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Recession sheds light on unlicensed contractors

Image: Jacksonville Sheriff's Officers process a contractor
Members of the Jacksonville Sheriff's Office process a contractor operating without the proper licenses June 4 in Jacksonville, Fla. The down economy has made unlicensed contracting a bigger headache for people trying to work honestly. Jake Roth / AP
/ Source: The Associated Press

When custom homebuilder Bob Liddell started seeing the decline in the housing market more than three years ago, he decided to supplement his business with home remodeling. But he ran into a different problem — competing with unlicensed contractors.

He estimates he's lost about $200,000 in business over the last year and a half to people who can undercut him because working out of the spotlight of regulators costs a lot less. So he decided to take action, letting state investigators use an empty home he owns to set up a sting that recently caught 15 illegal contractors in two days.

"I just got fed up with it. I don't mind losing work, but I don't want to lose work where people are underbidding me because they don't pay insurances, they don't pay their taxes and so forth," said Liddell. "With the way the economy is now, there's just so many people out there that don't have jobs and so what they're doing is running a little ad in the paper saying they're remodelers."

It's hard to document if the problem has grown, or just become more noticeable as the pool of work shrinks, but the down economy has made unlicensed contracting a bigger headache for people trying to work honestly. And many, like Lidell, are fighting back.

Increase in complaints
"I've never seen a push like we have today," said Ed Miller, president of the Northeast Florida Air Conditioning Contractors Association.

Miller has been in the air conditioning business for 20 years, but it wasn't until recently that he started actively fighting unlicensed contracting. Now his association is teaming up with its counterparts in the electrical and plumbing industries to work with the state to stop unlicensed work.

Miller estimates his company has lost about 20 percent of its business to unlicensed competition over the past year. "Probably August of last year is when things really started getting bad and when we started noticing it."

Northeast Florida is a prime example of the problem. The state Department of Business & Professional Regulation's Jacksonville office saw a 24 percent increase in complaints about unlicensed contractors and a 106 percent increase in complaints about unlicensed electrical work over the last 12 months.

Licensed contractors underbid
It's not just a Florida problem. Venus Stromberg, a spokeswoman for the California Contractors State License Board, said there's less work to go around because fewer homes are being built and fewer people are taking out home equity loans to make repairs. Her board is hearing from more angry contractors, including some who've had to lay off workers to stay afloat.

"We just hear complaints anecdotally — 'Hey look, I'm following all the rules. I'm paying workers comp, I'm bonded, I'm doing all of these and I'm getting underbid by these people that are unlicensed,'" Stromberg said.

Nevada authorities say they're hearing similar complaints. Even now that Nevada's housing explosion has stopped, unlicensed activity has stayed steady. The Nevada State Contractors Board issued 130 citations over the last six months of 2008, up from 123 over the same period the year before.

Department of Business & Professional Regulation Secretary Charles Drago went around the state to hear from licensees about what the department could do to improve its operations. But the top concern wasn't about how the department worked, but the threat from unlicensed competition.

"They were getting underbid, underbid on all their jobs. People were coming in and able to do the job for 20 percent cheaper," Drago said.

Cash-strapped homeowners
Drago said the combination of more unemployed people offering to do home repairs, and homeowners who may be in a tight financial position could be feeding the problem.

When people in a financial jam need to get something vital — like the air conditioner or a leaky roof — fixed, they might feel stuck. "And it's tempting, if someone is going to come in and do it 20 percent cheaper, to hire them," Drago said.

The savings come with risks, however. Drago points out cases where unlicensed contractors have taken a deposit for a job, then disappeared. Homeowners could also be liable if someone gets injured or killed on the job and the contractor doesn't have insurance. And poorly done electrical work or a badly repaired roof can pose life-threatening hazards.

According to statistics compiled by the University of Florida, building permits were down 55 percent statewide in the first four months of this year compared to the same period last year. Yet unlicensed activity hasn't had nearly the same drop — the number of unlicensed construction complaints was 1,906 for the fiscal year that ended June 30, compared to 2,154 for the year before, an 11 percent drop. Unlicensed electrical complaints rose 12 percent this past fiscal year to 686 from 609 the previous 12 months.

Florida has always had a problem with unlicensed activity after hurricanes, when there's too much demand. Now it's seeing a similar problem when there's less demand.

Many contractors out of work
Edie Ousley, a spokeswoman for the Florida Home Builders Association, said Florida has seen a loss of 175,000 construction jobs over the past two years and many of those people are now working without a license. "When you've lost your job but you still have to find a way to put food on your table, unfortunately we see some unscrupulous activity."

Investigator Sandra Rentfrow warns that homeowners also don't realize that they may be letting criminals in the door.

"A lot of these people have records," said Rentfrow, who is in charge of business regulation in the state's Jacksonville office. "We've had sexual predators, we've had some who just got out of prison on assault."

During the sting at Liddell's house, she had a schedule from early morning to late afternoon of appointments with people the department found on It was almost a matter of sitting and waiting as undercover investigator Sid Miller pretended he needed renovations on his new home.

The first person arrested freely admitted that he wanted to be paid in cash because he didn't want to lose his unemployment benefits. The man said that he had worked for a licensed company, but his boss wanted to cut his pay 40 percent, so he decided to work for himself.

A man who recently moved from Ohio was handcuffed, but also given pamphlets about how to get licensed.

"We're not just saying here's a citation, hit the road," said Rentfrow. "We're trying to educate them."

Liddell was pleased with the results of the sting.

"They're not going to catch them all. It's still going to be a problem until the day I die, but if they can slow them down a little bit, then I feel they're doing their job," he said. "When this economy starts getting better and people are back to work, it will start tapering off some."