Vol. 41 Iss. 5 (Proposed) 18VAC50-22, Board For Contractors Regulations October 21, 2024

REGULATIONS
Vol. 41 Iss. 5 - October 21, 2024

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TITLE 18. PROFESSIONAL AND OCCUPATIONAL LICENSING

BOARD FOR CONTRACTORS

Chapter 22

Proposed

TITLE 18. PROFESSIONAL AND OCCUPATIONAL LICENSING

BOARD FOR CONTRACTORS

Proposed Regulation

Title of Regulation: 18VAC50-22. Board for Contractors Regulations (amending 18VAC50-22-40, 18VAC50-22-50, 18VAC50-22-60, 18VAC50-22-62, 18VAC50-22-65, 18VAC50-22-66; adding 18VAC50-22-35, 18VAC50-22-61).

Statutory Authority: § 54.1-201 of the Code of Virginia.

Public Hearing Information:

October 24, 2024 - 2 p.m. - Department of Professional and Occupational Regulation, 9960 Mayland Drive, Second Floor Conference Center, Richmond, Virginia 23233.

Public Comment Deadline: December 20, 2024.

Agency Contact: Cameron Parris, Regulatory Operations Administrator, Department of Professional and Occupational Regulation, 9960 Mayland Drive, Suite 400, Richmond, VA 23233, telephone (804) 367-9183, FAX (866) 350-5354, or email cameron.parris@dpor.virginia.gov.

Basis: Section 54.1-201 of the Code of Virginia requires the Board for Contractors to establish the qualifications of applicants for certification or licensure and promulgate regulations. Section 54.1-1102 of the Code of Virginia enumerates the legal authority for the board to administer the licensure of contractors and for the relicensure of contractors after license or certificate suspension or revocation.

Purpose: The offering and performing of contracting work by those who lack sufficient expertise, competence, integrity, and financial responsibility poses a risk to the public health, safety, and welfare. Risks include (i) damage to property, personal injury, or loss of life as the result of work that is improperly performed; (ii) financial harm to consumers as the result of construction that is not properly managed or performed; and (iii) harm to consumers as the result of those who lack the character and integrity to offer and engage in contracting work. As mandated by the General Assembly, the board protects the public health, safety, and welfare, in part, by establishing through regulation the minimum qualifications for entry into the profession.

Substance: The amendments:

1. Add 18VAC50-22-35 to provide for application procedures that reflect current agency practice and are consistent with application procedures for other Department of Professional and Occupational Regulation (DPOR) programs;

2. Revise 18VAC50-22-40 to (i) reduce the minimum experience required for a qualified individual for a Class C contractor license from two years to one year and (ii) require that applicants for a Class C contractor license disclose adverse financial information (e.g. outstanding past-due debts or judgments; prior bankruptcies) for the past three years prior to application, as opposed to the five years prior to application;

3. Revise 18VAC50-22-50 to (i) require that applicants for a Class B contractor license disclose adverse financial information (e.g. outstanding past-due debts or judgments; prior bankruptcies) for the past four years prior to application, as opposed to the five years prior to application; (ii) provide that an applicant for a Class B contractor license must verify a net worth or equity of $15,000 or more by submitting a completed financial statement with supporting documentation, a certified public accountant (CPA) reviewed financial statement, or a CPA audit; and (iii) provide that an applicant may obtain a $50,000 surety bond on a board-approved form in lieu of providing required information regarding the firm's financial position;

4. Revise 18VAC50-22-60 to (i) provide that an applicant for a Class A contractor license must verify a net worth or equity of $45,000 or more by submitting a completed financial statement with supporting documentation, a CPA-reviewed financial statement, or a CPA audit and (ii) provide that an applicant may obtain a $50,000 surety bond on a board-approved form in lieu of providing required information regarding the firm's financial position;

5. Add 18VAC50-22-61 to (i) consolidate provisions located in 18VAC50-22-40, 18VAC50-22-50, and 18VAC50-22-60 that outline the license classifications or specialty services for which a proposed qualified individual must meet a prerequisite (e.g. master tradesman license or other credential) or pass a board-approved examination in the classification or specialty service; and (ii) provide an additional pathway for a contractor to qualify for the alternative energy system contracting (AES) specialty service;

6. Amend 18VAC50-22-40, 18VAC50-22-50, and 18VAC50-22-60 to add language clarifying that an applicant for the miscellaneous (MSC) specialty service must provide evidence acceptable to the board of the qualified individual's experience in the scope of practice for which the specialty service is being sought. Such applications will be considered by the board in accordance with the Administrative Process Act (§ 2.2-4000 et seq. of the Code of Virginia); and

7. Amend provisions in 8VAC50-22-40, 18VAC50-22-50, 18VAC50-22-60, and 18VAC50-22-62 pertaining to the disclosure of criminal convictions to make the regulation more consistent with the provisions of § 54.1-204 of the Code of Virginia pertaining to criminal history.

Issues: The primary advantages to the public and the regulated community are that the amendments to the regulation will (i) reduce entry requirements for Class B and Class C contractor licenses, allowing more firms to potentially qualify for Class B and Class C contractor licenses while ensuring minimum competency and protection of the health, safety, and welfare of the public; (ii) provide needed updating and organization to the regulation; (iii) ensure the regulation reflects current agency practice; and (iv) ensure the regulation complements current Virginia law and is clearly written and understandable. No disadvantages to the public or regulated community have been identified. There are no identifiable disadvantages to the Commonwealth.

Department of Planning and Budget's Economic Impact Analysis:

The Department of Planning and Budget (DPB) has analyzed the economic impact of this proposed regulation in accordance with § 2.2-4007.04 of the Code of Virginia and Executive Order 19. The analysis presented represents DPB's best estimate of the potential economic impacts as of the date of this analysis.¹

Summary of the Proposed Amendments to Regulation. In response to Executive Order 19 (2022) and Executive Directive 1 (2022), the Board for Contractors (board) seeks to amend the Board for Contractors Regulations to reduce certain entry requirements for firms seeking a Class C or Class B contractor license. The proposed changes would also clarify the text, conform the regulation to current Virginia law, and reflect current practice.

Background. Executive Directive Number One (2022) directs executive branch entities under the authority of the Governor "to initiate regulatory processes to reduce by at least 25% the number of regulations not mandated by federal or state statute, in consultation with the Office of the Attorney General, and in a manner consistent with the laws of the Commonwealth."² Accordingly, the board proposes to make one change for Class C contractors that would reduce the entry requirements, and one change each in the requirements for Class B and Class C contractor licenses that would decrease the requirement for disclosing adverse financial history. The board also seeks to make a number of changes that would clarify and update the text and conform the regulation to statute. The most substantive changes are summarized. Applicants for a Class C contractor license are currently required to demonstrate two years of work experience in every classification or specialty in which they seek licensure (18VAC50-22-40); the board proposes to reduce this to one year of work experience. Virginia statute limits the dollar value of contracts to amounts ranging from $1,000 to $10,000 for Class C, with an annual revenue cap of $150,000.³ These statutory thresholds were most recently amended in 2010, and the Department of Professional and Occupational Regulation (DPOR) reports that an increase in the costs of materials and labor due to inflation has resulted in limiting Class C contractors to very small projects, often categorized as "handyman" tasks, for which a two-year experience requirement is seen as overly restrictive. By reducing the work experience requirement for a Class C contractor license, the board seeks to incentivize unlicensed contractors who are currently performing handyman work or individuals who are currently employed by contracting firms and who seek to start their own contracting firms to obtain a license. (Contractor licenses are only issued to firms.) Applicants for all classes of licensure are currently required to submit information on any outstanding, past-due debts and judgments; outstanding tax obligations; defaults on bonds; or pending or past bankruptcies for five years prior to application. This requirement would be reduced to three years for Class C applicants and four years for Class B applicants; it would remain at five years for Class A applicants. Applicants for Class A and Class B licenses are required to submit information on their financial position to demonstrate financial responsibility. Class A applicants are required to verify a net worth or equity of $45,000 (18VAC50-22-60); the corresponding requirement for Class B applicants is $15,000 (18VAC50-22-50). Sections 54.1-1106 and 54.1-1108 of the Code of Virginia further specify (i) the acceptable documentation to demonstrate minimum net worth and (ii) an option to demonstrate financial responsibility by electing to obtain and maintain a bond in the amount of $50,000. Thus, the board seeks to amend sections 50 and 60 to incorporate these statutory provisions. Requirements pertaining to specific classifications or specialties in which applicants seek to be licensed, which are currently listed separately for each license class in 18VAC50-22-40, 18VAC50-22-50, and 18VAC50-22-60, would be removed and consolidated in a new 18VAC50-22-61, which would enhance clarity, and updated to reflect current requirements.⁴ Language pertaining to pleas of nolo contendere, which currently appear to contradict § 54.1-204 of the Code of Virginia, would be struck. Lastly, the board seeks to add a new 18VAC50-22-35 to specify the requirements of the application process.

Estimated Benefits and Costs. Reduction in experience requirements for Class C contractors: This proposed change would benefit prospective applicants for a Class C contractor license by reducing the experience requirement. DPOR estimates that this reduction could result in a 15% to 20% increase in the number of Class C applicants. The board received 1,599 applications for Class C licenses in 2022 and 1,522 applications in 2023. As mentioned previously, DPOR expects that this increase will be driven by unlicensed contractors who are currently providing "handyman" services and want to be contracted for projects within the statutory threshold for a Class C license (ranging from $1,000 to $10,000 per project, with an annual revenue cap of $150,000), as well as employees of contracting firms who seek to start their own firms. DPOR also reports that contractors often start at the Class C level and move up to Class B or Class A licenses as their business grows and they accrue experience and capital. Thus, reducing the entry requirements for Class C applicants could also gradually expand the profession overall. This amendment would also benefit households and commercial entities seeking Class C contractors. DPOR reports that the demand for contractor services increased during the COVID-19 pandemic and continues to remain high. Thus, an influx of newly licensed contractors could make it easier and cheaper for consumers looking to hire contractors for small projects, thereby also reducing wait times for such projects to get contracted and completed. Lowering the barriers to entry into a profession typically increases competition faced by incumbents (those who are already licensed), making them worse off. However, to the extent that currently licensed Class C contractors are already fully booked, or facing more demand than they can fulfill, they are unlikely to be made worse off by an increase in the number of contractors. Lastly, the board would benefit through increased fee revenue from new Class C contractor license applicants ($235 per application) and from license renewal fees ($195 per biennium) in subsequent years. The board would also incur some additional costs; they would have to process additional license applications and may also have to review more complaints against Class C contractors if the reduction in the experience requirement results in improper project management or estimation. However, the increase in revenues is expected to exceed the increase in costs.

Reduction in years of financial disclosure: These changes would benefit Class B and Class C applicants who have adverse financial histories either five years prior to application or four to five years prior to application, respectively. This could include outstanding, past-due debts and judgments; outstanding tax obligations; defaults on bonds; or past bankruptcies. DPOR anticipates a savings as a result of conducting fewer licensing informal fact-finding conferences due to reduced adverse financial history reporting requirement.

Other changes: All current prospective contractor licensees and readers of the regulation would benefit from the remaining changes, which serve to update and streamline the regulatory text. DPOR staff may benefit to the extent that they receive fewer questions about contractor license requirements.

Businesses and Other Entities Affected. The proposed changes reduce requirements and clarify the application process, thereby benefiting new contractor license applicants, especially Class C applicants, and some Class B applicants with adverse financial history. The Code of Virginia requires DPB to assess whether an adverse impact may result from the proposed regulation.⁵ An adverse impact is indicated if there is any increase in net cost or reduction in net benefit for any entity, even if the benefits exceed the costs for all entities combined.⁶ The proposed amendments would not create any new requirements or costs; thus, an adverse economic impact is not indicated.

Small Businesses⁷ Affected.⁸ The proposed amendments reduce requirements for obtaining a contractor license, thereby benefiting applicants for a Class B or Class C license. These firms are likely to all be small businesses as Virginia statute restricts the total value of contractor projects to $150,000 per year for Class C contractors and $750,000 per year for Class B contractors.

Localities⁹ Affected.¹⁰ Localities that have a shortage of current contractors may particularly benefit from the likely increase in contractor licensees. The proposed amendments would not affect costs for local governments.

Projected Impact on Employment. The proposed amendments are not expected to affect total employment. Some contractor firms may see increased turnover if their employees decide to leave and establish their own firms as a result of this regulatory action.

Effects on the Use and Value of Private Property. By reducing the barriers to entry, the proposed amendments would marginally increase the value of new private Class C contractor firms. Real estate development costs would not be affected.

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¹ Section 2.2-4007.04 of the Code of Virginia requires that such economic impact analyses determine the public benefits and costs of the proposed amendments. Further the analysis should include but not be limited to: (1) the projected number of businesses or other entities to whom the proposed regulatory action would apply, (2) the identity of any localities and types of businesses or other entities particularly affected, (3) the projected number of persons and employment positions to be affected, (4) the projected costs to affected businesses or entities to implement or comply with the regulation, and (5) the impact on the use and value of private property.

² https://www.governor.virginia.gov/media/governorvirginiagov/governor-of-virginia/pdf/ed/ED-1-Regulatory-Reduction.pdf.

³ See https://law.lis.virginia.gov/vacode/title54.1/chapter11/section54.1-1100/.

⁴ The current requirements are available on DPOR's website: https://www.dpor.virginia.gov/sites/default/files/Boards/Contractors/A501-27EXINFO.pdf.

⁵ Pursuant to § 2.2-4007.04 D: In the event this economic impact analysis reveals that the proposed regulation would have an adverse economic impact on businesses or would impose a significant adverse economic impact on a locality, business, or entity particularly affected, the Department of Planning and Budget shall advise the Joint Commission on Administrative Rules, the House Committee on Appropriations, and the Senate Committee on Finance. Statute does not define "adverse impact," state whether only Virginia entities should be considered, nor indicate whether an adverse impact results from regulatory requirements mandated by legislation.

⁶ Statute does not define "adverse impact," state whether only Virginia entities should be considered, nor indicate whether an adverse impact results from regulatory requirements mandated by legislation. As a result, DPB has adopted a definition of adverse impact that assesses changes in net costs and benefits for each affected Virginia entity that directly results from discretionary changes to the regulation.

⁷ Pursuant to § 2.2-4007.04, small business is defined as "a business entity, including its affiliates, that (i) is independently owned and operated and (ii) employs fewer than 500 full-time employees or has gross annual sales of less than $6 million."

⁸ If the proposed regulatory action may have an adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include: (1) an identification and estimate of the number of small businesses subject to the proposed regulation, (2) the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the proposed regulation, including the type of professional skills necessary for preparing required reports and other documents, (3) a statement of the probable effect of the proposed regulation on affected small businesses, and (4) a description of any less intrusive or less costly alternative methods of achieving the purpose of the proposed regulation. Additionally, pursuant to § 2.2-4007.1 of the Code of Virginia, if there is a finding that a proposed regulation may have an adverse impact on small business, the Joint Commission on Administrative Rules shall be notified.

⁹ "Locality" can refer to either local governments or the locations in the Commonwealth where the activities relevant to the regulatory change are most likely to occur.

¹⁰ Section 2.2-4007.04 defines "particularly affected" as bearing disproportionate material impact.

Agency's Response to Economic Impact Analysis: The Board for Contractors concurs with the economic impact analysis prepared by the Department of Planning and Budget.

Summary:

The proposed amendments reduce certain entry requirements for firms seeking a Class B or Class C contractor license. Under the proposed amendments, a qualified individual for a Class C contractor license applicant will need one year of experience in the classification or specialty service for which licensure is sought, instead of the current requirement of two years of experience. For Class B and Class C contractor license applicants, the proposed amendments will also reduce the requirements for disclosure of adverse financial information (e.g., outstanding past-due debts or judgments or prior bankruptcies). Other proposed amendments clarify and conform the regulation to statute and agency practice.

18VAC50-22-35. Application procedures.

A. All applicants seeking licensure must submit an application with the appropriate fee specified in 18VAC50-22-100. Applications must be made on forms provided by the board or the board's agent and signed by all parties outlined in 18VAC50-22-40, 18VAC50-22-50, or 18VAC50-22-60.

1. By submitting the application to the department, the applicant certifies that the applicant has read and understands the applicable statutes and the board's regulations.

2. The receipt of an application and the deposit of the fees by the board do not indicate approval of the application by the board.

B. The board may make further inquiries and investigations with respect to the applicant's qualifications and information disclosed on the application to confirm or amplify information supplied. All applications must be completed in accordance with the instructions contained in this section and on the application. Applications will not be considered complete until all required documents are received by the board.

C. The applicant will be notified of receipt of initial application if the application is incomplete. Applicants who fail to complete the application process within 12 months of receipt of the application in the board's office must submit a new application.

D. The applicant must immediately report all changes in information supplied with the application, if applicable, prior to the issuance of the license or expiration of the application.

18VAC50-22-40. Requirements for a Class C license.

A. A firm applying for a Class C license must meet the requirements of this section.

B. For every classification or specialty in which the firm seeks to be licensed, the firm ~~shall~~ must name a qualified individual who meets the following requirements:

1. Is at least 18 years ~~old~~ of age;

2. Has a minimum of ~~two years~~ one year of experience in the classification or specialty for which he the individual is the qualifier;

3. Is a full-time employee of the firm ~~as defined in this chapter~~ or is a member of the responsible management of the firm; and

4. ~~a. Has obtained the appropriate certification for the following specialties:~~

~~(1) Blast/explosive contracting (Department of Fire Programs explosive use certification);~~

~~(2) Fire sprinkler (NICET Sprinkler III certification); and~~

~~(3) Radon mitigation (EPA or DEQ accepted radon certification).~~

b. Has obtained, pursuant to the Individual Licensing and Certification Regulations, a master license for Plumbing, HVAC, Electrical, Gas Fitting, Natural Gas Fitting Provider, and Liquefied Petroleum Gas Contracting.

~~c. Has completed, for the drug lab remediation specialty, a remediation course approved by the board and a board-approved examination.~~

d. Has obtained, pursuant to the Individual Licensing and Certification Regulations, certification as an Elevator Mechanic for Elevator Escalator Contracting and certification as a Master Water Well Systems Provider for Water Well/Pump Contracting.

e. Has obtained, pursuant to the Onsite Sewage System Professionals Licensing Regulations (18VAC160-40), a master conventional onsite sewage system installer license for Conventional Sewage Disposal System Contracting and a master alternative onsite sewage system installer license for Alternative Sewage Disposal System Contracting.

~~f. Has been approved by the Board for Contractors for the miscellaneous specialty (MSC).~~

~~g. Has completed a board-approved examination for all other classifications and specialties that do not require other certification or licensure.~~

Has met the appropriate prerequisite and board-approved examination, where applicable, for any classification or specialty service specified in 18VAC50-22-61 or has completed a board-approved examination for all other classifications and specialty services that do not require other certification or licensure. For the miscellaneous contracting (MSC) specialty service, the applicant must provide documentation acceptable to the board of the qualified individual's experience in the scope of practice for which the specialty service is being sought. All such applications will be considered by the board in accordance with the provisions of §§ 2.2-4019 and 2.2-4020 of the Code of Virginia.

C. The firm ~~shall~~ must provide information for the past ~~five~~ three years prior to application on any outstanding, past-due debts and judgments; outstanding tax obligations; defaults on bonds; or pending or past bankruptcies. The firm and all members of the responsible management of the firm ~~shall~~ must submit information on any past-due debts and judgments or defaults on bonds directly related to the practice of contracting as defined in Chapter 11 (§ 54.1-1100 et seq.) of Title 54.1 of the Code of Virginia.

D. The firm and all members of the responsible management of the firm ~~shall~~ must disclose at the time of application any current or previous contractor licenses held in Virginia or in other jurisdictions and any disciplinary actions taken on these licenses. This includes any monetary penalties, fines, suspensions, revocations, surrender of a license in connection with a disciplinary action, or voluntary termination of a license in Virginia or in any other jurisdiction.

E. In accordance with § 54.1-204 of the Code of Virginia, all applicants ~~shall~~ must disclose the following information about the firm, all members of the responsible management, and the qualified individual for the firm:

1. All non-marijuana misdemeanor convictions within three years of the date of application; and

2. All felony convictions ~~during their lifetimes~~.

Any plea of nolo contendere shall be considered a conviction for purposes of this subsection. The record of a conviction received from a court shall be accepted as prima facie evidence of a conviction or finding of guilt. The board, in its discretion, may deny licensure to any applicant in accordance with § 54.1-204 of the Code of Virginia.

F. A member of responsible management ~~shall have successfully completed~~ must complete a board-approved basic business course.

18VAC50-22-50. Requirements for a Class B license.

A. A firm applying for a Class B license must meet the requirements of this section.

B. A The firm ~~shall~~ must name a designated employee who meets the following requirements:

1. Is at least 18 years ~~old~~ of age;

2. Is a full-time employee of the firm ~~as defined in this chapter,~~ or is a member of responsible management ~~as defined in this chapter~~;

3. Has passed a board-approved examination as required by § 54.1-1108 of the Code of Virginia or has been exempted from the ~~exam~~ examination requirement in accordance with § 54.1-1108.1 of the Code of Virginia; and

4. Has followed all rules established by the board or by the testing service acting on behalf of the board with regard to conduct at the examination. Such rules ~~shall~~ include any written instructions communicated prior to the examination date and any oral or written instructions given at the site on the date of the ~~exam~~ examination.

C. For every classification or specialty in which the firm seeks to be licensed, the firm ~~shall~~ must name a qualified individual who meets the following requirements:

1. Is at least 18 years ~~old~~ of age;

2. Has a minimum of three years of experience in the classification or specialty for which he the individual is the qualifier;