Is Construction Arbitrage Legal in the US?

Construction arbitrage is legal across all 50 US states. Winning the prime contract and subcontracting the work to specialist trades is standard general contracting. No US law requires a prime contractor to self-perform any portion of a private job. The compliance requirement is a state contractor license, appropriate insurance, and proper tax reporting.

I run construction arbitrage across multiple markets. In the US the main thing to get right before you take your first prime contract is the state-level licensing picture. Here is what that looks like, state by state, verified against the licensing boards.

Why construction arbitrage is legal in the US#

Construction arbitrage means acting as the prime contractor - the company the client contracts with - while subcontracting the physical work to specialist trades and keeping the spread between what the client pays and what the trades cost.

The model is legal because there is nothing in US private construction law that says a contractor must perform work with their own hands. Every commercial development, every major remodel, every infrastructure project in the US is built by a prime contractor who subs out the work. The prime contractor's obligation under the law is to hold the correct license, carry insurance, and be responsible for the delivered result.

The only context in which self-performance minimums exist is federal government contracting. Under 13 CFR 125.6 and FAR clause 52.219-14, general construction primes must self-perform at least 15% of the contract value, and specialty trade primes must self-perform at least 25%. These minimums apply strictly to federally funded set-aside contracts, not to private work. For private clients - homeowners, developers, commercial property owners - there is no self-performance floor anywhere in the US.

How US licensing actually works - state level, no federal licence#

There is no federal general contractor license. If someone tells you there is, they are wrong. Licensing sits entirely at the state level, and the picture varies more than most people realise:

• Some states have strict statewide licensing boards with exams, experience requirements and minimum bond thresholds.
• Around 17 states have no statewide GC license at all, but many of those regulate at the city or county level.
• In every state, specialty trades - electrical, plumbing, HVAC - have separate licensing requirements that apply to your subcontractors, not to you as the prime.

The practical rule: before you enter a prime contract in any US state, verify the licensing requirement for that state through the relevant licensing board. What applies in California does not apply in Texas.

States with strict statewide licensing#

California is the tightest market in the US. The Contractors State License Board (CSLB) requires a license for any project where the combined labour and materials cost is $1,000 or more - a threshold raised from $500 on January 1, 2025. The license requires passing both a Law and Business exam and a trade classification exam, plus a $25,000 contractor bond and proof of workers' compensation insurance. As of July 1, 2026, the minimum civil penalty for unlicensed activity is $1,500 per violation. Under California Business and Professions Code section 7031, an unlicensed contractor cannot sue to recover payment - and may be ordered to refund compensation already received.

Florida requires a statewide license through the Construction Industry Licensing Board (CILB), which sits under the Florida DBPR. The license is required for any construction project valued at more than $2,500. You need at least four years of documented supervisory construction experience, minimum general liability insurance of $300,000 bodily injury and $50,000 property damage, and a surety bond if your credit score falls below 660. The DBPR classifies contractors separately - Certified General Contractor is the top-tier licence valid statewide; Registered contractor licences are local.

Most other states fall somewhere between these two extremes. State licensing boards exist in Georgia (State Licensing Board for Residential and General Contractors), Tennessee (Department of Commerce and Insurance), Louisiana (LSLBC), Virginia (DPOR), North Carolina (Licensing Board for General Contractors), and others. Each has its own thresholds, classification systems and experience requirements. Check the specific board for the state where you are working.

States with no statewide GC license#

Around 17 states have no statewide general contractor license requirement. The list as of 2026 includes Texas, Colorado, Kansas, Illinois, Ohio, Indiana, Iowa, Kentucky, Maine, Missouri, Nebraska, New Hampshire, New York (state level), Oklahoma, Vermont and Wyoming.

Critically, "no statewide license" does not mean "no rules."

• Texas - no statewide GC license through the Texas Department of Licensing and Regulation, but cities like Houston, Austin and Dallas each run their own contractor registration systems. Specialty trades (electrical, plumbing, HVAC) are licensed statewide through TDLR and TSBPE.
• New York - no statewide GC license, but New York City has one of the most extensive contractor registration systems in the country, run by the NYC Department of Buildings. As of February 23, 2026, all NYC DOB applications run through the DOB NOW: Licensing portal. NYC contractor registration requires general liability and workers' compensation proof plus a $370 registration fee. New York State added a contractor registration requirement for public work and certain private projects from December 30, 2024.
• Illinois - no statewide GC license, but Chicago's Department of Buildings has its own licensing framework. The state does license roofing contractors statewide under the Roofing Industry Licensing Act (IDFPR).
• Ohio - no statewide GC license for general building work, but the Ohio Construction Industry Licensing Board (OCILB) licenses five specialist trades, and most Ohio cities and counties have their own contractor registration requirements.

The pattern in these states: no state license for the prime contractor role, but mandatory specialist trade licences for your subcontractors and often mandatory local registration before you pull permits.

What you need to run construction arbitrage in the US#

Strip it down to the four compliance pieces that every state is checking:

1. Contractor license - verify the requirement for the state (and city) where the work is being performed before you sign the prime contract. In states with no statewide requirement, check the municipality.
2. Business registration - your entity (LLC, corporation) properly registered in the state where you are operating.
3. Insurance - at minimum general liability. Where the state or client requires it, workers' compensation for any W-2 employees you have.
4. Tax - federal and state income tax on the profits, plus correct 1099-NEC filing for subcontractors paid $600 or more in a year.

None of this is complicated once you set it up. The license is a one-time application. The insurance is a monthly cost. The 1099 filing is a year-end task. The compliance cost is small relative to what the model makes.

For the detailed breakdown of how to get licensed and set up correctly, see how to start a construction arbitrage business.

What actually makes it illegal#

The construction arbitrage model is not illegal anywhere in the US. What is illegal:

• Contracting without the required state license - the single most common trap. In California, the minimum penalty from July 2026 is $1,500 per violation, you face criminal charges on repeat offences, and you lose the right to recover payment through the courts.
• Using unlicensed subcontractors for regulated specialist work - if your electrical sub is not licensed, the liability sits with you as the prime.
• Missing the 1099-NEC filing deadline - the IRS penalises late or incorrect information returns. File by January 31 for the prior year.
• Operating without insurance - not always a criminal offence, but a contract breach with most clients and a serious personal exposure.

None of these are gray areas. They are known requirements with known penalties. Getting them right once means you run every job clean.

The model itself is straightforward and legal. The only way to make it illegal is to skip the compliance you can look up on the licensing board's website in ten minutes.

The next step#

If you are working out your state's specific requirements, start with the global legality overview, which covers the US alongside the UK, Canada and Australia. For the strictest US state in detail, Is Construction Arbitrage Legal in California? goes through the CSLB requirements line by line. And for the full contractor license breakdown across the model, Do You Need a Contractor License for Construction Arbitrage? covers every angle.

If you want the whole compliance and setup framework in one place, THE FAMILY SECRET - How Construction Arbitrage Really Works is coming soon.

This is general information, not legal or tax advice. Licensing rules, thresholds and penalty amounts change. Verify current requirements with the relevant state licensing board or a qualified professional before you take work.

Last checked: 13 June 2026.