When contractors leave home to follow their customers to new areas or look to pursue public work in new geographical locations, the risks can outweigh the opportunities.

To ensure a project’s success, it’s critical for CFMs to take the time to investigate all potential issues that could affect the decision to work away from home.

Since each state not only has different laws, but also ways in which those laws are interpreted and enforced, this article is intended to help contractors evaluate several aspects of performing work that can significantly vary when opportunities are sought in new areas.

Before You Contract

If your company is considering bidding on work outside of its home state, here are some preliminary areas where prior knowledge (and discussions with third-party advisors) can be beneficial.

State Corporation Laws

All states require an out-of-state company to register as a foreign corporation. The process typically involves paying a fee and appointing a person or firm as the company’s registered agent in the state (to whom official notices and lawsuits can be sent on your behalf), and can usually be done online. While registration doesn’t have to be filed until you are “doing business,” what qualifies as “doing business” can vary from state to state.

For instance, a corporation that is not in good standing with the Secretary of State generally cannot file a lawsuit in that state. A failure to register or to maintain current registration can be cured retroactively by paying fees and filing paperwork, but it can take time. If the statute of limitations has already run out, then it may not be enough to revive the claim.¹

Sample Scenario: A contractor takes on a project in another state, files as a foreign corporation, but never re-files. Years later, the contractor is sued by its customer, but it can’t complete the paperwork in time to get back in good standing and assert a counterclaim.

Licensure

In many states, the penalty for not having appropriate licenses is significant: Often, the contractor must forfeit all funds for work done and may even have to repay funds already received. And, the requirements for corporate licensure will differ from those for an individual (e.g., licensing for an electrical contractor vs. an individual holding an electrician’s license). The corporate license may require submission of financial statements, as is the case in Nevada.²

These licensing exams may only occur a few times a year and may not coincide with when a bid needs to be submitted or a contract signed. In some states (such as Arkansas),³ it is against the law to practice certain construction trades without a license, and in others, a contractor that fails to maintain its license for a dissolved entity during a phased reorganization could be liable to refund all fees received.⁴