Who gets screwed when contractors shun licensing, insurance?
By Rick Levin
First the good news about unlicensed contractors working in Eugene: The process for discovering which plumber or paver or electrician is cheating the system and putting consumers at risk is utterly transparent.
Concerned homeowners looking to hire a contractor can play private dick rather easily, simply by logging onto the state’s Construction Contractors Bureau website at ccb.state.or.us and punching the appropriate information (name or business phone number) into the contractor-search field to see who does and who doesn’t have a license. Which business, for instance, has allowed its insurance to lapse, or which remains unbonded or has failed to renew its license. It’s that easy.
Now the bad news: Should the low-bidding gal you sign on to fix your fence somehow crucify herself on a plank of cedar with a nail gun, you could get your pants sued off.
That’s only one scenario. Unlicensed contractors also can abscond with checks or fail to pay subcontractors, in which case the homeowner can get double billed or, worse, have a lien placed on the property.
Like a lot of good news/bad news situations out there, this one feeds on public naïveté and bureaucratic stalemate, and it has a handful of legitimately licensed contractors outraged at getting consistently underbid by their corner-cutting competition. As it stands, the numbers of contractors working without the proper papers — Oregon Sen. Floyd Prozanski guesses their percentage could run into the double digits — have enjoyed a tradition of enforcement that has been, until recently, pretty damn lax.
For Prozanski, unlicensed contractors has been “this ongoing issue,” not just in Eugene but nationwide. The bottom line, the senator says, is that “consumers are not being protected.”
State Rep. Paul Holvey, who has worked hand in hand with Prozanski dealing with this issue, says there are several pitfalls when a homeowner decides, unknowingly or not, to go with an unlicensed contractor. “It’s an issue that does present problems for consumers, and it also presents problems for legitimate contractors who have to compete against people who are unlicensed,” he says. It is in his role as chair of the House’s Consumer Protection Committee, however, that Holvey takes particular umbrage with unlicensed contractors.
On the most obvious level is the fiscal danger of hiring illegitimate contractors, and homeowners “not having those consumer protections in place,” Holvey says. “[If] they have a complaint or a claim or an issue with that person, [the contractor] can just as easily disappear or not be responsible for the contract and making sure the project gets done correctly.” Here he paints a picture of “the ever-looming shoddy work that happens out there, and the consumer ends up paying for it … problems pop up and they have no recourse. That’s a big problem.”
Another concern is that unlicensed contractors tend to operate in what Holvey identifies as a “cash economy,” i.e. under the table. “They hire people without having workers’ comp, payroll taxes, unemployment insurance, [and] if somebody were to get hurt on a homeowner’s project and [the contractor] isn’t under the system, that person could come back and make a claim against the homeowner’s insurance.”
As if these scenarios weren’t enough warning, Holvey lays out yet another expensive what-if: Say an unlicensed contractor hires a subcontractor to help with a project and then doesn’t pay that subcontractor, that subcontractor “potentially could file a lien on the homeowner, forcing the consumer into virtually having to pay for the whole project twice.”
In other words, if hiring unlicensed contractors were a game of Russian roulette, Holvey’s list of dangers would now amount to four bullets in six chambers. Do you feel lucky?
Now let’s slot a fifth bullet: As Holvey points out, unlicensed contractors tend to lower the standards of the entire industry. Because licensed contractors often are underbid by people working with a much lower overhead, frustration could lead those following the rules to start cutting corners.
“That’s kind of undermining the whole system,” Prozanski points out.
Ed McMahon, executive vice-president of the Home Builders Association of Lane County, agrees that unlicensed contractors undermine the game for legitimate contractors, adding that it’s unfair that licensed businesses are being underbid by people operating outside the system. “What’s really sad is when it does go wrong, it seems our entire industry gets a black eye,” he says.
“They’re a big thorn in our side,” McMahon says of such renegade contractors, adding that whenever someone joins the HBA they must provide evidence of active standing with the Construction Contractors Board (CCB).
Don’t Fence Me In
Many of us who grew up among old-school, blue-collar Northwesterners likely spent time in our teens or 20s pounding nails, pouring concrete, throwing up drywall or laying tile. And this being the ass end of the continent, where both the libertarian Wild West and expansion-crazy Manifest Destiny hit the wall, there is among such essentially good, hardworking types a kind of cowboy’s distrust of politicians and especially bureaucratic regulations requiring a certain distance between electrical outlets, not to mention licenses for everything from installing a deck to building an addition on someone’s aging home.
The sentiment is: Don’t tread on me, and don’t fence me in. Don’t screw with a man’s livelihood.
Of course, the bottom line in such thinking is money — how to make it, how to avoid spending too much and when to bitch about it going into someone else’s coffers. It’s conceivable that, for every unlicensed contractor currently playing his trade, there is a unique story to be told: missed applications, insurance too costly, never been busted.
Speaking on condition of anonymity, one Eugene contractor — let’s call him Bob the Builder — chalks up his recent unlicensed status to a work-related mishap he suffered. “I’ve had a license for about 15 years,” Bob explains, “and I just had a back injury. At the time of my recuperating, my license was suspended because my insurance company had dropped me” — without, he adds, his knowing it. “I didn’t realize it until last week,” he says.
According to Bob, he’s very close to cleaning up the whole mess by renewing his bond, getting reinsured and, hence, reinstating his contractor’s license. Not, however, without a sense of frustration at the way the system currently works. “Blindsided,” he says. “Yeah, you could say that … I think that the licensing part of it could be a little more understanding with the contractors.” Bob argues that in instances such as his, where he wasn’t aware his insurance had lapsed, the CCB is all too quick to yank one’s license.
“They’re also very hard-line if there’s a problem with your insurance or bond,” he says. “It’s immediate — stop work. You don’t have a chance to get things done. It’s taken me weeks to get the paperwork and movement, and it hasn’t even got there yet. It’s not always as simple as making a phone call, like with your car insurance,” he adds.
Beyond these concerns, Bob claims that insurance policies for contractors are “almost useless,” seeing as he’s never had a claim on his bond. “And it’s always a real hassle to get,” he continues, pointing out that insurance can run between $900 and $1,200 a year, plus the $375 or so for a bond (he explains that in years past, bonds have run upwards of $500).
“The prices are outrageous,” Bob says.
Still, Bob admits that the CCB is “a lot better” than it used to be in working with contractors. “I would just wish that there was more understanding with the contractor’s board, more leeway on getting our paperwork in.”
Corey Phaigh of Corey Phaigh Construction — which advertises with at least two quarter-page ads in the Eugene/Springfield edition of the Dex phone directory — currently is operating without a license, a situation about which Phaigh seems, if not blithely, at least comfortably unconcerned. His ads in the phone book do make the claim of “licensed, bonded, insured,” though for Phaigh this is more a gesture toward his customers rather than for his own security.
For the record, Phaigh did at one time have an active license (CCB #160143), but it lapsed due to canceled insurance.
“I paid the state for my license,” he says, “but I canceled my insurance, so technically they put your license on hold.” He says he just finished a construction job for which he was a “silent partner,” where, according to him, the project ended up using a different builder of record. “I was working basically in the dark,” he points out, adding, “I didn’t feel the need to pay all that extra insurance.”
And it is here that Phaigh might turn a few heads — at least with the CCB. “I’m extremely comfortable working without insurance,” he claims, adding that he doesn’t know how many potential customers haven’t called him because his CCB license is suspended. “I’ve never even come close to having a claim. [Insurance is] a little bit unnecessary. I try to work in a way that wouldn’t require that.”
Some might consider such an attitude the same sort of fucking-with-fate sentiment revealed by drivers who argue that, since they’ve never had an accident in 25 years, there’s no point in wearing a seatbelt. Seatbelts just get in the way, right?
Though maybe Phaigh is onto something; If he doesn’t get popped for not having a license, and that dread worksite injury just so happens to occur, there’s a good chance he could, in theory, turn around and put the medical cost onto the homeowner — especially if there’s no homeowner’s insurance, or the policy in place refuses to cover it.
Not only is insurance unnecessary, Phaigh says; it’s expensive to boot. He asserts that his previous policy had him insured for a cool $2 million, on top of which he had to cough up the cost of getting himself bonded for up to $50,000 of coverage. “It was outrageous,” he says, adding that this was at a point when he had two houses going at once. “According to their requirements, if that was what I wanted to be doing I had to have that much coverage. It was a little painful.”
Phaigh argues that the whole license/bond/insurance melange should be more accessible for independent contractors. “Yeah, you know,” he says, “it should be a little easier. There is definitely a need for the big insurance packages. For the small guy, it should be a little easier to get a workman’s license that makes you legal. A lot of us do these little, small things that never get a claim.”
Nonetheless, Phaigh says he wants to get back on the track to legitimacy, if only to put other folks’ minds at ease. “That’s why I want to get it going,” Phaigh says, “just for the customer’s satisfaction and comfort. It makes them feel like they’re covered.”
Enforcement On the Move
Thanks in part to the ongoing work of Holvey and Prozanski, the CCB recently has grown a new, improved set of teeth. Just this past legislative session, the board gained a higher level of transparency; not only is it easier to hunt down a particular contractor’s status, but that status is very up to date. In fact, the CCB now claims to update its website twice a day with new licensing info. According to Prozanski, his colleague Holvey chaired a newly minted contractors task force that “really made a lot of recommendations” during the last session, a lot of them implemented.
On the enforcement side, one can
almost feel the heat closing in. The nearby municipality of Florence already has prosecuted cases against unlicensed contractors, with more currently in litigation. Brandon Ott, a municipal-code enforcement officer with the Florence Police Department, says that it’s his department’s job to take up where the CCB leaves off. He points out that in Oregon, working without a CCB license is a misdemeanor, “so it actually is a crime.” And because the CCB is wrapped up with what Ott calls civil enforcement issues — and is “stretched thin just like every other agency” — it falls largely on law enforcement to bust illegitimate contractors.
Ott explains that officers aren’t on the prowl for illegally operating contractors. “We don’t actively go out and look for unlicensed contractors,” he says. “There’s always a criminal element to it. A lot of times [the primary criminal charges] have been directly related.”
Here Ott provides in instance of when a secondary charge of operating without a CCB license might be leveled: “Maybe a guy has come out and solicited a job to people and took a bunch of money from them, and has not completed the job or not done the job at all.” Busted.
“Sometimes we run into people who have already been heavily through the system,” Ott continues, “and it’s not uncommon to see [contractors] with over $10,000 in unpaid orders from the CCB. We have run across people that either just don’t care or simply think that they’re not going to get caught again.”
Still, Ott says he doesn’t want to give the impression that law enforcement is taking over the jobs of CCB officers. “Everybody’s stretched thin these days,” he points out, adding that local jurisdictions can run cases through municipal courts rather than having to go through the state attorney general’s office.
Gina Fox at the CCB points out that the bureau now has 10 new field representatives working throughout the state as well as eight compliance officers, whose enforcement tasks range from random checks of worksites to answering specific complaints. “In the area of Lane County,” Fox says, “we’re hearing a lot of response” from the public about new advances in enforcing contractor compliance. “The word is getting out,” she adds.
In Lane County alone for the past
12 months, the CCB has opened 307 investigations, Fox says, as well as performing 261 telephone book checks for unlicensed contractors. The CCB has suspended or revoked 36 licenses, issued 61 warnings as well as 61 final orders for working without a license. The civil penalties for these and other CCB-related offenses over the same time period total more than $130,000.
What’s more, similar to a sting operation carried out recently in Portland, the CCB is planning a crackdown on unlicensed contractors operating in Eugene.
Still, there’s a lot that needs to be improved, says Prozanski. “We need to do a better job,” he says bluntly, adding that compared to a lot of states Oregon can look like a “backwoods” in its seemingly lax regulation of unlicensed contractors. “The expectations of the consumer are not being protected,” he explains.
Part of the improvement rests in better consumer awareness. “The consumer needs to be aware of who they’re dealing with,” Prozanski explains.
The Insurance Bind
A quick aside: Speaking of the
Construction Contractors Board, here’s a rudimentary rundown on some basic facts: A bond and insurance are not the same thing. A CCB bond is used exclusively for claims and disputes filed by customer and must be channeled through and resolved by the CCB. Insurance claims, on the other hand, can be filed directly with the insurance company, and need not involve the CCB.
Insuring a contraction operation isn’t cheap; for example, a medium-sized operation, employing upwards of 20 people, can be required to carry $1 million in coverage, which can cost up to $10,000 a year; the actual amount of coverage is based on payroll. That same company also is required to carry a bond of $10,000 to $15,000, costing $100 a year and paid up front in three-year increments.
A contractor applying for the first time for a CCB license needs to complete 16 hours of training (rumor has it it’s now tougher than it used to be) on law and business practices and pass a state test proving aptitude; the cost of classes varies according to the provider, and the test runs $106 and the license itself — good for two years — runs $260.
The CCB licensing process, however, does not ensure professional aptitude regarding a particular trade. To repeat, and clarify, because this is important: If you hire a plumber with an active CCB license, there is no guarantee that plumber has ever used a toilet in his life, much less snaked one for a clog.
For someone as involved with the CCB as Prozanski, this lack of testing for professional aptitude presents something of a problem. He says that for the past couple of legislative sessions there have been discussions about implementing some basic processes to ensure competency among the trades.
Prozanski says that, among consumers, “I really think there’s a duty there and expectation when people are holding themselves out to do professional work that they have some standard. We can always dicker and bicker over this among ourselves, [but] there’s some expectation there. In some cases you’re talking about life and death in how something’s wired or not wired.”
One Man’s Crusade
For Brad Cook, owner of Huckleberry Fence & Deck, the outing of unlicensed contractors has become something of a crusade — one he’s taken up with politicians, HBC and CCB, as well as other contractors. Cook says that what started right around 2000 as a run-of-the-mill check into his competitors’ prices became an unofficial investigation into unlicensed contractors working in the marketplace.
“What I started to see was, if I was to do a fence for the same price as some of these prices I was hearing, I couldn’t figure out how they were doing it,” Cook explains, adding that he looked into such things as material costs, “but still it wasn’t adding up.”
Finally, Cook went to the CCB web site “to check out my competitors” and found that there were (by his investigation and his numbers) “20 to 25 percent unlicensed” in just the fencing industry. “Over the years that I’ve watched my competitors,” he continues, “it’s consistently been within that range.”
(In double-checking Cook’s numbers, this reporter discovered that several apparently unlicensed businesses, when cross-referenced by a single click, turned out to have a newer, active license.)
According to Cook, his ambition simply has been to clean up the industry and create a level playing field where every contractor is working within the parameters of honesty and legality. “My philosophy has always been, I don’t want to be a snitch on the whole thing,” he says. “I don’t want to be turning my fellow businesses is. What we’re doing is just trying to educate the public so they can play it safe.”
On this front, he asserts that when he loses a job to a licensed contractor, he’s “ecstatic, because I know he’s a legitimate person. It’s preposterous to think that I’m going to get every bid that I go out on.”
One of Cook’s pet peeves is the policy of the Dex yellow pages, which has a front-of-the-book disclaimer denying any responsibility for the status of those it sells ad space to. “When you open up the phone books, you assume that these people are licensed,” he says.
On the flip side are such papers as The Register-Guard, which has a strict policy requiring its contractors to provide a CCB number before being allowed to list their services. (Very few of the CCB numbers listed in the classified section turn up an unlicensed status.)
Al Pratt of Elite Fence Co. has a somewhat different take on the issue of unlicensed contractors, an attitude that can be described as fairly laissez faire. “I don’t really get involved in what’s getting out there,” Pratt says of unlicensed contractors. “My philosophy is, I’m not worried about what everybody else is doing.”
Not, he adds, that he’s completely oblivious or apathetic about the issue. “I think everybody should be licensed, no doubt, in a perfect world,” Pratt explains, adding that “hopefully they get found.” Nonetheless, he says that a certain segment of the industry always has and always will try to cut corners, and it’s up to both consumers and honest contractors to maintain high standards.
“You’re probably not going to catch all of them,” Pratt says of unlicensed contractors. “They’re going to be here and there. You just take care of the best that you know how to do with what you have. Clean your own closet,” he adds.
When it comes to fixing the current system, Cook exhibits a forgiveness that belies the apparent ardor with which he’s investigated the license status of contractors in every trade. “We’re not expecting changes overnight,” he says, adding that he believes a kind of amnesty should be set up for currently unlicensed contractors — in other words, set a specific date for a crackdown, and anyone going legit before the deadline will be forgiven for any past transgressions.
“Let’s forget it, let’s move forward and get everybody on the boat here,” is how Cook puts it.
Rick Levin is an award-winning freelance writer and a recent transplant from the Seattle area where he edited and wrote for several newspapers, including The Stranger and Seattle Weekly.