Why Distributors Sell to Off-The-Clockers

March 24, 2008
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Back in January The NEWS published an article on HVAC service techs and installers who work off the clock behind the bosses’ back and earn extra money doing side jobs. The respondents remained anonymous as they described how and why they made a living out of working on their own, sometimes with or without their bosses’ permission.

In order to make extra money doing side jobs, these workers would have to have a source for buying equipment, namely the local supply house in their market.

For that reason, we decided to do a follow-up story on the people who sell the equipment - the counter people and owners of supply houses who sometimes make deals with the full knowledge of their contractor customers and who sometimes complete the deals under the table and away from the watchful eyes of those in charge.

Once again, the people who have contributed their input for this article have also been given anonymity because some are still working as suppliers and others choose not to let their customers know what they are doing.

As one supplier said, the practice of selling HVAC equipment to side job workers is common and happens in all of the trades.

“I worked as a branch manager for two of the largest HVAC wholesalers in the industry for 13 years,” he said. “Branch mangers get paid bonuses for achieving sales goals, inventory, and profit & loss accountability, etc. If a moonlighter, as you call them, comes into the branch and is looking to make a purchase, his money is green and branch managers or salespeople are not going to turn him away. Some of my best customers were moonlighters.”



SHOW ME THE MONEY

By keeping payments off the books and untraceable, equipment sellers can move their inventory and maintain cash flow. As one person said, “It’s all about the money. Mr. Big Time Contractor wants the biggest discount because he does the most volume. But Mr. Big Time Contractor is also on the 60-day column. Mr. Moonlighter doesn’t get such a deep discount but he is paying C.O.D. Mr. Moonlighter is even picking it up with his own truck so Mr. Supply House saves on the delivery cost.

“If Mr. Supply House doesn’t sell to Mr. Homeowner and/or Mr. Moonlighter, Home Depot will. Cash is cash.”

And whether the money goes to the local supply house or the big box retailer, someone is going to be taking the business away from the traditional distribution channel.

“If I were to have my own business, I can buy anything I want from Home Depot, Canadian Tire, or any one of a number of places today that sell equipment and materials,” said one person. “Heck, I can buy off the Internet and have it shipped to me. So why would I risk my job buying at a local supplier when I can buy anywhere that is retail or online?”

One respondent said the money trail starts at the top and goes down. He commented that if employees were paid a good wage and given good training opportunities, the temptation to work on the side and to sell equipment on the side would be minimized.

“This affects all trades, HVAC, electrical, carpentry, plumbing, automotive, etc.,” he said. “The reason? They want or need to make more money. If owners of HVAC companies don’t want their workers moonlighting, they should have them sign a no moonlighting contract. Better yet, take care of the employees by providing training and top wages and benefits. If not, people are going to moonlight to survive and get ahead in life.”



WHO IS THE QUALIFIED PURCHASER?

Suppliers see the faces of many different customers every day, including contractors and their employees, homeowners, handymen (and women), and just plain do-it-yourselfers. Some suppliers choose to sell to select clientele while others expand the field a bit.

“Since most of these people are not licensed, we will not sell to them,” one supplier said. “The exception would be if the owner of their company said it was alright to use their account and have the employee pay for it. If somebody was licensed and currently not working for someone, I would sell them our entry-level equipment.”

Another added, “As far as the wholesale guys go, I can’t say I blame them for what they do. They do what they got to do. I will say my local Sid Harvey’s and R.E. Michel will not sell to homeowners or other people they don’t know off the street. I’ve seen them refuse people many times.

“There is a large wholesaler near here who used to sell to anybody that had money. A trained monkey with cash on him could haul a furnace out of there. But in recent years, they became the strictest wholesaler out there. To buy, you must first show a dba, or corporation paperwork, and have your agent send them an insurance certificate. Yearly, you must re-register with them to keep buying. So, unless the moonlighter is a registered business with insurance, there will be no buying there. Obviously, a homeowner will get turned away also.”

One school of thought is the liability issue. If a supplier sells to someone who is not licensed or insured and the installation goes wrong, they could be held responsible. One supplier said, “We have a corporate policy on who we sell heating equipment to. This is in part to the wonderful legal system we have in which a person can purchase a system, install it in their own home, screw up the install, and then sue the wholesaler who sold it because they did not know what they were doing.

“We limit who we sell to and still deal with multiple problems when the professionals don’t follow the install manuals. Wholesalers generally keep homeowners and the inexperienced away with attitude and a reluctance to give time or respect to those who are unfamiliar with trade nomenclature. I can remember my own original forays into professional supply houses and the intimidation that was sometimes a part of that.”

Homeowners who think they have the expertise to install their own equipment often make it bad for other legitimate installers - and they often buy their equipment without thinking about the consequences of a faulty installation. “What offends me is oversized (high-end) equipment sold directly to homeowners,” said one person.

“Not only are they paying extra for the pleasure of cutting out the installer’s potential markup, but they may end up buying more equipment than they need, hurting the efficiency of the system, and wasting money. Bigger is not better when you don’t take the time to size it right, but suppliers make more on the bigger sale. Of course, some contractors sell oversized systems for the same reasons.”

Does that mean that even the people who are licensed and insured can often screw up an installation? Yes, according to this person. “The extra income from side work when I was young allowed me to start the business,” said one contractor. “I always let my employer know what I was up to and in most cases they actually helped. They got started the same way. The bottom line is a license number on your card means nothing but you passed a test. We have all seen the work done by licensed contractors that makes us ashamed to be called a contractor.”



SITTING ON THE FENCE

While some contractors and suppliers acknowledge that they turn a blind eye to side jobbers and people who sell equipment to them, some use the guise that the whole situation is a learning process - and that no one is really getting hurt anyway.

“My employees are welcome to do side jobs,” one contractor said. “I even help them with design and let them use my accounts. I know that many would look down on me for this, but if a man wants to work to make something for himself, who am I to get in his way? By helping him, I increase his knowledge and his loyalty. Also his side job is done with professionalism.

“The only way I would have a problem with a supplier selling to an unlicensed guy is if he worked for me and I didn’t know he was doing it. The suppliers I bought from when I was a tech would not allow me to buy from them without my employer’s blessing.”

Besides helping the learning curve, suppliers are helping themselves to future business. That’s according to this business owner. “I’ve been out of wholesale for a while, but the most obvious reason suppliers keep selling to side jobbers is this,” he said.

“Today’s moonlighters are potentially tomorrow’s customers. If you turn your back on them today when they may be trying to get started, they will not forget that later. I’m not saying this is right or wrong, but wholesalers have a fine line to walk here, especially the smaller ones when their future can be determined so easily.”

One contractor who has seen the issue from both sides of the fence has developed two totally different perspectives.

“When I started in a supply house, I did not know the impact at that time,” he said. “I was young and dumb and didn’t know what owners felt about their people buying side job supplies. I don’t think the average parts counter guy knows the impact of moonlighting. The distributor I worked for was pretty good about avoiding any cash sales. They wanted to push all sales to the contractor account, that way they were not hiding anything.

“Now as a contractor, I do not let my guys do side work. I had an installer I let go a month ago and found out the day I fired him he put a furnace in the weekend before. I found out he bought the furnace from one of my suppliers and not on my account. So I called that supplier and told them I find out that happens again, we will not purchase there again.”

But one person defended the suppliers, saying it was not their business to scrutinize other people’s employees. “I used to work for a wholesaler and some of the people who moonlight are the same decision makers who you have a relationship with, so who are you to question them?” he asked. “The wholesaler is not the moonlighting police and is not required to see if the contractor has any certification except for refrigerant recovery. And by the way, the branch manager is solely judged on profit so the more that goes out that door the higher the bonus.

“I personally know that many owners look the other way while their employees and managers do side work, they know how hard it is make a living on one salary.”



Sidebar: Consultant Speaks Out

Joe Rettig of The Habegger Corp. - Carrier Division, is the Carrier distributor for western Ohio, southeastern Indiana, and northern Kentucky. Rettig is also a member of The NEWS’ distributor consultant panel. He talked about the issue of suppliers selling to moonlighters and his company’s policy.

“To a distributor, moonlighters are a challenge,” he said. “They are very creative in their ways of trying to obtain equipment, parts, and supplies. The goal of the Habegger Corp. is to never sell to moonlighters. But with their creativity, this is not always possible.

“Moonlighting of Carrier residential products by Carrier residential dealer personnel does not really present a major problem to us. We know all of our dealers and they are registered and certified and they usually buy through a purchase order (P.O.) process. It would be very difficult for one of their people to purchase Carrier brand residential equipment from us without the owner’s approval. All of our Habegger employees know that they risk termination if they purposely sell to any Carrier dealer employees who are moonlighting.

“Moonlighting with commercial contractor’s personnel becomes a more challenging issue. Commercial contractors may purchase Carrier equipment (equipment not requiring technical training certification) for commercial projects only. Unfortunately, if they order 20 units for a commercial project, we are not sure that all 20 units go on that job.

“If the commercial contractor allows his employees to purchase merchandise without using a P.O. system, then there are opportunities for his people to moonlight. If the commercial contractor does not have a good P.O. system and a good accounting system, then he is opening up the opportunity for his people to moonlight.

“We make replacement parts and supplies available to all HVAC contractors, industrial institutions, hospital maintenance departments, property management companies with maintenance departments, etc. This broad group of customers varies from one-man shops to hundreds of employees, so this makes the controlling repair parts moonlighting purchases a real challenge.

“Again, good P.O. systems make moonlighting difficult, but having no P.O. system makes controlling moonlighting very difficult. Some small contractors want to operate on a cash-only basis because their accounting system is not at a level that they can manage an open account system. In these instances, this really opens up the opportunity for their employees to moonlight if they are buying with cash or a personal check.

“If all states required HVAC contractor and employee licensing and enforced the rules, this could reduce moonlighting, but not all states do this.”

“Since the majority of our business and our focus is with Carrier dealers and commercial contractors, moonlighting has not been a major issue with us. Moonlighters are more of a nuisance rather than a concern. Since moonlighters are very creative in their approach, it is very difficult to make sure that we never, ever sell to them. This is especially true when selling repair parts and supplies. It is even more of a challenge with cash or credit card sales. I would say that moonlighters are much less than a 1 percent issue with us.”

Publication date: 03/24/2008

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