Throughout the country, licensed contractors are experiencing a significant drop in business due to the economic downturn. Yet many believe that the biggest threat to contractors isn’t the economy – it’s the unlicensed contractors operating within the industry.
When bidding for jobs, licensed contractors factor in such things as insurance, worker’s compensation policies, taxes, and permits. But unlicensed contractors don’t typically have these costs, which can give them a significant bidding advantage over their licensed competition. The industry effects have been enormous: According to the Department of Consumer Affairs in California, unlicensed activity contributes $160 billion to the “underground economy.”
Most states have had contractor licensing requirements on the books for years, but unlicensed activity has remained prevalent and – until recently – largely unchecked. Current legal victories, however, along with intense investigations, sting operations, and widespread marketing efforts by licensing boards about this nationwide crackdown on unlicensed activity have caused many unlicensed contractors to be fearful.
Stopping Illegal Business Practices
State contractor boards have teamed with police and other investigative units to step up efforts in local communities and shut down illegal activity. Using sting operations and undercover investigations, unlicensed contractors are enticed into bidding opportunities, and then arrested.
In California, 161 people were arrested in a statewide sting where officials posed as business professionals with a possible “business opportunity” for unsuspecting contractors.
In Florida, 30 people were arrested, fined, and issued Cease & Desist orders after the Jacksonville Police Department set up a decoy building and obtained estimates for roofing, electrical, and plumbing work.
State courts are also getting involved to back up licensed contractors. In New Mexico, a huge legal victory occurred when the state supreme court ruled that contractors are no longer allowed to hire unlicensed subcontractors as “employees” working under their license.
The impact of unlicensed activity on legitimate businesses has been far-reaching. As a result, numerous efforts within the industry have been made to promote education and prevention. Most state contracting boards now have websites, toll-free numbers, and educational programs aimed at preventing and reporting unlicensed contractors.
Becoming state-certified may appear only as a means to stay on the right side of the law, but state licensing requirements and regulations extend beyond bureaucratic red tape. Insurance and worker’s compensation polices protect against lawsuits while safeguarding personal and business assets.
In addition to monetary issues, state licensing requirements are essential to maintaining integrity within the industry. Lack of proper regulation, code enforcement, and permitting can lead to safety issues, which may ultimately lead to serious injury or death. -Dawn R. Johnson, API Processing – Licensing
*Photo courtesy of digitalart