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Licensed, bonded and unaccountable
Thursday, 08 December 2005
The Oregon Construction Contractors Board fails to discipline bad
The board has done little as contractors avoided nearly half the damages ordered by the agency. During the past 10 years, the board awarded some $55 million to homeowners, suppliers and subcontractors, but only about $28 million was paid, CCB records show. Homeowners stand the best chance of collecting, but The Oregonian's analysis shows that many end up like Stuart, who won board-ordered damages of $364,000 but has been paid zilch.

Licensed, bonded and unaccountable

The Oregon Construction Contractors Board fails to discipline bad


Sunday, December 04, 2005

When John Stuart looked for a contractor to build his dream home in Oregon's wine country two years ago, he turned to the Web site run by the Oregon Construction Contractors Board, the state agency that says its mission is to protect customers from bad builders.

That might have been Stuart's first mistake.

Stuart punched in the name of Scott Aldrich, the Hillsboro contractor he wanted to hire, and found that not a single complaint had been filed against his company. Reassured, Stuart hired the firm.

Twenty-two months later, Stuart is out $364,000 on a construction project he said was marred by delays, mistakes and mold that cost $75,000 to eliminate. Aldrich, who disputes Stuart's version of events, had a history that included seven complaints to the contractors board and a year-old personal bankruptcy in which he tried to discharge more than $170,000 in debts.

None of Aldrich's difficulties could be found on the agency's Web site, largely because the board gave him a license in 2002 to operate under a new company name with a clean history.

"The contractors board is an absolute toothless tiger," said Stuart, who thinks the board's Web site deceived him about Aldrich's financial past. "The worst thing is, as a consumer you're on the hook."

Stuart's case is not unusual. The board fails to provide consumers with some of the most basic information in its own databases, an investigation by The Oregonian found. Several years ago, the agency quit listing all complaints against contractors on its Web site after some builders protested that full disclosure hurt their businesses.

The board has done little as contractors avoided nearly half the damages ordered by the agency. During the past 10 years, the board awarded some $55 million to homeowners, suppliers and subcontractors, but only about $28 million was paid, CCB records show. Homeowners stand the best chance of collecting, but The Oregonian's analysis shows that many end up like Stuart, who won board-ordered damages of $364,000 but has been paid zilch.

The board has repeatedly permitted troubled contractors to remain in business. Though the agency can revoke the license of any contractor who ignores court judgments or fails to pay subcontractors, officials said they make no effort to search court files for such actions. That has allowed contractors such as Aldrich, who failed to pay multiple court judgments, to stay in the business.

The board has also failed to make full use of its authority to suspend contractors who ignore the agency's orders. Craig P. Smith, the board's administrator, said poor record keeping has permitted some contractors to retain their licenses even though they had skirted orders to pay damages.

Smith acknowledged the enforcement gaps and shortcomings with the Web site during interviews with The Oregonian. But he said improvements are in the works, and he defended the construction industry, saying the most serious problems are caused by a few bad apples.

"Ninety percent of contractors are fine people," Smith said. "Ten percent will try to get around the rules. One percent are thieves in contractor's clothing."

There has been no more important time for a tough builder watchdog than the past decade, as record low mortgage rates fueled a protracted building boom and steadily rising home prices. Builders took out a record 20,728 permits to build single-family homes in Oregon in 2004 at an average of $190,600 a dwelling, also an all-time high. The remodeling business, too, exploded in step with easy refinancing that allowed owners to tap into rising equity.

Though the pace of construction climbs ever skyward in Oregon, the contractors board is handling fewer complaints than ever, partly thanks to a $50 filing fee it instituted in 2004. It is the only such agency in the western United States to charge that type of filing fee.

The agency's problems stem as much from weak laws as from passive enforcement. Oregon law sets no standards for trade proficiency, for example, allowing virtually anyone with $500 for fees and a performance bond to get a contractor's license. Although states such as Washington and Idaho also lack proficiency standards, builders must pass trade-specific exams in California, Arizona and Nevada.

Now, the contractors board is poised to play an even more crucial role as state and industry officials move to address a rash of newer moisture-related construction failures that have cost property owners millions. In July, the Oregon Legislature created a task force to investigate the problems after The Oregonian reported that a convergence of tight energy conservation standards, vulnerable construction materials and sloppy building practices were driving insurance costs for builders and developers to new heights.

"That's going to be the mission of this agency for the next year, to find the causes behind the failures," Smith said as lawmakers debated the issue last summer.

Homeowners, construction lawyers and even some builders wonder how a board that's struggling with its basic mission can take on more expansive duties.

"I am dubious that the Construction Contractors Board is the entity to address this new problem," said Rich Vial, a Tigard lawyer who represents homeowners. "It is clear that they don't have the resources to even make basic determinations about the quality of work and integrity of contractors now in the system."

There's little doubt Smith's agency faces a daunting task. The board's 62 employees oversee 45,000 contractors and passed judgment on about 2,000 complaints last year. Its $12 million biennial budget is financed primarily by contractors, who pay a $260 licensing fee every two years.

When homeowners complain, field investigators visit construction sites and, in a significant number of cases, successfully mediate a settlement. Contested cases are heard by administrative judges.

For many homeowners, this complaint process has been an effective and efficient alternative to suing their builder. A majority who participate get at least some compensation, but hundreds of others who've turned to the board haven't been so fortunate, The Oregonian found.

Take the case of Gail and Mark Hippensteel.

After a fire badly damaged the Astoria couple's 77-year-old house on Aug. 28, 2001, they hired a local contractor, Ron Neva, to do the repair work for $103,000, according to a lawsuit the couple filed later.

Gail Hippensteel called the project a mess from the start. A floor joist Neva installed wasn't connected to the wall, she said. The couple's insurer had paid Neva to tear down a chimney and put in hardwood floors, but he did neither, the couple told the contractors board in a complaint. A city inspector condemned new decks Neva built because they were in danger of collapsing.

"He didn't even put a towel rack or a toilet paper dispenser in the bathroom," Gail Hippensteel said. "This house was old and wobbly, but it was much worse after Neva was through."

In October 2003, the contractors board ordered Ron Neva Construction to pay the couple $124,906.

Four months later, however, Neva declared personal bankruptcy. The Hippensteels received only the $15,000 from the bond Neva was required to buy to obtain his state license. The couple has propped up their "rebuilt" home with 4-by-4s and sued Neva's insurance company to pay for the repairs.

Neva, who could not be reached for comment, is not the only Oregon contractor to take refuge in bankruptcy court. During the past 10 years, the board's database shows, roughly 700 contractors owing about $4 million in contractors board damages had their obligations discharged with the blessing of a federal bankruptcy judge.

The agency's largest single damage award issued in the past 10 years was mostly extinguished by bankruptcy. Gresham contractor Cecil Smith was ordered in 2000 to pay $860,000 to Rick Strachan for a Hood River remodeling project that went spectacularly awry.

Eight days after the ruling, Smith filed for personal bankruptcy. Strachan ended up collecting only $70,000.

Bankruptcy protects builders in a second way: It bars the agency from revoking their license or taking any other disciplinary action against them.

Normally, the contractors board revokes the license of builders who fail to pay agency-ordered damages. But the federal bankruptcy code not only enabled Smith to legally discharge his debts, it also blocked any administrative action against him. He remains an active, licensed contractor.

Yet bankruptcy is behind only a fraction of unpaid board orders, The Oregonian found. In the majority of such cases, contractors simply ignore the order.

The Oregonian obtained board claims data dating to the start of 1996 and found that, overall, about 50 percent of the damages awarded go unpaid. Homeowners, who filed the bulk of the complaints, fared slightly better because they have first call on a contractor's bond. Still, they collect only about 60 percent of board-ordered damages, the data show.

According to the board's own report, the agency issued 2,357 final orders for contractors to pay $7.2 million in the two years ending June 30. Of those, 1,126 claims went unpaid for a total of $3.5 million.

Unpaid damages have cost homeowners significant amounts of money over time -- more than $12 million since 1996, according to the board's data. Contractors also have lost out -- unpaid orders for claims they filed against one another or claims filed by their employees and materials suppliers amounted to about $14 million during the same period.

The contractors board makes no effort to ensure the money is paid.

"We don't get involved in the collections business," said William Boyd, head of the agency's dispute resolution section. "At that point, it's up to the consumer."

But options are few. Consumers can take their contractors board order to court and get a judgment against the builder, then try to garnish wages or seize assets. It's difficult and expensive, and there are no guarantees.

More often than not, it's an exercise in futility. Stuart, the homeowner who hired Scott Aldrich, secured a court judgment for $364,000 that was later adopted by the board. It didn't help. "Beyond spending a lot of money on legal fees, there really isn't much to look forward to," Stuart said.

$15,000 bonds not enough

Homeowners who've come up empty-handed say the claims process underscores the inadequacy of the $5,000 to $15,000 bonds the state requires of contractors, depending on specialty.

The bonds are akin to cheap insurance. For about $200, a contractor can buy $15,000 worth of coverage. Yet in 731 cases during the past two years, claim amounts exceeded a contractor's bond.

Other states require a bigger bond. California, for instance, mandates as much as $100,000 in coverage for contractors who have a disciplinary record. The Oregon agency, by contrast, argues that raising the coverage limit will only hurt contractors financially while providing little added protection to most homeowners.

Boosting the limit "would likely have unintended consequences that would further damage consumers and Oregon's economy," Smith wrote in an e-mail sent to the governor's office in anticipation of this story.

But even some builders say it's past time for a larger bond. Contractors with $15,000 bonds are building half-million-dollar homes, which places enormous risk on the consumer, said Jim Chaney, a Eugene commercial builder and former chairman of the contractors board.

"As a homeowner, if you hire a contractor right now, you're gambling," Chaney said. "And the builder is gambling with your money."

The contractors board does have other disciplinary tools.

It can and does revoke the licenses of contractors who don't comply with final orders to pay damages. The board suspends the licenses of 50 to 100 contractors a year because of unpaid orders, Smith said.

Still, the agency has other powers that it seldom exercises. The law allows the board to suspend or revoke the license of a contractor who has a construction-related court judgment against him. It can do the same against a general contractor if an unpaid subcontractor or supplier files a construction lien against a homeowner.

A lien is a legal maneuver in which a contractor or supplier threatens a homeowner with foreclosure to collect a debt. The board takes a dim view of such actions if they are slapped on a home because a general contractor has failed to pay one of his subcontractors.

Smith acknowledged that such actions come to the board's attention only when consumers complain. If no one does so, it means builders whose licenses should be revoked remain in business.

The impact of such liens can be devastating on homeowners. Just ask Damon and Norma McCauley.

Days after workers finished an extensive remodel at their Southwest Portland home, the couple got a rude surprise: The carpet company and appliance supplier placed liens against their home demanding some $21,000.

The McCauleys were stunned. They had already paid $193,000 to their contractor, Oregon City builder Wade McGilvra, who was to cover all costs, Damon McCauley said. The couple hired a lawyer, who managed to fend off one of the liens. But under threat of foreclosure, they unhappily paid out another $8,000.

The McCauleys grew more angry after filing a complaint with the contractors board. In July, the board ordered McGilvra to pay them the $8,000. But the McCauleys have received nothing and say they've been told by the agency that they probably will never get full payment.

The reason: McGilvra has a long trail of other disgruntled customers and subcontractors, so many that his $15,000 bond would have to multiply like the biblical loaves and fishes to feed all the obligations.

"I'm just in shock that the system in Oregon allows this," Damon McCauley said. "I know (McGilvra) is not an isolated case. To me, the contractors board is an agency that exists for contractors."

McGilvra could not reached, and his lawyer declined comment. But his record stands out as a prime example of how the board's failure to proactively police contractors leads to devastating results.

McGilvra, first licensed in 1981 when he was 22, worked as a new-home builder, designer and remodeler for the ensuing 24 years using five different licenses from the contractors board. Over the years, McGilvra's companies have been the target of 41 complaints.

His first major run-in with regulators came in the late 1980s when five disgruntled homeowners and subcontractors filed complaints against McGilvra's company at the time, Windsor Custom Homes. McGilvra never paid more than $6,000 of the damages ordered by the board, according to agency records. Though that is grounds for license revocation, the board took no action against McGilvra.

Lapses were missed

Smith, who joined the agency after the case, blamed the lapse on faulty record keeping at the contractors board. Staff members failed to spot McGilvra's unpaid orders at Windsor when he applied for a new contractors license.

A steady trickle of additional consumer complaints and lawsuits were lodged against McGilvra or his new company, Pacific Cascade Homes, throughout the 1990s, all of which were settled or dismissed. But in the past five years, complaints poured in while the contractors board stood on the sidelines.

Eighteen customers, subcontractors and suppliers lodged complaints against McGilvra's companies since May 2000, claiming slipshod work, prolonged unexplained absences, unauthorized change orders that jacked up the bill, unfinished jobs and unpaid bills.

Roy and Kristine Weedman of Damascus paid Pacific Cascade Homes more than $400,000 to build a commercial reception hall. They asserted in a subsequent lawsuit that Clackamas County refused to approve the finished building because of numerous commercial fire code violations. The Weedmans say it will cost $242,000 to bring the building to code.

Scott and Nancy Preece paid Pacific Cascade Homes more than $279,000 to remodel their Beaverton home. They said in a complaint to the contractors board that after the project's completion they were hit with construction liens from unpaid subcontractors or suppliers seeking $77,000.

Charles and Kim Beasley of Estacada paid Pacific Cascade Homes more than $45,000 for a remodel. After what they said were repeated delays, design errors and yelling matches, work stopped in February. The Beasleys never got any money back and paid $550 to a lumber supplier under threat of a construction lien.

On Sept. 14, 2004, Corrine Bowman won a court judgment against Pacific Cascade Homes for $48,000 in Clackamas County. Bowman had sued, saying her $638,000 Redlands home was riddled with defects.

Under the law, a construction-related civil judgment is grounds for the contractors board to suspend a contractor or revoke a license. The agency said it never learned of Bowman's judgment, however.

Two days after Bowman obtained that judgment, Pacific Cascade Homes was dissolved, according to state corporations records. McGilvra began operating as Pacific Cascade Remodeling and Design -- a company the contractors board had licensed on Sept. 10, 2004 -- days before Bowman won in court.

It wasn't until two of McGilvra's angry customers launched a crusade that the board acted.

Sherwood resident Dana Nishimura and Kim Beasley of Estacada dug up the names of other unhappy customers, met with Clackamas County sheriff's officials and complained to the state attorney general's office. Nishimura even went to the contractors board and paid $50 to look at McGilvra's voluminous complaint file.

Finally, on July 27, the agency pulled McGilvra's license and fined him $3,000 -- $1,000 each for three construction liens that unpaid materials suppliers had filed against McGilvra's customers. Administrator Smith said at the board's October meeting that an investigation continues and could result in civil or criminal charges.

Information omitted

Builder trade groups say that cases like McGilvra's are rare and shouldn't besmirch the entire industry.

"We've got a reputation problem," said Steven Kafoury, lobbyist for the Oregon Remodelers Association. "There have been remodelers, perhaps out of proportion to other industries, who have not been as square shooters as they should be. It's to our advantage to have very strong enforcement."

At the contractors board quarterly meeting in October, Smith outlined the McGilvra case in detail, terming McGilvra's conduct "unconscionable and fraudulent." And in interviews later, board officials said it's time to look at tougher consumer protection measures.

"It's shockingly easy for a contractor to lose his license, turn the company over to his wife, his son, his whatever, and go right back into the business under a different company name," said Cliff Harkins, chairman of the contractors board.

"That's certainly one of our weaknesses," Harkins said. "If we don't do enough to clean that up, we deserve to be criticized."

The contractors board urges consumers to protect themselves by thoroughly reviewing builders' background before hiring them. But the agency's Web site offers incomplete information on individual contractors.

The board's Web site displays only current claims and any board orders to pay damages within the previous three years. Older orders and all settled or dismissed claims, which can obscure past problems a consumer might find noteworthy, are omitted. The agency restricted the information shortly after it put its Web site online in the late 1990s -- after builders complained.

Contractors "said they were losing $10,000 to $30,000 a year due to the data being on the Web," said Boyd, the head of the dispute resolution section. "I actually believe that it was true."

The Oregonian found many examples in which contractors were listed in good standing with no complaints despite a long history of problems and past board orders.

Someone in the market for a luxury condo in Portland, for example, might look up Marty Kehoe, one of the busiest condo developers in the city. The Web site lists no complaints against any of Kehoe's seven licensed companies.

In fact, 77 complaints have been filed against Kehoe's companies, more than any other contractor in the past 10 years. The Web site doesn't show that the board ordered his companies to pay more than $80,000 in damages to disgruntled customers, subcontractors and suppliers. Nor does it show that the state Justice Department entered the case and that in 2003, under pressure from the department, Kehoe settled with his unsatisfied customers.

Kehoe said he deserves credit for not taking his company into bankruptcy. The company faced dozens of lawsuits in addition to the complaints to the board. He said he made substantial, but not complete, repayments to his customers. "I ended up spending $3 million and three years to work out of this mess," he said.

Low standards

The Oregon board's problems are aggravated by paltry competence requirements for contractors.

California, Nevada and Arizona all require experience and business or trade-specific tests for contractors to be licensed. In Oregon, the only requirement is that a "responsible managing individual" take 16 hours of general business and legal classes, then pass a test. No skills tests are required.

By comparison, the state requires 1,100 hours of training for barbers and 350 hours for manicurists.

Even some builders say the low standards create a problem. "It's too easy to become a contractor," said Portland builder Larry Peabody. "I have seen the level of skill decline steadily."

Yet, agency officials said the concern is misplaced.

"It's not that they don't have the skills," said Boyd, "they just have the wrong attitude. Continuing education is not going to fix that."

Don't tell that to Allen Risen.

In July 2004, Risen launched a major remodeling of his home in Independence. To do the work, he turned to Michael Coons, a contractor from nearby Dallas who he'd known for a decade through Boy Scouts.

It turned out that Coons' background wasn't in contracting.

He had been licensed by the Oregon Board of Nursing in 1982 and worked as a nurse through much of the 1990s -- until he was investigated by Yamhill County authorities in the suspicious deaths of four hospice patients at a Sheridan nursing home. The case was widely publicized, but no criminal charges were filed, according to Brad Berry, Yamhill County district attorney.

The contractors board granted Coons a license on Nov. 17, 1997. He had filed for bankruptcy seven days earlier.

Risen didn't know about the bankruptcy. But he quickly grew suspicious of Coons' work on his house. The severity of the problems hit home in November 2004, when a Polk County building inspector told Risen to immediately shore up his great-room ceiling and hire a structural engineer.

Risen won a favorable ruling from the contractors board, which ordered Coons to pay him $66,000. He said he has received nothing, and he's in line with four other customers and materials suppliers hoping for a share of Coons' $15,000 bond.

Coons told The Oregonian that Risen rejected his offer to fix the problems. Coons filed for bankruptcy a second time in October, blaming it on clients who didn't pay their bills on time.

"Lots of us work on very narrow margins," Coons said. "It doesn't take much to tip us over the edge."

Risen has a less charitable view.

"I thought I knew him," he said. "It's too bad he can't go to jail for this."

Jeff Manning: 503-294-7606 or This e-mail address is being protected from spam bots, you need JavaScript enabled to view it


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