Business

Market Failure on Contractor Reliability Suggests Opportunity

By Ryan McGreal
Published September 03, 2009

An unlicenced Hamilton roofing contractor was just sentenced to 30 days in jail, two years' probation and $45,000 in fines for misrepresentation and refusing to refund deposits. The contractor, Jason Dennis, was convicted at five different locations and is also being charged with criminal fraud.

Reading this story, I could think was, There's no way this guy should have been able to get away with ripping off a second customer after doing it the first time.

The fact that he managed to rip off at least five people - and he's the fourth unlicenced and/or fraudulent contractor convicted since this past spring - suggests that the contracting business in Hamilton is a bit of a 'wild west'.

The city's Building Services Division is taking a more proactive approach and "actively seeking out unlicenced contractors through a number of methods", according to John Lane, manager of building inspections.

Unlicensed contractors also seem to need a constant reminder that it is illegal to operate in Hamilton without a trade licence. Contractors are responsible for ensuring that they have all of the correct licences and paperwork, which should be readily available so they can provide assurances to potential customers and Building Services and Municipal Law Enforcement staff. The message is getting out there because public inquiries about which contractors are licensed have doubled.

What this tells us is that consumers don't currently have easy access to good information on which contractors have a history of being reliable. This is a pretty serious market failure insofar as markets function efficiently when their participants are informed enough to make rational decisions.

The city press release about this conviction makes some recommendations on hiring a contractor - don't be pressured into signing anything, insist on an itemized, written estimate, always get three other quotes - and lists some resources that residents can use:

With the exception of the Consumer Beware list, which allows users to search a database to see if a contractor has been convicted of a crime, this bundle of resources is almost uniformly clunky and hard to use.

There seems to be a real opportunity here to create an online resource that people can use to report their experiences with contractors and easily look up contractors' licence status, track records (reporting links between individuals and their various companies) and criminal records if any.

It could start by focusing on Hamilton and area contractors, but it would make sense to design the tool so that other cities can be brought in easily.

Of course, there would have to be validation to ensure that negative reviews aren't posted in bad faith, but there are plenty of examples of online trust-based systems that work very well and are effectively self-policing.

Such a resource could both correct the current market failure of poor and disconnected information about contractors and present a potentially lucrative business opportunity for the person or people who develop it.

Ryan McGreal, the editor of Raise the Hammer, lives in Hamilton with his family and works as a programmer, writer and consultant. Ryan volunteers with Hamilton Light Rail, a citizen group dedicated to bringing light rail transit to Hamilton. Ryan writes a city affairs column in Hamilton Magazine, and several of his articles have been published in the Hamilton Spectator. He also maintains a personal website and has been known to post passing thoughts on Twitter @RyanMcGreal. Recently, he took the plunge and finally joined Facebook.

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By JoannaW (anonymous) | Posted September 07, 2009 at 01:22:14

Comments with a score below -5 are hidden by default.

You can change or disable this comment score threshold by registering an RTH user account.

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By seancb (registered) - website | Posted January 19, 2012 at 12:00:15 in reply to Comment 33269

pretty sure this is just a bot. look at the website link.

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By Ryan (registered) - website | Posted September 08, 2009 at 09:41:04

JoannaW,

Thanks for your thoughtful commentary. It's true that transactions costs need to be taken into account - but one of the characteristics of the internet and its related technologies is that transactions costs have collapsed, revealing market inefficiencies that were previously masked by high barriers to interpersonal communication and information sharing.

For a wonderfully detailed and accessible introduction to this idea, I recommend _Here Comes Everybody_ by Clay Shirky.

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By highwater (registered) | Posted September 08, 2009 at 12:36:35

Ryan wrote:

Thanks for your thoughtful commentary.

Well, you're half right. It's thoughtful commentary, but it isn't JoannaW's:

www3.interscience.wiley.com/journal/119525859/abstract?CRETRY=1&SRETRY=0

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By Ryan (registered) - website | Posted September 08, 2009 at 13:17:06

your thoughtful commentary

Well, you're half right.

I reckon that makes me 2/3 right. :)

Seriously though, great find. Internet search is simultaneously making it both easier to plagiarize and to catch plagiarism.

Folks, if you want to refer to work that someone else has done in your argument, just refer to it as such. With a registered RTH account, you can post clickable links in your comments.

Just don't take someone else's words and try to pretend they're your own.

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By Okay (anonymous) | Posted September 08, 2009 at 14:21:14

"...don't take someone else's words and try to pretend they're your own."

Seems to me I've read that somewhere before...

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By Ryan (registered) - website | Posted September 08, 2009 at 14:34:50

I'm curious to know where you've read that before, considering:

http://www.google.ca/search?q="don&#...

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By arienc (registered) | Posted September 09, 2009 at 21:00:29

Morrissey's words never rang more true...

"If you must write prose/poems The words you use should be your own Don't plagiarise or take "on loan" 'Cause there's always someone, somewhere With a big nose, who knows And who trips you up and laughs When you fall "

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By highwater (registered) | Posted September 10, 2009 at 10:47:09

I searched the quote because I had a feeling that 'JoannaW' was a spambot. It wasn't my intention to stick my big nose in to trip up and laugh at a real human. I guess it's not a bad thing to expose a human plagiarist though, if lessons can be learned.

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