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On October 1, 2003, the Chicago City Council amended Title 4 of the Municipal
Code of Chicago (the "Code"), adding a new Chapter 4-36 entitled "Licensing of
General Contractors" (the "Ordinance"). This relatively new Ordinance brings to
mind the old adage that "no good deed ever goes unpunished."
Designed to protect the general public from the financially distressed general
contractors who fail to complete their work or complete their work in nonconformance
with the Chicago Building Code, Chapter 4-36 provides that "...[n]o person shall own,
operate, conduct, manage, engage in, maintain, or carry on the business of a general
contractor without first having obtained a general contractor license."
Before the Department of Construction and Permits will issue a building permit for
any project, the permit applicant must affix his name and general contractor license
number on every application. CHICAGO, ILL., MUN. CODE § 4-36-080(2003).
Consequently, no building permit will henceforth be issued without the general
contractor's license number appearing on the application.
The new Ordinance defines a general contractor as "...any person who, as an investment
or for compensation or with the intent to sell or to lease, (i) arranges or submits a
bid or offers to undertake or purports to have the capacity to undertake or undertakes,
through himself or through others, to erect, construct, alter, repair, move, install,
replace, convert, remodel, rehabilitate, modernize, improve or make additions to any
building as defined in section 13-4-010 or to any appurtenance thereto attached to real
estate…and (ii) retains for himself control over the means, method and manner of
accomplishing the desired result; and (iii) whose business operations, in whole or in
part, require the hiring or supervision of one or more persons from any building trade
or craft, including, but not limited to, plumbing, masonry, electrical, heating,
carpentry, or air-conditioning. The term includes nonresident general contractors who do
business within the city and developers of conversion condominiums as defined in the
Condominium Property Act, as amended." Id. at § 4-36-010
Section 4-36-020(B) of the Ordinance sets forth certain classes of people and contractors
not subject to the licensing requirements. These exemptions include any subcontractor
working under the supervision of a general contractor, mason contractors, plumbing
contractors, or electrical contractors licensed by the City of Chicago acting within
the scope of their licenses, architects, engineers, and others.
General contractor licenses are divided into five classifications depending on the size
of the projects the general contractor completes. These classifications range from a
Class A license, the holder of which has no limitation as the value of any single contract
project, to a Class E license, the holder of which will not construct any single contract
project for a value in excess of $50,000.
In applying for a license, the general contractor must detail certain information concerning
its officers and agents, and provide "...a statement verified by affidavit as to whether the
applicant or any person owning 25% or more of the interest in the applicant is financially
solvent..." Id. at § 4-36-050 (G).
Proof of insurance as required in Section 4-36-090 of the Code must accompany the
application for license as must a license bond as required by Section 4-36-100 of
the Code. The penal sum of a license bond ranges from $200,000 for a Class A license
to $5,000 for a Class E license.
The bond "...may be attached by the commissioner to collect fees or penalties
due to the city for violations of this chapter or the Chicago Building Code."
Id. at § 4-36-120.
The purpose of Chapter 4-36 is clearly articulated in Section 4-36-120 of the Code
entitled "Duties." This section provides, in pertinent part, that:
A licensee or any person requiring a license under this chapter shall have the
following duties:
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To maintain a list that includes information about all permits obtained and
all contractors or subcontractors performing work on any project that is
permitted or requires a permit under this code...
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To maintain sufficient and proper personnel, financial ability, and facilities
to coordinate, develop, provide needed management expertise, and complete
entirely any proposed work for which a permit has been issued or is required
to be issued under this code…Financial solvency is a continuing requirement
for maintaining licenses under this chapter.
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To assure compliance with the building code by its employees, agents and
subcontractors in the performance of a project.
This section also provides that if "...the commissioner of buildings determines
that a licensee or any person requiring a license under this chapter has failed to
correct any substantial defect, error or deficiency, or has established a pattern
of deviating from the drawings or plans approved by the appropriate department
issuing the permit, in any work done under the authority of a permit issued pursuant
to this code, the commissioner shall notify the licensee or person that if the
noncompliance is not corrected to the satisfaction of the department within 10
business days after written notification thereof, the issuance to the general
contractor of any new permit for any work at any location shall be prohibited until
the noncompliance is cured." Id. at § 4-36-120.
Each class of license requires a different fee, ranging from $2,000 for a
Class A license to $300 for a Class E license. Violating any provision of
the Ordinance can result in fines of not less than $1,000 per day nor more
than $5,000 per day for general contractors who hold a Class A license to
not less than $250 per day or more than $1,000 per day for general contractors
who hold a Class E license.
Other penalties, such as suspension or revocation of the general contractor's
license,
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are available for the use of the Building Commissioner under appropriate
circumstances.
The difficulty in applying the Ordinance arises in the context of the multi-prime
method of project delivery. This method of project delivery envisions owners
entering into separate contracts with separate prime contractors, and delegating
to each prime contractor responsibility for the means, method, and manner of
completing that prime contractor's scope of work.
This method of project delivery generally does not have a "general contractor"
who "retains for himself control over the means, method, and manner of accomplishing
the desired result..." i.e., completion of the project. Rather, each prime contractor
retains for itself control over the means, method, and manner of accomplishing its
own and only its own scope of work.
The owner may retain the services of a construction manager to administer and
coordinate the overall construction of the project, but the construction manager
does not have the contractual responsibility for determining the means, method,
or manner by which each prime contractor completes its scope of work.
The Ordinance requires the general contractor to affix his license number to
every permit application. No building permit will be issued and, therefore, no
construction can begin until and unless the general contactor has signed the
permit application and affixed a general contractor license number to it.
Consequently, in essence, no building permit will be issued without a general
contractor. Here lies the problem for an owner who wishes to utilize the
multi-prime method of project delivery. As there is no "general contractor" as
that term is defined in the Ordinance on multi-prime projects, the Ordinance
would seem to preclude the use of this method of project delivery for any project
in the City of Chicago.
Unlike smaller projects requiring only a single building permit, large multi-prime
projects usually require the issuance of more than one building permit.
For example, the owner of a large multi-prime project may get a foundation permit,
a superstructure permit and a general building permit. The foundation permit may
include work performed under separate prime contracts, such as concrete, excavation,
and site utilities. Each of these scopes of work will normally be completed by
different prime contractors.
Similarly, a superstructure or general building permit will include work performed
by any number of prime contractors, none of whom has control over all of the work
that is performed under that permit. The Ordinance requires, however, that each of
these permit applications bear the general contractor's license number, apparently
obligating a single general contractor to retain control over the means, method
and manner of completing all of the work subject to the building permit. This focus
of responsibility simply is not contemplated by multi-prime project delivery.
This method of project delivery allows an owner to play a much more direct role in
the selection of prime contractors. As each prime contractor will enter into a
contract directly with the owner, the owner, working with its construction manager,
can include non-price-driven factors, such as the job site safety rating of a prime
contractor, in the selection process. While there will always be strong competition
on large multi-prime projects, an owner may place a higher value on an injury-free
job than on completing the job for the lowest price. In addition, an owner of a
large multi-prime project may select an Owner-Controlled Insurance Program ("OCIP"),
whereby the owner buys project-related insurance for all prime contractors. In doing
so, the owner would normally purchase insurance in amounts in excess of what is
otherwise required by the Ordinance, pay insurance premiums, remain involved in
administering the OCIP, and assume more financial risk in the event of a job site
accident. Multi-prime project delivery thus allows an owner to directly choose a
prime contractor who enhances the safety-related environment of a project to the
benefit of all project participants and the public at large. Owners also feel there
are additional cost savings in utilizing the multi-prime method of project
delivery…savings that occur in both the total project cost and scheduling of the
work as a result of utilizing this method of construction.
While the Ordinance is meant to protect those who utilize the services of a
general contractor as well as the public at large, industrial and governmental
owners and developers of large multi-prime projects normally require contractors
to provide payment and performance bonds which ensure that their projects will
be completed and subcontractors paid in the event of a contractor default.
These owners also employ their own skilled in-house and independent outside
architects and engineers whose plans and specifications can be expected to
meet or exceed the Chicago Building Code stated requirements.
Having experienced and knowledgeable construction managers, oftentimes
acting as the Owner's agent on these types of projects, ensures that the
contractors' work will be completed in accordance with plans and specifications.
Consequently, there are fewer compelling reasons to protect these owners from
contractor default and contractor failure to meet requirements of the Chicago
Building Code.
Thus, it appears that one solution may be to exempt large projects which utilize
the multi-prime method of project delivery. The Ordinance as amended will then
continue to protect those it is designed to protect, while allowing sophisticated
owners who choose to utilize the multi-prime method of project delivery to
continue using this preferred method of construction.
And the good deed intended by the City Council in passing this Ordinance will
thus remain true to its intended purpose.
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ieutenant Colonel Norman M. Grady became Deputy Commander of the U.S. Army Corps
of Engineers, in the Chicago District in July 2002, where supervises both the
administrative and the advisory staff and is responsible for all military activities
within the Chicago District.
e has also served as Project Manager and Project Officer for the Corps of Engineers
Sacramento District and as the Assistant Director, Directorate of Military Programs,
at USACE Headquarters. In addition to his stateside assignments, he has previously
been deployed overseas to Korea.
olonel Grady recently returned from Iraq. He served there as the First Deputy
Commander of the Southern District, Gulf Region. That District manages the
$1.3 billion U.S. reconstruction program for southern Iraq. LTC Grady was directly
responsible for all personnel, logistics, and life support activities within the District.
native of Irvington, N.J., Lieutenant Colonel Grady was commissioned as a second
lieutenant in the Army Corps of Engineers and was awarded a Bachelor's Degree upon
graduation from the U.S. Military Academy at West Point, N.Y., in 1981. He later
earned a Master's Degree in computational mechanics from the University of Texas
at Austin in 1988, and is presently in the dissertation phase of a doctoral program
in structural engineering through the University of Texas at Austin. He has also
taught Civil & Mechanical Engineering at West Point, and been presented with the
Bronze Star Medal among numerous military awards recognizing his professional
accomplishments.
