Starting a Contracting Business

Roughly 3.7 million construction businesses operate across the United States, according to the U.S. Census Bureau, yet a significant share fail within the first five years — most often due to licensing gaps, misclassified labor costs, or operating without a registered business structure before the first contract is signed. For contractors working in or around the Commonwealth of the Northern Mariana Islands (CNMI), the path from skilled tradesperson to licensed business owner runs through a specific sequence of federal and territorial requirements that cannot be taken out of order.

Choose a Business Structure First

The business structure determines tax treatment, personal liability exposure, and which government registrations come next. The three structures most relevant to contractors are sole proprietorship, LLC, and corporation.

Sole proprietorship — No formal filing required at the federal level, but the owner assumes unlimited personal liability for jobsite claims, contract disputes, and unpaid subcontractor invoices.
LLC (Limited Liability Company) — Separates personal assets from business liabilities. A single-member LLC is taxed as a disregarded entity by default; a multi-member LLC defaults to partnership taxation.
S-Corporation or C-Corporation — Adds a layer of administrative overhead (annual meetings, minutes, separate payroll) but can reduce self-employment tax load for contractors billing above roughly $80,000 annually.

The SBA's business structure guidance lays out the liability and tax implications of each form. The CNMI Department of Commerce handles local entity registration for businesses operating within the Commonwealth.

Obtain an EIN and Register for Taxes

Every contractor operating as anything other than a sole proprietor with no employees must obtain an Employer Identification Number (EIN) from the IRS — and even sole proprietors benefit from having one to avoid using a Social Security Number on subcontractor agreements and supplier accounts.

The IRS Small Business and Self-Employed Tax Center covers EIN acquisition, quarterly estimated tax obligations, and self-employment tax rates. For 2024, the self-employment tax rate is 15.3% on net earnings up to $168,600 (according to IRS Publication 334). Contractors with employees must also register for federal payroll tax withholding under FICA and set up FUTA deposits.

CNMI imposes its own local income tax mirroring the federal structure under the CNMI Covenant (Covenant to Establish a Commonwealth, Section 601), so contractors must file with both the federal IRS and the CNMI Division of Revenue and Taxation.

Secure All Required Licenses and Permits

Federal law does not issue a single universal contractor license — licensing is handled at the territorial or state level. The CNMI requires contractors to hold a valid contractor license issued by the CNMI Board of Professional Licensing before soliciting or performing construction work. License categories cover general building, electrical, plumbing, mechanical, and specialty trades, each with distinct examination and insurance prerequisites.

The SBA's licensing and permits guide identifies the federal touchpoints: EPA permits for renovation work involving lead-based paint (under 40 CFR Part 745), OSHA compliance documentation, and any federal environmental clearances for work near wetlands or coastal zones — a relevant concern on CNMI's island terrain.

General liability insurance minimums and workers' compensation coverage are mandatory for CNMI licensure. Carry at minimum $500,000 in general liability and confirm workers' comp carrier eligibility before submitting a license application.

Register with SAM.gov for Federal Work

Any contractor pursuing federal government projects — including the substantial volume of military and infrastructure contracts on Tinian, Saipan, and Rota — must maintain an active registration in the System for Award Management at SAM.gov. Registration is free and must be renewed annually. An inactive SAM.gov registration disqualifies a contractor from receiving federal contract awards, modifications, or payments regardless of past performance history.

SAM.gov registration also generates a Unique Entity Identifier (UEI), which replaced the legacy DUNS number system in April 2022. Federal contracting officers verify UEI status before issuing any contract action (according to FAR 4.1102, as codified in eCFR Title 48).

Understand Prevailing Wage Obligations

Federal construction projects valued above $2,000 trigger Davis-Bacon Act prevailing wage requirements (according to the U.S. Department of Labor Wage and Hour Division). Davis-Bacon wage determinations are project-specific and trade-specific — an electrical subcontractor and a concrete formwork crew on the same federal jobsite may have different wage floors.

Failure to pay prevailing wages can result in contract termination, debarment from future federal work, and back-wage liability. The DOL Wage and Hour Division conducts audits and can initiate investigations based on a single worker complaint. On CNMI projects funded through federal programs — including FEMA recovery work and Department of Defense construction — Davis-Bacon compliance is not optional.

Build a Safety Program Before the First Crew

OSHA 29 CFR Part 1926 governs construction safety. The OSHA Construction Standards portal contains the full regulatory text for fall protection (Subpart M), scaffolding (Subpart L), electrical (Subpart K), and excavation (Subpart P), among 27 other subparts.

For contractors with 10 or fewer employees, the OSHA Small Business Resources page provides free compliance assistance through on-site consultation programs — separate from enforcement — that do not trigger citations. A written Hazard Communication Program (required under 29 CFR 1910.1200, incorporated by reference into Part 1926) and a Fall Protection Plan are the two documents most frequently missing during OSHA inspections of small contractors.

A single serious OSHA violation carries a maximum penalty of $16,131 per violation (according to OSHA, adjusted annually for inflation under the Federal Civil Penalties Inflation Adjustment Act).

References

The law belongs to the people. Georgia v. Public.Resource.Org, 590 U.S. (2020)

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