The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 7:00 a.m., on Friday, March 12, 1999, in Room 2135 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Senator Randolph J. Townsend, Chairman

Senator Ann O’Connell, Vice Chairman

Senator Mark Amodei

Senator Dean A. Rhoads

Senator Raymond C. Shaffer

Senator Michael A. (Mike) Schneider

Senator Maggie Carlton

STAFF MEMBERS PRESENT:

Scott Young, Committee Policy Analyst

John L. Meder, Committee Policy Analyst

Ardyss Johns, Committee Secretary

OTHERS PRESENT:

Jerry Newcomer, Concerned Citizen

Chairman Townsend opened the meeting by referring to Senate Bill (S.B.) 32.

SENATE BILL 32: Revises provisions concerning contractors. (BDR 54-22)

Chairman Townsend told the committee that the primary function of any licensing board is to protect the interests of the public and not the licensee. He said while he believes everyone involved in those licensing boards is trying to do the right thing, in this new era in Nevada of overwhelming growth, and a lack of resources with which to deal with that growth, there is a need to rethink how things are done. He noted that in the debate held the previous week on construction defects, some serious flaws in our process had come to light. He pointed out that the committee’s focus for the last 15 years with regard to workers’ compensation had been prevention, because they felt it was the right thing for the employee. That same policy, he stated, should be carried over into this arena. He declared homeowners should not have to worry about how to get something repaired, because it should be done right in the first place.

Chairman Townsend suggested that the committee needed to focus on what role the State Contractors’ Board would be in this arena. He stated he wanted to start with a clean slate with no historical perspective, no mental models, no old relationships and no "this is the way we use to do it." Those days are over, he claimed, and we need to start again by looking at what the needs are for homeowners in Nevada and anyone else who is affected by a licensee, and figure out with how it can best be dealt. He said the committee did not deserve to be bridled with what has happened in the past because it is not working. He said the committee would give the State Contractors’ Board the ability to start with a clean slate and suggested thinking of it in that way for the next 90 days.

Chairman Townsend asked Margi Grein, Lobbyist, Executive Officer, State Contractors’ Board, to address the bill, particularly the entire removal of subsection 5 on page 2, regarding bonding. He read that section to the committee:

Margi A. Grein stated she opposed S.B. 32. She said that even though she understood the need for public protection, she did not believe that repealing the exemption, waiving the bond after 5 years, was the way in which that would be accomplished. She claimed most of the contractors that are relieved of the bonding requirement are the big contractors who have been in business a long time and they should not be penalized for the bad contractors. She explained that relieving the bond requirement was not an automatic process, but a board decision made only after the contractor provides a financial statement. She stressed that out of approximately 250 licensees who came before the board for a disciplinary hearing last year, none were without a bond. She told the committee the board had revoked 40 licenses in the last 6 months compared to only about 6 or 7 in the previous year.

Chairman Townsend inquired as to how many formal complaints were filed last year. Ms. Grein answered 3000. She said most licensees hold their license with a certain degree of esteem. She noted that most contractors try to resolve a problem before it gets to the point of going before the board. The people who come before the board, she claimed, for the most part do not care about their license.

Senator Schneider asked how many out of the 40 who lost their licenses, were home builders and how many were commercial builders. He also wanted to know some of the reasons those licenses were revoked.

Ms. Grein said some were pool contractors, which she considered to be residential as opposed to commercial. She said none of the 40 were commercial contractors. She said the reasons licenses were revoked were due to abandonment or failing to complete contract workmanship issues. She said the board has taken a completely different approach in trying to expedite the process. She reiterated that changing the bond requirement was not the answer.

Chairman Townsend asked Ms. Grein to comment on subsection 1 of section 2, which states that a licensee may have his license reinstated upon filing an application for renewal within 45 days, as opposed to 6 months.

Ms. Grein stated that in 1997, Senator Porter’s bill revised the section about the automatic renewal. If a licensee now has an open complaint, she pointed out, or there is an undisputed amount he has not paid, there is no automatic renewal process anymore. That licensee, she explained, has to come before the board who sets certain conditions for reinstatement of the license. She said she did not feel that changing it from 6 months to 45 days was realistic. She told the committee that Arizona allows renewal up to 1 year after expiration while Utah allows 2 years, New Mexico allows 3 months and Oregon 1 year. She stated she liked the language in California’s law that states: "The licensee may not engage in any construction-related activities from the date of expiration until the license has been renewed." California allows renewal up to 3 years after expiration, she added.

Chairman Townsend, referring to page 3, line 27, asked if the intent was to treat a first offense as a gross misdemeanor rather than just a misdemeanor.

George J. Lyford, Director, Special Investigations, State Contractors’ Board, stated there should be a first-offense level in some cases, so it is still a misdemeanor but with an increased penalty. He gave as an example, someone coming to Nevada from out of state who does not know the rules and immediately starts working. Once confronted by the board, he continued, that individual obtains the proper licensing. He said a vehicle is needed for the egregious cases and one for the entry-level mistake type of violation.

Mr. Lyford said the second offense should be a gross misdemeanor and the penalty increased from $2000 to $4000. The third offense, he suggested, in egregious situations and in situations where the amount of the contract is over $100,000 should be a felony. He claimed a large contractor who stands to make millions of dollars on a project could not care less about a $5000 or even a $10,000 fine. The misdemeanor, he noted, means nothing to that individual; therefore, that type of violation should be a felony.

Senator Shaffer asked how many investigators the board employed. Mr. Lyford replied there were four criminal investigators in Las Vegas and two in Reno. He said he had initiated his particular unit in August when he brought in all retired law enforcement officers. Their purpose, he explained, was to enforce unlicensed contractor laws, perform background checks on individuals applying for licensure and investigate construction fraud. Since this unit was set up, he claimed, a complaint against a non-licensed contractor is not looked at as a misdemeanor if it can be looked at as a felony instead. He said that is the one big change that is really starting to get some people’s attention.

Senator Shaffer inquired as to what the board’s response time was to a consumer complaint. Mr. Lyford replied that if someone called and said there was a non-licensed contractor currently at a specified location, he would send someone to investigate that day or the next. If a written complaint is filed, as is usual, it will be assigned to an investigator who will generally get to it within a couple of days.

Senator Shaffer wanted to know if it was the investigator’s responsibility, in the case of a homeowner complaint, to scrutinize the workmanship of the craftsmen. Ms. Grein affirmed it was; and stated the investigators use as a guideline, a developed minimum standards workbook. She said when a complaint comes in, it is assigned to an investigator who arranges a job-site visit within 30 days to allow both parties to appear at the job site. He then inspects the item, she continued, obtains a statement from the contractor and one from the owner on each particular item, and then writes his opinion. She claimed a notice to correct is then issued over her signature and the contractor is given a reasonable amount of time to correct the problem. If, she added, after a maximum of 20 days, the contractor has not complied, her office sends a notice to appear before the board. Ms. Grein told the committee that all of the investigators are required, by the International Conference of Building Officials (ICBO), to be certified.

Senator Schneider asked why the board had not pulled the licenses of contractors who have lawsuits pending against them, but who are continuing to operate. Ms. Grein replied that unless there is a public safety issue involved, Nevada Revised Statutes (NRS) 624.300 prohibits the board from taking disciplinary action if a mediation process or a cause of action is pending. She stressed that because of the many problems it caused for the board, that section should be removed from the statutes.

Senator Schneider stated this might be the crux of the whole problem noting a contractor could keep building one subdivision after another leaving a trail of litigation, making it impossible for the contractors’ board to touch them.

Ms. Grein said that had been a problem in the past and gave, as an example, a case in which the board finished the lawsuit and the case was settled and had a judgment. But when it came back to the board to take disciplinary action, she continued, the attorneys for the builder said the statute of limitations had run out. She noted the board now has a policy wherein if a contractor being investigated is in litigation, the board will continue its investigation, bring it before the board and then the board’s action can be stayed. That is still very time-consuming she said, and most parties, after going through a lawsuit, do not want to go through the process again. It is a problem area, she concluded, that definitely needs to be addressed.

Chairman Townsend read section 4, subsection 1, of S. B. 32, which adds new language to chapter 40 of NRS:

Chairman Townsend asked Ms. Grein to comment. Ms. Grein stated she had not researched it very thoroughly because it was in chapter 40 of NRS and she could not see where it would come into play as far as NRS 624 was concerned. She said she thought the concept was good though because there should be provisions allowing for structural defects.

Chairman Townsend asked if the contractors’ board had anything to do with the warranty. Ms. Grein said the board investigates workmanship issues and if a warranty violation were found, it would be a separate charge. But even if someone’s warranty had expired, she asserted, the board would still investigate the workmanship items.

Chairman Townsend questioned how the board would discipline someone who failed to comply with their warranty. Ms. Grein replied there are normally other offenses in addition to the warranty issue, such as poor workmanship, failure to pay, etc. She said the penalties for those types of violation range anywhere from a letter of reprimand to a $10,000 fine per violation, or revocation or suspension of the license.

Chairman Townsend asked what would happen if it were only a warranty issue. Ms. Grein stated that after it had been established that there was indeed a violation of the warranty, and the contractor failed to comply after receiving notice, it would be brought before the board in a disciplinary hearing. The board, she continued, as the governing body, could either issue a warning letter, a suspension, a corrective order, revoke the license or charge a fine of up to $10,000.

Chairman Townsend expressed his concern regarding the amount of flexibility in those proceedings. He said he did not think flexibility was a good idea and suggested, "If you don’t [do not] fix it, you lose your license." He stressed that was something he did not believe anyone could misunderstand. He claimed this committee believes the citizens of Nevada are the most important people in the world and anyone not willing to respect those citizens does not deserve to be in business. He said the homeowner is only concerned with whatever it takes to fix the problem and how long it will take to get from the filed complaint through all of this flexibility, to resolution.

Ms. Grein surmised that with posting the notice, holding the hearing and establishing that the offense did occur, average time would be 4 to 6 months. She mentioned that as a result of a 1997 legislative package from Senator Porter, there was a provision allowing for emergency suspension which, she claimed, had been used frequently in the past year.

From the board’s point of view, Chairman Townsend maintained, 4 to 6 months sounds reasonable, but to a person living in a home, 4 to 6 months is an eternity. Ms. Grein concurred and stated if there were aggregated charges, they would be brought before the board at the very next board meeting, which is held every 2 weeks. She said that has occurred approximately 20 times in the past year wherein an emergency suspension was issued and a hearing scheduled for the following month.

Chairman Townsend said the committee would come back to the warranty issue but wanted to address another issue, which he considered crucial. He asked of the written complaints received by the contractors’ board, how many were from homeowners’ associations. Ms. Grein replied that without first doing some research, she could not answer that question.

Chairman Townsend asked if she could supply that information before the end of the day and Ms. Grein said she could. Chairman Townsend said it was absolutely crucial for the committee to understand that in order to know if what the committee believed was the problem, was manifesting itself in complaints to the board. He wanted to know if the complaints came from the homeowners association or from the individual homeowner. He asked how many of those complaints occur within the first 6 months after someone moves into a new home.

Ms. Grein stated that was another question she could not answer right away and was not sure she could compile that information by the end of the day; because, she said, she would have to look at every case and the corresponding contracts.

Chairman Townsend asked if there was a pattern to the nature of the complaints and whether those complaints came from all over the state or concentrated in certain areas. He wanted to know if the building inspectors might be signing off on homes that did not meet minimum standards and if a pattern had been observed regarding the home builders.

Ms. Grein replied that a pending report is run by license number in order to see if there is a pattern of a certain builder with multiple complaints. When a pattern is noticed, she said, those are the ones that are immediately acted upon. With 15,000 contractors and approximately 4500 home builders with multiple areas, the board is unable to search by location.

Chairman Townsend said it would be helpful for many reasons, to know if there was a pattern in regard to location, one of those reasons being soils. He asked how many complaints stem from soil problems, as opposed to actual construction defects.

Ms. Grein noted the board does see complaints stemming from soil problems, but for the most part, does not become involved with those until after the building department has finished its inspection process and the Certificate of Occupancy (CO) has been issued. The usual complaints received by the board, she emphasized, have to do with workmanship issues. That may or may not be caused by a soil problem, she said, but the board’s responsibility is not to tell the contractor how the problem occurred. She claimed the board’s responsibility is to tell the contractor the work is not right and to correct it. The contractor, she asserted, is suppose to be the expert who figures out what caused the problem and is responsible for taking corrective action.

Senator O’Connell asked if there was any coordination between the contractors’ board and either the building department or the planning department with regard to pointing out particular problems that might have been noticed in other situations. She wanted to know if the contractors’ board only became involved after the fact and therefore uninvolved in the issuing of building permits in any particular area where there might be a concern about soil or flood zones. Ms. Grein replied that was the case most of the time; however, she acknowledged the board does rely on the building officials, occasionally, as expert witnesses on certain things. She pointed out that the building department could not go back after they had issued a CO and the contractors’ board does not normally get involved until that process is complete.

Senator O’Connell asked Ms. Grein if she knew of other states that might have a type of coordination among the various agencies so that perhaps the planning division could be made aware of problem areas. Ms. Grein stated she belonged to the National Association of State Contractor Licensing Agencies (NASCLA) and did not recall that particular issue ever being addressed. She said she did know that several states have a much closer working relationship with their building departments than does Nevada.

Senator O’Connell maintained if some of those types of problems were recognized in advance it might help in preventing other problems from arising. She said something should be done to coordinate more information to the contractors’ board, the contractors and the people on the planning board so that they have a little more information on the history of the area in which building will occur.

Senator Townsend asked why building is allowed on soils that are problematic. Ms. Grein told him she could not answer for the building departments to whom she suggested Senator Townsend should direct that particular question.

Senator O’Connell stated that in her own personal experience she had found that a lot of builders move on shortly after the work is completed. She said they move out of the county or even out of the state in order to go where there is work. Therefore, she asserted, even if the work is warranted, unless you know the builder will remain in the area, a warranty means nothing after he is gone. She asked Ms. Grein if her office ran into many of those kinds of problems and how they were handled with nobody on which to fall back.

Ms. Grein answered in the affirmative and stated NASCLA has a disciplinary databank on which contractors who have been disciplined are listed. It goes on a national database, she explained, and is available to all of the approximately 30 states belonging to NASCLA. She claimed it had just gone on-line about 6 months ago, but thought it should work quite well. She mentioned a provision in a bill draft request currently before the Assembly wherein if a contractor were disciplined in another state, it would be grounds for disciplining him in this state, even though the violation did not occur here. She said, in addition, her office has recently increased background investigations to thoroughly screen individuals before issuing a license.

Senator O’Connell asked how a violator would be found if the name of the business had been changed. Ms. Grein said they would be listed by the name of the corporate officers, or the individual if it were a sole proprietorship.

Chairman Townsend inquired if on the contractor board’s application there was a question that asked if an individual was, or had ever been before another licensing board for disciplinary action. Mr. Lyford replied there is a question on the application that asks specifically if the individual had been the subject of any past or pending lawsuits, liens, judgements or disciplinary actions. He stated the current weakness in background investigations is the dependency upon the individual to give truthful information. He said if you ask someone if they have been convicted of something, they can honestly answer no even though they might have pleaded no contest, a fudge-factor for a lot of attorneys. He explained that the board’s licensing application is being revised to eliminate some of those "weasel" areas.

Chairman Townsend suggested asking specific questions about nolo contendere and Alford pleas, etc. and then at the bottom of the application, in big bold print say, "If you are found to be untruthful on any of these questions, that is an automatic suspension of license." Mr. Lyford, in response, said that was an outstanding idea.

Ms. Grein said one of the provisions in the bill draft before the Assembly allows the board to fingerprint applicants, which Senator Townsend stated was even better.

Fred L. Hillerby, Lobbyist, State Contractors’ Board, referred to Senator O’Connell’s question regarding to whom a homeowner would turn if they have a complaint and the contractor has left the area. He said the bond a contractor posts to become licensed has somehow been construed to be a performance bond for every project they undertake down the road. He declared there was no way to anticipate that and stressed it should be understood that it is not a performance bond. He surmised that the author of S.B. 32 felt that by removing the discretionary ability of the board to wave that bond, it would take away potential fallback. He mentioned Ms. Grein’s concern wherein she stated this provision of the bill would only serve to penalize the good guy and not the individuals the board was actually pursuing. He claimed a bill due in the Assembly would provide for a recovery fund so when the contractor is gone and there is not a bond sufficient to deal with whatever the issues were for the homeowner, there would be another resolution.

Chairman Townsend wanted to know how it would be funded. Mr. Hillerby said a program in Arizona was being looked at as a model.

Ms. Grein explained in the Arizona program the residential contractors pay $600 into a recovery fund at the time of renewal. She pointed out it only applies to residential and the maximum a homeowner could claim against it was $20,000. Subcontractors and suppliers could not claim against this fund, she continued, and there would be a maximum per contractor of a $100,000 claim. She told the committee she had looked at Arizona’s operation last May and was very impressed. According to the registrar of Arizona, she declared, the contractors are very pleased with it because their bonds are lower, it penalizes the bad and it is a fair system. She said the homeowners were pleased with it, as well.

Chairman Townsend asked upon what the amount to be paid into the fund by each licensee would be based. Ms. Grein said Arizona had a flat fee of $600 to be paid at the time of renewal; but added, there are three times as many contractors in Arizona, as in Nevada.

Chairman Townsend asked if that meant the Nevada contractors would have to pay three times as much, or $1800 each. Ms. Grein replied she did not know.

Senator Schneider asked Ms. Grein if she had heard of a recovery fund in which the builder paid a per-unit fee. Ms. Grein answered she had not, but acknowledged that recovery funds were currently a trend and had been implemented by several states. She said it would be difficult for a licensing board to monitor each project but said she could check to see if any states do require a per-unit fee.

Chairman Townsend asked Scott Young, Committee Policy Analyst, Research Division, Legislative Counsel Bureau, to find out the mechanisms used throughout the country on recovery funds as well as a list on mechanisms in terms of the time and the application. In other words, he said, what does it take to go to the recovery fund, who is involved with it, etc.

Chairman Townsend asked Ms. Grein if there was anyone in her office who handles informational type calls. For example, he explained, a consumer wanting to know if there had been complaints against a particular builder, or how long the builder had been in business. Ms. Grein said a customer service center had been set up last July and was geared specifically toward answering questions and providing information, as well as assisting in the selection of a contractor. She stated that right now in southern Nevada, there are four individuals who do nothing but that, and there are plans for expansion as the board moves forward with its public education program.

Senator O’Connell wanted to know if anything was being done to let consumers know that this type of service was available. She said she doubted many people would think to do an investigation prior to hiring a contractor. Ms. Grein mentioned a provision in Senator Porter’s bill requiring building departments to provide a statement to the homeowner at the time the permit is being pulled. She added that under NRS chapter 624, the contractor has to provide a notice to the owner before construction is started telling them about things like liens, how to protect themselves, and what they can get to protect themselves with a payment performance bond. She claimed that failing to distribute that to their customers would be a punishable offense. The purpose, she declared, was to get as much information to the individual as possible so they could make an informed decision.

Chairman Townsend asked Mr. Lyford if he had noticed a trend in the complaints received from homeowners in the 11 months he had been on the board. He wanted to know if, for example, the problems seemed to come mostly from planned-unit developments or structures sharing common walls; and if they resulted from mostly new construction. Mr. Lyford stated most of the problems he had seen were occurring in new construction by licensed contractors. He said the contractor is allowing himself to become cash-short and therefore unable to fulfill his obligations in paying his subcontractors. He claimed that when the board gets the first inkling of this, it is requiring the contractors to furnish a financial statement. The problems are primarily with the independent contractor, he continued, rather than the larger ones who have good service departments.

Chairman Townsend stated one legitimate question, with which the committee was trying to deal, was how to make the builder do what should be done. He said when a person buys a home whether it costs a hundred thousand or two million dollars, they have a right to have their house fixed without a hassle. But the best solution, he noted, would be to prevent the problem in the first place. He suggested the answer might be with the building people at the city and county levels, and wanted to know why someone would be allowed to build on bad soil. That would be a problem difficult to fix, he added. If a home has a construction defect, they should not have to have the added expense of hiring an attorney in order to get it fixed. He stressed that the people on the various boards should never forget just what the goal is, and that goal is to get the house fixed. "There are many players in this," he continued, "and we have to make sure you have the appropriate tools, and that you have the knowledge of this body with regard to what we expect in terms of the intensity of your efforts." He declared if there is a construction-defect issue, the process of getting it corrected should be accelerated; particularly when it comes to a residential issue.

Ms. Grein stated that the legislation proposed by the contractors’ board would expedite the disciplinary process for failure. She said she tried to add as much as she could think of to fix the problem; but, she added, nothing would ever totally fix it all. She claimed the board is committed to helping the people and said even though she did not have all of the answers, she would address whatever needs to be addressed.

Addressing Ms. Grein’s position as executive officer of the contractors’ board, Chairman Townsend concluded by describing the bailiff of Storey County whose picture had appeared on the front page of the Reno Gazette-Journal:

Ms. Grein said she agreed completely and told Chairman Townsend she would be happy to provide information and work with him to accomplish those goals.

M. A. "Frank" Gross, Concerned Citizen, told the committee in addition to being a Reno homeowner, he had been a licensed contractor in Nevada for 36 years. He stated that after listening to the testimony already given, he was even more concerned than he was before he came to this meeting. The contractor who built his house, he explained, had a $5 million limit and a maximum bond of $50,000. He said an intrusive investigation is currently being conducted on the roofs of 32 homes built by this contractor, and if this proves to be a problem, he added, the contractor will be ancient history. He suggested, as an interim measure, raising a contractor’s bond to $1 million the first time a complaint is received against him. He claimed he, himself, carries several million dollars in liability and said he was somewhat offended by various homeowner associations who think they are protecting him. He said he protects himself by doing good work, and noted he had never been sued, or had even had a complaint in 36 years.

Mr. Gross stated the disclosure form furnished by the contractor who built his house, stated the lots would be 15,000 square feet or greater, but after he had moved in, he found they were actually 10,000 square feet. He said when he went to the real estate commission he was told to take it to a lawyer and would not even discuss it with him. He claimed when he moved into his home in June 1996, it was incomplete and only after a confrontation did the contractor finally agree to hold $3000 in escrow to fix the deficiencies. The contractor, he declared, promised to complete the work within 26 days; but by April of the following year, the work still was not done. When he checked with the title company, he continued, he was told the $3000 had been given back to the contractor in January. He said he then filed a complaint with the insurance division, but when he went back to the insurance division just last week, they could find no record of his complaint.

Mr. Gross told the committee his house has 13 observable code violations. He said the violations were major ones such as no combustion vents, no safety bollards in front of the gas appliances to prevent a car from hitting them, no polyethylene film under the house and no ventilation around the perimeters. The real problem though, he asserted, is that there is a new law requiring full disclosure when selling a house. This means, he continued, he has to disclose everything that is wrong with his house or pay triple damages if he fails to do so, and someone has to come in and fix it. And yet, he exclaimed, the contractor can leave the state at any time and the homeowner is left holding the bag.

Mr. Gross told the committee that when he voiced his complaints to Mike Mitchell, who is in charge of the compliance department of the City of Reno he was told that since the city had already issued a CO, they were no longer responsible. He said he explained that his house was in jeopardy of catching fire due to a fireplace with no fire dampers and the whole cavity filled with insulation. Nevertheless, he insisted, Mr. Mitchell told him the City of Reno was out of it and suggested he hire an attorney. He said he was also told by the city that they would not reinspect, even after repairs had been completed, and stated, "As a matter of fact, Mike Mitchell gave McKim [the builder] a waiver to having to obtain a building permit for repair work."

Mr. Gross, mentioning prevention, said he then went to Laura Tuttle, whom he explained is in charge of the community development planning department, and pointed out to her that the contractor was building nine more homes than what was shown on the plan. In addition, he continued, the contractor had not complied with conditions stipulated including one that stated no units would have a final master plan until a homeowner’s association was in place. He alleged the contractor wrote a letter to the city stating he had had extensive meetings with the homeowners for several years, which, Mr. Gross said, was untrue. He claimed the contractor’s permit was invalid because he had lied on the application. When this was brought to Ms. Tuttle’s attention, he stated, she agreed and told him she would send the contractor a letter telling him not to do it again. Regarding his original complaint, however, he said Ms. Tuttle suggested he file a lawsuit.

Mr. Gross told the committee that every code violation is intentional and explained that as a contractor, he is suppose to know every aspect of the discipline of his work. In addition, he continued, he is supposed to be able to supervise any of his subordinates or any subcontractor. Therefore, he said, if he allowed observable building violations to happen, it would have to be with intent, because he knows better. Because of this, he maintained, those violations should be a felony rather than a misdemeanor. He stressed that more inspectors are not what are needed. He explained a licensed contractor, whether the house is ever even inspected, is honor-bound and contractually-bound to the state contractors’ board to build a product according to city code and state laws.

Mr. Gross referred to a flyer advertising his home for sale (Exhibit C) and pointed out the right column listing all of the problems with the house, and which, by law he was required to disclose. He said even though they are repaired and signed off by the contractors’ board as being repaired, he maintained he had no way of verifying those repairs are up to code since the city will not reinspect.

Ms. Grein acknowledged a pending investigation, which was a result of a package the board received from Mr. Gross approximately 3 weeks prior. In answer to a question from Senator O’Connell regarding the board’s authority over the city in reinspecting Mr. Gross’s home, Ms. Grein stated the board did not have that authority.

Senator O’Connell pointed out a weakness in the system by requiring a homeowner, before he can sell his home, to list everything that has been repaired or needs to be repaired. After the repairs have been completed, the homeowner does not know, for sure, to what standard those repairs have been done and nobody seems to be accountable for this particular area. Ms. Grein asserted the repairs do have to be done according to code, upon which Senator O’Connell pointed out that the board does not inspect to see if it has met code.

Chairman Townsend suggested if the contractor fails to build something to code, there should be no due process. He stated it should be an immediate revocation since it is, in fact, illegal. He asked Ms. Grein if she had any suggestions in respect to dealing with that issue.

Senator O’Connell pointed out that Ms. Grein had no way of knowing whether it had been built to code or not because it does not fall under her jurisdiction. She said it falls under the jurisdiction of the city or county and in Mr. Gross’s case, the city refuses to reinspect.

Chairman Townsend requested that city officials be notified to testify before the committee to address these issues. He then read from the 1994 Uniform Building Code, volume 1; chapter, Administration; section 103, violation:

Chairman Townsend noted the law was perfectly clear and declared an inspector who is allowing that to happen should be held liable. He stressed code violation in the construction of any type of structure, that is a safety issue, is criminal.

Dave Anderson, Owner, AmeriSpec Home Inspection Service, told the committee he was a Nevada Licensed Master Home Inspector, which allows him to inspect any structure in the state. He stated he only wanted to testify to the part of the bill dealing with the 4-year statute of limitations, but added he would be happy to answer any questions. He claimed he found numerous problems in homes much later than 4 years after construction. He said the way California deals with this issue is to have the statute of limitations begin at the time the problem is discovered rather than 4 years after it is built. He maintained because there are a lot of problems that do not come to light until after 4 years, this is an extremely important issue.

Mr. Anderson said that while he looks for health and safety violations, he does not inspect for code compliance. The reason for this, he explained, is because each jurisdiction does not necessarily follow a uniform building code. He said, as an example, houses do not have adequate ventilation in the crawl spaces. He explained the building code says if you are going to have vents for your crawl space that open and close, you must put plastic down. The purpose, he continued, is to prevent ground moisture from coming into the house. He claimed that no jurisdiction in northern Nevada enforces that code and stated he had seen 3-year-old houses in which he could easily stick a screwdriver through the wall because of moisture problems.

Senator Shaffer stated that, by ordinance, the various entities could alter the uniform building code but could not make it less restrictive, only more restrictive. Mr. Anderson replied that, in his opinion, not requiring plastic under a house is much less restrictive and not more restrictive. He declared if what Senator Shaffer said was the case, every one of those entities is violating the law.

Chairman Townsend asked Mr. Anderson if he was usually hired by the seller of a home to find problems that needed to be disclosed to the potential buyer. Mr. Anderson answered that about 5 percent of his business was from the seller, but in most cases he was hired by the buyer. He said in his business, he is required to carry general liability and errors-and-omission insurance.

Ted Carter, Concerned Citizen, told the committee the laws are far too lax in respect to builders and said he concurred with Chairman Townsend that code violations are criminal affairs. He described several code violations in his own Sparks home, including his roof. He said a plumbing and heating inspection revealed 35 code violations, from using corrosive bolts to hold the toilet down, to inadequate attic access to his furnace, making it impossible to remove the furnace. He stated the facts being relayed to the committee were the result of expert inspections by highly qualified individuals. He told the committee he had no choice but to sue his contractor because the contractors’ board had proven ineffective. His complaint, he asserted, was that building inspectors are not held personally responsible for the results of their inspections. He insisted that if there had been competent inspectors working for the city, he would not have to be suing.

Mr. Carter stated the repairs on his house are currently approaching $60,000 and said chapter 40 of NRS is tilted in favor of the contractors. He claimed there was no penalty for the contractor and was only required to come in and fix what he messed up in the first place. If he does not fix it, he continued, his penalty should be three times the cost of the repair; the same as it would be for the homeowner, were he to sell the house without disclosing the need for those repairs. He noted his contractor did not even follow his own geo-tech’s recommendations. The contractor was supposed to notify Mr. Carter that his house was built on expansive soils, but did not. Instead of planting desert vegetation against his foundation to keep the clays there from getting wet and heaving as recommended, he testified, the contractor planted regular plants and put in an irrigation system. He told the committee a fine would be meaningless and that a contractor who does this kind of shoddy work should see what the inside of the Carson City prison looks like.

Senator Schneider asked if Mr. Carter had bought his house because it looked good on the outside. Mr. Carter said he bought the house from a set of plans but that he had checked out the builder very carefully. The builder was listed on the New York Stock Exchange, he declared, and had no building complaints against him in Nevada. He stated that what happened was the contractor got in over his head on the lot development costs and has been scurrying around ever since trying to shave money from one thing to cover another. He gave, as an example, the bathtubs in his house. He said the code requires the tub to meet American National Standards Institute (ANSI) standards and have a universal product code (UPC) stamp legibly on the tub after installation. He claimed that stamp was on neither of the tubs in his house, and stated there was no way his contractor did not know those tubs were not code. Further, he said, the tubs were installed incorrectly. The manufacturers installation instructions required a two-by-four to support the flange of the tub for the length of the tub, he continued, and across each end. He testified that his tubs had only the two-by-four down the length of the tub so that every time someone steps in the tub, it flexes and pops the caulking out, making it impossible to keep caulking in place.

Mr. Carter said it seemed to him that a city inspector has a fiduciary responsibility to the homeowner and insisted that responsibility is not being fulfilled.

Senator Schneider asked if it was Mr. Carter’s opinion that the building department is not doing their job and, therefore, the builders are becoming slack because they know they are not going to be inspected. Mr. Carter stated that was exactly what he was saying.

Donald L. Wagner, Concerned Citizen, read from prepared testimony dated March 11, 1999 (Exhibit D). He described a detailed chain of events from February 1991, to the present, in which he and his wife bought a Carson City home that turned out to have been constructed on non-compacted fill dirt. After an engineering study, he said, it was determined the perimeter foundation footings had settled 3/4 of an inch on the north side, 3/4 of an inch to 2 5/8 inches on the west side and 1/2 of an inch to 2 3/4 inches on the south side. He stated drywall cracks up to 5/16 of an inch developed around doors and windows causing them to go out of square and, therefore, not close properly. It was so bad, he continued, that an outer glass panel of a 48" x 96" dual glazed window shattered due to stress caused by warping of the aluminum frame.

Mr. Wagner told the committee the first heavy thundershower caused water to drain and pool at the front concrete step. He described how the non-compacted soil quickly collapsed causing the concrete step to sink two to three inches along with the front walkway. The pressure, he stressed, caused the polyvinyl chloride (PVC) water supply line to rupture. It was repaired, he explained, but has ruptured twice since because of continued soil settlement. Realizing he had very major construction-defect problems, he declared, he obtained soil tests and an inspection by a professional engineer at his own expense. He told the committee that many of the insurance adjusters and engineers who have inspected the residence question as to how this structure ever passed inspections by the building department.

Mr. Wagner said the insurance company hired a professional engineer to assess the damage to the foundation who in turn submitted a report containing a cost estimate for the repairs totaling over $40,000. When Mr. Wagner selected a local contractor who was competent and capable of completing the repairs, the contractor told him he would not take the job for $40,000 profit. Further, he asserted, the contractor told him that if it were his responsibility, he would demolish the residence and start over.

Mr. Wagner told the committee repairs to the foundation have already totaled $55,700 which the insurance company has paid, but additional repairs estimated at over $156,500 are still pending. He said he has personally incurred engineering and legal expenses in excess of $35,000. He maintained the residence was purchased as a retirement home to enable he and his wife to live their remaining years in comfort and security. Instead, he concluded, it has been eight years of living hell.

Jerry Newcomer, Concerned Citizen, told the committee that he was a neighbor of Mr. Gross. His Reno home was built by the same contractor and he experienced many of the same problems described by Mr. Gross. He said since the CO was issued for his home, he has had no safety bollards in front of his water heater, inadequate foundation vents and no combustion venting. He stated his pipes are not insulated, roof sheeting does not have the proper spacing, the attic ventilation is not proper, and added there was five inches of insulation on top of his fireplace. Because his house was vented straight to the attic, he noted, he had a $300 power bill and claimed it took the contractor a year and a half to correct that particular problem. He declared his foundation is cracked as well as his driveway, and the siding on his house is bulging. After reciting numerous additional discrepancies in the construction of his home, he claimed there were probably some he had failed to mention.

Mr. Newcomer claimed he was refused a set of plans by the contractor, and stated he had to fight with the city before they finally furnished plans for which he was charged $75. He said the plans showed gutters, extra vents in his attic, outlets in the garage and other items that he could not immediately recall. He told the committee his house had none of the items he had mentioned.

Chairman Townsend wanted to know how a contractor who does not build a house according to an agreed upon plan, stays in business. "If he violates the terms of the contract," he asked Ms. Grein, "shouldn’t [should not] he lose his license?" Ms. Grein stated that it was indeed, a chargeable violation.

Chairman Townsend said that according to Mr. Gross, this contractor was still building. Ms. Grein claimed investigations were currently pending on this particular contractor and said she intended to follow up directly after this committee meeting. She noted she had spoken with Mr. Newcomer and had volunteered to have a separate investigator to reinvestigate everything in regards to his property. To make sure it would be an independent review, she continued, she arranged for someone to fly to Reno from Las Vegas. However, she told the committee, Mr. Newcomer wanted to handle it locally.

Chairman Townsend asked Ms. Grein if she had the right to suspend the contractor’s license if this contract has been violated, and put a cease and desist on anything he is currently doing. Ms. Grein answered that she would have that right if the violations were proven.

Chairman Townsend voiced his desire to continue this discussion during the committee meeting of March 16. He asked Mr. Young to arrange for representatives from the cities of Las Vegas, Reno, Sparks, North Las Vegas and Henderson to be available to testify at that meeting.

A letter from Senate Majority Leader William J. Raggio, dated August 4, 1997, and addressed to Jan Needham, Senate Bill Drafter, Legislative Counsel Bureau (Exhibit E), which precipitated the drafting of S.B. 32, was distributed to committee members. No testimony was given regarding Exhibit E.

There being no further business, the meeting was adjourned at 10:20 a.m.

RESPECTFULLY SUBMITTED:

Ardyss Johns,

Committee Secretary

APPROVED BY:

Senator Randolph J. Townsend, Chairman

DATE: