MINUTES OF THE
SENATE Committee on Commerce and Labor
Seventy-First Session
April 12, 2001
The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:00 a.m., on Thursday, April 12, 2001, in Room 2135 of the Legislative Building, Carson City, Nevada. The meeting was videoconferenced to the Grant Sawyer Office Building, Room 4401, Las Vegas, 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 Dean A. Rhoads
Senator Mark Amodei
Senator Raymond C. Shaffer
Senator Michael A. (Mike) Schneider
Senator Maggie Carlton
STAFF MEMBERS PRESENT:
Scott Young, Committee Policy Analyst
Lydia Lee, Committee Secretary
GUEST LEGISLATORS PRESENT:
Senator Terry John Care, Clark County Senatorial District No. 7
OTHERS PRESENT:
Warren B. Hardy II, Lobbyist, Associated Builders and Contractors Incorporated
Scott Loughridge, Vice President, Associated Builders and Contractors of Southern Nevada
Ronald L. Lynn, Lobbyist, Nevada Organization of Building Officials
Irene E. Porter, Lobbyist, Nevada Home Builders Association, and Southern Nevada Home Builders Association
Dino DiCianno, Deputy Executive Director, Department of Taxation
John E. Jeffrey, Lobbyist, Southern Nevada Building and Construction Trades Council
Danny L. Thompson, Lobbyist, Nevada State American Federation of Labor- Congress of Industrial Organization
Mark H. Fiorentino, Lobbyist, American Consulting Engineers Council of Nevada
Robert C. Maddox, Lobbyist, Citizens For Justice
Margi A. Grein, Lobbyist, Executive Officer, State Contractors’ Board
Dennis Haney, Attorney, State Contractors’ Board
John M. Vergiels, Lobbyist, Nevada Subcontractors Association
L. Scott Walshaw, Commissioner, Division of Financial Institutions, Department of Business and Industry
Renny Ashleman, Lobbyist, Southern Nevada Home Builders Association
Crayton L. Jones, Sales Manager, Southern Nevada Division, Southwest Gas Corporation
Steve Hackney, Representative, Southern Nevada Home Builders Association
Terri Barber, Lobbyist, Southern Nevada Home Builders Association
Steve G. Holloway, Lobbyist, Associated General Contractors – Las Vegas
Richard Peel, Attorney
Christopher Kaempfer, Attorney,
Neil B. Davis, Lobbyist, National Pool and Spa Institute Southern Nevada Chapter
Fred L. Hillerby, Lobbyist, State Contractors’ Board
Robb G. Smith, Lobbyist, Roofing Contractors Association of Nevada
Fred Sclafani, Concerned Citizen
R. Scott Rasmussen, Lobbyist, Nevada Subcontractors Association
Nancy Estrada, Concerned Citizen
Scott K. Canepa, Lobbyist, Citizens For Justice
Mark E. Ferrario, Lobbyist, Southern Nevada Home Builders Association
Joe Carter, Concerned Citizen
Senator Townsend:
Senator Schneider introduced Senate Bill (S.B.) 380, which revises provisions relating to contractors. Let’s go ahead and get started. We are going to take this bill because it is a committee member’s bill. We want to deal concisely and precisely because we have a big work session, and we are going to fix people’s pools in their homes today.
SENATE BILL 380: Revises provisions relating to contractors. (BDR 32-944)
Warren B. Hardy II, Lobbyist, Associated Builders and Contractors Incorporated:
With me is Scott Loughridge, our incoming president. Mr. Chairman, this issue was brought to our attention by one of our members as we were discussing government regulations and the issues impacting the construction industry. We took it to our board of directors, who felt this bill is intended to address an issue requiring, in our minds, private industry to take on certain regulatory issues to guarantee certain payments should be a purview of the state boards [governmental entities]. In a nutshell, this bill removes the responsibility of a contractor to guarantee the payments of the business activity tax, and the employment payments owed by subcontractors. I have Mr. Loughridge here today, if the chair permits, to describe why that is a problem in real life, in the industry.
Scott Loughridge, Vice President, Associated Builders and Contractors:
Both our subcontractor members and our general contractor members support this bill, and there has been no opposition. The problem we have had in the past is making the general contractor responsible for the collection of these payments. It puts a burden on us, from the standpoint of paperwork, when we do various jobs with various sub-contractors. When the job becomes complete, we are required to request verification from the state employment division to verify whether the subcontractor has paid those taxes. If they have not, then we are liable for them. That creates a paperwork problem for us.
Senator Townsend:
You are leaving in the business license. Why is the business license different from the BAT (Business Activity Tax) or anything else? When you, as a contractor, go out to bid and get a subcontractor, the only thing I think is important is to make sure they are licensed under chapter 624 of Nevada Revised Statutes (NRS). Why did you leave the business tax in here?
Mr. Loughridge:
We can verify the business tax on a yearly basis, and we require it in all of our subcontracts. They give us verification they (the subcontractors) have a business license in the jurisdiction.
Senator Townsend:
We are just trying to be consistent here on what you should or should not do. What I am trying to say is if you are going to remove these other responsibilities, then why not remove the business license requirement? It is in essence the same thing you are removing.
Mr. Hardy:
Part of the issue is we are actually responsible for these payments if the subcontractor does not make them. The bill will require us to verify.
Senator Townsend:
Okay, it is the payment itself.
Mr. Loughridge:
Licensing verification is 1 year. These types of payments are ongoing and based on employee counts, the payments become much more cumbersome. The other issue is, since these payments are made on a quarterly basis, we may be withholding subcontractors’ retentions for up to 3 months, 4 months, or 5 months, depending on when the job is completed, when we get verification from the state that the payments have been made for the time period for which we requested verification. It becomes very burdensome from the standpoint of the subcontractors because we are potentially holding up a great deal of their money to verify something already paid.
Senator Townsend:
Are there any questions for these gentlemen? It seems to be straightforward.
Mr. Hardy:
Mr. Chairman, in the interest of full disclosure I should indicate section 2 of the bill requires, upon renewal of a contractor’s license, the contractors’ board must obtain evidence the business license is intact and has been paid. I have spoken with Margi A. Grein, Lobbyist, Nevada State Contractors’ Board, and they are not comfortable with the additional requirement. Certainly we do not have an issue about who has the responsibility, we just do not think it should be the contractor.
Senator Townsend:
We appreciate that, Mr. Hardy. My question is what the penalty is for not having a business license even though you are a licensed contractor or subcontractor, you have paid everything for your employees, by all the rules, but you do not have a business license.
Mr. Loughridge:
To be honest with you, I do not know.
Senator Townsend:
Can anyone answer the question?
Ronald L. Lynn, Lobbyist, Nevada Organization of Building Officials:
You could not get a building permit because your business license is checked at the counter by the computer.
Senator Townsend:
So why should the contractors’ board have to deal with this?
Mr. Hardy:
Mr. Chairman, that was not our language. Apparently the Legislative Counsel Bureau (LCB) felt somebody should do it.
Senator Townsend:
Well, the contractors’ board can do it when they pull the permit. How is that? I do not think you are going to get by the Nevada Organization of Building Officials. Is that okay with you, Mr. Hardy?
Mr. Hardy:
That would be fine with us.
Senator Townsend:
We are blessed in this state with all the wonderful growth. People are employed and doing things, and we do not want to slow that down from a state perspective. We do not want to harm the public in any way, but we are going to be asking the contractors’ board to be doing a lot of things. I do not think they need this.
Irene E. Porter, Lobbyist, Nevada Home Builders Association, and Southern Nevada Home Builders Association:
Our association supports this legislation, and we would agree with you, Mr. Townsend. No one needs to be checking on this. It can be checked at the time of the building permit. For too many years, our builders, general contractors, and developers have had the liability for their subcontractors’ business tax, employment security, and worker’s compensation. If a company would go under, then the builder would have to pay the bill for all these things, and these companies may have already been paid. Our subcontractors are different today; they are independent, solid businesses, men and women. I think they are probably a little offended by having someone else responsible for having to pay their bills for them. They are responsible on their own, they are fine people, and there is no more reason for this to be in the statute.
Dino DiCianno, Deputy Executive Director, Department of Taxation:
The department has no position with respect to this bill. The only thing I am going to refer to relates to NRS 364.340. I have asked the secretary to distribute to you the attorney general’s opinion (Exhibit C). The reason the statute was crafted was to protect the prime contractor from the subcontractor. If the prime contractor hires a subcontractor, that subcontractor and his employees become an employees of the prime contractor. Therefore, they would be subject to the business tax. The confidentiality statutes with the attorney general’s opinion (Exhibit C) refer to the fact we cannot release the information with respect to the business license tax to the contractor if we get a call. It would have to be the subcontractor requesting the information from us to relay to the prime contractor as to whether or not they are licensed with the department and are current with their taxes. There is not a day goes by we do not get a call about a contractor or subcontractor with questions regarding whether they are current or licensed with us. Because of the strict confidentiality statute within this, we are bound not to release this information. Otherwise, we would be civilly liable if we were to do that, and we are not going to go there.
I direct your attention to page 4, question 2, (Exhibit C). Because of all the phone calls the department receives, we asked the attorney general’s office whether basic information without specific financial data is sufficient proof to fulfill the requirements of NRS 364A.340. In their analysis and conclusion, they said, if I may read for the record:
If the department is authorized by a subcontractor to release basic information to a contractor setting forth only information that proves the subcontractor paid the last quarterly payment, required pursuant to this chapter, which is the business tax, such information would be sufficient to satisfy the requirements.
That is all we are asking. If this body sees fit to change this policy, so be it. The department will administer it accordingly. Thank you, and if you have any questions, I will be more than happy to respond.
Senator Townsend:
What is being asked here today is the contractor no longer becomes responsible for another business regarding these issues. In other words, the contractors are currently financially responsible for those. If we remove that security, the subcontractors would be responsible for their own business taxes, and there would be no backstop.
Mr. DiCianno:
Correct, Mr. Chairman, because if, in fact, a contractor were selected for an audit, and it was found the subcontractor was not registered or paying the tax, the contractor could potentially be liable for the tax.
John E. Jeffrey, Lobbyist, Southern Nevada Building and Construction Trades Council:
My understanding was the sponsors of this bill were going to remove the provisions doing away with the liability for wage payments and fringe benefit payments, which was the part of the bill we had major problems with. May I ask if the proponents did that?
Mr. Hardy:
Mr. Jeffery is correct. Our intent was not to impact the trust fund or any of those matters. Our intent was specifically regarding the business activity tax and the employment. I did not read that in the bill, unless it was somehow included in chapter 612 of NRS.
Mr. Jeffrey:
As I recall, it did mention wages and benefits, and of course the fringe benefits payments are a part of wages and a major concern. It gets into the hundreds of thousands of dollars. It is typical in the construction industry, when a subcontractor does not pay, the trust funds go to the general contractor, and the general contractor writes a dual check or withholds the funds to make sure they are paid. That would need to be kept as it is.
I do have a concern with the bill in general, but I do not know enough about how the employment security department works. I believe if wages are not reported, it may have an effect on the amount of unemployment compensation paid. There is a complicated formula, which deals with a base period. On the worker’s compensation side, we have dealt with this issue two or three times in the past. In fact, we made changes several years ago on the workers compensation part of it, so the general contractor could, at least, be issued a certificate the payments had occurred. If it does not have any effect on the workers, then we do not have a real problem.
The philosophy behind this piece of legislation, as far as I have been able to determine, is the only group having any control over the subcontractor is the general contractor, or in some cases, the owner. I do not know what this may do to “exclusive remedy” on the worker’s compensation side. I assume as long as wages and benefits are paid then there would still be an employee/employer relationship between the subcontractors, workers, and the general contractor. However, that is something you might want to check into, because it does not bother me if “exclusive remedy” goes away from the general contractor, but it may bother them.
The other concern I have, and I think you have a bill in the committee dealing with it, is the uninsured part of the workers’ compensation. At the present time, if a worker is sent to another state, say a construction company in Laughlin is sent to work in the adjoining state, and the contractor is not covered, the uninsured one does not pick that up. It is a glitch in the law we have some concerns over because it is unique to the construction company. I do not think you have other employers sending people out of state.
Danny L. Thompson, Lobbyist, Nevada State American Federation of Labor-Congress of Industrial Organizations (AFL-CIO):
I share the same concerns Mr. Jeffrey has, and I think he is talking about the repealer in the back of the bill.
Senator Townsend:
As you know, I think
the four of us, plus the two of you, have spent four lifetimes on
worker-compensation issues. The goal
here is, over the next 3 days,
to have a line of communication between the sponsors of the bill, then we can
bring back an outline. This is what we
have agreed to in terms of what we are trying to accomplish. This is our sticking point. The committee will have to make a decision,
and move it forward. There certainly is
no intent for
us, by the committee’s actions, to in any way remove the issues regarding
workers’ compensation or the trust fund.
We do not want people not covered in the state of Nevada.
Senator Schneider:
When I worked with Mr. Hardy, we were doing just one thing and bill drafting took something out here, which is not the intention. We will work with Scott (Scott Young, Committee Policy Analyst) on bill drafting and make sure we have you covered.
Senator Townsend:
We will close the hearing on S.B. 380. We will take up S.B. 218 for which we now have an amendment.
SENATE BILL 218: Makes changes concerning certain professions. (BDR 54-76)
Mark H. Fiorentino, Lobbyist, American Engineers Council of Nevada (ACEC):
This is your second hearing on this, and it was fairly well debated the first time around. This bill creates ethical requirements for design professionals and creates a screening panel for design professionals very similar to the one existing for medical professionals. It does not apply to construction defect cases. We think it presents a fair and efficient manner for screening cases against design professionals. The amendments you have before you (Exhibit D), as you may recall, the Nevada State Board of Professional Engineers and Land Surveyors expressed some concerns about some of the language in the bill. We have met and talked with them, and these amendments are proposed to address their concerns. We did share these with them, and with these changes they are okay with the bill. If you like, we can walk through the amendments line by line.
Senator Townsend:
This is a work session. How many people are here to testify on this bill?
Mr. Fiorentino:
The changes starting at the end of page 1 and continuing on page 2 (Exhibit D), reflect the board’s concern about creating a specific curriculum for ethical requirements, because not all states have those types of curriculums. They were worried about how it would apply to folks coming from other states to use reciprocity here. They asked us to require a specific curriculum instead of requiring the applicant to demonstrate they have knowledge of ethical responsibility. This is satisfactory to the board. These changes are reflected on both pages 2 and 3.
The other changes are on page 4, between line 27 and line 38. As you might recall, that was a specific request of the board to change the word “member“ to “licensee,” which we did on page 4, and again on page 7, line 20. The final changes are on page 9, lines 36 to 47. The board’s concern was they would be put in a difficult position if you required them to send the contractors’ board copies on whatever findings were made. So, we deleted that requirement. It was not imperative to the purpose of the bill.
Senator O’Connell:
One of the biggest concerns expressed by the opposition to the bill was it would add time to a decision or resolution to whatever the issue was. Would you state for the record whether, in your opinion and the opinion of the client you are representing, it does add time to resolving an issue?
Mr. Fiorentino:
Our position, I think, is different than the opposition’s position on this bill. Potentially it could add time, but if it works right, it will do exactly the opposite and reduce cases, reduce the workload of the court, and reduce time. If the worst-case scenario happens under this bill, and you go all the way through the screening panel process, then you still have to go through district court; then you potentially could have added some time.
Senator Townsend:
I do not know if anyone is here from the litigation side, but I believe they had articulated some concerns about the timing. Have they seen these changes?
Mr. Fiorentino:
They have not seen these changes, although I have discussed the bill with them.
Senator Townsend:
I believe Mr. Maddox is in Las Vegas. Would you like to reiterate for the committee the particular objection that has been questioned by Senator O’Connell, with regard to time in resolving these issues?
Robert Maddox, Lobbyist, Citizens for Justice:
Unfortunately, we do not have a copy of either the bill or the proposed amendments. Our position on the original bill, as Bill Bradley (Bill Bradley, Lobbyist, Nevada Trial Lawyers Association) testified, was the screening panel process, if comparable to a medical malpractice-screening panel, would add 1 to 2 years to the overall process. I am sorry I cannot be too much more particular, since I do not have the bill in front of me. That was Mr. Bradley’s testimony, and it is our position this bill should be defeated because it would simply cause delays and not help to resolve plans.
Senator Townsend:
Mr. Young, (Scott Young, Committee Policy Analyst) when we post these work sessions, are they posted in Las Vegas also? Do we provide a bill for them or not?
Scott Young, Committee Policy Analyst:
I think we generally try to send the bills, but we get into difficulty because of the short time turn a rounds. We cannot always get the information there. This amendment just came this morning, but it is being faxed down.
Senator Townsend:
Mr. Maddox, none of us saw this either until we sat down, but we are faxing it to you. We are not going to process this bill right now because we are going to go to the design issues and the code. Do you need a copy of the bill too?
Mr. Maddox:
Yes, is this S.B. 218?
Senator Townsend:
Yes.
Mr. Maddox:
We have A.B. 218.
Mr. Fiorentino:
Mr. Chairman, the way we have presented the amendments you would not necessarily need a copy of the bill.
Senator Townsend:
He has proposed
amendments to the bill, so when you get the copy it will actually be the bill
as amended. Then we will bring that up,
once you get a
copy, because there are some specific things I need to ask about it once we get
back to this issue.
Let us move to S.B. 216, which is Senator Care and Senator O’Donnell’s bill.
SENATE BILL 216: Makes changes concerning repair, restoration, improvement or construction of residential swimming pools and spas. (BDR 52-1037)
Senator Terry John Care, Clark County Senatorial District No. 7:
We are not blessed with harmony this morning, Mr. Chairman. I have looked at several proposed amendments which have come from various interested parties. At times I thought we have had it worked out, and at times it is obvious it has not been worked out. I do not want to waste the committee’s time by having five or six people up here bickering in front of you and making a public display. I am going to ask the committee to pass the bill out as drafted, and I hope before the whole Senate acts on it, we can come up with an acceptable amendment, which I would submit to all of the members of the committee.
Senator Townsend:
Committee, what is your pleasure? Mr. Hardy, this is the part of the work session where we work together; this is the part where we have a cooperative spirit. You can count the votes, and you are seated next to the sponsor.
Mr. Hardy:
I was explaining to my daughter’s second grade class what a lobbyist does, and they asked me how much education you need. I told them the most important part of my education ended when I knew how to count and knew what a majority was.
Senator Care:
I do want to add, Mr. Hardy has a lot of merit to his amendments, but there are still a couple of points which have become apparent to me outside this morning that we were just not getting there. It is not just Mr. Hardy; please do not have that impression.
Mr. Hardy:
We have had some futile discussions, and I certainly appreciate Senator Care’s willingness to listen to us. Essentially, from my conversations with those involved from the industry, with the exception of one member of the industry, we are in agreement on the amendments I passed out today (Exhibit E). The conflict we have with the contractors’ board is regarding the posting of a performance bond on every job. My concern is this absolutely damages the small contractor, who is, according to the records, doing a wonderful job. They are dependent upon word of mouth because they do not advertise, and if they do not do a good job, then they are out of business. They simply cannot post a performance bond on a number of jobs. We have proposed an alternative, a recovery account which would raise $500,000 in the first year and $250,000 for additional people of the contractors’ board to be able to police the industry. We think that is reasonable, and I look forward to working with this issue. I wanted the committee to be clear where the conflict is currently, and it is with the contractors’ board, which does not want the recovery fund because there is a feeling it is additional work for them.
Margi A. Grein, Lobbyist, Executive Officer, Nevada State Contractors’ Board:
Mr. Hardy is correct. We do not concur with the concept of an additional recovery fund for pool contractors. The facts are really clear; it is our job to protect the people from fraudulent contractors. In the past 5 years, I can give you names of over 2000 people who have been harmed by pool contractors. I just ran some figures yesterday, and it is alarming. These are people where the contractor’s license is no longer valid, and they were part of the complaint that came before us. They need something up front; government cannot protect people from everything. If you put in a payment performance bond, as we have discussed before, it will guarantee the money is there for the project to be completed or another contractor will complete it, and is the only assurance I feel we can give people on that end. We support whatever Senator Care wants to do with the bill; he has been great to work with. I have tried to deal with the subject since 1997, and I have had it “up to here” talking about it. I want the people to get what they pay for.
Senator Carlton:
Ms. Grein, would it be possible to work out some type of agreement in which they would not have to post the performance bond if there had been no previous complaints, then if you received a complaint, you could impose the performance bond on that particular company? This would allow our small companies, not having problems and with clean records, to not have the same penalties as the “bad guys.”
Ms. Grein:
That would help, but I think there should be a provision for the first 5 years of business or some time frame. When they first get licensed, it usually takes about 2 years before we know who the bad ones are.
Senator Carlton:
But all it takes is one. If they came and messed up my pool, believe me I would be calling you. It seems to be kind of hard on the small guy who is trying to start if he wants to do the right thing. You could address the complaint and then impose a performance bond from that day on.
Ms. Grein:
That would be an acceptable solution.
Senator Carlton:
Senator Care and I did discuss the work card issue earlier, and I would like to know if that issue is still contained within this legislation. Does it apply only to the employer or does it also apply to the employee?
Senator Care:
It still is intended by all of the parties to be contained in the final project. The answer to your question is yes, but I do not think we have final language yet.
Mr. Hardy:
In our proposal, it is for anybody who has a managerial responsibility or a hands-on responsibility in the company. It would not include the people who are digging the holes, but it would include anybody who has a supervisory or management position within the company.
Senator Carlton:
I could support that. Thank you.
Senator Townsend:
Committee, if you could go to your binder, listed under chapter 216 of NRS, it is a working amendment, which came as a result of how do we deal with these issues. I want to remind the public, and I am here in support of my colleague, Senator Shaffer, who passed a similar bill out of this committee several years ago, that the bill was passed in the other house and it was vetoed.
This committee feels it had done the right thing for the public at that time when there was a serious issue; the veto was out of our hands. That should have sent a message to those who did not want to play by the rules and treat our consumers fairly. As a result, conditions worsened, and now Senator Care and Senator O’Donnell are back with another bill. This is the kind of frustration this committee faces on a regular basis; there has been a bipartisan effort in this committee relative to every industry. We want to encourage the marketplace, we want to be the least restrictive we can be, and yet we want to have a failsafe mechanism in a market having troubles for our consumers. Long before I chaired this committee, that was the policy, and I do not think it has changed. This industry has had an opportunity to clean its act up based on the veto of that bill over the last 4 years, and it did not, for whatever reasons. There are “bad apples” in every industry, and I represent an industry with an equal number of bad apples. I respect what has been done here today by those people who are proponents trying to help our consumers. I want to go over the proposed amendments and find, Senator Care, whether they meet with your approval. I believe you and I have discussed how it would overcome some of the objections. Do you still have that with you?
Senator Care:
I do, Mr. Chairman, and an updated version, as a matter of fact.
Senator Townsend:
I believe the only thing in question is a non-cash bond. Let us briefly go over those recommended. In order to overcome some of the issues the financial institutions had with reading all of these contracts, payment or performance bonds issued no later than the time at which the first building permit is pulled must secure these residential pool or spa contracts. A bond must be 100 percent of the cost of the project and must be issued by a triple A-rated bonding company licensed to engage in business in Nevada. The contractor may not have any relationship, direct or indirect, to the bonding company or any of its principals or employees. In order to secure a contractor’s license to build residential pools or spas, or upon a renewal of an existing license, each contractor must post a $100,000 cash bond with a FDIC (Federal Deposit Insurance Corporation) insured financial institution located in Nevada for each license. Such funds must be placed in a block, to count, and cannot be accessed without the signature of a representative of the contractors’ board. The debate was whether we should have that and number 1, or if just number 1 covers your concerns.
Number 3, after the effective date of the act, any contractor who seeks a license for residential pools or spas, or any licensee seeking to renew such a license, must undergo a thorough background check, which includes, but is not limited to, fingerprinting and drug testing. Language similar to chapter 648 of the NRS, section 3 and section 4, regarding private investigators, shall be adopted and modified to meet the specific conditions of the residential pool and spa construction industry.
Number 4 states no person may be employed by a residential pool or spa contractor unless the person holds a work card issued by the sheriff of the county in which their work is to be performed. This section is to be effective 60 days after the act.
Number 5 requires the commissioner of the Division of Financial Institutions, Department of Business and Industry, shall, in consultation with the State Contractors’ Board, adopt by regulation and print a standard form contract for the construction and financing of residential pools and spas. This contract must be used for all residential pools and spas. Any contract for residential pools and spas that does not utilize the approved form, or modifies the language of the form, is void and unenforceable.
Number 6 says the State Contractors’ Board shall adopt regulations regulating advertising by residential pools and spas contractors. The regulations must be no less stringent than the standards in 598 (chapter 598 of the NRS), and those applied to motor vehicle dealers. It is listed under chapter 482 of NRS, known as “bait and switch.”
Number 7 says each residential pool or spa project must utilize a construction control as provided in chapter 627 of NRS, the construction control law. The contractor may not have any relationship, direct or indirect, to the construction control or any of its principals or employees.
Number 8 requires any contractor who performs any work on a residential pool or spa must pull all permits for the project, even if the contractor is working under the authority and direction of an owner/builder. Any subcontractor who performs any work on a residential pool or spa, under the direction of an owner/builder, must seek all the requirements of a licensed contractor as set out in the act of chapter 624 of NRS.
Number 9 says any contractor who violates the provisions is guilty of a category D felony.
Senator Care, if number 1 and number 2 are redundant, perhaps number 2 could be omitted.
Senator Care:
I am going to defer to Mr. Haney, if I could. I think what we are talking about is a payment performance bond, which was proposed by me on March 23. This is where the objections come in. I think the industry is willing to have a surety bond but not a 100 percent performance bond for every single job. I believe Mr. Hardy and Mr. Haney have had discussions on this point.
Senator Townsend:
What are you most comfortable with?
Senator Care:
Frankly, I lean more toward the surety bond and the recovery fund. I am convinced, even though others may not be, there are some builders out there who are mid-tier and who are legitimate. I do not want to make it financially impossible for them to continue to operate. I am not certain the 100 percent of the cost of each job payment performance bond would not do that.
Senator Townsend:
Then, is it your recommendation we not use number 2 in its language; we use surety bond, and eliminate number 2, then provide the language dealing with a recovery fund at a $100 per permit?
Senator Care:
Instead of number 1
and number 2 from the document you are reading from, there is another document
with proposed amendments dated April 5.
They
have not come from me, but I have discussed them with Mr. Hardy, substituting number 1 and number 2 of the second proposal.
Senator Townsend:
Which document?
Senator Care:
I am looking at the one dated March 23, number 1 and number 2. I am suggesting we take number 1 and number 2 from the document dated April 5 and substitute those for number 1 and number 2 for the March 23 document.
Senator Townsend:
Committee, do you understand the recommendation? It is to eliminate number 1 and number 2 from the proposed conceptual amendments dated March 23 and substitute number 1 and number 2 from the April 5 document, and they would say “each contractor licensed to engage in construction of pools or spas shall post a surety bond in an amount to be determined that is substantial enough to guarantee a comprehensive investigation by the bonding company and the financial health of the contractor.” Number 2 reads a pool or spa construction recovery fund is created, $150 is entered into the fund to utilize the pool signature designated to hire contractors.
Ms. Grein, this does affect you? Do you care to comment on those?
Ms. Grein:
I would like to defer to Mr. Haney.
Dennis Haney, Attorney, Representing Nevada State Contractor’s Board:
Number 1 does not address the consumer protection with respect to the payment performance bonds. Senator Carlton’s comment should be incorporated if you make this change. Once there is a complaint filed, the board should have a right to direct the contractor to have payment performance bonds for any period of time until things are satisfied they are not required.
Senator Townsend:
Let me ask on that point, if you use surety bonds only, is it the customer filing a complaint that triggers your ability to require a performance bond, what is the current complaint for a customer and how are they protected?
Mr. Haney:
They are not getting anything. The first complaint is simply out, and that is the problem. The recovery fund may be enough to cover them if the people complain soon enough and early enough, but sometimes, by the time they get complaints, there are 30 or 40 complaints out there and we are in the hole $8 million.
Senator O’Connell:
Senator Care, in the initial contract the consumer has with the contractor, is there any kind of a disclaimer talking about the contractors’ board or giving a number, or anything that lets the consumer know if there is a problem they do have due process?
Senator Care:
I do not think so. You have the one statute, in chapter 579 of NRS, which mandates certain disclosures, but I do not recall offhand whether that is contained in there.
Mr. Haney:
I can help, Senator O’Connell. There is nothing in the contract which requires that. Currently there is a requirement the consumer waives a payment performance bond, but it is done in such sporadic measures, or they are hustled to initial the waiver that it is not clear and convincing. I have spoken to Mr. Hardy and asked him to come up with some language to make it very clear what happens if they choose to waive a payment performance. The current law has an option for an owner to request one, but what has happened is they are told it will cost another 10 percent.
Senator O’Connell:
This reminds me of what we have tried to do in real estate, where we tried to educate the consumer with the disclosure when something is wrong with the house. It seems we should be able to do something with the initial contract, maybe inserting a clause telling them they do have the opportunity to do something if there should be a problem.
Mr. Haney:
There is a broad regulation, adopted by the contractors’ board, requiring contractors to disclose to the buyer how they can make contact with the contractors’ board with respect to their rights.
Senator O’Connell:
This obviously did not happen in the cases brought to Senator Care.
Ms. Grein:
In most cases, they have received that disclaimer or information required as an attachment.
Senator O’Connell:
Can we require that and have a violation with a penalty if it is not done for the consumer? I do not know how many consumers know there is a contractors’ board they can go to without first getting into weeks or months of disclosure. You would not just be born with that knowledge. I do not think most people who have people knocking on their doors asking them if they want a pool, have any idea there is a contractors’ board they have recourse to.
Ms. Grein:
I have tried to figure out, myself, why they would sign contracts or not read information, as much as we try to educate them. I think the average homeowner feels it is hot and they want a pool for their kids. The salesman comes along with a great sales pitch and they sign on the dotted line. That is why whatever we do by contract is only as good as the paper it is printed on. It has not helped the people. We do have laws saying it is void and unenforceable, and we have penalties. By the time we get it again, the damage is done and the least of the problems is whether they give the notice to the owner, and in most of the cases they have. These people know how to work around the laws, and work their contracts so they still have an advantage over the disadvantaged. Sometimes the people are Hispanic, and the language is not written in their natural language, so they are relying on the salesman to tell them everything is okay. I am not saying it is all pool contractors, but the ones we see have absolutely no ethics.
Mr. Haney:
And not all are like that. There is one sitting behind me who is probably one of the best in the state. But that does not mean all of them are; unfortunately there are some bad ones.
Senator Townsend:
I can tell you, if it is the will of the committee, I will go to the end of the earth to fix this, and if some people get upset, then I am sorry. My industry is also regulated to the hilt, and I have no problem with that because there is a bunch of bad guys in my industry. I live by the rules and that is the way it goes. These guys have abused their opportunity, and have cost consumers in the state of Nevada a broken dream and hundreds of thousands of dollars. So whatever you are ready to do, I will keep pouring fuel into the helicopter until we get it off the ground.
Senator Care:
Mr. Chairman, thank you very much, and your words are much appreciated. The idea raised by Senator Carlton is acceptable to me. Make it a good faith complaint, and give the board the discretion to require the performance bond in whatever amount the board deems necessary. The one proposed amendment said 100 percent, but give them the discretion to zero in on the company, look at the complaint, and determine whether the performance bond is necessary from that point forward. I would like to see that kind of language.
Senator Townsend:
Is that all right with you, Mr. Haney?
Mr. Haney:
That particular requirement is acceptable.
Senator Townsend:
Are you satisfied, Senator Care, if we provide that opportunity to them? I can tell you I have complete confidence that whatever we hand them they will do. There has not been any misunderstanding by the board or the staff. The question then becomes the issue of the recovery fund, which creates problems for them to administer it.
Senator Care:
If they have the option, then we do not need the recovery fund.
Senator Townsend:
So the goal would be, upon a good faith complaint filing, to trigger the opportunity for the board to set a performance bond requirement, whether it is at 100 percent or 80 percent, for that person’s next year of building pools. You are going to do it by permit; you are going to do it by license, right? Is that correct?
Mr. Haney:
That is correct, but I do not want to limit it until such time as we see saw fit to remove the requirements. There are some provisions in the law already allowing something like that, but we have to get it to full hearing. The normal process is, someone files a complaint, good, bad, or indifferent, and the board then assigns it to an investigator. The investigator determines whether the complaint is valid. Once they determine it is a valid complaint that would trigger the process.
Senator Townsend:
I believe that is what Senator Care’s intent was, and he calls it good faith. We talk about a valid complaint upon investigation. If that is the case, then would there be another problem if we take out number 1 and number 2 of the proposed conceptual amendments of March 23 and replace it with the language we just discussed? Do you have any problem with any of the others?
Senator Care:
Just minor, and I do not know if “problem” is the correct word. Mr. Chairman, a surety bond of $100,000 would remain the same. I think everyone agrees upon the remaining provisions, but I could be wrong.
Senator Townsend:
We are talking about leaving the surety bond in place from Mr. Hardy’s proposal from April 5, which removes the first one here. You remove the second and you provide the ability for the contractors’ board, upon a valid complaint, to establish a performance bond at its discretion. Is there anything else from March 23?
Senator Care:
No.
Senator Amodei:
Senator Care, with respect to the $100,000 surety bond, and maybe Mr. Haney or Ms. Grein, you can help on this, is there a bond posted for those folks? How is this $100,000 an additional thing? If so, how will this impact the folks operating on the scale they do in our balmy climates?
Mr. Haney:
There have been a couple of pool issues up here, too. The type of bond is intended to be a consumer protection bond. Perhaps the first person, much as Senator O’Connell was asking about, coming in would have some ability to get reimbursement.
Senator Amodei:
Is there currently a requirement?
Mr. Haney:
There is a current requirement for a license bond, but those license bonds are higher for pool builders than they are for other contractors in the industry and are there to protect mechanic lien claimants and suppliers.
Senator Amodei:
I understand, but what additional cost is there to comply with this versus the general licensing bond? What are we talking about doing?
Dennis Haney:
Typically it is 2 percent or 3 percent, and some really good contractors should be under 2 percent of the price of the bond. It is an annual fee the contractors end up paying, so it is a cost.
Senator Care:
As drafted in the bill, section 1, subsection 1, lines 3 through 9, discusses the financial institution reviewing the contract. What we would like to do is delete that language, and instead have the contractors’ board approve universal language in a contract.
Senator Townsend:
That is in the proposal from the March 23, which says “The commissioner of financial institutions shall, in consultation with the state contractors’ board, adopt by regulation, and print a standard form contract, for the construction and financing.” I think, in the contract, above the line where you sign, there should be a disclaimer and a statement of what is required by state law, and in big red print state, if there are questions, the buyer should call the state contractors’ board.
Senator Care:
That is fine, Mr. Chairman.
Senator O’Connell:
Wherever it is located in the contract, can we have it initialed to make sure the person has read it?
Senator Care:
I have seen contracts like that, where there is a square at the bottom and a line for the initials. That is fine with me.
Senator Townsend:
We have that in our industry where there is a finance or lease contract. You have to initial so many things it takes you forever. We tell people to take them home, to an accountant, or a lawyer. We do not want anyone misunderstanding these relationships because we need these people to understand everything.
Senator O’Connell:
Can we just include that in the contract?
Senator Townsend:
Yes.
John M. Vergiels, Lobbyist, Nevada Subcontractors Association:
I am a little confused about the language. There are two separate contracts, right? There is a contract, which provides the financing, and a separate pool contract. You are talking about spaces on both of them at the bottom where the consumers sign, they have read the contract.
Senator Townsend:
There are two
separate contracts. There is the one
where you would write a check to the person to build a pool, and the other
contract by the pool builder,
where some separate entity would finance the deal. Those are two separate contracts.
Mr. Vergiels:
I just wanted to be sure that was what you were talking about. Also, I am not clear on the complaint procedure. For example, my client builds 700 pools a year and will undoubtedly have complaints. Someone who builds fewer pools may have fewer complaints. What I am concerned about is the discretion; the contractor’s board has to levy equal or unequal fines to companies. A complaint is not really enough, and should be proven valid.
Senator Townsend:
It has to be a valid complaint after an investigation; then it is taken to the board, and the board rules on the complaint.
Mr. Vergiels:
Does that open them up for lawsuits of unequal enforcement of the law, because there will be different circumstances and different situations? Do you have the immunity to go forward? Then you can get rid of your legal counsel.
Ms. Grein:
I am not certain what you are referring to. The fine issue of fines was not discussed, that I know of. We do not fine people without a board hearing.
Mr. Vergiels:
Now, I am even more confused.
Senator Townsend:
There were not fines involved; it was establishing a performance bond. We leave that discretion to whether the board wants it to be 100 percent or 80 percent. The flexibility would accommodate your client if he builds 700 pools and gets 1 complaint, then the board decides to trigger a performance bond. My guess would be the performance bond might not exist, or it may be fairly small. Someone who builds 50 pools a year and has 15 complaints is likely to have a 100 percent performance bond.
Mr. Vergiels:
It sounds as if the contractors’ board has the discretion of the bond, also. So you are using the language of $100,000, right?
Senator Care:
What we just discussed was the performance bond. The one proposed amendment just said 100 percent. What I am saying is give the board the discretion to determine 1 percent up to 100 percent.
L. Scott Walshaw, Commissioner, Division of Financial Institutions, Department of Business and Industry:
I just wanted to make sure I had it clear in my mind what our responsibilities will be in this bill. Having had previous experience in doing something similar, with the vehicle contract, I can tell you that turned into being a much more daunting task than originally conceived. From that experience I would like to know what we are going to be doing. Also, it would be my suggestion to have this regulation jointly adopted by both the contractors’ board and my office. I am not sure what chapter you are looking at putting this in. In the vehicle contract it went into chapter 97 of NRS.
Senator Townsend:
We have not gotten to the bill drafting side of that. Usually the lawyers in LCB (Legislative Counsel Bureau) start to work the details of where it is located. The committee has discussed a very simple situation. There are two contracts involved; one, there is a regular retail sale that is not financed, and then there is a financed one. Your office, in consultation with the contractors’ board, would come up with two forms. Those would be the only two forms you could use to sell a pool. The drafting of those forms would be based on your hearings, and they would give input. If the contracts were altered, then they would be void. Senator O’Connell’s concern is all the portions where people might be waiving their rights has to be initialed in the boxes, and then right above the part where they sign, there needs to be the disclaimer saying, ”If there is any part of this contract you do not understand before you sign, please call 1-800-contractors’ board.”
Mr.Walshaw:
In one of the cases cited, our office was at least indirectly involved, more in the financing aspects of it than the actual performance or the construction part of it. My concern about this is whether there is any intent in this bill to address the potential conflict of interest of having contractors provide their own financing. Has that been looked into?
Senator Care:
Absolutely, the bill clearly states the contractor cannot finance the pool, but neither can an associated or affiliated company.
Senator Townsend:
Mr. Walshaw, so
there is no misunderstanding on the record, when you referred to the retail
sales contract, relative to the auto industry, the only problem we truly had
was we printed it up the first time and changed the computers, and
then we had a glitch that was not of anybody’s making. When we had to reprint it, we had to redo
everyone’s computer. That was the only
problem.
Mr. Walshaw:
What happened in the process is we discovered you could not do just one form. We ended up with six different versions of one form.
Senator Townsend:
That was because there were six different companies selling the forms and the computers to our industry. We appreciate your work on it.
Mr. Walshaw:
It actually involved more of the types of simple interest, whatever was in the contract. I think the glitches have been worked out.
Senator Townsend:
I wanted to clear that up; it was not your office creating the problem. You made a really good faith effort; we just had some technical issues.
Senator Care, I think what you are asking is whether there would be a surety bond on everyone who is licensed to be a contractor. Also, if a legitimate complaint was filed and adjudicated with the contractors’ board, the discretion is left to them to require of the licensee a performance bond up to 100 percent. You would remove the portion of the bill having the financial institutions review these contracts. However, you would leave in the prohibition against the two companies being intertwined, and then use the language from the concept amendments, March 23, lines 3 through 9.
Senator Care:
That is correct, Mr. Chairman. I think everyone agrees.
Senator Amodei:
The March 23
amendments say “a contractor who violates the provisions of the
act is guilty of a category D felony;” that is not in a workmanship
context. We are not trying to expose
someone to a felony because they do not like the tile job around a pool.
Senator Care:
That is correct, and that would be a civil matter.
SENATOR O’CONNELL MOVED TO AMEND AND DO PASS S.B. 216.
SENATOR CARLTON SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
*****
Senator Townsend:
We are going to have a presentation on S.B. 372 dealing with something very important to this committee, which is the energy efficiency of new home construction.
SENATE BILL 372: Revises provisions governing portfolio standards for renewable energy resources and imposition of civil penalties by public utilities commission of Nevada. (BDR 58-287)
Senator Townsend:
The specialist in areas of demand-side management and energy efficiency had come before the committee, and we had drafted a bill. We know we cannot do anything substantial about some of the homes that have been built over time. We want to look into the future, and as a result, a bill was brought to us, S.B. 372. It caused some concerns for our industry in terms of how we do it, whether it is effective, how we measure it, and adding additional costs. With those concerns there are proposals with insight as to how we could best address this for future construction in the state.
Renny Ashleman, Lobbyist, Southern Nevada Home Builders Association:
We would like to
take the bill and delete section 2, which had the Public Utilities Commission
of Nevada (PUCN) developing standards and charging connection fees on a varying
rate to help force compliance with those standards. Instead, insert as a new section 2, “local governments and
counties over 100,000 shall revise their building or energy codes so that new
residential construction achieves at least an average reduction consumption of
10 percent.” I believe the committee
has copies of that amendment (Exhibit F). We are confident in the current process; this can be achieved by
the local governments, cities and counties, and by our industry. I talked to the experts with the power
company, and, as you know, our peak demand is 4600 to 4900 megawatts on our
worst
days. If we had a 10 percent reduction
we would have some real margins, and we can do 10 percent in the new residential
by that method.
Senator Carlton:
I appreciate the amendment, and I do like it. But I do have one concern that it only applied to residential construction and not industrial or business type construction, which is still growing at a rapid rate in the south. The possibility is they could utilize something like that. Was there any reason they were deleted from this?
Mr. Ashleman:
There was no reason, other than we know residential construction code, so we are comfortable it could be done with residential. I suspect commercial, in general, works pretty hard at this because of the finances and the extent involved, but we do not know enough to tell you from our people’s viewpoint what to do in that area.
Ronald L. Lynn, Lobbyist, Nevada Organization of Building Officials:
I agree with the recommendations, and the southern Nevada building officials are aggressively looking at the 2000 International Energy Conservation Code, which does include both residential and commercial.
Senator Townsend:
Rather than putting it into this bill, we might use this as our code bill because we have the language you and all of the parties worked on.
Crayton L. Jones, Manger, Southern Nevada Division, Southwest Gas Corporation:
There is a large inventory of homes, 360,000, which were built before model energy codes standards were adopted. The vast majority of energy in a home is dedicated to conditioning space. The ability of a house to retain that conditioned space is where your energy use is greatest. The “R” value in homes stands for resistant or resistance to outside elements, such as warm weather or cold weather. In southern Nevada we have an extended warm weather period, and it is very tough on a house. The older the home gets, the more noticeable the settling in the house and things like leaks. You can only put so much conditioned space into a home; if it cannot hold it, then you are required to recondition. One of the things brought to our attention by our energy committee was windows are probably the number one problem in a number of the existing homes. A large number of the homes are built with single pane windows with frames that are heat conducting. All of those things contribute to heat gain and heat loss, in winter and summer.
I work for Southwest Gas Corporation, but our conditions are exactly the same in the winter months as our power companies experience during the summer months. People can recognize the problems they have in existing structures, but they need to be motivated to make some changes. If we went ahead and changed the windows in these inadequate homes, then we would not be talking about energy deficiency problems right now. The number two item in that list would be the equipment used. There is a lot of equipment out there and because it still works, people are still using it. It does not mean it is the most efficient. That is an area of real concern, and it is a major expense. Most consumers would like to find an avenue to get the available financing to remedy those situations.
Senator Townsend:
Regarding the windows, you sit on an energy committee with a group of individuals that try to address these issues. You said they identified the number one thing for older homes, which were windows. If it is the number one item, and we found a way, from the demand side, to help persons in need, help them finance it, and help them pay through the savings, do you think we could start something like that in southern Nevada over the next year or so?
Mr. Jones:
Yes, I believe we can. It is a front-burner issue, and is something sorely needed, and if it could happen that would be great.
Senator Townsend:
In working with your group, what was the second most important thing?
Mr. Jones:
The second most important thing was the equipment, heating and cooling equipment.
Senator Townsend:
Most of the older homes have older air conditioners and older heaters. Here we are 20 to 30 years later. Has there been a substantial increase in technology where it would warrant changing from the old?
Mr. Jones:
Yes, Mr. Chairman, there has been an increase in technology to the point it would be a significant change. We have what is called a SEER rating, which is a Seasonal Energy Efficiency Rating. I would venture to guess about 10 to 15 years ago those ratings were as low as 8 and now they are as high as 12. The efficiency level, per point, is considerable. There is a tremendous difference.
Senator Townsend:
The thing the committee should ask is how we identify the target market for this? Who should we help first? That is not always easy. We have a bill, which we are going to receive, and I understand there is language agreed to on energy assistance. We would want to look at the parties who participated in that mechanism and try to figure out whether there is a way to do that. The person who lives in a home which is the least energy efficient is usually the person who cannot afford to have the problem. I think, given a community as small as we are, if we could start getting a handle on this and do something like this for the prospective side of it, we need to start with the people who can least afford this energy and efficiency problem.
Mr. Ashleman:
Yes, Mr. Chairman, I was shaking my head because I know this committee understands the essential problem. You can do tiered systems for the cost of energy to do your demand side control, as long as you do not wipe the poor out in the process, which is why you need the other program. I think you are exactly right that the language, in the things we have been working on, would be very valuable in this area.
Senator Townsend:
I do not know whether the northern Nevada members had an opportunity, but every 2 years there is something in southern Nevada called “Street of Dreams,” which is for a charity, and they build nine or ten homes in very exclusive neighborhoods and sell tickets to go through these places. The thing that stuck with me at this year’s effort was the technology inside the home by which you could touch screens and change the environment. I think we need to concentrate on people at the other end, on those who need it more. I would think we would start with the threshold they are going to use in the energy assistance.
Senator Schneider:
In San Diego right now, they are offering a program to buy back refrigerators, the old ones you take out of the house. They are offering $75 to buy them back, but they are not getting any takers. People want the extra refrigerators and are willing to pay for the extra power.
Senator Townsend:
We debated in the Senate Committee on Taxation on whether we should include equipment, but then we realized this could be a problem. Is it fair to ask of you, Mr. Jones, since your committee is our southern Nevada resource, when we debate the issue of this low-income assistance, how we would identify those homes and the things we could do? Would that be fair, could we engage your committee on that?
Steve Hackney, Representing, Southern Nevada Home Builders Association:
We would like to participate, and we would accept the challenge to provide whatever assistance we can.
Senator Townsend:
We need your assistance, and it is the community-based activity that is going to occur. If we can engage you to participate with the members from southern Nevada, then we can get something accomplished.
Ms. Porter:
I have a 23-year-old house, and it is only 1700 square feet, but I started last year actually doing these things to my home. I have replaced my windows, except two sliding glass doors, and I have done my downstairs air conditioning. I have already saved, as of last summer, $60 a month on my power bill. When I get done, I will have saved as much as $75 or $80 a month. They are real numbers and real facts by making those changes.
Senator Carlton:
Mr. Jones, you had spoken about a SEER rating. Can you tell me how people would go about having someone come out and help them with the SEER rating, so they can decide whether the air conditioner they have is still within the acceptable energy-efficient parameters?
Mr. Jones:
There is a plate listed on all of the air conditioning equipment, and it has specifics about the equipment and the efficiency rating. Also, all new equipment has a big yellow sticker right on the front, which says what theseasonal energy efficiency rating is. I believe presently, according to the 1992 model energy code, the lowest SEER rating you can put in your home is a ten.
Mr. Ashleman:
I have represented most of the people involved in the air conditioning and heating business, and they are thrilled to see consumers and tell them what they could do for them. If you look at the big yellow tag, it even says how one compares to others you might buy. It is getting a little easier for the average consumer to deal with. I would not imagine energy audits on an older home would take very long, since you know what you are looking for.
Mr. Lynn:
It does not take an excessively long time. They can come out and see if the windows are updated or not, and what the SEER rating is.
Senator Townsend:
I think your point, Mr. Jones, about the living space is interesting, because in communicating with all of the parties down there, we would like to have a proposed mechanism on what we are going to look for regarding the low income people who need this. Just give us some ideas, and we can enlist all the interested parties to find ways to finance this.
Terri Barber, Lobbyist, Southern Nevada Home Builders Association:
Did you just want us to look at low income?
Senator Townsend:
You could look at them all. However, it is just we will not be able to do all of it, so we want to identify people with the greatest need.
Mr. Barber:
There is a lot of product out there, which still has single-pane windows, built prior to the 1992 energy code, and they comprise a large segment as well.
Senator Townsend:
We should identify those, too, because there may be ways we can work at two separate levels. We really want to concentrate on those people in need.
Ms. Porter:
I think the reason we were asking that is we may have to have your assistance for the lower income people, and then we may need a real public education program for the rest of the community, so people truly understand what this means.
Senator Townsend:
As energy prices increase, people will become more interested in how they can protect themselves, so perhaps they will hear the message. Sometimes you can spend a lot of money and nobody wants to listen, and yet sometimes you can spend very little money when they are all looking for help.
Ms. Porter:
I think you can tie them together with what is going to happen with the rising energy costs, and then have public education on how to solve the problem.
Senator Townsend:
We will probably use S.B. 372 as the bill to deal with the codes, if that is all right.
Committee, turn to the blue tab, page 24 of Exhibit E. We have not had a bill on the codes or the front-end portion of this, but we have taken a lot of debate. If we use S.B. 372, perhaps as a shell we can use it as our mechanism, which would accommodate the previous recommendation of the Southern Nevada Home Builders Association. Let us go to page 25 of Exhibit E, which is construction licensing, bonding, financial standards, building codes, and sole condition issues. There are a number of things in here, and I believe the last time we spoke, Mr. Lynn, we were talking about an original March 30 draft page 25 of Exhibit E. You have subsequently submitted some cleanup on that, and we would like to put it into S.B. 372. Could you walk us through it?
Mr. Lynn:
The cleanup was an attempt to reconcile some of the language. The first elimination of “clean,” although it indicates some changes in section 2, is actually the same as it was. In section 3, we added the words, “potential adverse impacts,” to make it consistent with section 2. The last section, item 7, adds the recommendation of American Consulting Engineers Council members to tie it together, with the language, “to have written statement that plans are in compliance with the selected geotechnical options.”
Senator Townsend:
Mr. Maddox, I do not know if we had put this in your hands or not, but originally, when you saw the March 30draft, you had sent us a letter of support. Mr. Lynn has made some changes, and I want to make sure that does not bind you until you have seen those changes.
Mr. Maddox:
I have a March 30, 2001, geotechnical considerations document, but has Mr. Lynn made further changes?
Mr. Lynn:
Yes, I have. If you will go to item 7, in the original (page 25 of Exhibit E), “the architects, civil, or structural engineers responsible for the building design shall review the geotechnical report and verify the designs compatibility by providing a written statement that plans are in compliance with the geotechnical recommendations.” We have kept the first part and added, “any addendums by providing a written statement that plans are in compliance with the selected geotechnical option.” What was missing in the original one was the word addendums.
Mr. Maddox:
I think I might have it. I did ask Mr. Lynn’s office to e-mail me a document yesterday. I might have the current version in front of me. I do have that language, and I would certainly agree.
Senator Townsend:
Then we have it under sections 2 and 3, Mr. Maddox.
Mr. Lynn:
That is correct, although section 2, for some reason, is the same section 2 as it was on the earlier version. In section 3, it added the words “adverse impacts.” The potential was a critical element there. I think Mr. Maddox also brought that up.
Mr. Maddox:
I do not have any disagreement with that language.
Senator Townsend:
Can you go back to line 1 of section 1, “each city or county shall adopt an ordinance that, unless waived by the building official.” I did not know we wanted to allow that waiver. I know we discussed it, and I thought we said we were not going to waive anything.
Mr. Lynn:
We removed it from the text of item 4, so there were no variables regarding the different reports the grading report, the elevation certificate, and compliance report. On the first part of leaving in the waiver for the building official is a consideration for two elements: first, the smaller rural jurisdictions, or those rural components of large areas; second, to establish there are structures that, for economic or practical reasons, do not require soil reports, such as agricultural buildings, sheds, non-habitable structures. In Clark County, we use less than 600 square feet.
Senator Townsend:
I do not think we want to get into forcing those people in the rural areas to do something they are uncomfortable with. The flip side says, “Shall adopt an ordinance that, unless waived by officials, requires geotechnical reports, that involved everything over 5000 cubic yards.” Can we say something about habitable? We do not want to do barns or sheds, but I am worried that someone’s home, in a larger county, might be able to get away from these building requirements if a building official waived them.
Mr. Lynn:
Certainly that is not the intent.
Senator Townsend:
Can we say this applies to everything except residences, or does that create a problem?
Mr. Lynn:
We want this to apply to residences.
Senator Townsend:
I was referring to the waiver. We do not want the waiver to apply to residences.
Mr. Lynn:
That is true. Do you want me to engineer some language?
Senator Townsend:
I think the committee was clear, we do not want anybody to get out from underneath an ordinance or code regarding a residence.
Mr. Maddox:
I fully support what you are saying there, the waiver should not apply to residential structures anywhere in the state. If Ms. Grein is still there, I saw some pictures she has of a house in Nye County that is pretty shocking. The home was not properly built and was on unstable soil.
Senator Townsend:
I think that is the point of not letting any residents get out. We know what Mr. Lynn was trying to do, but we do not have it written to prevent so there is not any misunderstanding.
Mr. Lynn:
We could leave that language and add an exception stating all single family residences will be required to have the geotechnical report.
Senator Townsend:
We do not want to say single family, because that would exclude condominiums, right?
Mr. Lynn:
No, they are still considered single family residential. They are not commercial.
Senator Townsend:
Whatever language you use, it is where someone is going to live.
Mr. Lynn:
And I can put that language in, single-family residences, condominiums, and townhouses.
Senator Townsend:
Would that be okay, Mr. Maddox? I think “may” tries to encompass it.
Mr. Maddox:
Yes, I think it should be a requirement of all dwellings of any type or size.
Senator Townsend:
Then we will submit this language, to drafting. The next thing the committee will move to is S.B. 274. It should be noted I sat on the subcommittee Senator Carlton chaired, and she did a very good job with a very difficult task.
SENATE BILL 274: Revises provisions governing rights and duties of contractors and subcontractors under contracts or subcontracts. (BDR 54-593)
Steve G. Holloway, Lobbyist, Associated General Contractors - Las Vegas:
I am here with members of the coalition who developed the bill. There are over 20 different associations represented in the drafting of the S.B. 274. These associations represent owners, developers, contractors, and subcontractors. I think we have universal industry support for this bill, as amended.
Richard Peel, Attorney:
You have two different sections being affected, and amendments to NRS 624.610. Then there is a new section, which is being added to address the contractor and subcontractor relationship. As it currently exists, NRS 624.610 only pertains to an owner-contractor relationship, and did not flow down to the lower tiers. Also, because we are making changes in NRS 624.610 it was necessary to clarify some of the changes we made to NRS 624.620, which deals with payment upon completion of a project. I am going to go through the amendments we made to the NRS 624.610 portion of the bill, and they can be found on pages 6 through 9 of your handout (Exhibit E). Starting with the owner and general contractor relationship, if a contract has a schedule of payments, then that owner will need to pay that contractor on or before the date set forth in the contract for the schedule ofpayments. If there is not a schedule of payments, then payment is due within 21 days of the date the pay request is submitted.
An owner can withhold payment for several reasons, and this is a new portion of the bill we have added. An owner can withhold payment for retention that may be allowed by the contract. An owner can withhold payment for costs and expenses the owner may incur for work or materials not yet provided, but for which payment is being sought. Also, an owner can withhold an amount required for an official state or union notice, for wages which may fall under the auspices of chapter 608 of NRS, or unemployment which falls under the auspices of chapter 612 of NRS, and workers compensation which is chapter 616 of NRS. If the owner does not receive waivers and releases of lien rights, the owner may be allowed to withhold monies if the contractor is not going to be paid in cash, until the check has to clear the bank upon which it is drawn. In other words, it needs to be a conditional waiver and release until the check has cleared the bank. And it needs to be limited to the amount of the pay request or the amount to be paid the contractor.
Mr. Peel:
If an owner is withholding money, he must give a notice of withholding. The notice of withholding has to be given prior to the date the payment is due, pursuant to subsection 1. The notice of withholding has to identify, in writing, the amount to be withheld, a detailed explanation of the reason, and a specific reference to sections in the documents supporting the reason for withholding, and an authorized agent of the owner must sign it. However, the owner does have to pay the undisputed portion of the amount being sought in the pay request. If a contractor gives notice of the correction of any withholding, at that point, the owner has an obligation to pay it with the next payment made pursuant to a pay request. The owner pays for the completed items the contractor is seeking payment for, or the owner has to provide to the contractor another notice of withholding, identifying what portion or amount he is going to withhold from the pay request because the contractor hasn’t properly completed the work.
If the owner does not comply with the time period set forth for payment, or if the owner does not give a timely notice of withholding, then the contractor has the right to stop work upon having given 10 days notice. That contractor, if paid prior to the date he sets to terminate the contract, would have to go back and resume work. There is the right to stop work, as long as there has not been payment. Once there is payment, work would resume.
Mr. Peel:
A contractor does have the right to terminate, and has the right to terminate 15 days after stopping work, provided he gives written notice to the owner of his intent to stop work. Also, a contractor has a right to stop work if the owner stops or causes the project to be stopped for at least 15 days. In that event, the contractor would give a 10-day notice of his intent to terminate the contract, and if the owner fails to cause the project to resume within 10 days, the contractor’s contract would be terminated.
An owner also has the right to terminate. An owner can terminate a contract by giving written notice of his or her intent to terminate 15 days after the contractor has stopped work. A contractor has a right to recover damages, and those damages would entail recovery of labor, material, lost profits that were expected, and interest. Those damages would fall under the “shall” provision. The attorney’s fee would fall under the “may” portion of the statute. If a contractor stops work or terminates a contract, he must give notice to his subcontractors. They would have the right to stop work and terminate the contract. If the contractor stops work in accordance with the contract, the contractor would not be liable to the owner for any damages the owner may sustain as a result of stopping the contract.
Public works and natural person residential contracts are excluded from the auspices of the act. The subcontractor/contractor relationship is very similar to what I just explained, except it relates to that lower-tiered relationship. That is how the act is set up, and it is akin in some respects to the “prompt pay” statute.
Mr. Ashleman:
I concur in what Mr. Peel has presented, and the home builders do support this bill. I have a couple of minor points of clarification. The awarding of attorney’s fees is intended to be discretionary, both in the cases where the contractor sues the subcontractor, or the subcontractor sues the contractor. Every party has an equal opportunity to present its case to get attorney’s fees, depending on who the arguing party turned out to be. A remaining concern on the damages clause, which we think will be fixed by the next draft you get, needs to be clear concerning freedom from damages, from walking. The language says, as long as they do it in accordance with this section, it is not just the matter of giving the notice in accordance with the section, but it is the contractor, owner, or hired tiered subcontractor who has failed to do one of the things which triggers the ability to walk. We are not sure that has been adequately described, and I do not think the parties have any disagreement on intent.
Mr. Haney:
I had suggested one thing in the subcommittee, with respect to the two provisions in the bill dealing with waiving the provisions in this contract, adding mechanics liens to the no waiver ability. If there has been this much time and effort put into these laws, they should not be waived by a contract. Moreover, we have about five different provisions in the license law we are expecting our investigators to enforce. If you have a contract that waives a provision, it confuses them and they do not know how to deal with it. If you are protecting the folks who provide the hard work making these projects possible, they should at least have the right to a lien.
Senator Carlton:
I did follow up on those with the interested parties, and the lien issue is very complicated. I was not sure how we would address the issue in the time frames and scope of this particular piece of legislation. I do not believe Mr. Haney was involved in some of the original discussions the parties were involved in before we got to the subcommittee. I was not comfortable adding this particular provision at this time, but I do understand where he is coming from. I am not sure how we could fit it into this particular piece of legislation, so I did not process it any further. This process has been out there a long time, and the bill draft has been out there. I am not sure any of these particular issues need to be addressed at this moment. And I believe we have gotten to the best possible position we can be in to process this piece of legislation and to protect the people who are involved in this issue. At the hearing, the businesses were having problems and the loopholes were out there. I want to make one thing perfectly clear: This does not eliminate the loophole, it does give the contractors and subcontractors a response to that loophole so they have the opportunity to protect themselves, their businesses, and their families.
Mr. Haney:
I had brought that up in the subcommittee. If the lien law changes, we are going to be abandoned. It was just a suggestion. How you choose to vote is certainly your choice.
Mr. Holloway:
We have attempted to
address the issue Mr. Haney has brought up and ask this committee to do nothing
further to amend S.B. 274. We
hope to bring a bill to
you that has the concurrence of all the industry next session, to make some
needed changes in the lien laws of the state.
Senator O’Connell:
I would move to amend and do pass S.B. 274, with the amendment as explained by Mr. Peel.
Christopher Kaempfer, Attorney, Las Vegas:
We realize a great deal of work has gone on with regard to S.B. 274, and we do thank the subcommittee. We also had been involved, extensively, with the discussions regarding S.B. 274. We agree with Mr. Ashleman’s suggestion concerning liability, delays, and damages, which need to have some kind of modifier attached. We do not need to do it now, but we will have to deal with it later.
There is some new language, we think, creates a concern. In section 12, of the contractor and subcontractor provision, and in section 10 of the owner-contractor provision, it indicates the right of a contractor to stop work or terminate a contract pursuant to this section is in addition to all of the rights the contractor may have at law or in equity. The addition says, “and does not impair or affect the right of a contractor to maintain a civil action or to submit any controversy arising under the contract of arbitration.” We understand what is trying to be achieved here. The fact you may utilize the provisions of the sections does not mean you are prevented from filing a civil action or arbitration. We think the language, as is, creates a right where one is not meant to be created. In other words, if we, as general contractors, have a provision with our owner that we have to arbitrate the claim, then this language may imply nothing, not even contract language, would impair or affect our right to file a lawsuit. We think this section would be more appropriately modified by saying the contractor might have “at law or equity.” If his contract has an arbitration provision, and he chooses to arbitrate, then he can. If it has a litigation provision, then he can litigate. If it is silent, then he can do either or both, or however it would work out. We are concerned about this language, it may suggest that, regardless of what the contract states, he has a right to submit to arbitration or a right to litigate, when it actually may not be there.
Mr. Holloway:
Our plan is to let the Legislative Counsel Bureau prepare the draft. If you do amend and pass this bill by that time, we will have a Legislative Counsel Bureau version. Then we will convene all of the attorneys again and make one amendment. We will introduce it on the Assembly side, and clean up all of these issues.
Mr. Peel:
The intent of the provision was not to create rights that do not otherwise exist. It was intended to preserve the mechanic’s lien rights, and also to preserve whatever rights may be provided by contract. It is similar language to what we used in the “prompt pay” statute to preserve the right to arbitrate. As long as the rights are not impaired and the contractor or subcontractor in the respective sections can pursue those claims or rights they have “at law or equity,” we would not have an objection to modifying the language in some fashion so it would be fair to all parties.
Mr. Ashleman:
We concur, and I think we will work this out.
Senator Townsend:
Mr. Kaempfer, this is the first time in this committee we have heard one attorney disagree with another, and we appreciate the value you have brought here today.
Mr. Kaempfer:
Thank you, whatever I can do to help. We have a legitimate concern, and we did not want to be accused of not raising that concern in a timely manner.
Senator Townsend:
Actually, although you do not appear here on a regular basis, we appreciate any fresh look at any of these technical things, because every time we bring someone in who has some background, it brings a perspective we need. We will deal with your concern.
SENATOR O’CONNELL MOVED TO AMEND WITH THE AMENDMENT
PRESENTED BY MR. PEEL AND DO PASS S.B. 274.
SENATOR CARLTON SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
*****
Senator O’Connell:
I would like to share some information I received. The pool people have expressed a concern, if we go along with the amendment Senator Carlton has made, then we have a problem because by the time the first complaint gets to the contractors’ board, there are usually about 20 complaints behind it. We need to find out whether that is true. Also, they felt that a bond is very important, that it be put on in the beginning without allowing a first complaint, because they said there is never such a thing as a first complaint. When there is a first complaint there are 20 complaints.
Ms. Grein:
That is correct. The first complaint coming in is one of ten. So we can start with a higher surety bond. The board can also put it as high as possible, up to $100,000 initially. We need to think it out a little bit to determine, what would work best for the people. I was a little confused with all the different amendments, but I was just glad the bill was passed.
Senator O’Connell:
I need to say I was also told there is going to be an amendment introduced on the floor by Senator Care, who has had the opportunity to address some of the concerns Mr. Hardy has presented.
Ms. Grein:
I spoke to Senator Care briefly.
Senator Carlton:
The total inspiration was not to punish the smaller, well-behaved pool companies we have not had a problem with in southern Nevada. I am a little confused regarding the complaint issue.
Ms. Grein:
I am too, not about the complaint issue, but exactly how to right it.
Mr. Haney:
Our process normally is to receive a complaint, have the complaint investigated, and make a determination if the complaint is valid. Currently, because we can suspend licenses, we can bring it to the board with a short-notice emergency nature, and this could be the same type of process. Then there would be some notice to the contractor saying the matter would be brought to the board. It would give them an opportunity to say whatever they need to say. We have complaints coming in now that are often determined valid, and the contractor is out there fixing them. What you have done is given Ms. Grein the discretion to bring something forward or not, and if they are out there fixing it, we do not want to do anything. You can put that in the law, if you like, or you can leave it for regulation and see how it is done when the “hammer is on the other side.” It is really to provide protection when there is a complaint and an investigation leads us to more problems of the same nature. That requires quick action within a couple of weeks, but a couple of weeks are very different from 3 or 4 months.
I do not know how to address the other issue Senator Carlton brought up regarding the $100,000. It is meant to be a consumer protection. The reason is our present surety bond covers lien claimants, suppliers, and homeowners. By the time they get around to getting some money, there is $8 million in claims against the $30,000 bond, and it does not mean much. This way you are going to have $100,000 worth of claims and a $100,000 bond for the sole benefit of the consumer, not for the other folks looking to get paid.
Senator Carlton:
We are going to be starting something halfway down the road on this, and then we will have an idea of who has been good and not had problems. It is not as if we are starting from scratch and have no idea who the players are. We are very well aware of who the players are. With the board’s discretion, on knowing those things and what has been documented, they can make very good decisions as to who would need to comply with this performance bond, and who would not. I believe that is another safeguard for our “good guy” pool builders, so they do not get caught in this net again; am I correct?
Ms. Grein:
Yes, you are correct. We could take those contractors whose contracts do not comply with the current laws and put a disciplinary bond on them.
Mr. Vergiels:
Senator Care asked Mr. Hardy and myself not to say anymore. He was the quorum in judiciary and said he would handle it with an amendment on the floor.
Senator Townsend:
I heard something Ms. Grein said I thought was very important. If they are not playing by the rules, currently, she can automatically put a performance bond on these folks. We need to know what additional authority you need, if any, or if you need to raise the limit. We are going to get to bonding issues in a minute. Mr. Haney, do you know whether you need additional authority to provide Ms. Grein the ability to place performance bonds on people currently not playing by the rules? She provided a list of your licensees over the last 5 years (Exhibit G). There are 78 licensees in this arena according to this.
Mr. Haney:
We currently have some provisions permitting the board, after a hearing, to require payment performance bonds be placed on any contractor. What Ms. Grein was sharing with you is, by the time we get some of the complaints in on the larger problems, the offenders simply did not care about their licenses and were gone. We do some public relations to get the word out.
Ms. Grein:
We have a provision in the law allowing us to take disciplinary action if they violate chapter 597 of NRS or the pool regulations as written by the board. Our disciplinary section allows us to take other action the board deems appropriate.
Mr. Vergiels:
I think Senator O’Connell and Senator Carlton are on track.
Neil B. Davis, Lobbyist, National Pool and Spa Institute, Southern Nevada Chapter:
I have a problem with the laws already passed that are not being implemented, and it is very frustrating to legitimate contractors. To cite a couple of cases, I had an employee who I found out had false documentation, and the INS (Immigration and Naturalization Service) said I needed to terminate him. I wanted to know what I could do about it, and one thing led to another. I did terminate him, but they did not deport him. And now he is out contracting without a license. Then there is another pool builder who actually took checks, which were made out jointly to him as pool builder and myself as a subcontractor. All the money was supposed to go to us because of the work we did. There was $84,000 worth of checks, which were forged by that company. The checks were deposited into their account, taken out, and spent. I went to the attorney general’s office and had absolutely no results. I also went to the district attorney’s office and again had no results. The laws are not being enforced, and need to be enforced to resolve some of the problems that are out there. A lot of the legitimate pool builders are paying for some of these other pool builders. I appreciate you, Senator Townsend, Senator O’Connell, and Senator Carlton, for the work you have done on this. I think one of the things presented was the recovery fund, which would have resolved a lot of the problems. The only thing addressed was the contractors’ board did not want to suffer with the problem of trying to administer a recovery fund. It could be made up with a member of the public, a contracting association, and bank account and trust fund. Then it would not involve the contractors’ board.
Senator Carlton:
We have discussed a lot of those issues this morning, and what we are trying to do is get the bad guys. We realize they are out there, and I know how frustrated you, as good businesspersons, feel. That is what we are aiming at and where we are trying to go with this, to make it as flexible as possible so the contractors’ board can go after the bad guys. I realize there are hard feelings over some of the things that have happened over the years. However, I have gained some confidence in them in the last few years. They know we will be watching what they are going to do. I know your concerns, and we are going to address those. We are going to make sure it is the bad guys who actually pay for this. You heard the discussions on how we could possibly address this, and I would be more than happy to talk to you about it.
Senator O’Connell:
I think we have
resolved the concern of whose jurisdiction this is. Without a question, the buck stops at the contractors’ board, and
if they are not doing
what they need to do, then we need to know.
So we know who has jurisdiction now; there is no question about to whom
you go and where you should receive satisfaction.
Mr. Davis:
I understand and do not have a problem about the jurisdiction. Where I do have a problem is about the enforcement when there are actually felonies being committed by contractors that go out of business and then they are prosecuted. Then other bad contractors on the edge are thinking, “Well, I do not need to worry about it because others did this and did not get punished.” I have even had a contractor forge my name on unconditional lien releases in order to collect his money and not pay me as a subcontractor.
Senator O’Connell:
My understanding of the way this process works is if there is something the contractors’ board cannot address, then it goes to the district attorney.
Ms. Grein:
I do not know, specifically, to which case Mr. Davis is referring. We cannot prosecute a case; we can only investigate it and then turn it over to the district attorney if it is a criminal case. I would like to address the issue of the recovery fund, Mr. Davis. To answer your question, we did not say we did not want it because it was too much work. I believe what we are looking for is a preventive measure to take. We are trying to be more proactive and do something up front, instead of coming in after the people have been harmed.
Mr. Davis:
What we are looking at is we cannot go back and recover. Making preventative measures so it does not happen is great. However, I think the recovery fund is going to make the aggrieved homeowner whole for some of the bad problems that have been created. Over a period of time, I think the recovery fund would be a perpetual fund to take care of itself.
Ms. Grein:
We do have a recovery fund we have been collecting on since October 1, 1999. Homeowners, effective July 1, 2001, will be able to file claims on that. What was proposed was an additional recovery fund just for pool builders. How many recovery funds do we need? We have one and need to give it a chance to work. Those who are entitled to it need to be able to file claims.
Senator O’Connell:
Sir, there is also the class D felony that does make it a crime. There should be no question whether it is acted upon, since the class D felony is there.
Mr. Davis:
I am aware of the existing recovery fund because I paid into it, so I do understand there is one. However, there is not anyone in the pool industry more concerned about the problems with bad pool builders and customer problems than the legitimate pool builders. We are very concerned about it, and we want to resolve whatever those problems are so we have a good image in the industry. As it is right now, we are right there with used car salespersons and lawyers.
Senator Townsend:
We will work with the Assembly committee and Senator Care to accommodate all sides. These are very difficult issues because legitimate business should be treated fairly, and yet we have a serious finance problem.
There are a few questions. Are the bonding requirements high enough or not high enough? Are there prohibitions in the law that get in the way? Are the licensing requirements adequate for out-of-state individuals coming to get licensed in the state of Nevada? Is there a problem with prohibitions in the NRS, which allow you to raise those standards? Lastly, regarding your complaint workload, should we put a new moratorium for a fixed period of time until you have had an opportunity to catch up? The moratorium would not prevent some acquisition by a larger company, but simply a moratorium of new licensees coming to the state. Those are the three issues I want to deal with before we get to S.B. 516.
Ms. Grein:
The first question about the bonding, I believe there is a lot of misunderstanding on what the license bond we place on the contractor is and its purpose. Mr. Haney will provide you with the legal aspect of it. The bond is a form of protection, yet it is not. People who need to claim on the bond do not, because they are not sophisticated in dealing with such issues. On the other hand, the suppliers and employees know how to file claims on bonds. We need to hold the bonding companies to a higher level, as well. We have seen some bonding companies that are not exactly creditable. We could consider raising their standard to an A-plus rating. However, when the board issues a license it sets the bond, and it also sets the license limit. The contractor can come back at any time and apply for a one-time increase in limit for one particular project. He could, in effect, have many of those one-time increases going on at the same time.
Senator Townsend:
Why would we let that happen?
Mr. Haney:
They do not just let it happen. A licensee can come in and say he has a $.5 million limit and would like to do a job for $800,000. The board can disapprove it, approve it and require a performance payment bond, or approve it and require the performance payment bonds be waived by the owner. Typically the board approves them with performance payment bonds, unless waived by the owner, which gives the owner the opportunity to have them. It is to help the little guy to be able to grow. The staff begins to monitor, so if you have come in for an increase in limit on several jobs, the staff will provide the board with that information. Those types of things are common to accommodate the businesspeople to allow them to go forward. If they have eight jobs, and they are all 20 percent complete, the board would not have granted the fourth or fifth one, but they are given two or three without much question. However, if the amount of the increase were disproportionate to their limit, there would be a question. By that I mean if you have a $500,000 limit, and you want to build something for $200 million, the answer would be no. The bonds themselves range from $1,000 to $100,000; they are license bonds, they are not per project. On a disciplinary basis, the board has a right to require a payment performance bond for up to 12 months if there is a problem with a contractor. It is a disciplinary matter and it takes a few months to get those matters before the board, so they can exercise that type of authority. That is the type of distinction Ms. Grein was trying to make between a license bond and a project bond. The license bond goes up to $100,000; is it enough? That is a subjective question, and I do not have a good response for you.
Senator Townsend:
Ms. Grein’s point is well-taken, but there is a concern of Senator Carlton and Senator O’Connell. If you have a $100,000 bond and the only people who know to access it are suppliers, and they are first in line, then the consumer is either blocked out or nothing happens. The bigger issue is the fact if someone has a $500,000 limit, and they come in for a one-time $800,000 limit and the project is finished, they are given another one. Then the project might be done, but it might not be right. Now you offer the next one and you start seeing a problem or a pattern of problems. What I am trying to do is get the standards where they need to be for consumer protection. Is the bonding, performance bond or license bond, high enough to cover the potential problems in the project to be of benefit to the consumer? Finally, how many more people do we need in here over the next 12 months? The good businessperson is out there, and if we start saying do this and fix that, Mr. Davis made a good point about the laws, now we add cost to them because it is a fee-based issue. Maybe we should see that you have dollars that you have, and nobody else comes in for 12 months while you do your job with regard to the people who are currently here. Go back to the first three questions. Are the bonding requirements substantive enough to make a difference for the consumer, and if the answer is no, where do they need to be?
Mr. Haney:
The answer is no. First of all, the priority of who gets paid first is backwards in terms of protecting the consumer, because they are on the bottom, and the person performing labor is on the top. Secondly, you could take a look at the scope of those bonds themselves and decide whether you want to protect those folks in the class that are there, or you want to use those bonds to protect the consumer. The amount is a harder question because, if you have someone who builds a ranch or a whole subdivision, I do not know whether the licensing bond would be the appropriate place to deal with that.
Senator Townsend:
Should you have two bonds?
Mr. Haney:
It would make more sense to accomplish what you want to accomplish, because the consumers could have their bond as the smaller bond, just like what we had talked about with the pool folks. Here is a bond. Whether it is going to require a hundred percent of all the contractors [or some discretionary amount], so if you are going to build consumer-type products, you have to provide a consumer bond. The bond could range from a number to a number, and it could be a higher number, if you are doing a subdivision. It is not going to cover everybody for everything. If you have a failure, then it is going to cover the normal problems.
Senator O’Connell:
The reason it is bottom side up is to cover the amount of money invested in whatever materials were used on the project.
Mr. Haney:
The original purpose for the license bond was to protect those who were performing the work for the building. It was adjunct mechanic’s lien statute. Certainly “Joe Laborer” out there digging the ditch does not know he has mechanic’s lien rights, and certainly is not going to pay a lawyer several hundreds of dollars because he did not get his paycheck. However, he had a place to go to ask for the money because he did not get his paycheck when the contractor went out of business. Years ago, when those bonds were developed, that was appropriate. The second major lobby group able to get in second place was the suppliers. Their argument was they were on the bottom end in terms of how the money flows down, so “give us a higher level on the license bond.”
Senator O’Connell:
They actually do have something for their money?
Mr. Haney:
That was the point of the license bond. They had gotten some value, perfect or defective. To address the issue on the consumer side, then you could look at having a consumer protection bond. And that would have to be higher; at least the maximum should be higher than $100,000, and times change.
Senator Townsend:
I would not pick a dollar amount. Instead I would pick a percentage of the total project, which would be independent of the licensing bond. Have a performance bond based on the size of the project.
Mr. Haney:
It may address some of the subsequent bills you are going to consider, to have with that type of solution.
Senator Townsend:
We think we have good language, and now we are at the licensing and are going to build something. We are going to take licensees and find out what their financial status should be in order to participate. It should not be based on anything but the various sizes of the projects. Are you aware of whether there is a jurisdiction anywhere doing performance bonds based on a percentage of the project?
Ms. Grein:
I believe public works projects are handled that way.
Senator Townsend:
If we temporarily suspended approval of new licensees, how long would it take you to get your arms around all these things we have asked you to do?
Ms. Grein:
Over a 2-year period, we would face a decrease in revenue of $3,289,500. There is approximately 26 staff processing applications, and I am assuming there would still be renewal processing of existing licenses.
Senator Townsend:
What is your total budget?
Ms. Grein:
My total budget is about $6 million a year.
Senator Townsend:
And you are saying half comes from new licensees?
Ms. Grein:
Yes, the average number of new applications last year was 1749. That number times $600 each totals $1,049,400. The renewals we would have obtained from those licenses we did not issue would decrease our revenue by $524,700. In 1998 and 1999, the number of new applications totaled 1906, resulting in fees of $1,143,600. So, the following year for that group of renewals, for not renewing, there would be a $571,800 decrease in revenue. All of this represents a total decrease in revenue for 2 years of $3,298,500. We would have to somehow compensate, either cut back the staff or have them investigate cases. If we recovered our costs from the investigations, which we only do if they go to the board and there is disciplinary action, of the 4000 complaints we have, we may be successful in recovering the costs of those investigations. We may impose them on 90 people, but most do not pay. When they appeal in court we get nothing for our legal costs.
Senator O’Connell:
Does the information under bankruptcy filings have to do only with the industry itself, or is it much broader?
Ms. Grein:
It is broader. What I did was to get on the Internet and pull a couple of reports, success and failure rates, and highlight it (Exhibit G).
Senator O’Connell:
Mine is highlighted. It is pretty frightening to think what has just happened between 1999 and 2000. It is just devastating. I am thinking about our economy.
Fred L. Hillerby, Lobbyist, Nevada State Contractors’ Board:
I have not looked at it.
Senator O’Connell:
It goes from 14,743 in 1999 to 34,750. That is a lot of businesses.
Mr. Hillerby:
This is just discussion and not an official position. I think we are always concerned about the law of unintended consequences, but we are talking about a moratorium. This is not a board position, just a thought I had. If you put a moratorium on, limit the number of contractors out there, and then add the failure rate, you will increase the demand for the bad as well as the good. With the decline you are seeing, I believe you are going to give the bad guys more business. I see that as problematic. Secondly, what have we done to economic development and growth? I know this committee is good at looking at the broader issue. I think the board understands and appreciates you are trying to give us time to catch up to a lot of new responsibilities. On the other hand, those things came to my mind during the discussions about moratoriums.
Mr. Lynn:
Also for discussion, instead of looking at a moratorium concept of these higher bonding fees, maybe apply it to new contractors without a track record. What about those who have had a poor track record?
Senator Townsend:
Having said that, how could we look at additional or new bonding requirements for any person licensed after May 1?
Ms. Grein:
I believe we could start with what we talked about in the last hearing. We could start with a disciplinary bond for those people who have violated the law.
Senator Townsend:
Disciplinary bond meaning what?
Ms. Grein:
Meaning if they do not take care of their problems, such as multiple complaints, automatically they have another bond besides the surety bond.
Senator Townsend:
We put a performance bond for the consumer on all new licensees after May 1, and all licensees who have had disciplinary actions rendered against them, for the consumer only.
Ms. Grein:
I cannot speak for the whole board, but from my point of view, it is a good idea.
Senator Townsend:
I think your point, Senator Carlton, is you do not want to hurt the guys who are currently doing the right thing. Because of our industry problems, we have to raise the bar for new entrants. Mr. Young and Mr. Haney, do we run into some kind of constitutional issue if we raise the bar for new entrants when we did not do it for other people, or can we just set a different standard?
Mr. Haney:
We would be setting a new standard. I do not see any problem.
Mr. Young:
Although I cannot provide legal advice to the committee, normally, economic discriminations between classes are allowed if there is a rational basis, unlike discriminations on a prohibited basis such as race or religion, but legislators are given authority to make distinctions to solve different problems.
Mr. Hillerby:
I was inquiring about a bonding issue, and bonds are issued on credit worthiness. As you look at two kinds of bonds, a licensing bond and a performance bond, in either case the guy who is not creditworthy is not going to be able to get the bonds.
Senator Townsend:
So, why would I want him building my house?
Mr. Hillerby:
Exactly the point, my question is whether there is a market for these kinds of bonds.
Senator Townsend:
We have a huge number of really good contractors in this state. You do not want to react in a manner that hurts the good general or subcontractor. We do not want to make it economically disadvantageous to participate. What we do want to do is send a message to the persons who have not played by the rules and to send a message to any new interest in the market.
Four of us on the committee processed the entire rewrite of the medical practice act in 1985. We went from the least restrictive medical practice act to the most restrictive. That was 16 years ago, and to this day we are still the most restrictive. It is very easy to contend we have as high a medical care as there is in the country. It has not barred anyone from entrance, but we did not penalize the current practitioners. It is not a different philosophy from what we have already participated in. The issue is we need language stating specifically, licenses issued after May 1, and any disciplinary action taken after May 1 would require a performance bond, accessible only to the consumer, from an A-rated company, which would be part of these codes.
Mr. Haney:
Also in NRS 624.270 regarding where the license bond, we have a right to go from $1000 to $100,000, or perhaps it should be $1000 to $500,000.
Mr. Lynn:
Perhaps it should be referenced to the contract price, which makes it a realistic number.
Senator Townsend:
Without question, it should be a percentage of the price. The discretion should be left to the board; so if someone is disciplined, there could be a bond that is 50 percent of the next project. If it was something fixed or repairable, then the board could say it should be 5 percent. That should be part of the regulatory process to allow the individual to have due process to come in and say why it should not be higher than what is being recommended.
We debated yesterday on homeowners’ associations, and it was quite clear to this committee there were substantially different issues between master-planned communities of over 1000 units and those less than a 1000 units. With regard to your profession, Mr. Lynn, is there any reason there should not be a full-time inspector on master planned communities of 1000 units or more?
Mr. Lynn:
We would put on as many inspectors as necessary. It is the contractor that determines it.
Senator Townsend:
Slow down and forget the contractor for right now. We are talking about you as an inspection professional for the health and safety of people in Clark County. Forget what the contractor thinks. Is there a reason we should not have a full-time inspector on a master-plan community?
Mr. Lynn:
I did not mean the contractor determined it by voluntary means. It is determined by what the work production is. If they are not working very fast, and we have other builders who want to turn out a home every 45 days, I have full-time inspectors on it. Some projects do not need a full-time person. There are not a lot of projects of 1000 units. I am not sure what efficiency I get by putting someone out there. I want to get the most “bang for my buck,” and I want to move them around if I need to. If they are not doing anything one day on the construction site, then I want to pull the inspector off. I do not want someone not working. Do I believe they should have full-time inspection? Yes, all those elements must be inspected as they come up in the construction process.
Senator Townsend:
We will pick that up
when we come back, because it is an important element
we want to get to. It became obvious
the big units are different from the average size units. Get language back to us even if it is
concept. Do not try to write a
bill. Ms. Grein, you made mention of
the recovery fund we put in a session ago.
Where are we with regard to the fund and claims?
Ms. Grein:
We started collecting October 1, 1999. We cannot adopt the regulations until July 1, 2001, regarding how we are going to pay off the claims. We do have some concerns with that language. I hope we can fix it by regulation. It says a claimant may file a claim effective July 1, 2001, and for a period of 4 years. We do not know if it goes back from 2001 by 4 years or works from that day forward. It will make a big difference in how it is paid and what we have. As of February 1, 2001, we had a little over $1 million in there.
Senator Townsend:
If you are a little confused about what the language says, is there a reason we are not addressing it, or is there a bill in the other house which addresses it?
Ms. Grein:
No, there is not. I do have a bill in the other house, and if we need to clean anything up, that would be the one to do it with.
Senator Townsend:
You are assured it will get out of committee?
Ms. Grein:
It will get out on Monday.
Senator Townsend:
The reason is we do not have a vehicle because we will process all of our bills by Monday. Then we have a problem clearing up your problem. If you could assist us with that it would be helpful. If there is any confusion we do not want litigation over it; therefore, we need it very clear on what it is for and why. Okay, you are at $1 million. How long have you been collecting?
Ms. Grein:
We’ve been collecting for roughly 18 months.
Senator Townsend:
Okay, we will open the hearing on S.B. 516.
SENATE BILL 516: Makes various changes concerning contractors and constructional defects. (BDR 54-1452)
Robb G. Smith, Lobbyist, Roofing Contractors Association of Nevada:
On behalf of Mr. Dillon, who had a medical appointment and regrets he could not stay, I am providing his letter, which is self explanatory (Exhibit H).
Senator Townsend:
We have not started the hearing on this yet. I am trying to figure out who is here. The only thing I have is an amendment to S.B. 516 from the American Consulting Engineers Council of Nevada (Exhibit I).
In this proposed bill there is a mechanism for the consumer to find a way to get a general contractor or subcontractor onto the property and repair it. Senator O’Connell had asked whether the screening panel for the design professional would hurt the consumer in terms of time. The answer was, in some cases it could, but the goal was to make it actually quicker. Now we are at this process, and it is the one we want to address today. Section 7, subsection 3, states after a claimant has presented a claim to the board pursuant to subsection 2, a contractor shall immediately provide: a copy of his response to the claimant’s written notice to the board; a written summary identifying each subcontractor who the contractor reasonably believes preformed the original construction which is alleged to be defective; and a written notice the claimant has submitted a claim to the board. The board shall investigate each claim within 30 days. If that occurs, there will be a phone call from the board saying there has been a claim filed and we are going to investigate this claim. What percentage of those is going to get fixed?
Mr. Haney:
Less than 1 percent will be just a phone call from a board investigator saying they are going to investigate. They usually need to get something in writing; which raises the percentage to 30 or 40 percent. When there is an actual on-site investigation, the percentage usually goes up to over 50 percent. Those things take time, and 30 days is not realistic. Typically, you are in the 80 percent range before a board hearing for getting problems resolved.
Senator Townsend:
When you say, “resolved,” could you define that for us? Is “resolved” where they meet a standard, or is it where the consumers say they are fine?
Mr. Haney:
The board investigator decides it meets the standard, because we do not let the contractor dictate the standard, nor do we let the consumer dictate a different standard. We try to look at a normal workmanship issue, which we have defined under NRS 624.3017, and what does not meet the standards. Those standards are met, but sometimes there is an economic adjustment and people go their ways. Most of the time it is repairing the work, either by the contractor or by another contractor, and it is already in the law.
Senator Townsend:
You are saying an actual inspection gets resolution of between 70 and 80 percent of cases before they go to the board?
Mr. Haney:
Yes, it does not go to the board then. And probably another 10 percent are resolved when the board has its first hearing. We did one with Mr. Maddox’s client this week, and it appears it is going to get resolved. There is always an issue of access by the time it gets to the board. In my experience in the last year, there have been more access issues than we had 20 years ago, which presents a separate set of concerns we deal with.
Senator Townsend:
Did we send for someone from the trial bar?
Mr. Haney:
These processes are in place today without the statute.
Senator Townsend:
We understand that. I am just trying to understand what we are doing that is working and enhance it.
Mr. Haney:
One difference is a homeowner files a complaint with the board. Then the board investigator notifies the contractor, giving the contractor an opportunity to do the repairs, although the board investigator does go out and validate. We do not run to every subcontractor because, unless it is the contractor against whom the complaint is made, we will notify all the subcontractors. We do not have the right to force a complaint on somebody.
Senator Townsend:
What do you do with a contractor whose subcontractor has left town or gone bankrupt?
Mr. Haney:
Typically, the contractor is responsible because it was the contractor’s choice to subcontract, and they would be responsible to the owner.
Senator Townsend:
You mentioned access. Please describe that to us.
Mr. Haney:
Oftentimes, particularly with the older ones, there is so much animosity between the owner and the contractor, the owner does not want the contractor back. In other cases it is very well justified.
Senator Townsend:
So the consumer says what?
Mr. Haney:
“I do not want this contractor back; they have been in seven times and have not fixed it, but have made it worse.” Sometimes consumers are unreasonable in that regard, but those are the choices the board listens to each time.
Senator Townsend:
Then the board has the right to send someone new.
Mr. Haney:
That is correct, or in one case when working with Mr. Maddox, there were three bids, and the contractor was going to reimburse the owner for the lowest of the three bids, and the owner is going to choose whomever he or she wants.
Senator Townsend:
I remember an issue we had in our dealership with regard to someone who wanted a certain type of material. He said he trusted his guy more than he trusted us.
Mr. Haney:
Sometimes we will find a homeowner comes to a board first without ever going to the contractor, and then we are a little more lenient on giving the contractor opportunity to repair it. Most of the time, they have gone to their contractors and are not getting the response they believe they should be receiving.
Senator Townsend:
Is what you have heard generally your experience on what takes place in the world of complaint?
Fred Sclafani, Concerned Citizen:
I have been before the contractors’ board three times on complaints. One time I called the contractors’ board and asked for a courtesy inspection, where the contractor had a problem with the homeowner. They told me they did not provide the service anymore, but they would do it if the homeowner called. I called the homeowners, told them they had to write a complaint against me, and I have three of them. Two of them were resolved in my favor. The contractors’ board inspector suggested to the homeowner to go ahead and pay the bill because the work he saw was fine. Another one of the cases I lost, the inspector told me what he thought I should do, and within 2 weeks I did it and the homeowner paid the bill. The system does work for those who use it.
R. Scott Rasmussen, Lobbyist, Nevada Subcontractors Association:
To answer your
question, the difference between the system set up right now which does work,
and the system in construction defect litigation, is the attorney representing
a large homeowners’ association or a single family residence. It is not in the attorney’s interest to go
before the contractors’ board to get those things resolved. This is because the repairs would be done,
as opposed to going through the litigation where, under chapter 40 of NRS, the
fees and other expenses can be paid back to these attorneys to take care of
this. The biggest problem in many
regards is we are not notified until after the lawsuit is filed and then after
a third-party complaint is filed by the general contractor against the
subcontractor that there was a problem.
There is no
mechanism whereby it is mandatory to go before the State Contractors’ Board
first to try to get it resolved, which is what this bill is trying to do.
Senator Townsend:
There is a bill now which says a person has to first go to the contractors’ board, whether it is this mechanism or any other. You cannot file a lawsuit until the contractors’ board has been notified in an effort to fix the problem appropriately. Is there a mechanism you feel protects the interest of your client, while we try to get your client’s interest cared for? Is there something, such as a one stop, and then, if you do not get it done to the highest standard, you see a professional.
Mr. Rasmussen:
My experience has been, in complex or noncomplex cases, there usually have been efforts to try to resolve the problem with the builder. In the complex cases, there usually have been one or more homeowners who have attempted to resolve an issue either with the builder by filing a complaint or with the state contractors’ board. That has been my experience.
We have had these discussions with Ms. Grein and the board about routing and using the State Contractors’ Board as a screening panel. The problem is with complex matters. The present statute requires us to hire experts to provide a very specific and detailed notice of defects. We find ourselves having to retain six to ten experts, because of the specificity requirement. The builders really wanted the requirement because prior to that they felt they did not have notice about the location and type of defect. The battleground in all of these cases usually ends up with the experts agreeing what the defect is, but then there is a fight about how the repair should be preformed with the tension on both sides saying this or that particular repair is better to cure the problem, and so on.
To answer your question, I do not think the State Contractors’ Board is the proper vehicle to use as a screening panel. I am not sure they have the resources, and most importantly, the expertise or the time to go through 75 expert reports to try to figure out what is right.
Mr. Sclafani:
I disagree because, as one of the better contractors, I will take care of any problem I am confronted with. As an example, I do stairs on apartments and before the builder can get a seal of approval, everything has to pass the final inspection. My stairs are inspected in the final inspection. I will get a phone call saying the city inspector has caught your risers to be off and out of the code. The next day I will be out there with my crew taking care of the problem because, for one reason, I want to satisfy the contractor I am working for. I also want to get paid, and I want to make sure I do a good job. I have thirty-some lawsuits going on right now, and the majority are the rise and run of my stairs. The city or county inspects them. If the homeowners’ association has called me out to fix a stair rise, I do it. We take care of our problems. Once these other attorneys get their fingers into it, then you do not get the problem taken care of.
Nancy Estrada, Concerned Citizen:
This man sitting to
my left is telling you the facts. The
lawyers go out there and rile up the boards, and tell them these big numbers
they are going to get to fix defects.
In turn, we get a small amount, and the lawyer gets as much as we
do. We are left with not enough money
after paying our attorney fee to fix our defects. We cause more publicity such as “Do not move to Las Vegas because
they have terrible builders there, and the city and state do not stand behind
you, the codes are so ridiculous and so old and cannot keep up with the
growth.”
The problems go on and on, and it is a nightmare. These attorneys are worse than ambulance chasers.
Senator Townsend:
We should try to keep this on a higher plane. We all have disagreements, but everyone is trying to do the best he can. The issue is you have a specific homeowner board issue you would like to relate to us that created one of these problems.
Ms. Estrada:
The attorneys are involved with the board and the management company, which is what you are talking about. We start out on defects, and I am telling you the facts are the attorneys are causing more problems with these defect lawsuits. They are going to the board and the management companies and talking them into these defect lawsuits.
Senator Townsend:
Did that occur in your homeowners’ association?
Ms. Estrada:
Mine is Rock Springs Vista. I can read you a letter if you would like.
Senator Townsend:
We are trying to do a work session and we would like for you to do that, but not right now. There are many of these issues requiring, currently, these experts to come in, and as a result, we weigh the board down trying to pick among the experts.
Scott K. Canepa, Lobbyist, Citizens For Justice:
The idea is at some point, under the present legislation, they would have to render an advisory opinion. The contractors’ board is actually going to have a mini-trial because they have competing expert opinions. The only way they might be able to resolve that, unless the board members are engineers, is to retain a fourth set of experts to be neutral experts. We have used that neutral-experts protocol successfully in other cases, but the expense associated with that is just enormous.
Senator Townsend:
Let us assume there is a serious issue and the consumer files a complaint with the board. Can the board make the contractor meet a standard even on something serious?
Mr. Canepa:
I might let Mr. Haney testify on what they can and cannot do. I would just say I am not sure the board can tell the contractors how to make the repairs other than to compel them to make the repairs in a good workman-like manner. There is a huge difference between those two premises.
Mr. Haney:
First of all, I concur with what Mr. Canepa said about the cost of the third-party expert; the cost is staggering. Typically, what happens is someone comes into the board and they have performed the work. If there is failure because of a design problem, there is nothing the board can do. If you have an expert come in and say it is a design problem and another expert says it is a workmanship problem, now the board would be performing a judicial function to figure out what the problem is.
Senator Townsend:
If a complaint is filed, is the contractor the ultimate responsible person no matter what kind of defect it is?
Mr. Haney:
There was a gentleman who was building a house for an owner and hired a soil engineer. Once we know the contractor did all that, then he is responsible for the product being right. I do not really care if it is a design problem, it is a workmanship issue, because that contractor has undertaken the responsibility. A typical tract homebuilder, has that responsibility. They have agreed to deliver that home to that buyer without defects. The reason for the defects really does not concern the contractors’ board directly because they are looking at that homebuilder to make those repairs. If they want to go to a trade contractor or a subcontractor, they are certainly welcome to. We may or may not be able to determine whether it was an engineering issue.
Senator Townsend:
The goal is to have a saying you only go to the contractors’ board in the beginning, which is where you have to go. We are asking, then, if you have control over one licensee involved in this project, you say something is a problem, fix it; that is the standard.
Mr. Haney:
One issue with the way this bill is crafted is they want the board to issue advisory opinions. I mentioned earlier they want a real hearing, they are going to affect a person’s license; so you either fix it or work some other place.
Senator Townsend:
What I am saying is the choice is to fix it to the standard or lose your license. It is clean, simple, and responsible.
Mr. Canepa:
What about the non-licensed entities, those entities with no licenses? Most of the developers we deal with are not licensed. They hire a general contractor who is licensed. Most of the developers are the ones insured for the loss and carry the liability insurance to protect the third-party homeowner. They are not licensed. It is a huge problem with the way the legislation is drafted because the State Contractors’ Board does not have the hammer you just described.
Senator Townsend:
The developer does not build the house, does he?
Mr. Canepa:
No, but he sells it to the consumer and is responsible as a matter of law for the efforts of the contractor and subcontractor.
Senator O’Connell:
How can he get the inspectors to sign off on anything with the house if he is not licensed?
Mr. Canepa:
When you say “he,” are you referring to the real estate developer? He does not; he relies on the general contractor to see to it the municipal inspections are called for. There has been abundant testimony the municipal building departments do not go out and inspect every aspect of construction. That is a given. I think, as far as the real estate developer who files the map and hires the general contractor, it is the developer who is the selling entity who actually sells the home to the consumer. They are the ones ultimately liable to the consumer because they sold the product. The way the legislation is presently drafted, the contractors’ board does not have a hammer over them because they do not have the ability to revoke.
Senator O’Connell:
You are telling us the general contractor on that job does not come into play with this scenario, it is the real estate developer?
Mr. Canepa:
The general contractor could come into play, and in cases where we are hired, where the homeowner has not gotten relief, we, in NRS chapter 40, extend the offer to repair not only to the developer, but also to the general contractor, licensed or not. Under NRS chapter 40, the definition of contractor encompasses licensed and unlicensed people and entities.
Senator O’Connell:
We would have to have this cover anyone who was selling the home, which does not seem to be a major change if you are trying to get to whomever had the contract with the consumer.
Mr. Canepa:
What would be the leverage of the contractors’ board if the developer has no license to revoke, and the developer does not do what the State Contractors’ Board instructs? Then what is the penalty?
Senator O’Connell:
I think the penalty for that is a Category D felony.
Senator Townsend:
You are talking about getting to the developer.
Mr. Sclafani:
I am involved in a lawsuit with a contractor, and the contractor is suing me. He built for a developer. As far as I know, the developer has not even been involved in it. All of my dealings have been my depositions and have been with the lawyers for the general contractor. So I do not know what he is referring to, and I think he is just throwing something else into the pot. The contractor is responsible for the project; and if he is a general contractor, he is responsible for all the subs he has hired.
Senator Townsend:
The point is the developer did not develop the product. Putting the developer aside, if the consumer calls the contractor and the contractor does not respond, then there is a complaint filed against the contractor and the board goes out, requiring a repair. If they do not do it, then the problem would be with the contractor because he developed the product. You are saying this does not work because he cannot get to the developer, but I do not know what the developer has to do with it.
Mr. Canepa:
Under long-standing Nevada law, the person who sells you the home and enters into the contract is primarily responsible. If they choose to hire a general contractor to build the home it would be their problem, but not the homeowner’s problem. The homeowner who buys the home from developer A should not have to be forced to go out and look for a general contractor with whom he never had any relationship, other than the fact that, unknown to that consumer, the developer hired the general contractor. Under the implied warranty of habitability in Nevada, it is the vendor, the person who sells the vehicle, who is responsible.
It gets more complex than that. I do not want to oversimplify it, because the developers routinely form limited liability companies and partnerships. Sometimes those limited liability entities are created specifically to do a specific project and then are dissolved. I know the contractors’ board has its own opinion about this, and we do not endorse the idea of a screening panel being the state contractors’ board. To bring a comprehensive resolution, you need to make sure all those parties can be brought to the table and there is a penalty that can accrue to the non-licensed entity.
Senator Townsend:
Well, this is obvious. If you want to be a developer, then go to the contractors’ board and get a license and move on. Now, if the consumer wants to complain about that, then the developer goes to the general contractor who goes to the subcontractor, and they argue it out. At least there has been a contact from which the consumer did not get satisfaction. The licensing tells them they will get satisfaction or they will end up in court. I do not want to make it simpler than that. I am just trying to find a resolution for consumers and protect their rights.
Mr. Rasmussen:
The main purpose of the schematic in S.B. 516 goes one step further. We have a developer who does not have a license, and we have a general contractor who hires out all of these contractors. The main purposes of this schematic, as we have it, are not only to bring the general contractor to bear in this, but also to bring in the subcontractor who actually built the house.
Senator Townsend:
I am not talking about affecting that part of it.
Mr. Rasmussen:
That is the good part, because it is the part where repairs are being done. If homeowners make a complaint against a general contractor, if they are willing to do it, the bad thing is my guys have never been told there was a problem. Would it not be a lot smarter to get those people involved? As far as the expert reports, the only ones that would be required at the beginning are just what the claimants have put out. Then you have a very limited number of expert reports to review.
Senator Townsend:
If that is the issue with regard to bringing in the subcontractor sooner, it cannot be that they are noticed and they went out and now they are done. It must be done to a standard. You cannot “fluff and buff” the thing. There are guys who will do it right, and then there are guys who will do the minimum. There has to be a standard the consumer can feel confident in.
Mr. Rasmussen:
We have done two things to help that out as part of this legislation. Number one, there have been some guidelines proposed to be accepted by the contractors’ board as to what are construction defects, workmanship issues, and the standards for the state. The second part of this is the one having to do with the experts and having them licensed in the state of Nevada, and making sure anyone who testifies knows the standards. Those are the standards we live by, not a new standard or a standard from someplace else. All it requires is a body to apply those standards. I do not think Mr. Canepa would want my experts to apply those standards, and I would not want his experts to apply those standards. You need to have a neutral party who does it, someone who has the teeth to be able to get it done. It is the State Contractors’ Board that has the guidelines to say this is or this is not a problem.
Senator Townsend:
Mr. Canepa, the proposal Mr. Rasmussen made reference to is a little different from what I am trying to do with a simple nature. Now we have dueling experts. Experts should come at the litigious side of things; when things break loose and you move on. You are saying in this bill, on line 34, the board shall issue an advisory opinion concerning the claim not later than 2 weeks after the investigation. Then it goes on to say there is going to be a hearing. My contention is there is an industry standard for the state saying you will do this investigation, and after 2 weeks you are going to issue an opinion. That opinion should say there is not a problem, or say the worker needs to get out and fix it. There should not be a hearing or dueling experts, and I would think that is pretty easy. The investigator comes back and reports: “I went out, I looked, and this is what I found.” It is a public document. This should not be any more complicated than that, but maybe I am wrong.
Mr. Rasmussen:
I think that works fine on things you can visualize, touch, and feel. It does not work well when you are talking about design-engineering defects. What about when we are talking about the engineering aspects of the job? And what about a situation when we have a structural engineer for the plaintiff saying the cause is A, the developer has an engineer saying the cause is B, and the subcontractor’s engineer saying the cause is C, then the State Contractors’ Board has to determine which is correct, A, B, or C?
Senator Townsend:
I do not want them to get a shot at A, B, or C. I want them to make an independent decision on what it is based on, the standard for the industry.
Mr. Haney:
In many cases, especially when they get a little more complicated, the board investigator who is trained goes out and makes a decision. The investigator makes the decision if something is within the standard of the industry, below the standard, or cannot be determined. Those are the three categories we use, and it is not the board, it is the board’s staff doing it.
Senator O’Connell:
I think we are at a very important part here. Mr. Canepa, when you take such a case to court and you win, how then is the problem fixed?
Mr. Canepa:
None of the cases have proceeded to verdict; they have been resolved by way of settlement.
Senator O’Connell:
With the settlement, how is the issue fixed?
Mr. Canepa:
The client hires a general contractor to come in and repair it.
Senator O’Connell:
So the money won from the court case for the client is used for the repair. Is there enough money from the court case for the client to fix the problem?
Mr. Canepa:
I cannot speak for all cases. In my experience, the client is given ultimate authority to settle the case. Presumably the client is not settling the case, or giving the lawyer authority to settle the case, unless there is enough net proceeds to fix the problem. I have not run into the situation in any of my cases where a client has given me the authority to settle a case for a given amount and then ended up with not enough money to fix the problems.
Senator O’Connell:
In a homeowners’ situation, or home development, after the decision is made about who is guilty and who has to bear the burden, you then have nothing else and are through with the case?
Mr. Canepa:
Right, unless the client hires us after the fact to review contracts with contractors. It is the client’s proceeds, and we do not get involved after that point.
Senator O’Connell:
Then to whom does the client go?
Mr. Haney:
I can give you one instance that is coincidental. Some folks visited me from Rock Spring Vista to review some contractors. These people had a little over $8 million dollars. I think Scott settled the case for somewhere above $16 million, I do not know the exact number. They were unable to get a qualified contractor to give them a price, and I shared with them they could not use that type of contractor because the contractor needed a higher limit. The money was not going to repair all their defects. I do not want to knock anybody on that process, because I think the settlement they received was a very good one. The fact of the matter is, the costs of getting the settlement are extreme. The simplest way to look at it is the way Senator Townsend has described it. Let us do what we can to have this construction defect commission. The way the process now works, you file a complaint with the board and they send an investigator out. If he finds the complaint valid and the contractor does not fix the problem right away, he sends a notice to correct. They do not address the complicated issues where there is mixed engineering and things they cannot determine.
Mark E. Ferrario, Lobbyist, Southern Nevada Home Builders Association:
I have to take issue with Mr. Haney. In fact, the process does not work. I have sat here and listened to a lot of testimony. What you are hearing from those involved, other than the trial lawyers, is the litigious process we now have does not work for anybody, even people who go through it. The settlement Mr. Rasmussen achieved was a very good settlement, but you still have people who are disgruntled and frustrated, and you have to ask why. The answer is the process does not work. Mr. Haney is in part correct if a homeowner goes to the contractors’ board first, before the homeowner hires a lawyer, then you have a situation in which the contractors’ board will reintroduce the homeowner to the person or the entity who sold the home. In most of those cases, repairs are going to be made before we get to litigation, and the homeowner, contractor, and subcontractor are happy because everyone got the chance to deal with the problem. I differ with some comments Mr. Canepa made to the effect contractors are given the opportunity to repair in the current process. It simply does not happen. It does not happen for a variety of reasons, and Mr. Rasmussen addressed some of the reasons. First and foremost, it does not happen because in most of the cases my clients get involved in the first notice they have of any serious problem at a community is from the lawyer. I have listened to Mr. Maddox, Mr. Canepa, and the trial lawyers come forward and say they are the last resort, and I beg to differ.
Senator Townsend:
Does this fix it? That is what I am asking.
Mr. Ferrario:
I think this bill has good intentions. I like anything we can do to encourage the seller of the home to reconnect to the consumer. I have listened to you speak many times, from your perspective as a car dealer, how it is important for you to deal with the consumer. Anything we can do to reestablish that relationship is positive. I happen to agree in part with Mr. Haney, some of the time limits are a little too confined. Anything we can do to allow the homeowner and seller to reconnect is a positive step in creating a happy homeowner, unclogging our court system, and dealing with the problem of insurance. It has to do with a question Senator O’Connell posed in terms of whether there is going to be enough money to repair these things.
I am here to tell you right now, in projects being built in Las Vegas, there is not enough insurance coverage available to cover the type of cases being brought. The reason is the markets have all but dried up. You have an acute problem here, but the one thing I think is positive in S.B. 516 is the attempt to make the homeowner and the homebuilder reconnect. Determining how we can achieve that, whether it is through the contractors’ board or through some other mechanism, is what needs to be done. From my clients’ perspective, it is one of the only ways we can see to eliminate the flood of litigation and the problems in Clark County.
Just last week I had two clients call me. One was in the middle of building a condominium project. I think it is important to understand condominium projects are aimed at the people who can afford the $80,000 to $100,000 home. The client was midway in the project and got a phone call from two of his subcontractors who had their insurance policies come up for renewal. The only way they could get insurance was to sign an endorsement saying they would not work any further on condominiums or town homes. The client lost two of his subcontractors, and his project is now stalled. Another client who wants three projects for the low-end of the housing market cannot get them out of the blocks because his subcontractors cannot get insurance in Las Vegas. These problems are real and S.B. 516, from the homebuilders’ perspective, is a good bill, and we support involving our subcontractors in the process. It is a good idea to involve our contractors’ board in the process. I understand the reservations Mr. Haney and the contractors’ board have about getting into an overwhelming problem. I do not think it needs to be so complicated. I think if we can reconnect through the contractors’ board, the buyer and seller, we will eliminate a lot of these issues.
Senator Townsend:
I am not thrilled with section 8, and section 9, subsection 1. If we process this bill with this concept, which says we are now going to license all developers, the complaint will be made, a developer is going to investigated under these terms, and the opinion will be issued, if the opinion says fix it, then it goes back to the licensee. If you do not fix it, then Mr. Canepa is coming to get you. Now, I do not want to make it any more complex than that until we start working on language.
Mr. Canepa:
The only element crucial from our perspective is how to fix it, the method of repair.
Senator Townsend:
It is to meet a certain standard which has been established throughout the state of Nevada to be the standard for that particular work.
Mr. Canepa:
If language can be devised to meet that objective, then we would have something to look at. Although not with the good contractors, many times the repairs are Band-Aid repairs. They are not repairs meant to last.
Senator Townsend:
That is not the goal. The goal is to meet a standard consumers would normally expect to have had when they bought homes in the first place.
Senator O’Connell:
I think we have left out the most important part. When it is the consumer we have our target on, and when they file a lawsuit, I am sure the people who are bringing the suit think they are going to get the problem fixed. This obviously is not fixing their problem, because they have no connection with a contractor, and they do not have enough money to get it fixed. Taking it through the courts has done nothing for the person who is in crisis.
Senator Townsend:
You do not get to court, you settle. It is a settlement between an insurance company and you and your client. Is there a discussion between the parties about the repair, opposed to the dollars?
Mr. Canepa:
Yes, after the process begins.
Ms. Estrada:
If I read my statement here, it covers everything you are asking. Most of the time the community does not know there is a lawsuit filed until after it is filed. We have no voting power, which hurts us. There are litigations without the homeowners knowing there will be litigation, where management companies and boards make those decisions. The board and management company should tell the homeowners. Then they, the homeowners, can vote on the lawsuit, or otherwise we can settle with the builder. It creates a lot of problems because there are a lot of things which become involved in a litigation such as monies going to the management companies for paperwork. We never have enough money, and we will not, in Rock Spring Vista to fix our defects. So far, the board has had our money for about a year now, and all we have had fixed is our pools. We are told by our management company it can go from $15 per hour to $145 per hour just for paperwork regarding the lawsuit.
Joe Carter, Concerned Citizen:
You have all gotten letters from me. You would like to believe the contractor board can do the job you are asking them to do, but my experience has been, 1 year into this, I do not have complaints resolved. You want to talk 30 days, but it is impossible. Senator O’Connell is exactly right. I was involved with a trial attorney when this started, and it was not a good experience. The trial attorney decided we did not have a case after we did all the inspections and found out what all the defects were; then he bailed on us. Now I have lists of defects and code violations I am responsible to disclose to another buyer. Where am I? I am in a worse position than in the beginning. Under the disclosure acts in Nevada, if an expert tells me something is code, I do not have to disclose it; I get to pass the problem on to the next guy. You know where the linchpin of this situation is; it is in the inspection process. In the infinite wisdom of the Legislature, we have exempted the cities from being responsible to the inspection process. They do drive-by inspections. I have seen them out in front of my house sign off 20 or 30 inspections and never get out of their trucks. They have no inspection responsibility. If I was going to make one suggestion for a big start on this, to break the law down, it would be to take the responsibility for inspections away from the city and give the responsibility to a private inspector who is going to put his assets and name on the line. The guys doing the inspections have no responsibility.
Senator Townsend:
What if we make them liable?
Mr. Carter:
That is another thought, but who in the end is liable? I would be liable; I am the city.
Senator Townsend:
That is always the problem.
Mr. Carter:
Look, straight out I would have paid more money to have my home inspected by a certified inspector, someone who knows what he or she is doing. I have 185 roofs in my subdivision that do not meet code. I have had the contractor on top of my roof five times, and they still do not meet code. You received have a letter from me not long ago, and I gave you some exhibits in the letter about two items, fireplaces that were not supposed to have pilot lights, and water piping that was supposed to be insulated. It was called for in the plan, and yet the contractors’ board said the contractor did not have to provide it. While this bill is not a bad idea on the face, the problem I have is that the contractors have crafted it to their benefit without any input from other parties. I could go on about this for days; I am 4 years into this.
I am a homeowner and I am fighting tooth and nail to get my house and 185 other houses fixed. It is an uphill battle. There is not enough money in it to hire an attorney. My house is still not code. I testified 2 years ago in front of this committee on S.B. 286 of the Seventieth Session, and when I got done with that testimony you met me in your office and told me we were going to get my house fixed, and it has not happened.
SENATE BILL 286 OF THE SEVENTIETH SESSION: Makes various changes to provisions governing recovery of losses resulting from certain defects to real property. (BDR 57-368)
Mr.Carter:
There are people of good will on the contractor’s board, but the problem I see in this process is there are too many “good old boys” in this. The makeup of the contractors’ board is six to one contractors. I can understand they need presence, but so do the homeowners. We have an obvious conflict of interest there. I am not saying the contractors’ board is all bad. These people have made dramatic advances over the last few years and are going in the right direction. We are not there yet, and are still a very long way off. Maybe some day you could do this bill, but not any time soon.
Mr. Sclafani:
I just wanted to tell you about the other senator’s question. I am involved in a lot of lawsuits, and one of them I did in 1989 when I started my business. I did a fence around an area called The Lakes. They never painted the fence around the water. The fence rusted out from the moisture and the landscaping. I did a $12,000 job out there, and we settled out of court for $16,000. I asked the lawyer why we settled for $16,000 on a $12,000 job when it just needed to be painted. The lawyer said she told the insurance company it would cost her firm $50,000 to fight it in court. I had nothing to say about it as a contractor. I could have painted the fence myself for less than $3,000, but that is a maintenance item and should not have been included in the lawsuit. The reason these do not go to court is the lawyers are involved in it. I have had aninsurance adjuster tell me he would love to get one of the cases in court because he felt he could win. My insurance went from $42,000 to $135,000, and I had to eliminate three contractors.
Senator Townsend:
You make a very good point, but I need answers to the last two questions.
Ms. Grein:
When I received the letter from Mr. Carter and another homeowner in that subdivision, I decided it was best for me to hire an outside independent inspector to look at the homes, because I was not convinced that staff had done the right job the first time. I did that and just received those inspections, so I know what is really there. I just got the reports back last night, and in fact there are code violations in these houses. We will take it to the next step from here, but I had to find out for myself whether it was true.
Senator Townsend:
Where are we at the next step?
Ms. Grein:
The next step is I will give the homeowners and the contractors a copy of the reports. I will set up a meeting within the next week to have him come in and fix this now, and use the right subcontractors. Some of it is the subcontractors have done inferior repairs.
Senator Townsend:
If there is a code violation, it is the responsibility of the inspector to have found it. Mr. Carter’s point is extremely well taken. If we remove that cap on the liability, then we are suing ourselves. What obligation does this person have? If that is the case, why is the inspector still employed in the city or county?
Mr. Lynn:
I do not know why the inspector is still employed; he or she should not be. Recently, out of Senator O’Connell’s committee, there was a do pass on S.B. 163, which is going to require building inspectors, plans examiners, and building officials to be certified and to have ongoing education.
SENATE BILL 163: Makes various changes to provisions relating to enforcement of building codes by cities and counties. (BDR 22-240)
Mr. Lynn:
They should not be doing drive-by inspections; it is criminal, and they should be held accountable. It is one thing if someone is doing an inspection and misses something.
Senator Townsend:
When you go to deal with Mr. Carter’s issue, do you have any authority to ask the inspector that dealt with his house to come in front of you?
Ms. Grein:
On this particular case we have had letter after letter from the building department saying there were no code violations, so I have no authority over the building department. I do have an expert report, which is signed, and he is responsible for that. I do not know how I am going to deal with the building departments on the issue.
Mr. Carter:
On January 22, I appealed the decision by the Sparks Building Department to pour my concrete porch directly against the stucco, thereby plugging the weep screed, clearly a code violation. They admitted it. They did not follow the code for alternate material, method, or design. They did not have any documentation that allowed it. The application they allowed actually plugged the weep screed so it did not meet the intent of the code. And I am now stuck with a porch which is going to start rotting.
Senator Townsend:
Is there anything in the law, which would require that building department to terminate the individual who let the code violation occur, and require the building department to fix Mr. Carter’s problem?
Ms. Grein:
No, there is nothing in the law allowing that.
Mr. Carter:
If I came to you and bought an automobile, and I specified I was going to get four-wheel disk drive brakes, and when you delivered the automobile it had drum brakes on it, what would happen? Well, that is not happening here.
Senator Townsend:
Let us look at what has been presented here. Is there any reason we should not require a county or city to be responsible for a building department when they allowed a structure to be built below code?
Mr. Lynn:
Cities and counties are held responsible, and there is a cap. Understand that creative lawyers have been able to work that cap to their advantage.
Senator Townsend:
I am not looking to engage Mr. Canepa’s expertise. All he wants is his problem fixed. He may need to use his expertise if that city or county does not do the right thing.
Mr. Carter:
You have to understand the city has overlooked items. Rather than admit their incompetence, they rubber-stamped them. I lose, and the city and contractor win. That is not right because I am the one paying the bills.
Mr. Lynn:
The obligation of the city or county is not to fix the problem, but it should be with the people held accountable who are the licensed contractors. What the city or county should do, when it is brought to their attention and they confirm there is a code violation, is to impose the duty to the “permitee.” Missing something is possible, because an inspector is an oversight agent, not a quality control agent. However, when it is brought to their attention, they should be part of the solution to fix it. I call attention to the contractors’ board when they call us, in Clark County, and we are there for them. If it is a code element, we attest it is a code violation and assist with the resolution.
Senator Townsend:
First thing is you are going to take this to the next level.
Ms. Grein:
I am going to provide copies of the report to the homeowners and to the contractor. I am going to set an administrative meeting and give a certain number of days to complete it correctly, and I will have the same inspector go back to make sure these problems are taken care of. If every building department could model itself after Clark County, we probably would not be sitting here today.
Senator Townsend:
There is going to be something, a bill, so Sparks, Reno, and Washoe County will meet that standard. I have talked to others from the rural counties, but I will tell you I am not going to let those in the north go at a lesser standard than Clark County. With regard to this issue, I do not need to know this contractor’s name right now. I want to know how the contractor responded. If it is not an appropriate response, then I want to know who it is.
Mr. Sclafani:
What is the difference between a construction defect and a code violation?
Senator Townsend:
We are getting to that. We need to resolve this issue because I am not going to tolerate a building code problem in northern Nevada.
Mr. Carter:
This has taken a long time to work out. I would like to say, as a homeowner, I am against this bill, and it is a bill basically written for contractors. If we really want to get together and write a bill, then let us get everyone together.
Senator Townsend:
We are trying to do that, and have been trying for 10 years.
Mr. Fiorentino:
We submitted a proposed amendment in writing. I ask the committee to put that into the next meeting.
Senator Townsend:
Anyone who wants to submit information for Monday, please do so. We will adjourn the meeting at 1:10 p.m.
RESPECTFULLY SUBMITTED:
Patricia Vardakis,
Committee Secretary
APPROVED BY:
Senator Randolph J. Townsend, Chairman
DATE: