The Contractor's Compass - July 2022 by American Subcontractors Association

MONTHLY EDUCATIONAL JOURNAL OF THE FOUNDATION OF THE AMERICAN SUBCONTRACTORS ASSOCIATION

JULY 2022

Risk Mitigation &Management

1004 Duke Street, Alexandria, VA 22314 | (703) 684-3450 | www.asaonline.com | communications@asa-hq.com

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FASA'S

EDITORIAL PURPOSE The Contractor’s Compass is the monthly educational journal of the Foundation of the American Subcontractors Association, Inc. (FASA) and part of FASA’s Contractors’ Knowledge Network. FASA was established in 1987 as a 501(c)(3) tax-exempt entity to support research, education and public awareness. Through its Contractors’ Knowledge Network, FASA is committed to forging and exploring the critical issues shaping subcontractors and specialty trade contractors in the construction industry. The journal is designed to equip construction subcontractors with the ideas, tools and tactics they need to thrive. The views expressed by contributors to The Contractor’s Compass do not necessarily represent the opinions of FASA or the American Subcontractors Association, Inc. (ASA).

MISSION

To educate and equip subcontractors and suppliers with the education and resources they need to thrive in the construction industry. Additionally, FASA raises awareness about issues critical to and about construction in the United States.

SUBSCRIPTIONS The Contractor’s Compass is a free monthly publication for ASA members and nonmembers. For questions about subscribing, please contact communications@asa-hq. com.

ADVERTISING Interested in advertising? Contact Richard Bright at (703) 684-3450 or rbright@ASA-hq.com or advertising@ASA-hq.com.

EDITORIAL SUBMISSIONS Contributing authors are encouraged to submit a brief abstract of their article idea before providing a full-length feature article. Feature articles should be no longer than 1,500 words and comply with The Associated Press style guidelines. Article submissions become the property of ASA and FASA. The editor reserves the right to edit all accepted editorial submissions for length, style, clarity, spelling and punctuation. Send abstracts and submissions for The Contractor’s Compass to communications@ASA-hq.com.

ABOUT ASA ASA is a nonprofit trade association of union and non-union subcontractors and suppliers. Through a nationwide network of local and state ASA associations, members receive information and education on relevant business issues and work together to protect their rights as an integral part of the construction team. For more information about becoming an ASA member, contact ASA at 1004 Duke St., Alexandria, VA 22314-3588, (703) 684-3450, membership@ASA-hq.com, or visit the ASA Web site, www. asaonline.com.

JULY 2022

F E AT U R E S Building a Confident Workforce to Manage Risk....................................... 10 by Dale Carnegie Staff

The Economics of Construction Risk Management................................. 15 by Robert Tuman, CCR Safety Consulting

How to Handle Heat Stress Prevention & Training: Spotting Heat Stress Symptoms and More....................................................19 by Derek Hogan, YellowBird

Does Your Insurance Program Cover All the Insurance Requirements in the Contracts You're Signing?.........................................22 by Gary R. Semmer, Assured Partners

Five Easy-to-Implement Strategies to Reduce Financial Risk in Construction Projects.......................................................... 27 by Patrick Hogan, Handle.com

D E PA R T M E N T S ASA PRESIDENT'S LETTER.................................................................................. 5 CONTRACTOR COMMUNITY..............................................................................6 ALWAYS SOMETHING AWESOME How to Mix Fun with Finance.....................................................................................8 LEGALLY SPEAKING

Supply Chain Woes Don’t Have to Be Contracting Foes: Tips to Navigating Price Escalations...................................................................... 13 byMelissa Ogburn, Hall Booth Smith, PC

LEGALLY SPEAKING

The “Your Work” Exclusion in a General Commercial Liability Policy....... 24 by Kent Lang and Mike Thal, Lang & Klain, P.C.

QUICK REFERENCE Upcoming Webinars............................................................................................... 29 Coming Up................................................................................................................... 29

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PRESIDENT 'S LET TER Dear Readers — In March it was announced at SUBExcel, but the rubber hit the road in July. While I’m honored and excited to be able to serve the American Subcontractors Association as its 2022-23 President, I just want to thank Brian Carroll, plus all the others who have successfully helmed this association. I’ve seen them at work making this group thrive over the past seven years, and I’m going to do my darndest—or as we say here in Colorado, “Let’s go make a difference!”—to keep it growing and make it even better than it is now. Of course, I’m going to need your help, too. To that extent, let’s make that difference! 1. Stay involved in your local chapters. When was the last time you participated in a local activity? Connect with a new member. Invite a non-member to join you. Case in point, our Colorado chapter had a big win last year by getting a law passed capping retainage on private construction projects at 5% (public projects were already capped at 5%). We could not have done that without the chapter coming together to make it happen. 2. Check out the resources on the national and chapter websites. Create a member profile and log into InfoHub on the asaonline.com national website. There are time and money-saving sample contracts, negotiating advice, discounts from both members and partners such as UPS, Office Depot, Lenovo, and more than I can remember off hand. 3. The webinars that ASA hosts are top-notch. Lots of insight..and they’re free for members. Okay, now onto the topic of the month. This issue of The Contractor’s Compass is all about mitigating and managing risk. With prices going haywire and the supply of material uncertain, it’s risky just to be in business at this point. But there are plenty of ways to reduce your risk, and if you haven’t read the expanded force majeure clause ASA’s legal gurus put together in June to help us from taking on the risks of price and supply fluctuations…log into InfoHub NOW, click on Resources, and search for Contract Tips. Contract language and advice is provided. Use it as it fits your needs. There are some very helpful articles in this issue, including a detailed discussion of the economics of construction risk management - plus the human and financial ramifications, tips to navigating price escalations, and ways to lower your risk and exposure. Flip through this issue. There’s bound to be some useful tidbit - or more! Again, I’m honored you have put your trust and leadership responsibilities for this association into my hands, and I will do my best to make you glad you did. Sincerely, Rusty Plowman ASA President - 2022/23

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CONTRACTOR COMMUNIT Y

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ASA Member Benefits

While this educational journal is free to all, there is SO MUCH MORE to being an ASA member. ASA appreciates every single member company (and the people behind it) that stands with us every year as ASA members. Together we are able to amplify the voice of our industry to

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support what matters to us all. ASA is dedicated to helping all of its members network locally and grow globally to help everyone succeed together! In the ASA InfoHub, members have access to MEMBERS ONLY resources that help you negotiate contracts, navigate regulatory hurdles, and find the current government issues and statuses. In addition to the InfoHub, ASA members have access to the ASAdvantage program, where members receive discounts and benefits from companies such as UPS, Skechers, National Purchasing Partners, SESCO Management Consultants….If I list them all, you’ll fall asleep! Renew now, while you’re thinking of it. Thank you for renewing your

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membership - and welcome new members at ANY TIME! We look forward to thriving together!

New Price Escalation Member Resource in InfoHub! ASA has released a new contract language resource document addressing the much requested issue of price escalation. Lee Brumitt, of Dysart Taylor Cotter McMonigle & Brumitt, PC, produced and supplied the resource for the Association. It is now an accepted reality of construction that certain products and materials specified for a project may be permanently or temporarily unavailable due to shortages of workers or component materials at the manufacturer or in the shipping and distribution channels. A subcontractor has little to no control over the specification and availability of materials, and the limited supply of materials and other pressures have caused unabated inflation in the cost. The purpose of the Addendum is to establish a base price for materials and provide a mechanism for the Subcontractor to obtain reimbursement for increases in the price of materials. Please make sure to check it out today and put this valuable tool in your contract arsenal! Log into your account today to access the InfoHub to check out this and all of the other useful resources available as part of your ASA membership! If you don't have an account set up, do it today and manage all of the benefits of being an member!

OSHA Initiative on Trenching and Excavation Safety

The Occupational Safety and Health Administration (OSHA) recently issued a Press Release on enhanced enforcement initiatives it is launching in response to an alarming rise in trench-

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related fatalities. In 2022’s first six months, 22 workers have fallen victim to the deadly hazards present in trenching and excavation workrelated fatalities - surpassing 15 in all of 2021. More Information.

Upcoming Webinars from

ASA is proud to announce the latest lineup of webinars available through SESCO Management Consultants. Check out their upcoming listings in this issue. SESCO is just one of the many member benefits available through your ASA membership. To learn more about this and all of the benefits waiting for you, click here.

ASA Opposes the Expansion of the Net Investment Income Tax (NIIT) Credit and LossLimitation Rules ASA joined over 130 organizations in a letter to House and Senate Leadership opposing the expansion of the Net Investment Income Tax (NIIT) Credit and the loss-limitation rules. These two tax increases being considered by Congress would fall entirely on small, individually, and family-owned, closely-held businesses. More specifically, expanding the 3.8 percent NIIT to individuals and families who actively participate in their business, and by limiting the ability of small, individually, and family-owned businesses to fully deduct their losses during an economic downturn by expanding and extending the so-called “excess business loss limitation” for “non-corporate taxpayers” would increase revenues by more than $400 billion over ten years. Per the letter, “while expanding the NIIT is sometimes characterized as closing a tax loophole and that it would increase Medicare funding, C O M P A S S

neither of these claims are true. When the NIIT was created as part of the Affordable Care Act, it was meant to apply to investment income only. The business income of small, individually, and family-owned firms where the owners ran the business was specifically exempted. This exemption was intentional and in no way constitutes a loophole. Moreover, the revenue raised by the NIIT does not fund Medicare. As the NIIT initially was adopted as part of a reconciliation bill, attributing the funds of this new tax to the Hospital Insurance trust fund would have violated the Byrd Rule. That is why the NIIT did not fund Medicare when it was adopted in 2010, and why attributing the revenues raised by its expansion to Medicare likely violates the Byrd Rule too. Expanding the 3.8 percent NIIT represents nothing more than an eleven percent increase in the rates imposed on family-owned businesses. Based on Treasury data, we estimate up to 1 million small and family-owned businesses, representing over half of all pass-through business activity, would be at risk of having their rates increased under this policy. This small business tax hike would hurt the ability of businesses that survived the worst global pandemic in a century to remain viable in the coming months.”

Billd’s National Subcontractor Market Report: How Labor Shortages & Market Volatility are Impacting Subcontractors The second annual National Subcontractor Market Report provides industry insights and trends based on an in-depth survey of contractors conducted in February of 2022. This report examines how macroeconomic conditions impacted contractors in 2021 and how this has shaped their outlook on 2022. J U L Y

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How to Mix Fun with Finance Mary Klett, ASA Communications Team

Organizations and in specific, ASA Chapters, are always trying to come up with ways to raise funds for activities, their operating needs, etc., that help supplement dues income. I initially reached out to both ASA Mississippi and Arkansas chapters, since they both organize crawfish festivals. But then Lloyd Spivey of Mississippi said, “Yes, our crawfish boil is great, but what you REALLY need to hear about is our Mardi Gras Festival.”

Foundation scholarships, quail hunting, gift cards, Hermes bracelet, etc. - this is the event of the season. And who’s up for a chance to win $10,000 through a drawdown, where ticket numbers are announced throughout the evening, eliminating potential winners (you can always buy additional chances to win) until there’s one left…who goes home with a big check. Smiles and fun abound for everyone. Sure, it’s a lot of work, but even

Two of the largest construction-related networking events in each state—and growing larger each year. Take note!

the volunteers have fun!

Crawfish Boil in Arkansas • 800 attendees • 10 Years running • $40K-$50K raised • 1,600 lbs of crawfish Each April, the regional construction industry gathers in Little Rock to celebrate and relax with their friends

Mardi Gras in Mississippi • 1,000 tickets sold • 6 years running • $50,000 profit this year and growing • $50,000 expenses • $10,000 cash prize This Gala is a night for celebration! Networking is awesome with ASA, AGC (Associated General Contractors), and ABC (Associated Builders and Contractors) members as well as architects & engineers from across the state in attendance. Through sponsorships, ticket sales, drinks, live and silent auctions - MSU swag, Mississippi Construction Education

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2021 Chapter President Trey Jackson and 2021 Membership Growth and Retention Chairman Cody Curry present former ASA President Jamie Massey and wife Khristen with a $10,000 check after being the final ticket drawn at the 2022 Chapter Gala & Draw Down.

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and family from ASA, ABC, AGC, as well as ASPE (Association of Professional Engineers) and CFMA (Construction Financial Management Association) members. The goal is threefold - raise needed funds for the chapter, create a major networking opportunity, and most importantly, fund endowments and cash scholarships for construction trades. While originally taking place in downtown Little Rock, this crawfish extravaganza has since moved to the War Memorial Stadium, creating a spacious and fun experience for everyone (how many times have YOU been enjoying crawfish on the field of a 54,000 seat stadium?!) With sponsorships, ticket sales, drinks, vendors, silent and live auctions which include trips, razorback gear, and partnering with like minded groups, it’s a blast for everyone…except the crawfish. There’s a new marketing group working and promoting the 2023 event, so there are even bigger things coming! The lessons from both? • Use an event people already enjoy • Bring in others to help • Broaden your thinking These events take an extraordinary amount of time, dedication, and people talent. Luckily ASA is loaded with people who know how to get things done. Lloyd has already shared his budget, planning, and “how I do this” with other ASA chapter directors. So will it be crawfish, mardi gras beads or a fish fry?

Volunteers from Horne CPA, Sutherland Electric, United Piping, United Rental , as well as ASA Staff preparing tables for 2022 Silent Auction.

The Contractor’s Compass is recognizing excellence in ASA’s ranks. Every month we are highlighting the activities, achievements, and actions of ASA members that might inspire others. Do you have something you want to share? Send us an email at communications@ asa-hq.com.

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F E AT U R E Building a Confident Workforce to Manage Risk by Dale Carnegie Staff • To build a more positive, confident workforce in an era of constant change and disruption, encourage and reward risk mitigation and make sure people have the skills and clarity to adapt. • Resilience, which is a key building block of risk mitigation, is supported by two characteristics: a positive attitude and confidence. • A positive attitude enhances problemsolving and decision-making and opens people up to a broader range of thoughts and behaviors that will help them bounce back from setbacks. • A healthy level of confidence gives people the self-assurance and determination to take in new information, recognize its potential usefulness and take decisive action. Business continuity is fragile. Instead of getting weaker — or breaking — under the pressure of force or stress, agile

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organizations not only bounce back, they thrive on change and even get stronger. The coronavirus pandemic, which has created unprecedented turmoil in business and in all aspects of our daily lives, has underscored the need for risk mitigation to deal with uncertainty and disruption. It’s also shown us why resilience is so important. Resilient people who are able to adapt, recover and learn from these tough experiences are the true source of competitive advantage for agile organizations. Resilience requires a mindset that is open to information and primed to succeed, and that mindset is supported by two specific characteristics: a positive attitude and confidence. Both play a role in helping people listen, learn and achieve, qualities that are increasingly vital as digital transformation continues to disrupt the workplace.

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How a Positive Attitude Supports Risk Mitigation People with a positive outlook expect positive outcomes — and get them more often than those without it. In many cases, positivity also enhances problemsolving and decision-making and helps people think more flexibly, creatively and innovatively. As a result, people who go into a challenging situation with a positive attitude will often be more proactive at coming up with workable solutions and able to quickly make decisions so that they can take advantage of new opportunities. And that’s what risk mitigation is all about. Scientists have looked into why a positive attitude can have such a powerful impact and help people be more resilient in the face of adverse events. Unlike negativity, which tends to put limits on what you see as possible,

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scientists theorize that positivity expands your view. It opens you up to a broader range of potential thoughts and behaviors, and, over time, this helps you build the kind of physical, intellectual, social and psychological resources to bounce back when there are setbacks. Failure can be paralyzing. But positive people don’t fear failure. They view it as something to deal with and learn from. They understand that failure comes with the territory when you’re striving to be more innovative and agile in a rapidly changing world.

How Confidence Supports Risk Mitigation Don’t confuse self-confidence with arrogance. Arrogance usually stems from over-confidence. People who are self-confident, on the other hand, have a healthy belief in themselves and in their abilities. They believe that they can accomplish what they set out to do. It’s a conviction that comes from within as well as from their interactions with the broader world. Self-confidence enables people to be more agile, in part, because it removes some unnecessary distractions. Selfconfident people don’t have to worry about how they’re going to react to new information or think about how they’ll shift the blame if things go wrong. They can stay focused on taking in new information and recognizing how it might be useful. This is vital for risk mitigation since information and feedback can come from all sides, whether it’s big data or AI-generated analysis or one-onone conversations with employees and customers. Confidence also propels people to act rather than second-guessing every decision. If problems do happen, they have the self-assurance and determination to learn from the mistakes and keep pushing through. Dependable business continuity depends on the confidence of the strategist.

How to Promote Positivity and Build Self-Confidence When the 24-7 news cycle is anything but uplifting, especially in light of the current crisis, negative emotions will

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spill over into the workplace. While it’s true that some people naturally have a sunny outlook and an innate sense of self-confidence, this isn’t business as usual for anyone. Regardless of external circumstances, though, organizations and their leaders, in particular, can take specific steps to develop an environment that promotes a positive attitude and confidence throughout the workforce. In fact, it’s something nearly every organization should be focusing on, especially since only 31% of respondents in our recent global survey of more than 3,500 full-time employees strongly agree that people in their organization have a generally positive attitude toward new information. In an environment that’s not only inundated with information but also increasingly data-driven, you can’t remain competitive if people don’t have a positive mindset, confidence in their abilities and a willingness to learn and keep moving forward — to see a threat before it happens. To develop a positive, confident workforce, start here: 1. Make risk mitigation a cultural value. In a culture of blame and fear, failure is punished and risk mitigation is avoided at all costs. People are constantly worried about getting in trouble and terrified of making the wrong move. So they become closed off to new information and struggle to make decisions. It’s hard to feel positive or be agile in an environment like that. In cultures where risk mitigation is supported and thwarting failure is accepted as part of the process of innovation rather than something to be punished for, people have a more positive attitude toward change. They not only bounce back faster, they learn from their mistakes and, as a result, emerge stronger than ever. Not every risk mitigation plan succeeds. To promote positivity, banish blame. Encourage people to take risks, see the possibilities in new ideas and embrace failure as a learning opportunity. Leaders need to set the tone — by making it okay to fail and by owning up to their mistakes.

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2. Prepare people for changing skills and roles. The proliferation of digital technology is not only affecting business processes and the customer experience — it’s affecting people’s jobs. As organizations embrace this digital transformation, many employees are having a crisis of confidence, worried they’re going to lose their jobs to technology. Leaders and L&D professionals need to be proactive about addressing this issue, because the success of digital transformation efforts will ultimately hinge on how resilient—and by extension, positive and confident—the people in the organization are. To build self-confidence, be upfront about what’s changing, and then make sure your development strategies focus on continual learning and building the must-have soft skills this new environment requires.

About the Editor: Robert Graves, MBA, is a Dale Carnegie Certified Trainer for Dale Carnegie Tampa Bay. His focus is Relationship Selling. He is the author of “Making More Money with Technology.” He often speaks on the evolution of Marketing, Sales, and Service. Robert can be reached at robert. graves@dalecarnegie.com or call/text 813-966-3058. About Dale Carnegie: Dale Carnegie is a global training and development organization specializing in leadership, communication, human relations, and sales training solutions. More than 9 million people around the world have graduated from Dale Carnegie training since it was founded in 1912. Dale Carnegie Training can help an organization build effective interpersonal skills that generate the positive emotions essential to a productive work environment and that lead to increased employee engagement. Copyright © 2022 Dale Carnegie & Associates, Inc. All rights reserved.

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L E G A L LY S P E A K I N G Supply Chain Woes Don’t Have to Be Contracting Foes: Tips to Navigating Price Escalations by Melissa Ogburn, Hall Booth Smith, PC

As I was talking to a friend the other day, he reminded me that it was not all that long ago that subcontractors were able to offer price guarantee estimates and bids. Now, it seems like materials costs are increasing on a weekly, if not daily, basis. How can we effectively estimate a project that is going to take longer than a week to construct, he asked. That got me thinking of some of the more recent contracts I have seen and revised, and some of the provisions we have crafted to handle the emergent problem of material cost shortages and price escalations.

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To start, we can all acknowledge that the COVID-19 Pandemic has brought not only new challenges to the construction industry, but it changed the way the business is conducted altogether. As businesses and economies shut down in an effort to stop the spread of the virus, disruptions erupted across supply chains, including industry-wide material shortages. All across the United States, construction trades have been affected, and still are. Materials are in short supply and when materials are available, their delivery is often delayed. The inadequacy of supply has led to rocketing and volatile

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prices, making estimating new jobs a near impossibility. In an effort to control their own costs and budgets, contractors and property owners have historically been reluctant to agree to contract provisions that allow for fluctuations in pricing during the course of construction. Where materials are available and pricing is stable, offering not-to-exceed pricing or guaranteed pricing may be achievable. On the other hand, subcontractors and construction trades may not be able to absorb gross fluctuations in pricing and

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price escalation clauses are becoming more common. This article discusses four price escalation clauses and methods that may be used in construction bids and contracting that account for the unpredictable market and surging prices: the bucket method; risk-shifting provisions; storage upfront costs; and shipment re-pricing provisions.

Bucket method Under the “bucket method” of pricing, subcontractors apportion construction costs into various categories according to certain criteria, usually stable pricing and unstable pricing. For example, there may be one “bucket” or category for labor and a separate “bucket” or category for materials. Even within the materials category, there may be separate buckets to account for the different types of materials needed for a construction project. The goal in the bucket method is to factor out those items that are likely to change in pricing during the course of construction while offering stable or not-to-exceed pricing on others. Where labor is a more stable price, the labor bucket may be a separate and distinct cost that can be guaranteed. On the other hand, where certain materials are likely to increase in costs, the materials bucket may be agreed upon at the time of contracting as a variable price. For any variable pricing, the contractor may agree on a passthrough cost with a percentage attached to account for overhead and profit. Taking the example above, a contractor may agree on a set price for labor and also contract for a separate calculation applicable to material costs, such as the manufacturer or supplier cost, plus 15%. It will be important during contract negotiations and during the construction of the project to be transparent and forthcoming regarding any fluctuations concerning pricing. It may be important to agree upfront to share invoicing received from the manufacturer or supplier so that the contractor can verify pricing for any material cost increases.

Risk-shifting provisions In a risk-shifting contract, any price escalations are shifted to be the responsibility of the contractor

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(and perhaps ultimately the property owner) upon a threshold limit. With these types of clauses, the contractor and subcontractor typically agree on a threshold limit under which the subcontractor absorbs the increase and over which the increase is either shared or shifted to the contractor completely. For example, a contractor and subcontractor may agree that any material price increases that occur after execution of the contract and which result in costs in excess of 10% above the contracting price are paid by the contractor completely. In this scenario, the subcontractor agrees to assume the increase up to the 10% limit. Any increases over that amount are paid by the contractor. The risk-shifting provision allows both the subcontractor and contractor to share in the risk of cost increases. In other risk-shifting provisions, the parties may agree to split the cost. Under this scenario, the subcontractor may still agree to absorb the increase for the first 10%; any increases in the 10% - 20% range may be shared mutually; and any increases beyond 20% are paid by the contractor. While contractors may not like to pay for the increased costs of materials, property owners should be made aware of the volatility of the markets so that a fair bargain may be had at the conception of the construction project.

Storage cost clauses Another way to limit the risk and exposure of increased materials costs during the course of the construction project is to purchase all materials at the front end. For some trades, this may be more easily achieved than others. Some subcontractors may simply not have room to store all materials needed for an entire project and they may be more accustomed to purchasing the materials needed as the construction project progresses. This is especially true for large, phased projects. With a storage cost clause, the subcontractor can purchase all of the materials needed at the very beginning of the construction project in order to guarantee material costs and pricing. However, the parties would then need to decide how storage costs associated with storing the

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materials for the project will be handled. It may be a cost line item included in the subcontractor’s bid, or it may be a separate obligation undertaken by the contractor. When using a storage cost clause, it is important to delineate responsibility for selecting the storage site, how routine storage fees as well as any penalties imposed by the storage facility will be handled, and how to terminate the storage agreement. Shipment re-pricing provisions. In a shipment re-pricing agreement, the parties agree to adjust the price of materials upon shipping, or sometimes ordering, of the same. Here, a subcontractor would agree to provide a quote and pricing based upon current market conditions. However, the parties would agree to adjust the price of the materials based upon the actual cost of the materials at the time the materials were actually purchased or shipped. This provision places responsibility on the contractor to pay for any fluctuation of pricing based on the current markets. It is similar to the buckets method described above, but it is typically limited to adjusting price for limited or specific materials and shifts all cost increases to the contractor upon a certain event such as shipment. Whatever method you may choose, I told my friend, just remember to be upfront and honest with the contractor. Never agree to a contract you ultimately can’t afford or can’t perform, and never be afraid to ask for a revision to the contract. After all, you’ll never know what you might get if you never ask for it. As John F. Kennedy’s once said: “Let us never negotiate out of fear, but let us never fear to negotiate.”

About the Author Melissa Ogburn is a Partner in the Denver office of Hall Booth Smith, PC. She has two decades of legal experience with a concentration on construction, insurance and liability. Melissa regularly represents construction companies in contract negotiations, construct defect claims, and payment disputes. She can be reached at: 303-874-3494 or MOgburn@hallboothsmith.com.

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F E AT U R E The Economics of Construction Risk Management …and the Human and Financial Ramifications of Managing versus NOT Managing Industry and Illness Risks and Exposures by Robert Tuman, CCR Safety Consulting Taken from a recent osha.gov fatality and catastrophe list (note that OSHA is reporting deceaseds’ names and ages)

• 4/10/22 Salena Williams (62) suffered fatal injuries in fall onto sidewalk • 3/28/22 Margarito Ladezma (50) electrocuted by power lines while trimming trees • 2/27/22 Timothy Harness (54) died in trench collapse • 2/17/22 Paramjit Deol (66) died in fall from elevated conveyor line • 1/28/22 Carolyn Brooks (83) asphyxiated after becoming entangled in drill bit • 1/26/22 Samuel Martin (22) died in fall from roof • 1/10/22 William Boyer (40) died in fall from rafters These are but a few of the thousands of construction-related fatalities. From osha.gov: “Ten most frequently cited OSHA violations (FY 2021) Note the Estimated Cost per Employee to minimize the probability of a fall, lung disorder, ladder accident, chemicalrelated illness, scaffold accident, fall protection training, electrical shock or electrocution, eye and face injury, forklift training, and machine guarding. 1. Fall protection, construction ($60 for safety harness. Guardrail and covers for roof and other floor openings extra) 2. Respiratory protection, general industry (Half-face cartridge filter respirator: $36. Medical screening and fit testing approximately $125) 3. Ladders, construction (+/- $50 per employee for ladder safety training) 4. Hazard Communication, general industry (+/- $50 per employee for Hazard Communication/Globally Harmonized Systems training) T H E

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Scaffolding, construction (+/- $750 to train employees as scaffold “Qualified Persons” who build scaffolding and scaffold “Competent Persons” who inspect scaffolding) 6. Fall protection training, construction (+/- $50 per employee) 7. Control of hazardous energy (Lockout/Tagout), general industry ($100 for Lockout/Tagout station equipped with locks and tags, +/$50 per employee for Control of Hazardous Energy- Lockout/Tagout training) 8. Eye and face protection, construction ($1 each for safety glasses- volume discount. $20 per employee for face shield) 9. Powered industrial trucks (construction forklifts and warehouse-type forklifts), general industry (+/- $100 per participant for Powered Industrial Truck training and certification) 10. Machinery and machine guarding, general industry (+/- $50 per employee for machine guarding and Lockout/Tagout training) To get a better idea of the costs of construction-related injuries and deaths vs. the costs to contractors to reduce the probability of accidents and injuries, here are statistics from the National Safety Council’s 2020 “Work Injury Costs” (https://injuryfacts.nsc.org/work/ costs/work-injury-costs) National Work Injury Costs

• Cost total--- $163.9 billion • Cost per worker---$1,100 • Cost per death---$1,310,000 • Cost per medically-consulted injury---$44,000

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Time Lost Due to Work-Related Injuries Days Lost:

• Total---99,000,000 • Total due to injuries---65,000,000 • Total due to injuries in prior years---34,000,000 • Total in future years from 2020 injuries---50,000,000

Indirect Costs of Work-Related Injuries Interruption of work and loss of productivity: “Bob, can you come down. We had a bad accident.” My client, a large concrete contractor pouring 4 million square feet of concrete at a huge shopping mall under construction, had 7 guys go down when a deck collapsed. The investigation found that the ironworkers had not fully connected several “seats” holding the corrugated metal deck to the first floor load-bearing reinforced concrete columns. When the laborers started to pour, the weight of the wet concrete caused one end of the deck to collapse. Fortunately, no one was severely injured, but employees sustained cuts and bruises when they slid off the deck. EMT’s arrived within minutes, followed several hours later by OSHA Compliance Officers who camped out for 5 days investigating the accident. Local building officials joined the investigators, as did the insurer’s investigators, owner and General Contractor’s representatives, and a large area of the jobsite was closed down for at least a week, as all wanted to ensure that all “seats” were adequately secured. This created a chill, and increased the anxiety level for all workers. The owner and General Contractor were forced to extend the occupancy date at least 3 months, taking it past the busy Christmas shopping season.

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Lost opportunities and grief from the loss of a valued employee: At an OSHA Roundtable of Eastern Massachusetts monthly meeting, the Safety Director for a large 100+ year-old excavation and trenching contractor got up to give her “Lessons learned”. She related being called to the scene of a fatal accident involving the Superintendent on a large Boston excavation project. A 30’ wide by 24’ high existing wall which the owner wanted to keep fell over and on to the Superintendent, crushing him. The Superintendent, a 30-year employee, had worked his way up, starting as a laborer. He was a skilled manager, respected and liked by his team, project owners, and General Contractors, and of course by his employer. What a loss. Impossible to quantify what he meant to the company. Post-accident “safety stand downs”: Many of you have participated in “safety stand downs” after accidents and when a General Contractor wants to make a point- such as when subcontractors’ workers are observed not complying with the General Contractor’s safety guidelines- i.e. poor housekeeping, spotty compliance with required PPE, unsafe operation of equipment such as when a rough terrain forklift operator hit and damaged a main electrical panel, knocking out the power to the entire jobsite. A client’s employees’ perspective: Safety stand-downs are good reminders, but we are already doing what we have to do to keep ourselves safe. A waste. OSHA citations, fines and legal fees: There are multiple costs incurred when a contractor is cited by Cal OSHA or OSHA- management time spent strategizing how to best respond to OSHA, time spent at Informal Conferences and administrative hearings, time spent developing, implementing, executing and sustaining corrective actions, legal fees, and lost business due owners’ and General Contractors’ negative perceptions of subcontractors’ attention (really inattention) to safety. Just a few keystrokes (OSHA.gov and “Establishment search”) and there before your eyes is the contractor’s entire OSHA rap sheet. For the past number of years, owners

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and large companies have engaged outside companies to pre-qualify contractors. This pre-qualification process requires contractors to complete extensive questionnaires, upload their safety programs and practices, their experience modification rate, their “loss runs”, their Cal OSHA or OSHA history, and prove that they are executing their safety programs and practices. Having now completed numerous questionnaires and uploaded dozens of safety programs, I can tell you with certainty that this is a time-consuming, expensive process which can tie managers up for weeks. And forget about working for that large General Contractor or owner if your “mod” is above its cutoff point, if you can’t substantiate that you are executing your safety programs and practices, and/ or you have had multiple recent OSHA “serious”, “repeat” or “repeat and willful” high gravity citations. Competitive disadvantage when bidding work: Owners and General Contractors unfortunately perceive that history might or will repeat itself, and judge contractors using historical data and their execution or lack thereof of generally-accepted and exposurespecific (i.e. roofing contractors and fall protection) safety practices. If trend lines and historical data (i.e. experience modification rates, injury loss runs), show inattention to safety, owners and General Contractors shy away. For example, a large concrete contractor was not even allowed to toss his hat in the ring on a $10 million concrete construction contract because of a 1.21 experience modification rate. The owner and General Contractor had decided to permit only subcontractors with an experience modification rate of 1.05 or lower to bid on work. No ifs, ands, buts, or letters explaining why the “mod” was 1.21. Too bad, as many of the concrete contractor’s workers’ compensation claims were questionable, had been denied, and were in litigation. Experience modification rate increase: The dreaded “mod” or “xmod”. Like love and marriage (I’m kind of oldfashioned), your mod and workers’ compensation premium will increase following frequent and/or severe injuries. For example, prior to a freak accident involving an employee who fell off

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his ladder while trying to catch a tool that slipped out of his hands, a client’s experience modification was .62, down from 1.37. Due to this one claim, the client’s experience modification rate increased to .92 for each of the next three years. Damage to reputation: “It is like having a big red A on your back”, a client told me after they were told they couldn’t bid on a big project- due to their unfavorable loss experience and high experience modification rate. Many of their claims were questionable, had been denied, and were in litigation. I suggested that the client write the General Contractor, providing details on each questionable claim. I even drafted a letter for their review. We sent it to the General Contractor, who replied “Sorry, but we’re sticking to our 1.00 mod cutoff”. The client resigned itself- “We have to bid on work with General Contractors who don’t ask too many questions”.

What can you do? The media, especially after dramatic events, tell us the personal and financial ramifications of NOT preemptively managing risk, but seldom describe success stories. The following is one. It describes how one contractor effectively used risk management tools in its efforts to be injury-free. Five years ago, a large electrical contractor called: “Bob, our client, a large utility, just called to tell us they will be terminating the contract unless we complete its required safety questionnaire right away. Can you help?” In reviewing their workers’ compensation injury reports and loss run, it was apparent that numerous preventable accidents and a 1.41 experience modification rate were the source of the utility’s concerns. Further, the contractor’s inconsistent attention to safety had resulted in the temporary and permanent loss of valued employees due to injury and disability, $100,000+ in additional premium, and given the introduction of 1.00 or below “mod” cutoffs, disqualification from bidding on large projects. The owners agreed to elevating safety and accident prevention to be on par with its corporate priorities- employee retention and satisfaction, quality,

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profitability, and engendering good will. We then set about implementing practices which would get us there, and we agreed that the cornerstone of the enhanced safety program would be a daily documented discussion of injury and illness risks and exposures on every jobsite. Accordingly, we required that Foremen conduct, document and forward to senior management pre-start Job Safety/Job Hazard Analysis (“JSA/ JHA”) forms, and to preemptively address actual and potential injury and illness risks and exposures. In essence and in this case, Job Safety/ Job Hazard Analysis continues to be a process where Foremen meet with their crews daily before the start of work to ask questions which help to identify and address ever-changing injury and illness risks and exposures: “What will we be doing today? How could we get injured or ill (i.e. Covid-19)? What do we need to do to protect ourselves? What equipment (i.e. scissor lifts, taller stepladders, arc flash/arc blast suits, respirators, hearing protection, etc.) and PPE do we need and what else do we need to do to protect ourselves?”. Foremen encourage crew members to participate and record crew members’ comments and suggestions, address risks and exposures, and forward completed JSA/JHA’s to the General Superintendent, the company Safety Officer. Lo and behold, the combination of the owners’ renewed commitment to safety, employee and management execution of construction safety practices, and the daily JSA/JHA’s contributed to 5+ years without a preventable injury, Platinum status with its large clients, a .62 experience modification rate, a yearly savings of at least $150,000 in workers’ compensation premium, and more favorable rates on its other lines of insurance. This worked so well that they went one step further, implementing extensive Pre-Task Safety Planning for every job and task which carries inherently high risk of injury and/or illness- i.e. working in Confined Spaces (manholes and electrical vaults). The estimated annual cost: +/- $10,000. Pretty good return on investment, huh? +/- $10,000 cost vs. $150,000+ premium reduction.

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What more can you do? In the midst of the late 80’s and early 90’s workers’ compensation insurance meltdown (in MA, an injured worker could collect benefits for 17 years and it took 1.5 to 2 years to get to a hearing, even if the employer and insurer had video showing the allegedly injured employee working full-time at her or his regular occupation), the Workers’ Compensation Rating and Inspection Bureau of Massachusetts (the “Bureau”) implemented the Qualified Loss Management Program (“QLMP”), with the aim of getting insurers to underwrite safety-conscious employers voluntarily and enable employers to extricate themselves from the Assigned Risk Pool. Assigned Risk Pool employers are assigned a workers’ compensation insurer- vs. being able to select one based on price and services. As an Assigned Risk, there are no discounts, credits or year-end dividends for exemplary execution of safety programs and practices, and subsequent favorable loss experience. Under the Qualified Loss Management Program, employers in the Assigned Risk Pool (at that time 90% of workers’ compensation premium was in the Assigned Risk Pool) selected a safety consultation firm to help it implement and execute: 1. An employee-management Safety Committee which would meet at regular intervals to monitor the company’s safety program and practices and its execution, review incidents, accidents, and near-misses, and advise owners and senior managers of corrective actions. 2. An early return to work program to enable temporarilydisabled employees to return either part-time or full-time to meaningful and productive modified work. 3. Linkage to an occupational medical center which would treat injured employees in a timely fashion and which understood the importance of early return to work and modified duty. 4. A system for regular contact with injured workers. The Workers’ Compensation Rating Bureau assigned each safety consultation firm a percentage credit which it could offer employers in the Assigned Risk Pool. I’ll explain. My firm, Compensation Claims Review Corporation, was one of the first three firms to be approved by the “Bureau” and, based on our historical success, was awarded the ability to offer T H E

Assigned Risks the maximum 15% credit on their modified workers’ compensation premium. This meant that if we certified that our client satisfactorily implemented all four legs of the QLMP, it would get a 15% credit on its modified workers’ compensation premium. Let me translate: my largest client, a 400-employee concrete construction company with a $2.3 million workers’ compensation premium, received a $285,000 net credit (15% of $2.3 million minus my $60,000 fee= $285,000) on its modified premium. Assigned Risks received 100% of the QLMP credit in each of the first two years, 50% in the third year, and 25% in the fourth and last year. Employers could not re-enroll in the Qualified Loss Management Program after four years of credit. Along with the implementation of a workers’ compensation reform law, the Qualified Loss Management Program was an overwhelming success. Temporarily-disabled employees returned from modified work to full duty faster and happier, employers prevented costly injuries, insurers had a reason to insure employers with good safety programs and practices and competed for their business with discounts, credits and year-end dividends, the Assigned Risk Pool shrunk to less than 25% of all Massachusetts’ employers, and workers’ compensation premiums dropped to affordable levels. That same concrete contractor which was paying $2.3 million per year during the bad old days was now paying $275,000 per year. In closing, it makes good human and financial sense for risk management to play a greater role in preemptively mitigating injury and illness risks and exposures up front. It is too late when the horse is out of the barn.

About the Author: Bob Tuman is president of CCR Safety Consulting in California, providing safety consultation to construction contractors and performing Workers’ Compensation and General Liability Loss Control Surveys for property and casualty insurers. For further information or to contact CCR directly, please contact: 805-545-5976 or email bobtuman@gmail.com.

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F E AT U R E How to Handle Heat Stress Prevention & Training: Spotting Heat Stress Symptoms and More by Derek Hogan, YellowBird

Heat stress is one of the most dangerous workplace hazards and is a threat to anyone working in hot environments or is otherwise exposed to extreme heat. If affected workers can't cool down in time, they may start to experience a variety of symptoms that can lead to serious health concerns. Although millions of U.S. workers are exposed to extreme temperatures, heat stress is often overlooked because it poses less obvious risks than faulty machinery, chemical spills, and scaffolds. In reality, thousands get sick every year from occupational heat exposure. According to the Occupational Safety and Health Administration (OSHA), 50% to 70% of outdoor fatalities occur in the first few days of working in warm

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or hot environments. This is because the body needs to build a tolerance to heat gradually in a process known as heat acclimatization. A lack of proper acclimatization can put many workers at risk for injuries and even death. Heat stress does not only happen outdoors. It also affects people who work in the following indoor locations: bakeries, laundromats, kitchens, steel mills, and manufacturing plants with local heat sources such as furnaces, and more.

Symptoms of Heat Stress Heat stress is an umbrella term for various heat illnesses. As such, heat stress symptoms vary greatly depending on which heat illness you have. Here are

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the main heat stress illnesses, from least to most severe.

Heat Rash Also known as prickly heat, heat rash is the least severe type of heat illness. It will usually go away within a few days. The symptoms of heat rash are: • Mild swelling • A prickly, itchy sensation • Small, reddish spots

Heat Syncope Heat syncope is a more severe type of heat stress. It is typically caused by a lack of heat acclimatization and dehydration. It can also happen after prolonged standing and sudden rising

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from a lying or sitting position. Symptoms of heat syncope include: • Dizziness • Fainting spells • Light-headedness after standing or sitting

Heat Cramps Heat cramps are painful muscle spasms that occur as a result of heavy exercise in a hot environment. They are more prolonged and intense than typical muscle cramps. Symptoms of heat cramps include: • Flushed, moist skin • Involuntary jerking movements • Profuse sweating • Severe muscle pain

Fever Heat Exhaustion Heat exhaustion typically develops in unacclimated people during tough work sessions on hot days. Without prompt treatment, it can lead to heatstroke. Symptoms of heat exhaustion include:

How to Prevent Heat Stress Heat stress is a dangerous work hazard that can lead to fatal injuries and even death if not treated in time. That is why it is crucial for employers and employees to work together to prevent and mitigate heat stress.

Employers According to the General Duty Clause of the Occupational Safety and Health Act of 1970, employers are required to provide employees with a workplace that is free from hazards that cause or are likely to cause death or serious harm. This includes jobs, tasks, and environments that cause or are likely to cause heat stress. To give you an idea of how extensive heat stress prevention and training programs can be, here's a summary of what employers have to do to prevent heat stress:

• Create a full-suite heat illness prevention program • Provide training on what leads to heat stress and how to prevent heat illnesses • Provide a lot of cool water to employees in or close to the work area. OSHA suggests at least one pint of water per hour • Modify or create new work schedules that allow workers to take more breaks. Workers should have frequent rest periods with access to cool water in air-conditioned or shaded areas • Reduce the metabolic demands of a task if workers find it difficult to keep up. Listen to what they have to say and consider increasing the number of workers per task. Consider giving employees ergonomic tools, or tools that are specifically created to reduce manual strain

• Severe headache • Muscle cramps or weakness • Nausea and vomiting • Profuse sweating • Weak, rapid pulse • Moist, cool skin that may have goosebumps in the heat • Low blood pressure when standing

Heatstroke Heatstroke is the most severe heatrelated illness. It happens when the body is unable to control its temperature. As a result, the body temperature can rapidly rise to 106 degrees Fahrenheit or higher within 10 to 15 minutes. Without emergency treatment, heatstroke can cause permanent disability or death. Symptoms of heatstroke include: • Very high body temperature • Confusion and slurred speech • Profuse sweating or dry, hot skin • Coma • Seizures

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• Gradually increase workloads as workers get used to the heat

you stay alert 6. Avoid caffeine, energy drinks, and alcohol. These drinks can make you more susceptible to heat illnesses

• Give more breaks to workers who are new to the heat until they have acclimatized to the heat • Assign a responsible person or team to monitor conditions. This will protect workers from developing heat stress symptoms and illnesses • If the budget allows, buy protective clothing that provides cooling

1. Call 911

• Information about heat stress; what causes it; what its symptoms are; and how employees of all levels can prevent it

2. Have a dedicated person stay with the affected worker until medical personnel arrive 3. Move the worker to a shaded or cooler area 4. Remove outer layers of clothing

• Proper precautions for working in hot indoor and outdoor areas, such as rest breaks, hydration and acclimatization • The effects of over-the-counter medications, caffeine, alcohol, and therapeutic drugs, all of which may reduce heat tolerance and increase the risk of heat illness

5. Mist, fan, and apply ice to the worker to cool down their body temperature 6. If the worker is able to drink, give them cool drinking water

Employees Although employees are entitled to a safe workplace that is free of heat hazards, they should also proactively protect themselves from heat stress. Here's how you can protect yourself from heat stress as an employee: 1. Stay fit. The stronger your cardiovascular system is, the less likely it is that you will develop heat stress symptoms 2. Take frequent breaks. Breaks can help your body cool down. If possible, take your break in a shaded area or inside 3. Avoid hot areas. When possible, avoid working in the sun during the hottest time of the day (usually between 10 a.m. and 2 p.m.) 4. Use sunblock and reapply every two hours 5. Stay hydrated. Hydration can stave off many heat stress symptoms and help

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Heat Stress Training to Implement at Your Workplace Developing a heat stress training program is critical to protecting your employees and remaining OSHAcompliant. Training should include:

If an employee is showing symptoms of heat stress, employers need to:

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7. Wear lightweight, loose-fitting, longsleeve shirts and trousers, as well as a hat. This will help your body stay cooler

• Explanations and demonstrations of the proper use of and care for heatprotective equipment and clothing • Additionally, supervisors should be trained to monitor and respond to weather and workplace conditions.

OSHA Heat Stress Standards OSHA has also established the following heat stress standards to help employers protect employees from heat stress hazards: The personal protective equipment (PPE) standard ( 29 CFR 1910.132(d)) requires general industry employers to conduct hazard assessments to determine the appropriate PPE for protecting employees from the identified hazards. The sanitation standards ( 29 CFR 1910.141, 29 CFR 1915.88, 29 CFR 1917.127, 29 CFR 1918.95, 29 CFR 1926.51, and 29 CFR 1928.110) require employers to

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provide workers with drinkable water. The record-keeping regulation ( 29 CFR 1904) requires employers to record certain work-related illnesses and injuries. If an employee suffers a workrelated illness or injury and receives days off from work, a job transfer, restricted work activity, or medical treatment beyond first aid, the employer will have to record the case. The medical services and first-aid standards ( 29 CFR 1910.151, 29 CFR 1915.87, 29 CFR 1917.26, 29 CFR 1918.97, and 29 CFR 1926.50) require people at the worksite to be adequately trained in first aid. This ensures that injured or ill people get the treatment they deserve if medical personnel can't get to the worksite on time. The safety training and education standard for construction ( 29 CFR 1926.21) requires employers to establish and supervise educational and training programs to help employers and employees recognize, avoid, and prevent unsafe workplace conditions.

Hiring a Heat Stress Training Expert Complying with OSHA's stringent heat stress standards can be difficult, particularly with limited time and energy for creating new standards, protocols, and programs. By partnering with YellowBird, we will match you with the perfect heat stress training expert for your workplace in as little as two hours. Sign up today to begin transforming your heat stress program.

About the author Derek Hogan has 12 years of sales and leadership experience, currently leading the sales team at YellowBird. Derek graduated from the University of Wisconsin-La Crosse and is a season ticket holder for the Green Bay Packers.

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F E AT U R E Does Your Insurance Program Cover All the Insurance Requirements in the Contracts You're Signing? by Gary R. Semmer, Assured Partners

Great question- let’s examine some of the more important provisions: Indemnification Every Contract contains some form of Indemnity/Hold Harmless language which requires you to indemnify upstream parties for your acts or others that could cause Bodily injury, Property Damage and sometimes even Consequential Damages. They vary in scope from the standard AIA, ConsensusDocs, DBIA or “DIY” (Do it Yourself) versions. Although you may have some protection under AntiIndemnity Statutes in most States, you still may be exposing yourself to situations “not covered” by your Liability Insurance. We recommend you review each contract to determine if there is wording “outside” of your liability coverage with your Attorney or Legal Counsel. The ASA Attorney’s Council has done extensive work in this area to provide contract equity.

Additional Insured (A/I) requirements for General Liability, Business Auto & Commercial Umbrella Policies We are seeing requests for specific versions of the General Liability A/I endorsements like the ISO CG 2010 (Ongoing) and CG 2037 (Completed Operations) 10/01 editions which provide A/I status for upstream parties for “Your Work” without any restrictions or limitations in coverage.

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The later versions of the CG 2010 and 2037 (07/04. 04/13 & 12/19) editions all contain restrictions that limit A/I coverage which is “good” for you as a lower-tier Contractor. However, if you don’t provide the appropriate A/I coverage and there is a Liability claim, your Insurance Carrier may not provide A/I defense and coverage to the upstream parties, which could put you in “breach of contract” and could lead to possible litigation. Another area that is common today is requiring Primary Non-Contributory A/I status which means your coverage goes first and the upstream parties (Owner, GC & Others) triggers next. This will vary by State depending on if the case law permits Vertical vs Horizontal exhaustion of Limits- check with your Insurance Agent or Broker to determine what your responsibility is. Lastly, we are seeing requirements to maintain Completed Operations A/I status for 3-5 years post completion and sometimes through the Statute of Repose in the state you are performing the work which could require you to provide coverage for 10+ years which you will want to negotiate down if possible.

Coverage Requirements Review other coverage requirements like Contractors Professional (Errors & Omissions) and Pollution (Environmental) Liability, Waiver of Subrogation and General Liability &

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Umbrella Per Project requirements to make sure you comply from a coverage and limits standpoint. At AssuredPartners, we represent over 20,000 Construction Clients nationwide with 200 offices to serve you along with an experienced team of Construction Professionals to help you achieve your lowest possible Total Cost of Risk (TCOR).

About the Author Gary Semmer, CIC CWCA, is Executive Vice President and Construction Practice Vertical Leader with AssuredPartners. Gary specializes in providing Insurance & Risk Management solutions to the Construction and Real Estate industries. He has served as President of the Independent Insurance Agents of Illinois (IIAI) and Associated Risk Manager (ARM) of Illinois. AssuredPartners is the 10th largest Insurance Broker and Consultant in the country providing Commercial Insurance, Risk Management, Employee Benefits through consulting and services. For more information on AssuredPartners, please contact Gary at Gary.Semmer@ assuredpartners.com or asa@ assuredpartners.com

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KEY INGREDIENTS FOR A SUCCESSFUL HEALTH & SAFETY MANUAL 1

Ensure that the right people are involved and have a voice in the policies

Ensure that the programs are industry and company-specific, so they apply to your exposures

Have a qualified safety director or other professional review safety policies on an annual basis or whenever there are important safety-related developments in the industry

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L E G A L LY S P E A K I N G The “Your Work” Exclusion in a General Commercial Liability Policy by Kent Lang and Mike Thal, Lang & Klain, P.C. In seeking indemnification for damages caused by a subcontractor’s work, a general contractor or upstream subcontractor should understand the “your work” exclusion typically contained in commercial general liability (CGL) insurance policies, as well as the “subcontractor exception” to that exclusion. For all contractors, understanding those two concepts can be a key part of the company’s risk management. Simply put, the “your work” exclusion in a CGL policy generally bars coverage when the only damages claimed are repairs to the work performed by the named insured. The exclusion, as it appears in the policy, may use wording such as this: • "This insurance does not apply

to property damage to work performed by or on behalf of the Named Insured arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith." [Emphasis added.] Thus, if a new roof leaks because of a workmanship defect, and the roofer submits a claim under their CGL policy, repairs to the roof are probably not covered due to the “your work” exclusion, but the flat screen TV and oriental rug damaged by the leak would be covered. However, many policies include a “subcontractor exception,” which states that the “your work” exclusion “does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.” But, as discussed below, if a subcontractor’s work

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causes damage, and the GC makes a claim as an “additional insured” on that sub’s CGL policy, the GC cannot rely on the “subcontractor exception” to force the sub’s carrier to cover the loss.

The "Your Work" Exclusion in an Arizona Case A 2016 Arizona Court of Appeals opinion, Double AA Builders v. Preferred Contractors Insurance, provides the most recent Arizona case law specific to the “your work” exclusion. The dispute dates back to 2007, when Harkins Theatres hired Double AA Builders as general contractor on the construction of a theater complex. Double AA subcontracted with Anchor Roofing to install the roof, and Anchor added Double AA as an “additional insured” to its CGL policy issued by Preferred Contractors Insurance. After construction was completed, a leak in the theater’s roof resulted in damage to work performed by other subcontractors. The leak also caused Harkins to lose business, and Harkins asked Double AA to replace the roof, which it did. Double AA then filed a lawsuit seeking indemnification from Anchor Roofing, Preferred Contractors Insurance, and Westfield Insurance (Double AA’s insurance company). In its suit, Double AA sought to recover the cost of replacing the roof but, significantly, not to recover the cost of repairing other leak-related damage to the theater. Double AA settled with Westfield and obtained a default judgment

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against Anchor Roofing. That left Double AA to do battle with Preferred over whether replacing the roof was a covered loss under Anchor’s policy. At trial, the judge ruled in favor of Double AA and against the insurance company, finding that the leak constituted an occurrence that resulted in covered property damage and that the “subcontractor exception” clause removed the claim from the policy’s “your work” exclusion. Preferred appealed the trial court’s ruling to the Arizona Court of Appeals, which interpreted the “your work” exclusion differently. In its opinion, the Court of Appeals found that, because Double AA’s lawsuit was limited to recovering only the cost of replacing the roof and did not include other damages caused by the leak, the work performed by Anchor Roofing did in fact qualify for the “your work” exclusion. More importantly, the Court held that Double AA could not rely on the “subcontractor exception” to the “your work” exclusion because the work was not performed by a subcontractor to the named insured, Anchor. In other words, only first-party claims trigger the “subcontractor exception,” leaving GCs and upstream subcontractors who make claims as “additional insured” with no way around the “your work” exclusion.

Takeaway While GCs and upstream subcontractors should always require their subcontractors to name them as additional insured on the sub’s CGL policy, that offers only limited

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Types of Insurance for Contractors

risk management. If a subcontractor whose work is defective will not submit a first-party claim to its carrier, thus forcing the GC or upstream subcontractor to make a claim as “additional insured,” any repairs to the subcontractor’s work are probably not covered.

Here is a brief description of types of insurance coverage that are common in the construction industry. All descriptions are very general in nature, and the coverages described are subject to policy-specific exclusions and exceptions. Talk to your insurance agent to determine which products might be right for your operations. • Commercial General Liability Insurance (CGL) covers property damage and bodily-injury claims from third parties, such as when a non-employee is injured on your jobsite. A CGL policy also covers advertising injuries, such as defamation and copyright infringement. Notably, this insurance does not typically cover professional negligence (i.e., workmanship issues), but, as in the case discussed above, there are exceptions (e.g., where faulty construction leads to water or fire damage).

About the Authors: Kent Lang and Mike Thal are construction attorneys at Lang & Klain, P.C., in Scottsdale. Kent Lang is an "AzBusiness Leaders" selectee and a multi-year Best Lawyers and Super Lawyers honoree. Kent has a strong reputation in Arizona's construction industry, based in 20-plus years of personal attention and practical legal solutions for contractors, subcontractors and suppliers. He is a native of Rockwell City, Iowa, and earned his bachelor's and law degrees at Arizona State University. Contact Kent Lang at klang@lang-klain.com or 480-534-4871.

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Builder’s Risk Insurance covers first-party claims for damage to structures or materials during construction and can be written on a project-by-project or project-wide basis. Coverage also commonly includes fire, wind, theft, lightning, hail, explosion and vandalism, but it generally excludes earthquakes, employee theft, or flood damage. Coverage for delays or business interruption can often be added by endorsement.

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Pollution Liability Insurance covers first- and third-party claims for damage to property and people caused by pollutants, such as smoke, fumes, odors, hazardous substances, waste materials, etc.

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Workers’ Compensation Insurance is mandatory under Arizona law and covers medical costs incurred by employees with a job-related illness or injury. It also provides death benefits to surviving spouses and/or dependents. Workers’ comp is a no-fault concept that provides coverage regardless of who was responsible for the injury, illness or death.

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Contractor’s Equipment Insurance covers the equipment owner from losses due to physical damage to equipment used in a construction project.

Mike Thal is Best Lawyers' 2022 "Lawyer of the Year" (Scottsdale) in Construction Litigation. A Phoenix native, Mike represents contractors, subcontractors and suppliers in construction disputes and is an experienced contractor advocate in ROC licensing and disciplinary matters. Mike is a volunteer mentor at New Pathways for Youth and is active in the Arizona Veterans StandDown Coalition. Contact Mike Thal at mthal@lang-klain.com or 480-534-4873.

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Employment Practices Liability Insurance covers your company against employee claims for discrimination, harassment, retaliation and wrongful termination; breach of employment contracts; and, in less common provisions, wage-and-hour and other Fair Labor Standards Act violations.

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Commercial Automobile Liability Insurance covers, as the name suggests, third-party bodily injury and property damage caused during the operation of a motor vehicle by an employee or other company representative.

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Professional Liability Insurance covers third-party claims for professional negligence, errors and omissions, property damage, bodily injury, and financial loss.

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Umbrella Insurance covers an insured party for claims that exceed the limits of other policies.

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Wrap-Up Policies or Owner Controlled Insurance Plans (OCIPs) cover the owner, general contractor and subcontractors on a specific project in a single package of insurance coverages, including many of the types described above.

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Upcoming Webinars ASA is excited to announce the latest lineup of webinars available through SESCO Management Consultants. ASA Members can get a 15% discount just by using the promo code SPRING15 when you register! SESCO is just one of the many member benefits available through your ASA membership. To learn more about this and all of the benefits waiting for you, click here. Here are just three webinars coming up. To view the complete listing, click here. August 10: Essential Skills of Communication for Managers Good communication is the key to productive relationships in the workplace. We are all responsible to see that communication is productive and helpful. Likewise, good listening skills are the key to effective communication in the workplace. Being a good listener is not easy. It is a skill that we have to develop. Working together and communicating effectively as a member of the work team are key skills to having a healthy and productive workplace. Being open to help from others is also key to being a part of a team. We have to be willing to admit that we need help and then ask for it in a healthy manner. We have to overcome our resistance to it. Lastly, being assertive is also a part of being on a team. We need to be able to communicate without violating the other person’s rights as a human being. This session helps managers learn the latest techniques in developing effective communication skills – improving their performance and increasing the productivity of the team and the organization. Managers leave with implementation tools, troubleshooting guides and additional resources to help them apply the skills they have learned on the job. August 24: Employee Training and Development: The Importance and Ultimate Cost to the Organization When considering all the aspects of neglected management, most often organizations identify development planning as an area of important need. Development planning truly aids your employees in shaping not only the future of their careers but also the

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future of the organization. For a variety of reasons, the valuable activity of employee training and development often goes ignored or becomes an afterthought by management. With this comes the ultimate price: the loss of top talent or future hopefuls. Training and development planning doesn't have to be elaborate or costly. This session will focus on the core of every training program. Participants will learn to have a good management culture of taking the person-to-person time to understand employee needs and desires, recognizing skills and training needs and collaborating with the employee and human resources to fill any existing gaps that are critical functions for every organization. Next, the session will discuss if training and development is executed well, the payoff for the organization can be substantial in terms of long-term loyalty, retention, engagement and productivity. Lastly, participants will learn how to negate training and development voids which substantially risk valuable employee assets and long-term talent. September 7 & September 21: Understanding Ourselves and Others: DiSC Personality Profile Assessment (Part 1 & Part 2) We all have many personalities and whatever the reasons, unless we understand ourselves better, it will be more difficult to understand others. The DiSC Profile is designed to help us understand more about our natural behavioral styles. Being aware of how we behave is one thing.... knowing why we behave the way we do is something else. The premise of this training is fourfold: (1) To understand your behavioral

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tendencies and begin developing an understanding of how these styles may affect others, (2) to understand, respect, appreciate and value individual differences, (3) to enhance your effectiveness in accomplishing tasks by improving your relationships with others, and (4) to develop strategies for working together to increase productivity. The DiSC Personal Profile System isn’t a test that you can pass or fail.The Personal Profile System is a simple, self-scoring instrument that will help us not only understand ourselves and others, but also learn about how to work more productively with those in our organization whose behavioral styles are different from ours. October 5 & October 26: Performance Management (Part 1 and Part 2) Did you know two thirds of supervisors receive little to no training on how to handle the soft skills of management? Read more about this seminar.........

Tuition (includes a copy of the PowerPoint presentation and live recording emailed to registered individual) • $49.99 per person, per webinar for all topics except DiSC • $169.99 for DiSC Personality Profile Series *Includes Assessment* Times 1:00-2:30 pm EST Please click here to view and purchase SESCO's 2022 webinars from their website.

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F E AT U R E Five Easy-to-Implement Strategies to Reduce Financial Risk in Construction Projects by Patrick Hogan, Handle.com The level of financial risk that construction businesses deal with is no joke. For every project, there’s always the possibility that you won’t net a profit or the payments get so delayed that other projects–and ultimately, your bottom line–are negatively affected. This is why more and more construction businesses put immense value on risk management, beefing up the capacity and capability of their finance personnel and dedicated credit teams to ensure that the business profits from its work satisfying customers. But managing financial risk in construction is no easy feat. There are many moving parts, and there’s no single way to ensure that risk is mitigated. Too conservative, and you lose out on projects. Too loose, and you lose out on payments. But, there are best practices that cover a wide range of risks that every prudent business owner in construction must ensure are in place in their companies. Here are some of them.

Cover all bases when invoicing and sending pay apps Construction businesses take pride in the quality of their output, be it the skilled work and labor their teams provide or the final result of end-to-end projects. These works are made possible by sticking to processes that are tried at true. There is no reason why the same approach–creating and polishing processes to refine results continuously– is not applied to reducing financial risk and getting paid on time for projects. The basics of ensuring that you’re staying profitable and reducing the risk of carrying a significant number of unpaid receivables include regular invoicing, ensuring that pay apps are correct and detailed, and offering various payment methods aligned with your client’s preferences.

Protect your right to file liens Lien laws were created to protect contractors and other construction professionals from the financial risks of running construction businesses. Yet, many companies still don’t secure their lien

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rights for every job. Every enterprise-level construction business knows this is a must, and competent contractors and suppliers working in construction must do the same. Lien laws for many states also include provisions for lien waivers that forge stronger relationships with clients–once a progress bill or final bill is paid, you relinquish your right to lien. These risk-mitigating tools are available for contractors and suppliers, yet some still don’t use them. Indeed, it’s not simple– ensuring that the appropriate pre-lien notices are filed for every job can be cumbersome and complicated, especially for businesses working on projects in different states. Using lien filing software that ensures that all notices are accurate and sent according to the time and manner required by state laws is crucial in ensuring that you retain the right to file liens if payment issues arise.

Be shrewd about credit applications and monitoring Ensuring that clients have filled out their credit applications with complete and accurate information is a must. Yet, many companies get into the habit of treating credit apps just as a formality. The information on the forms included in credit applications must be used in conjunction with your prospect and customer research to ensure that you’re extending the appropriate credit terms to customers. Overextending credit is one of the chief ways construction businesses put themselves at greater financial risk. To further strengthen your risk management approach, monitoring their credit situation as the months and years pass must be part of your protocol. Financial conditions can change quickly, and when a customer has access to credit they can’t afford, all the risk is shifted to you. Having a process that schedules regular checks and using technology that automatically alerts you in case of publicly reported irregularities is a good practice.

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Strictly vet prospects Sometimes there is a disconnect between the sales and credit teams when onboarding new clients. Sales teams feel restricted by strict credit rules, while credit departments feel compromised by the hasty intake of clients who might be deemed risky. Working together by sharing vital information throughout the vetting process benefits both departments. The sales team benefits through deals not falling through last minute or not getting their commissions because the client has payment issues. The credit team has an easier time dealing with invoices with clients that pay and pay on time.

Examine all contracts The reality is that the amount of risk you take on is decided at the very beginning of the project–through the contract. In terms of risk, the clauses and fine print determine who gets what. Because construction projects are complex and commonly involve many subcontractors and suppliers, some lower-tiered subs can sometimes get the shorter end of the stick. They must carefully inspect the provisions of their contracts, especially those related to payments. Running a business in construction could be high-risk financially, but there are ways to mitigate this without alienating your clientele or being too conservative. Apply these strategies and see how it affects your business's longevity and financial health.

About the Author: Patrick Hogan is the CEO of Handle. com, where they build software that helps contractors and material suppliers with lien management and payment compliance. The biggest names in construction use Handle on a daily basis to save time and money while improving efficiency.

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Save on everyday business needs. ASA understands and supports your personal and professional needs. That is why we have leveraged the buying power of our members to deliver business solutions and services that can help control costs and improve your bottom line.

The Contractor's Compass - July 2022

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