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Wayne
06-13-2004, 07:38 PM
After reading some of the posts in Loren's, "Being a Sub", thread (5/4/04), a feeling of grimmice overtook me to the point of airing my situation. Before someone else states it....yea, I'm stupid for letting it go on. That being said...........

I started in the construction business in 1982 & have worked for several framers & remodeling companies over the years. In 1998, I went out on my own, doing trim/finish work, entirely for homeowners & did quite well, but during one slack time, fell into a deal with a builder, that at the time, seemed to sweet to pass up. As some of you know, that is my current position as job super. I also do the trim & punch-out.

Here's the kicker. I work 7:30-4:00, five days per week, on a salary that he set (with sales bonus), instructed as to where to report for work, (including work done on his family's residences), (recently, setting up jobs to keep us busy, for wages & material @ his cost), given a weeks paid vacation & holidays of his choosing. Yet, he claims me (& the other two that work with me) as subs. It has been this way for over 3 years & there are 3-4 more years ahead, for the next project.

Another issue has been injected now, in the form of my G.C. license. He provided the working capital for the license limit, & has used this to claim a "partnership" status on the license, even naming the company himself (I know that's trivial but it still pisses me off).

I know what he's been doing is probably illegal but is common practice, even with the framing subs I worked for before, but what are the ramifications on me, now that I will be the G.C. on our next project? I'm seriously thinking of pulling out.

Wayne

Ode
06-14-2004, 12:36 AM
Wayne:
You might wish to check with you local IRS PR group. They can not according to my information, use information for anything but to help you. I still would be only honest but not honest to a fault because you are at hand. I just do not have an easy feeling around any of those folks, sorry.
The IRS PR designed people are very interested in getting materials out to us independent contractors on just such topics as you are interested.

Dick Seibert
06-14-2004, 02:26 AM
Wayne:

It's your license, you are responsible for his illegal activities! Don't turn him in, you may well end up paying all those employment taxes he's been evading, or may even be liable for criminal penalties. Just get out now, pull your license out of whatever business structure he's utilizing, and hope to Hell that he doesn't get caught until the statute of limitations has run. Get out now! You could turn him in for a deal with the IRS not to prosecute you for your cooperation, but I wouldn't trust them to honor a deal. You've got yourself in a real mess, and there is no way out but to hope he doesn't get caught.

Allan
06-14-2004, 07:29 AM
Question:

It appears that Wayne is an employee and has been paid as a sub. I am sure that Wayne has reported and paid all of his federal income taxes and self employment tax. Therefore, other than just being classified wrong, if all taxes are being paid what beef would the IRS have with his employer? The only difference in federal taxes between and employee and a sub is that 1/2 of the payroll tax is paid by the employer rather than the employee, plus FUTA tax which is only $68/year.

Of course there is also the issue of state unemployment tax.

Wes
06-14-2004, 09:18 AM
Self-employed individuals pay 15.3% in SS and MC taxes. Self-employed people actually pay more than if you are an employee because if you work for someone else you have 7.35% witheld out of your paycheck while the employer pays the other 7.35%. Self-employed persons do get to deduct 1/2 of their self-employment taxes to arrive at their adjusted gross imcome. This being the case then Wayne's "employer" would owe 1/2 of Wayne's self employment taxes and he could end up with a refund depending on what he has claimed as expenses for being self employed.

I would be worried about the license, insurance & workers comp. Does Wayne have Liability Ins.? Is he covered by Comp? I seriously doubt that if Wayne went to the IRS with questions like this that they are going to be really hard on him. Some people may have a bad taste in their mouth from the IRS but they would be willing to help Wayne figure out if he is liable for back taxes. My advise would be to go to your accountant with the problem, he/she can look at your past returns and run them through again as if you were an employee, if they can't/won't, then fire them and find one that will.

SamT
06-14-2004, 09:37 AM
Wayne,Run" to an accountant for your IRS issues, then "run" to an attorney for your "partnership" contract issues. Then run away from this sleaze ball "partner."

Quit "walking" around with your head in the sand.

SamT

Tom Maynard
06-14-2004, 09:45 AM
Wayne,

I agree with Dick & Allen, Get away from this slug.It appears this Guy was Treating you all as subs. Paying you like employees (the lazy & irresponsable way of running a buisness.) As real subs Relize the need for hourly reveneus some (4 times + or -) the hourly revenue of an hourly salary of legitimate employees. This revenue replaces: Wages- Benifits - The loss of burden & employer paid taxes - Indirect Overhead and "INDEPENDANT" Sub Contractor Profit.

Tom

Allan
06-14-2004, 09:53 AM
My point is this: if Wayne has paid the self-employment and fderal taxes, then the IRS has received all of their money owed, correct? If this is correct, what would be the IRS's reaction to a sub who was really an employee? Is it like not reporting 1099 income, which I believe is a $50 penalty?

Dick Seibert
06-15-2004, 04:49 PM
My first post in the new format.

My point is that in a state that licenses contractors, the contractor that holds the license is liable for everything that the "businessman" that runs the business does. He is responsible for the taxes that aren't paid! He is responsible for all laws that the "businessman" violates, including criminal statutes.

Allan Edwards
06-15-2004, 05:32 PM
My first post too. I am not addressing the issue about his license. I am talking only about the tax issue, and that is if Wayne paid all of the federal taxes due as a subcontractor, even though he was really an employee what ramifications are there to his "employer"? They (the IRS) got their money.

GACC Dallas
06-15-2004, 08:01 PM
My first post as well. I think I can live with the new format.

The IRS would prefer that he be an employee. They have a hard time collecting taxes on small business self employeed people. Also, some self employeed people don't do the quartley deposits like they should. That's hard on governmental cash flow.

Ed.

Dick Seibert
06-15-2004, 09:05 PM
Allan:

What I am mainly addressing is his liability for the acts of the guy that is operating on his license. If the "businessman" fails to pay taxes or engages in any criminal activity, he is primarily liable for those acts, and the "businessman" would be secondarily liable. The licensee assumes all liability for the legal entity that is using his license. That is the bigger issue.

To address your point: Taxes paid by self-employed subcontractors are paid on an estimated quarterly basis, rather than immediately as an employer must pay (within 3 days in most cases), and employees don't get the huge tax write-offs that self-employed contractors get (like $125,000 a year §179 deductions). There are also Federal mandates to be enforced, like time and one half and double time for overtime, which bring in additional income taxes because these things push employees into much higher tax brackets, many subcontractors actually piece-work and don't pay overtime which is mandated by both federal and state law. And of course, the big thing is Ed's point, the IRS much prefers dealing with the deep pockets and not the little guys that may, or may not, be operating out of a shoe box. The IRS has long made the independent contractor/employee issue a huge concern. The states, of course, have much bigger concerns, because of unemployment, disability, and Workers' Compensation insurance.


The new car is in, one of my §179 deductions (I sure don't want to pay Allan's kind of taxes) they are cleaning it up now and I’ll pick it up tomorrow, I am trying to post an image rather than an attachment without creating a link. If you get a link rather than a picture, I failed.
http://www.fototime.com/90C54BDCCC89824/standard.jpg
I failed, is it possible? I put the [img] before and after the URL, that should give an image posted directly into the forum, rather than uploading a files from our hard drives.

Wayne Clark
06-16-2004, 07:05 PM
Allan,
To answer you question, if he is an employer, he is required to pay half SSI & Medicare taxes & carry W.C. as well. True, IRS is getting their money, from me, but if he is riding the fence to evade paying employer taxes, he is going to get caught....eventually.

As far as my license is concerned, it's not been put to use, yet, on this particular project. That's why I posted this thread, to get input & suggestions before it does. I have spoken with an attorney about this & I have a plan of action in motion.

As Dick Seibert pointed out in another thread, a "captured sub" is not legal & that's basically what the three of us are. We work for him exclusively, year round, although, he has no problem (mostly) with us taking side jobs after hours & on weekends (fat lotta fun that is). For instance, our tile man was doing a crappy job & "the boss" talked of getting rid of him. One of the guys wanted to sub this job out himself, after hours (as did the regular tile man), but was told "it doesn't work that way", by "the boss", but he would make that part of his "duties". His other option was to sub the tile & give up his regular job. I'm still trying to figure that one out!

Thanks to all who responded.

Sam T, my heads way above the sand, so please keep your smart remarks to yourself. This is a discussion & information forum & that's what we're doing.

Wayne

Allan Edwards
06-16-2004, 07:15 PM
Wayne:

My question is this:

I understand he should be paying 1/2 of the payroll tax, but you are now paying it. When he "get's caught" by the IRS what will/can they do to him since all of the tax owing has been paid.

I realize there are issues you have with him, rightly so, and there may be state taxes and insurance issues.

Allan

Sam Tyler
06-16-2004, 11:43 PM
Wayne,

I'm sorry if that humorous but true statement offended you.
If I truely wanted to offend you then as I do now I would have said that unless you immediately see your accountant and your lawyer you are stupid and ignorant.

Sensitive and stubborn too.

Your "head is in the sand" if you refuse to see that your situation is hazardous to your financial health. A tax accountant and a lawyer are the doctors you need to see.

SamT

Wayne Clark
06-17-2004, 12:43 AM
Allan,
This really has nothing to do with the IRS getting their money from payroll taxes. What it does have to do with is, employer responsibility. As an employer, you must not only match SSI & Medicare deductions, but must also pay a FUTA tax. This is to cover unemployment insurance... is not paid by the employee or the self employed w/no employees. It is an employers tax. Trying to skirt around this tax, really pisses off the IRS & they can (& will) impose criminal & monetary sanctions, IF YOU ARE CAUGHT! How much, I don't know (nor care to find out).

But there's the kicker.... if you're caught. A lot of "employers" in the construction industry, have not been caught & this makes them feel secure in this dupping of the government, therefore, we, the captured subs of America, either live with it or turn them in. The problem with snitching, is, it will follow you around as you move on (cause believe me, you would be fired if you tried to confront them) & it would impact your reputation with other builders on future job awards. It's a tight-knit group (around here anyway) & word travels fast, both good & bad.

Decisions, decisions..........maybe I'll just go work for BK!

Wayne Clark
06-17-2004, 01:19 AM
Sam,
I'm glad one of us got their jollies...but true? I could come back with, you're an arrogant, short, fat, bald, piece of crap that makes himself feel better by belittling others, but I won't do that, because I don't know you anymore than you know me and if me asking you not to go that route, MAKES you WANT to offend me now, tell me, who's the sensitive one?

You're right on one thing, I am stubborn & I already beat you to the punch on the "stupid" monicker, or maybe you didn't see that part with your head up your butt! (hee, hee)

Allan Edwards
06-17-2004, 07:39 AM
Wayne:

I think for the IRS the entire issue of sub vs. employee IS all about money. I would think that is their sole motivation for wanting people classified as employees rather than subs. Yes you are correct the FUTA isn’t being paid, but that’s only $68 year. There probably would be some monetary penalty, but jail time? I don’t think so. I remember about 10 years ago I forgot to make my FUTA tax deposits on my employees for almost a year, I think the penalty was something like $35.00.

We banter this issue around all of the time on this forum, but no one has been able to give me a definitive response as to what penalties the IRS imposes when the sub pays the self employment tax and income tax, as you do. Does anyone know?

Here’s another angle. Since you paid 1/2 of the self-employment tax that your employer should have paid, would you have a cause of action against your employer for reimbursement?

Wayne Clark
06-17-2004, 08:21 PM
That's a good question, Allan & one I'm willing to explore if this deal goes south. I did ask a lawyer friend of mine about this & he said he would have to reimburse the half I've paid. He's not a tax attorney though, so I would check with someone else too.

Forgetting to make your FUTA deposits & trying to get around it, are two different things. He's been doing this for the three years I've been with him, on three men. The distinction between employee & independant contractor, are important enough to the IRS, for them to have a brochure on it (IRS.org), although, maybe the penalty isn't strong enough to deter those that abuse it.

It all may be moot now anyway. I hit him up for more money today & he said, he knew this was going to happen by using my license & he wouldn't be blackmailed for more money.??????? He is going to try to get his license by personal interview with the board (he failed the test three times already) so he can use that instead. My days with him are numbered.

Wayne Clark
06-17-2004, 08:47 PM
I'm sorry. That web address is, "www.irs.gov", not, org. In the forms & publication search engine, plug in, "independent contractor or employee" & choose the highlighted link.

A lot of useful information throughout the site, if you play around with it.

Ode...
06-18-2004, 01:14 AM
Wayne:
It is well advised that Sam T. and the many experience others have posted here in your behalf. Maybe some of us have been through some of this? We just may have 'learned some few articles of information' so that you and others may be assisted'. This is a knowledge based informational source. When the IRS gets the trail, they will find out. Their best resource is going from the top down to the last one. Is this you? Ask you source in the PR group.
Yes, it is the differnece between staying in business and not. Please note: They do have two distinct different sides. One is the regular enforcement division, while the other is now completel separated to the PR division. Our local sheriff's son is one such individual in the PR side. They can not report any from consulting them according to George Cupp's, (our local sheriff's son), message.

I'm sorry. That web address is, "www.irs.gov", not, org. In the forms & publication search engine, plug in, "independent contractor or employee" & choose the highlighted link.

A lot of useful information throughout the site, if you play around with it.

Sam Tyler
06-18-2004, 08:08 PM
Wayne,
How did you know I'm short, bald and fast? Wasd that you in that black helicopter last night?

And please don't tell anyone else how far from smart I am. I'm trying to get a reputation as a genius.
Samt

Wayne Clark
06-18-2004, 10:50 PM
Sam,
I apologize for making those remarks. It was unprofessional of me & I was just striking out after a bad day. I have no proof that you are short, bald & fat. I only believed what I read... written in the sand................as I pulled my head out.
Please forgive me.

P.S. If you are short, bald & fat, you probably wouldn't be able to bend far enough to get your head up there anyway, so please disregard that remark as well.
Again, my apologies.

Sam Tyler
06-19-2004, 07:46 AM
That's OK Wayne, I understood from your story in your first post that you were going thru a rough time. We've all been there with the boss from h--l.

You've shown that you know how to take care of BUSINESS. Now go find another customer. Don't bother telling the BFH, as it is literally not his business. You need to expand your client base anyway.

And, do see those two specialists, they will make you feel much better.

An old family friend, a very successful chinese businessman, told me as I was opening a new store, "Make a good business, then make friends."

Good luck,

SamT

colevalleytim
06-19-2004, 11:13 AM
It seems like you'e in a sticky situation because you've continued on for a while in a questionable, if not illeagal relationship.

To the question of being an employee or independent contractor. If you receive a predetermined salary, work on jobs dictated and directed by the GC then you're an employee. Imagine workers in any other field. Hourly workers are employees. The GC is evading (not avoiding) taxes. In his mind, you're not covered by his workers comp or liability . [Have a major claim, and you're insurance company will sort this out in a big hurray (endless, tireless lawyers). ] He's not only evading Fed Tax, but local and State Tax as well. Unemployment, Workers comp, Disability etc. It is illegal (read criminal) to claim employees as a independent contractors. Otherwise everyone, at every business would be an independent contractor.

I agree with what was said before, get away from this guy.

If, however, you want to zing him, file for unemployment. You won't collect, but he'll have the devil to pay. Again, endlesss, tireless lawyers.

Best
Tim

Allan Edwards
06-19-2004, 02:01 PM
Tim:

Could you expound on your statement:

"It is illegal (read criminal) to claim employees as a independent contractors."

And when you say illegal, is that violation of state or federal law, is so, which law? I am familiar with IRS regulations and understand they can impose monetary penalties but wasn't aware of criminal penalties.

Allan

Dick Seibert
06-19-2004, 02:55 PM
Allan:

The IRS does have criminal penalties for willful evasion of the tax code, people go to jail for tax evasion. It's not illegal to "avoid" taxes, but it is illegal to "evade" them. I don't know the IRS distinctions between "avoid" and "evade", but I would assume that the intent would have to be willful, and fraudulent. I would also assume that if one actually followed the IRS Independent Contractor guidelines in an effort to avoid paying the employee taxes, that it would fall under "Avoidance", but if one just willfully and arbitrarily classified an individual as an Independent Contractor when, in fact, the employment agreement constituted employee status that it would be classified as “Evasion”. Ignorance of the tax code is not an excuse, so you can’t claim that you haven’t read the guidelines, but you could make a strong case that you read the guidelines and tried to meet them in an honest effort to “avoid” paying the taxes.

I think a good case would be what we have here, if the IRS were to go after you for the taxes due by one of your subcontractors if they determined that your subcontractor didn’t qualify as an independent contractor, they would probably just assess you with the taxes and an administrative penalty. On the other hand, it appears from what Wayne says, that if they went after Wayne *and* his employer they would bring criminal charges as well as the administrative charges. The scary thing here is that since Wayne holds the license, he would be primarily responsible, and the employer would only be secondarily responsible. The guy holding the license assumes the responsibilities of the business, and he is responsible for what the other guy does. If I were Wayne’s employer’s lawyer, my defense would be that Wayne knew what his “partner” was doing, and not only acquiesced to what he was doing, but had a legal obligation to stop it, which he didn’t, it’s Wayne that should pay the penalties and go to jail, not his “partner”.

You can't tell a subcontractor what, when, where, or how to do something, all you can legally control are the results as defined by the contract. So it's important to put the whats, whens, and wheres in the subcontract agreement, but don't put the hows in the agreement.

Allan Edwards
06-19-2004, 03:02 PM
Dick:

I, like the whole world, knows it’s illegal to avoid taxes. What Tim said was that “"It is illegal (read criminal) to claim employees as a independent contractors". I don’t know of a law on the books that makes that illegal, but I stand to be corrected.

I still have not gotten an answer to my primary question, if in Wayne’s situation he is working as a sub but obviously is an employee but is paying the self employment tax and federal tax, what liability would his “employer” have with the IRS? I know the FUTA tax would be due, but that’s fairly minimal. What other specific penalties are there?

Dick Seibert
06-19-2004, 03:35 PM
Allan:

It's not illegal to "avoid" taxes, that's what we hire CPA's and tax attorneys for, we want to avoid as many taxes as we can, but we don't want to cross the line and "evade" any taxes, that's criminal.

To answer your question, the employer (and that means Wayne, as well as his "partner") would be liable for all unpaid taxes (and penalties which soon exceed the taxes), both state and federal, that haven't been paid by the so-called subcontractors *and* the employer's share. FICA taxes are paid 50% by the employer and 50% by the employee, so if the so-called subcontractor didn't pay any FICA taxes, Wayne would be liable for 100% of what should have been paid, if the so-called subcontractor paid all of his taxes then Wayne wouldn't be liable for the taxes but would be liable for penalties for illegally classifying the employee as a subcontractor, and those penalties could be monetary, or criminal if the IRS determined that Wayne's negligence rose to the level of criminal conduct. As to specific penalties, they may, or may not, be in the voluminous IRS Regulations, they require a tax attorney to wade through.

I have an old friend that is sitting in prison right now; the IRS penalized him for classifying roofers as subcontractors and office personnel that put him into bankruptcy since they went back several years. Once that was over the State prosecuted him criminally for failing to pay Workers Comp on them and that’s what he’s in jail for (and his wife is in jail too since she kept the books).

Allan Edwards
06-19-2004, 04:00 PM
Dick:

I agree one should not do anything to evade taxes, unless you want to live in the hills somewhere. If you are interested in building a net worth with some assets and wealth it’s not very smart to jeopardize those with stupid mistakes. That’s one reason I’ve used a CPA (same company) for 20 years to keep things straight.

The subcontractor-employee issue is certainly an area the IRS could exploit, in several areas. I know in my observing this industry for many years I think it’s more an issue with the subcontractors themselves who hire employees and pay them as subs than builders hiring subs who could be classified as employees. As one who pays quite a bit in taxes I’ve always advocated the IRS cleaning up the underground economy. My simple answer is that anyone paying anyone else, even if it’s subcontract, should withhold at least 10% if not 20% for taxes, just like employers withhold from employees.

I am still not convinced that there are many instances of employers who pay their people as subs who would receive jail time.

GACC Dallas
06-19-2004, 04:22 PM
Allan,

If he's paying the 941 taxes on time (and doubling the FICA) then he has taken control of the situation and is showing to me that he is responsible for his taxes as any other sub would be. He may not act like a sub or feel like a sub, but his paperwork is that of a sub.

The 940 taxes are another issue. If he has no employees, does he still have to file 940 and federal unemployment taxes? Can he, as his own boss, file for unemployment compensation on himself?

Ed.

Dick Seibert
06-19-2004, 04:23 PM
The issue I am seeing is builders subcontracting the labor, and then the subcontractors paying their employees on a piecework basis, which is in effect subcontracting. The subcontractor is then violating the IRS regulations, and I think your question is whether you, the builder, are liable for the acts of your subcontractors. I would think that if you legally subcontracted the work you wouldn't be liable, unless you had knowledge of the fact that the subcontractor was violating the law, *and* you continued to subcontract work to him. Your culpability would rise if you in someway benefited by his illegal acts, like getting lower prices because of his illegal business practices. I think the operative words here are "knowingly* and *benefit*.

Other things could come into play on the "knowingly" issue, if the reasonable cost of framing a house, and paying reasonable wages and benefits, is $15 a square foot in your area, and you subcontract the work to a subcontractor for $10 a square foot, the IRS is going to impute knowledge on your part that something is wrong and you either "knew", or "should have known" (in their language) that the subcontractor could only be doing that by violating the law. To a point you don't want to know, but there comes a point where you are constructively imputed to have known.

The issue here is a lot simpler with contractors licenses, if the subcontractor is licensed, you have reason to believe that he is legitimate, and it's a little easier to turn your head to the pieceworking.

Allan Edwards
06-19-2004, 04:39 PM
Ed:

I’ve always filed TEC (now Texas Work Force) reports (Texas’ Unemployment Reports) and 940’s, even when I had no employees except myself. If you are a one-person company I believe the 940’s are still due. By the way, to answer you question, as an owner yes you can draw unemployment because I did it in 1985! I was very surprised it was available to me, but I had paid into the system for many years and decided to collect.

Dick, I don’t think you are correct and here’s why. Let’s say you had an employee who, even though you did the proper withholdings, didn’t pay all of his income taxes due to the IRS. Even if you knew, you cannot be held responsible for his violations. Of, if you bought groceries at a store and the store keeper collected sales tax from you but didn’t pay to the state, you cannot be held liable. I think its a stretch that if a company has a valid subcontract arrangement with a subcontractor and the sub doesn’t pay their taxes that the company can be held liable. What if you knew your neighbor was being paid cash for his job and not paying his taxes are you required to turn him in? Maybe you should but I don’t think you are required to.

I have 40-50 subcontractors and there is nothing I legally can do to really know if they are or not paying their taxes. I suspect a few aren’t, but how do I really know. We are not required to squeal on our fellow citizens in this country, although I hear the IRS does offer some nice rewards!

Dick Seibert
06-19-2004, 04:52 PM
Allan:

Well if there is no now way that you should have known there is no problem, but if you know, or should have known, there could be a problem. If the IRS can impute knowledge, then they can complain that you were in complicity and benefiting from the evasion. They can make a case that subcontracting is a subterfuge to evade the law. Look at the current Wall Mart prosecution; the government is going after Wall Mart, not just their subcontractors. It's Wall Mart that benefited, and it's Wall Mart that has the deep pockets.

To be safe, it's probably time to put a clause in your subcontract agreements requiring your subcontractors to obtain I-9s on all their employees, and comply with all laws. That way you have made a "good faith effort" to bring your subcontractors into compliance, even if the subcontractors ignore the clause.

Allan Edwards
06-19-2004, 05:00 PM
Dick:

From my Independent Contractor Agreement my subs sign:

INDEPENDENT CONTRACTOR STATUS: Contractor will perform the Work as an Independent contractor, having the sole right to control the details of and manner for performance of Work. Contractor acknowledges that this is a Lump sum contract and that from the sums paid to the Contractor by Builder, Contractor will be solely responsible for withholding taxes, social security taxes, and state unemployment taxes for Contractors employees or subcontractors...............No taxes will be collected or paid by Builder under this agreement.

Dick Seibert
06-19-2004, 09:27 PM
Allan:

I am surprised that your GL Carrier accepts that clause. I use the AGC sub-contract agreement, which has been reviewed and accepted by my insurance carrier with one slight modification, the following is the Hold Harmless and Indemnification clause:

"SECTION 11. HOLD HARMLESS & INDEMNIFICATION. To the fullest extend permitted by law, Sub-Contractor shall indemnify and hold harmless Owner and Contractor and their agents and employees from claims, demands, causes of actions and liabilities of every kind and nature whosoever arising out of or in connection with Sub-Contractor’s operations performed under this Agreement. This indemnification shall extend to claims occurring after this Agreement is terminated as well as while it is in force. The indemnity shall apply regardless of any active and/or passive negligent act or omission of Owner or Contractor, or their agents or employees, but Sub-Contractor shall not be obligated to indemnify any party for claims arising from the sole negligence or willful misconduct of Owner or Contractor or their agents or employees or caused solely by the designs provided by such parties. The indemnity set forth in this Section shall not be limited by insurance requirements or by any other provision of this Agreement. All work covered by this Agreement done at the site or in preparing or delivering materials or equipment to the site shall be at the sole risk of Sub-Contractor until the completed work is accepted by Contractor."

I would like to modify it, but am hesitant to modify anything because anything other than an industry standard contract becomes a "contract of first impression"; the clause has never been litigated before and becomes very expensive to litigate.

I am currently considering taking that chance to protect myself, by requiring the subcontractor to provide me with I-9s for all of his employees, together with a clause prohibiting piecework by the subcontractor.

GACC Dallas
06-19-2004, 11:21 PM
Dick,

If I was your sub, I'd be hesitant to give you copies of the I-9's. They have the employees names, addresses, SSN# and DL# listed on the form.

That's pretty personal and also potentially dangerous information in the wrong hands. I don't give out that kind of information on my employees including phone #'s.

I think you're on the right track though. If there was some way that a builder had to verify that any trade company was on the up and up, it would cut down on the bootleggers and make business more profitable for all of us. AND it would cut down on the low standard of building that I'm seeing everywhere.

Unfortunatley, no matter what you did, some people would find a way around it. But we should find some way to make it harder.

Ed.

Dick Seibert
06-20-2004, 12:26 AM
I hear you Ed, something tells me that I don't want to know this stuff, and that if I did know that I might even be assuming more responsibility for monitoring your activity, and could also be crossing that independent contractor/employee line that we are all so scared of. I think the safest course for a builder is to just keep quiet and if he suspects something wrong just not hire the subs with the "questionable" employees again.

If I didn't hire them again, it would be good for the good subs like you because the subs with the questionable employees wouldn't be competition to the honest subs.

This is a real touchy area; you’re damned if you do and damned if you don’t. I would appreciate my good subs informing me of any other subs on my jobs that have “questionable” employees though, so I could just quietly not hire them again and then just keep my mouth shut (and as you know that’s hard for me).

Allan Edwards
06-20-2004, 09:12 AM
Dick:

I’m surprised that you are surprised about the “Independent Contractor Status” clause. All it does is establish the relationship between the two parties and makes the subcontractor responsible for withholding the proper taxes from his employees. That is the very issue we’ve been talking about here. The other clause you mentioned is a standard Indemnification clause which is also in my subcontract agreement and deals with “claims, demands, causes of actions and liabilities”. Its the proper clause to have for dealing with general claims but does not directly address the issue of subcontractor status with regards to direct employee or subcontractor and does not address the issue of tax collection and responsibility, which the other clause does. You may want to consider adding a clause in your contract similar to the one I posted above.

Look, this issue is all about everyone paying their fair share of taxes and who is responsible for making sure this gets done. Well, I will tell you it begins with the federal government establishing the laws and regulations, and they’ve done a pretty good job where there is a direct employee relationship. Taxes are simply withheld from each paycheck at every pay period. However, they (the gov’t) has failed in two areas. One, self employed people (including subcontractors) are allowed to handle and control their own payments and deposits. Take a small contractor. He works 3 months on a job, makes $15,000. Probably at least 25% of that, or almost $4,000, is due the gov’t in payroll and income tax deposits, not to mention state tax and insurance. This guy has very little working capital, he has bills to pay, he is probably not charging enough on his jobs, it is so easy to just blow off paying these taxes to a later date, before you know it he is really behind the 8 ball and the gov’t cannot get their money.

Second area the gov’t has failed is in the very area we are discussing, they are not enforcing the employee-subcontractor relationship. There are just too many people getting paid as subcontractors when they are really employees and should have taxes withheld from each paycheck. Again, these are usually lower paid people who simply don’t have the money or the discipline to pay their taxes, especially when they get behind for a period of time. The IRS starts adding penalties and interest and pretty soon it’s insurmountable. These people are now trapped in the underground economy. And this isn’t restricted to residential construction, it’s pervasive in many other areas too.

Ed brings up a good point. It’s really the employers responsibility to determine status of their employees. No way could you hold the employer (builder) hiring a subcontractor responsible.

Dick Seibert
06-20-2004, 11:00 AM
Allan:

I think we are going to have to wait until the resolution of the Wal Mart case to see if the government can hold a business liable for the taxes of it's independent contractors.

Allan Edwards
06-20-2004, 11:33 AM
Dick:

I predict the Wal Mart case will be settled with Wal Mart paying some kind of fine and required to institute some broad regulatory action company wide that prevents this from happening in the future. Talk about hypocrisy, the Government allows illegals to come here, then cracks down on them for holding a job? They don’t protect the borders, allowing 10 million illegals to come here and live and work. By the way Dick, I’ve read quite a bit about this case and there is no issue of Wal Mart being held responsible for paying their taxes, the issue is simple did Wal Mart officials violate immigration laws by knowingly hiring illegals. Wal Mart has 600,000 employees. Much ado about nothing, they continue to pour across our borders and we continue to employ them because they work cheap!

The bottom line is the gov’t just never has come up with a viable plan or program to deal with illegals coming into this country.

Dick Seibert
06-20-2004, 11:40 AM
Allan:

We've got legislation back on the table to give them drivers' licenses. Does Texas license them? I've read that we've got a bigger illegal problem than any other state. The Border Patrol is conducting sweeps in Southern California, even though they are suppose to confine themselves to the border, and there are rumors of sweeps up here but the local officials are denying it. I read yesterday that they have them so scared in San Jose that many are not leaving home and going to work.

Allan Edwards
06-20-2004, 11:53 AM
Dick:

Honestly I’m not sure if we issue them licenses, but I don’t think so. Illegals workers are like illegal drugs: they’re here by the tens of millions, it’s hard to find all of them, the gov’t has limited resources to deal with them, and the most important factor, there is an enormous demand for them here.

Solution? Probably the same for both. They should be decriminalized, controlled, and taxed.

Dick Seibert
06-20-2004, 12:26 PM
Allan:

I agree. I think the problems stems from '60s when our educational system stopped tracking grade school students (by IQ scores and family background) into trade courses and college prep courses, and started tracking everybody into college. Now there is no trained workforce, those that would have become carpenters in a prior generation, are now becoming lawyers. The unions trained through their apprenticeship programs, but have lost ground to the non-union contractors. Now, the unions have actually set up separate categories for the non-English speaking (read illegal) workers which will forever keep this generation in servitude. The lower paid categories for non-English speaking union members don't require attendance in apprentice programs (they can't read so how can you teach them to be carpenters [cut roofs, layout houses, cut stairs, etc.]) and they have separate lower paid classifications.

The most important factor for us is training and communication, we can't have untrained people flashing our roofs and windows if one slip can cost us a million dollars in a mold claim.

I hate to see more government intrusion, but maybe it’s time for the state to start running the apprenticeship programs and licensing carpenters, plumbers etc. Then make it illegal for a licensed contractor to hire a non-licensed tradesperson. There is some precedent for this, many years ago some local communities (around here) licensed plumbers, tin men, and electricians. The courts threw that out, saying the state had usurped that authority. A contractor’s biggest problem is a trained workforce; I’ve always been limited by the quality of carpenters available to me. Even in the ‘70s I had to turn down many houses because I couldn’t find enough qualified people to build more than two at time. While immigrants have always constituted the bulk of the construction trades, the unions trained the immigrants through apprenticeship programs in the past. The Hispanics seem to resist learning the language, while prior immigrant classes seemed to make learning English a priority.

They've won, by shear numbers, now we have to learn how to deal with it. If we don't, we are going to get sued for everything they do.

Allan Edwards
06-20-2004, 01:16 PM
Dick:

I doubt the gov’t is the entity to do the training. Construction is a private enterprise and the gov’t just isn’t the place or do they have the money to provide the training. I hate to lay everything on the marketplace, but excessive lawsuits or warranty work does have an impact on builders. I don’t think training is required but no doubt instruction and better supervision is always helpful.

Dick Seibert
06-20-2004, 01:51 PM
Allan:

You say: "I don’t think training is required". Who is going to train the carpenters? You have to understand that we have moved from a union environment to a non-union environment, in the past the union did the training, which we funded through a "Training Fund" that we paid into with our union benefits checks every month. While cutting roofs, stairs, and running a transit to layout houses isn't rocket science, it still takes some "bookwork" training to develop the necessary skills. Since the "demise" of the unions we have suffered a sharp decline in competent carpenters available to us. I have to spend much more time on the jobs supervising carpenters today than I did in the past, because the help available today just doesn't know all of this stuff. Texas has apparently never had unions to do the training, who trains carpenters in Texas?

At the same time that training has disappeared, the public's expectations have taken a sharp upward turn, while the legal industry has discovered a gold mine in construction litigation. Supervisors can't stand over carpenters showing them how to cut rafters all day long. If they do, they might just as well do the work!

Allan Edwards
06-20-2004, 06:12 PM
Dick:

You ask who trains the carpenters? What about the roofers, painters, electricians, tile setters? Why are you so focused on carpenters? At age 16 I went to work for a framer, .$90 an hour. I carried lumber for a few days, then nailed corners and tee’s together, then cut headers, trimmers, then nailed walls together, then learned to layout walls, then nailed ceiling joists, then rafters, then learned to cut rafters laying out with a framing square. Along the way the more experienced taught me. I assume that’s how carpenters are taught today. Seemed a lot better than formal training because it was on the job, we don’t need no stinkin’ unions. Framing seemed liked basic geometry to me, and I was good in math! But that’s a lot of years ago. Ask Ed how his guys learn, I bet the same way I learned.

Dick Seibert
06-20-2004, 07:07 PM
Allan:

To know your trade, whether it's carpentry, plumbing, HVAC, or electric, it takes a combination of actual jobsite experience and "book learning". I focus on carpentry because it's carpentry that qualifies one to be a contractor or builder, that's what the state tests you on to become a general contractor, or builder. It's the carpenters that oversee and coordinate all of the other trades (see the Lead Carpenter Forum). Typically a carpenter starts out working 8 hours per day, and goes to school three nights per week, for the first 4 years as he moves up the ladder from 50% of journeyman scale until he qualifies and passes the tests for journeyman. In California you can't become a builder until you have attained journeyman status and put in 4 years as a journeyman. Then, and only then, are you eligible to take the written test to become a general contractor. Some corporations hire a contractor as either a RME (responsible managing employee) or make him a corporate officer where he becomes a RMO (responsible Managing Officer [I am the RMO of my corporation]). The HVAC trade takes a tremendous amount of bookwork, there are volumes of stuff to learn about servicing and installing HVAC units, there is no way that this can be learned by "doing" in the field, the calculations alone can't be done in the field.

This brings me back to the question we were addressing earlier as to the liability of the builder for the taxes of a subcontractor. This is a real problem, the general contractor is the general, and the subcontractors would be like the lieutenants. The general is responsible for everything that the lieutenant does, that includes paying the taxes. This probably isn't a problem for you now, since Texas doesn't license contractors, you are just like brokers putting everything together, but when they do license contractors, the general will be responsible for everything that goes on his projects, and he won't be able to turn a blind eye to tax evasion on the part of his lieutenants. The problem is that once he starts getting into the business dealings of his subcontractors, he is going to cross the line in the independent contractor vs. employee IRS guidelines. This is going to become another one of the many "conflict of laws" problems between state and federal requirements.

For now I would stay out of the subcontractors’ business, unless the violations are latent (like obvious non-English speaking employees), and even then I wouldn’t say anything, I just wouldn’t hire them again. But in the not to distant future I foresee the IRS holding the general contractor liable for all taxes due by his subcontractors. Just too much money isn’t being paid by the subcontractors, particularly those that piecework their employees. Given the choice of your solution or me withholding taxes on all subcontractors, and my being responsible for obtaining documentation from the subcontractors that they have paid all necessary taxes on my projects, I would opt for the latter. I pay the damn government enough now, and don’t want to get involved with withholding taxes from my subcontractors. I have a payroll service that takes care of the withholding for my employees, but I issue the checks to the subcontractors myself, I see no way that I could hire a service to pay my subcontractors and withhold the taxes from their payments. I have the problem now when the IRS serves me with garnishment notices on subcontractors, I hate that, it’s a ton of work for me because some idiot that shouldn’t even be in business is not paying his taxes. I do what I have to do, and then don’t hire them again. Unfortunately this is just now becoming a real problem, because in the past the IRS didn’t know they were working for me, now that I have to file a DE 542 before paying an subcontractors any money, and the EDD notifies the IRS and the garnishments come in before their first check is due. This is not a crazy California requirement, Federal law requires the states to do this under the guise of collecting child support, but it’s a vehicle for both the state and federal government to seize the money from us due the subs before they even get it. Maybe this is as good as the withholding that you propose because if they fall behind the government gets the money up front. Now try to make them perform their subcontracts when they know they are only going to be getting a portion of their money. http://www.edd.ca.gov/taxrep/txicrtx.htm EDD 542

Are you filing similar forms in Texas on subcontractors, and getting their money garnished? You should be, Federal law requires all the states to do this, but they are just starting to enforce it in California, and my accountant says they will be enforcing it in the developing states soon. BTW, the penalty for a business not filing the 542? That business could be held liable for all the child support payments and taxes owed by the subcontractor!

Form the back of the EDD 542, listing the things you must notify the state on about a subcontractor:

Service-Provider (Independent Contractor):
1) First name, middle initial, and last name
2) Social Security number (or Federal ID number)
3) Address
4) Start date of contract (if no contract, date payments equal $600 or more)
5) Amount of contract including cents (if applicable)
6) Contract expiration date (if applicable)
7) Ongoing contract (check box if applicable)

Pay particular attention to the requirement that you have to give them the amount of the contract to the cent! I sure don't want to pay any of these guys child support or back taxes, so I do as they request and immediately fax them the forms.

Allan Edwards
06-20-2004, 07:19 PM
Dick:

I will give you a very honest and I believe very accurate assessment of your “gotta be a carpenter to be a builder” theory:

1. I would guess the majority of homebuilders in this country have never been carpenters. The absolute most successful builders I know have never held a hammer.

2. Being a carpenter and becoming a gc or builder is a detriment.

You also said, “The general is responsible for everything that the lieutenant does, that includes paying the taxes.” Can you reference the IRS regulation that supports this?

We are not required under state law to withhold child support from subs.

Dick Seibert
06-20-2004, 07:25 PM
Allan:

I was editing my last post when you posted your last comment. But you are responsible for your subcontractors' child support and/or back taxes if you fail to give timely notification to the government that you have employed the sub to give them a timely opportunity to garnish the payments from you, check the end of my last post.

Dick Seibert
06-20-2004, 07:44 PM
Allan:

To answer your comments about non-carpenter contractor/builders. Most of the homes that are produced in this country are produced by merchant builders that are businessmen with no construction experience, in states that have licensing laws they have to hire a licensed contractor to supposedly supervise their work and operations. By and large they build crap, and they are getting sued for building that crap, and they should be sued if they build crap, particularly crap that settles or leaks.

The legal system is the only protection the public from those charlatans that put the bottom line ahead of professional performance of the trade that they are supposedly practicing.

colevalleytim
06-21-2004, 02:43 AM
Let's clear-up the illegal vs criminal issue. If you do something against the law, it is a crime or criminal. Get caught speeding and pay a fine--you are in effect a criminal. Do it enough or wrecklessly enough and you will go to jail and pay a fine. Most criminal classes have a time and fine components. We just don't see them applied as such. So. if a gov't agency (say IRS) fines you, they might also be able to try you and sentence you to time. Clearly, it isn't in the public good to lock people up for not reporting and paying their housekeepers various payroll taxes. But, depending on your state and the Fed's you could have committed a felony. That has harsh penalties and remains on your record. This can affect your credit, insurability, and licensing. That was the whole point of legal warning.

And, I haven't checked for a couple, maybe 5 years, but the IRS has 20 separate regulations for someone to be considered a subcontractor not an employee--alll 20 must be met on a consistent basis. This is why everyone at Walmart and MaDonalds are not independent contractors.

Now for the avoiding and evading taxes. A quick exqmple. If you are a cash basis tax payer (not accrual) and on December 20th, you tell a client don't make that final payment until next year so that my income (hence taxes) for this year is lower. You have legally avoided taxes for that year. If however you don't report the income you have evaded taxes. That's illegal.

Corporations do it all the time. Make a lot of money the last two months of the year? Maybe you should stock up on supplies, make early reapirs, replace tools, prepay some rent, put additional money into retirement. All legal ways to avoid taxes in the current year by reducing income. (Careful, the IRS does have some reasonableness standards.)

Happy to talk about this more.

Tim

colevalleytim
06-21-2004, 02:50 AM
Wayne

I re-read you're original post. It sounds like this guy is taking advantage of you. And will take as much as you're willing to give.

I'd get away from him or redefine your relationship as a real subcontractor.

One other thing, you mentioned the two other guys who work with you--are they your employees?

Best
Tim

Allan Edwards
06-21-2004, 07:46 AM
Well, another week, another opportunity to shoot down Dick‘s crazy ideas.

Dick, you said, “By and large they build crap”.

Well Dick, one person’s crap is another persons gold. Reminds me of a friend I have who owns a semi-exclusive restaurant, he is fairly close to a another restaurant of much less quality but good enough food at cheap enough prices and it draws 10 to 1 what he draws. Of course he is successful for what he does as is the other restaurant. He complains how the other restaurant’s food is “crap” but the people go there in droves.

I’m sure BMW consider cars made by GM “crap”, but GM outsells them 8 to 1.

In reference to your claim that builders must withhold from subs for child support, I am not aware of any law that requires that, you referenced a CA law, who knows.

Colevalleytim:

The old 20 rule test by the IRS is not applicable anymore, not that it doesn’t hold some relevance but if you go to the IRS website under subcontractors they approach it a little differently now. I actually went to Google and typed in “IRS subcontractor” and went to their site, it actually makes for pretty good reading. By the way, one of the tests they use is the “Reasonable Basis Test”, with one criteria being “a long standing practice in your industry”. That alone does not make every sub a qualified sub under IRS guidelines but builders have been subcontracting work for decades.

By the way, under your definition I must admit I’m a criminal. I had several speeding tickets before the age of 20, had a ‘69 Camero that got me in a lot of trouble, but it also got me a lot of dates.

Dick Seibert
06-21-2004, 11:57 AM
Tim is correct. In the past the IRS didn't allow a contractor to be on a cash basis, but a few years ago a federal court ordered them to allow contractors to utilize the cash basis method of reporting income, saying that they can't deny one profession a system that they allow other professions to utilize. Now even I am on a cash basis, after 40 years of being on a completed contract/accrual basis, it's nice. I haven't looked lately, but I think that if your gross receipts are over 5 million you have to utilize a percentage of completion method of reporting income.

Allan Edwards
06-21-2004, 07:52 PM
Dick:

Question:

Under the CA law of contractors withholding from subs for child support, when Pratt-Whitney subcontracts from Boeing does Boeing have to hold out child support? Surely some of Pratt-Whitney people are paying child support.

Dick Seibert
06-21-2004, 08:57 PM
Allan:

What happens, nationwide under federal law (if the states are obeying the federal law), is Boeing immediately files form DE 542 notifying the state of the 7 things listed above pursuant to the contract with Pratt and Whitney. P&W has already filed a DE 34 when it hired each employee, and will continue to file DE 34s on any new employees it hires pursuant of the Boeing contract. The state notifies the Federal government of all DE 542s and DE 34s filed.

If any P&W employees are delinquent in child support or taxes, the government (state or federal) serves garnishment notices on P&W. If P&W fails to garnish the monies, the state can then serve notices of garnishment on Boeing, garnishing the delinquent amounts from the contract amounts Boeing is obligated to pay P&W under the agreement. If Boeing fails to honor the garnishments, then it is liable to pay the delinquent child support and taxes.

If P&W fails to file DE 34s on its employees, it is liable for the child support or taxes, if Boeing fails to file form DE 542 when signing the P&W agreement, then it is liable for the child support or taxes if P&W is unable to honor the garnishments and forward the monies to the government.

The federal government is here to help the poor divorcees collect their child support, as well as to make sure that it collects all delinquent taxes. This law has not been actively enforced until this year, my CPA held a round table meeting in her office with all of her contractor clients, to explain the law and hand out the forms, saying the state was now targeting contractors for enforcement, since so many contractors hire individuals that are delinquent, and by the time the quarterlies are filed they are off to another job or leave when informed of the garnishment. By filing DE 34 the employee’s first paycheck can be garnished, and by filing the DE 542 the first payment under the contract can be garnished. I do not know the IRS regulation that requires the states to do this, it is somewhere in the volumes of regulations, all I know is what my CPA told us, and the language on the back of the DE 34 and 542 forms notifying us that these forms must be filed pursuant to federal law.

If Texas has no such forms to file, then obviously you don’t have to file them, but the question is why is the federal government allowing the State of Texas to violate federal law?

Allan Edwards
06-21-2004, 09:18 PM
Dick, which federal law are you referring to, I know you mentioned a CA law but which federal law?

Dick Seibert
06-21-2004, 09:37 PM
Allan:

Damn it, I explained that above, I knew you were going to ask that question. Quote from above: "I do not know the IRS regulation that requires the states to do this, it is somewhere in the volumes of regulations, all I know is what my CPA told us, and the language on the back of the DE 34 and 542 forms notifying us that these forms must be filed pursuant to federal law."

Where is your CPA doesn't he/she inform you of this stuff?

Dick Seibert
06-21-2004, 10:17 PM
Allan:

Okay, now that I have eaten dinner and calmed down, I've done a quick google on the subject, here is a starter for you.

In 1996, Congress enacted the Personal Responsibility and Work Opportunity Reconciliation Act, requiring all employers
to report certain information on newly hired and rehired employees. The federal requirement was implemented by
California effective July 1, 1998.

In 1999, California enacted a law requiring businesses and government entities to report similar information on
independent contractors. This requirement was effective January 1, 2001.http://www.edd.ca.gov/taxrep/de231y.pdf You can be so frustrating at times!

Allan Edwards
06-21-2004, 10:33 PM
Uner the FAQ of CA law it states only 5 other states have similar laws. It also said the fine for non-compliance is $24.00 and it is not enforced for corporations, only entities issues 1099-Misc. So what's your point Dick?

Dick Seibert
06-21-2004, 10:48 PM
Allan:

I don't see the 5 states and $24, but an administrative penalty of $24 per incident is only one sanction, civil and criminal penalties are in addition to administrative penalties. My CPA's understanding is that failure to comply triggers a civil penalty of the amounts owed, I haven't heard of any criminal penalties yet, but if the conduct amounts to wanton disregard of the law, criminal sanctions could be initiated.

Somehow it doesn't surprise me that Texas, and other developing states, aren't in compliance with federal law. If Texas isn’t in compliance, then you don’t have to file the forms, that is until the federal government forces Texas into compliance.

Allan Edwards
06-21-2004, 10:55 PM
Dick:

The federal law you mentioned was the so-called “Welfare to Work” law passed under Clinton. Look, child support delinquency is a very serious matter, and I’m for the gov’t going after these so-called dead beat parents. The law you mentioned basically empowered the states to toughen up their child support laws IF they wanted to receive certain federal funding. In this age of computerized records there’s no reasons states can’t band together, however, to date, I believe only 5 states have done so. I don’t believe there is a federal law on this matter that effects General Contractors like 941’s, 1099’s, W-9’s, etc. I know you keep looking for reasons for people not to be contractors, but I don’t think this is one.

As with federal taxes, I seriously doubt any employer could ever be held responsible for actually paying anyone’s else’s debt or taxes unless, at the very least, you are given a clear directive by the gov’t to collect hem and you fail to comply. If the gov’t tells me to withhold additional taxes from an employee or a sub I would certainly do it, but it’s not my job to monitor or uncover these liabilities.

Ode...
06-21-2004, 11:07 PM
When you two get into arguing, you just can not realize how beneficial to the rest of us this can be. Thank you. Keep up the good work.

Dick Seibert
06-21-2004, 11:14 PM
Allan:

I don't understand, you are saying this law doesn't apply to general contractors? Anybody that files 941s has to file the forms on employees, and anyone that files 1099s has to file the forms on service providers (read subcontractors).

Why isn't Texas complying? Don't they want people to pay their child support? BTW, child support is the least of what they are doing, both the states and the feds are using this to garnish money for tax delinquencies.

You say: "If the gov’t tells me to withhold additional taxes from an employee or a sub I would certainly do it", that's the whole idea, you file the form, the government serves you with a garnishment before the first check is due. BTW, I probably have gotten about 20 garnishments in the last few years, 2 for employees and the rest for subcontractors. All the garnishments stated they were for delinquent taxes, none for child support. You have to immediately serve a copy of the garnishment to the employee or subcontractor, both employees quit, and the subcontractors were very difficult to work with after that.

Allan Edwards
06-21-2004, 11:16 PM
Ode:

I'm just looking forward to the day when the rest of country can be as "developed" as California. What did they have this year, a 24 billion$ deficit? More nuts and fruitcakes than Christmas dinner at Grandma's.

Allan Edwards
06-21-2004, 11:25 PM
Dick:

The specific law you mentioned was in California, correct? There is no federal law that I know of or have heard of mandating companies to file forms or collect money from subcontractors for child support. If one comes down the pike I’ll be the first in line.

In reading the law in YOUR state, it says this only applies to companies with whom you file 1099-Misc, which I believe excludes corporations? Am I correct? You asked why Texas isn’t doing it? I guess the same reason 45 other states aren’t doing it. We have some pretty tough child support laws in Texas and we are able to collect them without putting burdensome bureaucratic laws on small companies.

Dick Seibert
06-22-2004, 12:07 AM
Allan:

This is ironic, in opening the day’s mail, while arguing with you; I opened the SSA/IRS Reporter (check your mail today). The lead article is called: "IRS warns businesses, Individuals to watch for questionable tax practices" It states, in part: " During the past three years, 117 individuals have been sentenced to confinement in a federal prison, a halfway house, or home detention for criminal violations related to employment taxes. Approximately 77% of the persons sentenced for evading employment taxes served an average of 17 months confinement and were ordered to make restitution to the government for the taxes evaded, plus interest and penalties.
1) Pyramiding (collecting the taxes and then not paying then).
2) Unreliable third Party Payers (leasing employees)
3) Frivolous Arguments (Section 861 arguments)
4) Offshore Employee Leasing (employee quits and becomes a subcontractor (former employer is liable for the unpaid tax and subject to penalties and interest).
5) Misclassifying Worker Status (incorrectly treating employees as independent contractors to avoid paying employment taxes. Generally if the payer has the right to control what work will be done and how it will be done, the worker is an employee).
6) Paying Employees in Cash (wholly or partially).
7) Filing False Payroll Returns or Failing to File.
8) S Corps Officers treated as Corporate Distributions (Officers of a Corporation are employees fro employment tax purposes and compensation is subject to all employment taxes).

You take chances I wouldn’t dream of taking! An old friend of mine, and his wife, are both sitting in jail right now for classifying employees as subcontractors. In the '60s he used to argue with me, as you now do, that subcontracting was the way to go.

It's not just child support, child support is the government's excuse to garnish money for back taxes as well as child support. Child support is the window dressing they used to get the federal law passed.

How many garnishments have you been served with within the last few years.

Allan Edwards
06-22-2004, 11:19 AM
Dick:

You are restating my post under “IRS-BEWARE” below. So you don’t subcontract ANY work? How many electricians-plumbers-HVAC people are or have ever been direct employees of your company? The IRS website at "http://www.irs.gov/pub/irs-regs/subcontractorstext.prn.pdf" really gives a very good and detailed explanation about what makes a subcontractor, and it really isn’t that difficult. If fact, if you are so inclined you can actually get a ruling from the IRS by filling out and sending them form SS-8 and they will give you a ruling if your people are subcontractors or employees. I have no doubt everyone of my 40-50 subcontractors are legal subs.

Andrew R.
06-22-2004, 05:57 PM
I knew a guy who paid his help by the hour as independent subcontractors. At the end of the week they all signed a contract saying they did such and such job that week and back dated the contract as if they traveled back in time the week before but no hourly stuff was on the contract. The so called sub signed and the general signed, thereore if there was government action , at least the guy had some defense. I knew one of these guys ended up owing taxes and couldnt pay and i also know none of the subs had worker comp or G.L. This guys philosopy was pretty simple,,,contractors are the only people allowed to write contracts.

Wayne Clark
06-23-2004, 08:25 PM
Allan:

The IRS does have criminal penalties for willful evasion of the tax code, people go to jail for tax evasion. It's not illegal to "avoid" taxes, but it is illegal to "evade" them. I don't know the IRS distinctions between "avoid" and "evade", but I would assume that the intent would have to be willful, and fraudulent. I would also assume that if one actually followed the IRS Independent Contractor guidelines in an effort to avoid paying the employee taxes, that it would fall under "Avoidance", but if one just willfully and arbitrarily classified an individual as an Independent Contractor when, in fact, the employment agreement constituted employee status that it would be classified as “Evasion”. Ignorance of the tax code is not an excuse, so you can’t claim that you haven’t read the guidelines, but you could make a strong case that you read the guidelines and tried to meet them in an honest effort to “avoid” paying the taxes.

I think a good case would be what we have here, if the IRS were to go after you for the taxes due by one of your subcontractors if they determined that your subcontractor didn’t qualify as an independent contractor, they would probably just assess you with the taxes and an administrative penalty. On the other hand, it appears from what Wayne says, that if they went after Wayne *and* his employer they would bring criminal charges as well as the administrative charges. The scary thing here is that since Wayne holds the license, he would be primarily responsible, and the employer would only be secondarily responsible. The guy holding the license assumes the responsibilities of the business, and he is responsible for what the other guy does. If I were Wayne’s employer’s lawyer, my defense would be that Wayne knew what his “partner” was doing, and not only acquiesced to what he was doing, but had a legal obligation to stop it, which he didn’t, it’s Wayne that should pay the penalties and go to jail, not his “partner”.

You can't tell a subcontractor what, when, where, or how to do something, all you can legally control are the results as defined by the contract. So it's important to put the whats, whens, and wheres in the subcontract agreement, but don't put the hows in the agreement.
"The scary thing here is that since Wayne holds the license, he would be primarily responsible, and the employer would only be secondarily responsible. The guy holding the license assumes the responsibilities of the business, and he is responsible for what the other guy does."

Dick, how could I be held responsible for any of his illegal dealings? He does all the hiring of subs & all are paid by his corporation (XXX Development Corp.). He only needs my license to pull permits & HIS C.P.A., is the one that told him to make it a partnership, to, "make it work". He "assured me", that the Corp., carried the full liability on the job & in essence, I'm subbing out to myself.???? I don't doubt that he's trying to pull one over on me, but I don't think he would intentionally lie about something that could be so easily checked out. Even if he did, don't you think the IRS would see through it & know who's to blame?

Wayne

Wayne Clark
06-23-2004, 08:52 PM
Wayne

I re-read you're original post. It sounds like this guy is taking advantage of you. And will take as much as you're willing to give.

I'd get away from him or redefine your relationship as a real subcontractor.

One other thing, you mentioned the two other guys who work with you--are they your employees?

Best
Tim
Tim, just read your post & you're right on target. He's so cheap, he's intending to make laying tile, part of one of the other guy's "duty", to avoid subbing this out. He will let this guy "sub" the tile, but only if he doesn't work in his present capacity (employee or sub?), because, "it doesn't work that way"!!!!! (to sub the tile after hours).

In answer to your question, no, they are not my employees. They were hired by him (the builder) & are in the same boat as me.

Dick Seibert
06-23-2004, 09:31 PM
Wayne:

I don't think you are clear on the concept of licensing when you say "He only needs my license to pull permits & HIS C.P.A., is the one that told him to make it a partnership, to, ‘make it work’". The one that holds the license is the responsible party as far as the state that issues that license is concerned. You become the RME (Responsible Managing Employee) of the business organization when you license the organization. You are responsible for whatever he, or anybody else, does in that organization. The license holder is the responsible party; he assumes all liability for whatever that partnership (or whatever else the business organization is) does. It is your responsibility as the license holder to supervise what he does, and you are responsible for whatever he does. If he violates civil and/or administrative laws, you are responsible. If he violates criminal laws, he could be held accountable for the crimes, but you could be found guilty of the same crimes for failure to properly supervise him.

You can't lend somebody your license to "'pull permits", any more than a doctor can lend somebody his license to perform brain surgery, or a lawyer lend somebody his license to defend a murderer. You sign your name on the dotted line as the license holder, and you assume all liability for whatever anybody in the business does.

Wayne Clark
06-23-2004, 10:37 PM
Dick,
Maybe I'm not that clear on it, after all, this is new territory for me, but the practice of "leasing" a contractors' license, is fairly common practice around here. As to the legalities of this practice, I have not investigated but will do so now.

Most of what you say, makes sense to me (most....not because I doubt your information, but because I feel the need to clarify before acceptance) & has really got me to thinking (or re-thinking) about my business association with him. All that has gone on before, has just made me mad, but this recent involvement, has made me worried, almost paranoid.

I'm just a dumb old carpenter, trying to better myself in my trade & entering a whole new arena in which I have NO experience & am desperately trying to do it right. Your input (as well as all the others, even SamT's ;) ), is greatly apreciated & dilligentely taken into advisement. I am taking Sam's advice & consulting with "the doctors".

The scary part is, this guy IS my client base (I'm sure I lost all the others when I took him on full time) & I'll have to start afresh, if I leave (hinging on the outcome of the investigation & his attitude). I guess, the old adage applies here, " I was looking for a job when I found this one".

Dick Seibert
06-23-2004, 10:58 PM
Wayne:

Look at your contractor's law licensing requirements, there should be a book that you read when you got your license.

What I think you should do is get out right now. If you want, contact your state contractor's license board and sit down with a deputy. Don't tell him you "lent" your license to somebody else, or any other details of this supposed partnership, or he will probably initiate the procedings to revoke your license, but tell him that you entered into an arrangement that was supposed to evolve into a bona fide partnership; however, the "businessman" has refused to allow you to supervise the business as you understand is required by law. He will probably help you remove your license from the arrangement, explain your responsibilities to you, and this might go a long way towards insulating you from any liability for his past misdeeds.

I am an arbitrator for the California Contractors’ License Board, and if your situation came in front of me, I would recommend immediate revocation of your license, and find you responsible for all liabilities of the “partnership”. I wouldn’t even deal with him, because the Board has no jurisdiction over him, I might recommend that the Board contact the District Attorneys’ office to investigate any criminal behavior if the facts warranted it. You could be in serious trouble, trouble that you don’t even know about. Get out now!

You obviously don’t know the law, but you are assumed to know the law, ignorance of the law is no excuse. Didn’t you take an examination when you qualified for your license? How did you pass the examination without knowing the law?

Wayne Clark
06-24-2004, 12:44 AM
Dick,
Your suggestion about talking with the contractor's board is noted but damn, Dick, you would recommend my license be pulled? Where's your sense of fairness? Don't you guys have a "dumb ass" clause, just for extenuating circumstances like this? I know, "ignorance of the law is no excuse", but I'm the one being taken advantage of here!

You obviously are a very intelligent & well informed man & I respect the information that you pass on in the forums. I respect your credentials as an arbitrator & a paid advisor on whatever it is you advise on, but I do not respect your condescending posture in your last post. Yes, I am ignorant of the laws, & I'm working on rectifying that. I'm also ignorant of a lot of business practices & would you have my ability to practice business, taken away as well? I posted, hoping to gain knowledge & advice, not to be ostriscised (sp?).

The test was set up for me, not by me & I had one weeks notification before the test date. At that time, I was made aware of the "Business & Law" aspect of the test ( which was NOT required the last time I checked), had no reference material to study, was loaned a book at the test site, took the three hour, fifty question, open book test & passed with a score of 86%. A week later I took the residential/small commercial test (80 questions, four hours) & failed it. I had studied all the reference material for that test but failed it! I took it again, a week later & passed with a 76% score.

I've never been accused of being the sharpest tool in the shed, but I know construction techniques.......and failed the first test! I know almost nothing of the law but passed, with a fairly high score, on the first try! Go figure. Maybe, Tennessees' Contractors' Licensing Board, has more tolerence towards us "dumb asses".

Wayne Clark
06-24-2004, 01:01 AM
One last thing, Dick, & then I'm going to bed. I'm going to print a copy of your last post, to show my boss the sticky situation he's put me in, even if it's because I let him, due to my ignorance. Surely, he knew better.

See, I gleaned something useful outta this afterall. Thanks.

Dick Seibert
06-24-2004, 02:20 AM
You're not a "dumb Ass", you just don't know the law, and unfortunately not many contractors do. Most just buy the answers from "schools" to take and pass the test, and then promptly forget anything that they may have gleaned. You are being taken advantage of in more ways that you could have imagined, but you were smart enough to come here and seek help. Now that you know how serious the situation is, get out.

A few years ago a guy contacted me that had put up his license for a window scammer. He realized what was wrong and pulled his license out. When the complaints started pouring in relative to leaking windows, the license board was going after him because the windows had been installed during his "watch", that few year period that his license was up for the scammer. I did what I could for him, trying to direct the complaints to the scammer, but of course the scammer blamed him because he was the responsible party during the installations in question. In the state newsletter they send out to contractors, I recently noticed that his license had been revoked; he couldn't possibly replace all the leaking windows, or pay the mold claims. Meanwhile, I see the scammer's full-page newspaper ads (these are $100,000 ads around here) and he's going strong on somebody else's license. It takes about 3 to 5 years for the caulking to dry out and then the windows start leaking, meanwhile the scammer is operating just fine on some other poor little guy's license. The state can’t do anything to the window scammer, they only have jurisdiction over the guy that holds the license. These guys go through whole series of poor little guys’ licenses, and then find another sucker. The state goes after the guys that had the license during the installations in question, because by putting up their licenses they are responsible for the work performed. Now do you understand? You are responsible for everything built while your license was up, not your “partner”.

Wayne Clark
06-24-2004, 06:16 PM
Dick,
I confronted him today, using your post as a guide (as I said I would), fully expecting the old, "get the f*** off my property", routine, but surprisingly, he took it quite well. He is getting his own license (before the project starts) & our "partnership" will be dissolved. I think what really got his goat, was, I asked him, since I am the G.C. & the company would be under my license, if he realized he would be my employee. That's when he said he was getting his own license & I said, that would be for the best. No punches thrown, no cussing out, smooth as silk. I'm still going to keep a close eye on him, till all this comes to pass & then I'm gone!

Thanks for all your input & suggestions. I really feel the proverbial weight has been lifted. Got any good suggestions for reference material on construction law? I've thought about getting, "The Contractor's Plain-English Guide", to start.

Dick Seibert
06-24-2004, 08:42 PM
Wayne:

Doesn't Tennessee publish a book, or booklet, for license exam preparation and reference? I am not a fan of generic books on construction law because every state is different, and every lawyer that writes a book on construction law tries to make it cover all states, so he can sell as many books as possible, and that can get you into a lot of trouble.

I think you have handled this thing well at this point, I'd pull the license right now, don't give him the opportunity to use it anymore, you are a lame-duck contractor now, and he might really try to screw you, if he hasn't already. You have the license, you have the control. He's nothing in the eyes of the state and the law. Get your license out of this crook's business, now!

Does he have the requisite carpentry experience to even get a license? If not he’s probably out looking for another innocent young contractor to use his license. If he can’t qualify for a license, he shouldn’t be in business. There is a reason the states have the experience requirements, and one of them is to keep crooks and con men out of the business.

Wayne Clark
06-25-2004, 12:55 AM
Dick,
They do, that's the one I borrowed at the test sight & probably the best choice to get. I'll just have to reference back to get the title. Thanks.

You are right, I don't trust this monkey as far as I could throw him. I'll call the board myself to get it taken care of.

As far as experience, he has head knowledge of most, if not all the trades, but no hands on, so I don't think that's a conscern. He has an uncanny ability with numbers & can figure a concrete pour, in his head, before I can punch the numbers into my Construction Master. His major downfall is, he's cheap & trying to save a buck has bitten him in the butt more times than not. Some people never learn.

Thanks,

Dick Seibert
06-25-2004, 12:09 PM
Wayne:

Get away from him, "cheapness" is a major flaw in a builder, "cheap" builders get sued all the time because they are always cutting corners. It takes money to build right, when in doubt, always choose the most expensive alternative.

Allan Edwards
06-25-2004, 12:24 PM
Sometimes cheap is the way to go, probably not in Wayne's case, but the richest builders I know build cheap. They are not bad people, they are very knowledgeable in construction, they don’t get sued anymore than one would expect for the product they deliver, they just choose to build a product that the masses can afford. They are the McDonald’s of homebuilders. We need them, just like we need Chevy’s and Ford’s. Not everyone can afford Mercedes, in fact most can’t.

If you want to build a good product, use good material, labor, and technique, I think that’s very admirable, that’s what I’ve done for lifetime, but if you really want to make some serious money become a volume builder and build cheap.

Dick Seibert
06-25-2004, 12:41 PM
Allan:

Those days are over, those guys are getting sued on everything they build, as well they should. Come on now, you are just making this argument for argument's sake. My respect for you went way up once when you mentioned that you don't use OSB, I don't either, but even some of our better builders have been using it around here, and they are getting sued when the stuff gets wet and swells up.

Allan Edwards
06-25-2004, 02:15 PM
What do you mean "those days are over"? Do you live in a cave Dick? There have been almost 10 million new homes built in the last 5 years, builders are doing the best business in the history of mankind. Volume builders are getting rich, rich, rich.

Dick, you need to join the NAHB, and get a grip on what's really going on in this industry, I think you have isolated yourself too long.

Dick Seibert
06-25-2004, 02:25 PM
Allan:

I had a meeting last week with three lawyers in a large construction defects law firm (they are also representing at least one tract builder now that he can't buy insurance anymore), we discussed upcoming litigation against tract builders, including their client, they were all of the opinion that it wasn't subcontracting per se that was causing the problems, but piece working, whether it was done by the builder himself, or by his subcontractors. The discussion revolved around the fact that the builder couldn't legally control the way his contractors performed their contracts, so a builder pretty much has his hands tied when subcontracting. The only alternative that I could suggest is to have their client watch the subcontractors, and find out which subcontractors are piece-working their workmen, and then just not hire them again without any explanation.

Allan Edwards
06-25-2004, 02:42 PM
Dick;

Define "piece-work".

Dick Seibert
06-25-2004, 03:06 PM
Allan:

Don't you know, isn't it done down there? Piece-work is where a framer is paid so much per square foot to frame the building rather than by the hour (or so many dollars per foot to joist, lay subfloor, roll joists, or stack trusses), a window installer is paid by the window rather than by the hour, or a roofer is paid so many dollars per square to install roofing rather than by the hour.

The workers' total incentive is to do their work as fast as possible, rather than as well as possible. It's a form of sub-subcontracting. Because it violates California law, many do it by totaling up the amount due on a piece-work basis, converting it into an hourly amount, and then issuing a paycheck based on the converted hours. This is totally illegal, many piece-workers work over the maximum 8 hours per day without receiving time and on half or double time for overtime work. Most piece-workers totally disregard OSHA requirements as well, in their haste to get the job done as fast as possible and make a living.

I did it once in 1972 on a 65-unit apartment complex (everybody did it on apartments in those days), what a disaster (the pick-up work cost me as much as the basic work), some of them actually carried guns in their nail bags and laid them on the plan table in my job trailer when they came in and demanded their bonuses (we were union then, so I issued regular paychecks at union wages and then gave them their overage as a bonus, today most don’t even come near to making basic union wages.

Allan Edwards
06-25-2004, 03:14 PM
I didn't know there was any other way. It's really the best way, paying a sub to perform a task by the job is really best of them and the builder. In fact, paying them by the hour gives you exposure of them being classified as employees rather than subs.

Boeing subs by the job to Lockheed, Wal-Mart subcontracts their parking lots being cleaned by the job rather than the hour, Cisco subcontracts much of their work by the job, and builder's sub their work by the job.

Dick, are you really in the construction industry?

Dick Seibert
06-25-2004, 03:22 PM
Allan:

But do your subs pay on a piece-work (by the job) basis rather than by the hour? What about unemployment laws, don't you have those down in Texas? First of all, the piece-workers would have to all be licensed, which means every carpenter would have to possess a license as a contractor, because he's contracting if he agrees to work on any other basis than by the hour. I hear you are going to get licensing down there, I guess you'll find out, or go to jail!

Allan Edwards
06-25-2004, 03:27 PM
I (an the most of the free-world) pay by the job. I don't know nor do I care how my subs pay. I assume they mostly pay by the hour but a few may sub their work. As far as employment laws, I follow those laws that apply to my company, I don't (nor am I required to) monitor what other companies do.

Dick Seibert
06-25-2004, 03:34 PM
Allan:

Once Texas joins the rest of the country and has contractor licensing, your free-wheeling, everything and anything goes days, are going to be over, and you are going to have to start taking responsibility for what goes on your projects. In the meantime I have to wonder why the builders in Texas aren’t being sued, like the guys that try to operate that way are around here?

Allan Edwards
06-25-2004, 03:46 PM
I'll repeat my question. Are you really in this industry, or are you really a school teacher or a butcher or a shoe salesman, because you don't sound like anybody I've ever met in this industry and I've met a lot of builders from all over this country.

GACC Dallas
06-25-2004, 07:30 PM
dick,

Nobody around here is getting sued for sloppy work. If there is a liability issue because something is built dangerously, then it's the city's fault for OKing the plans or not being dilegent in the inspection process. Don't you guys in California have building inspectors?

Also, no one around here is going to jail for paying by the job instead of by the hour. That's crazy. Most builders prefer to bid the job out and pay a flat cost on the work. When you buy tires, it cost X amount of dollars to balance and mount them. Do you tell the manager that you want to pay for that service by the hour? Of course not. He says "That'll be $12.50 per tire" and you say OK. Is that considered piece work in California? Is it unethical if the tire store manager is paying the man $8.75 per tire to do a mount and balance?

Can I not barter for my services in California? Must I do everything by the hour? If the Sears store wants $75.00 to deliver your new couch, is that illegal? If I live in California should I call the cops if someone wants to charge me a flat rate for a hamburger instead of charging me a pro-rated cost of his hourly wage to make that burger?

Am I missing something here? Is contracting illegal in California?

Ed.

Dick Seibert
06-25-2004, 09:03 PM
Allan:

You ask if I am in the industry, the State of California licenses me to be in this industry:

http://www2.cslb.ca.gov/CSLB_LIBRARY/License+Detail.asp (this link is temporarily down when I checked it, hopefully it will be back up before you click on it)

Does Texas license doctors? Lawyers? Contractors? Are you really a contractor if you don't have a license? The way I see it, anybody can be a contractor in Texas, and the term means nothing. You can’t be a professional unless you have a professional license, and I understand that Texas is going to start professionalizing the construction industry.

Ed:

We have a building code that is volumes long; the entire code fills bookshelves, and makes the IRC look like child's play. And yes, contractors are being sued for sloppy work, all the time. The state is also putting contractors out of business that perform sloppy work; I do it myself as a state arbitrator.

We have laws saying that if you hire somebody you have to pay by the hour and pay at least minimum wages, withhold taxes, pay Workers' Comp and pay overtime, unless that somebody has a valid contractor's license and meets federal independent contractor status. If I (a B-1) subcontract the finish work to you, you must have a (C-6) license, if you decide to sub-subcontract a portion of your subcontract, you must sub-subcontract to someone else with the appropriate license (another C-6). A store can charge you $12.50 to balance a tire, but the store has to pay the man actually doing the work by the hour; otherwise, how would the state enforce their employment laws? It is illegal for the tire store to pay the man balancing the tire $8.75, unless he meets federal independent contractor requirements, even in Texas!

In the couch example the store can pay the deliveryman a set fee, but that deliveryman must meet the independent contractor qualifications of the IRS that we have talked about so much here; if not, he has to be paid by the hour. As far as construction is concerned, you can only contract if you possess a valid, appropriate license. Contracting to a person that is not properly licensed, in the field of construction, is illegal unless he meets federal independent contractor qualifications, and state license board requirements.

Texas may not now have licensing, but it is subject to the same federal independent contractor regulations the last time I looked, although I sometimes wonder if the federal government enforces the laws in Texas the way they enforce them in the rest of the nation. And yes, we do put people in jail that contract without a license.

Thomas O. Maynard
06-25-2004, 09:19 PM
Help!

Can some please refresh my memory? Were is Texas?

Tom Maynard

Dick Seibert
06-25-2004, 09:34 PM
Thomas:

It's one of the Southern states, they haven't found out yet that they lost the Civil War, and can't enslave people anymore.

I have had several subcontractors over the years that have come up from Texas, they all have said they came here because of the low wages down there.

Thomas O. Maynard
06-25-2004, 09:38 PM
Dick,

I hear you, it seems thing have not been the same there since J.R. got shot.

Tom

Dick Seibert
06-25-2004, 10:11 PM
Thomas:

The whole world laughed at evil Texas businessmen with the Dallas series, now we have the Enron scandal, and Halliburton.

I don't think Allan is really a bad guy, I think that Texans just think that anything goes in business -- as long as you make money. If we grew up in Texas, maybe we'd think that way too? I bet Ken Lay, Lia Fastow and others of that ilk don't even know they are doing something wrong.

GACC Dallas
06-25-2004, 10:42 PM
Dick,

We have to follow the same federal laws that you do. That goes for any state in the union. The federal requirements for the employer / employee relationship does not change when you cross the Texas state line.

It sounds like the state of California is doing more to discourage the abuse of employees being classified as subs than they do here, and I applaud their efforts.

I am not selling bootleg labor out of the back of my truck any more than Allan is. But if I hire a roofer to fix my roof, there is no way I can be responsible for his business tactics. I'll bet you hire a landscaping company from time to time. Do you know if all his employees are W2's or even legal aliens? Just because your sub (landscaper) has a proper license and all the paperwork in place, that doesn't mean he isn't doing things under the radar.

I don't understand what you mean by people going to jail for doing sloppy work. Could you define what you mean by that? Give us an example or two of what the work was?

Ed.

Dick Seibert
06-25-2004, 11:32 PM
Ed:

I know of nobody going to jail for sloppy work, I didn't say that. Contractors do go to jail if they are unlicensed, or if they fail to pay withholding taxes, Workers' Comp insurance, or violate OSHA and someone is seriously injured or dies due to their negligence.

Contractors do lose their licensees for sloppy work all the time though. Consumers can bring a complaint for sloppy work to the license board, an Industry Expert (like me) reviews the work and determines if it is up to minimum industry standards, and then testifies in front of an arbitrator (like me), and the arbitrator determines whether the customer should get his money back, and can refer the matter over to the board for license prosecution. The only contractors worth suing though are those with insurance or assets, so the little guys usually skate on this one. I've worked to try and make GL mandatory for contractors, but the insurance lobbyists have fought it tooth and nail, they are afraid they will get stuck with an assigned risk program like they have for auto insurance. A contractor does have to give the owner a state proscribed notice telling the owner whether he has insurance and who to call to check on it. The notice has strong language about the advisability of hiring an insured contractor. Someday

A consumer can also hire an attorney to sue the contractor for the damages suffered by the sloppy work, and if a contractor installs the flashings backward and there is a mold claim, the contractor could have to pay the customer millions in damages, and if he can’t, or doesn’t pay, he loses his license.

I am required to get certificates of Workers’ Compensation Insurance from every licensed subcontractor, if I don’t have the certificates on file for each job, naming the location and owner, I have to pay (on yearly audit) the Workers’ Comp rate for that particular trade on the full subcontract amount. They make no allowance for materials, overhead or profit on the part of the subcontractor. In order to carry the compensation insurance a subcontractor must pay withholding taxes on all of his employees. Some subcontractors can file exempt if they do all the work themselves, and I can get a copy of their exemption; however, the auditors take down the names of the exempt subcontractors, along with the amounts I have paid them, and have told me that it triggers an automatic audit of everyone who files exempt.

I have requested copies of I-9’s from every subcontractor that has non-English speaking employees on my jobs, but this concerns me because of the discrimination aspect. I should request I-9’s on all subcontractor employees, but then I fear violating the Independent Contractor status. My insurance broker thinks the solution is to put everybody on the job on my payroll, but many subcontractors don’t want me paying their men.

Under California law the General Contractor is responsible for anything and everything that happens on that job (he's the General after all), and that includes the status of subcontractors' employees. The state wants their taxes, but our Governor worked as an unlicensed masonry contractor in California when he first arrived in this country. I would like to see criminal prosecution of all employers that hire illegal aliens, and that includes employers that use subcontracting as a subterfuge for hiring illegal aliens to shield themselves and profit from the illegal activity. I've never seen quality work performed by underpaid people, legal or illegal.

Allan Edwards
06-26-2004, 09:42 AM
Gee Dick, you mean CA doesn’t require GL in order to be licensed like Texas does? What are you some kind of third world country?

I frankly don’t care what CA’s laws are, I’m sure you don’t care what Texas’ laws are, it’s somewhat pointless for you to keep mentioning CA’s laws, they have no relevancy except for those that live there! Every state is different and only applicable to those living there, so what’s the point? It’s also meaningless to compare and criticize wages for different parts of the country, I believe you said recently $36,000 was poverty level. 36K may be a low wage in San Francisco or Manhattan, but I know of no area where that would be considered poverty level.

You are obviously a bright guy with a lot of experience and knowledge to offer, but on 98% of your advice I don’t understand two things:

First, you almost always relate everything mentioned here to CA’s laws, even when advising someone in Tennessee, or Ohio, or Texas, or where ever, and most of the time your advice is totally irrelevant and meaningless. For God’s sake Dick, it would seem someone with a law degree like you would simply point them in the direction of a good construction attorney in their area and leave it at that. Share in a broad way what’s going on in your state but don’t demean others because their state isn’t exactly like CA. Your state is just 1 of 50, if you feel the need then relate to us your laws and leave it at that.

Secondly, your advice is almost totally negative: the industry’s going (gone) to hell, everyone’s being sued out of business, you can’t get insurance, illegals are taking over, you can’t subcontract, contractor’s are going to jail in masses, everyone’s building crap, builders are greedy, all labor should be unionized, can’t buy lot’s, etc. On the other hand, I am very optimistic about this industry. There is more opportunity than ever, more resources to learn from, and I want to tell others what’s worked for me and what I observe working for others. I believe in general, this business is just like life, a lot of it’s all about attitude, and a positive attitude is a hell of a lot better than a negative one. Contractors come to this forum to seek advice, give advice, and share their experiences. I assume that we all want to improve our operations, learn what’s working for others, many are seeking to just learn the basics, many want to expand their businesses, and finally, I assume all of us want to make more money. Constant negativity does not promote this.

Along the lines of this pessimism, I think you focus entirely too much on insurance and subcontracting. The tail should not wag the dog, insurance is just one aspect of being in business but it doesn’t and shouldn’t dictate your total business plan. With regards to subbing, homebuilding and remodeling requires so many diverse trades (as many as 50) that the idea of not subcontracting is just ludicrous. It is by far the best and most efficient way to not only build houses but to conduct a lot of business, evidenced by the fact it’s been done this way for decades and the trend is more, not less subcontracting. I read the other day even the CIA is subcontracting! It is also the most fair way for the subcontractor too, it gives them more opportunity to earn more and better their lives. Do you think Ed in Dallas would rather work by the hour or have his own company?

So in closing Dick, what don’t you relate more of what’s working in your business and less of the negative crap?

GACC Dallas
06-26-2004, 11:46 AM
Amen to that!

Ed.

Dick Seibert
06-26-2004, 12:32 PM
Allan:

Your criticisms of me are valid; there is an old saying that lawyers are deal breakers, not dealmakers.

On the other hand, California leads the nation in the consumer protection issues, what starts here usually spreads across the nation, and one of the reasons that I post these things is to inform the guys from other states as to what they have to look forward to. I believe I was the first to post the fact that the insurance companies were starting to severely limit subcontracting in California, and that just after California legalized subcontracting carpentry by creating license categories for carpentry subcontractors (C-5 & C-6). Now there are contractors complaining on these forums about their insurance companies limiting subcontracting from every state in the union, with the singular exception of Texas.

I think part of my problem is jealousy, I see you and other builders across the nation doing what I did in the '70s, and now it's virtually impossible to build a custom home anymore. The reason I post these things is that I have seen this spread from county to county around here, as we build out, and the environmental and NIMBY movements take over. BTW, you may criticize me on the boards, but you wouldn't believe the hate-mail I get on a weekly basis from environmentalists in California that lurk here, and then let me have it for attacking their sacred mantra of environmentalism. I remember in '76 an engineer/developer that I had used to develop raw land, announced that he was relocating across the bay to Solano County, that our county of Contra Costa was built out, and Solano was in the place that we were 20 years earlier. I believe that builders in other areas should take notice of what’s happened here, because it's going to happen where you are at some point in time. You probably don't give a damn, because you are going to retire before custom homes are virtually shut down in Houston, as well you should. But there are other younger contractors here, that should be aware of where the country as a whole is going, as well as many California contractors that can benefit from my experience.

I may come across as negative when I focus on the downsides of construction, but I feel you do a disservice to other contractors when you extol your abilities to buy a lot, build a house, and make a couple of hundred thousand dollars without really doing much more than sitting in your office running BuildSoft, it ain’t that easy anymore in most areas of the country, and insurance limitations are a major concern for most contractors on these forums. I am also frankly appalled at your position on Workers’ Comp insurance; I think it’s unconscionable.

To take off the gloves for a minute, what have you ever done with that website you were developing a couple of years ago that was going to keep customers updated on the progress of their homes if I remember properly? I am in the process of doing something similar and wonder if you proceeded with that concept, or gave up on it. If you are still utilizing it, could you post it and tell us a little about it?

I do give you a tremendous amount of credit for what you have done, nobody around here has ever successfully adapted merchant builder techniques to the custom home building market, several have tried, but all have gone down in flames because they have been unable to maintain the quality expected of a custom home buyer. What you have accomplished is extraordinary. BTW, the link above ( http://www2.cslb.ca.gov/CSLB_LIBRARY/License+Detail.asp ) is now working showing that I have a professional license to build homes in the state, what makes you a professional?

Thomas O. Maynard
06-26-2004, 01:50 PM
I think Ed, made a valad point in an earlier post about volume, (greed) getting rich and the NAHB. Your advice to Dick was right on the head of the nail. I am a member of our local association and (ex president). If Dick were to get involved in an association he would see how production driven, Volume consumed, money thirsting, Me, Me, Me, & More, More, More, this group can be. After my exposure with our local assosiation (not all members) I`m sure I would feel more of a team enviorment, what can we do together, at a hate group meeting.

Do not get me wrong, I do not want to take this all out on the NAHB, as I see a lot of good going on at the national and state levels. The constant battle over inpact fees, Horney owls and so forth are constanly being fought vigoursy buy NAHB. and an excellent job they are doing. Thanks!

Nor am I against Builders Making money in volumes. It is after all, all about them!

I just see the bigger picture here. At what cost does this come to all involved? What about the quaility and integrety of the homes we build and Yes how about a living salary for the real builders, the one physically putting these homes together.

Like most contractors I am concerned about my risk. and exposure. At almost every sales call I need to prepare myself for an onslaught of statements from the potential client about how some friend or famliy member had a project built that was just terrible.They finaly had to settle with a law suit or at least the threat of one. Additional questions are directed to me about just what makes me and my company any different. Sure we expect some tough questions in these situations, but it appears to be getting progressivly worse. I also look at the labor expenditures I occur chaseing work only to loose it to some Joe Flunk the to tall, all my guys are subs Contractor.

I like Dick, not quite to his degree however, have spent some time employeed as an expert witness or on arbitration boards in cases of construction failure. I can not express the flustrated feeling I felt reviewing the case studies in such contractor/project failures. We all burden the cost of these failures in one way ore another. I think Dick and I share the same out look on this subject.

Look at the mold issue,The way we build home today is considerably different than how things where built years ago.Years ago the crafts persons had a greater knowlage of the science and technologys of thier craft and understood not only thier craft but how and what they did or did not do could effect the quaility, durrability and the safe use of the homes they built.Today in the (volume) (get rich fast) environment of things somthing else is happening.

This sub contractor issue is a hot one an yes it has a negitive ring to it. I agree with Ed. We need to start a thread that is up beat, positive, and on the lighter side. May be we could share pan cake recipes or somthing. however, there are some very real issues here. and some issues that need some attention.

In our local community there is probaly not a single issue that has a negitively effects on the economics of those persons working in this industry and the quaility of the homes than the sub contractor issue. It is a sorry situation when a skilled proffessional crafts person can not afford the simplest model of what they build.

Our local builders association is made up of some 100 members, 25 or so builders, the rest associate members. Of this later group most are speciaty trade contractors. Plumbers, Painters, Electricians etc., essentially the "back bone" of our association.

Our local image is some what tainted. Growing our group has been a problem.The largest group of individuals in which to pull more members from, is this group of specialty sub contractors. Why do they not join? Simple most of the potential canidates are flustrated with how some of our members engage in the use of thier labor force. (INDEPENDANT SUB CONTRACTORS)

Additionaly Some of the problem lies in Montana`s "Independant contractor" program. While some what of a joke, the requirements to be a Registerd Contractor consist of this
(1) Send $50.000 into the state.
(2) Proof of work comp. or in the case of independant sub contractors, (Have a standard Work comp. exempt form). Proof of contractors liability ins.
(3) a pick up truck with a gun rack and a 4 foot level.
(4) a dog for the back of the truck, mixed breed prefered.

Given the substantial investment an independant sub has to make in the above, I belive the local S.P.C.A. is offering "loaner dogs" out until sufficiant capital can be raised to fund ones own dog purchase. In most casses this can take several years at the "Hourly Salary" Being dictated by thier respected(Employers?).

These subs are expected to work basically for a wage. Thats it.
They need give up there security of having work comp. loose thier employers contribution to S.S and forget about a unemployment resurve fund. There is no revenue ther for a slow period.

What this means to this industry in my oppinion is that it will have a detrimental effect on the quaility of the construction projects being built. Contractors commited to hiring good staff, paying a living wage, who engage in the legal and educational proactive employment of thier staff simply can not compete.

As an example: A General or specialty contractor legaly employing a trades individual a living salary of ($ 25.00 )
(wages & cash benifits)
He will also occure some (30% + -) in burden or aprox. ($7.50) per hour.

Add the cost of a basic continuing & training program lets say ($2.00) an hour. For a total direct cost of ($34.50) per hour.

Add vehicles, tools and equipment and this cost could easily be +- ($42.00) an hour.

Basiclly this contractor initially will occure (28% - 60%) more in fair, legal, direct labor cost that The volume based, getting rich now, company of "Dewy Chetum & Howe" would, opperating a group of "slave independant subs".

It is a loose loose senerio for everyone but
(Dewey)
(Chetum) &
(Howe)

Do I care how my subs get paid? You bet! I like to here that they are making a living, investing in continuing education, I also like to here about their new products and here input from them as to what we can do to make what we build better.

I recently had a beat up (van) load of roofers stop by one of my jobs looking for work. On the side of the van was a sign, not advertising their buisness but a signed that read "Don`t laugh your daugter may be in here" They got out and asked what I was paying for shingles per sq. foot, so I told them.They gave me their genaric price per sq. foot. considerably less than what I pay to my sub and his team Who all make a living at their trade installing their product. Their price was the second thing that gave it a way. I knew no one was making a living, legally placeing shingles on a roof for the money they quoated me.
I asked about there registration, & Insurance ? they all stated that they were independants. (Great some more slugs I thought.) I politely told them I was not interested

I have by the way a great recipe for blueberry pancakes
E mail me.

Respectfully Submitted,
Thomas Maynard

Dick Seibert
06-26-2004, 02:50 PM
Tom:

I think we should all give back to our industry, and there is no greater service we can provide than to help the industry of the "bad apples" that are rotting the whole barrel. When I went into arbitration, I did so to give the contractor's perspective to problems, what I found was that around 80% of the complaints against contractors were well founded. I think that Allan should do something similar, because bad contractors give us all a bad name, increase our insurance rates, and gives us competition that takes away from our bottom lines. The one common thread that I have seen in cases I have been involved in is "greed", contractors that put the bottom line ahead of their professional status. If you hire a brain surgeon, all you care about is whether he is the best brain surgeon obtainable, you don't care how he runs his office or whether he makes any money, you just assume that a good surgeon is going to make plenty of money. Contractors, as a whole, have things backwards, they are focused on making money and not being the best they can possibly be. If most concentrated on being the best builder they could possible be, the money would follow in spades. I never made any real money until I forgot about making money and concentrated on trying to be the best I could be, but that is becoming very hard today with the decreased supply of skilled labor available.

I was an active NAHB member in the '60s and early '70s, soon they disbanded their remodelers' council, and made it plain that they didn't want custom home builders and remodelers, they are strictly a merchant builders organization, and they have insurmountable problems fighting land use, and Honey owl problems. I recontacted them again last year to see if they were interested in people like me, the best they could do was invite me to join and form a custom builder/ remodelers' council. I didn't feel comfortable taking this on myself, so invited others to join with me, but nobody seemed interested. I am about to investigate the AGC, they are now taking a look at the gap left by the NAHB. One of my plumbers' sons has taken a position with the local NAHB chapter, he says he will take a look at it once he gets settled in, but his focus is heading up the "governmental relations" department. The goals and objectives or the merchant builder are diametrically opposed th the custom builder, they build as cheap as possible and factor in the inevitable lawsuits, we can't afford even one of those lawsuits.

Allan Edwards
06-26-2004, 04:51 PM
The NAHB is the only organization that supports and educates homebuilders. Other than hard work and luck I owe 99% of my success to the NAHB. My observation of having been involved since 1980 is that they cater much more to custom builders than production builders.

As far a quality of construction, it’s an important issue for builders, always has been. I contend homes are by far built better today than ever. I know since I’ve been around construction (mid 60’s) homes are much higher quality.

When someone starts talking about “greed” in any business I figure they are either jealous or a member of the Communist Party. This is a very tough and competitive business, you deserve any profits you make. People sure don’t seem concerned when builders lose money due to a bad market or rising prices or a bad homeowner.

Allan Edwards
06-26-2004, 05:16 PM
Dick:

You keep talking about new home construction being "shut down" in Ca and the rest of the country but there were 100,000 new homes built in Ca last year and almost 2 million built across the country!

Wayne Clark
06-26-2004, 07:07 PM
May I interject another monkey wrench?
In Tennessee, if you build anything under $25,000 (per occurrence), you are not required to even have a license, save for a small business license. So if you had a business, say building decks, you could build to your hearts' content & never have to contend with state contractor licensing boards or builders associations. The homeowner (in this scenario), acts as the "contractor", pulls the permits & schedules the inspections.

In the home building end of it, the G.C. (or builder) has the responsibility of getting the permitting & inspections & the subs (with the exception of specialty trades) don't have to be part of this process. Rarely, if ever, will you see drywall subs, painter subs, insulation subs, mason subs or finish/trim subs, reaching or exceeding $25,000, per occurrence. That's why subs are so prevalent here!

I know this doesn't make sense to Dick but Allan, is this something that happens in Texas as well, or are we behinder than y'uns?

Allan Edwards
06-26-2004, 07:18 PM
Wayne:

As I said before, all of this varies from state to state and I just don’t see the point of the discussion. There is just so much of all of our laws in many areas (construction-property settlement-criminal activity-marriage/divorce-estate law-you name it) that is distinctive to each state, even though there is some commonality.

Also, actually in Texas each municipality also has their own laws dealing with permits/licensing, some are much more restrictive than others.

Dick Seibert
06-26-2004, 07:30 PM
Allan:

You say: "When someone starts talking about “greed” in any business I figure they are either jealous or a member of the Communist Party. This is a very tough and competitive business, you deserve any profits you make" . I agree that we deserve any profits that we can get and make, but I don't agree that builders should starve the workers to make those profits. For instance, the way I price a job now is multiply the subcontract amounts by a factor of four, since my insurance limits my subcontracts to 25% of my gross receipts. Let's say that my subcontracts amount to $100,000, that gives me a minimum sales price of $400,000, and since my subcontracts usually amount to just under half of my costs, that gives me a gross profit of 100% or $200,000. I don't get much work at these prices anymore, but I have no choice, because I am not going to start putting plumbers, tin men, and electricians on my payroll. Is this greed? No, this is what I have to charge to comply with insurance requirements. Greed is taking a job at a market price, or below, installing inferior materials, paying substandard wages, and/or bid shopping the subcontractors down to make money yourself at the expense of others working on the project. The greedy contractors take the profits themselves at the expense of those who really build the houses. A good example of a greedy business is Wal Mart, there are several communities that have banned them here, and Wal Mart is actually taking the matter to direct vote of the people to overturn those bans. I've even read that Wal Mart even instructs it's employees on how to qualify for government aid, so the employees can subsist on their low wages, while the Wal Mart heirs are collectively the richest family in the Unites States, now that's greed! Someday they may even ban Home Depots, but the damage is already done.

Wayne:

At the present time their are no licenses in Texas, Allan isn't a licensed contractor, he is just a guy that brokers all the trades and materials to build a house, anybody can do it taht has the money and the balls to take the risk. Things are changing though, I understand that Texas is on course to start licensing contractors, it'll be interesting to see what happens.

Allan Edwards
06-26-2004, 07:40 PM
Texas does license builders, has since last September, one of the requirements is to carry GL, which I understand CA does not require.

So Dick, you are making $200,000 on a $400,000 job, and you are talking about others being greedy?

Allan Edwards
06-26-2004, 07:46 PM
I would contend that there is NO state that has any licensing laws with any real teeth in it. Like educational requirements, working for another contractor, continuing education, testing, enforcement, etc. Until that happens, talk about licensing on any level is like talking about the weather. Pretty worthless, waste of time.

Dick Seibert
06-26-2004, 07:56 PM
Allan:

I was unaware that Texas had done it already. Are you licensed? What kind of a test did you take to get the license? What kind of journeyman experience did you have to prove to get the license?

As you can see the insurance companies are running the ship in California. They don't want to insure all contractors, they want to cherry pick just the good ones, and they don't want the state to set up an assigned risk program for contractors like they have been forced to do for auto drivers if they want to sell any insurance in the state. I understand that nobody is insuring contractors in Florida anymore, and Texas isn't far behind because of the mass of lawsuits over subsidance and mold issues. Didn't you say there is only one insurance company left in Texas?

I don't like to have to charge so much since it cuts into my work and I can't keep my carpenters busy, but I have no choice since I have too much to lose if I go bare, and on the other hand can't afford the legal fees if I got sued like most of the large tract builders are doing. My hope is that this is temporary and the things will iron out next year, so I am just taking it easy this year doing just a few very profitable jobs.

Wayne Clark
06-26-2004, 08:05 PM
[QUOTE=Allan Edwards]Wayne:

As I said before, all of this varies from state to state and I just don’t see the point of the discussion.

Sorry Allan. Some of these posts are so long, I guess I must have skimmed over that part. I thought that's what the discussion had veered to.

Dick, does Gary Katz work by the hour, or is he a sub?

Allan Edwards
06-26-2004, 08:07 PM
Asking me about my qualifications as a homebuilder is like asking Barry Bonds what his qualifications are to play baseball. My qualifications: I’m doing it, have done it for 30 years, built $80,000,000.00 in houses, have 200+ happy homeowners who think I’m the greatest.

What are your qualifications Dick?

Dick Seibert
06-26-2004, 08:19 PM
Wayne:

My understanding is that Gary is a finish subcontractor much like Ed. When the crisis hit a couple of years ago I asked him what he was going to do, and he didn't respond, I guess he was awaiting what his builders were going to do. I even posed the options that he was either going to have to become a builder himself and deal directly with owners, or he was going to have to confine his work to uninsured generals. If he's Gary Michael Katz in Tarzana he's licensed as a B-1 general contractor, which means that he can't legally subcontract just carpentry from a builder (a workaround would be to take on three other trades as well as the carpentry; I think, there are a lot of questions about this issue at the state level).

Allan:

You didn't answer my question, do you have a license? If you didn't take a test and provide journeyman level certifications, I'd say Texas licenses are a joke. I posted a link above to my license, proving that I am a contractor that has the requisite experience and have passed all the tests.

Thomas O. Maynard
06-26-2004, 08:46 PM
Hey guys,

For what it is worth. Some guy by the name of Tom delay? was recently speaking on C-Span, Guess he is from some place south of Arizona. Any how, he remarked that in todays law suit egger society,that the result of such activity has raised the cost of goods and services by some (20%-25%). Does this mean that construction related cost cold drop buy 20%-25% if we could find a resolve for this issue??

Any how Allen does fit well into the It is all about Me, Me, Me, Group Talk about Psychological profiling.

Thomas Maynard

Allan Edwards
06-26-2004, 08:47 PM
Yes I have a license. I posted my experience, what is yours?

As I said, all licensing is a joke, we all know that. How many homes have you built?

Dick Seibert
06-26-2004, 09:01 PM
Allan:

Licensing is a joke if there are no experience, financial, and tested knowledge requirements. I repeat my question, what did Texas make you do to obtain your license, was the test a joke?

As far as comparing our experience, I consider custom homes to be the least of what I've done. I've probably built about 25 to 30 houses from the '60's through the '80s when new houses became near impossible to build in my area. I have built 2 cyclotrons at the Berkeley laboratories, several apartment complexes (biggest 65 units), three supermarkets, several hospital additions and remodels, several medical and dental buildings, the main control building for a Chevron oil refinery (as a subcontractor to Bechtel), three schools, several remodels of state and federal buildings, and many other commercial projects. My single largest projects were in the 3 million dollar range in the '70s (the limit of my bondability) when prices were a fraction of what they are today. What is your single largest project?

Allan Edwards
06-26-2004, 09:09 PM
My largest projects have been 2.5 million. What is your point of this "discussion"? Is this a "mine's bigger than yours" deal?

Dick Seibert
06-26-2004, 09:17 PM
Allan:

No, and we should stop the ad hominem attacks on each other. But, I am really curious to know what Texas required of you to get a license. For instance, did they issue a license to you personally as the RMO of one of your corporations? Did you take a test? How did you satisfy the journeyman experience requirements? Or did the make you get an RME or RMO to license your corporation?

Thomas O. Maynard
06-26-2004, 09:18 PM
Dick and Allen,

Lets settle down the testosterone is showing. I worked for years For the Now Down the Tubes Adelphia Commuication Co. (Minni Enron) And built a zillion dollars a year annually. Now, well at my middle age I am resurved to Hanging Towel bars for the wife. I notice you guys like me are logged on all day. We either not working or goofing off. In either case Maybe a round of golf might settle this whole thing. Anyhow My Viagra is kicking in an I will be away from the desk for a while. Any longer than six hours and according to the instructions I should Call a doctor. I guess a female doctor? as they were not specific.
I have a fishing liscence, a Drivers Liscence, and A G.C. lisence none of them have given me the the right to say I know it all.

Tom

Allan Edwards
06-26-2004, 09:39 PM
I agree, as I’ve said any discussion about any licensing anywhere that really has any teeth in it is quite worthless. Even if there was a state that had testing, compliance, enforcement, and educational requirements (which there isn’t), so what? What’s the point? As I earlier, Dick wants to tell everyone why they can’t build, but he doesn’t offer any constructive advice based on his own program. Very negative.

I’m watching ESPN and Texas beating up on some CA butt, it’s really quite enjoyable.

Dick Seibert
06-26-2004, 10:48 PM
Since Allan has refused to respond to what qualifications he had to meet to obtain his license, I am just going to assume that Texas is just mailing the licenses to anybody requesting them, without testing or carpentry experience certification. If this is the case, I don't wonder that he thinks licensing is a joke. Ed, if you are out there, perhaps you can tell us what you had to do to obtain a license now that they are required in Texas, since Allan refuses to do so.

The reason I am interested what a state new to licensing is doing, is that California's system has failed; it has failed because so-called "Licensing Schools" sell the answers to applicants. Every applicant is immediately bombarded with offers to "teach" them to take the test for about $200. All a "dumb" applicant has to do is buy the answers and try to memorize them as well as he/she can, and then take the test. The FAA had this problem when a Texas "school" called "Acme Schools" sent people with some degree of photographic memory in to take the FAA exams, and then upon emerging write down the questions for Acme. The FAA couldn't get around the problem so they started selling the questions and answers themselves, so much for safety in the air. I assume the contractors' licensing schools do the same.

I have a solution; make it a written examination instead of a multiple-choice examination, much like the state bar.

An example that I am sure all will agree is relevant to our business:

A multiple-choice question as the exam is now constituted:

You are building a house and the owner dies half way through; assume that you are on time and that all of the owners' payments are current:

1) You have the right to stop the work immediately.
2) You must finish the house.
3) You must continue the house until the next payment is due, and when and if that payment is not forthcoming, you may stop construction.

A written essay exam on the same subject as I would propose:

You are building a house and the owner dies half way through, assume you are on time and all of the owners' payments are current:

Write a four-hour essay on the doctrine of anticipatory breach utilizing the facts above.

An essay exam would eliminate the ability of schools to sell pat answers to pat questions, it would also eliminate all applicants who lack not only the knowledge necessary to hold a contractors' license, but it would also eliminate all applicants that lack writing skills. In the real world of contracting today, you not only need to know how to drive nails and saw boards, you also have to know how to write letters, and demonstrate some degree of intelligence.

Andrew R.
06-26-2004, 10:48 PM
I visited California twice and saw some beautiful places. Stayed in a motel that leaked when a cloud went by and smelled like a science experiment, stayed in a 3 million dollar beach house that was a joke of flashing siding and deck construction. Anyway, Dick has a valid point about sloppy building from what I saw, but that was 16 years ago, Im sure those places fell down by now.

Dick Seibert
06-26-2004, 11:16 PM
I did a google search on Texas licensing, and everything I can find indicates that builders are not licensed in Texas, so I guess if it http://www.contractors-license.org/tx/tx.htm just went into effect in September these sites are old.

Ode...
06-26-2004, 11:50 PM
After being properly qualified to do general contracting in seven states now, I think one I ran into in IL was about the most accurately targeted. We had to bond twice what we built. If you were going to build a million dollar project, you had to have a surety or letter for twice that. An engineer that you hired had to give a notice for your notice of completion. That was years ago. As a contractor, you sure were responsible for the structure and you knew it. The only junk that I observed was by the unqualified work done in the name of the owner as general contractor.
All of the states did not require licensing, and none had the same requirements. TN was insistent on the GC and Electrical licenses while IL only wanted state plumbing and wanted area compliance. Plumbing was no picnic. I had to pour lead on the vertical to pass that one. Whew!

Thomas O. Maynard
06-27-2004, 10:19 AM
Ode,

You may be giving your age away here. Laddel-Lead- Caulking irons - oakum- Vertical/Horizonal joints - The Mayflower?

Tom

Allan Edwards
06-27-2004, 10:41 AM
Dick:

To answer your question, is licensing a joke in Texas (http://www.trcc.state.tx.us/ )? Of course it is, just like it is in your state and everywhere else. By the way, something I don’t understand: you talk about all of the laws and codes and regulations and licensing there is in CA, but then you (and Andrew mentioned) talk about the shoddy construction and all of the lawsuits. So is it working in your state?

Allan Edwards
06-27-2004, 10:46 AM
Dick, you mentioned you wanted contractors to be tested in essay fashion whereby a 4 hour written answer would be required for, example, the following question:

“Write a four-hour essay on the doctrine of anticipatory breach utilizing the facts above.”

My answer to your hypothetical test question? Hire a good construction attorney.

Although I feel knowledge of basic real law and construction law is certainly helpful to all contractors, your hypothetical question exceeds what I would consider is basic knowledge.

Dick Seibert
06-27-2004, 11:50 AM
Allan:

Good morning, let's not fight today, we are similar in so many regards that we tend to focus on our differences. My best friend in college was a math major, and our fights make me remember our fights in the beer garden 50 years ago, maybe it's the difference between mathematicians and philosophers? Maybe I should come down there, we go to a strip club, get on a pair of adjacent mechanical bulls with a Lone Star in hand, and hash this out once and for all?

You are right about hiring an attorney and following his advise, but a contractor needs the basic knowledge to even understand the concepts. I deliberately chose the anticipatory breach question, because it has come up many times on these forums. A contractor needs to understand anticipatory breach, and allowing him to memorize the simple answer, and promptly forget it after the exam, doesn't cut it. Don't you agree that a contractor should be able to write and analyze a potential problem? I think the day is coming that a building contractor will be required to possess a college degree, together with an advanced degree in either business administration, law, or accounting. Knowing how to build is important, but it is of equal importance that he know the business, accounting and legal aspects of this business. I see no reason to require advanced education of subcontractors, but I don’t see allowing the subcontractor to contract directly with the consumer unless he has the advanced education.

Thanks for the Texas link, it appears that Texas hasn’t really set up a licensing program, but rather a voluntary registration program to settle disputes with homeowners, am I correct? If so, it is at least a step in the right direction. There is a down side to licensing, that is that the public automatically assumes that anyone licensed is just as qualified as any other licensee, and the license board, like any other public agency, has become an unwieldy bureaucracy.

Andrew is right, we have all kinds of shoddy construction around here, and licensing hasn’t solved the problem, only the lawyers are going to solve the problem, but it’s causing the rest of us to pay through the nose in higher insurance rates. The basic problem is the public’s misguided quest for low bids, when are they ever going to learn? I remember when we sent one of our first space craft up seeing a cartoon showing the American ship blasting off with two guys watching. The caption under the cartoon said: The scary thing is that it's been built by subcontractors that have submited the lowest bid." How true.

If only educated individuals could qualify to be contractors, and those individuals had to qualify with a difficult examination and prove financial stability, we could achieve the professional status that doctors and lawyers have attained.

Allan Edwards
06-27-2004, 12:02 PM
Dick;

I agree, the "fighting" does no one any good and really makes both us look silly.

You said:

"Don't you agree that a contractor should be able to write and analyze a potential problem?"

Of course, but not to the degree you seem to expect. We are not expected to be lawyers, although basic knowledge always helps.


"I think the day is coming that a building contractor will be required to possess a college degree, together with an advanced degree in either business administration, law, or accounting."

Little over the top Dick, I see no remote evidence of this happening.


"Knowing how to build is important, but it is of equal importance that he know the business, accounting and legal aspects of this business."

Well, I've been preaching this for a long time, not so much the legal aspects although that never hurts.



Dick, Im starting a new thread on licensing and quality, hope you particpate.

Dick Seibert
06-27-2004, 01:21 PM
Allan:

We are 70 years ahead of you on the licensing issue, so when you state: "Little over the top Dick, I see no remote evidence of this happening", you have to realize that I am looking at this happening in about 20 years around here, probably about 90 years in Texas.

Atomic Rooster
06-28-2004, 12:54 PM
Dick,

You are saying that because you have a California License, you are a professional. Just because a piece of paper says you are professional, does not make you a professional. I get the CSLB news letter with the list of suspended licenses. Where they professionals too? A professional is an attitude. It is your day to day actions and how you are seen in the eyes of your peers and the public that makes you a professional…not a piece of paper.

Also, you are being contradictory. You have complained in past posts about the License mills. Pay $400 and the bond and you have a license. There are only approximately 23 states that require licensing. And out of that only a dozen require testing and some of those are open book. How are the rest of the states getting projects built? Since no licensing is required there must not be any professionals in that state????

I have completed and managed projects worldwide (commercial) and the majority of the professional contractors and subcontractors I worked with were NOT licensed. The company sizes ranged from $1 Million in volume to over $600 Million. (the later was not licensed ) You need to get you head out of California and expand your experience.

Because of the law of averages, I know that I will get into a car accident at some point… does that stop me from driving? No, of course not. I agree with Alan…STOP being so negative. Contractors are by nature a “Can Do” bunch. You hit a road block, you figure it out and move on. The road blocks now are insurance, labor, etc. Lets help those less experience get over or around those road blocks instead of keep repeating the obvious.

One question… how do you and Allen find so much time to contribute to these posts?

Joe B

Allan Edwards
06-28-2004, 01:47 PM
Hey Rooster:

I agree, we need to send Dick a bottle of Prozac or a bottle of Bourbon and a Texas’ blond, that would make him less negative. Your fighting a losing battle with Dick, he thinks the whole world watches and cares what’s going on in CA. Seriously, I like your part about contractors being a “can do” bunch.

Where do I get the time to mess around on this forum? I’m very organized and efficient and can multi task. I typically post messages when I’m on the phone at the office, which is about 23 hrs a day. Headset on, mouth talking, fingers typing. Besides, I’m trying to pick up the slack for Sonny (where is Sonny?) and stay ahead of Dick’s propaganda. You think I post a lot here you should see me at the Morningstar forum.