Unlicensed Contractors Can Successfully Bid

By Daniel J. Kucera

A recent Illinois court decision has upheld the award of a public works contract to an unlicensed contractor. Thompson Electronics Company v. Easter Owens/Integrated Systems, Inc., 702 N.E. 2d 1016 (Ill. App. 3d Dist. 1998).

A county public building commission advertised for bids regarding a security communications system for a new juvenile justice center. The bid specifications provided, in part: "The eligibility of each trade contractor will be determined upon past experience, trade references, bonding capacity and financial stability." Id. at 1018.

A state statute requires a private alarm contractor to be licensed by the state: "It is unlawful for a firm, association, or corporation to act as an agency certified under this Act, to advertise or assume to act as a certified agency, or to use any other title implying that the firm *** is engaged in the practice as a *** private alarm contractor agency *** unless certified by the Department." 225 ILCS 446/15(b).

The bid specifications did not require a bidder to be licensed, and the majority of bidders were not licensed at the time of bidding. The lowest bid was submitted by a contractor unlicensed at the time of the bid. The Commission awarded the contract to this contractor as the lowest responsible bidder. After the contract was awarded, the contractor eventually obtained a license from the state, but was fined for each job previously performed without a license.

Another bidder filed suit, claiming that the statute requires a license at the time of bidding or, at the latest, when the contract is awarded. The Appellate Court affirmed the trial court's ruling that a license is not required at the time of bidding, and thus the contract award was not an abuse of discretion.

According to the Appellate decision, the successful bidder previously had installed security systems at public facilities in other counties without a license. In fact, due to those projects, the contractor was pre-qualified by a certified security consultant to bid on the work in question.

The court concluded that the licensing statute literally did not require that contractors have a license to bid on a project. "Given the state of interstate commerce in this modern age, it would be inappropriate to restrict free and open competition by demanding a license prior to bidding unless the legislature specifically required one." Id. at 1019.

The plaintiff raised an alternative argument, that the contractor could not be found to be the lowest responsible bidder because, since it was not licensed, it could not immediately perform the work if selected.

The court also rejected this claim. The court stated that the state had the responsibility to reprimand violators of the statute. Since the bid specifications did not require a license to be submitted prior to execution of the contract, pre-qualification approval was given by the consultant (albeit based on prior unlicensed work), and the successful bidder was experienced, the court found no abuse of discretion by the commission.

A dissenting opinion disagreed with the court majority. It stated that at the moment a bid was submitted, the contractor was offering to sell a system, which was a prohibited act unless licensed. "The purpose of the Act, protection of the public, therefore clearly prohibits any such actions by a private alarm contractor unless the contractor is licensed. If this were not the case, the public would not be protected from unscrupulous or unqualified vendors during the crucial first step in the vending process, the solicitation and reception of bids." Id. at 1021.

If a contract is awarded to an unlicensed contractor, there may be a risk to the owner. The contractor may not be able to obtain a license, or the project may be delayed by the permit process, litigation, or the need to rebid. The benefits of including permit and license requirements as a bid specification may outweigh any perceived benefits of receiving many bids from unlicensed contractors.

Dan Kucera is a partner with the Chicago law firm of Chapman and Cutler, specializing in public utilities, water and wastewater and environmental law. Tel: (312) 845-3757; Fax: (312) 701-2361; email: wimbush@chapman.com.

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