May 6, 2026 - California Construction Law Legal Update

In AVL Test Systems, Inc. v. Hensel Phelps Construction Co., the Fourth District Court of Appeal reversed a summary judgment in favor of Hensel Phelps in a published decision addressing California’s contractor licensing laws. The dispute arose after AVL, a manufacturer of vehicle emissions testing equipment, sought additional payment on a CARB project after Hensel Phelps had already paid more than $73 million. Hensel Phelps argued AVL’s claims were barred under Business and Professions Code section 7031 because AVL allegedly performed work requiring a contractor’s license before it was licensed. AVL responded that its work fell within the section 7045 exemption for the sale or installation of finished products that do not become a fixed part of the structure. 

The Court of Appeal held that the trial court went too far in deciding, as a matter of law, that AVL’s equipment became a fixed part of the structure. The court emphasized that whether installed goods become a “fixed part” of a structure is typically a question of fact, especially where the record contains competing expert opinions. Here, AVL offered evidence that its emissions testing equipment was removable, replaceable, reusable, and not consumed into the building, while Hensel Phelps offered evidence that the equipment involved substantial installation work, including bolting, welding, seismic bracing, penetrations, utilities, conduit, and integrated mechanical, electrical, and plumbing systems.

The key takeaway for California contractors, subcontractors, equipment suppliers, and construction counsel is that the section 7045 exemption is highly fact-dependent. The decision does not hold that AVL was exempt from licensing; it holds that neither side was entitled to summary judgment because a trier of fact must decide whether the equipment became a fixed part of the structure. For public works and complex construction projects, this case is a reminder that contractor licensing issues should be evaluated early, carefully, and with attention to the actual scope of work—not just the parties’ labels, contract language, or assumptions about whether the work is “equipment installation” versus licensed construction.