July 7, 1993
Mr. Mark D. Selph North Carolina Licensing Board for General Contractors 3739 National Drive, Suite 225
P. O. Box 17187 Raleigh, North Carolina 27619
Re: Advisory opinion whether general contractor’s license is required to construct building financed wholly or in part by federal funds or is located on federally-owned property; Article 1, Chapter 87 of the General Statutes.
Dear Mr. Selph:
You request our opinion concerning the applicability of the general contractor licensing requirements in Chapter 87, Article 1 of the North Carolina General Statutes to building construction involving federal funding and federal property.
Your specific question is whether a North Carolina general contractor’s license is required of contractors performing building construction where such construction is financed wholly or in part by federal funds or is located on federally-owned property. As noted in your letter, N.C.G.S. §87-1 defines the term "general contractor" as follows:
"Any person or firm or corporation who for a fixed price, commission, fee, or wage, undertakes to bid upon or to construct or who undertakes to superintend or manage, on his own behalf or for any person, firm, or corporation that is not licensed as a general contractor pursuant to this Article, the construction of any building, highway, public utilities, grading or any improvement or structure where the cost of the undertaking is thirty thousand dollars ($30,000) or more, or undertakes to erect a North Carolina labeled manufactured modular building meeting the North Carolina State Building Code, shall be deemed to be a general contractor’s [sic] engaged in the business of general contracting in the State of North Carolina."
It is clear from both the statute and the case law that a contractor falling within this definition is required to be licensed in accordance with N.C.G.S. §87-10. Barrett, Robert & Woods, Inc. v. Armi, 59 N.C. App. 134, 139, 296 S.E.2d 10, cert. denied 307 N.C. 269, 299 S.E.2d 214 (1982); Holland v. Walden, 11 N.C. App. 281, 181 S.E.2d 197, cert. denied 279 N.C. 349, 182 S.E.2d 581 (1971).
N.C.G.S. §87-9, however, sets forth the following specific exceptions to the licensing requirement:
"Nothing in this Article shall operate to prevent the Department of Transportation from complying with any act of Congress and any rules and regulations promulgated pursuant thereto for carrying out the provisions of the Federal Highway Act, or shall apply to any person, firm or corporation proposing to submit a bid or enter into contract for any work to be financed in whole or in part with federal aid road funds in such manner as will conflict with any act of Congress or any such rules and regulations promulgated pursuant thereto.
Neither shall anything in this Article prevent the State of North Carolina or any of its political subdivisions or their contractors from complying with any act of Congress and any rules and regulations promulgated pursuant thereto for carrying out the provisions of any federal program to assist in the planning, financing, or construction of drinking water or waste water processing, collection, and disposal systems and facilities."
A primary function of these exceptions is to exempt contractors performing certain federally funded projects from compliance with Chapter 87 where applicable federal regulations prohibit the imposition of state licensing requirements. The statute does not, however, address the issue of licensing requirements on federally funded building projects.
It is well established that the police power of the state extends to the protection of public health, safety and welfare through the right to regulate, in the form of licensing requirements, certain businesses and occupations. The legislature may, through appropriate laws, protect the public against incapacity, fraud, and oppression where, from the nature of the business or occupation or the manner of its conduct, the natural consequence may be injurious to the public welfare. State
v. Harris, 216 N.C. 276 (1939). The enforceability of state licensing requirements where private contractors are engaged in construction for the federal government, however, is an area of constitutional law which has seldom been addressed by the courts.
Article 1, Section 8, clause 17 of the federal constitution grants to Congress the power to exercise "exclusive legislation over all places purchased by the consent of the legislature of the states in which the places are located for the erection of forts, magazines, arsenals, dock-yards, and other needful buildings." The phrase "other needful buildings" has been held by the Supreme Court to embrace "whatever structures are found to be necessary in the performance of the functions of the Federal Government." James v. Dravo Contracting Co., 302 U.S. 134, 82 L.Ed. 155 (1937). On the basis of this constitutional provision, the Court held that where the United States has acquired exclusive jurisdiction over lands within a state, the state may not impose license fees and regulations upon those performing work on such land under contract with the United States. Id. at 134-144.
In Kleppe v. New Mexico, 426 U.S. 529, 96 S.Ct. 2285, 49 L.Ed. 2d 34 (1976), the Supreme Court analyzed a similar question under Article IV, Section 3, clause 2 of the federal constitution, which provides:
The Congress shall have power to dispose of and make all needful rules and regulations respecting the territory or other property belonging to the United States; and nothing in this Constitution shall be so construed as to prejudice any claims of the United States, or of any particular State.
In this case the Court relied on the "property clause" of the constitution for the principle that Congress has plenary power to make rules and regulations respecting property owned by the United States. On this basis, the Court held that the state’s exercise of its police power did not extend to federal property where such power was in conflict with federal law.
A third type of analysis was utilized in Miller v. Arkansas, 352 U.S. 187, 77 S.Ct. 257, 1 L.Ed.
2d 231, (1956), where the Court essentially used a preemption analysis to hold that requiring a federal contractor to comply with state licensing requirements would frustrate the federal policy, expressed in the Armed Services Procurement Act, of awarding bids for federal projects to the lowest responsible bidder. The Court reasoned that subjecting a federal contractor to the state licensing requirement would give the state licensing board "a virtual power of review over the federal determination of ‘responsibility’ and would thus frustrate the expressed federal policy of selecting the lowest responsible bidder." Id. at 190. Although not specifically referenced, the Court apparently relied on the "supremacy clause" in Article VI, clause 2 of the federal constitution to nullify the conflicting state statute.
As reflected in these opinions, the constitutional issues involved where federal and state jurisdiction conflict are complex and in many instances difficult to resolve. Jurisdictional distinctions exist between different types of federal property, depending on the jurisdictional agreements involved in the acquisition from the state. Chapter 104 of the North Carolina General Statutes codifies certain elements of state jurisdiction on federal property.
For these reasons, your determinations as to the applicability of licensing requirements to contractors involved in federal projects will likely require individual analysis of the property and program involved. To assist you in this analysis I offer the following guidelines:
- Where a building project is under the jurisdiction of a federal agency and located on federal property, state licensing requirements will normally not be enforceable.
- Where a building project is totally private, but located on a federal enclave such as Fort Bragg where the federal government retains virtual exclusive jurisdiction, state licensing requirements will normally not be enforceable.
- Where a building project is under the jurisdiction of a federal agency but not located on federal property, state licensing requirements will not apply if clearly in conflict with specific federal law or regulation governing the project.
- The more common situation will involve state, local or private building projects which are federally funded and governed by federal regulations which limit the recipient’s authority to require a state contractor’s license. These limitations, however, are merely conditions of funding and do not necessarily create a conflict between federal and state law. It is the prerogative of the General Assembly to waive state law in order to allow the receipt of federal funds. As previously noted, this intent has been expressed in regard to highway construction and drinking water or waste water system construction under N.C.G.S. §87-9, but not in regard to other types of building construction. Therefore, where conflicting federal regulations are merely conditions of funding, contractors bidding on such projects may be required to comply with state licensing requirements.
I hope these guidelines will assist you in dealing with this complicated issue. Should you require guidance in analyzing individual situations this office will be available to assist you upon request.
Reginald L. Watkins Senior Deputy Attorney General Grayson G. Kelley Special Deputy Attorney General