Contractors who are playing by the rules are reminded every day of those who don’t.
They regularly bid against fly-by-night, lowball companies or drive past trucks that don’t have license numbers on them in areas where they should.
But there’s one spot where pool and spa builders especially don’t want to see unlicensed activity, and that’s at the counter of the local distributor where they buy supplies. Many believe that when distributors do business with unlicensed entities they are helping these companies to compete unfairly.
Some in the industry believe distributors should play a greater role in fighting the problem of unlicensed contractors. Others think the issue is more complex.
What’s going on?
Mike Geremia is highly sensitive to this issue. As chairman of the California Pool & Spa Association, the industry lobbyist previously known as SPEC, he’s been fighting the problem of unlicensed contracting. But sometimes, he says, the issue faces you right at that counter.
“You can generally tell on Saturdays,” says Geremia, who is also president of Sacramento, Calif.-based Geremia Pools. “You go over there and find all kinds of people who may have different jobs but are going to be doing some weekend work. Oftentimes you’ll have guys standing there saying, ‘Okay, how do I put this in?’ You’ll hear some crazy things.”
Other times, pool and spa distributors might be selling to people who have a license — but the wrong one.
“I’ve seen them just sell to home builders,” says Doug Staples, president of Cimarron Circle Construction Co. in Tucson, Ariz. “In the state of Arizona, you must have the specialty license of a swimming pool builder. But that’s not stopping some of the home builders from going ahead and building pools. It makes it easier for them if they can walk in distribution and pick up all the equipment they need. So that’s hurting us.”
In fact, some distributors are actually making it easier for illegitimate contractors to fly below the radar, says Alan Smith, owner of Alan Smith Pool Plastering in City of Orange, Calif.
Smith, a well-known figure in the fight against California’s underground economy, sees certain distributors training anyone and everyone. Additionally, he says, some plaster suppliers will not only provide materials, but will even pre-mix it in a truck and deliver it on site, making it easier for unlicensed contractors to pick up cheap day laborers and plug them in on the job.
This can appeal not only to unlicensed contractors, but also do-it-yourselfers, he added. “The industry’s changed where there’s so much unlicensed activity now [that some distributors are] marketing toward those guys in terms of training and sales,” he says.
A possible solution?
Many contractors would like to see distributors vet their customers to make sure they’re working legally.
There are all kinds of efforts being made to thwart illegal activity, but distributors are in a unique position to make a difference, Geremia says.
“They’re at the [intersection] between the product and the illegitimate guy. I think it’s just a matter of logistics. A manufacturer can say all he wants: ‘You can’t do this,’ or ‘You have to do this,’ but they aren’t in a position to [enforce] it. There’s only one other step there, and it’s the distributor.”
Distributors already ask for tax identifications and perform credit checks when needed. Some also require proof that the customer has obtained any mandated licenses. But these contractors would like all distributors to take that extra step.
In addition to helping stop unlicensed contractors, asking for such documentation can teach new industry members about the requirements, says Scott Edwards, president of Oceanside Pools in Redondo Beach, Calif.
“Unfortunately, the way some people, including myself, get into the business, they kind of fall into it,” he says. “[Some] don’t do all their due diligence. But if you’re at a distributor’s and they [ask for documentation], then I think that would push the people who are unlicensed into getting licenses.”
Some contractors would think it okay if preferential pricing was offered to licensed contractors. In the past, Smith says, tile distributors would offer a 30- to 40-percent markdown for licensed contractors.
At least this way, the logic goes, those working within the law gain a competitive advantage. “So it doesn’t put the onus on the wholesaler to be the government and make sure everybody has licenses, because that’s not their job,” Edwards says. “But I think for someone to get the contractors’ price, they should have to show that they are a contractor.”
But in other industries, distributors perform this task, builders add.
“I can’t go into a wholesale electrical supply house and buy directly from them because I don’t have a license as an electrical contractor,” Staples says. “Some of them will sell to us, but it’s at an increased price.”
Plumbing and HVAC distributors also make it a regular practice to check, contractors say. “So why should pool distributors be able to sell to absolutely anybody?” Staples says. “They’re not protecting us.”
Another perspective
There are distributors who agree with this notion completely.
At least two Florida-based distributors ask for proof of licensing as a condition of sales. “It’s really a matter of fairness,” says Bill Kent, president of HornerXpress in Fort Lauderdale, Fla. “There’s an unlevel playing field when people are contracting and some of them have licenses, pay insurance and do all the required things, and then there’s the underground economy, where people are just doing it off the cuff.”
At Proline Distributors, customers must provide copies of their business and drivers licenses — even those who pay as they go. Service technicians must show proof that they’ve received the occupational license required by the state, while those who would install or repair equipment must have a pool contractor license. Proline checks for the appropriate license, depending on the company and what they purchase.
“If you don’t have your license, you can’t buy here,” says Shannon Adkins, team leader at Proline’s Boca Raton, Fla., branch.
While it seems like the paperwork would be daunting, Adkins says it’s fairly easy to do. With so much repetitive business, the staff knows just about every customer. He believes this practice not only helps local contractors, but is good for Proline.
“When my licensed guy comes in here and sees those guys who are unlicensed and not paying insurances, not paying the same taxes and things like that, then they get mad,” Adkins says. “So I don’t really want the unlicensed guy around because … my other guys frown upon it.”
But Florida’s contractor license is state-based. In other areas, the licensing laws are more confusing, particularly for distributors working in several states, says Mark Warshaw, vice president of sales and marketing for Bel-Aqua Pool Supply in New Rochelle, N.Y. His company works within several states, and the requirements are all over the map. New York, for instance, doesn’t handle specialty licenses for pool contractors, but leaves it to the counties — some of which require licensing and some of which don’t. Nassau and Suffolk Counties require licensing for residential pool contractors, but not commercial. Connecticut passed a licensing law in 2011.
And many Northeast builders work in multiple states and counties, making it difficult for distributors to know which customers need a specialty license and which don’t.
Bel-Aqua promotes licensing in its materials and homepage and also asks for license numbers in its application forms. But with requirements varying so widely across states, the company doesn’t necessarily turn business away if customers don’t supply license numbers.
“We have done seminars on [licensing], we’ve promoted it, sent information out on it, and we’ve worked with the association to educate our customers,” Warshaw says. “I’m an advocate for it. I just can’t see how we could police it. We could have confusions where it’s tough for my staff to know where things are required and whether they’re not.”
Other distributors will check for required licenses, but feel their control is limited by the lack of requirements in many areas. PoolCorp counts itself in this category.
“Distributors can certainly help in the process,” says Manuel Perez de la Mesa, CEO of PoolCorp, the nationwide distributor based in Covington, La. “But we’re just one of multiple avenues to help bring this under control.”
Most parts of the country don’t call for a license specific to pool builders but may only require a business license. In those cases, a plumber is not breaking a law by installing pool equipment, which leaves distributors open to lawsuits if they try to withhold product from such non-industry professionals.
“There have been cases where, in certain states, we have tried to go above and beyond the laws to make sure the customer is in the pool industry,” says Perez de la Mesa. “And we have been sued because we have not sold to [outside professionals].”
And there’s always a loophole. Even Adkins admits there are ways for contractors to get around his company’s requirement for proof of licensing. His area has so-called quasi-distributors — retailers who purchase the product from a distributor, then turn around and sell it to unlicensed contractors at a slight markup. Retailers don’t require a contractors license, and Proline sells to retailers. There’s no law against it.
“We’re in Southeast Florida, and there are a lot,” Adkins says. “There are as many of those guys as there are real distributors, if not more.”
Additionally, some licensed contractors purchase product that will be installed by their unlicensed subs. Other times, unlicensed subcontractors purchase under their hiring contractor’s name. For this reason, Geremia would like distributors to ask not only for customers’ license numbers, but also for names of individuals who can purchase off a builder’s account.
The comparison to the HVAC, electrical and plumbing industries isn’t necessarily a fair one, Perez contends. It’s a lot easier to track where the products go because manufacturers in those fields sell exclusively through few distributors and each product has a serial number. Manufacturers can trace who installed a product and who supplied it to the contractor as a possible deterrent to unlicensed contractors and those selling to them.
“If unlicensed trade gets product, [the manufacturer] can go back to that distributor, and that distributor can isolate, based on the serial number, specifically where that product was sold and by whom,” Perez says. “In the pool industry, if a manufacturer said, ‘You’re selling to unlicensed trade,’ everybody points the finger at somebody else. Because it’s not only [the distributors] … but it’s probably a dozen other accounts that manufacturers sell to in [one] county. ... It would be best to control the channels to market to ensure full accountability throughout the supply chain.”
From one entrepreneur to another
As fellow businesspeople, contractors understand that for distributors to check licensing would be going over and above. They also recognize that it’s the contractor’s responsibility to attain a license and hire licensed subcontractors; and it’s the government’s role to enforce the law. But they see it as being best for the industry if distributors perform this role.
“There’s no moral obligation for distributors to do that,” Smith says. “It’s a free country and you can sell to whomever you want. But if you’re thinking in the long-term about what’s best for the pool industry and helping the legitimate vendors, it would be an awfully nice gesture, very professional, to try to hold up the industry and give the breaks and considerations to the legitimate guys.
“Right now … most of them are doing what they can.”
