Fall 2014      |      Stephen P. Sands, Registrar      |      Edmund G. Brown Jr., Governor


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State Authorities Warn Against Price Gouging

Water well drillers must follow pricing guidelines set by emergency declaration

CSLB reminds all contractors, especially those with C-57 Well Drilling and C-61/D-21 Machinery and Pumps licenses, to make sure the prices they are charging for water well drilling or related services during the state's emergency drought declaration are within legal guidelines. It has come to CSLB's attention that price gouging may be occurring in some California counties where the drought has taken a serious toll on individual residential water wells, especially in Tulare and Kern counties.

Remember that the legal down payment is 10 percent of the contract price or $1,000, whichever is less, for residential water well drilling.

The marketplace demand for drilling services is not justification for raising prices for the same services that would have been charged prior to the declared state of emergency. California Penal Code (PC) section 396 clearly states that "…when a declared state of emergency results in abnormal disruptions of the market, the public interest requires that excessive and unjustified increases in the prices of essential consumer goods and services [is] prohibited … during and shortly after a declared state of emergency."

PC §396 (c) states the following for contractors:

"… [Upon the emergency declaration or] a period of 180 days following that declaration, it is unlawful for a contractor to sell or offer to sell any repair or reconstruction services or any services used in emergency cleanup for a price of more than 10 percent above the price charged by that person for those services immediately prior to the proclamation of emergency.

However, a greater price increase is not unlawful if that person can prove that the increase in price was directly attributable to additional costs imposed on it by the supplier of the goods, or directly attributable to additional costs for labor or materials used to provide the services, provided that in those situations where the increase in price is attributable to the additional costs imposed by the contractor's supplier or additional costs of providing the service during the state of emergency, the price represents no more than 10 percent above the total of the cost to the contractor plus the markup customarily applied by the contractor for that good or service in the usual course of business immediately prior to the onset of the state of emergency."

A violation of PC §396 is a misdemeanor and could result in county jail imprisonment for up to one year or by a $10,000 fine, or both. This violation also constitutes unlawful business practice and unfair competition within California Business and Professions Code and could result in additional civil penalties.

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