The Construction Industries Division (CID) in New Mexico requires that any individual who is engaged in construction-related contracting must be licensed. This includes "general construction work, electrical, mechanical and plumbing and LP gas."1 Due to these current licensing requirements of the CID, construction-related projects are significantly more expensive to carry out, reaching levels as costly as an increase of 25 percent.2
Contractors who pursue construction-related contracting without obtaining a license risk being ineligible for licensure for one year. The CID can also suspend construction on the project.3 This prevalence of such barriers to entry varies greatly from state-to-state. In neighboring Oklahoma, construction contracting is almost entirely unlicensed.4 New Mexico would benefit greatly by abolishing the current onerous licensing system which would remove unnecessary cost burdens on contractors and provide incentives for individuals who would have otherwise pursued construction outside of the state, thus reducing construction costs in New Mexico.
The total abolition of the current CID licensing system is indeed a radical proposal, but one which should be seriously considered. In the absence of such a step, the CID should be restricted to simply approving initial construction plans and the final construction. This would allow construction to take place without the costly burden of unnecessary micromanaging by the CID.
Efforts such as the recent "electronic plan review system" which will allow businesses to submit their proposals online for a faster review process that will save both time and money are modest steps towards improving contractors’ ability to get to work.5 Much more is necessary in order to provide a free market environment for New Mexico’s contractors, and it begins with limiting the regulatory power of the CID.
2October 31, 2011, interview with Harold Meyers who owns a small business in West Texas and Clayton, NM.
3Construction & Manufactured Housing: Overview, http://www.rld.state.nm.us/construction/
6 Replies to “Day 4: Eliminate Unnecessary Construction Licensing”
Growing up I always wondered why a construction contractor had to be licensed, and the answer was always: “so a building doesn’t fall down and hurt someone.” It was an answer I never thought much of until I became a licensed general contractor in N.M. (GB-2 from 1985 to 2000). Of course the licensing is red tape and adds to the cost charged the consumer; but it is the inherent “cost of a civilized society” as Oliver Wendell Holmes said about taxation. As a licensed contractor, I could build any residential home up to $250,000 and had to have a bond to that effect (this is when building square foot costs were $50-100 and not the $200-250 they exploded to). But I could not build anything bigger without a parlay with the Construction Industries Bureau (now division) and an increase in the bonding capacity. Why? It protects the consumer and actually also the builder. So this stuff makes sense. It might be a libertarian rant that Rio Grande Foundation is on but it is not practical or reality. Truth is licensing protects us from me. I am a very good test taker and can qualify for all types of construction licenses by my book knowledge—but I have very little hands-on. I actually passed the written Backhoe Operator’s License without ever having driven a backhoe. Do you want me building your $5 million dollar commercial project with four elevators? I could do it by passing the tests but not in the actual practical application. Also, licensing protects us from illegal aliens coming across the border and building without licenses—even if these people are Juarez’s number one and best builder. Shouldn’t citizens hire citizens and not just the cheapest price? No regulation protects us from ourselves and our dumb ideas of thinking we know everything and could do it better without government. Try living a day without the Interstate Highway system (build by licensed contractors). For people who want to build a house cheaper—New Mexico offers an “Owner-Builder” license and you pass a simple test which I did to build my house and you save 10-20% of the overhead a contractor would have charged you to use his license. My son is a licensed contractor and the costs he must pay in Worker’s Comp, general liability insurance, bonding, etc. is way higher than I ever had to pay. I often signed a waiver affidavit that said I would be self-insured on jobs and I could lower the costs of the red tape. Day 5: Unlicensed contractors for New Mexico is a bad idea.
So if I wanted to defraud some investors, and there were no licensing or bonding requirements for contractors, I could say I am qualified to build their project and there will be no place to check that out because why have the Construction Industries Division anymore, and I would take their money and leave the state and SO SORRY! What kind of a business environment is that? It might be cheaper but too damn risky to bring money into New Mexico.
Careful on this one. I can’t tell you the number of clients I had over the years who who had disastrous encounters with unlicensed contractors. Abolishing licensing requirements for contractors would probably cause an exponential increase in the problem.
NM used to have (and may still have) some of the toughest construction licensing laws in the country. If an unlicensed contractor did work, he was not entitled to ANY payment , regardless of the quality or benefit to the building owner. This law has been very effective in reducing the presence of unlicensed contractors in NM.
Yes, an unlicensed contractor cannot file a Mechanic’s Lien for example, and a magistrate will usually rule against you in Court.
While we should always be looking for ways to increase government efficiency and reduce the burdens on businesses, one only needs to read the daily stories of building collapses coming from other countries without licensed building tradesmen to see that this kind of proposal (abolishing New Mexico’s CID) would lead to disaster.
Daily? Besides, I don’t follow everything that happens in these countries, but I’ll bet they are regulated by the government. Show me a trend of those collapses happening in unregulated countries. I can tell you that building construction regulation is either much lighter or even done away with entirely in Texas and Oklahoma and I never hear about buildings collapsing in those states.