News / Service Market

Unlicensed Activity Threatens Credible Contractors

April 23, 2012
code enforcement official issues a ticket
John Mack, supervisor of building inspections for the Indianapolis Department of Code Enforcement, issues a $250 ticket to Gary Jackson of G&L Electric. Jackson was one of four unlicensed contractors ticketed through an Indianapolis-area undercover sting operation executed in August 2011. (Photo by Meranda Watling.)

Known by such monikers as “fly-by-nighters,” “chuck-in-a-truck,” and “moonlighters,” unlicensed contractors are likely approaching homeowners in your neighborhood right now. While these under-the-table workers may offer what seems like a great bargain, their discounted prices may end up costing much more in the end.

A Dangerous Decision

In states that require licensing, unlicensed contractors are able to offer reduced rates because they have not paid licensing fees, haven’t obtained a bond that protects their work, and likely are not carrying liability or worker’s compensation insurance. It is very unlikely the contractor has pulled the necessary building permits, which may suggest the work is being done outside of code requirements.

A homeowner that hires an unlicensed contractor in a state or municipality that requires licensing could be considered in violation of the law. In addition to partaking in criminal activity, one slip or fall from the unlicensed handyman may land the homeowner in court, as the worker may file a negligence lawsuit against the homeowner, which likely will not be covered under a homeowner’s insurance policy.

Regardless if a state requires an HVAC license, Section 608 of the Clean Air Act states that all persons involved in the handling, transfer, maintenance, or installation of equipment that contains refrigerants regulated by federal law must be certified by the U.S. Environmental Protection Agency (EPA). It is a violation of the law to work under somebody else’s certification.

“Contractors who do not follow the laws on licensing or Section 608 compliance take advantage of homeowners, undercut legitimate contractors, and give the industry a bad name,” said Charlie McCrudden, vice president of government affairs, Air Conditioning Contractors of America (ACCA). “Despite the scope of this problem, it is in the best interest of all to rid the industry of those who cheat the system.”

State-by-State Disparity

One of the most glaring inconsistencies in the HVAC contracting trade is the array of licensing requirements across the 50 states.

According to Chris Prince, contractor licensing expert with Nationalcontractor.com, a total of 30 states require HVAC contracting licenses. The other 20 states may require registration, bonding, insurance mandates, or licensing per local municipality, but do not require state HVAC licensing.

HVAC contractors operating in California need to obtain both a contracting license from the department of consumer affairs’ contractor state license board and a business license from the city and county in which they serve.

The state of Minnesota does not license HVAC contractors, but does require that contractors file a $25,000 bond with the state.

In Wisconsin, an HVAC contractor is only required to sign up and pay a fee to practice within the trade.

“Wisconsin does not have an HVAC licensing requirement that requires training or examination, but does require registration, which a contractor may receive by simply signing up and paying a fee,” said Katie Koschnick, public information officer, Wisconsin Department of Safety and Professional Services. “We encourage local building inspectors to request contractor credential numbers when issuing permits.”

Just across Lake Michigan, the state of Michigan requires that contractors obtain a mechanical contractor’s license. The fee is $75 and applicants must pass two written exams, prove they have three years of experience, and possess good moral character. In addition to state permits, many Michigan counties and cities require additional licensing.

“With the advent of increased permits being required, there appears to be more Internet and weekend installation sales by either unlicensed contractors or contractors’ employees doing side jobs,” said Ron Sandelius, executive director, ACCA — Michigan chapter. “It is hard for a legitimate contractor to be competitive. For example, on a power vent water heater, a contractor has to pull a mechanical permit, a plumbing permit, and an electrical permit. The cost of these permits alone puts the legitimate contractor at a disadvantage.”

Taking a Stand

Ken Bodwell, owner of Innovative Service Solutions, Orlando, Fla., has spearheaded a formal rally against unlicensed contractor activity in Florida.

Bodwell is the education committee chair of ACCA — Florida, and along with his chapter cohorts, he has presented town hall meetings in Miami, Tampa, Orlando, Port St. Lucie, and many other regions throughout the state. The gatherings are designed to raise awareness and establish long-term solutions to reduce unlicensed contractor activity.

“I think as a licensed contractor, I have always permitted jobs and was proud to post my license number on the vans. I typically turned a blind eye to the unlabeled white trucks with the telltale refrigerant gauges and tanks in the back window because it did not affect me, but I also knew it wasn’t the lawn guy,” he said. “As I learned more about unlicensed activity, I was more upset with the image and damage these unlicensed contractors were doing to our struggling residential air conditioning industry.”

Hundreds of contractors attended the ACCA — Florida meetings, sharing their thoughts on potential causes including wholesalers selling to unlicensed contractors, Internet sales, appliance repairmen acting as licensed industry experts, and more. Proposed solutions included raising fines, increasing awareness, requiring that homeowners include a contractor’s license number upon warranty registration, and more.

“I believe this is an issue of health, safety, and welfare of the homeowner. They are the ones at risk if the equipment is improperly installed,” said Bodwell. “Building codes are in place to ensure consumers are getting a safe, proper installation. Without permitting, there is no guarantee this is happening.

“As far as state and local municipalities, they are losing tax and permitting revenue. I think a contractor should truly sell on value and demonstrate that upfront, price should not be the only consideration when making an investment of this size — that reputation, permitting, and insurance are critical components in the selection process.”

Francis Dietz, vice president of public affairs, Air-Conditioning, Heating & Refrigeration Institute (AHRI) said equipment is best utilized when installed by an educated professional.

“AHRI believes that licensed contractors that employ NATE [North American Technician Excellence] certified technicians raise the bar for our industry and go a long way toward ensuring that equipment is properly sized, matched, and installed,” he said. “Properly installed equipment is more likely to keep customers happy, reduce warranty claims, and benefit the industry’s image.”

McCrudden said ACCA is creating a template for all states to follow — regardless of licensing requirements. “ACCA is developing model state legislation that could be used in states where licensing is not required,” he said. “Developing a possible solution is only half the battle. The other half is getting more states and localities to enact licensing and then enforce those provisions. The local authority responsible for licensing should make enforcement a priority to protect contractors and homeowners from those who skirt the laws.”

Todd B. McAlister, executive director, ACCA — Texas, said licensed contractors should proactively speak up on behalf of the industry.

“Don’t use suppliers who sell to unlicensed contractors and turn in unlicensed activity to either the local enforcement agency or your local ACCA chapter,” he said. “Many Texas chapters have programs such as ‘Bag-a-Bootlegger’ in which they work closely with local building officials to try and catch those who are performing unlicensed work. Unlicensed activity that goes unchecked ends up laying the groundwork for others to feel as if they can now jump into the business and start operating illegally.”

Jaime DiDomenico, president and owner, N&M CoolToday, Sarasota, Fla., said unlicensed contractors are misrepresenting those that have earned the right to call themselves professionals.

“They represent themselves as us. If it were a case where clients knew these individuals were unlicensed, or could prove it, the story would be different,” he said. “We should be appalled and disgusted by this type of behavior. We cannot allow this to be a representation of us.”

Robbie Bailey, home comfort designer, Aire Serv, Knoxville, Tenn., said quality work will always trump cheap labor.

“The key to success is to sell yourself and your company — not a price,” he said. “If we can provide proof to our customers that they are getting a quality company with the licensing and technical knowledge behind their work, price should never be an objection that we cannot overcome.”

Publication date: 04/23/2012

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