Eyeing opportunities in new states? Timing is key.
Selecting the right mix of opportunities to pursue is key to sustainable, profitable growth, but getting there can be a costly endeavor for engineering firms of all sizes. The average firm pours a lot of staff hours into vetting and preparing proposals and wins only 30 to 40 percent of the opportunities. When evaluating requests for proposals and qualifications in new jurisdictions, additional variables come into play. What regulatory obstacles must be overcome before the firm can submit a response? How long will the process take? By understanding the licensing process and knowing what to look for in a new state, firms can build realistic timelines into the go/no-go process and widen their business development horizons.
When it comes to regulatory requirements, all states are not created equal. In some states, a firm may merely need to have the right licensed staff available to begin offering services; in others, they may be looking at forming a new entity and navigating a four-month registration and licensing process. The following summarizes the key aspects to consider when evaluating the regulatory hurdles in a new jurisdiction and the time required to clear them.
The simplest scenario is states that don’t require certificates of authorization (COAs), covered in detail in a previous article on firm licensing (Don’t ignore firm licensing, Civil + Structural Engineer, April 2018, page 16, https://csengineermag.com/article/dont-ignore-firm-licensing). Where COAs aren’t required, firms may be able to meet their requirements by having engineers who are licensed within the state and available to complete the work. This requires having sufficient licensed staff to deploy to the new location, at a minimum, and potentially more substantial investments such as establishing branch offices.
Most states require a COA application, which also generally requires foreign qualification with the secretary of state. When handled efficiently, this can be a reasonably quick process in many states. But miss a step or make an error in your paperwork, and the timeline can very quickly stretch into twice as long or longer.
For example, foreign qualification generally takes from one to six weeks when applications are correct as submitted. Unfortunately, in some states, as many as half of applications are rejected due to errors. Errors do not have to be significant to derail an otherwise sound application. In New York, for example, the Office of the Professions publishes a list of 23 errors that can lead to return of an application, including leaving the periods out of the corporate designations P.C. or D.P.C. When errors are discovered, state officials don’t have time to write, explain the deficiency, and invite a response. They merely reject the application and your staff has to figure out where they went wrong and then start the process all over again.
Fees for foreign qualification range from as little as $50 to $775. The process also entails designating a registered agent to receive service of process and other critical documents, registering for taxes, and in some cases filing an initial report. These tasks are concurrent with the rest, however, and don’t affect the timeline for offering services.
The COA application takes longer, typically from four to eight weeks, although in a few states it is currently taking as long as 12 weeks. One important aspect to remember is that COAs are approved at board meetings, which generally run monthly or quarterly. Depending on the timing of the meetings, this can extend the turnaround considerably. Some jurisdictions request that applications be submitted a week or longer before the meeting.
With this longer timeline to consider, errors in the COA application can be particularly damaging to your plans. Because of the complexity of the documents and steps, in tough jurisdictions such as Illinois and New York, multiple rejections are not uncommon, leading to licensing efforts that run well over six months with no relief in sight for frustrated staff.
One common source of rejections is missing prerequisites or working out of step with the state’s established procedures. For example, foreign qualification usually comes first, but in at least seven states the order is reversed. Wisconsin is the friendliest state in this regard, allowing firms to apply for the COA and foreign qualify concurrently if desired.
It’s also important to note that just because a state doesn’t require a COA does not mean the process of qualifying to practice will be fast or easy. California, for example, requires firms to submit an “organization record” and appoint for every branch office an owner, partner, or officer in responsible charge who is licensed within the state and who is “physically present at the branch office… on a regular basis.”
Where COAs are required, firms must appoint an engineer in responsible charge — generally one who is licensed in that state — to provide direct supervision of all related services. In some states, a separate responsible engineer may be required for each specialty. Each state further defines the level of supervision required to meet the standard of “responsible charge” differently. In some states, the firm will need an engineer in charge working full-time in each office location; in others, the standard is “regularly employed,” and some supervision may be provided remotely or split among locations.
In some states — including Arizona, New Hampshire, and Virginia — a separate COA is required for each branch office.
All of these variables affect the number and placement of licensed staff required to work in a given jurisdiction. When your firm lacks a licensed professional to fill one of these requirements, the licensing timeline grows dramatically, since individual licensure can be every bit as time-consuming as firm licensure in many states.
Because individual licensure plays such an important role in the firm’s ability to enter new states, it pays to invest early in individual licensure of your principals, engineers in responsible charge, and other engineers on staff. Identify your top three states for expansion and conduct a thorough analysis of what expansion would require. Use the results to inform future licensing research and planning in your business development efforts.
Evaluating a new state: Items to review
When you’re considering geographic expansion, to get an accurate view of the steps and timing, research state requirements in all of the following areas:
- certificates of authorization through the state engineering board;
- licensing for principals, engineers in responsible charge,
and other staff;
- registration (foreign qualification) with the secretary of state;
- firm names, management, ownership, and corporate structure;
- order of steps required by both the secretary of state and the engineering licensing board; and
- licensed specialties and allied professions that the firm currently provides or may provide in the future.
At both the individual and firm levels, licensing is a relatively small investment that unlocks massive opportunities. When you’re in the midst of a challenging application, the process can seem designed to discourage and deny, but once the paperwork is complete, every new state broadens your firm’s opportunities and capabilities dramatically. By approaching the regulatory aspects of growth methodically and proactively, you can take control of your firm’s destiny and help ensure that those hours invested in the proposal process pay off.
Christian Haring is an account executive at Harbor Compliance (www.harborcompliance.com), specializing in professional licensing for engineering, architecture, and construction firms. With a focus on mid-sized and large firms, Haring understands the need for precision and clarity in managing multi-jurisdictional licensing. Contact Haring at 717-298-8128 or firstname.lastname@example.org. Note: Harbor Compliance is not an accounting or law firm and does not provide tax, financial, or legal advice.