants”) to provide structural engineering work.

The owner directed Olive to solicit bids for the project, and Wright Construction Services, Inc. submitted a bid for the work. In its initial call with the owner, Wright explained that it could timely complete the work but did not yet have a general contracting license. Despite Wright not having its license, the owner still engaged Wright as the general contractor. Wright obtained a North Carolina unlimited general contracting license a few months later.

The project ultimately experienced a host of delays stemming from problems with the drawings and “issues obtaining constructible designs.” The owner terminated Olive and hired the Hard Art Studio, PLLC. Once on the project, Hard “acknowledged numerous design issues that would prevent [Wright] from completing construction” and recommended that work stop until the design issues were resolved. The owner instead terminated Wright for failure to complete its work on time.

Wright brought suit against Hard, the Collins defendants, and other designers on the project (collectively the “defendants”) for breach of their professional duties of care as architects and engineers. The defendants argued that Wright’s claims were barred by Wright’s own failure to obtain the necessary general contracting license before bidding on the project in violation of N.C. Gen. Stat §§ 87-1 et seq. The defendant-designers contended that Wright’s failure to timely obtain a license barred its ability to pursue claims for negligent design services because “contracts entered into by unlicensed construction contractors, in violation [of [a] licensing statute], [are] unenforceable by [the unlicensed] contractor.”

Wright countered that its suit was not based on the parties’ contract; rather, it was based on the defendants’ professional negligence. Regardless of its failure to have the necessary license at the time of contracting, Wright argued that architects and engineers are still required to uphold their professional duty to provide constructible designs that will ensure the “parties who reasonably rely on their work, [including their peers and their clients,] will not be injured.” In other words, engineers and architects are expected to exercise due care because their clients and peers on a project rely on a designer’s knowledge and expertise, and a failure to exercise such care amounts to negligence regardless of a party’s licensure status.

On appeal, the court determined that two wrongs don’t make a right when it comes to both a contractor and a design professional compromising the integrity of a single construction project. The court pointed out that construction projects have multiple participants, each of whom owe differing responsibilities to each other and their clients. For example, when an engineer or architect fails to ensure that the “parties who reasonably rely on their work will not be injured,” they breach their duty and should be held responsible for damages stemming from their failed professional performance. Likewise, contractors have a responsibility to obtain the proper license before bidding a project to ensure they are authorized to perform the work. If a contractor doesn’t obtain the necessary license it, too, should be held responsible. But should Wright, who violated a statute meant to “protect the public from incompetent builders,” still be able to pursue claims against the defendants for their own violation of laws also meant to protect the public from negligent design work?

The court ultimately found that the “licensure defense” raised by the defendants did not apply to the negligence claims brought against them by Wright. Why? Because “[a]pplying the license defense to these types of . . . claims would undermine [the purpose of the defense itself] – it would shield architects and engineers from responsibility for their failures to exercise due care” all because the contractor similarly failed to comply with its own statutory duty to the public. In the end, the public gains nothing from barring these types of direct claims as between contractors and design professionals. The court did emphasize that its narrow decision only addressed claims brought by unlicensed contractors based on a designer’s negligence.

This case emphasizes three key takeaways for contractors and designers:

  1. Contractors should ensure they comply with state licensing laws before bidding a project.
  2. Designers should note when contractors performing work on their projects obtain the necessary licenses. It could be useful information down the road.
  3. In some states, a contractor’s failure to obtain a license does not bar it from bringing negligence claims against designers.

Designers and contractors alike should seek advice of counsel when deciding how to enforce their rights against each other. It could mean the difference between recovery and mutual reprimand.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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