Unlicensed Contractors a Bad Bet

Carla Bova
Marin Independent Journal

Unlicensed contractors may charge less, but you get what you pay for - and, in this case, residents face significant insurance and other legal risks, state officials said.

Ted Van Midde, who has owned Van Midde & Son Concrete in San Rafael for 15 years, said contractors must have a state license, pay for insurance and pay taxes - while unlicensed contractors typically bear none of these costs.

"How do you compete with that? You can't," said Van Midde, past president of the Marin Builders Association. "Contractors who are licensed right now, in three or four years, could be out of business because it is not worth competing on an unlevel playing field."

Fewer expenses mean illegal contractors can do jobs at lower prices.

"They tempt homeowners by offering lower bids, sometimes 30 to 40 percent lower than a licensed contractor would offer," said George Lindstrom, owner of Geo's Tree Care Arborists of Marin in San Rafael.

According to state law, any contractor doing a job totaling $500 or more in materials and labor must have a license from the Contractors State License Board.

"They cannot take a larger project and break it into small pieces to try to get around the $500 limit," board spokesman Rick Lopes said.

Operators seeking a license must undergo a background check by the state Department of Justice.

The board licenses and regulates contractors in 43 classifications from landscaping and tree service to flooring and decking. There are about 241,000 active contractors licenses in the state.

Local contractors said they believe unlicensed contractors are soliciting work in Marin, with the problem widespread throughout the Bay Area and California.

"Every year, unlicensed contractors probably cost me at least 20 to 25 percent of the jobs we bid on," Van Midde said. "They do not just cost contractors money, they cost everybody money. Cities and the state lose on fees and taxes."

Lopes said between $60 billion and $140 billion a year is lost to businesses operating "underground" across several industries including construction, agriculture and restaurants. Underground businesses typically avoid licensing requirements, pay wages in cash and fail to pay payroll and income taxes.

Homeowners who hire unlicensed workers could be exposed to financial and legal risks.

"We have not run across any unlicensed contractors who carry workers compensation insurance on their employees so for homeowners, that means if someone is injured while working on your property, they can turn around and sue you for those medical bills," Lopes said. "Property owners do not realize they could be considered the employer and responsible for withholding payroll taxes and providing workers compensation insurance."

Lopes said there is little the state board can do to help consumers who have problems with an unlicensed contractor.

"There is a lot of unlicensed activity and it is growing," Lindstrom said. "I want to educate people that there are illegal contractors out there and remind them to check for documentation."

California law states that a contractor can ask for a down payment of no more than 10 percent of the project price or $1,000, whichever is less.

"If someone asks for half the money to get started, that is a clear sign to homeowners there may be problems," Lopes said.

In November 2005, the board's Statewide Investigative Fraud Team in cooperation with the San Rafael Police Department caught 14 unlicensed contractors. Four were arrested.

In an undercover sting operation, officials posed as homeowners and invited contractors to a house on Fifth Avenue in San Rafael to bid on jobs ranging from landscaping and tree trimming to installing flooring, painting and roofing.

Such enforcement operations are held across the state about once a week in order to bring contractors into compliance and to raise consumer awareness.

"It is impossible to say how many illegal contractors are out there," Lopes said.

"We know the number of people who have legal licenses and we know the ones we catch who do not have licenses but there is no way to know who we do not catch."

HOW TO HANDLE A CONTRACTOR

The state recommends property owners hire only licensed contractors after getting three references - and at least three bids.

Verify a contractor's license by calling 1-800-321-CSLB or checking online at www.cslb.ca.gov. "We can tell if their license is in good standing or if we have taken any action against them," said Rick Lopes of the Contractors State License Board.

In addition, officials recommend getting a written contract that includes a payment schedule. Ask to see a license. Write down the license number and ask to see a picture ID. Do not let payments get ahead of work - and do not pay cash.

This news release is brought to you by the commitment and assurance of the A.D. Dern Insurance Agency, Inc., keeping you up to date and aware of the ever changing California Insurance market place. Continue to check back with us for other insurance articles of interest.

Our Family Agency has been serving the Community's Insurance needs since 1928!