Required Contractor Action: Updates to RME Duties

By: Joseph M. Sweeney, Esq., Christopher J. Olson, Esq., Scott A. Mangum, Esq., William M. Kaufman, Esq. and M. Jonathan Robb, Jr., Esq.

A Responsible Managing Employee’s (“RME”) role is to oversee the contractor’s construction operation to ensure that the contractor is complying with each of the requirements of Business and Professions Code Chapter 9. This includes ensuring project safety, obtaining proper permits, record keeping, the timely payment of subcontractors, etc. Until recently, one of the major requirements was that an RME provide direct supervision and control over the job site and contractors. Business and Professions Code § 7068.1 defines “supervision and control” as “direct supervision or control or monitoring and being available to assist others whom direct supervision and control has been delegated.” The consequences for an RME’s failure to provide direct supervision could be the difference between a contractor being able to recover payment for its work and the court finding that the contractor was in essence unlicensed, thus, unable to recover payment and potentially having to disgorge payments already received for its work under Business and Professions Code § 7031.

In January 2022, however, a new bill, AB 830, amends section §7068.1 to allow delegation of direct supervision and control by an RME and removing the “direct” supervision provision. The new provision allows an RME to delegate duties, including supervising construction sites, managing construction activities and checking jobs for proper workmanship, for example.

In addition, AB 830 also modified subsection (d) of §7068.1. The statute now requires that every applicant of licensee qualifying by the appearance of a qualifying individual to submit detailed information on the qualifying individual’s duties and responsibilities, including an employment duty statement prepared by the qualifier’s employer or principal. Although it is not clear from the CSLB website what the specific requirements of an employment duty statement are or what should be contained in the statement, it is a violation of §7068.1 to not provide one if requested.

A compliant “employment duty statement” will most likely include language incorporating Chapter 9. For example, the RME’s duties should be recorded in the employment duty statement and the RME should comply with the duties in the statement. The employment duty statement could serve to keep the RME accountable for their supervisory responsibilities. Delegation of any RME duties should also be recorded in the employment duty statement. In addition, contractors should be aware that opposing counsel may ask for the employment duty statement during litigation proceedings with the goal of demonstrating a discrepancy between the duties listed on the employment duty statement and what the RME actually did on the jobsite. Consequently, RMEs should be prepared to provide details about how, where, and when they performed the requisite duties listed in the employment duty statement moving forward. It is strongly recommended that all contractors prepare a compliant employment duty statement as suggested above as soon as possible.

Now is also a good time to review both your form contracts and liability insurance coverages.  Are your contracts up to date and do they contain terms and conditions (including indemnity, scope of work and payment provisions) that adequately protect your business and serve your specific needs?  Moreover, do you have adequate insurance to protect your company when something inevitably goes wrong—including coverage for your subcontractors’ work (if applicable)?  What exclusions and exemptions does your insurance policy contain? Have appropriate additional-insured endorsements been issued for particular projects and, if so, does that coverage continue or terminate when the subcontractor (or contractor) completes its work? Do you have an adequate attorney’s fees clause if it becomes necessary to pursue legal action in the event you are not paid? All of these important questions must be addressed in advance of contracting to mitigate against potential catastrophic results. Contractors are encouraged to have their contracts reviewed by counsel, including to make sure that they comply with the recent changes to Business & Professions Code Chapter 9!

For more information, or if you you have specific questions, please contact Joseph M. Sweeney, Esq., Christopher J. Olson, Esq., Scott A. Mangum, Esq., William M. Kaufman, Esq. and M. Jonathan Robb, Jr., Esq.