2.4 Bid Envelope Rules, Unlicensed Contracting, and Disciplinary Penalties

Mandatory Exterior Bid Envelope Disclosures (T.C.A. § 62-6-119 & Rule 0680-01-.24)

One of the most important provisions on the Tennessee Business and Law examination is Tennessee Code Annotated § 62-6-119 (together with Tenn. Comp. R. & Regs. 0680-01-.24). On any public or private construction project of $25,000 or more, any person, architect, engineer, construction manager, or awarding authority preparing plans and specifications must include statutory instructions requiring every bidder to display specific licensing information on the outside of the sealed bid envelope (or in the designated exterior header of an electronic bid submission) before the bid is opened.

1. Required Prime Contractor Information on the Outside of the Envelope

Every bidder submitting a prime bid of $25,000 or more must write four exact items on the exterior of the bid envelope:

1. Exact Licensed Name of the Prime Contractor (must match the Board's license record and Secretary of State registration word-for-word—bidding under an unregistered DBA or abbreviated trade name invalidates the bid)
2. Tennessee Contractor License Number
3. License Expiration Date
4. License Classification (and sub-classification) covering the prime bid

2. Required Subcontractor Information on the Outside of the Envelope

In addition to the Prime Contractor's credentials, the bidder must list on the outside of the bid envelope the Exact Licensed Name, Tennessee License Number, Expiration Date, and License Classification of only one (1) subcontractor to be used for each of the following specific trades whenever that trade's portion of the project (including materials and labor) reaches its statutory threshold:

Critical Bid Envelope Operating Rules and Worked Scenario

• Only One Subcontractor Per Trade: A prime bidder may never list alternative subcontractors (such as "Either Subcontractor A or Subcontractor B") on the bid envelope for a regulated trade. Listing multiple subcontractors for the same trade renders the bid non-responsive.
• Self-Performing Regulated Trades: If the Prime Contractor intends to perform the Electrical, Plumbing, HVAC, or Roofing work ($\ge \text{\textdollar}25,000$) or Masonry work ($\ge \text{\textdollar}100,000$) with its own in-house forces, the Prime Contractor must hold that specific trade classification on its license and must write its own Name, License Number, Expiration Date, and Trade Classification on the outside of the envelope for that trade.
• Marking "N/A" or "None" When Below Threshold: When a regulated trade is not part of the project or its cost is below the statutory threshold (for example, $19,000 of roofing or $75,000 of masonry), the bidder should write "N/A" or "None" in that trade's exterior disclosure line rather than leaving required bid envelope lines blank.

Worked Bid Envelope Scenario: Suppose Apex Builders, Inc. (holding BC-B and LMC classifications) bids $1,650,000 on a municipal library. The project includes $95,000 in electrical work, $48,000 in plumbing, $115,000 in HVAC, $22,000 in roofing, and $135,000 in masonry (which Apex Builders will self-perform with its own crews). On the outside of the sealed bid envelope, Apex Builders must list: (1) its own name, license number, expiration date, and BC-B classification as Prime Contractor; (2) the name, license number, expiration date, and classification of its one licensed CE electrical subcontractor, its one CMC-A/CMC plumbing subcontractor, and its one CMC-C/CMC HVAC subcontractor; (3) "N/A" or "None" for roofing (since $22,000 is below $25,000); and (4) Apex Builders, Inc.'s own name, license number, expiration date, and LMC classification for the $135,000 self-performed masonry scope.

Consequence of Non-Compliance and the Re-Bidding Ban (Rule 0680-01-.18)

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Prohibition on Splitting or Dividing Contracts (Rule 0680-01-.13(8))

Under Tenn. Comp. R. & Regs. 0680-01-.13(8), neither a contractor nor a property owner may split, phase, or divide a single construction project into multiple smaller contracts (or separate labor-only and material-only agreements) to bring individual contracts below the $25,000 statutory threshold or below a contractor's monetary limit. For instance, dividing a $42,000 remodel into two $21,000 contracts—or splitting a $900,000 commercial build-out into two $450,000 phases so a contractor with a $500,000 monetary limit can perform the work—constitutes unlawful contracting.

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Civil Recovery Penalty: Actual Documented Expenses Only (T.C.A. § 62-6-103(b))

Tennessee imposes a severe financial penalty in civil litigation and arbitration against any contractor who operates without a required license, contracts outside its classification, or exceeds its monetary limit (beyond the 10% tolerance).

Under T.C.A. § 62-6-103(b):

• Zero Profit, Zero Overhead, No Contract Enforcement: An unlicensed or over-limit contractor is barred from enforcing the contract price and cannot recover profit, overhead markup, or standard quantum meruit (fair market value) damages in any court of law, court of equity, or arbitration.
• Actual Documented Expenses by Clear and Convincing Evidence: The non-compliant contractor is restricted to recovering only actual documented expenses (direct out-of-pocket costs paid for labor and materials incorporated into the project) that the contractor proves by clear and convincing evidence—a substantially higher legal burden than the ordinary civil preponderance-of-the-evidence standard.
• Complete Loss of Mechanics' Lien Rights (T.C.A. § 66-11-102): An unlicensed contractor who was legally required to hold a Tennessee contractor's license has no mechanics' and materialmen's lien rights against the owner's real property.

Worked Civil Litigation Example: Suppose a contractor holding a $400,000 monetary limit (maximum lawful contract with 10% tolerance = $440,000) signs a $560,000 warehouse contract without obtaining a limit increase. The contractor spends $410,000 in documented direct labor and material invoices, allocates $60,000 in company overhead, and claims $90,000 in profit. If a payment dispute arises, T.C.A. § 62-6-103(b) bars the contractor from recovering the $90,000 profit or the $60,000 overhead markup; the contractor can recover at most the $410,000 in actual documented expenses, and only to the extent each expense is proved by clear and convincing evidence.

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Administrative, Criminal, and Consumer Protection Penalties

1. Board Disciplinary Powers and Civil Penalties (T.C.A. §§ 62-6-118, 62-6-120): The Board may discipline any licensee for gross negligence, incompetence, abandonment of a contract, fraud, felony conviction, or aiding and abetting an unlicensed person (such as "loaning" a license number or pulling building permits for an unlicensed person), and may assess civil penalties of $50 to $5,000 per day per violation.
2. Criminal Liability (T.C.A. § 62-6-120): Contracting or bidding without a required license, presenting another contractor's license as one's own, or submitting false/forged financial statements to the Board is a Class A misdemeanor (punishable by up to 11 months and 29 days in jail, a fine up to $2,500, or both). Architects, engineers, or awarding officials who knowingly accept a bid from an unlicensed contractor or omit T.C.A. § 62-6-119 instructions also commit a Class A misdemeanor.
3. Tennessee Consumer Protection Act (T.C.A. § 47-18-104(b)(35)) and Home Solicitation Sales Act (T.C.A. § 47-18-701 et seq.): Misrepresenting that one is a licensed contractor or abandoning a residential contract is a per se unfair and deceptive act under the Tennessee Consumer Protection Act (TCPA), supporting statutory civil remedies. Treble damages require a willful or knowing violation and court findings; attorney’s fees are also governed by the Act rather than automatic in every case. Additionally, residential contracts solicited and signed at the consumer's home carry a mandatory 3-business-day right to cancel.