The Contractor's Compass January 2016

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ASA’s

THE OFFICIAL EDUCATIONAL JOURNAL OF THE AMERICAN SUBCONTRACTORS ASSOCIATION

WWW.ASAONLINE.COM

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To Specialize or Generalize — Identifying the Benefits (and Hazards) of Specialized and Generalized Niche Market Strategies

JANUARY 2016

Finding New Markets

Using Technology to Drive Contractor Success Dangers of Expanding Into New Markets Hot Construction Markets — Don’t Get Burned Common Costly Job Costing Mistakes in QuickBooks™ Going Digital Legally Speaking: Improving Cash Flow: The Top Five Tips to Improve Your Cash Flow and Negotiate Better Subcontract Terms

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January 2016

Features

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.

To Specialize or Generalize — Identifying the Benefits (and Hazards) of Specialized and Generalized Niche Market Strategies.......................................... 10

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).

Using Technology to Drive Contractor Success........................ 13

by Gregg Schoppman

by Brian Chickowski

EDITORIAL STAFF Editor-in-Chief, Marc Ramsey

Dangers of Expanding Into New Markets................................... 16

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.

by Charles Dragoo

Hot Construction Markets — Don’t Get Burned ........................ 18

by Therese Wielage

Common Costly Job Costing Mistakes in QuickBooks™ ....... 20

by Monica Muir

FASA BOARD OF DIRECTORS Richard Wanner, President Letitia Haley Barker, Secretary-Treasurer Brian Johnson Robert Abney Anne Bigane Wilson, PE, CPC SUBSCRIPTIONS The Contractor’s Compass is a free monthly publication for ASA members and nonmembers. Subscribe online at www.contractorsknowledgedepot.com.

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

Going Digital ..................................................................................... 22

by Simon Lovegrove

Departments CONTRACTOR COMMUNITY............................................................ 4

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.

CONSTRUCTION IN THE COURTS.................................................... 8 LEGALLY SPEAKING.......................................................................... 26 The Top Five Tips to Improve Your Cash Flow and Negotiate Better Subcontract Terms

by Eric Travers

Quick Reference

LAYOUT Angela M Roe angelamroe@gmail.com

ASA/FASA CALENDAR..................................................................... 28 COMING UP....................................................................................... 28

© 2016 Foundation of the American Subcontractors Association, Inc.

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Contractor Community President Obama Signs Subcontractor Payment Protections On Nov. 25, President Obama signed into law two key surety bond provisions as part of the National Defense Authorization Act of 2016.

One provision requires individual sureties to pledge known and reliable assets to back their bonds, and to relinquish control of those pledged assets to the federal government.

The second provision increases the bond guarantee from 70 percent to 90 percent to sureties in the bond guarantee program sponsored by the U.S. Small Business Administration.

Subcontractors and suppliers on federal public construction projects have no control over the prime contractor’s choice of security provided to the federal government, but they suffer the most harm financially if the provided security proves illusory. “Under the new law, subcontractors and suppliers on federal construction projects will know that adequate and reliable security is in place to assure that they will be paid,” said ASA Chief Advocacy Officer E. Colette Nelson.

There will be either a corporate surety bond from a company approved by the U.S. Treasury or assets from an individual surety with readily identifiable value pledged and relinquished to the federal government while the construction project is ongoing. All persons and entities providing collateral to the federal government will now have to play by the same rules.

The SBA Surety Bond Guarantee Program was established to ensure that small and emerging contractors who do not qualify for surety bonds in the standard market have access to

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the bonds they need to participate in the federal construction market. The sureties bring such contractors to the SBA, and with the SBA’s guarantee, they bond such contractors. The new law will help more small contractors participate in federal projects and grow their businesses by giving incentives to more surety companies and bond producers to participate in the SBA program. The new law will take effect one year after enactment to allow the Federal Acquisition Regulatory Council and the U.S. Small Business Administration time to develop and publish a regulation.

concern, SBA would deem the small business to be controlled by either the president, the chair of the board, or the chief executive officer of the concern (or other officers, managing members, partners or directors who control the management of the concern.

Nelson emphasized that the surety bonds guaranteed through the “SBA SBG Program can make the essential difference in being able to compete for construction contracting business opportunities within the private sector and from non-Federal governmental entities.”

ASA Comments on SBA Proposed Affiliation Rules for Bond Program

Explore What the ‘Tax Extenders’ Deal Means for Subcontractors

In comments submitted on Dec. 1, ASA supported the U.S. Small Business Administration’s proposed rule to simplify guidelines for determining affiliation for eligibility based on size for its Surety Bond Guarantee Program and four loan programs.

ASA Chief Advocacy Officer E. Colette Nelson wrote, “SBA has struck an appropriate balance with its proposed rule between findings of affiliation relating to access to its SBG Program and those applicable to Federal contracting opportunities that are to be completed exclusively among ‘small business concerns.’”

SBA proposed that for both of its SBG and loan programs, it will determine control exists on ownership when: • A person owns or has the power to control more than 50 percent of the voting equity of a concern; or • If no one person owns or has the power to control more than 50 percent of the voting equity of the

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ASA has prepared a Special Report on the “Protecting Americans from Tax Hikes Act of 2015,” providing members with an overview of the “tax extenders” deal enacted as part of the “Consolidated Appropriations Act, 2016” (H.R. 2029) on Dec. 18.

“From a pure tax perspective, the construction industry obtained several victories,” said ASA Chief Advocacy Officer E. Colette Nelson.

The ASA Special Report explains major provisions of the law, including: • Making permanent and modifying the increased expensing limitations and treatment of certain real property as section179 property.

• Making permanent and modifying the 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements and qualified retail improvements.

• Making permanent and modifying the research and development credit.

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• Making permanent and modifying

the employer wage credit for employees who are active duty members of the uniformed services.

• Extending and modifying bonus depreciation.

• Extending and modifying empowerment zone tax incentives.

• Extending and modifying of numerous incentives for energy production and conservation.

• Extending the basis adjustment of stock of S corporations making charitable contributions of property.

• Extending the parity for exclusion from income for employerprovided mass transit and parking benefits.

Texas Supreme Court Limits CGL Coverage The Texas Supreme Court has limited commercial general liability coverage for contractors and manufacturers where a defective component is incorporated into a project, resulting in no physical damage, but nevertheless having to be replaced due to failure to meet specifications or applicable industry standards.

In its Dec. 4 opinion in U.S. Metals, Incorporated v. Liberty Mutual Group, Incorporated, the Court held that the incorporation of the defective component in and of itself is not property damage in the absence of physical injury to tangible property.

The Court determined that “physical injury” requires “tangible, manifest harm and does not result merely upon the installation of a defective component in a product or system.”

The Court acknowledged the friend-of-the-court brief in which ASA and several other construction

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associations argued that the construction industry needs insurance to manage the risk that a contractor’s work on a project will damage the entire project and the work of other contractors, resulting in enormous repair costs and down time. The Court went on to consider the effect of Exclusion M, the Property Not Physically Injured/Impaired Property Exclusion. The Court determined that the loss of the use of diesel units into which defective flanges were installed were restored to use by replacing the flanges and thus were impaired property to which the exclusion applies. However, the Court also held that insulation and gaskets in the flanges that were destroyed in the course of replacement of the flanges were not restored to use, but they were replaced, resulting in property damage. Therefore, they did not constitute “impaired property” to which Exclusion M applies, and the cost of replacing them was therefore covered by the policy.

According to Attorney Patrick J. Wielinski, of Cokinos, Bosien & Young in Irving, Texas, who prepared the construction industry brief, “This portion of the opinion, depending on how it is interpreted in the future, may provide ‘rip and tear’ coverage to Texas contractors in that the cost of ripping and tearing out good work to repair defective work (even if that defective work does not constitute ‘property damage’) may be covered.”

Wielinkski explained, “This appears to be an expansion of Texas law which previously held that rip and tear costs are recoverable only when they are incurred in the course of repairing or replacing actual property damage.”

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Recovering Attorney Fees in Arbitration: Be Careful What You Ask For Frequently, contractors or their legal representatives demand a recovery of legal fees in an arbitration demand with little thought, even though legal fees are seldom awarded absent a specific statute or contract term authorizing such a recovery. But in American Arbitration Association arbitrations, the decision to demand legal fees — or not — can have realworld ramifications, according to Don Gregory, a partner in the Columbus Ohio law firm of Kegler, Brown Hill & Ritter, and general counsel for ASA. Rule 45 of the AAA construction industry arbitration rules allows an arbitration panel to award fees to the prevailing party if “all parties have requested such an award.” So, when both sides request fees upfront, the arbitration panel can award fees even if they were never authorized by statute or contract in the first place.

Recently, losing parties have unsuccessfully challenged arbitration awards that have included sizeable legal fees in many cases. And courts in Illinois, Missouri, New Jersey and Tennessee have found against the arbitration losers and supported the award of fees to the prevailing party in such cases.

Gregory suggests that “the lesson from such cases is that you should carefully consider whether you request an award of legal fees in an arbitration demand. And you may regret that decision to ask for fees if you try the arbitration and do not win.”

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OSHA Requests Comments on Guidance Whistleblower Retaliation The Occupational Safety and Health Administration is seeking comments on a draft document intended to help employers develop a program to protect employees from retaliation when they raise concerns about workplace conditions or activities that could harm workers or members of the public. Protecting Whistleblowers: Recommended Practices for Employers for Preventing and Addressing Retaliation contains sections on how to ensure leadership commitment, foster an anti-retaliation culture, respond to reports of retaliation, conduct anti-retaliation training, and monitor progress and program improvement. Specifically, OSHA is interested comments related to ensuring that: • Anti-retaliation concepts are described clearly.

• Important features of an antiretaliation program are included.

• Challenges in implementing these practices are addressed.

• Issues specific to small businesses are addressed.

The draft document is intended to help employers create a nonretaliatory environment in the workplace and to provide practical guidance on protecting whistleblower rights for employers. The OSH Act prohibits employers from retaliating against employees for exercising their rights under the Act. OSHA also enforces the whistleblower protection provisions of 21 other statutes relating to asbestos in schools, cargo container safety, aviation safety, commercial motor carrier safety, consumer product safety, environmental protection, consumer financial protection, food

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safety, health insurance reform, motor vehicle safety, nuclear safety, pipeline safety, public transportation safety, railroad safety, maritime safety, and securities laws. For more information, please visit www. whistleblowers.gov. Interested parties may submit comments and additional materials electronically at http:// www.regulations.gov, the Federal eRulemaking Portal, until Jan. 19, 2016.

OSHA Seeks Comments on Safety and Health Program Management Guidelines The Occupational Safety and Health Administration has invited comments on an update of its voluntary Safety and Health Program Management Guidelines. Originally published in 1989, the new guidelines have been updated to reflect modern technology and practices. According to OSHA Assistant Secretary David Michaels, the revised document “is intended to help small- and medium-sized employers find and fix hazards before workers are injured, become ill, or are killed.” The updated guidelines are intended to: • Provide a proactive approach to finding and fixing hazards before they cause injury, illness or death.

• Improve safety and health in all types of workplaces.

• Help small and medium-sized businesses to effectively protect their workers.

• Increase worker involvement, so all workers have a voice in workplace safety and health.

• Improve communication and coordination on multi-employer worksites.

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The guidelines are not a new standard or regulation and do not create any new legal obligations or alter existing obligations created by OSHA standards or regulations. Interested parties may submit comments and additional materials electronically at http:// www.regulations.gov, the Federal eRulemaking Portal, until Feb. 15, 2016.

NLRB Region Says Sub/ Temporary Staffing Agency Are Not Joint Employers A regional office of the National Labor Relations Board recently ruled that a construction subcontractor and a temporary staffing agency are not joint employers. Construction contractors that use temporary staffing agencies are concerned that the NLRB’s August 2015 ruling in Browning-Ferris Industries in California, Inc., which modified the joint employer standard, could be applied to such arrangements.

However, on Oct. 21, NLRB Region 5 (Baltimore) found that ACECO, LLC, a demolition and environmental remediation contractor, and Green JobWorks LLC, a temporary staffing agency that provides demolition and asbestos abatement workers to approximately 20 clients, were significantly separate in their employee management and operations not to be considered joint employers. In this case, the temporary staffing agency hired and managed its own employers, including maintaining payroll records, withholding payroll taxes, and providing workers’ compensation, as well as maintaining its own hiring and discipline authority.

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ASA Chief Advocacy Officer E. Colette Nelson said, “Although the regional director’s decision (in Green JobWorks LLC/ACECO, LLC) is not precedent-setting for other cases, it may provide contractors, as well as temporary staffing agencies, some useful information about how to structure their relationships in order to assure that the revised joint employer standard does not apply.” In the meantime, Congress is considering legislation, S. 2015 and H.R. 3459, the Protecting Local Business Opportunities Act, which would amend the National Labor Relations Act to state that “… two or more employers may be considered joint employers for purposes of this Act only if each shares and exercises control over essential terms and conditions of employment and such control over these matters is actual, direct, and immediate.”

DOL Raises Minimum Wage for Federal Contractors to $10.15 Per Hour Beginning on Jan. 1, 2016, construction contractors and subcontractors with contracts covered by the Davis-Bacon Act must pay their workers in connection with such contracts a minimum wage of $10.15 per hour.

The Wage and Hour Division of the U.S. Department of Labor announced the increase in wage rage on Sept. 16, as required by Executive Order 13658, Establishing a Minimum Wage for Contractors. The minimum wage for federal contracts and subcontractors was implemented on Jan. 1, 2015, and will be evaluated and raised annually thereafter based on a methodology established by DOL.

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To assist contractors with compliance, DOL has published fact sheets, answers to frequently asked questions and other information at http://www.dol.gov/whd/flsa/eo13658/.

FAR Council Proposes Revisions to Standard Bond Forms The standard surety bond forms that prime contractors are required to use on federal construction projects soon will be revised, according to a proposal issued by the Federal Acquisition Regulatory Council on Oct. 20, 2015. The revisions to the Federal Acquisition Regulation are aimed at expanding the options for organization types and at clarifying liability limitations.

Specifically, the Council is proposing to expand the options for organization types on Standard Forms 24, 25, 25A, 34 and 35, in order to expand the range of business types to include LLCs and others, as they evolve. The proposed rule addresses concerns expressed by the National Association of Surety Bond Producers about the “Type of Organization” block blank. In the past, some companies have been told by federal agencies to leave the “Type of Organization” block blank because there was “no good fit”; in other cases, companies selected the closest fit and subsequently were challenged on their selection. In addition, the rule proposes to clarify the instructions for these forms to amplify the fact that the typical value put into the “Liability Limit” block is the face value of the bond, unless a co-surety arrangement is proposed.

This change is being proposed because there have been some questions about the appropriate value to report in the “Liability Limit” block (i.e., whether to cite the Surety

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Company’s T-limit, as established by the U.S. Treasury Department, or the penalty limit for a give bond (its face value)).

DOT Establishes Task Force to Recommend Drone Requirements As the commercial use of unmanned aircraft systems, commonly known as drones, increases, the U.S. Department of Transportation has established a task force to develop recommendations for a registration process. Increasingly, construction owners and contractors are using drones to track and evaluate progress on construction projects. The new DOT task force will advise the department on which aircraft should be exempt from registration due to a low safety risk.

The task force also will explore options for a streamlined system that would make registration less burdensome for commercial drone operators. “Registering unmanned aircraft will help build a culture of accountability and responsibility, especially with new users who have no experience operating in the U.S. aviation system,” said DOT Secretary Anthony Fox. “It will help protect public safety in the air and on the ground. Every day, the Federal Aviation Administration receives reports of potentially unsafe drone operations.

Pilot sightings of drones doubled between 2014 and 2015. The FAA will continue its education and outreach efforts, including the Know Before You Fly campaign and No Drone Zone initiatives with the nation’s busiest airports. FAA also indicated it plans to take strong enforcement action against egregious violators.

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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 California. Pay-if-paid clauses dictate that a general contractor is only required to pay a subcontractor for completed work if the general contractor is paid by the project owner. If the GC is never paid for the project, it does not have to pay the subcontractor. In 1997, the California Supreme Court held that pay-if-paid clauses are unenforceable in Wm. R. Clarke Corp. v. Safeco Ins. Co. The Court held subcontractors have a state constitutional right to utilize mechanic’s liens to ensure payment for completed work; that pay-ifpaid clauses circumvent that right by conditioning the subcontractor’s right to be paid for completed work on whether the GC is paid, which is contrary to public policy. Therefore, pay-if-paid clauses are invalid in California contracts.

GCs and subcontractors should also be aware that California courts have been extending their reasoning in Wm. R. Clarke Corp.

Jeffrey M. Singletary is a lawyer in the Orange County California office of the law firm Snell & Wilmer. He can be reached at (714) 427-7473 or email.

California. A Texas architecture firm is not allowed to haul a California sub-consultant to Texas for litigation, according to California Code of Civil Procedure section 410.42.

Section 410.42 voids contract clauses that require litigation to be brought outside of California. It applies as between a “contractor” and a “subcontractor,” and the court of appeal held that this section applies also as between an architect and sub-consultant who contract with each other for construction-related services. Vita Planning and Landscape Architecture, Inc. v. HKS Architects, Inc., (September 25, 2015).

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C.E. Mammoth LLC started to develop a luxury hotel in Mammoth Lakes but ran out of money.

Mammoth hired HKS as the design professional. HKS hired InSite, later acquired by Vita Planning, to perform landscape architectural services. The contract between HKS and InSite included a forum-selection clause designating Texas as the forum for litigation.

Vita Planning sued HKS in Marin County, Calif., for nonpayment. HKS challenged the lawsuit, claiming that any litigation had to take place in Texas. The trial judge agreed with HKS, but the court of appeal disagreed and reversed.

Section 410.42 voids parts of a contract between a contractor and a subcontractor with principal offices in California for construction in California that require litigation or arbitration outside of California.

The court of appeal held this section protects design professionals as well as traditional subcontractors because: (1) the purpose of the statute is to protect California subcontractors against large outof-state contractors who have unfair bargaining advantage; (2) the section does not define “contractor” or “subcontractor,” and general law sources define these terms broadly, (3) although the Legislature did distinguish between design professionals and general and subcontractors in other parts of California laws, such treatment did not preclude their being protected the same by the anti-forum selection clause. At least 24 other states have similar statutes.

Dan McLennon is the Managing Partner of the San Francisco law firm McLennon Law Corporation. Dan may be reached at (415) 394-6688 or email.

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Ohio. The new year is upon us, and it’s time to plan for the coming year (or possibly fix last year). Most employers provide certain holidays as days off for their employees.

Do you know the rules of how to handle these days off? Here are eight considerations.

1. Do you have to pay for holidays off? No. You are not required to pay non-exempt employees for holidays. A paid holiday is a discretionary benefit. Exempt employees present a different challenge. The Fair Labor Standards Act does not permit employers to dock the salary of an exempt employee for holidays. You can make a holiday unpaid for exempt employees, but it will jeopardize their exempt status.

2. What if a holiday falls on an employee’s regularly scheduled day off, or when the business is closed? While not required, many employers give an employee the option of taking off another day if a holiday falls on an employee’s regular day off. Similarly, many employers observe a holiday on the preceding Friday or the following Monday when a holiday falls on closed weekend day.

3. If we choose to pay non-exempt employees for holidays, can we require that they serve some introductory period to qualify? It is entirely up to your company’s policy whether non-exempt employees qualify for holiday pay immediately upon hire, or after serving some introductory period.

4. Can we require employees to work on holidays? Yes. Because holiday closings are a discretionary benefit, you can require that employees work on a holiday.

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5. Can we place conditions on the receipt of holiday pay? Yes. For example, some employers are concerned that employees will combine a paid holiday with other paid time off to create extended vacations. To guard against this situation, some companies require employees to work the day before and after a paid holiday to be eligible to receive holiday pay.

6. How do paid holidays interact with the overtime rules for non-exempt employees? If an employer provides paid holidays, it does not have to count the paid hours as hours worked for purposes of determining whether an employee is entitled to overtime compensation. Also, an employer need not pay any overtime or other premium rates for holidays.

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7. Do you have to provide holiday pay for employees on FMLA leave? You must treat FMLA leaves of absence the same as other non-FMLA leaves. Thus, you only have to pay an employee for holidays during an unpaid FMLA leave if you have a policy of providing holiday pay for employees on other types of unpaid leaves.

8. If an employee takes a holiday day off as a religious accommodation, does it have to be paid? No. An employer must reasonably accommodate an employee’s sincerely held religious belief, practice, or observance that conflicts with a work requirement, unless doing so would pose an undue hardship. One example of a reasonable accommodation is unpaid time off for a religious

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holiday or observance. Another is allowing an employee to use a vacation day for the observance.

However, unless you pay other employees for similar non-religious time off, you do not have to pay an employee who takes a religious day off.

The laws of your state may differ. Even in Ohio, these are just “considerations.” There may be good reasons for doing what you already to (as long as it doesn’t violate the law).

Before you adopt or change a holiday pay policy in your organization, or have questions about how you pay employees for holidays or other days off, consult with your lawyer.

Jonathan Hyman is a partner in the Labor and Employment Practice Group of the Cleveland law firm, Meyers, Roman, Friedberg & Lewis.

Jon may be reached at 216/831-0042 or email.

Feature To Specialize or Generalize — Identifying the Benefits (and Hazards) of Specialized and Generalized Niche Market Strategies

by Gregg M. Schoppman

Specialization

Who has more fun — the specialists or the generalists? When times are good, everyone is having fun. A rising tide raises all ships, right?

However, during the last recession, as workflows dried up quicker than a parched desert, any work that was to be had was released to specialized firms — federal contractors, energy sector firms, healthcare firms. This is not say that generalists were left out to dry, but more often than not, these generalists were left picking the bones of very skinny (translate — low budgets) carcasses. Contractors scrambled to become specialists, cobbling together resumes of similar or comparative work simply to address their backlog woes. As the economic tides turned, specialization became less important — or so it seemed — and being a jack of all

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trades once again became in vogue.

Should firms go through the hassle of specializing or should they hedge all of their bets and simply be good in all categories? For larger firms, being good or even great in several categories is much easier. Medical, life sciences, pharmaceutical, technology, light industrial, etc. — the large firms can afford to have expertise in every category. In some cases, it is expected that these contracting juggernauts have a finger in every pie. For small- to mid-sized firms, it is impractical to expect that they have a resume comparable to their larger peers. Additionally, there is the issue of credibility — can a midsized firm truly be a jack-of-all-trades, MASTER of everything? Should firms specialize or remain generalists?

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Specialization comes in many forms. Whether it is delivery method (i.e. design build vs. plan and specifications), niche (i.e. medical, pharma, light industrial, commercial, office, etc.) or even sector (private, residential, government, school district), there are no shortage of options available to contractors.

Many will argue “if you can build a five-story office building, you can build a tilt warehouse …” or “if you can build a laboratory, you can build a medical clinic.” More often than not, these are somewhat correct assumptions when you consider the techniques utilized to build in a niche one-step removed from another niche. For instance, the argument fails to hold weight when comparing a nuclear power plant with the construction of a small strip mall.

For many contractors, bridging across niches is easy and this provides a natural extension of one’s services. In many cases, a contractor might be given an opportunity to become the builder based NOT on their experience within a niche but rather their experience with a building technique. For example, a contractor might be chosen because of their ability to do complicated work such as extending a building — horizontally or vertically — rather than their ability to build within a specific niche. Great business developers are masters of capitalizing on this comparative advantage and these firms differentiate themselves based on their capabilities as a builder exploiting a structure’s complexity rather than a exploiting a resume of past projects.

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It is also important to consider the power of specialization in the eyes of the consumer. If a person had a rash — and assuming there were no restrictions on primary healthcare physicians — would they be more likely to go to a dermatologist or a general practitioner, who might even recommend you to a dermatologist?

There are probably few contractors that would recommend a potential customer to a competitor, even if they were less qualified to build for that customer. However, many buyers believe “their project is unique” and requires a special hand to build it.

The best specialists are those that truly understand their customers’ businesses better than their own. For instance, they ask the right questions at the right time: Preconstruction • Clear understanding of the right design elements for a niche specific building (i.e. clear height for a warehouse, office space parameters for a call center, building flow for a fabrication facility, etc.)

• Clear understanding of lead times for mission critical items (i.e. lab equipment, specialty HVAC/ Electrical, etc.)

• Clear understanding of permitting and inspection rules OUTSIDE of the typical jurisdictional requirements (i.e.

AHCA for healthcare projects, commissioning for complicated security/fire/emergency systems, etc.)

Construction • Integration of prefabricated elements and substructures • Coordination of mission critical trades • Procurement of proper sequenced trades and appropriate niche specific vendors

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• Value engineering based on

field expertise input and past experience • “Hidden pitfall” identification also based on field expertise Post-Construction • Understanding of the true construction timeline based on relevant experience • Realistic “punch” close-out procedures • Specific coordination with nonconstruction vendors (i.e. hospital equipment, owner FFE, POS equipment, etc.)

This is not to say a generalist couldn’t learn these tactics, but a best-of-class specialist can walk into a sales presentation and ask the right questions, demonstrating a keen sense of a customer’s pain points.

Specialization usually becomes a factor of timing. However, the timing presents an interesting conundrum. As market conditions remain stable and the overall putin-place construction remains high, it would make strategic sense to investigate new markets, similar to playing with house money. However, there are experts that will argue against this strategic mindset. Seeing as how a mid-sized firm has finite resources, why risk entry on new untested niches when a firm might reap greater profit from staying put?

The most important assumption to a specialized approach focuses on the level of strategic thinking that has taken place. True strategic thinking requires proactive, fact-based research and less gut feel, knee-jerk reactions. It is important to vet and test strategic assumptions. Before a firm establishes itself as the premier healthcare contractor, it would be prudent to understand the market forecasts, demographic shifts in the local/regional/nationwide population,

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economic trends, etc. One of the key risks of being specialized is the inevitable brand that will help one’s business. At the same time, as market conditions change, it would be a grave disappointment to hear, “We’d love for you to bid but aren’t you a healthcare contractor?” Oh, how we love those words when the times are right!

Generalization The vast majority of the mid-market contractors would characterize themselves as generalists or maybe generalists with one or two predominant niches. More importantly, this strategy has served them well. Regardless of the specializations, the key theme to remember is “know thy customers.”

Some of the best generalists are chameleon-like in that they not only morph to appear specialized but they almost seem to know their potential customer’s business better than their own. Rather than sending a proposal complete with grandstanding resumes and project brochures, these specialized generalists make every proposal look as if they were customized for each and every customer. They do this by getting to the heart of the customer’s desires and wants rather than pounding their own chest and making the proposal about their accolades and accomplishments.

One of the best arguments for generalization is its ability to serve multiple markets and avoid the risk of being Pidgeon-holed. This same benefit also becomes a liability in some cases. Just as the specialists heard, a generalist may run the risk of hearing, “We are really looking for someone who knows our business in and out …” Chasing projects that are not part of a firm’s over-arching strategic plan can lead to being

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ill‑prepared during a proposal phase.

Assuming a customer is within the crosshairs of a generalist, there are potential issues such as not having the correct background, there are several steps that can be taken to improve the success probability: • What is your brand in the marketplace? Conduct a market perception survey to gauge how your firm is perceived in the marketplace. What do end-users, construction managers, architects, engineers, etc. think of your business? While the perceptions in the court of public opinion may not be accurate, they are reality. This ultimately helps gauge how much of an up-hill battle your firm will have when it comes to reinventing itself.

• For a new market, what is one trait within your firm that can be parlayed to serve their needs? OK, so you aren’t the medical-builder extraordinaire but is there something about a client’s needs or a specific project that you can shift the focus to? For instance, maybe your firm has cleanroom experience and a potential project requires a deep knowledge of the prevention of infectious diseases.

Firms that serve as estimating mills will not spend the amount of time necessary to find these competitive advantages.

• Can you bring a team that offers the total package?

While you may not have the exact experience because of your generalist background, can your firm partner with experts that do have the right credentials?

Granted, there is a certain risk in creating a team, especially if a customer is “price wary” but the alternative might be not getting the project regardless. Sometimes surrounding yourself with a team demonstrates a true understanding of what a customer needs and wants.

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The theme that must be garnered from this is it is incumbent of any firm to spend the time strategizing and doing the right amount of homework.

Chasing projects is the equivalent of the dog chasing the squirrel.

Many firms are distracted by the bright shiny object, get into a project without understanding the true risks of this venture and get burned.

As described above, one of the salient points that must be remembered is how your firm is perceived in the marketplace. If your firm is a generalist with a dash of school and medical experience, your brand has been established. Many firms will start creating divisions — one that serves K-12 education, one that serve the medical market — only to realize some of the challenges later. Little did they know, but that managed to create a firm of specialists. Once again, there is nothing wrong with this assuming several considerations have been made: • How are these divisions measured? Does each division have a set of goals, metrics and most important a business plan?

• What mechanisms are in place to cross-train associates? While the go-to market strategy might be specialized, internally a firm can be structured in such a way that leverages their talent and hedges against any eventual niche downturn.

• What portion of the firm is dedicated to finding new markets?

While most firms do not have a deep “research and development” budget focused on new markets, there should be a committee or small contingent of the firm dedicated to finding the next “big thing.”

• When does the firm pull the plug on a niche? This “nuclear” option should never be taken lightly but shutting off a business unit is a deep, emotional decision. More often than not, firms hold on too

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long because of the emotional attachment. Maybe it was the niche that got the firm started.

Regardless, there should be a vehicle within the firm that drives constructive discussion on how to help ailing specialists or when it is necessary to rethink the strategic direction altogether.

Decision, Decisions There is no right or wrong answer when it comes to choosing the firm’s strategy. The only wrong answers are a) not having a true strategy in the first place or b) chasing the “fad of the day” because every other firm is doing it. There are countless successful specialist and generalists throughout the country. In just about every case, there were dedicated entrepreneurs that saw a need and created a business model. There are also plenty of case studies of businesses that fell victim to the economic conditions of the time.

They rode a wave only to have it lose momentum as it crested. Best-of-class specialists and generalists alike not only represent the market leaders because of the strategy they’ve chosen for their business, but because of the fact-based foundation on which they’ve built these businesses.

As a principal with FMI, Tampa, Fla., Gregg Schoppman specializes in the areas of productivity and project management. He also leads FMI’s project management consulting practice. 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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Feature Using Technology to Drive Contractor Success

by Brian Chickowski By 2020, the number of Internetconnected devices will grow from 400 million to 50 billion, and smartphones will have the capability of storing and accessing as much information as a supercomputer.

Successful contractors understand the positive impact that technology has on business processes, the ability to respond to change, cost savings, efficiency, and the bottom line. Best in Class contractors of all disciplines are leveraging technology across their businesses to achieve higher margins.

The opportunities for cost savings through the use of technology are expansive. It can eliminate waste, duplicate data, rework, and quality problems not only at the jobsite, but also within the workflows of corporate headquarters. By identifying and making strategic investments in the right technology, contractors can minimize the cost of problems by early detection and solutions.

In light of these factors and the growing need to attract a technologysavvy workforce, this article will discuss ways technology can reduce costs and streamline processes.

Business Development Gone are the days of a spreadsheet that tracks prospective work in a static listing. A growing industry trend is the use of Customer Relationship Management (CRM) solutions to keep the focus on potential customers and their upcoming projects. These systems foster future relationships via e-mail or social media marketing by keeping all dialogue in one place that can then be transferred through the procurement and sales processes.

Robust systems provide apps that allow for correspondence, phone calls, or information to be added to

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a customer’s record from Internetconnected devices (e.g., tablets or smartphones) as well as integration with e-mail. Software status codes enable robust reporting to provide extremely valuable business intelligence (BI) to C-level executives and highlight where efforts should be placed. Sales and marketing resources can then be deployed to the clients who have an immediate need and are most likely to respond favorably.

Armed with the ability to see where, when, and in what sector the demand for new construction or renovation will occur, organizations that embrace CRM software suites will have a competitive advantage.

Estimating The time allotted to contractors to provide a project estimate continues to decrease. However, contractors can somewhat expedite the process by embracing the right technology.

In the past five years, on-screen takeoff (OST) has dramatically changed the way Best in Class contractors perform their takeoffs. Most estimating software manufacturers have created robust, simple-to-use OST extensions to their main products. An estimator that becomes proficient in OST technology can perform takeoffs of most items in about 30% of the time with about 90% more accuracy than a traditional takeoff.

Not only does OST allow contractors to provide their clients with an accurate price, but it can also empower them to expand their estimating capacity and win more profitable projects in the same amount of estimating time.

Operations It is no secret that project schedules are becoming tighter. Owners want

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their projects built in the shortest amount of time to get revenue flowing. Complex multi-story/multi-use buildings and hospitals are being built almost exclusively with the assistance of BIM. BIM is also now mandatory for any new construction or renovation at the General Services Administration.

It is no longer a trend or advantage to have full-time BIM modelers on staff – it’s a requirement.

Conflicts that arise during the installation of product in the field can bring these projects to a halt.

BIM allows for these conflicts to be identified in the virtual world prior to the physical construction, thus allowing tight schedules to be met. If an organization is not employing BIM modelers, then it simply will not be able to compete in the near future.

In addition to BIM, collaboration tools help these projects to be successfully built. These tools create a single location that contains the most updated information (e.g., the submittal process, Requests for Information, and plan revisions incorporated into the BIM model), which is key to an on-time, punch list free project.

If Software-as-a-Service (SaaS) doesn’t suit your organization, then consider other cloud-based file-sharing services. With these services, you control the file structure and users who can access the information, and most files can be accessed and viewed using a tablet or smartphone.

Purchasing Materials For most contractors, the current method of purchasing materials needed for a project involves a bill of material that is provided to an internal purchasing agent either via e-mail or phone. The purchasing agent then sends out the bill of material

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for pricing to the material suppliers that can procure and deliver the materials needed. Pricing is returned to the purchasing agent, and a vendor is selected based on price and availability. A purchase order is manually entered in the company’s ERP system and either sent via e-mail or postal mail to the vendor for fulfillment.

Forward-thinking contractors, however, have identified this process as labor-intensive and timeconsuming. Human error can be compounded multiple times during this process. The right software can speed up this process, reduce data entry, and act as the bridge between the material supplier and contractor.

Look for software with an easy-touse interface that allows for the creation of a bill of materials to be sent electronically to the vendor and for prices to be returned instantly.

Streamlining this process also enables PMs to see committed dollars and forecast accordingly.

recording the location, hours used on a job, and maintenance requirements.

Most solutions plug into the computer of the vehicle or piece of equipment, use GPS to determine its location, and use geo-fences to provide notification if a piece of equipment travels outside where it should be working. In addition, notifications can be set up in the event equipment is actively running when production hours are over or if it exceeds a predetermined maximum speed. And, maintenance needs are automatically forwarded to the equipment manager from the monitored piece of equipment, resulting in timely preventative maintenance and reduced equipment neglect.

When employees are aware of the existence of such systems on their equipment, misuse and abuse of the company-owned equipment decreases greatly and traffic incidents often decline.

Theft

Storage In recent years, electronic storage space (e.g., on a local server or in the cloud) has made converting paper to digital files more affordable than all the costs associated with retaining documents (e.g., administrative time, reproducing lost documents, storage space, etc.). Did you know that the average cost of a misfiled document is approximately $120 per file in wasted time attempting to locate it as well as re-filing it in the correct location?

Several document imaging solutions exist that range in both complexity and cost. A good place to start the search is with your company’s ERP vendor.

It’s helpful to use a compatible product that integrates with your company’s current system so that documents can be easily retrieved. This also allows for workflows that follow your existing infrastructure to be created in the same manner in which they are currently

When materials arrive at a jobsite, they are often stored in containers or trailers until they are needed. This opens the door to the possibility of materials theft. However, simple security technology can reduce this likelihood. Look for a device with GPS and an audible alarm. Today’s security devices can work with smartphones to deliver notifications via text message, e-mail, or automated phone call when an alarm is activated.

Most devices can be attached to the materials themselves or on the storage container/trailer door to be used as a wireless alarm system.

Equipment Management Equipment management is also being streamlined through the use of technology. Many equipment-centric contractors are relying on solutions that take the human element out of

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processed, resulting in a shorter adoption time by the employees with less of a learning curve.

Closeout Documents As a project concludes, the punch list and closeout document requirements become the governing documents for the final payment of retention to most contractors. This is a significant hold up to collecting any profits. Getting in front of the needs and not waiting until the end of the project to determine them are critical to successful project closeout. Several cloud-based tools can be used to assist, and the minor associated costs more than pay for themselves when it can expedite cash flow and quickly get that final payment in the door.

Conclusion The younger workforce entering today’s construction industry has grown up in a technology-driven world, and the days of using paper and pen and lacking computer skills are nearly over. In the near future, potential employees within the construction industry will be seeking out organizations that use technology to the fullest.

How deeply is technology embedded in your business processes today, and will that top talent find your company to be technologically attractive enough to want to work for you?

Brian Chickowski is associate director of Maxim Consulting Group, LLC, Denver, Colo., where he works with contractors to implement bestin-class, fully scalable processes and procedures to drive increased profitability within their organizations.

He specializes in reviewing ERP systems, billing and collections practices, and WIP processes to improve cash flow; establishing closeout procedures; and analyzing IT infrastructure to ensure compatibility with the processes. He can be reached at (303) 688-0503 or brian.chickowski@ maximconsulting.com.

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TIPS FOR IMPLEMENTING A SUCCESSFUL PROCESS CHANGE As W. Edwards Deming said, “If you can’t describe what you are doing as a process, then you don’t know what you are doing.” In order to maximize the benefits of a technology solution, you must clearly define the problem and thoroughly test the solution prior to fullscale deployment.

Start by gaining an understanding of the process.

Who performs what steps, and how and when they are performed? (See the chart in Fig. 1.) Examine the current workflow to see if underutilized technology exists. Once the process is documented, identify and eliminate redundant efforts. Perform an analysis to

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determine if technology can automate any steps in the process. Then, test the proposed workflow.

Train each user on the task he or she performs and the technology used. Since lack of training is typically the most common cause of failure to implement change, training sessions should be required, not optional. Once it’s implemented, it’s important to evaluate the process to make sure it is working as intended.

Personal accountability ensures that the desired output will be accomplished. For example, implement metrics for compliance and/or quality to track accountability.

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15

Feature Dangers of Expanding Into New Markets

by Charles Dragoo

As a surety underwriter who has worked with contractors and subcontractors for 30-plus years, I have unfortunately sat in on many claim meetings and post mortem “lessons learned” sessions. One thing I have learned is that there are real dangers for any business considering expanding into new markets. This could be an expansion of your construction operation either geographically or into an entirely new field of construction. This lure of expanding into a new market is certainly tempting but is not without its hazards.

Much of your construction success has come from the time and effort you have spent focusing on your current market. You are familiar with your market, have studied it, lived it, worked it and are comfortable with the written (and even unwritten) laws/ rules/practices that go along with it.

That time has allowed you to know your market well and to make critical business adjustments. By now you have a pretty good idea of what it takes to win.

To consider moving outside of this comfort zone is a whole new undertaking. Suddenly you are dealing with new project owners, prime contractors, suppliers, and of course, new competitors. Each of those involves a new relationship.

Your existing reputation does not simply transfer but will have to be reestablished in this new environment. While you certainly are not starting from scratch, caution is the necessary byword.

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Expanding Geographically Perhaps the most common way to expand into a new market is geographically. You might first need to ask yourself: • Is there a need for your business which is not currently being met in this new geographic territory?

• How does this new geographical market differ from the one you are in now?

• Is it feasible to compete with existing organizations in the new geographic region?

• What changes will you have to make to your business to successfully expand into a new market?

• Where do you begin on staffing, budgeting, accounting, resources, and capabilities?

• Can your current business processes, guidelines, and standards be easily reproduced in this new location? Not applying your current checks and balances to your new location can be disastrous.

• Can your existing business financially support any additional office space, staff, equipment, etc.?

A clearly defined business strategy is a prerequisite for success with any geographic expansion. Think about how the new operations will be managed. Will someone from your organization relocate? Or should a local managing executive be hired instead? Someone who is promoted internally will probably know your business better, but a local hire might know the new geographical market better.

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A word of caution is to start slowly. As you attempt to expand geographically don’t try to take on too much territory at once. Consider what an expansion would entail and how it could affect current operations. Can your current management organization handle its leaders’ traveling and focusing on a new market? Be sure your current business is prepared for the challenge and can withstand the stress. An expansion takes time, effort, and focus and if not performed carefully, can negatively affect the whole organization.

It is likely better to expand slowly region-to-region rather than attempt too much at once. When setbacks happen, don’t automatically give up.

Just because one region says “no thanks” doesn’t mean other regions will do the same.

Expanding Into New Markets Market expansion can also occur when you identify new target customers in your current region.

When looking to expand into different markets by generating new customers, it is important to thoroughly think about what adding a new scope of construction would mean to you.

Will you sub out any newly related construction and simply take a percentage, or will you have to add manpower and equipment to your current operation?

A primary benefit of business expansion is the ability to attract and retain new customers. When you add new services to your portfolio you can bring in previously untapped

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customer markets. Reaching out to these new customers by means of expansion is one thing, but capturing them for long-term relationship building is primary. Growing a loyal customer base can be an effective way to achieve stable and increased profits over time.

Research the market in depth.

There’s no way to guarantee a business model or strategy will work, but proper research can help avoid some pitfalls.

Start by clearly defining the market, examining who the audiences are, and identifying the competition. Be ready with alternatives and be willing to adjust quickly if the results aren’t promising. Don’t assume a business strategy that worked in an existing market will be successful in a new one.

You might first need to ask yourself: • How does the target market differ from the one you are in now? What are the positives? What are the negatives?

• What changes will you have to make to your existing business to successfully expand?

• What changes will you have to make to staffing, operations, the bidding process, and internal accounting processes?

• Do you consider your new operation to be a fit with what you know about this new market?

• What are consumers in this new market looking for? Why are they looking for it? How does your new construction focus meet their needs and desires?

Assuming you were able to list many reasons, a potential market

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may very well exist for you. How will you know for sure? You can’t ever be 100 percent certain, though you can greatly increase your chances of successful expansion by doing your homework.

Is your company answering a potential need? Be careful not to move ahead in a market if everyone is holding up “not interested” signs.

If you think you are disappointed now, wait until you’ve spent your time and money introducing your new service.

You have already been successful in a least one market. Don’t be afraid to fall back on that experience and knowledge as you move ahead. Go out and talk to target customers since they are the ones who can give it to you straight.

The key to this strategy is to think big, but start small.

A common mistake in market expansion is the tendency to spread oneself too thin and try to do everything at once. One way to avoid this is by employing a gradual rollout, expanding region-by-region or market-by-market, rather than trying to be everywhere at the same time.

By going slowly, you will also ensure that you are able to meet consumer demand. You wouldn’t want to attract eager customers who can’t contract your services because you can’t keep pace with their needs.

So how do you know when it is time to graduate to a full offering?

The following questions might help you understand if the time is right: • Have you been successful so far in this new market? Why or why not?

• Do you have the money available

to venture into and expand this new market? If you need to obtain outside funding, how will you raise it?

• Do you have sufficient knowledgeable staff to expand into this new market or do you need to hire from outside?

When venturing into new markets, many people are concerned that they won’t be able to promote their service correctly. Your temptation might be to hire a PR firm or contract a sales representative. Keep in mind that both of these options are expensive and these “hired guns” may not share your knowledge nor emotional attachment to your business.

Monitoring Your Success Now that you are up and running in more than one market, you must continuously monitor your success and be willing to make changes based upon customer reaction. The best way to do this is by listening to your customers. How you respond to customer feedback can potentially mean the difference between the success and failure of your new business. Remember, customers are people, and they like to be heard.

Asking for comments about your business and then getting defensive is not going to serve any purpose.

Just because you have done well in one market does not mean you will do as well in all markets. Different markets and different geographic regions often have different tastes and expectations.

— Continued on page 19

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Feature Hot Construction Markets — Don’t Get Burned The best surety pros tell them what they don’t want to hear

by Therese Wielage

The growing number of projects and overwhelming infrastructure needs highlight the construction industry’s recession recovery to date, but competition, thin margins, skilled labor shortages and a desperate need for funding are just as prevalent, and threaten every contractor focused on top line growth instead of the bottom line. “The contractor of the future will embrace flexible overhead and be bottom line focused,” said Dr. Tom Schleifer, assistant research professor at Arizona State University’s School of Sustainable Engineering and The Built Environment. “The dangers of not managing overhead and the temptation to chase new work in unfamiliar territory are worse during a recovery than they were during the recession itself.”

Speaking to construction audiences around the country, Schleifer warns contractors about cash flowing themselves right out of business. “I ask a simple question,” Schleifer said. “‘Have you taken a job you wish you hadn’t?’ The hands go up and reality sets in — less volume and more profit is the answer to survival.”

Surety underwriters echo that warning. “It is dangerous to operate with the philosophy that bigger is better,” said Josh Penwell, vice president of Contract Surety Underwriting at Merchants Bonding Company. “Evaluating the impact on a company’s cash flow is critical during a period of growth. A contractor that loses sight of how a large project or larger than normal backlog will impact cash flow will be

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setting itself up for failure. It takes a disciplined contractor to turn down an opportunity and recognize when the extra work creates a stress on the financial side of their operations,” Penwell said.

Many contractors today are looking for advice on how to take advantage of work in the hottest markets and industry segments. They see the opportunity for growth but end up fighting it out in a hard-bid environment with no competitive edge. Experts say the common mistakes range from leadership that is too slow to react and adapt, clinging to “the way we’ve always done it” to following the crowd and finding that by following you’re already too far behind. “We have seen many balance sheets deteriorate during the recession,” Penwell said.

“We are told more work is now available and with better margins.

The risks we are seeing now are undercapitalized contractors wanting to expand their operations.” It is extremely risky when a contractor does not have the capital to absorb a bump in the road. Adequate capital is a critical component to a successful plan for growth.

“Surety underwriters will serve contractors much better by questioning any foray into an unfamiliar ‘hot’ region or ‘hot’ construction category,” Schleifer said, “no matter how much the contractor doesn’t want to hear it.”

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Following the Crowd Contractors have information at their fingertips from multiple resources that tell them where the hot markets are and what type of work is available. The Associated General Contractors of America Web site has information and expert analysis from Chief Economist Ken Simonson.

Simonson tells us there is currently surprising diversity among the leading states for construction, as measured by change in construction employment. The five states with the largest percentage increase in seasonally adjusted construction employment from October 2014 to October 2015 were: 1. Arkansas 18.1% 2. Idaho 12.2% 3. Kansas 11.7% 4. Nevada 11.2% 5. Hawaii 9.5% These are very strong growth rates, compared to the 2 percent expansion in total nonfarm payroll employment.

Clearly, there are many things driving demand for construction, and they contribute in varying degrees in different states.

According to Simonson, two of the strongest contributions are from apartment and manufacturing construction. Multifamily construction is booming nearly everywhere and appears poised to continue doing so in 2016. Manufacturing construction is being driven by petrochemicals

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— Continued from page 17

Dangers of Expanding Into New Markets Vendors can also help an expanding business break into new markets.

Think about the services the new venture will require and who will provide them.

As a “new business” owner, insufficient capital will hamper getting any new operation off the ground.

Insufficient finances could also hurt your existing operation because funds will have to be reallocated from other areas. Fully investigate the amount of capital required to support the requirements of any new operation.

Think ahead about all possible scenarios and have contingency

and transportation equipment. Many of the projects that started in 2015 are likely to keep going in 2016 (or longer) but it appears there will be fewer starts in 2016. “Declines in oil and gas drilling and agriculture, weaker growth in China and other important trading partners, and strong appreciation of the dollar have caused many manufacturers to cancel or delay expansion plans,” Simonson said. “Hotel construction also is still going strong but historically has changed direction sharply with little warning.”

Expert forecasts for 2016 construction predict growth led by hotels, offices and retail with some growth in health care and education facilities. Predictions for highways and associated construction are not promising and many experts think the pent-up demand will continue to languish until the presidential election is past.

“California, Texas, Florida and some places in the Northeast are what I

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plans. Keep an open mind and be ready to adapt to any situation that might arise.

When you expand your business, you often diversify your overall risk, reducing the potential of a single poor decision damaging your entire operation. Operating in multiple markets or services areas might allow your company to spread the costs of doing business across more customers.

The Future Certainly 2016 will bring about its own set of unique dangers, issues, and concerns to any plans. So prepare for plenty of surprises. As you grow your business there will be

might call hot spots,” Schleifer said,” but thinking the grass is greener in a new market and attempting to expand without a clear strategic plan can have you following the crowd right off a cliff.”

The Right Way Experts agree that there is no onesize-fits-all plan for success, but they do agree that having a strategic plan is a common denominator among successful contractors who are surviving and thriving through this recovery period. Getting lean and constantly working on efficiencies in all facets of the business is a first step. Knowing your strengths and understanding that the bidding process has become an exercise in marksmanship, will help you stick to what you know best and leverage it.

In a recovering economy, Penwell and Schleifer both stress human resources and financing. “Companies that properly recruit and train their workforce will be in better position in

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experiences, some pleasant, others discouraging, yet lessons learned the hard way can enlighten an operation striving for success.

Charles Dragoo is a contract underwriting officer at Liberty Mutual Surety, working with both small and large contract accounts. Dragoo has been working in the surety industry since 1972 when he graduated from Ball State. Liberty Mutual Surety, the second largest surety in the United States, works with independent agents/brokers to provide contract and commercial surety for all sizes of contractors and corporations. He can be reached at (513) 341-7384 or Charles.Dragoo@libertymutual.com.

the future than companies that ignore their human resources,” Penwell said.

Schleifer added, “The best short-term advice I can give is to make sure you can finance the growth you take on.”

Consulting with your professional surety agent, your surety underwriter, and a good construction accountant will always be worth the time and effort to give yourself an edge on best practices and avoiding the pitfalls.

Experts say companies that enjoy enduring success have core values and a core purpose that remain fixed while their business strategies and practices adapt to a changing world.

Therese Wielage joined Merchants in 2008 as vice president of Marketing. She currently serves as chair of The Surety & Fidelity Association of America’s Communications Advisory Committee.

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Feature Common Costly Job Costing Mistakes in QuickBooks™

by Monica Muir Job costing — is so important in the contracting world. Bad data can lead to faulty estimating, resulting in a loss on the job instead of a profit.

Enough “mistakes” and the business goes under. Contractors often voice the following frustrations with QuickBooks™ when it comes to job costing: • “I can’t get good job cost reports.”

• “I lack of confidence in job reports.”

• “It takes too long to …”

• “I wish you could …”

As a result, many contractors resort to tracking in a spreadsheet or a project folder and having information in multiple places. However, with just a few changes, results can be vastly improved. So much of the solution is in the setup. It’s the old “garbage in garbage out.” Part of the problem is that people think “anyone” can setup QuickBooks™ (and QuickBooks™ sometimes “feeds” that misconception). But the abovementioned frustrations (and others) suggest that maybe it’s easy to miss key aspects in the setup and use of the software.

Here are some common mistakes made in QuickBooks™.

Version of QuickBooks™ Just as having a proper foundation is crucial in a construction job, proper setup in QuickBooks™ is the first key to successful job costing.

This actually starts with the version of QuickBooks™ you use. Different versions offer different tools and features. Currently there are three versions in the desktop (Pro, Premier and Enterprise), as well as three levels in the online world (Simple Start, Essentials and Plus). Selecting which one to use is sometimes confusing for many businesses. The online versions

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appeal to the anywhere access, but to date, the job costing functionality is nowhere near as good, with job costing labor, progress invoicing being two key differentiators.

However, there are ways to have anywhere access and the functionality of the desktop products, but that’s a topic for another day.

Within the desktop products there are a few key differences: • The Contractor’s edition of QuickBooks™ Premier has helpful job costing features not in QuickBooks™ Pro: • Additional Job Cost Reports, such as: • Expenses not assigned to a job (important not to miss a billable expense).

• Cost to complete a Job. • Job Costs by Job and Vendor Summary.

• Billed/Unbilled hours by person and activity.

• Billing rates (i.e. Workers can bill out at different rates).

• The ability to create work orders (QuickBooks™ calls them Sales Orders).

• More inventory features, including assemblies.

• Job Cost Center (see top three and bottom three jobs in terms of profitability).

• QuickBooks™ Enterprise offers even more than Premier: • Along with more users (Enterprise can handle can up to 30 users) is the power to have more control over who does what — extremely important when more people can access financial information.

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• Larger lists — larger companies

have more customers, more jobs, more vendors, more employees, more memorized reports, and so forth.

• More inventory features.

• More job cost reports (Committed Costs by Job, WIP Summary).

• Unlimited U.S.-based tech support included — great especially for those “after hour” issues.

For more information on the differences between the products and videos showing the differences, go to: http://muirassoc.com/chooseqb.html.

Job Costs in Wrong Place in Chart of Accounts It’s much easier to review business and job profitability when job costs are treated as direct expenses (a.k.a. “cost of goods” accounts) instead of simply expenses (as is sometimes suggested by QuickBooks™). Examples would be job materials, payroll expenses of those who work on the job as well as the subcontractors’ cost and even equipment. Those are costs incurred so the job can get done (as compared to overhead which is an expense even if there is no job, such as phone and rent.).

For some who track WIP, job costs and draws may need to post to the balance sheet instead of the profit and loss, until the project is done.

Job Costing in the ‘Chart of Accounts’ Many job cost in their “chart of accounts” resulting in lots of accounts. Unfortunately, it’s easy to get lost in the detail and sometimes

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miss the bigger picture of the business. While that may be how it needs to be handled in other software, in QuickBooks™ the detail belongs in the “Items,” not the “chart of accounts.” Those who make the switch find more options in the job cost reporting, making it easier to monitor and evaluate jobs.

Jobs Not Setup Frustration with job costing in QuickBooks™ is often the result of jobs not being setup. For those who have had the same customer for years and done multiple jobs (sometimes overlapping), it’s important to be able isolate a specific job. The job name can be a project number, PO#, address, description — however you normally reference your jobs.

‘Items’ Not Set Up or Used for Job Costs Since (in QuickBooks™), the job detail belongs in the Items and not the chart of accounts, there are two steps for success. First, the “Item” should be “double-sided” so it can capture both the cost side and the income side. Then the Item should be used when recording job-related expenses.

Several of the QuickBooks™ job cost reports pull straight from the Items list, not the chart of accounts. So this “little” change will have a big impact in the job cost reports, which in turn will help decision-making for jobs.

Estimates Not Entered in QuickBooks™ While the estimate in QuickBooks™ may not replace the worksheet or estimating program when working up costs, some form of the estimate belongs in QuickBooks™ — even if the estimate is a fixed price. All the other numbers for the job are there — invoicing, job costs, payroll.

The estimate is the budget for the job. Those who don’t have the estimate entered in QuickBooks™ are often using a spreadsheet or project folder and/or calculator to

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monitor. Doing that elsewhere can be very time consuming and double work. However, once entered in QuickBooks™, the Estimated Versus Actual and Cost to Complete, and Committed Costs reports are just a click or two away — and very helpful in looking at actual costs compared to budget. It also makes life easier for the bookkeeper when it comes time to invoice!

Not Job Costing Labor Labor is a major component of job costing — and often the deciding factor as to whether a job was profitable. Many are not taking advantage of the time tracking feature in QuickBooks™, which can also be used to generate paychecks in QuickBooks™. When payroll is done in QuickBooks™, QuickBooks™ will also pull in payroll taxes and other benefits in addition to the wages and pro-rate it across the different jobs. Outsourced doesn’t provide job costing at the same level of detail.

With time and payroll entered in QuickBooks™, all the reports are right there, including time reports.

Taking Too Long Contractors are good about factoring in materials, field labor, etc., but often overlook efficiency in the office. Lack of efficiency in overhead can eat into profit.

1. Doing work the long, slow way costs a business money. There are lots of simple “tricks” that make work more efficient. Sometimes those who have used QuickBooks™ the longest are the ones who miss new time-saving features.

2. Third party software that lets people track time while on the job and integrates with QuickBooks™ also cuts down on data entry time.

What is it costing to have your bookkeeper to do this the long, slow way?

3. Power tools in QuickBooks™ aren’t for just the QuickBooks™ experts.

Besides helping to get work done faster, some of the power tools

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involve automation, which in turn help minimize data entry errors. The result can be money saved (as well as time).

Lack of Training/Not Asking for Help Many QuickBooks™ users are self-taught. While they’ve learned a lot, often they are incorrectly using features (or missing out on features).

This means that reports can be incorrect, incomplete, or not even available. And the result can lead to costly mistakes and decisions.

Every business has a unique angle or situation and the solution isn’t always so straightforward. It’s worth asking a professional — there may be a creative way to handle it in QuickBooks™ or there might be a third-party solution that integrates with QuickBooks™ that is part of the solution.

The good news is that with just a few changes, job costing can be more streamlined and reporting much better so that contractors can make wiser decisions.

For almost 20 years, Monica Mitchell Muir, Muir & Associates, LLC, has been helping clients save time and money with smarter use of QuickBooks™. She’s certified in Enterprise Solutions, advanced certified in QuickBooks™ and an Intuit Premier Reseller. Having seen contractors struggle with QuickBooks™, she made the decision to narrow her focus. Now she specializes in helping contractors with job costing and streamlining workflow in QuickBooks™ as those areas continue to be points of frustration. She has published articles and taught workshops for various state and national contractor organizations on these topics. Muir works with clients all over the country offering training, consulting and discounts on the Intuit products. She can be reached at (301) 696-1303 or monica.muir@muirassoc.com.

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Feature Going Digital

by Simon Lovegrove

On-screen measurement systems have been around for a while, and claim to save time and money. What are the real benefits of these systems and what questions should you ask if you are considering going digital with your takeoff?

A digital (paperless) takeoff solution means no paper handling and easier file storage and retrieval, and working electronically makes it easier to keep up to date with the latest drawing issues. An accurate digital takeoff system can dramatically reduce measurement time and allows you to work anywhere that you can take a laptop.

What types of systems are there?

There are two main categories of takeoff software that you might come across in your search. Firstly, software that’s based on scanned plans only. Electronic drawings and images come in a wide range of file types such as tif, pd, dwg™, dgn™, dwf™ and others. All of these files have different levels of interactivity available, depending on which program they’ve come from.

A software based on scanned plans may be able to import these different file types, but when it comes to measuring them, it’s a simple ‘trace over the top’ mechanism. This may be fine for things like sketches, but it may miss the benefits of drawings that have more to them. That brings us to the second type of system — one that allows the user to use the file types in their native form. With this, you’re not just tracing over the top of lines; you can actually connect into the drawing file and use “oneclick measurement” to measure lines and areas. This ensures that your

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takeoff is the most accurate it can be — minimizing errors and therefore saving you time and money.

What other features are available?

a revision. This means you’re easily able to see where the changes are, and make your updates from there — making sure you’re not wasting your time.

What’s the ROI?

If you’re still doing manual Cost is always important to take measurement with a scale ruler, you into consideration. Some systems may not be aware of some of the can be expensive and require you to advantages that going digital can buy outright — making a huge dent bring — especially with the right in your budget. It can take a while to program on your side. Firstly, it’s the perfect way to get rid of pesky paper plans crowding up your office. It’s also a great way to keep all your information together in one place.

A good system will let you export to Excel® easily, so you’re able to use your regular Excel® spreadsheet. Adding colours and notes is available with many system types, too. Further, some systems even let you view your takeoff in 3D — an invaluable feature to ensure you haven’t Colour-coded changes missed anything. Make sure the system you choose ticks all your takeoff boxes.

What happens when drawings change?

Revised plans are normally a huge issue when doing manual takeoff. If you don’t know where the changes are, you can be stuck with measuring the whole thing again. So how can going digital help? Some systems can allow you to overlay plans when you receive

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3D measurement view to check for completeness

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see any sort of ROI in these cases.

Make sure you’re not spending money on features you don’t need.

Higher cost doesn’t necessarily mean higher benefits for you if you won’t be using the features. Rental systems are always a bonus — ensuring that you’re only going to have to use it when you need it. A slow month means no payments and more in your pocket.

So what’s the best way to check what’s right for you? Test it out. Most systems offer free trials, so if you’re serious about getting something that works for you, check out the free trial first — and of course, make sure you actually use it.

Training and support Finally, it’s important to make sure you don’t get fooled by hidden costs.

Some systems can charge you for new upgrades, support or training — all necessary to actually use the program. Make sure your system has comprehensive training materials available and that you’re aware of the potential costs.

What next?

Going digital offers exciting new possibilities to accurately estimate quantities and costs, improve productivity, win more jobs and make more profit. To stay competitive in a world of technological change, going digital could be the best move you ever make.

Simon Lovegrove is a founding director at Dimensioneering, the parent company of eMeasure, and he played a key role in its development.

He is a chartered quantity surveyor

with 30 years professional industry experience before moving into software. He developed the eMeasure training materials and documentation and also plays an important part in developing future scope for the program. eMeasure is a Silver ASA Sponsor. eMeasure is one system on the market available for U.S. subcontractors — providing high quality but low cost. ASA members can take advantage of a free trial plus get 10 percent off their first payment — simply use the code ASA10 when you sign up for your trial and the discount is automatically applied to your first payment (either $29.50/month or $295/year). For more information, visit www.emeasure. com or email sales@emeasure.com.

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Legally Speaking

When entering a contract, it is not only reasonable but prudent to ask for payment assurances. Many current industry forms like the ConsensusDocs subcontract form expressly give subcontractors a contractual right to access information about the owner’s project financing.

Improving Cash Flow: The Top Five Tips to Improve Your Cash Flow and Negotiate Better Subcontract Terms

by Eric Travers Subcontractors and suppliers (collectively “subcontractors”) know all too well that cash flow is the lifeblood of their businesses. Yet many subcontractors overlook the vital role that subcontract clauses can have on affecting their ability to timely secure payment. Here are just a handful of tips about ways to improve your cash flow and safeguard your business from some of the more common cash flow problems that plague subcontractors.

Condition Your Bid on Acceptable Payment Terms A single bad job can lead to massive financial problems. Always make sure that your proposal for the work is conditioned upon acceptable contract language. If you fail to do this, you may have squandered the leverage you need to obtain good contract payment terms on a host of issues, particularly if your customer has relied on your bid to win the job.

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If you cannot secure fair payment terms in the contract, you must preserve the right to walk away from a bad contract to a safer job. That process starts with conditioning your bid and then making sure you carefully review the contract you are being asked to sign so you understand exactly what is in it so you can hold firm on the “killer clauses” that most threaten your cash flow.

Preserve Mechanic’s Lien and Bond Rights Lien and bond rights are important tools to maintain payment security, but they have a huge and often underappreciated impact on cash flow because subcontractors that do what is necessary to preserve their lien and bond rights position themselves to go to the head of the line for payment, even on projects where the owner or upper tier is getting cash-strapped.

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This is because the payment security of a mechanic’s lien or payment bond means there is an additional party, and pool of money, to pay a valid claim. Subcontractors that are diligent in preserving their rights can distinguish themselves from other creditors, who will be more likely to be at the mercy of their customer.

It is vital that you know the law of the state where you are working, and do what is necessary to preserve these important rights. Some states allow “up front” waivers of mechanic’s lien and bond rights. Others prohibit such waivers. Some states require that subcontractors complete and serve or record a preliminary document (at the start of their work) such as a Notice of Furnishing as a condition precedent to the subcontractor’s ability to later make a lien or bond claim. Other states have no such requirements or restrictions, but all have filing and notice deadlines of some sort that typically must be strictly followed at the risk of losing rights.

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Every year ASA publishes “Lien & Bond Claims in the 50 States” (Item #3006), containing contact information for ASA attorneys who contributed to the manual. Having a good construction attorney’s input into the lien and bond law impacting your rights when starting a project is one of the most important weapons you can add to your contract management toolbox to better ensure a more consistent cash flow.

Avoid Pay-if-Paid Clauses Agreeing to a “pay if paid” clause in your subcontract can be a big mistake. In the states that allow “pay if paid” clauses — in some states such clauses are void as against public policy — by agreeing to such a clause you will reduce your leverage to be timely paid. Even worse, you may increase the likelihood you will be subject to backcharges if your customer is fighting with the owner for payment and negotiating backcharges of its own.

In the first instance, make sure to negotiate good contract language with your customers. In this regard the subcontractors that best set themselves up to be paid are those that negotiate an absolute obligation to pay, whether on its own (payment tied to invoice date, acceptance of work or monthly or other completion of services) or by converting a pay-ifpaid clause into a “pay-when-paid” clause that will allow your customer a reasonable period of time to pursue payment from above before an absolute duty to pay you kicks in.

Don’t Overlook Financial Backing or Reputation of Your Customer’s Customer Don’t forget that your customer is in the same boat as you are because it, too, needs cash flow to pay its bills, which include your bill. Thus, keep in mind that even the best contract language you can negotiate may not ensure your timely payment if your customer is not being paid.

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This means that when entering a contract you should consider the project’s financing and the reputation of those who control the cash flow in the tier (or tiers) above you. It is not only reasonable but prudent to ask for payment assurances. Indeed, many of the current industry forms like the ConsensusDocs subcontract form expressly give subcontractors a contractual right to access information about the owner’s project financing.

If you cannot verify that the project has the financial backing to succeed, or are concerned about a party in the upper tier above your customer, that information may play a vital role in your decision on what to bid and the security you need to continue.

Consider Asking for a Joint Check Agreement Relatively recently, even raising the prospect of a joint check agreement would raise eyebrows. But in the last five years such agreements have become more and more common.

A properly worded joint check agreement may be one of the best ways to ensure timely cash flow in that such agreements can create a direct payment pipeline from the owner to your company and eliminate the payment delays that are otherwise common when payment must be channeled through your customer before it gets to you.

Subcontractors protected by a welldrafted Joint Check Agreement are much more likely to be paid, even if your customer encounters financial difficulty, than those who are relying on standard subcontract language.

But a JCA is only as good as the language in its four corners. If you will use such an agreement you should ask a good construction attorney in your state to prepare a form for you to have in your files to use. For similar reasons, if you are presented a JCA drafted by another party, have your attorney review that

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agreement to advise you on whether it is sufficient for your needs. Don’t be penny wise and pound foolish: Given how important such agreements are to cash flow, the little bit you may spend up front for an attorney’s input is valuable insurance that you can make an informed decision on whether the proposed JCA gives you the protection you need or warrants modification.

Conclusion After you have put in the hard work on the front end, make sure to timely address issues as they develop.

In this regard, you need a trusted and experienced person managing your receivables, so small payment delays don’t become big ones. The companies that know what to ask for up front, and that have a bottom line they are prepared to stick to on the contract terms important to them, are half way there to improved cash flow. Those that then regularly monitor collections and quickly move to address payment delays as they occur complete the loop. It is those companies that do all the above that best position themselves to avoid or mitigate the types of cash flow problems that can be common in the construction world. Subcontractors and suppliers that incorporate the above tips into their credit strategy should see improved collection rates and cash flow. And that’s a good thing.

Eric Travers, Esq., is a director with Kegler, Brown, Hill & Ritter, Columbus, Ohio, practicing primarily in the firm’s Construction Law area, representing subcontractors, general contractors, owners, suppliers, architects, sureties, construction managers, and others. Kegler, Brown, Hill & Ritter, serves as legal counsel for ASA. Travers can be reached at (614) 4625473 or etravers@keglerbrown.com.

This article originally appeared in the July 2014 edition of The Contractor’s Compass.

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ASA/FASA Calendar January 2016

April 2016

12 – Webinar: The War for Talent Drives Construction Pay Higher: Pay Trends in the Construction Industry

12 – Webinar: The Payment Dance in the Construction Industry

14-16 – ASA Mini-Committee Week: Executive and Finance Committee and Rap Council Meetings, Hilton Garden Inn Scottsdale

10 – Webinar: Websites, Email, Social Media and Your Domain Name

February 2016

14 – Webinar: Damages For Lost Labor Productivity

in the February 2016 Issue of ASA’s

THE

May 2016

Coming Up

June 2016

THEME: Marketing and Selling Your Services •

Putting Your Best Foot Forward

•

Supporting BD: The Behind-the-Scenes Marketing/Admin Function

Contact information for all ASA and FASA events/programs:

•

www.asaonline.com education@asa-hq.com

Project Pursuit: BD Leverage

•

Strategic Marketing That Works

•

Hall-of-Fame Shipping Managers Reveal ‘Aha’ Moments

•

Legally Speaking: What’s in a Name? Protecting Your Brand

9 – Webinar: Negotiating Retainage March 2016 3-5 – SUBExcel 2016, Miami, Fla.

THE

Win. Win.

PAST ISSUES: Access online at www.contractors knowledgedepot.com

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 TM

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JUNE 5TH, 11:08 A .M.

A STAGGERING STATISTIC INSPIRES A LIFE-SAVING RULE IN AN INS TANT,

C A LV IN B ERGER SAW THE VA LU E OF IN - C A B B EH AV IOR TR A INING FRO M CN A

When a recent safety webinar revealed that 280,000 drivers are involved in serious accidents every year, Calvin Berger of Calberg Contracting took CNA’s recommendation to heart, and posted placards restricting cell phone use in each of his company’s vehicles. Now Calberg Contracting is filing fewer claims, and Calvin’s enjoying a handsome bonus for worker safety and performance.

When you’re looking for risk control programs that keep workers dialed in to relevant industry trends … ® we can show you more.

To learn more about CNA’s coverages and programs for building contractors, 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 or places is 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 service mark registered by CNA Financial Corporation with the United States Patent and Trademark Office. Certain CNA Financial Corporation subsidiaries use the “CNA” service mark in connection with insurance underwriting and claims activities.

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