Does the ghost of “Builder Bob” still haunt Clark County? Dennis Pfendler thinks so.
“The number of unregistered and unqualified contractors is significant in Clark County,” he said.
To help counteract this situation, Pfendler – who has more than ten years’ experience in construction financing – has started Construction Assurance Inc. By providing third-party oversight of construction projects, including scope of work, change order process, payment schedule, escrowed disbursements, cost over-runs, dispute resolution, liens and warranties, CAI proposes to mitigate risk to both consumer and contractor.
By engaging CAI’s services, Pfendler said, consumers are protected from unscrupulous contractors like the historic “Builder Bob,” who took homeowner’s payments but failed to finish the projects. Likewise, contractors are protected from late payments, arguments over changes and warranty claims.
The result, said Pfendler, is an improved “economic vitality of the contract between the contactor and consumer.”
Industry support
CAI has the support of the Building Industry Association of Clark County; in fact, BIA’s executive director, David Roewe, and Steve Madsen, government affairs director, approached Pfendler last September with the idea of starting CAI and are listed as principals in the company.
“I know from my own experience that CAI would have saved contractors thousands of dollars,” said Madsen. “It will go a long way to filtering out the shady customers, especially in the areas of payments and change orders.”
Kelly McDonald, vice president and manager of Clark County Title, sees two main benefits to builders from a program such as CAI’s. First, he thinks it will help contractors understand the whole contract process instead of just doing the work. Second, since CAI will manage the project funds in an escrowed account, contractors won’t have to worry about not getting paid. In fact, McDonald stated that CAI’s services would render the “accounts receivable issue negligible.”
Leveling the playing field
Additionally, said Pfendler, CAI hopes to help address the underground economy in the construction industry, by making it harder for unregistered contractors to do business in the county.
Unregistered contractors can underbid reputable contractors, because they don’t have the registration, bond, liability, tax and workers’ compensation expenses that registered contractors pay.
This issue has received notice from the state legislature, which passed SB 5926 in May; this bill established a joint legislative task force to review the construction industry’s underground economy. The text of the bill states that “current estimates place the percentage of unreported employment in Washington state’s construction industry at between twenty percent and fifty percent,” and that “[t]he legislature declares that the underground economy in this state may permit unfair conditions to exist against persons working in the construction industry who do follow the employment laws and appropriately pay taxes.”
Of course, the Department of Labor and Industries does what it can to discover unregistered contractors by visiting job sites. But home remodels under $50,000, which are the primary focus of CAI, often fly under L&I’s radar.
Two years ago, L&I stepped up the number of auditors to aid in fraud detection, and they offer a website where consumers can check on a contractor’s registration, insurance, complaint status and so on. But Robert Nelson, spokesman for L&I, admits, “We know there are unregistered contractors out there.” He said many are hard to catch – they work out of their home, with only tools and a truck as assets. He also said that many consumers may not know of the existence of the L&I contractor look-up service.
Who needs it?
Indeed, it is the lack of sophistication on the part of many homeowners and contractors that may be the most compelling reason for using CAI’s services.
“CAI has the potential to help mitigate risk for homeowners, especially those without knowledge of the building industry,” stated Trent Rehfeldt, CEO of Rehfeldt Construction Inc. In addition, he considers CAI’s services ideal for contractors who have worked for a larger firm for a while and now are just starting out on their own, because they may know how to build cabinets and lay tile, but may not understand what it takes to run a business and how to avoid legal pitfalls.
Madsen agreed, saying that “it’s a service to small remodelers that don’t have an attorney.” For example, he said, there were many good contractors who were honest, but who lacked the expertise to use adequate forms and contracts. CAI could help prevent miscommunications and provide “two-way protection” for both consumer and contractor.
Larger firms, such as Skill Remodeling, don’t seem to see much use for CAI.
“It’s not a service we would use – we have all that worked out,” said owner Brent Skill. “Our contract has been vetted by nine different attorneys.”
Some remodelers are also concerned about the added cost of using CAI, which charges a minimum of three percent of a project’s cost.
“Three percent is terrible inflation,” said Dorman Holcomb, owner of T-Square Remodeling Inc.
Holcomb said the average remodeler makes less than ten percent net profit yearly, and could ill afford an additional three percent in costs. However, Pfendler stated that it was up to the consumer and the contractor to negotiate who would pay the fee, or if they would split it.
By formalizing the process and spelling out expectations up front, said McDonald, CAI can prevent miscommunication. In particular, he said, if a remodeler doesn’t have the necessary internal infrastructure, CAI is a “really good service for them.”
BACKGROUND ON 'BUILDER BOB’
The saga of “Builder Bob” McCullough dominated the building industry in Clark County in 1997. Contractor Robert McCullough declared bankruptcy, leaving homeowners several thousand dollars short with no work to show for it and some with liens on their unimproved property. The events of the year catalyzed homeowners around laws governing remodelers and other contractors.
STATE'S RIGHTS
Historically, when contractors “go bad,” the State Legislature has stepped in to try and legislate a solution. For example, after the “Builder Bob” fiasco, laws were passed that doubled contractors’ bond and liability coverage limits. This past legislative session, the construction industry again was under scrutiny, with at least six bills related to residential construction under discussion.
Steve Madsen, local Building Industry Association government affairs director, called the legislative approach a “meat cleaver” solution that raises construction costs across the board, which in turn get passed on to consumers. Instead, said Madsen, CAI’s private sector solution has the potential to save both contractors and consumers money by providing an as-needed service on a grass-roots level.
Brent Skill, owner of Skill Remodeling, was even more blunt.
“The legislature didn’t solve the problem before, and it won’t this time – we’re dealing with human nature,” he said. “The legislature should butt out.”
SHOULD WASHINGTON LIEN THE OTHER WAY?
Some remodelers think that the need for services like CAI’s would be less critical if Washington’s lien laws were different. Currently, if contractors order materials or hire subcontractors, the homeowner is liable for those costs, even if the contractor skips town. This was a major factor in the “Builder Bob” incidents in the late 1990s.
Dorman Holcomb, owner of T Square Remodeling, said that in Oregon, “Builder Bob was cut off” because he had bad credit. But because of Washington’s lien laws, he continued to rip off homeowners in Clark County with impunity. Getting rid of the state’s lien laws, said Holcomb, would go a long way toward shutting down disreputable contractors, because suppliers would be more careful who they sold to. As it is, he said, they don’t care, because they know they can get their money out of the homeowner if the contractor doesn’t pay.
Kelly McDonald, vice president and manager of Clark County Title, says lien laws are one reason a service such as CAI hasn’t been offered before in this state, although other states have similar businesses.
“The Washington lien laws are such that it makes it difficult to ‘do it right’,” said McDonald.
