The Contractor's Compass October 2014

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ASA’s

THE OFFICIAL EDUCATIONAL JOURNAL OF THE AMERICAN SUBCONTRACTORS ASSOCIATION

WWW.ASAONLINE.COM

Efficiency in Construction Industry Selling

OCTOBER 2014

Selling Your Construction Services

The Customercentric Lighthouse in a Sea of Poor Service Business Development: A Misunderstood Profession Generate More Customers!

Legally Speaking: Getting Paid for Change Orders

Register Now!

March 26-29, 2015 Seattle, WA • See page 20

THE

ASA’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. The journal is designed to equip construction subcontractors with the ideas, tools and tactics they need to thrive.

October 2014

Features Efficiency in Construction Industry Selling................................. 10

by Tom Woodcock

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).

The Customer-centric Lighthouse in a Sea of Poor Service................................................................... 12

by Gregg Schoppman

EDITORIAL STAFF Editor-in-Chief, Marc Ramsey

Business Development: A Misunderstood Profession............... 14

MISSION FASA was established in 1987 as a 501(c)(3) taxexempt 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. FASA provides subcontractors and specialty trade contractors with the tools, techniques, practices, attitude and confidence they need to thrive and excel in the construction industry.

FASA BOARD OF DIRECTORS Richard Wanner, President Letitia Haley Barker, Secretary-Treasurer Brian Johnson Robert Abney Anne Bigane Wilson, PE, CPC

by Larry Silver

Generate More Customers!.............................................................. 16

by George Hedley

Register Online Now for SUBExcel 2015....................................... 21

Departments

SUBSCRIPTIONS The Contractor’s Compass is a free monthly publication for ASA members and nonmembers. Subscribe online at www.contractorsknowledgedepot.com.

CONTRACTOR COMMUNITY............................................................ 4 CONSTRUCTION IN THE COURTS................................................... 9

ADVERTISING Interested in advertising? Contact Tony Kozak at (716) 844-8174 or advertising@asa-hq.com.

LEGALLY SPEAKING.......................................................................... 23 Getting Paid for Change Orders Ben Shapiro, Esq,

EDITORIAL SUBMISSIONS Contributing authors are encouraged to submit a brief abstract of their article idea before providing a fulllength 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.

CONTRACT CORNER........................................................................ 25 Making a Case for Eliminating or Limiting Retainage

Quick Reference ASA/FASA CALENDAR..................................................................... 26 COMING UP....................................................................................... 26

LAYOUT Angela M Roe angelamroe@gmail.com © 2014 Foundation of the American Subcontractors Association, Inc.

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Contractor Community

FASA Publishes 2014 Edition of Lien & Bond Claims in the 50 States Construction subcontractors that regularly perform work in more than one state know how difficult it is to stay on top of various mechanic’s lien and payment bond filing requirements. Because of nuances in state laws, claims procedures and deadlines vary widely.

The Foundation of ASA’s revised edition of Lien & Bond Claims in the 50 States provides subcontractors with the most current information for filing claims — no matter where in the United States they do business. The 2014 edition provides subcontractors with the latest lien claim requirements for each state, critical filing deadlines, legal requirements for executing bond claims and exceptions to claims procedures.

For example, the manual includes changes to the new Mississippi law, which took effect on April 11. Under the new law, a claimant must file the lien claim within 90 days after it last performed work or supplied material.

The claimant must send the notice to the property owner and the contractor by registered or certified mail or “statutory overnight delivery.” The claimant must commence its lawsuit in the county, circuit or chancery court within 180 days of the lien filing. Potential claimants without a direct contractual relationship with the prime contractor must provide the contractor with a pre-lien notice within 30 days of starting work or delivering material. The new

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statute contains several provisions establishing mandatory language or forms of notice, including the lien notice and an amendment to the lien; the failure to use the required language will invalidate the lien.

The new law also prohibits the enforceability of a contract provision requiring a potential claimant to waive its rights before providing work or materials.

The downloadable Lien & Bond Claims manual breaks down the various lien and bond requirements for each state and the District of Columbia by private and public work, putting the essentials of lien laws and bond requirements right at the reader’s fingertips. It describes who to notify of claims, critical deadlines and features an appendix with legal citations.

Lien & Bond Claims in the 50 States (Item #3006) is $55 for ASA members and $80 for nonmembers. Order online. Special thanks to ASA general counsel Kegler, Brown, Hill & Ritter, Columbus, Ohio, for preparing this manual for FASA.

ASA Calls on FAR Council to Improve Reporting by Individual Sureties In a Sept. 18 letter, ASA called on the Federal Acquisition Regulatory Council to amend the report submitted by individual sureties to “increase the likelihood that the assets pledged by an individual surety are real, sufficient in amount, and readily available should any payment claim arise.”

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The payment bond required by the Miller Act provides payment protection, of last resort, for the subcontractors who have performed their obligations in furtherance of a federal construction contract. ASA proposed specific changes to the FAR Standard Form 28 (Affidavit of Individual Surety) “to minimize the extent to which the statutorilyrequired Miller Act payment bond protections expose construction subcontractors and suppliers” to nonpayment “by adding additional specificity, increasing its ‘utility’ without adding significantly to the form’s information collection burden.”

ASA questioned whether the current SF 28 “provides the contracting officer with adequate and reliable information relating to the assets being pledged by an individual seeking to act as an Individual Surety.” Further, ASA expressed concern that under the current form “the protection provided by an Individual Surety may be illusory, inadequate and not readily available, when compared to the payment protections by a corporate surety on the Treasury list.”

ASA Chief Advocacy Officer E. Colette Nelson said that “payment bonds provided by an individual surety are essentially worthless unless the pledged assets backing a payment bond are real, adequate in amount and readily available to meet the legitimate payment claims of the myriad subcontractors and suppliers performing on a typical modern Federal construction contract.”

ASA also is pursuing federal

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legislation (H.R. 776, the “Security in Bonding Act”) that would help curb fraud by requiring an individual surety to pledge solely those assets that the law currently allows to be pledged directly to the government and to place such assets in the care and custody of the federal government (i.e., the Secretary of Treasury, a federal reserve bank or a depository designated by the Secretary). The tenets of H.R. 776 have been incorporated as Section 816 of the House-passed version of the National Defense Authorization Act (H.R. 4435); the Senate is expected to consider the bill when Congress reconvenes in November.

Deadline to Apply for ASA’s ‘Best Practices’ Awards Is Nov. 21, 2014 Specialty trade contractors that have signed a contract within the past year directly with a construction owner to perform construction services are eligible to apply for ASA’s National Construction Best Practices Awards. But don’t delay! The application deadline is Nov. 21, 2014.

These awards recognize firms that demonstrate “an extraordinary level of commitment to best industry practices” like safety management, prompt payment, prompt processing of change requests and claims, and effective project scheduling and coordination. The rigorous awards criteria, developed by the ASA Task Force on Ethics in the Construction Industry, include the use of a standard subcontract whose provisions

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substantially reflect the best practices incorporated into the ASA-endorsed ConsensusDocs 750 Standard Agreement Between Constructor and Subcontractor, as well as highly favorable evaluations from at least three specialty trade contractors, based on 20 project management factors. Each applicant must supply three sealed business-practices recommendations from specialty trade contractors that have worked for it in the past year along with a copy of its standard subcontract with its application. The application fee is $495.

ASA will present the 2014 National Construction Best Practices Awards during SUBExcel 2015, which will take place March 26-29, 2015, in Seattle. Learn more and download the application form under “Education & Events” on the ASA Web site.

Longtime ASA General Counsel David Hendrick Passes David R. Hendrick, who served as ASA general counsel from 1993 to 2000, passed away on Friday, Sept.

19, from a sudden heart attack. He was a senior partner in the Atlanta law firm of Hendrick, Phillips, Salzman & Flatt, and was a graduate of the Tufts University and the University of Virginia School of Law. During his nearly 40 years of practice, he focused primarily on construction contracting and claims matters, dispute avoidance and resolution, and litigation matters involving public and private

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construction contracts. He was dedicated to educating construction contractors and subcontractors on how to survive and thrive in the industry, including conducting workshops, writing articles and manuals. He presented several ASA webinars, including “Avoiding Death

by Waiver,” “Getting Final Payment: Strategies That Work,” “Where the Projects Are: Finding and Getting Federal Projects,” “Managing Your Completed Operations Risk,” and “Purchase Orders: How to Wage and Win the Battle of the Forms.”

“The construction industry has lost a fine lawyer and subcontractors have lost a friend,” said Donald Gregory, principal, Kegler, Brown, Hill & Ritter, which serves as ASA’s current general counsel. “David was a valued mentor to many of us.”

ASA Chief Advocacy Officer E. Colette Nelson added, “David was always a source of wisdom when I was working on model contract documents or looking for a legislative solution to a perplexing problem.

Subcontractors have lost an important advocate.”

Read the obituary in the AtlantaJournal Constitution.

Texas Appeals Court Reverses Trial Court Denial of Lienholder Judgment of Foreclosure A Texas trial court erred when it concluded that the court can deny a lienholder a judgment of foreclosure and order sale of the property

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subject to a lien, even if a trial court determines that a mechanic’s lienholder has a perfected statutory mechanic’s lien and is entitled to recover damages for unpaid labor and materials, a Texas appeals court ruled on Aug. 22, 2014.

The Court of Appeals for the Fifth District of Texas at Dallas reversed and remanded the trial court decision in Crawford Services, Inc. v. Skillman International Firm, LLC. Crawford and Skillman executed two contracts for Crawford to replace and repair components of the air conditioning system in Skillman’s building.

Crawford substantially completed its work under the contracts, but Skillman breached the contracts by failing to pay over $140,000 due Crawford. Crawford filed a mechanic’s lien against Skillman’s property pursuant to Chapter 53 of the Texas Property Code. Then Crawford sued Skillman for breach of contract and to foreclose on the mechanic’s lien.

Following a bench trial, the court made findings of fact and conclusions of law, including that Skillman owed Crawford for work and materials and that Crawford had perfected its mechanic’s lien. The court rendered judgment for Crawford, but denied Crawford’s request for a judgment of foreclosure of the mechanic’s lien and order of sale of the property subject to the lien. Crawford filed a motion to modify the judgment in which it asked the court for a judgment of foreclosure and order of sale. The trial court denied the motion, and Crawford filed the limited appeal in which it argued that the trial court’s interpretation of the statute was wrong.

The Texas Construction Association, of which ASA of Texas, Inc. is a

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member, filed an amicus brief in April in support of the appellant, Crawford Services, arguing that mechanic’s liens were adopted in this country “to provide security of payment to those building this country. The trial court’s refusal to order foreclosure of the perfected Mechanic’s Lien in this case strips away that assurance for subcontractors (and general contractors as well).”

Texas Supreme Court Rules for Contractor in ‘No Damage for Delay’ Case In a precedent-setting decision, on Aug. 27, the Texas Supreme Court ruled that a no-damages-fordelay clause does not shield an owner from liability for deliberately and wrongfully interfering with a contractor’s work. The Court also held that the Texas Local Government Contract Claims Act waives governmental immunity from suit on a contract claim for delay damages the contract does not call for.

ASA and ASA of Texas had filed an amicus brief on Oct. 24, 2012, in the case, Zachry Construction Corporation v. Port of Houston Authority of Harris County, Texas. ASA told the Court, “There is no justification to leave [small businesses] at the mercy of the owner’s willful, arbitrary, capricious, and fraudulent conduct that is also active interference.”

Attorney Richard Gary Thomas of the Dallas law firm Thomas, Feldman & Wilshusen, LLP, who prepared the ASA brief, said, “This is a great victory for the subcontractor-supplier industry.”

ASA intervened in the case when the 14th Court of Appeals of Texas removed virtually all safeguards on

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contractual risk-shifting, ruling that parties are free to contract as they wish, even to disallow claims when one party on a construction project actively interferes with the other party’s performance. Specifically, the appeals court determined that a “no damages for delay” clause barred Zachry from recovering damages related to a delay caused by the owner’s breach of contract. The appeals court reversed a favorable jury verdict and judgment, and even said Zachry should pay the Port Authority for legal fees. ASA told Texas Supreme Court, “There needs to be a ‘safety valve’ for courts to use in extremely egregious situations.”

Construction Coalition Submits Final Comments on OSHA Proposed Silica Rule After nearly a year of review and study, on Aug. 18, the Construction Industry Safety Coalition filed its final post-hearing brief on OSHA’s Proposed Rule on Occupational Exposure to Crystalline Silica. ASA is a founding member of CISC, which has been an active participant throughout OSHA’s rulemaking process.

In its final comments, CISC reemphasized its pre-hearing written comments and testimony and presented its final economic analysis.

Specifically, CISC said: • OSHA has not identified all of the construction tasks and worker job categories that would be affected by the proposed rule,

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nor has OSHA addressed the omitted tasks and job categories in the technological and economic feasibility analyses.

• OSHA has no justification in assuming for all construction worker exposure samples of less than full-shift duration that sampled workers have no exposure for the unsampled remainder of their shift.

• OSHA’s analysis does not consider the broad range of tasks and variety of settings and environments in which construction work occurs.

• OSHA’s assumption about compliance on multiemployer worksites does not account for exposure effects.

• OSHA’s assessment of each of the individual construction tasks analyzed failed to consider the broad range of exposures and even if it had done so, did not demonstrate conclusively that a permissible exposure level (PEL) of 50 μg/m3 (micrograms of silica per cubic meter of air) could be met in most operations most of the time.

CISC’s economic analysis demonstrates that OSHA grossly underestimated the costs that the construction industry will incur to comply with the proposal. CISC estimates that “compliance with OSHA’s proposed standard would cost the construction industry nearly $3.9 billion per year, nearly eight times larger than OSHA’s estimate.”

In its own comments, ASA joined CISC in requesting that OSHA withdraw the proposed rule and offered to engage in a dialogue with OSHA regarding what would be an

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appropriate approach to dealing with the hazards of silica on construction worksites. ASA Chief Advocacy Officer E. Colette Nelson concluded, “After thoroughly reviewing the rulemaking record developed by OSHA, ASA continues to believe that the Agency has not met its burden with respect to the rule and the construction industry and should withdraw the proposal.”

AWCI Report Examines Construction Firm Executives’ Question, ‘Who Will the Next Owner(s) Be?’ A new report prepared by FMI Corp. for the Association of the Wall and Ceiling Industry examines the major issues that executives of construction firms need to consider for ownership transition and management succession.

For those executives who have not started planning their exit strategies, “Ownership Transition for Contractors: Current Thoughts and Methodologies” offers a detailed look at the reasons they should plan and the various options available to them to transition their companies.

For both those who currently have plans for exiting the business and those who do not, the report covers some areas that they might not have considered, including implementation issues and strategies for a profitable transition strategy.

“Planning for ownership transfer is harder than most owners might expect and takes longer to implement,” the report notes. “For instance, answering the question, ‘Who will the next owner(s) be?’ is a

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first important step in the transition process. Hint: The new owners aren’t always who the current owners expect they will be.”

The report adds that the ultimate goal for the current owner(s) is to preserve the equity he or she has built up in the firm while also providing a method for the next owner(s) to be profitable. “How the owner meets this goal and others is the focus of the middle section of this paper where we cover the various techniques of transition, including the potential risks and rewards of each method,” the report says.

The report also looks at the details that owners should consider to better preserve their personal wealth and to assure a smooth implementation of the transition plan.

AWCI publishes this report as part of its annual giving campaign.

ASA members are encouraged to support AWCI by making a donation.

Contributions provide vital funding to the Foundation of the Wall and Ceiling Industry’s three primary programs: the Foundation Research Series, AWCI Cares and the John H. Hampshire Memorial Library.

“AWCI Cares continues to make meaningful impacts offsetting crisis experienced by families in the industry,” AWCI President and CEO Steve Etkin said. “An outpouring of support enabled AWCI Cares to award more than $130,000 to families in financial distress caused by unexpected death, illness or unexpected emergency. One-hundred percent of funds donated to AWCI Cares go directly to families in need.

I invite you to witness our results at http://www.awci.org/awci-cares. shtml.”

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MAY 7 TH , 8:10 A .M .

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To learn how CNA’s insurance programs for contractors can help your business grow more profitably, contact your independent agent or visit www.cna.com/construction.

The examples provided in this material are for illustrative purposes only and any similarity to actual individuals, entities, places or situations is unintentional and purely coincidental. Please remember that only the relevant insurance policy can provide the actual terms, coverages, amounts, conditions and exclusions for an insured. All products and services may not be available in all states and may be subject to change without notice. CNA is a registered trademark of CNA Financial Corporation. Copyright © 2014 CNA. All rights reserved.

Construction in the Courts Edited by R. Russell O’Rourke, Esq., partner and chair of the Construction Law Group, Meyers, Roman, Friedberg & Lewis, Cleveland, Ohio.

A brief review of recent cases that affect your business Subcontractors often change insurance policies and need to be reminded when making these changes that they make sure there are not gaps in the time periods covered by the insurance policies. Two recent California cases, although not published, provide a painful reminder as to the timing when insurance coverage is actually triggered and that it is important for subcontractors to work with their insurance brokers to avoid any gaps in policies when changing insurance carriers.

In Bann-Shiang Lize Yu v. Landmark American Insurance Company, the developer was assigned claims of a subcontractor related to insurance coverage for the subcontractor’s work.

The subcontractor’s insurance policy excluded work performed or damages incurred prior to inception of the policy.

The work in question was performed before the policy came into place although the claim was made during the policy period. The court found the claim was not covered as a result of the previous work and damages exclusions since work was performed and damages were incurred prior to the policy. As a result there was no coverage for the claims although the claim was made during the policy period.

In a similar gap of insurance case, Mike Rovner Construction v. Liberty Surplus Insurance Corporation, the subcontractor improperly installed shower stalls prior to the insurance

policy; however, some of the leaks were discovered after the policy was in place.

The court ruled that even though some leaks in the showers were discovered after the policy was in place, they were specifically excluded by the prior work exclusion in the policy.

Another issue in Mike Rovner Construction v. Liberty Surplus Insurance Corporation was the subcontractor performing repairs prior to an initiation of any lawsuit, arbitration or alternative dispute resolution. The court ruled the insurance company’s defense obligation did not arise with a simple notice of claim since the owner never filed suit, initiated (continued on page 26)

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Feature Efficiency in Construction Industry Selling

by Tom Woodcock

Contractors often have to wear many hats. Everything from estimating to project managing, vendor relations and, oh yeah, selling! The selling part can often be an after thought. The problem is it needs forethought. Not allotting time and strategizing to sell can cripple a construction firm. Instead of trying to reshape an entire construction firm’s approach to sales, I often find it more effective to increase the level of efficiency and time usage. This is a process but once enacted produces opportunity. My biggest challenge is to convey cause and effect as many contractors tend to be Point A to Point B type of thinkers. Sales rarely flow in that fashion. But, if you practice the basics efficiently and consistently, results follow. The first step is to actually allot a percentage of time consistently to selling. This will require looking honestly at the amount of time you currently commit and what you can realistically designate for sales. Whether a percentage of time or actual hours, start where you are, increase that number a bit and stick to it. A weekly total is most desirable.

The next level is to determine what to do with that time. What will get you the most bang for the buck? What actions will get you in front of more clients and potential customers?

What is the quality of that contact time? This may sound daunting but if you put a little effort into it, you’ll save time in the future. Analyze which associations are most effective in generating opportunity. Which of the events you normally attend produce leads and relationships?

What current relationships do you

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have that encompass quality business opportunity? Invest time in these areas and reduce time in those that are non-productive. Remember, you’re busy and you have other responsibilities, so you’re sacrificing the more hit or miss opportunities that are out there. As a side note, make sure those other responsibilities are worth sacrificing any type of sales time at all.

After you have a time allotment laid out and where you’re going to get in front of people, you need some preliminary marketing. The quickest, least expensive fashion is electronic.

Even in this realm you need to use your time efficiently. Hitting every aspect of social media can be alluring and trendy, but realistically investing quality time into one avenue is best. Getting active on Linkedin by joining the proper customer groups, connecting with industry professionals and looking out for high caliber networking functions should suffice — at least as far as social networking goes. Tie that activity to a monthly electronic newsletter, properly designed as well as produced, and you have an effective platform — for next to nothing financially and with the proper apps, minimal time commitment.

Now you’re set to implement. Ah, there’s the rub! It’s far easier to get a company to strategize their approach and another to get them to diligently implement the plan. Even though we’re being conscientious of all the other responsibilities an individual my have, still, they tend to put sales on the back burner. Effort cannot be structured into a strategy. It either exists or doesn’t.

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Practicing efficient sales time usage will help with your corporate sales results, but true dedication to your firm’s sales dynamic always produces. Efficiency is effective, but a high level of time committed to a sales effort trumps it — even if it’s not as effectively managed as a smaller, tighter effort. There’s a principle in sales that holds true. If you’re out amongst people more, you’ll discover more opportunity. Projects come from unique leads, and introductions can be made to stronger network contacts. Creativity can be invoked in the sales approach resulting in greater attention or differentiation. This larger type of time commitment is very rare in the construction industry — usually reserved for larger contractors that can afford specific business development personnel.

The final stage in this process is to continually evaluate what is producing the best results. Adjust your time commitment to those areas and expand their impact. Take actions producing good results and develop them into producing even greater success. Discontinue actions that are not producing sales opportunity and you have a formula to grow greater results. Of course this will eventually hit an artificial ceiling your time allotment has created. The decision at that point will be to stay put or adjust the level of time your company commits to sales work. This is a good problem to have and takes companies to the next level in revenue as well as profitability.

Construction is a hands-on industry.

It’s filled with individuals that take complex plans and turn them into projects. Sales can be foreign and

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is often practiced on an as-needed basis. If the same amount of planning goes into a sales approach, quality results should be the expectation.

The efficient usage of time in relation to sales can solidify a revenue base — not to mention increase overall profits. It isn’t only the time investment, but also the timing of the efforts.

Missing the timing in regard to a significant sales or marketing opportunity has no immediate negative impact, but it produces zero positive movement. Once the window is gone, it’s gone for a while. Follow up, event presence and brand awareness opportunities do come and go. But the premium chances need to be seized. I’ve always found it amazing how sales personnel struggle to put themselves in high contact scenarios, then they don’t follow up on the information they acquire. Why go? Networking events and social gatherings are useless if the data collected isn’t used. Why belong to an association if you randomly attend? What good is electronic marketing if it’s only done sporadically? Where’s the market saturation? Notice I said “saturation” not “over saturation.”

Companies spend thousands to produce marketing materials and hire business development personnel.

To apply these tools but miss the window of greatest effectiveness will not produce the desired ROI. It truly is more important to be consistently in front of the client base, than be overly picky about terms or colors. If you’re doing an electronic newsletter, get it out monthly on a set deadline. Having incongruent delivery intervals will

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hurt you more than help. It spaces the message out too far and smacks of disorganization. You’re defeating your purpose.

Selling is difficult enough. Why make it harder for no reason? Waiting too long to return phone calls, emails or pricing data reduces your position with the client. Skipping major sales events such as awards banquets and large, industry related meetings eliminates the potential at those events as far as you’re concerned.

Hopefully your competitor was just as short-sighted. I don’t care how many times you’ve gone in the past. Getting there early and staying late is crucial.

The best opportunities appear when you leave!

If you truly value the marketing and sales aspect of your business, you’ll be diligent about the timing of it. Missing cracked doors due to hesitancy is laziness. The iron is hot, so you have to strike! Please don’t give me the “I just want it to be right” line either. Not buying it.

Roll up your sleeves and get it done. Set a deadline for all marketing efforts and sales follow up. Keep those that are producing the efforts accountable. Measure results, then drop or add the methods that are bearing fruit. Be aggressive in hitting the timing perfectly.

Nobody will do it for you.

The more critical you make the timing aspect of your sales and

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marketing efforts, the better the results. I’d rather have a decent plan timed well than a “blow me away” campaign that rolls out late or just misses the window. What good is a Super Bowl commercial shown on the Monday after? Even if it is the best ad. It’s really that simple. Plan ahead and move in stages. Make sure those that make commitments, keep them. A plan never enacted was just a thought.

Tom Woodcock, president, Seal The Deal, St. Louis, Mo., is a speaker, trainer, and author of the book You’re Not Sellin’, They’re Buyin’! He can be reached at (314) 775-9217 or www. tomwoodcocksealthedeal.com.

IN THIS ARTICLE . . . �

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Allot a percentage of time consistently to selling.

Determine what to do with that time.

Plan preliminary marketing efforts.

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Feature The Customer-centric Lighthouse in a Sea of Poor Service: An Examination of How to Drive Customer-centric Construction

by Gregg Schoppman Fast, friendly service. This sounds more like a characteristic describing your local barista than an employee of a construction firm. Customer service is on the decline — not specifically in construction firms, but across the board. If you ask someone to chime in on great customer service, they will ponder the question, scanning the recesses of their brain for a nugget of great service. When it comes to bad customer service, the floodgates will open. “Well, there was dinner last night and that flight last week…” What about the construction industry? Where does customer service rank as a core value for contractors? Ask a CEO, president or business developer, they will say that customer service ranks very high as a standard within their firm. Ask a field manager or project manager, and the answer might vary dramatically.

Put another way, there is a belief that “customer centric construction” costs too much and in a hard bid environment, it is less important than, say, efficiency or safety. The confusion about customer centric construction is the belief that it costs money. Table 1 illustrates the fundamental difference between marketing and customerfocused activities.

Once viewed through the context of this lens, one can see that taking a customer to a ball game or other social activity does in fact have a cost.

However, “fast, friendly service” does not have a cost. Consider the low cost provider that appears to receive all of the press — Walmart. While its model is predicated on the lowest cost, what is the first thing one sees when he or she enters a store? The Greeter.

This pleasant individual stands as a testament that even in the most hardbid market, fast and friendly service can exist.

Taking clients to a ballgame, lunch or hunting trip is often a precursor activity that many contractors view as a necessary expense. What is the return on that investment? Consider all of the clients that have been wooed with beer, hotdogs and golf. Is the real value ever truly realized or do all of those superfluous activities simply get you on a bid list with 15 of your closest friends? Many firms do an excellent job of courting a customer in the preconstruction phase, only to lose a customer through poor performance.

Some of the most cited observations

Table 1 — Comparison of Marketing and Customer Centric Construction

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when it comes to poor performance include: • Poor communication from the project team.

• Change orders with little back-up or documentation.

• Schedule overruns.

• Poor safety track record.

• Poorly kept site.

First and foremost, it is important to address the 500-pound gorilla that is change order management. “I would give great service if that no-good, stinking customer would approve my change orders.” While this is not a discourse on effective change order management, it is important to address how firms handle change orders. It is common to hear this lamentation only to then hear the staccato of crickets when you hear the response to these questions: • How much detail did you provide?

• Where was this change made?

Pictures? Details?

• Do you have work tickets to support this case?

• When was it submitted? After the project was complete?

There are plenty of bad customers that have little to no intention of paying change orders. However, there are equally as many contractors that wait until a project is over to ask for some inordinate amount of money for “Miscellaneous Drywall” with not a lick of evidence. Simply put, it is important to avoid masking the real reason for poor customer service when the evidence indicates an internal operational failure.

The items listed above will not be solved with hitting the links, unless there exists some mystical 19th hole that Jedi mind tricks a customer to thinking he or she is happy. The greatest source of customer satisfaction comes

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from great communication and topnotch planning. It is a fascinating notion that productivity actually drives customer service higher. Doing the work expeditiously and being congenial in the process not only makes the contractor more money, but also improves satisfaction. Not too bad for return on investment.

Creating customer service is hardly neuroscience — in fact, to C.R.E.A.T.E. raving customers, firms must simply get back to the basics.

C — Coordinate How often does communication from the office, the field, accounting, preconstruction, etc. look like a jumbled mess? Coordinate your customers’ lives. Develop a concise, proactive and centralized plan to communicate with a customer. Disjointed emails, scribbled change orders, patchwork RFIs, and submittals that look like they were run on a mimeograph machine does not help a customer coordinate and makes a contractor look like an unsophisticated Neanderthal.

R — Resolve A customer will vent. They’ll vent about their problems and use a contractor as a sounding board. “Wow, my <INSERT VENDOR HERE> is really letting me down,” screams the site superintendent/facilities manager/ customer. Our typical retort is “Yeah, that sucks.” Meanwhile, contractors constantly come across great vendors or trade partners regularly. However, there is a reluctance to chime in because it might create more work. A true “partner” hears these wailings as a cry for help and goes out of his or her way to find a solution.

E — Empathize Construction has never been mistaken for a warm and fluffy industry, complete with sappy love songs and teeming emotions. Unfortunately, this may be the one area that is holding it back. There is a distinct lack of empathy.

Consider the previous response regarding the poor performing vendor.

There may be no solution but the apparent lack of feeling did nothing to develop solid rapport with that customer. “I can relate, Mrs. Johnson.

On one particular project we had a

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poorly performing subcontractor. This is what we did to help the situation…”

Simply put, people like working with people they like. It isn’t preferential treatment — we are human and working with unfeeling, uncaring automatons is neither fun nor enjoyable. We may not lead a new series of Hallmark cards, but caring about your customers’ wellbeing might do the trick.

A — Attentiveness In a world in which people are bombarded with communication, direct face-to-face communication appears to be going the way of the dinosaur.

Take time out to meet with your customers. When they show up on site, are they a distraction or is it viewed as a “customer contact point.” For many superintendents, customers are like kryptonite. Great customer stewards seek out to educate the customer. “Let me show you this complicated detail — I think you might find it interesting.”

Make construction fun and educational for them. While many general contractors “get it” there are a myriad of end-users (and yes, contractors) that don’t understand the nuances of construction and find it as fascinating as the practitioners. Pay attention to your customers. If you don’t, you competition will gladly pay attention.

Moreover, turn off those cell phones when they are around!

T — Timeliness “I’ll get right back to you.” To you that means Monday, to the customer it means tomorrow. “Under promise and over deliver” is an age old mantra that many contractors inversely swap in their delivery. Returning calls and emails, promptly responded to a customer’s request and simply finishing a project on time are basics that are the foundation of superior customer service. You cannot give lip service to creating raving customers when one can’t even return a phone call within 24 hours.

E — Entrenchment While it hardly evokes an intimate customer service environment, a contractor must embed or entrench themselves with a customer like a tick.

Better yet, entrench oneself in that a customer would not be better off

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without that contractor. Your firm keeps them informed better than anyone else. Your firm meets deadlines better than anyone. You solve problems for a customer that no one else wants to deal with. You are less of a commodity and more of a necessity.

Not every customer will allow this level of intimacy. Furthermore, some customers expect great customer service but are truly unethical and hold little respect for their contractors.

Filtering the bad customers is an important go/no go decision. The thesis here is to realize that lumping all customers in the same bucket is wrong.

Often, contractors think they can change a customer but still operate under the same business model of providing mediocre service or worse yet, fail to do the basics like finish on time. This simply perpetuates the fallacy that contractors are a commodity. Even in the least customer centric environment — say a hard bid, public works project — strong communication, proactive planning and efficient service drive not only the bottom line but also better customer relations. But keep on flipping the bill for lunch — that should solve everything.

As a principal with FMI, Tampa, Fla., Schoppman specializes in the areas of productivity and project management.

He also leads FMI’s project management consulting practice. Schoppman presented six education modules at ASA’s annual convention, SUBExcel 2014, in March in New Orleans, La., and will present four modules at SUBExcel 2015 in Seattle. Prior to joining FMI, Schoppman served as a senior project manager for a general contracting firm in central Florida. He has completed complex and sophisticated construction projects in the medical, pharmaceutical, office, heavy civil, industrial, manufacturing, and multifamily markets. He has also worked as a construction manager and managed direct labor. Furthermore, Schoppman has expertise in numerous contract delivery methods as well as knowledge of many geographical markets. He can be reached at (813) 636-1259 or gschoppman@fminet.com.

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13

Feature Business Development: A Misunderstood Profession

by Larry Silver

Intelligence Gatherer BD performs the front-end intelligence, listening carefully to the internal stakeholders, to decide whether any relationship or opportunity is worthy, on-target, and in-line with the firm. This is not always easy to do when the firm is hungry for revenue and needs to keep its well-oiled estimating and operations moving forward.

External BD

Business Development is a misunderstood profession and key company function with risks and rewards for the AEC firm and its business developer. Do all firms lack understanding regarding this key function? Clearly not. Many AEC firms realize the importance, necessity and criticalness of BD, but the vast majority just doesn’t get it.

What is BD? What is the executive in that role supposed to accomplish?

What is his or her role and responsibilities? Let’s shed some light to move forward with confidence to manage and execute this BD career anomaly.

Team Leader to Win Business The business developer is responsible for leading the team to bring in business and assisting the firm to focus, target, and maneuver in the marketplace with wisdom,

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strategic prowess, and branding excellence. There are two areas that BD is concerned about: relationships and opportunities. These two can be internal and external.

Internal BD — An Orchestra Leader The business developer has a big stake in the strategic direction and vision/mission/goals of his or her firm. This overarching philosophy will guide the BD executive to pursue relationships and opportunities in sync with it. The BD is responsible for being an orchestra leader to any proposal or presentation that the firm makes. Business developers themselves may not even be presenting, but they have to assure the fit, the approach, and the style represents the firm well. The message has to be consistent and powerful, based on the truthful reality of the service provided.

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Aside from a project with the PM and field staff having direct access to the client, BD is the primary external face of the organization. Business developers are investing in events, trade associations, networking, partnering, and connecting the dots in the marketplace for myriad reasons. They are the firm’s scout, surveying the business climate and the landscape that affects company viability. They go out and come back and share the feedback of what they learn. Hopefully, they are heeded and appropriate action is taken.

In one firm that I was involved with, I acted as a scout and imparted what I thought was the key move on the chessboard for the organization.

It was a big financial and time investment, but ultimately they listened and the firm grew drastically, changing the former business model and increasing from 15 to over 100 employees in a few years.

That is what BD gets paid for — to go out into the real world and watch, listen, inquire, and research.

When BDs do their job, they begin to envision clear moves on the chessboard for their firms to take.

There is always risk. There is always

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uncertainty. There is always change.

But BDs are out there where the rubber meets the road. It is not about what the BD staff wants, but how to achieve the firm’s vision efficiently and prudently.

Inherent BD Risks The risks are on both the BD executive and the firm itself. One risk is to have differing expectations for this function and its implementation.

How long will it take for work to come in directly or indirectly from the BD effort invested? An inexperienced manager will be impatient and ignorant about what is realistic.

I have seen and heard of BD executives being terminated after a short time — six, 12 or 18 months of service. One of our seminar attendees called me to share that he had let his business developer go in 18 months.

I asked whether the BD executive had done the right activities consistently.

It appeared as though he had. Then the confession came. Two weeks after the BD executive left, a $10 million project came in the door that they had been working on. He conceded that perhaps, he had been premature in firing the executive. That was a bad move, and I told him so. But, believe it or not, it’s not that uncommon for the most misunderstood profession in construction.

Another clear risk is to not have any executive employed in a full-time capacity performing the BD function.

I am all for a BD culture throughout the firm, but most will admit that they need a point person and leader to keep BD on track consistently.

To hedge against uncertainties with the BD process, it is wise to spell out clear responsibilities in the

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job description and the expectations in the role that BD will play in your organization. Offer feedback at 30, 90, and 180 days in an HR evaluation, and hold the BD accountable with a regular, periodic meeting where you review the agreed-upon weekly goals and results.

Then adjustment can be made on either or both sides and a knowledgeable process is encouraging both sides of the table that the BD is pointed in and pursuing the best possible course for the organization.

Inherent Rewards The risks associated with BD are real and can be very costly, but there are also significant rewards for the BD profession. Aside from presidents, BD is the most highly compensated career in construction.

A BD manager makes an average of $94,000 base and a director of BD makes an average of $132,000 base salary. These are the folks that bring the relationships and the opportunities to the forefront. BD execs get to play golf, go to events, meet new people, and travel showing hospitality to their clients and prospects.

Not everyone likes that lifestyle, but it’s not considered chopped liver for many. There is a reward for being the main face of an AEC firm and there’s a lot riding on it.

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The BD is the firm’s key ambassador. May your firm excel and do great at this misunderstood profession of BD as the marketplace continues to evolve and morph and demand more from its construction service providers.

Larry Silver is President of Contractor Marketing Inc., a consulting/recruiting firm in the AEC Industry. Larry performs Strategic Planning, Marketing/BD Audits and Training, and is currently the Publisher/Editor-In-Chief of “Business Development”, an ezine that is blasted to 100,000+ firms. Call him at 937-776-7170 or email larry@ contractormarketing.com

IN THIS ARTICLE . . . �

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The BD leads the team in bringing in new business.

The BD is concerned about relationships and opportunities.

The face of the organization, the BD is the firm’s scout and ambassador.

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15

Feature Generate More Customers!

by George Hedley

Of all the things you do to own, operate, manage, and run your business, the most critical thing required to build a successful company is generating profitable revenue and sales. The other day I received a phone call from James of Gem Steel Contractors whom I wasn’t familiar with and didn’t know. He had broken through our sophisticated phone answering system and voice mail vault and had reached me directly. (Not hard to do — call my number and dial my extension!) He proceeded to tell me his name and company. He then asked: “Do you have any jobs to bid?” I answered back: “Why?” He then told me his

IN THIS ARTICLE . . . �

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The more your potential customer trusts you, the closer you can get to a sale.

Show how you solve customers’ problems in your ads, marketing, proposals and bids.

Asking potential customers about their needs shows your firm’s interest and concerns.

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company wanted to bid any jobs we had coming up. I again asked him: “Why?” He said: “So we can give you a price.” I told him we didn’t have any jobs bidding at this time. So he said: “OK” and hung up. I have never heard from him again.

What was he trying to do? Was he trying to be a salesperson, or an estimator, or a lead generator, or keep his estimating department busy, or generate a new customer? I will never know and I suspect he doesn’t know, either. Most likely his boss told him to call every general contractor in the phone book and find some jobs to bid. Attempts like that might work in good times, but when the economy is tight and competition is tough, generating more customers is not about cold calling 1,000 leads and hoping a few take the bait. It requires a professional selling system, extreme diligence to implement the steps, and patience to build trust with potential customers.

The more trust, the easier the sale!

The more your potential customer trusts you, the closer you can get to a sale. Trust is earned over time via constant contact.

Some companies use advertising on television to broadcast their message over and over again. This gets customers to eventually begin to remember their offer

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and call them when they need their product or service. Others take out ads in their trade publications. Over time, customers get familiar with their company and start to trust them more and more. Some construction companies start by bidding work to prospects. Over time they get to know their potential customers and eventually are trusted enough to be awarded lots of contracts.

Think about James who called me looking for jobs to bid. Would I award their company a contract even if they were the low bidder? Unlikely. Why? I don’t have a relationship with them and therefore don’t have the trust they will be able to perform the work required if awarded a job. Over an extended period of time, we might develop a trusted relationship and they will likely win some work from us.

Focus on Solutions When you decide you need to buy a product or service, do you really care who provides it or where you get it, if all else is equal? Not really.

Plumbing is plumbing. Carpentry is carpentry. Trucks are trucks. But if you know someone at the company and trust them, you’ll seek them out to purchase from them. And if they are customer-focused and help you meet your goals, then you’ll most likely buy from exclusively. I have an insurance agent I trust and buy all of our insurance from. I don’t even want or solicit other quotes from different companies because my agent helps me meet my overall company and personal goals. I trust him.

So think about what you sell.

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Do you sell plumbing, carpentry, trucks, or insurance? Or do you sell solutions to your customer’s problems? When you show how you solve customer’s problems in your advertising, marketing, selling, proposals, and bids, you’ll start to build trusted customer relationships, which will generate more profitable revenue. When you offer the lowest price as your only differentiating factor between your company and your competitors, it’s very difficult to grow your loyal customer list, make a profit, and turn leads into contracts.

If James would have called and asked me a few questions about our business challenges before he asked that awful sales question: “Do you have any jobs to bid?” he would have had a better chance of generating a new customer. He should have asked me about the kinds of jobs we build, what type of contractors we like to use, what are some of the things that steel contractors do to make our jobs go well or poorly, and if we had any special requirements that we often requested from our subcontractors.

These questions would have shown he was concerned about helping our company. The questions also would have intrigued me to take the conversation to the next level.

How do you package and promote solutions to your customer’s problems? Your goal is to attract new customers who have problems you can solve. For our company, the biggest problem we have with steel contractors is not meeting the schedule. They typically have an inability to get shop drawings drawn and approved fast enough, steel fabricated quickly, installation crews scheduled to meet our goals, and finish items like ladders, handrails and gates seem to never get installed without our constant harassment to get them to perform.

James could have told me how Gem Steel Contractors has solved these problems for other customers and how he can make our jobs finish ahead of schedule.

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When you show how you solve customer’s problems in your advertising, marketing, selling, proposals, and bids, you’ll start to build trusted customer relationships, which will generate more profitable revenue.

Turning Targets Into Customers So to get started generating more customers, you’ll need a system to turn leads or customer targets into actual customers who buy from you.

Think of your system as a funnel where you fill the top with as many qualified leads as possible and a few profitable customers come out the bottom. To keep your business flowing, you’ve got to keep filling the top of your sales funnel with new potential customers and leads.

Without this constant flow, your sales revenue funnel will stop generating more customers and eventually dry up. You also want to move the flow of customers through the sales funnel at a fast and steady pace through a series of steps that sorts them out, ranks them, and keeps the best ones moving toward the exit or revenue end of your funnel.

The first step to start the sales process flowing is to identify your current and past customers. Make a list of all your customers over the last several years. Rank them in order of sales revenue and profitability. Then identify specific things you did to help solve their problems. Look for patterns of how you helped overcome your customer’s challenges and obstacles, and how you provided solutions. For example, did you help make them more money? Were you ahead of schedule? Did you

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offer them assistance training their supervisors? Did you provide more than expected by your contract? Did you help your customer generate more business? Did you offer valueadded and cost-savings ideas that saved your customer money?

After identifying what you did to help solve your customer’s problems, next start thinking about what other potential customers need these extra things you can provide to help them as well. This is more than a list of every customer target you can find. It is a list of who has the problems you solve and whom you can help. Your goal is to get in the door by offering unique and different solutions to customer’s problems that your competitors don’t offer. You’ve got to give customers a reason to give you a chance to provide products and services other than providing the minimum expected at the lowest price.

Follow this customer target identification flow: 1. Identify problems your potential customers have.

2. Determine how you have solved their problems.

3. Identify target customers who have the problems.

4. Create reasons customers want to use your company.

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Sales Flow What revenue do you need to meet your financial goals for the next several years? If your annual overhead is $750,000, your annual profit goal is $250,000, and the expected gross margin you can get is 20 percent, you will need $5 million in sales to achieve the results you need and want: Overhead + Profit/Gross Profit Percentage. If you can expect your past customers will generate 60 percent of your annual sales goal, you’ll need another $2 million in revenue from new customers. If your average job size or typical contract amount is $200,000, you’ll need 10 new jobs from 10 new customers this year. Don’t expect a new customer to give you more than one job in the first year, as they don’t have enough trust in your abilities until you do at least one job for them.

By looking at your sales close rate and ‘Bid-Hit Ratio’ you can determine how many leads and proposals you need to win 10 new customers this year. As the funnel flows: Odds Customer Target List

Targets

Goal

800

Qualified Targets

2:1

400

40/month

Phone Contacts

2:1

200

20/month

Face-to-face Appts

2:1

100

10/month

Bid Proposal Opps

2:1

50

5/month

New Contract Awards

5:1

10

1/Month

Based on this example (just an example and your results will vary), 800 customer targets contacted via advertising, mail, referrals, or by any other method generates 400

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qualified targets who need what your company offers. By contacting them by phone, you reach 50 percent or 200 potential customers. On the phone you ask what their needs are and get appointments with half of them. From these 100 face-to-face appointments, you get 50 opportunities to bid or propose on a contract. And if your Bid-Hit Ratio is 5 to 1, you will be awarded 10 contracts for the year with new customers you haven’t done business with before.

At the top of the funnel are 800 or more potential new customer targets, which generate only 10 new jobs. This is a lot of work and requires a real effort to make it happen. Your past reputation and providing quality work with good service won’t generate enough potential new customers to hit your goals. Waiting for the phone to ring will not work, either. To keep the funnel flowing, you need a sales system.

When I wanted to start my Construction Expert Witness consulting business, I started by identifying 400 lawyers in Southern California who were litigators on construction and real estate lawsuits.

I embarked on a program to contact them every three months with a phone call, email, flier, brochure, letter, or attending a legal networking event explaining how my services will help them organize and win their cases. Eventually, over a year, the phone began to ring more often and I was able to get appointments when they had a need for what I offered.

Finding customers is an ongoing process. To keep the customer flow coming, I continuously keep making quarterly contacts as I can’t predict when each of the targets will need an expert witness for their cases.

Keep the Flow Many companies attend networking events and think this will keep their funnel full. While it does add to the

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total flow, it is never enough. If at an event, you meet 20 people, how many of them actually need the solution that you offer? And what do you do with then names after you meet them? You need a system to identify potential customers, qualify them, and keep in touch on a regular basis.

If from the 20 potential customers you meet at an event, you actually closed one or two of them, you still need to sell another eight new customers every year using the example above.

Tell Customers How You’ll Help Them Once you identify your target customer, your first job is to tell them how you can solve problems for them. Give them an offer focused on solutions. Use messages like: “We build 25 percent faster!”

“Our job is to save you at least 15 percent!”

“Our goal is to make your job easier!”

“We care about your success!”

“We bring you peace of mind!”

“We offer solutions to your challenges!”

“Need help finishing your projects under budget?

“We can maximize your investment!”

“We guarantee no hassles!”

“We go the extra mile to solve your problems early!”

I get tired of companies trying to convince me to hire them by telling me how great their company is or how long they have been in business.

Tell me what you’ll do for me and how you’ll help meet my goals, not yours. Is your goal to get a signed contract or build a trusted relationship by mutually benefiting each other?

Your second job is to focus on

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getting customers to respond to your message and contact you for help.

Offer guarantees, free reports, or special one-time trials. Your goal is to get potential customers to call you, so you can then go and meet them, and begin the flow down the funnel.

A local heating and air-conditioning company advertises in our local newspaper a complete residential inspection, service, and tune-up for only $39.00. This service usually costs at least $99 to $129. His goal is to get enough calls to generate customers who like what his company offers and then turn them into longtime, repeat customers. I bet his phone is ringing off the hook.

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Get Your Sales Success Funnel Flowing Now the job is yours. Start by identifying a long list of customer targets you can contact over the next year or two. Over time, you can qualify them and eliminate those who don’t need what you provide.

Continue adding to the customer target list as some are deleted.

Contact them regularly with your message of how you can solve their problems or make their life easier.

Also offer special promotions to get your phone ringing faster. Follow up on every lead with an appointment setting phone call. Go meet these potential customers and listen to what they want. Then deliver. By following this system, you will keep your funnel

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full, your top-line growing, and your bottom-line expanding.

George Hedley works with contractors to build profitable, growing companies. He is a professional business coach, popular speaker, and best-selling author of “Get Your Business To Work!” available online at www.

HardhatPresentations.com. To help you setup a training system, email GH@HardhatPresentations.com for your copy of ‘Field Tracking Systems For Contractors!’ Email George to sign-up for his free e-newsletter, join his next webinar, be part of a BIZCOACH program, or get a discount coupon for online classes at www.

HardhatBizSchool.com.

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Feature

Register Now!

March 26 - 29, 2015 www.SUBExcel.com

Seattle, Washington

Renaissance Seattle Hotel

Feature Register Online Now for SUBExcel 2015 ASA’s annual convention, SUBExcel 2015, will take place March 26-29, 2015, at the Renaissance Seattle Hotel in Seattle, Wash.

Registrants are invited to attend the President’s Welcome Reception from 5:30 p.m. to 7:30 p.m. on Wednesday, March 25, and the convention will officially kick off the following morning at 7:45 a.m. with the Opening General Session “Confessions of an Industry Consultant — Industry Changes and What you Have to Do to Prosper,” presented by Keynote Speaker Monroe Porter, president, PROOF Management Consultants, Richmond, Va. Porter will also present “How to Find, Train and Motivate Employees” and “How to Sell and Negotiate Jobs.”

FMI, once again, will anchor the education program. Gregg

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Schoppman, principal, FMI, will present four workshops, “Building Your Backlog — Regardless of Market Conditions,” “Leveraging Your Competitive Advantage by Improving Productivity,” “Elements of Cash Flow Management and Getting Paid — Turning Your Project Managers into Business Managers,” and “Key Principles in Building an Enduring Organization.”

ASA Chief Advocacy Officer E. Colette Nelson will present the workshop “Changing the Business Environment for Subcontractors: The Missing Element,” and Maxim Consulting Group’s Stephane McShane will present the workshops “Increasing Project Profitability With Effective Preconstruction Planning” and “Improve Prefabrication and Field Productivity With Design Standardization.”

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Special events will include the Explore Seattle Tour and Pike Place Market Tour for spouses, a Seattle Craft Breweries Tour for ASA chapter executive directors, a national GC Expo, and a Banquet Reception & Dinner. For a full schedule and other information, visit SUBExcel 2015.

Reserve your room at the Renaissance Seattle Hotel, 515 Madison Street, Seattle, WA 98104 at the special rate of $169 single/ double. The cutoff date for the room block is on or before 5:00 p.m. on Monday, March 2, 2015. Or, call 1 (877) 901-6632 and identify yourself as a member of the “American Subcontractors Association 2015.”

For questions or assistance, please contact ASA Director of Chapter Services Linda Wilson or ASA Director of Communications Marc Ramsey.

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21

ASA NATIONAL CONSTRUCTION BEST PRACTICES AWARDS Does your company: q

Perform work as a prime contractor?

q

Excel at project management and teamwork?

q

Have a great subcontract?

q

Want to be recognized as an industry leader?

Learn more under “Education and Events” at www.asaonline.com.

Apply by November 21, 2014

These awards, to be presented during ASA’s annual convention, SUBExcel 2015, in Seattle, Wash., March 26-29, 2015, recognize an extraordinary level of commitment to industry best practices. Your application will be evaluated for: (1) use of a standard subcontract whose provisions substantially reflect the best practices incorporated into the ASA-endorsed ConsensusDocs 750, 751 model subcontract agreements; and (2) highly favorable evaluations from three specialty trade contractors, based on 20 project management factors.

THE

Win. Win. QQ

QQ

Sell your products and services. Advertising reaches industry leaders and decision-makers who spend $11+ billion annually on products and services.

Support ASA. Advertising supports ASA, the industry voice of trade contractors.

That’s a win-win situation.

To advertise in The Contractor’s Compass, contact Tony Kozak at (716) 844-8174 or advertising@asa-hq.com

Legally Speaking Getting Paid for Change Orders

by Ben Shapiro, Esq.

Change orders are usually unexpected and unwanted extra work.

Getting paid for change orders is problematic for contractors. Below are some suggestions to help contractors get paid for change orders.

Perform Pre-Bid Reviews for Design Errors and Constructability Review the plans and specifications for design errors for which extra money should be included. Notify the design professional of design errors.

Perform constructability reviews of the plans and specifications. Work with your estimators to assure that they have not overlooked items that should be in lump sum bid prices. Good estimating can avoid change orders, claims for extra work and disputes.

Get Signed Change Orders Almost all contracts require signed change orders for extra work. Ask your customer to sign a change order before performing extra work. Do not perform extra work without a signed change order. Be sure the change order covers additional money for the extra work as well as additional time to perform the extra work. If the other party will not sign a change order, send him a written Change Order Memorandum confirming that you have been directed by his company to perform extra work and that you will perform the extra work “under protest.” Advise the other party that you “reserve the right to request an equitable adjustment and additional time under the changes clause of the contract once the full impact of the change is known.”

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Document Differing Site Conditions If you encounter a site condition that is different from what is represented in the drawings and specifications or from what you reasonably expected to find, it could be a “differing site” condition.

Differing site conditions may result in additional work or changes in the methods used to complete the work and are often the basis of a claim for extra compensation and extra time to complete the work. However, if a differing site condition is not properly documented, you may not be able to collect any additional money or get extra time. Below are the steps a field superintendent should take when he or she encounters a differing site condition while working: 1. Stop Work. Stop work in the area where you encounter the differing site condition and notify the project manager. Do not resume work until your project manager authorizes you to do so. Generally, authorization will be given only after the owner has observed and evaluated the differing site condition and the staff has developed a strategy for proceeding.

2. Decide Need for Outside Expert.

Tell the project manager if you think an outside expert (e.g., a surveyor) should be called in to evaluate the condition.

3. Notify Owner’s On-Site Representative. If the owner has a representative on site, either you or the project manager should immediately inform that representative of the differing site condition.

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4. Photograph Condition. Immediately take pictures of the differing site condition and the area surrounding it.

5. Report on Condition. Promptly prepare a report on the differing site condition. Include all of your field observations and how they differ from the contract drawings.

Describe in detail any additional work or work changes that will be required because of the condition.

If the owner’s representative views the condition before you complete your report, include any comments the representative makes or suggestions on proceeding with the work. If possible, get the owner’s representative to read, sign, and date the report. If the owner’s representative views the condition after you have completed the report, note any comments and suggestions made.

6. Prepare Labor and Material Forms.

Record all work performed in connection with the differing site condition on daily labor and material forms. Include manpower, equipment and material (including quantities) installed or removed in the work. If the owner has a representative on site, ask the representative to sign the forms each day.

7. Prepare Daily Reports. Keep detailed and accurate daily reports of all work activity involving the differing site condition. Give more detail for this work than you would normally provide in daily reports.

8. Photograph Work on Differing Site Condition. When the project manager authorizes you to resume work on the differing site condition, photograph the work in detail as it is being done.

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9. Prepare Letters and Field Memos.

Document any delays or problems caused by the differing site condition in letters or field memos to the owner’s representatives or to subcontractors.

10. Keep a File on Differing Site Condition. Create a separate file for the differing site condition and in it save copies of all documentation associated with the condition — including photographs, reports, letters and field memos. Keep the originals in the project file. When all work associated with the differing site condition is done, give the site condition file to your project manager.

Start a Change Order Management Program Contractors should develop a change order management program.

Good cost accounting systems and procedures are essential to a successful change order management program. Contractors should set up a separate cost code for extra work.

Put the separate cost code on all daily time forms, invoices and records.

Get your customer to sign the daily time records. Advise the other party in writing of work outside your scope of work. Treat the extra work like a separate job. All labor and materials should be recorded under the separate cost code. Promptly bill the other party for the extra work including overhead and profit. Attach copies of the

New On-Demand Videos from FASA

supporting documentation of the extra costs. Make sure that your customer passes through the claims and backup documentation to the owner.

Standardize Closeout Procedures Organized closeout procedures will result in quicker, less-expensive project completion and better resolution of change order requests.

Checklists help project managers ensure that all issues are resolved as quickly as possible.

Ben Shapiro, Esq., is senior counsel at Baker Donelson Bearman Caldwell & Berkowitz, PC, Atlanta, Ga. He can be reached at (678) 406-8709 or BShapiro@bakerdonelson.com.

Contractors’ Knowledge Network

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From how to save money on payroll taxes to how to reduce fiduciary liability, presenter Karen deMontigny, Fringe Benefit Group, Camp Hill, Pa., explains ways subcontractors can cut costs, mitigate risk and work more efficiently in the video-on-demand, “How to Bid More Competitively on Government Construction” (Item #8072).

“This translates into a quantifiable competitive advantage that helps subcontractors win contracts, retain employees and boost revenue,” she said.

This is just one of the on-demand videos available through the FASA Contractors’ Knowledge Depot to meet your business management training needs.

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Contract Corner Making a Case for Eliminating or Limiting Retainage

“Retainage,” the practice of holding a percentage of the progress payments due to contractors and subcontractors on a construction contract until after the completion of the contract, is a losing proposition for everyone: the project owner, the general contractor, and the subcontractors. Proponents claim that retainage is insurance for the owner or contractor that the project or contracted portion of the work will be completed, even though retainage treats both performing and non-performing contractors the same. The reality is that owners and contractors are already empowered to withhold progress payments from contractors and subcontractors that don’t perform.

Retainage punishes contractors and subcontractors that properly and timely perform, as well as those who don’t. Furthermore, retainage is grossly unfair to early finishing trades, like excavators, who might have to wait years for final payment; and it forces contractors and subcontractors to charge higher prices for construction services.

“Retainage has evolved from a way to ensure completion of the work into a warranty against faulty work or any other problem that might arise on a contract,” Eric Travers, Esq., Kegler, Brown, Hill and Ritter, Columbus, Ohio, says in the Foundation of ASA’s audio podcast, “Eliminating or Limiting Retainage.” “Retainage treats timely performing contractors and subcontractors and late-performing subcontractors equally. In other words, retainage really has no direct relation to timely performance. It just deprives subcontractors of the time value of their money and it financially penalizes all contractors

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regardless of the quality of their performance or timeliness and it does so to encourage, in theory, proper performance of the work.”

In the podcast, Travers discusses the historical underpinnings of retainage, how industry forms and contracts treat retainage, and strategies subcontractors can use to avoid excessive retainage.

Travers says that retainage is a relatively “blunt instrument” originally designed by owners to ensure that they wouldn’t be left with incomplete work. Retainage allows an owner or general contractor to withhold a fixed percentage or amount of each progress payment until “substantial completion” or final payment of the contract. Because retainage calls for something less than full payment for the agreedupon cost of the work, retainage can be held only if the contract expressly provides for it.

There are many reasons for subcontractors to resist retainage and take steps to limit it, Travers notes.

It is well-documented that some upper-tier contractors and owners use retained funds to force unfavorable settlement terms on subcontractors.

With margins so tight on many projects, the contractor and the subcontractor both know that a delay in paying retained funds could lead to a debilitating cash crunch.

State public procurement laws almost universally permit retainage, but most states have a restriction on the percentage of progress payments that can be retained. In some states, it is against the law to hold additional retainage after 50 percent of the project is complete, and in others, retainage must be held in

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escrow. Unlike the states, the federal government — the largest buyer of construction services in the world — eliminated retainage for most federal projects starting in 1983.

In general, limiting retainage starts with the contract documents.

Travers suggests using the ASA Subcontractor Bid Proposal, which allows subcontractors to condition their bids, or the ASA Addendum to Subcontract, which includes model language limiting retainage. The ASA-endorsed ConsensusDocs 200 Standard Agreement and General Conditions Between Owner and Constructor contains language that provides for a release of retainage after 50 percent completion, and the ASA-endorsed ConsensusDocs 750 Standard Agreement Between Constructor and Subcontractor caps the contractor’s retainage at the rate held by the owner.

In addition to making sure contracts adequately limit retainage, Travers suggests that a subcontractor consider submitting two bids: one bid with the cost of retainage and the second bid without retainage. By offering multiple bids, “you’ve helped make a compelling case about the true cost of retainage,” Travers notes.

By explaining to customers that retainage only drives up construction costs and lowers the value they receive, subcontractors effectively educate owners about why retainage is an outdated method for ensuring project completion.

The 20-minute podcast is available at no cost for ASA members under “Member Resources” on the ASA Web site. Nonmembers may purchase the podcast for $65 under “Browse Products” on the ASA Web site.

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ASA/FASA Calendar 14 - Webinar: The Value of Technology and Data Management for Construction 22-25 - ASA Executive Committee, Board of Directors, Legal & Advocacy Meetings in Denver, CO November 2014 18 - Webinar: Common Practices and Effectiveness of Incentive Compensation 21 - Deadline for Application Submissions to Chapters for 2014 National Construction Best Practices Award

19 - Deadline for Chapters to Submit Applications to ASA Headquarters for 2014 National Construction Best Practices Award January 2015 13 - Webinar: Negotiating Retainage

Coming Up . . . in the November 2014 Issue of ASA’s

THE

October 2014

February 2015 10 - Webinar: Mechanic’s Liens: Protect and Collect

Theme: Senior Leadership • Develop Them and

They Will Stay

March 2015

• The Executive’s Role in

26-29 - SUBExcel 2015 in Seattle, WA

Business Development

• Current Trends in

December 2014

April 2015

9 - Webinar: Where Are We Now? 2014 Election Results and Outlook for 2015 Legislative Sessions

14 - Webinar: Non-Negotiators’ Strategies for Negotiating Outstanding Results

Construction Ethics

12 - Deadline for Applications for 2014 Excellence in Ethics Awards

• Motivating Your

Workforce

• Legally Speaking:

What to Do When OSHA Knocks: An Employer’s Guide

Construction in the Courts continued from page 9

arbitration or any ADR. The court further ruled that the costs incurred to repair the defective shower stalls were not covered because without a lawsuit, arbitration demand or ADR process there was by definition no “occurrence” to trigger a defense obligation.

These cases provide an important reminder to work with your insurance broker to make sure there is not a gap when changing insurance policies especially with the difference in “claims made” and “occurrence policies” as well as “previous work exclusions” in most construction policies.

Additionally, although repairs may be well intentioned repairing such items that are subject to insurance coverage prior to initiation of at least an ADR process that the insurance company is on notice of may impair coverage to recover costs related to repair of insurance covered items. Exclusion for “your own work” may also prevent coverage for such repairs; however, the insured’s actions prevented even using an exception to this exclusion.

Look for your issue in November.

Past Issues: Access online at www.contractors knowledgedepot.com

Contact information for all ASA and FASA events/programs: www.asaonline.com education@asa-hq.com

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