Unlicensed Contractors Make It Challenging For Those Who Play By the Rules

Over the past year, Mitch Stanley, president of Stanley Home Renovation & Design, has lost out on a few jobs because another contractor had a cheaper bid.

While that may simply be a sign of the tough economic times, there’s also a chance that something else has been at play: an unlicensed contractor.

“The unlicensed individual likely is bidding cheap, cheap, cheap so that’s why the uneducated consumer will pick them,” said Stanley, adding that he wasn’t sure he’d lost a job to an unlicensed contractor but that it was a possibility. “We cannot compete with that.”

Long a thorn in the side of licensed contractors, unlicensed contractors can cause a range of headaches not only for legitimate contractors but for consumers as well. Unlicensed contractors often don’t carry insurance or bonding, both of which cost money; without those overhead costs, they can afford to bid jobs at a cheaper rate, which creates an unfair advantage for them. Unlicensed contractors may not offer the same quality workmanship that a licensed contractor does, and they may also not perform work up to code.

“The client is taking a huge risk that could result in not just poor workmanship, but unsafe and dangerous practices leading to lawsuits, fire or other damage,” Stanley said.

Tony Marnella, president of Marnella Homes, said unlicensed contractors aren’t likely to be as knowledgeable on codes and other important practices because they’re not required to be. Licensed contractors must at least undergo prerequisite training and pass the Construction Contractors Board’s statewide test to become licensed.

Marnella also noted that housing and remodeling scams are often perpetrated by unlicensed contractors.

“We see the stories on the news every year,” he said, “and I would venture that few if any of these guys are licensed.”

In addition, consumers have recourse through the CCB should a project go south with a licensed contractor. The state board has a dispute process, whereby consumers can file complaints against contractors in the event of poor workmanship or other problems. The CCB investigates the complaint and can order payment to the consumer from the contractor’s bond if the contractor is indeed at fault.

But the complaint process does not apply to unlicensed contractors.

“If they’re not a licensed contractor and they do something wrong, the homeowner cannot file with the CCB,” said Bill Joseph, an attorney with Dunn Carney Allen Higgins & Tongue who often represents contractors. “The only remedy then would be to file a lawsuit or possibly third-party arbitration.”

Joseph also notes that a new law that goes into effect Jan. 1 is aimed directly at unlicensed contractors. Under the law, if a supplier or subcontractor supplies an unlicensed contractor, the supplier will not have lien rights in the event the contractor doesn’t pay up.

Another benefit to being a licensed contractor is that it gives a contractor the right to file a lien. Under Oregon law, unlicensed contractors have no lien rights.

Though the CCB dispute process does not apply to unlicensed contractors, the board does investigate reports of unlicensed work and impose fines and sanctions where appropriate. Earlier this year, the board announced that it was hiring more inspectors and increasing its surveillance of online listing sites like Craigslist in order to clamp down on unlicensed contractors.

Between April 1 and June 30, the CCB levied 256 penalties on unlicensed contractors and contractors who hired unlicensed subcontractors. Penalties can range from warnings to fines of up to $5,000. A standard contractor’s license cost $260 every other year.

Consumers are often warned not to use unlicensed contractors and even to report such contractors to the CCB. The board offers an online, anonymous form that anyone can file to report an unlicensed contractor. It also maintains an online database of all the licensed contractors in the state, which includes information about each company, any disputes it’s been involved in and how those disputes were resolved.

But licensed contractors can also help address the issue themselves, and not only by reporting to the CCB.

“Report them to the client they are working for if you know where they are working,” Stanley said. “Believe it or not, the client may not be aware they’ve hired an unlicensed contractor.”

He also said that contractors need to do a better job of getting the word out to the public about the risks involved with unlicensed contractors — and the benefits of working with licensed ones.

One way to do that is for licensed contractors to share as much information with prospective clients as possible. Jeff DeHaan, managing partner of the property and casualty division of Montgomery & Graham — the HBA’s endorsed insurance provider — said he hears about unlicensed contractors a lot these days.

“In the current construction economy, a lot of contractors are under pressure for better pricing,” he said.

He has a couple contractor clients who actually include their certificate of insurance along with project bids. That way, prospective clients can see what kind of coverage the contractor has — usually liability, auto and workers’ compensation — and compare it to what other, potentially unlicensed contractors are carrying.

“In my opinion, contractors should use that kind of information not only to educate clients but also as part of their marketing,” DeHaan said.

Contractors bidding on jobs would also be wise to tell clients to check other contractors’ information out on the CCB web site to make sure they’re licensed.

“We all need to do a better job at getting the word out to the public that it’s very simple to check to see if the person you’re hiring is licensed,” Stanley said.

For more information and resources, visit the CCB’s web site at www.oregon.gov/ccb.

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