Busting Bootleg Contractors : State Officers Pose as Homeowners in Sting Operations Aimed at Unlicensed Tradesmen

A roofing contractor and his assistant got an unpleasant surprise while giving a bid recently.

At the end of a hot Friday, they drove to a house in Laguna Hills to give an estimate for a new roof.

The estimating process began smoothly. Ann Williams greeted the roofers at the front door of the anonymous single-story ranch house and, within seconds, the assistant had climbed on the roof to take measurements.

As the contractor began writing up an estimate, Ann Williams was joined outside by her husband. But when the estimate was finished--it came to $5,600--events took an unexpected turn. Out of the blue, the husband asked the contractor if he had a license.

He didn’t. At that point, “Mr. Williams” pulled out his badge and identified himself and “Mrs. Williams” as Dan Hitt and Connie Gontang, investigators from the Contractors’ State License Board.

Two more investigators emerged from the house and, within minutes, the contractor was leaning against a kitchen counter, hands cuffed behind his back.

He was issued a Notice to Appear in court for the latest of several violations of state law governing contractors. Then he was taken away by county sheriffs, who wanted him for outstanding traffic warrants.

A division of the state Department of Consumer Affairs, the contractors’ board began a pilot undercover sting operation concentrated on Southern California in October, 1989, and has since busted 1,190 contractors for working without licenses and other violations of state codes. Eventually, the program may expand into Northern California.

Based in Sacramento, with regional headquarters in Northern and Southern California and 15 district offices, the Contractors’ State License Board has 400 employees and operates on a $34.5-million annual budget generated by licensing fees.

Since David Phillips took over in 1988 as registrar, the top position, the board has been on an all-out crusade--including the stings--to improve its image, with some success.

The number of licensed contractors in California has increased since 1988 from 215,000 to 258,000, but there are still many more unlicensed contractors--at least 750,000 by the board’s estimate.

In the state of California, it is a misdemeanor for 41 types of contractors, including plumbers, electricians, carpeting installers, painters, roofers, carpenters and concrete specialists, to take on a job worth more than $300 without a contractor’s license.

It is also illegal for licensed contractors to advertise without giving their license numbers--in any medium, including flyers and business cards; to give written bids without giving license numbers, or to take down payments exceeding $1,000 or 10% of a job’s value, whichever is less.

From the consumer’s point of view, the disadvantages of hiring unlicensed contractors include:

Possible liability in cases where unlicensed contractors, who usually don’t carry liability insurance or pay workers’ compensation, or their employees, are injured on the job.

State and federal tax revenues lost because many unlicensed contractors don’t pay all of their payroll and income taxes. Lost tax revenues from California alone could total more than $800 million a year, according to a state estimate.

Less recourse against unlicensed than against licensed contractors when there are construction defects. Licensed contractors can lose their licenses and, hence, legitimacy. The Contractors’ State License Board also offers a free arbitration service to resolve consumer disputes with licensed contractors.

Leads for the stings come primarily from classified ads and promotional flyers that don’t carry license numbers. Often these represent unlicensed contractors; less frequently, they are previously licensed contractors whose licenses have expired.

Investigators are also led to unlicensed contractors through phone tips from licensed contractors annoyed at losing work to unlicensed contractors who can offer lower prices due to lower overheads.

Using empty houses, often donated by professional associations representing groups of licensed contractors who want to aid the crackdown effort, investigators pose as homeowners in need of estimates. Besides the undercover stings at houses, investigators sometimes pay surprise visits to construction sites, checking for licenses.

Penalties handed out by the board’s Unlicensed Activity Division range from warnings issued to contractors whose licenses have lapsed to fines of up to $4,500 per project on unlicensed contractors involved in various forms of consumer fraud, such as a fairly common ploy wherein they take large down payments and vanish without performing any work.

Unlicensed contractors cited for working without a license or for construction-related consumer fraud may receive Notices to Appear in court, or, in the case of repeat offenders or larger scams, citations or criminal complaints filed by state investigators with local district attorney’s offices.

Cases of construction-related consumer fraud uncovered by state license board investigators may even be referred to district attorneys for criminal prosecution. Criminal convictions can lead to prison time.

Phillips’ predecessor, John Maloney, took a hard line against unlicensed contractors. He set up an amnesty program with a deadline for licensing, after which unlicensed work experience would no longer count toward the four years of journeyman experience contractors must have to qualify for state licensing exams.

Not only did Maloney alienate unlicensed contractors with his policies but, for many years, the license board was perceived as ineffectual by some citizens and politicians, who saw little being done about the 30,000 complaints the board receives each year. A state senator once referred to the organization as a “do-nothing board.”

“We’ve been having problems for years, but I think we’re getting a little better,” said Phillips, a former general contractor who worked for the board in various capacities for 24 years before being named registrar. “We were facing negative ideas. We had a tremendous backlog of complaints and the board was taking quite a beating.”

Phillips prefers a more understanding attitude toward unlicensed contractors. The board now allows them to count their unlicensed experience to qualify for licensing. He has also cut the backlog of complaints--90% of which involve home improvement work--in half, from 12,000 to 6,250, and, during the last two years, reduced the median time required to resolve complaints from 158 days to 56.

Consumer service representatives in district offices mediate 40% of all complaints before they reach the investigation stage, Phillips said. Also, the board plans to add an 800 number for complaints.

“One big thing that has happened is we have become automated,” Phillips said. “San Diego did not know what Long Beach was doing, Long Beach did not know what Ventura and Sacramento were doing. Now we have all the license and complaint information on computers. What that means to me in enforcement is, if you’re a bad person with continual complaints, it will show up on our system.

“Thirty percent of our complaints are against unlicensed contractors. If our records show they have wronged homeowners by their acts, I allow them to take care of the damage and come forward and become licensed.”

The cost of a license is not exorbitant: $150 to take the daylong exams, which are offered on a daily basis in all 15 of the board’s district offices; $150 for a license good for two years (the renewal fee is $200); and roughly $60 a year to post a $5,000 contractor’s bond.

This year, the board has handed out 787 license applications to unlicensed contractors and 178 have filed the applications and plan to take their exams.

“People tend to think home improvement is small business. It’s big business--$110 billion annually nationwide,” Phillips said. “That’s one of the biggest investments you’ll ever make. I feel consumers ought to be able to get a job done to high standards in a good, workmanlike way for a fair market price and, last but not least, be able to enjoy the fruits of their investments. If you have a swimming pool and you can’t put water in it, it’s no good to you.”

State investigators face trying moments on the job. At each sting, there are always two investigators present who have been trained as peace officers. Although they don’t carry guns, they do carry handcuffs and usually use them when citing unlicensed contractors, since the initial surprise of being stung occasionally provokes violent reactions.

At the recent sting in Laguna Hills, the roofing contractor, a stocky young man with alcohol on his breath and mirrored sunglasses covering his eyes, taunted investigators with a variety of expletives as he stood handcuffed in a corner, waiting for county sheriffs to arrive.

Another time, Senior Deputy D. K. Littleton ran into a tough guy in Oceanside.

“I walked onto a job site to check for a license and the guy said, ‘No, I don’t have a license, but this is a small job, only $600,’ ” he recalled. “The guy showed me a boxing card--he was registered in Hawaii. Then he got down in a boxer’s crouch and put his forehead in my chest. I walked to my car and called the police.”

“This is pretty serious business,” explained Senior Investigator Ray Hendrickson. “For most of these guys, it’s the first time they’ve been arrested, and (they) take it seriously.”

Contractors have varying opinions on the licensing and enforcement issue, and the stings.

“I haven’t heard much about them,” said an unlicensed San Diego drywaller who has been in the business for six years and plans to get licensed eventually. He thinks a license will help him land more jobs and looks forward to the protection it will offer. Under state law, unlicensed contractors are not allowed to take court action to collect on unpaid accounts.

“I know a lot of licensed contractors who are not qualified,” said an unlicensed electrician. “It’s the caliber that counts. Some go to contractors’ trade schools and do book learning and get licenses, then they come out here and can’t do the work. As far as I’m concerned, licensing is no guarantee of quality.”

But a fellow electrician disagreed.

“A lot of these unlicensed people do faulty work. I’m on a job right now where they ruined some computers because they didn’t run separate circuits. People get what they pay for. For example, unlicensed contractors don’t have a $2-million liability policy like I do that covers the damage if I do a job and a place burns down. That costs me about $1,000 a year.”

“I think these unlicensed guys take away business,” added a concrete contractor. “They are cutthroats chopping prices low so everyone has to cut their prices. They don’t make that much money, so no one makes much money.”

CONTRACTORS’ STATE LICENSE BOARD OFFICES

San Gabriel Valley District Office: (213) 620-4476 (818) 575-6924

8855 E. Valley Blvd., 221

Rosemead, Calif. 91770

Inglewood District: (213) 412-6395

One Manchester Blvd.

Suite 400 City Hall

Inglewood, Calif. 90301

Long Beach District: (213) 590-5331

Cal Vet State Office Bldg.

245 W. Broadway, Suite 145

Long Beach, Calif. 90802

Santa Ana District: (714) 558-4086

28 Civic Center Plaza, Room 351

Santa Ana, Calif. 92701

San Bernardino District: (714) 370-4583

1250 E. Cooley Drive, Suite 200

Colton, Calif. 92324

San Diego District: (619) 455-0237

5280 Carroll Canyon Road, Suite 250

San Diego, Calif. 92121

Van Nuys District Office: (818) 901-5168

6150 Van Nuys Blvd., Room 300

Van Nuys, Calif. 91401

Ventura District: (805) 654-4515

2590 E. Main St., Room 102

Ventura, Calif. 93003

Tips Booklet Offered

Consumers can receive a free copy of “What You Should Know Before You Hire a Contractor,” a 34-page guide published by the Contractors State License Board, by writing to the board at Box 26000, Sacramento, Calif. 95826, or by calling any of the district offices.