Qualifying parties beware: You may be liable for licensed contractor’s actions
Under Arizona law amended in 2019, a registered contractor’s qualifying party is now responsible for any violations of state law specifically governing the licensing of contractors.
A.R.S. 32-1127(B) states: “While engaged as the qualifying party for a licensee, the qualifying party is responsible for any violation of [Title 32, Chapter 10] by the licensee.” A practical interpretation of that provision would arguably impose personal liability on qualifying parties for a contractor’s violations of Arizona’s contracting statutes. As examples:
• If a contractor is sued for poor work, the qualifying party can be named personally in the lawsuit.
• In a civil lawsuit or no-pay complaint with the Arizona Registrar of Contractors (ROC), if the licensee is found liable for the unpaid amount in violation of A.R.S. § 32-1154(A)(10), the qualifying party could be held personally and financially responsible.
• Similarly, the qualifying party could be held liable if a contractor is found to have violated Arizona’s Prompt Payment Act by failing to timely pay subcontractors or suppliers.
In our representation of contractors in ROC matters, we occasionally see situations in which an individual allowed the use of their name to satisfy the “qualifying party” requirement in the license application without the level of direct involvement and oversight that Arizona law clearly imposes.
Takeaway for Qualifying Parties. Knowing that they could be held personally liable for the contractor’s statutory or regulatory violations should cause a would-be qualifying party to think twice before agreeing to serve in that capacity “in name only.”
With few exceptions, obtaining a contractor’s license from the ROC requires that the applicant name a “qualifying party” – i.e., the person who must demonstrate experience in the licensed scope of work.
The qualifying party must pass a “statutes and rules examination” to demonstrate a “general knowledge of the contracting business in Arizona.” That general knowledge includes laws regarding building, safety, health, and liens; administrative principles of the contracting business; and rules adopted by the ROC.
The qualifying party must also pass a “trade examination” to demonstrate his or her knowledge of the particular kind of work performed under the license classification. That includes understanding (a) construction plans and specifications applicable to the particular industry or craft and (b) the standards of construction work and techniques and practices in the particular industry or craft.
The 2019 amendments to A.R.S. § 32-1127 also retained a long-standing prohibition against conflicting employment:
“While engaged as a qualifying party for a licensee, the qualifying party may not take other employment that would conflict with his duties as qualifying party or conflict with his ability to adequately supervise the work performed by the licensee.”
However, the aforementioned amendment imposing personal liability on the qualifying party has more far-reaching and potentially dire implications for those that agree to serve in that capacity.