Recent Court Rulings
Affecting the
Registrar of Contractors
There have been two recent court rulings which will have impact on operations at the
Registrar of Contractors. The areas primarily impacted will be Licensing, Legal and Investigations.
Arizona Commercial Diving Services, Inc. v. Applied Diving Services, Inc. This matter
involved a contract to clean reservoirs and tanks for the City of Phoenix. The contract
was a requirements contract providing for payment to the contractor at an agreed upon
rate for the city’s requirements as they arose over the life of the contract. Therefore,
there was no set total contract amount. At the time the contractors bid on the contract,
Arizona Commercial Diving Services, Inc. (ACDS) did not yet hold an Arizona contractors
license. When ACDS applied for its license, the ROC reviewed the application with
a view toward A.R.S. §32-1123, which provides that any entity which bids on a contract
with an aggregate worth of $20,000 or more is not eligible to obtain a license for one
year from the date of the bid. The ROC concluded that the prohibition was not applicable
since the contract was a requirements contract. As such, the ROC could not ascertain
that it would, in fact, ultimately amount to $20,000 or more. Upon a complaint filed
by Applied Diving Services, Inc. (ADS), an administrative law judge concurred with the
ROC and upheld the issuance of the license. However, upon appeal to the superior
court and the court of appeals, those courts reversed that decision holding that the ROC
should have considered previous contracts administered by the City of Phoenix which
showed that historically this particular contract far exceeded the $20,000 threshold and
ordered the ROC to rescind (revoke) the license and not issue another license to ACDS
for a period of one year. Recently, the Supreme Court denied a petition to review the
case. Thus, in future situations like this one, the ROC’s Licensing Department will examine
the history, if any, of requirements contracts when making licensing decisions.
Butch Randolph & Associates, Inc. v. International Fidelity Insurance Company. This
case arose in the context of a dispute over alleged lack of payment by a general contractor
to a subcontractor. The contract was for supplying and installing ramadas and barbecue
grills at a recreational site. The subcontractor was the unlicensed material supplier
who bid the contract to both supply and install the ramadas and grills. The general’s
surety defended claiming that the subcontractor could not maintain the action because it
was not a properly licensed contractor. The material supplier subcontractor countered
claiming that while it bid the entire subcontract to both supply and install, the actual installation
was done by a properly licensed subcontractor hired by the material supplier.
Given this set of circumstances, the ROC would have viewed the material supplier as
engaging in unlicensed contracting because it contracted to install irrespective of the fact
that it hired a properly licensed subcontractor to actually do the work. This was our position
because contracting is defined as doing work either yourself or through another.
However, Division One of the Arizona Court of Appeals took the contrary position and
concluded that because the material supplier did not actually install the ramadas and
grills it was exempt under the exemption contained in A.R.S. §32-1121(A) (4) that exempts
“any materialman, manufacturer or retailer furnishing finished goods, materials or
articles of merchandise who does not install or attach such items” from the requirement
to be licensed. In light of this decision, which we are bound to follow, we are carefully
reviewing any potential cases of unlicensed contracting involving material suppliers.
