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Construction licensing: Nevada's response.

The construction industry represents one of the largest employers in the United States. Nationally, approximately 7.1 million people work in the various trades. (1) Most states regulate the industry through contractor licensing laws designed to promote public confidence and trust in the competency and integrity of licensees and to protect the health, safety, and welfare of the public. Although most contractors comply with the applicable laws and perform valuable services, a small minority work as unlicensed contractors, performing substandard work, providing no warranties, subjecting homeowners to civil liability, and ignoring state and municipal licensing requirements. Many unlicensed contractors cannot meet the various licensing specifications, which entail passing a trade test, providing dependable references, and establishing sufficient financial responsibility to engage in the construction business. Other such unlicensed contractors may be employees of licensed contractors working side jobs and unable to guarantee their work when problems develop. In these circumstances, the contracts often are verbal with little or no paper trail, and payments are made in cash. The unlicensed contractor's paper-work usually displays a cell phone number and a mail drop for an address. Further, homeowners may not know the individual's last name.


The Problem

Contracting without a license is an administrative or criminal violation in states that license contractors. Aside from the various state licensing requirements, many municipalities also require some form of business registration and impose administrative or criminal penalties for noncompliance.

People who use the services of unlicensed contractors expose themselves to civil liability under their homeowners' policies if contractors or their employees are injured on the job. Moreover, homeowners have little recourse if the work is not performed properly except to sue the unlicensed contractor civilly and hope that they can locate some assets. Several states have enacted legislation that voids a contract if the contractor is not properly licensed, thereby releasing the homeowner from the obligation to pay for faulty services. However, this does not stop the unlicensed contractor from placing an illegal lien on the customer's property. Many elderly homeowners are not aware that the lien is illegal. In these cases, the unlicensed contractor may pressure them to pay for the unlawful services, thereby continuing the fraud.

The Law Enforcement Aspect

Many law enforcement agencies have officers who investigate fraud or the theft of construction equipment. However, they do not enforce licensing requirements for contractors. Officers typically are not aware of the various licensing tools available to them. Patrol officers often encounter contractors either through the investigation of complaints or traffic stops. Such opportunities can produce significant results and provide valuable information for homeowners.


Law enforcement officers and prosecutors mistakenly may believe that when a contractor, either licensed or not, enters a contract and, subsequently, fails to perform the requested services in a workmanship-like manner, the matter is handled civilly. Further, they incorrectly may assume that these cases are more appropriately referred to the civil court system for resolution. The state regulatory agency usually has the ability to enforce the provisions of the contract and ensure the work is performed properly. Homeowners who use unlicensed contractors' services are precluded from seeking monetary recovery from the various residential recovery funds established in many states, and they have little recourse through the civil court system of collecting any judgments they may receive.

Departments should ensure that their officers know that contracting requires a license. Failing to obtain the proper license or advertising (without a license) as a contractor may be crimes in some states. As a result, what initially appears to be a civil or administrative matter also may constitute a criminal issue. The prosecution of unlicensed contractors through the criminal court system may result in restitution ordered by the court, giving consumers a viable avenue to follow.

Nevada's Response

Most state regulatory agencies actively pursue unlicensed contractors. In Nevada, the first offense is a misdemeanor, the second a gross misdemeanor, and the third a felony. Nevada also enacted unique legislation that empowers the state contractors board to conduct background investigations, obtain the fingerprints of applicants and licensees, require contractors to pass law and trade tests prior to licensing, and ensure that contractors establish their financial responsibility. The Special Investigations Unit of the Nevada State Contractors Board was established to aggressively pursue unlicensed contractors and uses proactive patrols of commercial and residential construction sites to identify them. This legislation includes specific statutes to give on-scene criminal citations, issue cease-and-desist orders, disconnect the telephone numbers of unlicensed contractors, regulate the advertising of contractors, and make the diversion of funds from a construction project a felony if the amount exceeds $1,000.


Additionally, Nevada implemented a law enforcement awareness program that provides the contractor licensing requirements, in approximately 15 minutes, to local law enforcement agencies during briefings. As a result, officers receive the basic information and tools they need to better serve the public during the normal course of their duties.

Officers aware of the local licensing requirements may take appropriate action when they observe a vehicle carrying construction equipment and displaying a company name without a license number. In Nevada, exhibiting a company name is considered advertising, and officers can charge unlicensed contractors with a misdemeanor if they do not have a valid contractor's license number displayed. Officer observations, coupled with their background, training, experience, and knowledge of construction licensing laws, may provide sufficient cause to stop the vehicle and inquire further.

Law enforcement officers know that stopping a vehicle for a minor violation can result in a significant arrest or seizure. Having knowledge of local contractor licensing requirements provides patrol officers with another tool to assist in the performance of their duties. They should take a proactive approach and ask for licensing identification. Consequently, Nevada developed a pocket card (modeled after Miranda cards) for law enforcement officers that provides them with basic information identifying the specific statutes and elements of licensing violations. Thus, they can make a probable cause arrest if appropriate. The card also includes telephone numbers officers can use to verify a license and report unlicensed contracting activity. Officer inquiries of unlicensed contractors routinely identify fugitives, unregistered sex offenders, convicted felons, people using false identities, illegal aliens, the recovery of stolen construction equipment, and various schemes to defraud.


Laws regulating licensed contractors protect the public. (2) In many states, contracting without a license may be an administrative or criminal violation. Although law enforcement officers may investigate construction-related crimes, they often are unaware of licensing requirements and the tools available to enforce state contracting laws.

In Nevada, the State Contractors Board responded to this dilemma by establishing a unit that pursues unlicensed contractors by using proactive patrols. Further, Nevada law enforcement agencies provide officers with training on basic licensing requirements, identifying what officers should look for when they conduct patrols, issue traffic citations, and respond to various complaints. Having a basic knowledge of local contractor licensing requirements provides law enforcement officers with another tool to protect and serve their communities.

Agencies can visit the Nevada State Contractors Board Web site at or the National Construction Investigators Association Web site at to identify individual state contractor licensing agencies.


(1) U.S. Department of Labor, Bureau of Labor Statistics, May 2003.

(2) Nevada State Contractors Board,

Mr. Lyford, a retired FBI agent, serves as the director of investigations for the Nevada State Contractors Board in Henderson.
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Article Details
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Author:Lyford, George
Publication:The FBI Law Enforcement Bulletin
Geographic Code:1USA
Date:Nov 1, 2005
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