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ASC Proceedings of the 42nd Annual Conference

Colorado State University Fort Collins, Colorado

April 20 - 22, 2006                 

 

The Purposes and Evaluation Methods for State Residential General Contractor Licensing

 

James E. Fenn, M.S., D. Mark Hutchings, Ph.D., and Kevin L. Burr Ph.D

Brigham Young University

Provo, Utah

 

Justification of professional licensure for residential general contractors is a topic that has been debated for some time. Many believe license laws are enacted to protect consumers from unscrupulous builders or to guarantee quality construction.  Others argue that they are enacted to limit entry to the profession.  Others might think licensure fulfills both purposes.  This study attempts to determine whether professional licensure can be justified for residential general contractors based on the stated purposes for licensure. Methods for evaluating the effectiveness of licensure and how states enforce license laws are addressed.  In addition, requirements for licensure are reported. While only about half the states require licensure for residential general contractors, the direct protection licensure gives the consumer is difficult to calculate.  Even states with licensing requirements and evaluation processes in place find they lack the manpower to effectively regulate contractors and protect consumers. Because the main purpose of licensure is to protect the health and safety of consumers and because states have a difficult time enforcing their own stated purposes for licensure, it can be argued that licensure may not be the best answer.

 

Key Words: Licensure, Residential Contractors, Occupational Regulation

 

 

Introduction

 

Many professions are required to be licensed in the United States.  These professions range from barbers to those in the medical profession.  The importance of licensing some professions can be questioned, however, because licensing agencies sometimes find it difficult to justify their intended purpose.  For example, if the purpose of licensing barbers is to improve the quality of hair cuts, how does the licensing body evaluate whether licensed barbers cut hair better than unlicensed barbers?  The same questions can be asked of states that license residential general contractors.  What are the purposes of licensure? And how does the licensing body evaluate whether licensees actually fulfill those purposes?

 

While only about half the states require licensing for residential general contractors, the direct protection benefits that licensing requirements give the consumer are difficult to calculate.  Even states with licensing requirements and evaluation processes in place find they lack the manpower to effectively regulate contractors and protect the consumer as they should (Utah Construction Commission, personal interview, October 2004).

 

 

Problem Statement

 

The intents of this research were to identify the documented purposes of residential general contractor licensing as defined by each state and to determine how effective each state was in achieving these purposes as perceived by their licensing department.

  

Subproblems

 

1) Identify methods of evaluating effectiveness of licensure (Subproblem) 2) How do states rate their evaluation procedures for effectiveness 3) What are each States’ licensing requirements and 4) How do states enforce the licensing requirements.  In addition, this study proposes to determine what techniques and methods are being used to evaluate regulation of the licensed residential general contractors. 

 

 

Review of Literature

 

Regulation

 

Occupational regulation has existed in some form or another for hundreds of years.  For example, as early as the Fourteenth Century in the European town of Flanders, a four-year apprenticeship was required to become a draper, and an eight-year apprenticeship to become a carpet-maker.  These apprenticeships created a sort of mandatory education so that talent and trade secrets would be passed on.  Apprenticeships are some of the earliest documented forms of occupational regulation (Wheelan, 1998).

 

Occupational regulation directly affects roughly 18 percent of U.S. workers.  That number is more than the number affected by minimum wage (10%) or unionization (15%) (Kleiner, 1990; Wheelen, 1998).  With such numbers involved, there is much debate as to the perceived problems and benefits.  These can be classified into two main categories: effects on the economy and effects on quality.

 

In 1978, Sidney Carroll and Robert Gaston performed one of the most comprehensive studies regarding the effects of occupational regulation on quality.  The study examined several different regulated occupations and whether or not regulation affects the “quality of service received.”

 

Despite enormous practical and theoretical difficulties and quite dirty data, from occupation to occupation there existed consistently a strong negative association between per capita numbers in an occupation and measures of per capita quality of services received.  Almost as consistently, restrictive licensing appeared to significantly lower the stocks of licensees. There is, then, evidence from several professions and trades that indicates that restrictive licensing may lower the quality of service received (Carroll & Gaston, 1981).

 

The three most common types of regulation today are registration, certification, and licensing.  The more recognized of the three is licensing. “Since the 1950s, the number of licensed occupations [in the United States] has grown from 70 to over 500” (Kleiner, Gay & Green, 1982).

 

Licensing is a legislative act that requires licensees to comply with specific, state-mandated regulations.  For example, in order to become licensed, a candidate might have to demonstrate a minimum amount of experience, pass exams, show proof of certain types of insurance, financial stability, and pay a fee.  Entrance into the profession is limited to those who qualify by fulfilling the requirements for licensure and are approved by the licensing department.

 

Registration allows states or municipalities to track practitioners, while not limiting entrance into the profession.  Practitioners are required to register with the state, provide contact information, and pay a minimal fee.  Some states, however, require qualifications for registration in addition to simple information.  This type of registration is effectively licensing.

 

Certifications are increasing in popularity as a type of occupational regulation and can be voluntary or mandatory.  For example, mechanics and accountants are highly recognized professions that require certification.  An example of a voluntary certification is the common “CSE” certification (Control Systems Engineer) for automotive mechanics.  It signals that the mechanic has undergone rigorous education and training and thus should be able to offer good mechanical service because their knowledge is “certified.”  A form of mandatory certification is that required to become a CPA, otherwise known as a Certified Public Accountant.  The legal right to practice accounting does not come with a degree in accounting, but from the certification.  The degree fulfills experience requirements in order to qualify for the certification.   

 

Certified professionals, regardless of profession, can usually charge a premium because of their certified knowledge.  In many cases however, consumers can still hire uncertified professionals for a lower fee without necessarily sacrificing quality of service.

 

Professionals can signal quality by voluntarily undertaking whatever training would be mandatory under a licensure program.  Yet voluntary certification does not exact any of the deadweight costs associated with mandatory licensure.  From an information standpoint, certification is Pareto [globally] superior to licensure.  Those who desire information will get it in the form of certification, but no consumer is forced to pay for information or quality that he or she does not want, as is the case with licensure (Wheelan, 1998).

 

The issues, policies, and theories discussed above also apply to the construction industry.  In fact, some states have regulated construction since the early 1900’s.  Regulation of construction in the United States is controlled at the state and/or local level.  Less than one-half of the states require licensure of residential general contractors; however, it is interesting to note that almost all states require licensure of electricians and plumbers.  In addition, approximately two-thirds of the states require some type of regulation for residential general contractors.

 

Consumer Protection by Regulation and Licensing

 

The most general and common purpose of construction regulation is safeguarding the life, health, and property of the public (Brunner & O’Connor, p 407).  As stated in a contractor’s forum on licensing, “the intent of the law [in California] is meant to be protective of the consumer” (Hall, 2000).  Besides safety, licensing also seeks to protect the consumer’s dollar. 

 

A popular thought is that regulation of the trades through licensing ensures that the consumer receives the product paid for, at the quality and service expected.  Assuming this it could be said that many consumers put themselves at risk of not getting what they pay for by hiring contractors who are not properly licensed.   The actual effect of regulation on quality is hard to prove.  An increase in actual quality of service as a result of licensing may not be true in all cases.  S. Carroll wrote the following in her study of quality of service received:

 

There are at least four ways in which restrictive licensing may lower the quality of services actually received by consumers.  First, when restrictions are imposed and a smaller total supply of service results, some consumers will turn to substitutes of lower quality.  Substitutes can be nothing more than “do-it-yourself” services possibly coupled with untrained advice or assistance.  In some instances, the substitute is simply no service at all.  Second, licensees can be asked to perform tasks for which they are over-trained.  Considerable time may be devoted to services that could be performed equally well by persons of lesser training; however, restrictive regulations prohibit such action.  Third, the relevant concept of quality is a function of both skill content and quantity of service.  Thus, even if the skill content received by consumers could be increased by restrictions, the quantity of service may be reduced, and the net result can be detrimental if the quantity reduction more than offsets the skill increase.  [Fourth]  If licensing restricts competition among professionals, then it might lessen competitive pressures to compete on quality (Caroll & Gaston, 1981 p960).

 

Contractor Protection through Regulation and Licensing

 

In addition to protecting the interests of the consumer, licensing of contractors also offers legal protection to licensees.  One of the legal protections afforded licensed contractors is the right to place liens on real property they have improved for which they have not been paid.  The following excerpt helps explain how licensing can protect the consumer and the contractor when it comes to lien rights.

 

The unlicensed subcontractor has no valid contract, and therefore no lien rights.  All of the work he performs will be free and he is faced with back charges for any damages this may cause his contractor or the owner.  What of the general contractor?  If "any part" of the general contract is performed by an unlicensed contractor, then arguably his contract is void and invalid too.  And so are his lien rights. If the general contract is invalid and unenforceable, there is an argument that the other subcontracts are invalid too since a "pan” of their subcontracts is invalid, being based on the general contract.  Without contract or lien rights, the contractor is without legal remedy to collect his money for work performed. One can see how serious a problem this creates on any job where even one contractor is caught without the appropriate license (Ashby, 2003).

 

The problems with contract law and enforceable payment and lien rights are very complicated but do help us recognize that there is much debate regarding licensing of contractors.  Licensing laws seek to force residential general contractors and the public to hire only licensed subcontractors.  This allows licensed residential general contractors and subcontractors to place liens on properties to collect payment for labor and/or materials if the owner or residential general contractor refuses to pay.  The purpose of this regulation not only protects the consumer from unlicensed contractors, but also protects the licensed residential general contractor against consumers who would take advantage of lien laws and collection rights as well as the subcontractors.

 

Evaluating Effectiveness of Licensing

 

Licensing itself is often criticized because there is little evidence that it is effective.  Just as licensing regulations are being attacked, the methods of enforcement of those regulations are being questioned.  “There is little agreement among regulatory theorists about what should be done to improve enforcement programs. As a result, figuring out how to enhance compliance is a difficult puzzle for local officials as well as for regulatory scholars” (Burby, May & Paterson, 1998). 

 

In at least one state, there has been discussion between the state and a regional Home Builders Association regarding licensing.  Floyd Jackson of the Southern Utah Home Builders Association (SUHBA) summed up the concern in these words, “If [the state] can’t enforce the regulations, then they need to do away with them.  Either make them more strict or get rid of them.  [The regulations] aren’t serving their purpose and end up being more red tape than anything else” (Floyd Jackson, Personal Interview, October 2004).  The Utah Construction Services Commission, which oversees penalties for license law violators argues that there is just not enough manpower to effectively regulate the construction industry and enforce compliance.  Because of this, it is impossible for state license laws be 100% effective.  The Commission also admits that there is not a method currently in place to measure whether or not contractor licensing is fulfilling its intended purpose (Utah Construction Services Commission meeting, October 2004).  According to another study, “When personnel and other enforcement resources are limited, the tasks necessary for enforcing compliance can be performed poorly (or not at all), with consequences that can be disastrous” (Burby et al., 1998). 

 

One of the few studies performed on evaluating licensing dealt with compliance of building codes and building regulations by the contractors. The study was done by Burby, May and Paterson in 1998.  Their findings indicated that the main problem with measuring compliance to codes and licensing requirements and, in effect, measuring the effectiveness of licensing was the lack of manpower to enforce compliance.  In the footnotes of the study, the following was written:

 

Until the study reported in this article, no systematic nationwide research has examined compliance with building codes and development-management codes. Nevertheless, there is previous evidence that at least in some communities, severe slippage in compliance has occurred. Johnston and McCartney (1991) reported widespread violation of the mitigation requirements of the California Environmental Quality Act, which led the state legislature in 1989 to mandate local government monitoring of compliance. Burby and Paterson (1993) found that 64 percent of 128 construction sites inspected failed to meet state and local standards for sedimentation pollution control. Promersberger (1984) found that 50 percent of 101 storm water detention ponds inspected in the Denver area were not in compliance with design specifications. Brower and Ballenger (1991) found that 59 percent of the projects receiving coastal use permits in North Carolina in a recent year failed to comply with permit standards. And a study of compliance with state energy codes in Boise, Idaho found that 97 percent of all new homes inspected did not comply (Residential Construction Study 1992). Undoubtedly, many other examples of what syndicated columnist Neil Pierce (1992) terms ‘wink-an-eye-at-the codes’ building and development existed (Burby et al., 1998).

 

Burby’s study indicated the need for evaluation methods for inspections and also for licensing.  In order for inspections to serve their purpose, there must be compliance and evaluation of the inspection process.  The same is true for licensing.  To ensure fulfillment of licensing’s purpose, the purpose as well as the methods used to evaluate the fulfillment of the purpose must be defined and documented.

 

 

Methodology

 

Population of Interest

 

Only states that license residential general contractors were chosen to participate in the study.  At the time of this study, 27 states required licensure for residential general contractors according to the NAHB (NAHB, 2002).  The survey was administered to the department in charge of contractor licensing in all 27 states.  The study identified the purposes of licensing as defined by each state and the effectiveness of licensing in fulfilling the purposes.

 

Research Design and Development of Survey Instrument

 

Based on questions raised from the review of literature, a questionnaire was developed.  In order to increase the response rate, and accuracy of information, contact by phone and through email were used to complete the questionnaire.  The two main issues addressed in the questionnaire were 1) the requirements and regulations for the licensure of residential contractors and 2) the purposes and methods of evaluating contractor licensing.

 

Nine categories were used for data compilation: 1) the year licensing was instituted/established in the state; 2) which states have a formal purpose for licensing; 3) the actual purpose of residential general contractor licensing as defined by the state; 4) the effectiveness of licensing as rated by the state; 5) The methods used to evaluate effectiveness of license requirements; 6) the perceived effectiveness of the methods of evaluation; 7) requirements for licensure; 8) methods used to ensure residential general contractors are in compliance; and 9) other methods and comments by the states.  The categories follow the sequence of the questions as they appear in the survey instrument.

 

 

Data Analysis

 

Response Rate

 

The following is a summary compilation of data gathered from the survey.  17 of the 27 states responded, giving a total response rate of 63%.  The states that responded were Alaska (AK), Arizona (AZ), Arkansas (AR), Delaware (DE), Hawaii (HI), Louisiana (LA), Michigan (MI), Minnesota (MN), New Mexico (NM), North Dakota (ND), Oregon (OR), Rhode Island (RI), South Carolina (SC), Tennessee (TN), Utah (UT), Virginia (VA), and Washington (WA).   Only 16 of the 17 state responses were used in data compilation because New Mexico’s licensing of residential general contractors had been recently privatized and was no longer handled by the state department.  Even though New Mexico still requires state residential general contractor licensing, the information was not used for this study because of the significant difference in how that licensing process is managed.

 

Year States Instituted Licensure and Location where Purpose of Licensure can be Found

 

Table 1 indicates what year licensing was instituted in each of the states.  Five of the sixteen states (31%) instituted licensing during the depression years (1930’s), ending with Virginia in 1938.  Notice that it wasn’t until 1956 until the next state (Louisiana) instituted licensing laws.

 

Table 1 also indicates which states had a formal, documented purpose for residential general contractor licensing, and where that purpose can be found.  Of the sixteen states, 81% (13) had a formal or documented purpose for licensing.  Of those thirteen states, twelve had the purpose outlined or written into state code, or state statute.  Virginia stated that the purpose of residential licensing was specified in the mission statement of the department.

 

Table 1

 

Year licensing was established and  where purpose is found -- by state

State

Year licensure was established

Does the state have a documented purpose for licensure?

Where is the purpose found?

Arizona

1931

Yes

State Code/Website

Tennessee

1931

Yes

State Code

North Dakota

1932

No

N/A

Utah

1936

Yes

State Code

Virginia

1938

Yes

Mission Statement

Louisiana

1956

Yes

State Code

Hawaii

1957

Yes

State Code

Washington

1963

Yes

State Code

Michigan

1965

Yes

State Code/Website

Delaware

1969

No

N/A

Oregon

1971

Yes

State Code

South Carolina

1976

Yes

State Code

Alaska

1990

Yes

State Code

Rhode Island

1990

Yes

State Code

Minnesota

1992

No

N/A

Arkansas

1999

Yes

State Code

 

Purpose and Effectiveness of Residential Contractor Licensing

 

Respondents were asked which, from a list, best described their state’s purposes for licensing residential general contractors.  If their purpose was not listed, they were able to write in their purpose.  Nine states chose protection of life and health as the main purposes of residential general contractor licensing.  Two states indicated that protecting the consumer from untrustworthy contractors was a major factor, while one state (Alaska) reported that improving the quality of construction services was a major factor. Another state (Delaware) defined its purpose for licensing residential general contractors as part of the mandate to “license all businesses in the state”.  (see Table 2) 

 

Respondents were also asked to rate how well residential contractor licensing was fulfilling the states’ intended purpose for licensure.  Nine states indicated that their licensing requirements were effective in fulfilling their intended purposes.  No one reported that their state’s purposes for licensure were ineffective (see Table 2). 

 

Table 2

 

Reported purpose and effectiveness of licensure -- by state

 

State

Purpose of licensure as defined by each state

Effectiveness of licensure as defined by state

Arizona

Protect the lives and health of the consumer

Effective

Arkansas

Protect the lives and health of the consumer

Effective

Hawaii

Protect the lives and health of the consumer

Effective

Louisiana

Protect the lives and health of the consumer

Effective

Michigan

Protect the lives and health of the consumer

Effective

North Dakota

Protect the lives and health of the consumer

Somewhat Effective

Oregon

Protect the lives and health of the consumer

Very Effective

Rhode Island

Protect the lives and health of the consumer

Effective

South Carolina

Protect the lives and health of the consumer

Effective

Tennessee

Protect the lives and health of the consumer

Effective

Utah

Protect the lives and health of the consumer

Effective

Virginia

Protect the lives and health of the consumer

Effective

Minnesota

Protect the consumer from untrustworthy contractors

Very Effective

Washington

Protect the consumer from untrustworthy contractors

Effective

Alaska

Improve quality of services available

Effective

Delaware

No real defined purpose

Effective

 

Methods of Evaluating the Effectiveness of Licensing Requirements

 

After specifying how effectively licensing was fulfilling its purpose, the respondents were asked to select from a list the methods used to evaluate how licensing requirements were fulfilling their stated purposes.  Respondents were also allowed to provide additional methods if theirs were not available on the list.  Table 3 lists the frequency of responses indicating the most common methods being used.  Thirteen (81%) of the states use inspections and investigations to evaluate if licensing is fulfilling the intended purpose.  That coincides with the philosophy that building code enforcement will protect the consumer’s health and safety.  The next most frequent answer (nine of sixteen states; 56%) was using committees to police the contractors.  Delaware indicated that no specific methods were used to evaluate licensing.  Interestingly, Delaware is also the only state where the licensing department is administered by the state’s department of revenue whereas the other states’ licensing departments fall under the jurisdiction of the department of commerce or like department.

 

Oregon, one of two states that considered itself “very effective” in fulfilling its intended purpose of licensure (see Table 2) was the only state to have a formal, state-governed dispute resolution program.  Minnesota also indicated it was “very effective” but didn’t have any special considerations or explanations for its response. 

 

Table 3

 

Methods of evaluating the effectiveness of licensing -- by state

 

 

 

State

Surveys of general contractors

Consumer surveys

Surveys by the general public

Committees in charge of policing contractors

Governor-appointed board or commission

Inspections and investigations

None

Other

Alaska

X

 

X

X

 

X

 

 

Arizona

 

 

 

X

 

X

 

 

Arkansas

 

 

 

 

 

X

 

X

Delaware

 

 

 

 

 

 

X

 

Hawaii

 

 

 

X

 

X

 

 

Louisiana

 

 

 

X

X

 

 

 

Michigan

X

 

 

X

X

X

 

 

Minnesota

 

 

 

 

 

X

 

 

North Dakota

X

X

X

X

X

X

 

X

Oregon

X

X

X

X

X

X

 

X

Rhode Island

 

 

 

 

 

X

 

 

South Carolina

 

 

 

 

 

 

 

X

Tennessee

 

 

 

X

X

X

 

 

Utah

 

 

 

X

X

X

 

X

Virginia

 

 

 

 

 

X

 

X

Washington

 

 

 

 

 

X

 

 

Totals

4

2

3

9

6

13

1

6

 

Respondents were also asked to specify the effectiveness of their methods of evaluating licensure.  Three states (Minnesota, Oregon, Virginia) rated their methods as “very effective”; nine states (Alaska, Arizona, Arkansas, Louisiana, Michigan, South Carolina, Tennessee, Utah, Washington) rated their methods as “effective”; three states (Hawaii, North Dakota, Rhode Island) rated their methods as “somewhat effective”; and one state (Delaware) rated its methods as “neither effective nor ineffective”.   

 

Requirements for Obtaining a Residential Contractor’s License

 

The requirements for obtaining a construction license were gathered in the questionnaire.  Some of requirements for licensure are listed in the NAHB’s Contractor Licensing Manual, but the questionnaire revealed more information on licensing requirements (NAHB, 2002).  All sixteen states required a fee for licensure.  Most of the responding states required applicants to take and pass examinations; many required the applicants to show proof of worker’s compensation insurance; and many required the applicants to show proof of general liability insurance.  Half of the states required applicants to demonstrate a minimum amount of experience in construction or business; and half the states required some type of disclosure of personal finances.  It is interesting to note that seven of the sixteen states indicated some “other” requirements that were not identified in the NAHB Contractor Licensing Manual.  Included in the “other” requirements were such things as specific forms, bonding, minimum passing grade on examinations, and mandatory education requirements.  Table 4 lists state-by-state requirements.

 

Table 4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Licensing requirements -- by state

 

 

 

 

 

 

State

Minimum experience

Management experience

Financial records

State fee

Exams

Proof of insurance

Proof of worker's compensation

Other

Alaska

 

 

 

X

X

X

X

X

Arizona

X

X

X

X

X

 

X

X

Arkansas

X

X

X

X

X

 

 

 

Delaware

 

 

 

X

 

 

X

X

Hawaii

X

 

X

X

X

X

X

 

Louisiana

 

 

X

X

X

X

X

 

Michigan

X

 

X

X

X

 

 

X

Minnesota

 

 

 

X

X

X

X

 

North Dakota

 

 

 

X

X

X

X

X

Oregon

 

 

 

X

X

X

X

X

Rhode Island

 

 

 

X

 

X

X

 

So. Carolina

X

 

X

X

X

 

 

 

Tennessee

X

 

X

X

X

X

X

 

Utah

X

X

 

X

X

X

X

X

Virginia

X

 

X

X

X

X

X

 

Washington

 

 

 

X

 

X

X

 

Totals

8

3

8

16

13

11

13

7

 

One of the concerns expressed by residential general contractors was the ability to enforce licensing regulations.  Respondents were given a list of enforcement methods identified from the review of literature and/or through personal interviews and were asked to indicate which of these methods were actually used by their state divisions to enforce their own requirements.  Five states enforced their requirements through civil and criminal reporting; five states enforced regulations through state follow ups (states checking on the contractors’ status of license requirements; four states used continuing education as a means of enforcement; four states used information from Better Business Bureaus (BBB); four states utilized audits of general contractors to enforce licensing requirements; one state used municipalities to follow-up on the contractors; and finally, one state (Delaware) reported no specific means of enforcing state licensing laws. Nine states (81 percent) used methods other than those on the list.  These included enforcement through the license renewal process, enforcement because of consumer complaints, enforcement by special investigators, and enforcement because of non-filing of required insurance certifications.  Table 5 shows the specific responses state-by-state.

 

Table 5

 

Methods of enforcing licensing requirements -- by state

 

 

 

 

State

Audits of general contractors

State follow-ups

Continuing education

Municipal Follow-ups

BBB

Civil and criminal reporting

None

Other

Alaska

X

 

X

 

 

X

 

 

Arizona

 

 

 

 

 

 

 

X

Arkansas

 

 

 

 

 

 

 

X

Delaware

 

 

 

 

 

 

X

 

Hawaii

 

 

 

 

 

X

 

X

Louisiana

X

X

X

 

 

 

 

X

Michigan

 

X

 

 

X

 

 

 

Minnesota

 

 

X

X

X

 

 

 

North Dakota

X

X

 

 

X

X

 

 

Oregon

 

X

 

 

 

 

 

X

Rhode Island

 

 

 

 

 

 

 

X

South Carolina

 

 

 

 

 

 

 

X

Tennessee

 

 

 

 

 

 

 

X

Utah

 

X

X

 

X

 

 

 

Virginia

 

 

 

 

 

X

 

X

Washington

X

 

 

 

 

X

 

 

Totals

4

5

4

1

4

5

1

9

 

 

Conclusions

 

In order to effectively enforce compliance and measure the impact of government regulations, there should be clearly defined goals or purposes for the regulations and a standard by which to measure those goals and purposes.  Responses to the survey indicated that among the states that do have formal, documented purposes for licensing residential general contractors, 80 percent defined their main purpose for licensing as “protecting the lives and health of the consumer.”  Respondents indicated that they accomplished this purpose through building inspections and policing of the contractors through state and municipal licensing committees.

The research also revealed what states were doing to evaluate how these licensing requirements were purportedly fulfilling their intended purposes.  The most common method of evaluating licensing was through the use of building code inspections, health inspections, OSHA investigations, and zoning investigations.  Other methods included: surveys of general contractors, consumers, and the general public; committees in charge of policing contractors; governor-appointed boards or commissions; and dispute-resolution programs. 

 

Oregon and Minnesota were the only two states that rated both their licensing and their methods of licensing as “very effective.”  Oregon was the only state with a state-governed, dispute-resolution program for residential general contractors.  However, some states reported that mediation was used to resolve licensing issues in some instances.

 

The most significant finding of this research was that a discrepancy exists between what literature indicates the purposes of licensing are and what state licensing departments reported.  The literature review indicated that the general public believes and expects the main purpose of licensure is to improve the quality of construction; while state licensing departments overwhelmingly reported that the main purpose of licensing residential general contractors was “to protect the lives and health of the consumer.”

 

Since the discrepancy exists, the debate on construction licensing will continue; one side expecting better quality and the other the safety of the consumer.  Perhaps the greatest implication of this study is the knowledge that a discrepancy exists and that there are methods of regulating the construction industry that are currently being used that are very effective.  By having the knowledge available, states can better evaluate their own methods of regulation and/or licensure and help resolve many of the disputes surrounding the residential general contractor license issue.

 

 

References

 

Ashby, K.  (2003). Licensing issued can be the death sentence for lien and contract claims.  Business Credit.  105 (5), 72. 

 

Bruner, P., O’Connor, P.  (2002),  Bruner and O’Connor on Construction Law.  Volume 5.  St. Paul, Minnesota.  West Group.

 

Burby, R.,  May P., Paterson R. (1998),  Improving compliance with regulations: Choices and outcomes for local government.  Journal of the American Planning Association.  64 (3), 324-325.

 

Carrol, S., Gaston, R.  (1981)  Occupational restrictions and the quality of service rendered: some evidence.  Southern Economic Journal.  47 (4), 959.

 

Kleiner M., (2000), Occupational licensing.  The Journal of Economic Perspectives. 14 (4), 189.

 

Kleiner M., Gay R., Greene K. (1982), Barriers to Labor Migration: The Case of Occupational Licensing.  Industrial Relations. 21 (3), 383-392.

 

NAHB.  (2002)  Contractor licensing manual.  Fifth ed.  Washington DC: National Association of Home Builders.

 

Wheelan, C.  (1998), An Empirical Examination of the Political Economy of Occupational Licensure.  Dissertations Abstracts International, (UMI No. 9829475)