February 21, 2003

Senators

Representatives

 The Board is aware that you have been receiving calls from plumbing and heating contractors and that you have received a letter from the North Carolina Retail Merchants Association about the history and issues related to the above-captioned bill. The Retail Merchants Association has outlined their position. This letter will give you "the rest of the story."

There is a problem with unlicensed people either contracting or installing plumbing jobs or heating jobs and those problems are the same whether the unlicensed person is a big retailer like Sears, Lowe's, or Home Depot, or one guy with a pickup truck. This is a public safety and consumer protection issue.

 In order for you to have the information you will need, this letter will talk about the plumbing systems first, then the heating systems, then our different experiences with Sears, Lowe's, or Home Depot, and lastly our position last October when the bill passed.

 A. Plumbing Systems

Hot water heaters are dangerous. The hot water heater is the most dangerous component of the plumbing system and, for most homeowners, the most dangerous piece of equipment in the entire house. The Board has experience with houses exploding or catching fire as a result of improper water heater installations. If improperly installed and vented, the hot water can turn to steam and send the water heater through the roof like a Saturn rocket. If improperly installed, the natural gas or LP gas can explode or produce carbon monoxide sufficient to kill everyone in the home.

It is unfortunate that many people have come to think of the hot water heater as an appliance, like a washing machine or refrigerator. It is a major disservice to the citizens of the state to ignore the risks and eliminate the safeguards from the process.

What difference did the October 2002 legislation make? The difference is that unlicensed people will be making deals with homeowners to provide them hot water heaters, including the installation. When that deal is made and the price set, assumptions as to the right kind of fuel, adequacy of wiring, adequate venting for carbon monoxide, use of a lowboy/hi-boy have already been made. The Board has no concern with whether the homeowner should choose a larger or smaller water heater, or where the homeowner buys it. However, once the product has been selected, it is likely in the real world that the product selected, sold, and sent to the job by the retailer will get put in even if it’s wrong. Consumer resistance to delay so as to replace wiring, gas lines, or flue pipes, or get the right water heater, will cause consumers and contractors to take a chance. There won’t be enough money in the deal to pay for the unexpected changes.

Won’t the problems be caught and corrected by the local plumbing inspector? No. The unfortunate reality is that half or more of the hot water heaters being installed in North Carolina are being put in without any permit or inspection. City and County Inspection Departments are shorthanded, and have a hard time finding out about replacement hot water heater installations, in contrast to new houses. Thus, the concern with contracts made by incompetent people is magnified because there is likely to be no backstop by the local inspector, and the homeowner won’t know the difference.

 B. Heating Systems

In the case of heating systems, there are many types of condensers, air handlers, gas packs, and furnaces involved in creating heating and cooling systems. Many of these pieces of equipment are incompatible with each other. Even when the equipment works, it may burn out motors or components, or cost too much to operate. In addition, there are many differences in the fuel efficiency of various pieces of equipment. Depending on the efficiency level of the equipment, other components may need to be modified or replaced and the ductwork used to carry the heated or cooled air to the living space may be too large or too small because of the changes to the equipment.

The Board is already receiving hundreds of complaints annually about heating systems installed with code violations, inferior design, and inadequate operation. The number would only increase when the deals are made by firms with no license.

C. Has the Board been fair and consistent in dealing with Sears, Lowe's, or Home Depot?

With respect to Sears, the Board has experienced years of complaints to the effect that Sears was doing work for which licenses were required and not getting a license like everyone else. In the last three or four years, Sears apparently embarked on a "route salesman" plan in which unlicensed salespeople would go in the homes of consumers and sell them hot water heaters including the installation in the sale price. Sears would then find someone to put in the hot water heater. Some of these subcontractors hired by Sears had a license from the Board and some of them did not. Similar activity was carried on with regard to heating systems but involving different people within Sears.

As the Board began receiving complaints about Sears jobs, it addressed the complaints initially by having hearings involving the licensed contractors who put in the bad work, or taking them to court if they had no license. We do not recall any case where we "went after" a licensee solely because he subcontracted from Sears. In each case there was also a complaint from others. Over and over the contractors responded that they were only putting in what Sears had sold and putting in all they could afford on the money being paid by Sears. The financial arrangements between Sears and its employees or people who make agreements with Sears are not the concern of the Board; however the consumer complaints are.

Eventually the Board had a series of conferences with Sears personnel and reached an agreement with Sears to the effect that Sears would hire licensees stationed in Charlotte, Greensboro, and Raleigh who would sign the contracts and supervise the route salesman. The Board was agreeable to this approach and so was Sears. The Board is still agreeable to this approach, assuming Sears continues to make no deals in the retail stores. Sears hired two of the licensees, and then seemed to stop. Around this time Board staff learned that Sears was also very slow to address complaints from the Consumer Protection Division of the Attorney General’s office.

  In an effort to avoid a confrontation, and get corrective action from Sears, the Board even provided Sears a copy of the complaint which the Board could file with the Superior Court to stop the illegal activity. As you can imagine, the Board does not usually provide advance copies of complaints to violators. The fact is that Sears has had more than its share of cooperation and warning from the Board.

We never advised licensees to resign but simply to re-examine their subcontracting relationships because subcontracting from an unlicensed contractor would be illegal. After a review of our files I find that contrary to what the Retail Merchants Association had stated. 

Apparently Sears decided it wanted to sell the installations without any licensed people despite the fact that everyone else in North Carolina has to have a license both to contract the work and to do this work. Sears then sought the assistance of the Retail Merchants Association and the Bill which has generated so much controversy is the result.

D. Lowe's and Home Depot.

Lowe's and Home Depot have represented to the Board that their involvement with plumbing or heating systems consist only in putting equipment on display in their stores and posting a sign with an "800 number." When a consumer calls the 800 number the call center will route the call to an independent contractor who is a dealer for the kind of equipment that Lowe's or Home Depot sells. The Board has taken the position and continues to hold the position that neither Home Depot nor Lowe's would have to have a license as a plumbing or heating contractor to sell the equipment and post an 800 number in their store, provided it is clear the contract for the installation is not with Lowe's or Home Depot, but with a licensed independent contractor. Of course, the retailer is always free to put as many licensees on the payroll as needed, and do the whole job in-house. Lowe's and Home Depot have followed this procedure in several of their stores but not all of them.

E. Where was the Board last October?

Shortly before the General Assembly adjourned in October, on the day the technical questions bill was considered and passed in Senate Committee, the Board was informed of the language exempting retailers from the requirements for plumbing and heating contractors. The next day, when the bill was in the House Committee, the substitute language delaying the effective date of the bill and including provisions about having the contractor sign the contract along with the retailer was added. Counsel for the Board was involved in that discussion. The Legislative staff was informed, in writing, that the Board continued to have reservations about the bill but that the bill was improved by the new language and the delay in the effective date. At no point did the Board leave anyone with the impression there were no problems with the bill.

It is obvious that there were many items in the technical questions bill that did not receive the input, discussion, and debate which would occur on other bills. In most of those situations there was no opposition. It is unfortunate that in this situation retailers came to the erroneous conclusion that there was some emergency justifying the need for action without full consideration. It is likewise unfortunate the matter was held until the last week of the session, depriving the members of the General Assembly of an opportunity for debate and full consideration.

As it has since created in 1931, the Board stands ready to carry out whatever law the members of the General Assembly decide is appropriate for protection of the consumers of North Carolina, with due consideration of the needs of business, suppliers and the contracting community. In general, the Board is proud of the 15,500 contractors who have obtained practical experience, passed a difficult exam and work hard to deliver a service to our citizens. At the same time we are working to remove incompetent licensed contractors, and prevent people of firms who have no license from contracting jobs. Obviously we do want good contractors to succeed since this is what assures the public of quality work.

We stand ready to answer any questions that you may have. A copy of our recent newsletter on this issue is enclosed. We can also provide copies of communications with the various retailers, or other information.

Don’t hesitate to direct questions to me as Executive Secretary Director of the Board at 919/-875-36112 or to the attorney for the Board, John N. (Nick) Fountain at 919-782-6860.

Sincerely yours,

Sandra R. O'Brien

Executive Director