The nation’s leading remodelers participated in a variety of sales-related seminars in the late summer and early fall of 2013.
Remodeler's Exchange: How to manage government regulations
This month, the Remodeler?s Exchange focuses on how to handle the ever-changing construction regulations enforced by our national and local governments. Professional Remodeler?s Tom Swartz spoke with Bob Hanbury and Mike Nagel about how they manage regulations in their firms.
TOM SWARTZ: Where do we stand today regarding lead paint, in particular the opt-out provision and the need for approved test kits?
BOB HANBURY: As far as the opt-out rule, that was in the original LRRP (Lead, Renovation, Remodeling, and Painting) back in 2010 before it was removed by the Obama administration. The Bush administration included an opt-out in their lead regulation. We supported it?we thought it was targeted and cost effective. But as soon as the advocacy groups were disappointed in that regulation, they sued the government, and the government settled. One of the settlement keys was that they removed the opt-out that allowed families with no children under the age of 6, no pregnancy, no day-care center to opt out?to choose not to require their contractor to follow the rule of the lead safe work practices. Currently, there is no opt-out. The return of the opt-out is being sought by current proposed regulations both in the House and the Senate. That type of potential solution is out there. One of the problems with the rule right now is the lack of affordable and accurate test kits. We have an inexpensive test kit but not an accurate one. It doesn?t differentiate between the presence of lead and the hazardous level of lead. What happens is you can test a house and it will say there is lead, but you don?t know whether or not it is hazardous. You end up doing work practices where you wouldn?t have to if the test were more accurate. If you miss 60 percent of the time, you?re going to tell the homeowner, ?There is lead present and you need to follow the rules,? because that?s what the inexpensive test is telling the certified renovator. The other solution is to pay a lead inspector to use a XRF, which is extremely accurate, but it costs $400 per house to find out how hazardous the lead may be. The EPA?s test kit requires you follow false positives and false negatives; the other test kit does not do this. You don?t want your customer to pay for lead-related services if they don?t need to.
Bob Hanbury, CGR
House of Hanbury Builders,
Formed 37 years ago, House of Hanbury Builders is a third-generation design-build remodeling firm focusing primarily on residential projects and some light commercial work. The firm currently employs two full-time and two part-time employees. Volume is up 30 percent compared with 2012 and should account for more than $1 million in 2013.
Mike Nagel, CGR, CAPS
MAW Chicago, LLC, Palatine, Ill.
Nagel partnered with Scott Sevon in 2008 to form MAW Chicago. Their business is approximately 80 percent residential and 20 percent commercial. In 2012 their volume was $2.6 million, and they are projecting $4 million to $4.5 million in 2013. The firm has four to six full-time employees and two to four part-time employees. Nagel has been in the remodeling and construction industry for 43 years.
SWARTZ: Do you have to test every project for lead?
HANBURY: Anytime you are working on a house constructed prior to 1978, you need to make a determination if there is lead present or not either with the inexpensive, inaccurate test kit or with the XRF. You can also just assume there is lead there and do the extra work protections.
SWARTZ: Besides pre-1978, is there any other guidelines they say you should or should not test for lead?
MIKE NAGEL: For the type of work that Bob and I do, it?s pretty much every job. If it involves a window, it?s automatic. If you are servicing less than 6 sf of wall, you don?t have to follow the rule. If you?re serving less than 20 sf of wall on the outside of the house, you don?t have to follow the rule. In our business, serving less than 6- or 20-sf of wall is done in the first 20 minutes of work. It?s not something that we even think about as being not ?falling under the rules.? Every house we work on under pre-1978 rules, like Bob said, you don?t have to test it, you can just assume lead is there and do your paperwork accordingly. Sometimes, the homeowners would prefer you do that because then you don?t have to declare the home tested positive for lead. Depending on the real estate laws of your state, you have to declare if you know for a fact the house contains asbestos, lead, or any other toxic substance. If you don?t test for it, you don?t prove that it?s there, and you don?t have to make the declaration that it?s present. That may be one of the positive reasons for not actually testing.
HANBURY: There is paperwork that we give our customers when we are done with a project that shows what test kits we used and our work practices. It?s basically a document that outlines what did and what did not happen inside of their house. When they go to resell, in theory, they will show the new buyer they did some remodeling, this firm was the remodeler, they followed the LRRP rules, here?s the proof, the signature, and so forth.
SWARTZ: How does a remodeler go about creating this type of paperwork?
HANBURY: When you get checked out by the EPA or you get asked how you are complying with the law, you will need your paperwork. It starts from the first time you meet a client; you give them the ?Protect Your Family From Lead in Your Home? booklet, you have the disclosure in the back signed that says, ?Yes, I received the book from my remodeler.? That educational piece is given to all of your customers and you keep a copy of that signed disclosure sheet. The first step is to educate the consumer.
SWARTZ: Where do you get that book?
HANBURY: The EPA has them and there is a website where you can make a PDF of the booklet and print it yourself. It doesn?t have to be in color; it just has to have the language in the book.
NAGEL: We incorporate the book into our contracts. We downloaded it from the Internet, and it?s available in more than one language.
HANBURY: You need to keep track of all disclosure forms. You need to prove your customers were informed of the lead rule and implementation. Of course you have to be a certified firm at a minimum because if you are going to offer to perform these services, you need to have been signed up with either the federal government or a state regulator. If you offer to work in houses that are pre-1978 that do not contain lead, you do not need to be certified. If you are a certified firm, you can hire a certified renovator to do the paperwork for your firm. The paperwork says the work was done safely, here are the people that entered the work site, here are training and certification numbers, here?s our work process, what we did, our clean-up, and we certify that we did everything that is recommended. Regulators will get most remodelers because they did not have the disclosure signed, which is the easy part of the rule.
SWARTZ: Are there additional costs related to following the LRRP rules?
NAGEL: We do a lot of our work in the city of Chicago. A good portion of it is done in high-rise structures, which makes it a little more difficult than a multifamily situation. This can add cost to the equation, not only because you have to follow the regulations, but you also have to figure out a way to safely removed lead-based materials into a vehicle without contaminating everything along the way. The first project we did like that, we added 2.5 percent to the cost. It was an added cost we weren?t sure of, but we were able to sell it. In this case, it was an $8,500 add on. When the project was done, we were closer to $16,500 in expenses. On high-rises, we are now figuring 5 to 6 percent of the total sales price to cover our costs. It?s hard to sell that additional cost; we are a registered and certified firm, and all that does is put a target on our back. Regulators from the EPA are looking for firms that are trying to do the business correctly, and in a sense we are targeted because we are easy to find. This is a bone of contention between the Remodelers Council at the NAHB and the EPA because the EPA is not going after the fly-by-night-remodelers because, frankly, the EPA doesn?t know how to find them. We are certified. They know who we are, so they come after us. We feel that?s grossly unfair because we are trying to comply by the new rules. It being a new rule, you?re going to make mistakes along the way. Most of the fines handed out are based upon paperwork and not work in the field. It?s almost become a revenue stream for the EPA because it?s not like they care about what?s going on in the field.
HANBURY: If you advertise that you are certified, it can actually hurt your business. Customers who are in the know say they are not going to use us because they can foresee the added costs associated with such a project. There isn?t enough consumer awareness and knowledge out there, but just enough to know there are added expenses. Lead is starting to be like asbestos for the average consumer; that means money out of their pocket. Anytime you mention lead, they assume they have to run away from the project because it?s going to cost more money.
SWARTZ: What type of registration does a remodeler have to show to customers? Does the individual remodeler have to be re-certified?
NAGEL: There is a difference in the certifications. The registration is simple paperwork for your firm and you pay a certain fee that is good for three years. To get certified, the remodeler has to go to class for an eight-hour session, spending six hours doing class work, and two hours doing field work where you are shown the proper way to secure an area, how to protect floors, the proper way to clean up, the proper way to test, and so forth. You pass the test at the end and you get your certification, which is good for five years.
SWARTZ: Where does a remodeling contractor who wants to get both his firm registered and his employees certified go?
NAGEL: There are private firms that do certification programs on a regular basis. I got mine through my local HBA. Some of the window manufacturers also provide certification, sometimes at a lesser rate in order to get their contractors certified. The window industry is probably most affected by this rule because there is no square footage minimum?you touch a window, you fall under the rules. Windows, trim, and doors are the areas most affected by lead?more than walls, floors, or ceilings.
SWARTZ: What other government regulations come into play for remodelers?
NAGEL: With strictly regulations and not laws, OSHA has been involved in the remodeling market with fall protection. Now they are getting involved with silica dust. Those two issues are rearing their heads in a big way right now.
SWARTZ: How do OSHA?s fall protection rules affect remodelers?
NAGEL: The rules impact remodelers in a big way. Anytime you are 6 feet or more off the ground, you are required to be tied off. That?s simplifying the rule. I guarantee you can drive by any jobsite in the U.S. and see contractors not following this rule. It affects us when we are putting a new roof on a structure or when we are doing an addition to a structure that has a new roof. If we are working on scaffolding, we have to have proper railings and tie-offs. If you have a deck on the top of a house that does not have the walls up yet, there is no barrier between you and the edge of the deck, and you are more than 6 feet off the ground, technically you are supposed to be tied off. I can almost guarantee you for the most part that carpenters don?t ever tie off.
HANBURY: One of the biggest problems I have with the re-roofing aspect of that is that we are supposed to go up to the ridge safely, and you?re allowed to install your device, but with two or three layers of roofing on there how do we know if we are going to hit something solid that will actually create a safe tie-off point? It?s not that easily done. Some of the older houses do not have a ridge, and who knows how they were put together? There is a lot more responsibility to create a safe tie-off, which is our goal, but it is not as easy as new construction where you know where the framing is; you?re looking at strong structural system that is designed to hold a tie-off.
SWARTZ: What is the next government regulation you see coming, and how can we start dealing with that regulation now?
HANBURY: The next area is going to be our financials. With labor shortages and the use of subcontractors, there is a great deal of effort to define a worker that doesn?t really work in the construction industry. So many workers are subcontractors; if you follow the Department of Labor test, oftentimes we fail miserably at determining who is a subcontractor, and who the government defines as an employee. There is such a shortage of manpower, regulations may change the way we hire and train subcontractors. Are we going to have to go back to more employees because the government is going to make us treat subs like employees anyway? Can we find a rule or definition that allows the construction industry to have subcontractors that meet a definition so the DOL or IRS is going to come after us?
NAGEL: We have the Employees Classification Act in the state of Illinois that includes over 12 guidelines to prove that someone is a subcontractor. They all have to be answered ?yes? to all 12 or you have to go back and submit payroll taxes.
I think the other area is going to be immigration. The immigration rule that went through the Senate has passed. The companion bill now in the House may be approved before the beginning of August. No one knows how that?s going to play out but the E-Verification portion of that bill could be catastrophic for our industry. If E-Verification falls on the back of the remodeling contractor, it takes a lot of time and energy to prove that one of your subs is a naturalized citizen or a legal resident of the country. If we have to deal with employees and subs, that?s going to be difficult task for us as contractors to make that happen and abide by the law if
SWARTZ: What advice would you give remodelers to deal with the ever-present regulations of today?
NAGEL: Don?t bury your head in the sand. Understand the regulations enough to keep yourself out of hot water. The key is to stay up to speed on all regulations. The whole advocacy portion of NAHB, and the ability to get timely information about these regulations, has a huge impact on my business. It enables me to stay one step ahead of the curve on what the regulators may be trying to do to us over the next few years. It keeps us in the loop, and being aware of what?s going on around you is probably the most important thing I can tell someone.
HANBURY: Networking and being involved in association meetings where information is shared is still really valuable. People need to find a way to be mentored on regulatory issues, be connected with people who do know the rules, or have access to people who do know the rules. In NAHB, we have great regulatory representatives who have access to this information and they help remodelers quite a bit. The key is to differentiate yourself in today?s market. It?s hard enough to sell, but be the one who knows the rules and can provide safe jobsites and safe workers.