Electrical contracting in California
September 15, 2023
About six months ago, I decided to get into electrical contracting. Long story short, I'm seeing a lot more Teslas on the road these days, but hardly anyone knows how to do routine electrical work, like bending conduit. I decided to buy (not build) a firm—day-1 revenue is nice, and lots of owners are looking to sell as they hit retirement age.
And so, a couple hundred hours in, meeting dozens of owners, poring over tax returns, and spending countless afternoons on the phone with banks, business brokers, and regulatory agencies, here's a bit of what I've figured out.
- Electrical contracting has dozens of submarkets.
- Residential/small business "service work": EV chargers, deck lighting
- Retail T.I. (tenancy improvement): prepping a "shell" for a Jimmy John's / KFC / Supercuts
- New construction: single-family, multifamily (apartments), high-rise
- Low-voltage specialties: cameras, locks, networking
- Public/municipal: schools, post office, outdoor city lighting
- The customers and sales processes in each submarket are unique; firms typically specialize on just 1-2.
- It's the same wire nuts, sold a completely different way. I'm reminded of software: There is virtually no difference in the mechanics of work done between $100 an hour, $200 an hour, and $30k a week — all of the leveling up there is in sophistication on who you go after, what engagements you propose and deliver, and how you package things for clients.
- Broadly, markets are "all or nothing" union, or non-union.
- Large "prevailing wage" and "project labor agreement" projects tend to be union.
- Homeowners, small business owners, and other price-sensitive customers typically don't buy union.
- Since markets are all-or-nothing, and shops tend to specialize in 1-2 markets, contractors (at the level of the LLC/corporation/entity) tend to be all-or-nothing union, too. This gets complicated with companies (e.g. national contractors) that operate across many union jurisdictions.
- Markets also split on:
- How much presales work is required to win a job? Detailed proposals with design work and estimates (public utilities), or just showing up at the door when the call comes?
- Do buyers care about licensure? How about insurance/bonding? (Public agencies: definitely, homeowners: maybe not).
- Capitalization: Can the firm float $250k in wages before getting paid? How about $500k? Is waiting 90 days to get paid catastrophic?
- The most popular union for electricians in California is the International Brotherhood of Electrical Workers (IBEW).
- Unions divide the world into numbered territories called "locals" (sometimes "jurisdictions"); I live in Local 595
- IBEW operates an apprentice program. It lasts five years, everyone who wants to be an electrician in an IBEW shop has to do it, and apprentices earn fast food wages ($18/hr). I can kind of see both sides to this; it's very long, but the union sees it as an alternative to college where, rather than paying for it, they pay you. However, the program is over-enrolled, so admissions are competitive and "pre-apprenticeship" programs are taking hold, extending the overall commitment to timeframes approaching a Ph.D. (6+ years). Reddit discussion
- Here in the Bay Area, non-union journeymen cost shops about $80/hr to employ ($45-50/hr W2 plus tax, benefits, and vacation); IBEW 595 journeyman cost is about $120 ($75/hr plus $45-50 in benefits). Union benefits are indeed better; the question is whether customers accept the $220/hr bill rate required to pay them ($250+ for service work).
- Unions specify the terms they'll work under in a collective bargaining agreement (CBA—here's IBEW 595's)
- Big employers (e.g. airlines, school districts) typically have their own CBAs, negotiated 1:1 with the union.
- Most electrical contractors are too small for their own CBA, so rely on trade associations (e.g. NECA) to negotiate on their behalf. What comes out of this negotiation is a "take-it-or-leave-it" offer for all smaller firms in the Local's jurisdiction. Firms contractually commit to the CBA using a "Letter of Assent"
- Key terms of the CBA:
- Which of the firm's employees does it apply to? e.g. an IBEW 595 CBA wouldn't apply to a truck driver, or an electrician in Los Angeles.
- Employers must fire any employee who won't join the union after a set number of days (e.g. 8); this is known as a "post-entry closed shop provision" (it applies after a person is hired and starts working), and in right-to-work states, may be partly or entirely illegal (note: this area of the law is quite complex)
- Wage and benefit levels (typically given as a minimum)
- Frequency of pay: typically weekly
- Work rules: overtime, minimum shift lengths, requirement to pay when driving to/from the job, hazard pay for doing dangerous things (e.g. climbing tall ladders)
- The union sees itself as:
- Ensuring the workforce is property trained, particularly regarding safety
- A staffing agency, moving members between firms as projects start and end
- A standard provider of a great benefit package (health, pensions) that's portable between contractors
- A "cop" that enforces good behavior by contractors (fighting wage theft, unsafe practices)
- Anyone holding themselves out as an independent contractor, for most types of construction work $500 or more,
must, by law, hold a government-issued contracting license, to operate in the State of California
- This does not apply to employees, either of contractors, or firms that would otherwise require regulation (e.g. electrical work at a power plant)
- The California Contractor State Licensing Board ("CSLB") administers licensing.
- There are dozens of license types, falling into three general categories
- General Contractor, Class A (so-called "General A"), the "public works" category for pavement, dams, and other "civil engineering"-type work
- General Contractor, Class B ("General B"), for buildings
- Class C "specialty contractors": electrical, pool, HVAC, plumbing, 20+ others
- "C-10" is the main license type for electrical contractors. This is a large, general, comprehensive license that allows solar installation, indoor and outdoor high-voltage (90 volts or higher) power wiring, and low-voltage signaling/telecom lines (Ethernet, CCTV).
- Some of these are separately licensed, e.g. C-7 low voltage systems contractor—the C-10 lets you do it all.
- CSLB licensing requirements: (California): (a) 18 years old, (b) pass one or more exams, and (c) document 8,000 hours of journeyman-level work experience.
- Per the CSLB (phone call), work is certified using an affadavit-like certification of work from an: (a) employer, (b) journeyman (unlicensed),
(c) licensed contractor (General-B/General-A/C-xx), (d) fellow employee, (e) union representative (foreman),
(f) business associate, or (g) client (certification of work experience).
- CSLB will waive (a) two years (4,000 hours) for completion of a two-year college degree, (b) three years (6,000 hours) for completion of certain degrees, or a union apprenticeship program.
- Per the CSLB (phone call), work is certified using an affadavit-like certification of work from an: (a) employer, (b) journeyman (unlicensed), (c) licensed contractor (General-B/General-A/C-xx), (d) fellow employee, (e) union representative (foreman), (f) business associate, or (g) client (certification of work experience).
- California additionally requires anyone working for a C-10 contractor, to be further certified by the Department of Industrial Relations, as a certified party or, barring that, a "trainee" which requires enrolling at an educational institution, in addition to work experience.
Running the maze goes into a lot more detail on my experience with licensure, and how complicated it is to navigate.