Contractor license law proposed.

Forget good workmanship or managerial or accounting abilities. When it comes to obtaining a license to be a general contractor, under a new law proposed by Mayor Rudolph Giuliani last week, the qualifications would be "good character, honesty and integrity."

Under the proposal being circulated to the City Council and the real estate industry, a license to be a construction manager would be granted by a new Construction Commission comprised of the Commissioners of Buildings, Investigation, Business Services, and Design and Construction, or their designees, and a chair appointed by the Mayor.

Along with requiring background investigations for license applicants, the Commission would also have the authority to investigate employees and subcontractors, and prohibit licensees from employing those that the Commission decides "lack good character, honesty and integrity."

The Commission could also require the contractor or subcontractor to hire an independent auditor or monitor selected or approved by the Commission.

Other large cities have already implemented general contractor licensing laws, and individual trades such as electricians and plumbers are already licensed by the city, so there is some grumbling within the construction industry, but no outcry. The industry has also been supportive of the Mayor's past policies, which have created many new projects, and therefore, construction jobs.

Rather than fighting the idea of such a law outright, most industry executives have adopted an "evaluate and modify" attitude, expecting to make changes before the 40-page proposal actually becomes city law.

In general, many professional licenses include requirements for professional and/or organizational integrity, competence and personal safety.

"At first blush, the legislation doesn't deal with the latter two," observed Richard T. Anderson, president of the powerful Building Congress, an organization of developers, trades and professionals such as attorneys, engineers and architects.

But Anderson worried, this is also layering on yet another procedure for contractors, and many have already been ruled out by Vendex, the city's list of contractors that are not allowed to bid on city jobs because of mob ties or previous bad experiences on city jobs.

The Mayor has tried to reduce government interference and bureaucracy, but has also used his powers to clean up racketeering at the Fulton Fish Market and in the waste carting industry. Although the cost of fish has not gone down, garbage costs were reduced. Last week, however, one of the two largest private firms, which are merging, announced a price increase, while the licensing of smaller firms has proceeded so slowly that many have gone out of business.

Similarly, the contractor licensing proposal directs the newly established Commission to license the largest contractors first. These would include firms that have held public works contracts for $3 million or more during the year before the law is effective; those that have paid $20,000 or more in filing fees to the Department of Buildings; and those that are engaged in, or propose to undertake any construction project to which site safety program requirements apply. Eventually, the Commission would establish rules to license all contractors.

But some worry the construction industry presents an enormously different challenge because of the magnitude of the problem, as well as the numerous players comprising a huge construction sector actually made up of many different industries, such as drywall, steel, concrete, etc.

"An attempt should be made to clean-up the industry and clean-up the areas where there is collusion and bid fixing," said Lenore Janis, president of Professional Women in Construction. "Otherwise, it doesn't leave room for the newcomer or the little guy, and it raises the price for the owners, whether it's the city or the private developer."

Janis is unworried by not requiring such contractors to be competent, citing statements often heard by many women starting such businesses.

"They would say, 'She doesn't know how to pour concrete,' recalled Janis, "but she's been administering someone else's business for 20 years and still isn't going to be the one pouring the concrete."

Anderson, pointing to the hiring of the independent monitor known as Independent Private Sector Inspector General or IPSIG, said "It's raised a lot of serious questions in the industry, particularly regarding its most onerous provisions."

Thatcher Associates pioneered the use of the IPSIG in the $7 billion School Construction Authority industry in 1990. "It's been a successful model," said Thomas "Toby" Thatcher, the firm's president.

In 1994, when the District Attorney brought charges against more than 50 managing agents and firms in the cooperative housing field, an independent monitor was required to be hired by several firms. Such monitors act as forensic accountants, thoroughly examining books and records for questionable payments, which could even be as simple as a double payment, and reviewing ethical standards of employees, including the differentiation between gifts and bribes.

A firm using an IPSIG would have a good system of monitoring controls, would enforce ethical controls, and would undertake spot audits to ensure the practices and ethical standards are being adhered to.

Thatcher Associates already is called in to help corporations choose both construction managers and subcontractors, and remains on-site to monitor construction.

According to Mayoral figures supplied in the memorandum that accompanied the proposal, corruption has driven up the cost of construction in New York City by as much as 35 percent more than the national average.

The Manhattan District Attorney's "on-going investigation of a bid rigging cartel" of many of the largest interior contractors has already revealed as much as 20 percent was added to the cost of all major city interior renovation projects.

"Today, in the absence of any City licensing authority or other competence standards for construction contractors, a contractor may continue to obtain building permits even in the face of a history of incompetence, egregious safety violations or dishonest business practices," writes Jake Menges, director of City Legislative Affairs, in the supporting memorandum.

The goal of the proposal would be to reduce construction costs that are blamed in part for rising housing and office rental prices, and to open more construction jobs to more companies.

"We have marvelous players or we wouldn't have the buildings that we do," said Thatcher. Costs have risen not because the people are corrupt, he claims, but because the process provides many opportunities, and the payoffs are so huge.

While law enforcement catches those that have taken advantage of the opportunities or succumbed to the incentives, the incentives continue.

Licensing creates disincentives, while monitors reduce the opportunities. Although they add to costs, the theory behind a good IPSIG is that they will work with senior management to put in place systems and controls to ensure the company and its clients are not being victimized by fraud, corruption or other unethical conduct. "And that will reduce costs," said Thatcher.