The Contractor's Compass July 2016

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ASA’s

THE OFFICIAL EDUCATIONAL JOURNAL OF THE AMERICAN SUBCONTRACTORS ASSOCIATION

WWW.ASAONLINE.COM

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Where Is My Trophy?

Time to Drain the Pool

The Risk of Not Paying the

Right Price for Good Employees

The Cost of Hiring the Wrong People

The Cost of Keeping the Wrong People Too Long

Importance of Connecting

with Tomorrow’s Workforce

H-1 Visas: Improving the Quality of Life for Your Employees

Immigration 101: Strategies for Employing Foreign Workers

Legally Speaking:

So You’ve Contracted Your Way into a Pickle

Save the Date

March 15-18, 2017 Denver, Colorado

JULY 2016

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THE

ASA’s

July 2016

Features TM

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.

Where Is My Trophy? Examining a World Where Everyone Is a Winner and How to Make This Work in Your Firm ...............8

by Gregg Schoppman

Re-inventing Your Bonus Pool Structure: A New Model............... 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).

by Sal DeFonzo

The Risk of Wage Rises in Construction: Three Key Trends ....... 12

EDITORIAL STAFF Editor-in-Chief, Marc Ramsey

by Mike Rose

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.

The Cost of Hiring the Wrong People........................................... 15

by Jamie Hasty

The Cost of Keeping the Wrong People Too Long....................... 18

by Monroe Porter

The 2.76 Million Challenge—The Importance of Connecting with Tomorrow’s Workforce...................................... 22

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

by Laura Cataldo

Foreign Workers and Spouses: What’s an Employer Got to Do with This?...................................................................... 24

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

by Irvina Plumlee and Elvia Munoz

Immigration 101: Strategies for Employing Foreign Workers............................................................................ 27

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

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.

by Irvina Plumlee and Elvia Munoz

Departments CONTRACTOR COMMUNITY..... ........................................................... 4 LEGALLY SPEAKING............................................................................... 29 So You’ve Contracted Your Way into a Pickle

by Nicole Sornsin and Jim Sienicki

Quick Reference

LAYOUT Angela M Roe angelamroe@gmail.com © 2016 Foundation of the American Subcontractors Association, Inc.

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ASA/FASA CALENDAR...........................................................................32 COMING UP............................................................................................. 32 C O M P A S S

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Contractor Community ASA’s 2016-17 Webinar Series Helps Subcontractors Improve Their Businesses The 2016-17 ASA Webinar Series, beginning this August, will focus on topics that can help subcontractors stay competitive, avoid or reduce risks, and be more profitable. Topics will include identifying “sleeper” contract clauses, recognizing “killer” contract clauses, using the ASA Subcontract Documents Suite, cash management, change orders, prompt payment, cost coding, and incentive compensation. The registration fee for these business education webinars is $99 for ASA members and $179 for nonmembers.

This year’s ASA webinar series will also include five complimentary education webinars on the Department of Labor’s overtime rule, OSHA illness/injury data collection requirements, OSHA transgender bathroom requirements, OSHA silica rule, and the potential impact the U.S. election outcome may have on subcontractors.

All ASA webinars will take place from 12:00 p.m. to 1:30 p.m. Eastern time:

• Aug. 9, 2016—“Sleeper Clauses: Contract Clauses That’ll Make You Lose Sleep at Night,” by Dan McLennon, Esq., Smith, Currie & Hancock, LLP, San Francisco, Calif. ($99 for ASA members; $179 for Nonmembers) • Aug. 30, 2016—“Department of Labor Overtime Rule,” by Jamie Hasty, SESCO Management Consultants, Richmond, Va. (Complimentary)

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• Sept. 13, 2016—“Using the ASA

Subcontract Documents Suite (2016),” by Eric Travers, Esq., Kegler, Brown, Hill & Ritter, Columbus, Ohio ($99 for ASA members; $179 for Nonmembers) • Oct. 4, 2016—“OSHA Illness/Injury Data Collection Requirements,” by Jamie Hasty, SESCO Management Consultants, Richmond, Va. (Complimentary) • Oct. 11, 2016—“Is Your Cash Working for You? Understanding the Competitive Advantage of Cash Management,” by Kevin Jacobs and Aaron McFarland, Moss Adams LLP, Seattle, Wash. ($99 for ASA members; $179 for Nonmembers) • Nov. 8, 2016—“Change Orders— The Bane of All Subcontractors,” by Joseph Sweeney, Esq., Sweeney, Mason, Wilson & Bosomworth, Los Gatos, Calif. ($99 for ASA members; $179 for Nonmembers) • Dec. 13, 2016—“U.S. Election Outcome & Potential Impact on Construction,” by ASA Chief Advocacy Officer E. Colette Nelson, American Subcontractors Association, Alexandria, Va. (Complimentary) • Jan. 10, 2017—“Most Popular Benefits Employees Are Purchasing Without Employer Contribution,”

by Dan Cahn, Benefit Solutions Today, Kirkland, Wash. ($99 for ASA members; $179 for Nonmembers) • Jan. 24, 2017—“OSHA Transgender Bathroom Requirements,” by Jamie Hasty, SESCO Management Consultants, Richmond, Va. (Complimentary) • Feb. 14, 2017—“Cost Coding Made Simple,” by Hamed Seyedi, SDC & Associates, Inc., Santee, Calif. ($99 for ASA members; $179 for Nonmembers)

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• March 1, 2017—“OSHA

Silica Rule—Applications for Subcontractors,” by Terry Foy, Foy Safety Consulting, Inc., Abingdon, Md. (Complimentary) • April 11, 2017—“Seven Best Practices for Creating Effective Incentive Compensation Plans,” by Mike Rose, Ph.D., FMI, Phoenix, Ariz. ($99 for ASA members; $179 for Nonmembers) • May 9, 2017—“Prompt Payment and How/When to Suspend Work,”

by Jason Ebe, Esq., Snell & Wilmer, LLP, Phoenix, Ariz. ($99 for ASA members; $179 for Nonmembers) • June 13, 2017—“Killer Contract Clauses,” by Russell O’Rourke, Esq., Meyers, Roman, Friedberg & Lewis, Cleveland, Ohio ($99 for ASA members; $179 for Nonmembers) Register online for these webinars via the ASA Web site by clicking on “Register for an Event.”

What You Need to Know about OSHA’s New Rule on Crystalline Silica ASA members now can learn more about OSHA’s new rule on crystalline silica through a free webinar designed to help them understand their obligations and compliance options. The new OSHA rule requires construction employers to limit worker exposure to silica and to take other steps to protect workers.

Crystalline silica is a common mineral found in many naturally occurring materials and used at construction sites. “OSHA’s New Final Rule on Crystalline Silica: What You Need to Know” will provide participants with critical information on the new

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rule, including general information about performing construction work on silica containing materials, the historical significance of the rule, key details as to how the rule will affect the construction jobsite, as well as what is necessary to comply.

The webinar was developed by the Construction Industry Safety Coalition, which is comprised of 25 construction industry trade associations, including ASA. The presenter is Bradford Hammock, a partner at Jackson Lewis P.C., whose practice focuses exclusively on safety and health issues. Construction employers must comply with all requirements of the standard by June 23, 2017, except requirements for laboratory evaluation of exposure samples, which begin on June 23, 2018. States with OSHA-approved state plans have six months to adopt standards that are at least as effective as the new federal OSHA standard.

Access the webinar using the password: CSC4. A hard copy of the webinar slides is available on the ASA Web site. For more information, see the ASA Fact Sheet on OSHA’s Rule on Respirable Crystalline Silica and the ASA Frequently Asked Questions on the OSHA Standard on Respirable Crystalline Silica.

ASA Releases Special Report on New DOL Overtime Rule On May 23, the U.S. Department of Labor issued its highly-anticipated final rule modifying the exemptions to the Fair Labor Standards Act overtime rules for white-collar employees (executive, administrative, professional, computing and outside sales positions) and highlycompensated employees. However, as described in the new ASA Special Report on the DOL Overtime Rule, although the new rule is not as

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disruptive as it could have been, it still may have a significant impact on many ASA members. Businesses that have employees who were previously classified as exempt but who do not earn enough to meet the new salary thresholds will have to decide whether to reclassify these employees as non-exempt (in which case they will be eligible for overtime) or to increase their compensation to meet the new thresholds. From a financial standpoint, this will largely require businesses to make an employee-byemployee assessment of the amount of overtime that a particular employee works versus the amount that the employee’s salary would need to be increased to meet the new threshold.

A business can, of course, place strict limitations on the amount of overtime it will allow a newly non-exempt employee to work in order to avoid increased payroll costs. However, this will need to be balanced with productivity concerns, particularly where the employee has traditionally worked significantly more than 40 hours per week. For employers who do end up reclassifying employees as nonexempt, they will also have to start tracking hours in order to calculate when and how much overtime is due. ASA Chief Advocacy Officer E. Colette Nelson said, “While there are bills pending in Congress (S. 2707 / H.R. 4773) that would prevent the new DOL rule from taking effect, they do not have sufficient support to override a certain presidential veto.” She added, “ASA members need to prepare for the Dec. 1, 2016, effective date of the new rule.”

ASA members can learn more about the Department of Labor’s new overtime final rule through a free webinar. “New Overtime Regulations 101” was developed by the Small Business Legislative Council, a permanent coalition of more than

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50 associations, including ASA. The webinar provides participants with critical information on the new rule, including background, an overview of the existing FLSA rules, a review of the new rule, and what employers should be doing to prepare for compliance.

Access the webinar using the password SBLC40th. The webinar slides are available on the ASA Web site. For more information, see ASA’s Special Report on the DOL Overtime Rule.

ASA will also offer a complimentary webinar on the DOL overtime rule, presented by Jamie Hasty, SESCO Management Consultants, from noon to 1:30 p.m. Eastern time on Aug. 30 as part of ASA’s Webinar Series 2016-17. Online registration will be available soon under “Register for an Event” on the ASA Web site.

Help ASA Fund PrecedentSetting Briefs Have you ever wondered what you can do to improve the business environment for construction subcontractors? One answer is to support ASA’s work to protect payment and other subcontractor rights in federal and state courts.

ASA’s Subcontractors Legal Defense Fund has been financing “friend of the court” briefs for 20 years.

The SLDF allows ASA to intervene in court cases where it can have a meaningful impact on cases involving subcontractor rights, such as the enforceability of pay-if-paid clauses, mechanic’s lien and payment rights, bid shopping, no damage for delay, the applicability of the duty to defend, insurance coverage for construction defects, and more. Right now, ASA is involved in a lawsuit to block OSHA’s implementation of its new rule on crystalline silica and another case that will clarify the difference

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between a lienable improvement of real property and a non-lienable trade fixture. ASA can’t continue its work in support of subcontractors unless it has the funds to pay for participation in the court cases that matter most to subcontractors. With the help of ASA members, ASA can muster the financial resources needed to invest in precedent-setting litigation to establish subcontractor rights. You can make your contribution through the ASA online store. For more information, visit the ASA SLDF Web site at www.sldf.net.

Call for Applications: Subcontractors Committed to Integrity Invited to Apply for Ethics Awards Subcontractors that are committed to professionalism and sound business practices are encouraged to apply for ASA’s Excellence in Ethics Awards. These awards recognize subcontractors that demonstrate the highest standards of internal and external integrity. Applicants must meet a number of critical milestones before the Dec. 16, 2016, deadline, particularly those who have yet to develop a documented ethics program. ASA provides a timeline to help applicants keep on track. Each applicant is required to respond to questions concerning the firm’s corporate ethics policies and procedures, its construction practices, and its general business practices.

Each applicant also is required to submit detailed documentation, including sealed letters of recommendation from a customer, a competitor, and a supplier. Applicants can learn about the judging criteria and submission requirements in the brochure and download the

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application. ASA also provides a resource guide to help firms prepare and submit applications. This guide contains model documents, such as sample recommendation letter requests and model policies on topics ranging from competition and conflicts of interest to internal procedures and whistle blowing. ASA will present the 2016 Excellence in Ethics Awards during SUBExcel 2017, which will take place March 15-18, 2017, in Denver, Colo. Information about these awards is located under “Education & Events” on the ASA Web site.

Call for Applications: Prime Contractors Encouraged to Apply for National Best Practices Awards Prime contractors and specialty trade contractors that have signed, within the past year, a contract directly with a construction owner under which it performs construction services are invited to apply for ASA’s National Construction Best Practices Awards. These awards, which were first offered in 2011, recognize prime contractors who construction subcontractors say are the best to work for—those who are committed to best business practices like safety management, prompt payment, prompt processing of change requests and claims, and effective project scheduling and coordination.

The criteria for these awards include the use of a standard subcontract whose provisions substantially reflect the best practices incorporated into the ASA-endorsed ConsensusDocs 750 Standard Agreement Between Constructor and Subcontractor, as

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well as highly favorable evaluations from three specialty trade contractors, based on 20 project management factors. Each applicant must supply three sealed business-practices recommendations from specialty trade contractors that have worked for it in the past year along with a copy of its standard subcontract with its application. A construction attorney will evaluate the standard subcontract, and the ASA Task Force on Ethics in the Construction Industry will evaluate the recommendations from specialty trade contractors.

Prime construction contractors that use the ASA-endorsed ConsensusDocs 750 contract form as their standard subcontract automatically pass the subcontract evaluation. The application deadline is Nov. 11, 2016, and the application fee is $495. Awards will be presented during ASA’s annual convention, SUBExcel 2017, which will take place March 15-18, 2017, in Denver, Colo.

Information about these awards is located under “Education & Events” on the ASA Web site.

EEOC Issues Final Rules on Employer Wellness Programs The U.S. Equal Employment Opportunity Commission, on May 17, issued final rules that provide guidance to both employers and employees about how workplace wellness programs can comply with federal laws, including the Americans with Disabilities Act, the Genetic Information Nondiscrimination Act, and the Affordable Care Act. The rules are intended to permit wellness programs to operate consistent with their stated purpose of improving employee health, while including protections for employees

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against discrimination. Many employers offer workplace wellness programs intended to encourage healthier lifestyles or prevent disease.

These programs sometimes use medical questionnaires or health risk assessments and biometric screenings to determine an employee’s health risk factors, such as body weight and cholesterol, blood glucose, and blood pressure levels. Some of these programs offer financial and other incentives for employees to participate or to achieve certain health outcomes.

The ADA and GINA generally prohibit employers from obtaining and using information about employees’ own health conditions or about the health conditions of their family members, including spouses.

Both laws, however, allow employers to ask health-related questions and conduct medical examinations, such as biometric screenings to determine risk factors, if the employer is providing health or genetic services as part of a voluntary wellness program.

The final ADA rule provides that wellness programs that are part of a group health plan and that ask questions about employees’ health or include medical examinations may offer incentives of up to 30 percent of the total cost of self-only coverage.

The final GINA rule provides that the value of the maximum incentive attributable to a spouse’s participation may not exceed 30 percent of the total cost of self-only coverage, the same incentive allowed for the employee. No incentives are allowed in exchange for the current or past health status information of employees’ children or in exchange for specified genetic information (such as family medical history or the results of genetic tests) of an

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employee, an employee’s spouse, and an employee’s children.

Both rules also seek to ensure that wellness programs actually promote good health and are not just used to collect or sell sensitive medical information about employees and family members or to impermissibly shift health insurance costs to them.

The two rules also make clear that the ADA and GINA provide important protections for safeguarding health information. The ADA and GINA rules state that information from wellness programs may be disclosed to employers only in aggregate terms.

The ADA rule requires that employers give participating employees a notice that tells them what information will be collected as part of the wellness program, with whom it will be shared and for what purpose, the limits on disclosure and the way information will be kept confidential. GINA includes statutory notice and consent provisions for health and genetic services provided to employees and their family members. Both rules prohibit employers from requiring employees or their family members to agree to the sale, exchange, transfer, or other disclosure of their health information to participate in a wellness program or to receive an incentive.

To help employers comply with its new rules, EEOC has made available a question-and-answer document and other materials.

House Committee Votes to Partially Block ‘Fair Pay/ Safe Workplace’ Rule

subcontractors on federal contracts to report violations of 14 federal labor laws and their state equivalents.

The amendment to the National Defense Authorization Act 2017 (H.R. 4909) would prohibit application of the rule to the Department of Defense and National Nuclear Security Administration contracts.

The proposed rules were issued by Department of Labor and the Federal Acquisition Regulatory Council on May 28, 2015, in response to President Obama’s 2014 Executive Order on Fair Pay and Safe Work Places.

DOL’s proposed guidance is intended to assist contracting agencies and the contracting community in applying the EO’s requirements, including evaluating the severity of labor violations.

The FAR Council’s proposed regulation would integrate the EO’s requirements and the provisions of the Labor Department’s guidance into the existing procurement rules.

Most federal contractors would only have to attest that they comply with laws providing workplace protections. For those contractors that report violations, designated Labor Compliance Advisors would coordinate with the relevant enforcement agency experts to help them come into compliance.

ASA Chief Advocacy Officer E. Colette Nelson reports that “an effort is expected to be made to extend the prohibition government-wide when NDAA is considered by the full House.” For more information on the DOL proposed guidance and the FAR Council’s proposed rule, see ASA’s Frequently Asked Questions.

On April 27, the House Armed Services Committee voted to partially block implementation of the Obama Administration’s rules that would require prime contractors and

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Feature Where Is My Trophy? Examining a World Where Everyone Is a Winner and How to Make This Work in Your Firm

by Gregg Schoppman It appears to be all the rage—we live in a world where everyone wins, as long as “everyone” is 10 or younger. Arguments abound regarding the pros and cons of celebrating a world of winners.

On one side, we help create a world of positive reinforcement and help grow young minds to think more about team collaboration, sportsmanship and the sheer enjoyment of the activity. Contrarians argue it positions young people to have unrealistic expectations about the world and instills a sense of entitlement. One of the greatest examples of the dystopian

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world of “non-winners” is in fact the world of construction.

Ask any estimator or business developer about their awards for second place on bid day and you might be greeted with cynical cacophony of four letter words.

However, even as black or white as the industry is, the same cynicism pervades just about every aspect of a firm’s culture and it often becomes hard to find any winners at all. Consider bid day—even when a firm “wins” the first comment that is made is “What did we forget?” Hardly a ticker tape celebration.

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should now maintain a stock of “Participation Trophies” for their “Get Work Team?” No, but moving the needle from the nether world of negativity would be a stark improvement. Simply put, when was the last time someone in any firm was caught doing something right? There is no shortage of setbacks, challenges, issues, mistakes, accidents, etc., in the world of construction.

However, it is important as ever for contractors to identify and reward the right behaviors and incentivize the firm’s associates to do the right thing.

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First Place—Begin with Core Values With so many things happening day to day in any firm, what should a firm emphasize? One of the best areas to focus upon is the core values that serve as a firm’s DNA. Safety, quality, customer service, innovation, integrity, etc., are just a few of the most common core values that firm’s use as its core tenets. However, all too often, core values are relegated to some poster or business card and are rarely exemplified in daily business activities. This does not mean a firm that has the aforementioned values acts hypocritically—in fact, some of these core values are so deeply ingrained that leaders do this naturally. However, what better way to illustrate practical applications of core values to newer and younger associates by rewarding the right behaviors.

For many employees, incentive compensation provides the connective tissue to profitability.

By rewarding an individual that demonstrates superior customer service, a firm can reference specifics of firm-first behavior.

Second Place—Reward Collaboration Rarely does a firm’s success rely on the efforts of a single individual. For instance, a project requires the efforts and “sweat equity” of many team members, internally and externally. So often, firms dwell on the challenging projects or projects that seem to drain so many of the firm’s resources. Consider rewarding a project team—estimator, superintendent, manager, foremen, trade contractors— with some sort of firm-wide acknowledgement. Whether it is a commendation such as a plaque or certificate or even some sort of “Trade Contractor Thank You,”

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it sends a message of positivity.

All too often, these same team members probably receive their share of bad news. Additionally, this is hardly a “Best Project of the Year” award and additional great projects can also be celebrated.

Ultimately, the aim is to recognize the contribution of the team toward the greater good and also acknowledge the efforts of team members outside of the firm.

Third Place—Reward the Little Things This is not to say a firm should provide 8th place trophies for walking, but it is apparent that firms seem to only celebrate the grand slams or mega-successes.

Each day a firm wins by hitting singles, doubles and triples but those moments are discounted and relegated to daily operating procedures. Every Friday need not be “Gold Star Day,” but rewarding the talent of the firm should occur more frequently than Haley’s Comet. Referring once again to the theory of catching people doing things right, a great deal of good can come from a CEO or president or senior executive acknowledging the positive contribution of its team members. Whether that is a passing reference in a newsletter, blog, company address or even on an impromptu site visit, the immeasurable good will only provide a jolt of momentum.

Participation There are many pundits that will argue against celebrating wins and positively acknowledging team members in that it will only alienate team members that are not acknowledged. If a firm only provides a small number of positive messages, doled out like rations during a famine, it is easy to see how a positive tool could be manipulated to be perceived as negative. However,

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firms that celebrate at the correct frequency, acknowledging the correct behaviors should never worry about the minority of “wet blankets” that feel slighted.

Consider the alternative, because a few people may feel wrongly disenfranchised, the whole firm will now shy away from rewarding anything positive. Seek out these “wet blankets” within the firm and understand what makes them tick. In some cases, it is not the message of positivity that they are against but rather some deep-rooted angst, possibly stemming from a past perceived wrong doing by the firm.

While construction firms will never be confused with the world of Pollyanna, there is a world of opportunity to shift to a culture of positivity. Most importantly, a culture that focuses on its greatest asset—its people. In the meantime, leadership can put the trophies down and become cheerleaders, celebrating their winning team.

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 multi-family 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 Re-inventing Your Bonus Pool Structure: A New Model

by Sal DiFonzo The economy has improved and you have two job offers. If these were your choices, how would you rather work?

The Old Way: 100 Percent Discretionary ‘Trust Me’ Plan Company A offers a market-competitive base salary but has a purely discretionary bonus plan. If the company makes money and the owner decides to share some of the profits, he or she will give you a bonus in the form of a “to be determined” award one year from now. There are no criteria, and the company certainly will not commit to a defined bonus amount. Just do a good job and hang in there.

The New Way: Structured Incentive Plan Company B also offers a marketcompetitive base salary, but it’s in the minority 25 percent of contractors that offer a structured incentive plan. The company tells you that your target bonus opportunity is 15 percent of your base project management salary. The upside

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opportunity can be as much as 25 percent.

There are three ways to earn your bonus: company performance, business unit performance and individual goals. You will receive three simple goals from your manager that will be easy to understand.

However, these targets are “stretch goals” that are above your regular job duties.

Your job is to complete projects on time and on budget. Extra cash is waiting for you if you can also increase margins over estimate and ensure customers are delighted.

Which company would you choose?

The company where the owner arbitrarily decides what you receive, or the one that presented you with a documented incentive plan tied to the business strategy that also shows you how to earn your bonus and how much it will be?

There is a significant shift occurring in the engineering and construction industry in how companies are paying bonuses to their employees. The trend is to move away from purely discretionary plans and toward structured incentive plans (with some discretion on individual performance measures). Owners need not disclose their actual profit numbers when

using structured plans; communicating as a percentage to goal (e.g., company performance is at 105 percent to goal) is sufficient. Employees can look up performance on a pay table and identify their award percentage next to the achievement percentage.

Current Practice: Top-Down, Pool-Based Funding You can’t blame company owners for their age-old pay practices. The majority of the industry is family-run or privately held. Owners like exerting control through entirely discretionary plans. Having no commitments or promises relieves stress, but it is becoming harder to recruit with “trust me” incentive plans. The modern and more competitive workforce demands a fair deal where they know the rules upfront and they know about the bonus opportunity before taking the job.

Top-down funding approaches are prevalent in the construction industry. In fact, a recent FMI compensation survey found that 75 percent of contractors use top-down funding models for their incentive compensation plans (Figure 1).

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A top-down model allocates a portion of profits for incentives and then managers allocate the pool in a discretionary manner. The average budget for annual bonus programs is 15 percent of net profit before tax (Figure 2). Actual award amounts may not relate to employee expectations or labor market norms.

The two key problems with top-down funding are: 1. It is a function of headcount. The individual award amount depends on the size of the pool and the number of employees participating in the pool.

Increasing headcount will reduce award amounts if the size of the pool does not increase.

2. Pools tend to pay out regardless of performance. Perhaps a company has a $3 million net profit goal. Even if it only achieves $1 million, there is a pool formula that pays out a portion of any dollar earned (e.g., paying out 15 percent of $1 million).

The question is, how do you explain to an employee that the company made more profit and individual performance was stellar, but bonuses will be lower because the company hired 20 more people. An unintended consequence can occur when management chooses to limit hiring in order to maximize bonuses, even though the company needs more human resources to grow and handle the workload.

Bottom-Up Funding: Another Way Bottom-up funding looks to the labor market to establish target incentives as a percentage of base salary. If project managers earn 15 percent of base salary on average, for example, then a $1 million payroll for 10 project managers should yield a budget of $150,000 for bonuses.

Here are the key advantages to this type of funding: 1. Bottom-up funding guarantees a given level of pay for a given level of performance. It moves away from “trust me” and moves toward a calculable outcome. Employee commitment increases when the company makes a commitment to its workforce.

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2. It is easier to recruit with a known target incentive and upside opportunity.

Because recruiting is easier, it becomes an advantage over the competition when attracting star talent (vs. “trust me” plans).

3. There is a written plan document. The plan document becomes a recruiting tool that contains the plan description, calculation examples and terms/ conditions.

4. Budgeting is more consistent. With known headcount and target incentives, CFOs can treat the incentive budget as a variable cost with a direct link to profitability.

How to Build a Bottom-Up Funding Methodology When developing a bottom-up funding approach, these seven steps must be factored into the process: 1. Determine owners’ return on equity requirement. Contractors take a lot of risk in this low-margin industry, and they demand a high return on their capital investment given the risks involved. The Risk Management Association publishes average returns on equity for different types of general and specialty subcontractors. Returns should be better than a Vanguard bond fund!

2. Install a fail-safe. A significant weakness of pool-based funding is that it tends to pay regardless of achievement. Set a fail-safe, based on owner return on equity requirement. This is often 50 percent to 60 percent of the net profit goal for the year.

3. Do your research. Use empirical labor market intelligence to establish target incentives for each position. Why guess? There are several industry sources for company-reported data on E&C jobs.

4. Conduct a budget roll-up. Do the math.

Ten project managers at 15 percent is a number. Five project engineers at 10 percent is a number. Add all of the target incentive budgets to derive an overall bonus budget.

5. Model your cost. Model out expenditures for a typical year, a highperforming year and a low-performing year. Run a pro forma using last year’s results. What is the stress test or max payout allowed under the plan?

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6. Adjust target incentives to match affordability. After benchmarking and cost modeling, you may discover that market rates are out of your budget. Simply ratchet down target incentives until the budget meets your affordability requirements. You may also need to update your compensation philosophy to guide future pay decisions to a level that you eventually want to pay.

7. Define the upside ratio. Set the upside or maximum opportunity under the bonus plan. Most plans have an upside of 150 percent of the target incentive.

Therefore, if the target incentive were 10 percent, the upside would be 15 percent.

Get Ahead and ‘Drain the Pool’ The manufacturing, high-tech and health care industries have all used structured incentive plans for decades. The engineering and construction industries have not followed suit. There are very few public E&C companies, and a large portion of the industry’s privately held firms use top-down, pool-based funding bonus formulas.

Bottom-up funding is another way to create a financially accountable plan that features definitive target incentives.

Employees are more motivated to perform when they know how much they can earn and what the related requirements are.

Bottom-up funding is also more financially accountable because it pays owners first, requires a minimum level of profit to fund the plan, and contains a fail-safe to prevent the plan from ever owing more in bonus payments than profits earned.

Finally, bottom-up funding can mean the difference between success and failure in today’s competitive business environment. With economic conditions improving and an expanded number of job choices opening up for construction workers, the importance of developing structured compensation plans based on measurable criteria and centered on employee performance and development will only increase in the coming years.

Sal DiFonzo is a managing director for FMI. He can be reached at (602) 772-3427 or sdifonzo@fminet.com. This article originally appeared in the March 2016 edition of FMI Quarterly.

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Feature The Risk of Wage Rises in Construction: Three Key Trends

by Mike Rose Operating in a tightening labor market, engineering and construction firms need to pay close attention to salary, benefits and other labor-related trends that can help them avoid job delays, botched projects and profit losses.

Why do contractors keep guessing about pay? In this “war for talent” in key construction roles, contractors continue to underpay and overpay, based on anecdotal information or small sample bias. In FMI Compensation’s Incentive Compensation Effectiveness Study,¹ most contractors receive their pay information from peers.

Only a quarter of contractors use labor market intelligence. There are multiple sources of labor market pay rates for the construction industry, but there is probably a lack of awareness of its availability. In this new era of big data and intense labor competition, contractors could benefit from changing their pay practices. Instead of basing pay decisions on what candidates demand, what the recruiter says, or divinely inspired hunches—do your research and look it up!

Pay is moving in unexpected ways in critical skill areas and geographies while moderating in other “cooling” skill

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areas. Understanding market pay trends allows leaders to plan more accurately for the future and adapt to important developments that are fundamentally reshaping the industry.

Understanding three key trends that are currently shaping the compensation aspect of the construction market can help firms navigate the market fluctuations and come out ahead.

Labor: A Not So Ancient History From December 2007 to June 2009, the Great Recession resulted in more than 8.2 million job losses across the nation. Construction put in place fell from a seasonally adjusted annual rate of $1.2 trillion in March 2006 to a low of $754 billion in February 2011. By the end, approximately 2.3 million construction jobs were lost—nearly 30 percent of the construction workforce.

Six years later, the construction industry is back on track, albeit characterized by some ebb and flow. In April of this year, a decline (biggest in five years) left total construction spending at a seasonally adjusted annual rate of $1.13 trillion, up 4.5 percent from a year ago.²

Total construction employment has rebounded to just over 6.5 million³ workers, still a far cry from its peak of 8 million workers in 2006. Despite being almost 20 percent below its 2006 peak, the industry is struggling to find qualified labor. Could 1.5 million workers have left the workforce for good?

The answer is an unequivocal yes.

Some workers found new careers, while others left the workforce entirely. In fact, according to research published by the U.S. Census Bureau, the authors suggest “60 percent of displaced construction workers have left the labor market or moved into other industries.” The authors also note that, “although some former construction workers transitioned quickly to other sectors, for most, a move into another industry occurred after a long spell of nonemployment.”4 With baby boomers retiring and a lower number of college and high school graduates entering the construction field, the construction industry is seeing a widening gap between construction labor supply and demand for such labor.

Consequently, wages are increasing steadily—in some cases dramatically.

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Ken Simonson, AGC’s chief economist, confirmed, “Although construction employment slipped in April and May, the industry has added workers in the past year at double the rate of the overall economy.

Average pay in construction is rising faster than in the rest of the private sector, and the number of unemployed construction workers was at the lowest May level in 16 years. These facts support what contractors tell us: they have plenty of work but are struggling to find qualified workers to hire.”5 Business is brisk and markets are tightening. As these trends continue, the decline in the construction labor force is having an impact in areas where skilled worker shortages are now prevalent.

U.S. skilled-worker wages are expected to average 4 percent-plus growth through 2017,6 with wage growth in skilled occupations fluctuating based on geography and skill set.

Companies should be paying attention to three specific construction wage trends (based on FMI compensation’s industry surveys for construction professionals) in 2016.

Trend #1: Rising Construction Professional Pay Rates For the past 15 years, FMI’s Compensation Group has been tracking six key benchmark job families, including business development, project management, project superintendent, estimator, general foreman and Building Information Modeling professional. Figure 1 shows the base pay trend for each job and reveals that, in general, pay levels have been increasing since 2001. Although employment levels may have receded

during the recession, those jobs requiring specialized skills and knowledge have experienced steady pay increases.

Looking ahead, annual base pay averages for business development and project management, for example, are forecast to exceed $140,000 by 2020.

During that same time, base pay averages for project superintendents will exceed $120,000, and pay for general foremen will exceed $80,000. For BIM professionals, average base pay is on track to hit $100,000 by 2020.

Some wages are rising more rapidly than others, including those for business development, for example. This trend indicates that the industry is emphasizing revenue generation in an increasingly competitive environment. This goes beyond nurturing client relationships and extends to researching and gaining a better understanding of owner needs and proactively providing solutions. A more complex sales process requires more highly skilled professionals who, in turn, demand higher compensation. The industry may see the emergence of more traditional sales forces (larger with more specialized roles) not unlike building product manufacturers or mechanical contractors.

As the industry expands and as organizations ramp up their hiring strategies, they must incorporate these increasing labor costs into their human capital strategies and project estimates.

Trend #2: Disparities in Geographic Pockets Different geographies experience significant differences in pay. Figure 2 shows the variation in average pay for project managers. Higher pay is indicated

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in red and lower pay in blue. The hotter areas include the western coastal cities, as well as the New York City metropolitan area. However, hot areas (areas of higher pay) are interspersed throughout the country. Indeed, hot areas can be adjacent to cooler cities, which suggests that local labor market data is critical to understanding competitive pay levels.

For construction firms, failure to recognize the local labor market conditions can result in either overpaying or losing top talent. For example, average project manager pay in red-hot San Francisco is $142,000, while average pay in nearby Monterey is $101,000. Now, it’s true that Monterey is a lovely place to live and the cost of living in San Francisco is high, but with all those red-hot pay areas located just a little north, it’s certainly worth considering the move.

Figure 3 illustrates the rate of pay increase across the country for project managers. Hot areas (those with maximum pay increase) are indicated in red. Not surprisingly, project manager wages are increasing in high-growth, urban areas. In addition, at some point, the pay differential becomes irresistible. Hence, firms must understand the local market conditions but also the nearby local, state and regional conditions in order to retain key talent.

For business planning purposes, organizations must recognize the overarching trends, or risk falling behind in key competitive areas. In addition, they must understand not only the local market conditions but also the labor market dynamics. Otherwise, organizations risk underestimating their long-term costs and losing good employees to their competitors, which ultimately can lead to botched jobs and decreased profits.

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Trend #3: The Cost for New College Graduates Is High Construction firms must also pay attention to their employee pipelines, particularly their young employees, who will comprise their future workforces. Not only do college graduates command higher pay (see Figure 4), for example, but also the pay for construction management has outpaced other engineering degrees as a result of the demand in the construction industry (and the downturn currently being felt in the oil and gas industries).

Without a clear understanding of competitive pay levels for graduates, construction firms may fail to fill their talent pipelines sufficiently, risk talent shortages, overpay/underpay their workers and risk hurting their bottom lines. Firms should bear in mind that the leaders of tomorrow are the new hires of today and that filling the seats of the next generation of leadership requires hiring today’s talented college graduates.

Do Your Research and Develop a Long-Term Compensation Strategy Much like companies compete with one another to sell their products and services, they also go head-to-head for the best and most talented employees. For this and other reasons, a competitive pay strategy serves as the very cornerstone of any good human capital investment approach.

Deep knowledge of labor market data and industry trends is a fundamental building block of an effective pay policy.

Such information is available through industry benchmark surveys, for example, and can be used as a foundation for developing customized compensation programs over time.

Deep insights into labor market dynamics can also help contractors increase company performance through well-defined (and competitive!) incentives that motivate their employees to go beyond the call of duty. A well-defined incentive compensation system helps companies develop employees who excel at maximum levels and beyond. It also helps companies more effectively manage

the risk of losing good, experienced (or aspiring) staff members.

Finally, as the construction industry continues to recover, markets are becoming increasingly competitive and organizations are facing a litany of new risks. Among the latter are those associated with compensation—namely, either overpaying or underpaying employees. In this fastchanging environment, understanding the pay trends associated with key job families (i.e., business development and project management)—both short- and longterm—can mean the difference between a profitable future and one that’s fraught with challenges and unforeseen risk. As the industry moves forward, contractors in the labor management business must pay attention to their total rewards to attract and retain the best talent and realize their desired returns.

Mike Rose is a senior consultant and data services manager with FMI Compensation.

His work with clients includes assessment, design and implementation in the areas of company incentives, executive compensation, sales compensation and base pay strategies. He can be reached at mrose@fminet.com.

FMI Offers Discount to ASA Members on Compensation Interactive Would you like to try the bottom-up funding method described in this article? You will need access to real labor market data from the engineering and construction industry. FMI Compensation offers a tool called “Compensation Interactive” that provides base salary and total cash compensation information by position, city, state, region or nationally. It is an economical alternative to full traditional salary surveys and is available at www.compensationinteractive.com. It is only $500 if you contribute your company data and $995 if you want the data now without uploading any information. Access and purchase is available 24 hours at the Web site.

Through the ASAdvantage program, FMI is offering ASA members an exclusive 25 percent off any annual Compensation Interactive subscription. Visit the ASAdvantage section of the ASA Web site and log in with your email address and password for the exclusive promo code.

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Feature The Cost of Hiring the Wrong People

by Jamie Hasty If you ever wonder why companies take so long to decide which candidate to hire for a particular position, consider this: the cost of cost of hiring the wrong person is estimated to be 25 percent to 40 percent of the individual’s annual salary, and those costs increase the higher up in the organization the turnover occurs. Costs related to hiring the wrong person include paying unemployment and other benefits that may be due at separation; potential litigation costs if an employee sues for wrongful termination or a claim of discrimination; labor costs in recruiting time and related expenses for a new employee; and the time and expense of orienting and training a new employee. There are also hardto-quantify costs such as customer dissatisfaction, lost customers, lost sales, reduced quality of products, low production, and low employee morale.

If a company wants to hire superior staff, they need to develop a screening and hiring system that is designed to hire those superior individuals. The following systems are critical.

• Job Description—For good hiring, as well as legal reasons, every position in your organization needs a job description. The job description should contain minimum education, experience, and skills requirements; additionally, it should contain a detailed description of the position and its essential functions. During the interview candidates should be asked whether or not they can

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perform the essential functions of the job, with or without reasonable accommodations.

• Sourcing Candidates— Traditional advertising will not allow you to find and attract the best candidates. Recruiting sources should include indeed.com, state and national associations such as ASA, social media, and other sources and media connected specifically to the profession.

• Ad Preparation—SESCO does not recommend “blind” ads where the company is not identified.

The ad should contain your company’s logo; a brief history and description of the company; a description of the position; and the offerings that are available to include not only compensation and benefits, but also rewards that are meaningful to candidates such as the company’s culture and vision.

Tell your company’s proud story in the ad.

Analyzing Resumes In receiving and screening resumes and applications, you must know what to look for and what not. However, this is, again, easier said than done. SESCO staff recommendations include: 1. Scan and consider the overall appearance and professionalism of the application or resume. Although they are not essential, cover letters normally accompany resumes and express added interest on the part of the applicant to include some specific knowledge/interest of the position and firm.

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2. Look for blanks or omissions.

Assess whether basic information, such as work and educational history, has been excluded or where there are gaps, especially in employment.

3. Consider any inconsistencies.

For example, does the applicant have extensive educational qualifications, but has not been employed or does not have experience in his or her chosen field?

4. Consider the frequency of job changes.

5. Be objective when evaluating a person’s salary requirements.

6. Carefully review the candidate’s reasons for leaving previous positions.

7. Finally, review the application or resume for red-flag areas such as reason for leaving last job, for example, answering “personal.”

The reality is that applications and resumes are full of information for you to consider during the course of the initial assessment, as well as in use during the interview.

Because these documents are the foundation of the selecting process, it is critical that you take time to review documents.

Telephone Interviews SESCO recommends that the step following a review and ranking of the resumes be a telephone interview. This telephone interview will allow you to ask very specific, job-related questions to determine if the candidate is, in fact, someone that you wish to consider for hire.

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The following are some basic telephone interviewing questions for consideration: 1. Why do you wish to leave your current position?

2. When would you be available to work?

3. What are your minimum salary and benefit requirements?

4. What are your primary strengths that you can bring to this position?

5. The position requires the following schedule (describe schedule). Do you anticipate any problems in adhering to that schedule?

Asking these questions and expressing your expectations will screen out those who are not interested, qualified, or affordable and will save significant time and money in interviewing.

Preparation for Interview Subsequent to telephone interviews, you will normally narrow the candidates down to three to five candidates for an onsite interview.

In preparing for the interview, you will want to review the resume and position needs. You will develop specific questions based on your review of the resume and these should be asked first. These questions may include confirming reasons for leaving positions, gaps in employment, inconsistencies, and other vague or questionable information.

Secondly, develop very job-specific, behavioral interviewing questions.

These behavioral interviewing questions are open-ended questions designed to initiate conversation from the candidate which elicit information based on past experiences and positions. The following questions can be further customized, but are normally excellent behavioral interviewing questions: 1. Please think of your most significant accomplishment in your career. Now, can you tell me about it?

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2. If we were to hire you, how would you go about solving or addressing (describe a typical problem whether it be a difficult client family, a challenging embalm, etc.)?

3. Give me a quick overview of your current/prior position and describe the biggest impact (or change) you made.

4. One of our key duties for the candidate selected for this position is (describe objective or responsibility). Can you please tell me about something similar that you have accomplished in your career?

These open-ended, job-related questions should create and allow a very detailed conversation of the candidate’s skills, abilities, experience and success in current or prior work histories. While listening, as a good interviewer you will want to develop and ask follow-up questions based on the responses to solicit more specific or helpful information.

Assessment Tools After your telephone and first inperson interview, it is time to conduct assessments. This takes time and delays the process, but is very critical to the overall success of the screening and hiring process. SESCO staff strongly recommended the following processes:

• Reference Checks—Call

references. Don’t assume this is a waste of time. It’s not! Call or otherwise contact the individuals who are identified in the interview as who the candidate worked with or for in previous careers.

Don’t waste your time in calling personal references. Contact all work-related references, preferably those managers or supervisors that the candidate reported to.

Confirm reasons for leaving the job and other questions or concerns identified in the interview. If the reference is not cooperating, simply ask, “Is this individual eligible for rehire?”

You will normally receive some indication of whether or not the candidate left in good standing and is eligible for rehire.

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• Personality, Style and

Behavioral Traits—Personality tests arose from the style and behavioral analysis work conducted by Dr. Bill Marston. The DiSC assessment is quantitative, describing the degree to which a person is dominant, influencing, steady, or compliant. The DiSC assessment will clearly identify the individual’s behavioral traits, such as analytical or compliant, dominant or directing, steady or diplomatic, or influencing or motivating. The DiSC assessments are extremely accurate, can be completed within minutes, and are very cost-effective.

• Skills Assessments—Skills assessments should also be conducted whether it be computer, accounting, sales, customer service, maintenance, or others skills that are required by the position. There are hundreds of excellent assessments and SESCO invites you to contact a SESCO representative for guidance in selecting the best assessments.

Armed with the first interview, personality assessment, references, and skills assessments, you should then be able to make an objective hiring decision.

Second Interview SESCO recommends that you conduct more than one in-person interview.

This interview should also be conducted by a separate interviewer who has the skills and is prepared to assess the candidate. A second set of eyes on the candidate often helps avoid emotional interviewing realities and gut reactions. In fact, many organizations are now requesting senior staff (non-managers) to engage in an interview over lunch or dinner. This can also be very helpful as the staffer provides a perspective from a co-worker rather than an owner/manager.

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Making the Final Assessment Before a final decision is made, it is imperative that the interviewers engage in a final discussion and objective assessment based upon the previous screening process.

SESCO can provide an assessment template, but the following should be considered: 1. Energy, drive, initiative.

2. Trend of performance over time.

3. Comparability of past accomplishments to position objectives.

4. Experience, education, and professional background.

5. Problem solving and thinking skills.

6. Overall talent, technical competency, and potential.

7. Management and/or organizational ability.

8. Teamwork/motivation.

9. Character—values, commitment, goals.

10. Personality and cultural fit.

Each trait as noted would be scored/ rated from 1 to 5, weak to strong, with each level being defined to ensure consistency and accurate ratings.

This process will help facilitate a review of the facts and information obtained through the interviewing

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and assessment process to help avoid making inappropriate or emotional decisions.

Making the Job Offer When making the job offer, come to the meeting prepared. Being prepared includes knowing and understanding the salary, as well as pay progression opportunities, benefits with a detailed description of each and cost to the candidate/family, letter of understanding which may or may not include a non-compete arrangement, and other expectations/ offerings. If not prepared, it is likely you will negotiate ending up paying more and bringing in new employees in or above current staff which is the kiss of death to morale and turnover.

Internal equity is more important than chasing after talent. Stick to your guns and try not to negotiate to the extent that your internal equity is violated.

The reality may be that you may have to go back to the drawing board or to your second or third candidates.

In Summary The process as described may seem cumbersome and complicated, but in reality it is not. These basic systems and processes are easily developed internally or by a professional such as SESCO. However, SESCO’s

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consulting work over the past several decades has revealed that most companies have not developed basic interviewing questions, do not conduct second interviews, do not utilize inexpensive assessment tools, and do not prepare for initial orientation and training. Thus, most hires are emotional based and costly, and are normally not good longterm hires. Hire with your head and through your systems and become more profitable and successful.

Remember, no hire is better than a bad hire.

ASA members receive complimentary human resources services provided by SESCO Management Consultants.

SESCO provides ASA members with screening and hiring systems, including assessment tools, and consulting support on such employment issues as policy development, employee challenges—including disciplinary actions, terminations, and workers’ compensation issues—compliance to federal and state employment regulations, and many other management and human resource matters. Jamie Hasty is the vice president of SESCO Management Consultants. She can be reached at (423) 764-4127 or jamie@sescomgt. com.

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Feature The Cost of Keeping the Wrong People Too Long

by Monroe Porter As small business owners and managers, we are not doing our employees favors when we fail to make them to do their jobs. Contrary to wage earner folklore, most small business owners are not heartless scoundrels. Rather, most of us are too forgiving of employee nonperformance. We tend to get attached to long-term employees and are busy and simply hope they will somehow magically turn around. Unfortunately, this is unfair to both the company and the employee. We enable employee behavior by not correcting it, and over time, it reaches the point of no return.

Most employees start out on his or her best behavior. Unfortunately, many employers are busy and fail to truly manage employees. Sometimes, we are too quick to simply hire a body to put into a position because we need help, and then that person does not work out. It is our responsibility to protect our employees, and the best way to do that is to enforce the rules and make sure they do their jobs.

If they are the wrong person, they will prove that by constantly causing problems and not adhering to our wishes.

When you see a problem, act early and don’t let emotions build up. All too often we start talking negatively about the person to others and justifying why we are right or wrong.

Go directly to the employee. Tell them what is bothering you, what you expect and talk out the issue.

Listen and stick to your guns. Let them vent if they are upset, but you stay calm. Repeat the performance you expect. If they feel it is unfair or

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get angry, don’t get sucked into that emotional behavior. Make it clear this is the minimum performance expected to keep his job.

Get the employee’s attention and force them to face the reality that he or she may lose their job. Do something dramatic to make sure they hear you—a written warning or maybe a day off without pay.

Frequently, I simply tell employers to call the employee in early afternoon and give them the rest of the day off to decide if they still want to stay there.

Being boss is a tough job, but workers need bosses not buddies.

As an employer or manager, it is your responsibility to make sure your employees clearly understand what is expected of them. Failure to do this may ultimately mean they lose their job. Good people deserve better than that. So start off by holding people accountable; but how do you deal with difficult employees? One solution is to simply fire them, but some of our best workers can, at times, be a prima donna. So firing a difficult but high achiever may not be in your best interest. If you have a difficult but high-achieving employee, here are some ideas on how to manage them.

1. Isolate them: Do not expect them to be a team player. They are not wired that way. Give them a blind, deaf, mute helper that can put up with them and let them work their butts off. Exploit their strengths and minimize their negatives.

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2. Don’t try to change them: Never try to teach a pig to sing, it doesn’t work and it annoys everyone. Rather, try to control and limit the impact of their behavior. Isolation will help with this, but you may have to bring them in and warn them.

Or, another strategy is to keep moving them around until there is a fit, but rarely do they change.

3. Feed their ego: Who cares if they think they are better than you. Let them be a giant in their own mind as long as they produce and do not damage the company.

4. Overload them: Keep them busy working. Let them do what they do best, which is produce. When they have time to cause trouble, they can and will.

5. Communicate clearly: Make sure you have a specific understanding of performance and what they must do and get an agreement to it. Don’t leave for interpretation as to what a “good” job is. A teenager’s definition of a clean room is usually much different than the parents’ expectation.

6. Debate tasks, not people: It is OK to disagree about how something should be done. Only a better installation will come out of such a discussion. It is not OK to have conflict about each other.

Argue about boards and nails but not each other. The minute “you did this” comes into the disagreement, it quickly spirals downward.

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7. Fire with honor: When you just can’t take it anymore or they become so poisonous they hurt the organization, let them go in a professional, quick and courteous manner. Don’t get into “if you had only done this or that.” Merely let them go somewhere else and become their problem.

So what happens if all of the above techniques do not work? What’s the real cost to your business?

Most of us know within a week or two if someone is the wrong person.

Many of us are simply in denial of the situation and are hoping for a miracle or some type of magical change.

Failure to terminate a bad apple can have devastating consequences.

Production can be the first victim of a bad hire. Contracting profits are all about production and getting jobs to come in on time or ahead of budget.

Contractors make things. They are not material suppliers, so a bad apple immediately causes problems because they impact production.

Communication and motivation suffers, which immediately impacts what gets done. My friend and colleague Chuck Vander Kooi, who passed away recently, was famous for his “egg sucking dog” stories—the dog that gets in the hen house and eats the eggs, thus taking away your grocery money.

Today construction costs with overhead can run $30 to $60 an hour, which is 50 cents to a dollar a minute.

This means that for a crew of four, a 5-minute bitch session or joke costs $10 to $20 crew time. A few minutes late, too long of a lunch break, failure to order material—it doesn’t take much to quickly impact the bottom line.

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Turnover is another huge cost of keeping bad employees. Good people do not want to work for bad people.

Rarely do you find out why the good employee leaves, they just leave.

Industrious workers are frustrated by non-performers and silently move on.

Losing good employees because of bad employees is a double whammy.

You still have the non-performer and the support staff disappears.

It is hard to build a team and be productive if you have bad employees in the mix.

Morale and integrity are the next victims. Employees and company culture are about what people see around them, not what is told to them by the boss. We tell people to work and do things in a professional manner, but the bad apple makes a mockery of our culture. The integrity of our company and your company values are at stake.

Failure to enforce policy can turn managers into barking dogs with no teeth. No real threat exists and little respect is earned. Perpetually late or absent employees undermine the morale of the company and the integrity of its leadership.

Now comes what may be the most difficult employee to let go, the entitled employee. Someone that has worked for you for a long period of time that may have started out as a good employee but over time has worked less, expected more and their once good attitude has soured. They don’t feel they have to follow the same rules as everyone else and your lack of policy enforcement brought this on. Before letting this person go, put the rules in place and start

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a performance file. Document their issues and make clear you would like for them to change. Start your second chance in writing with expectations clearly laid out.

Not everyone in your company is a leader and you probably have more followers than leaders. The maverick or bad employee can quickly assume a role of negative leadership. Bad employees are cancerous and can spread to followers who may buy into the naysayer’s rhetoric. Many employees will not say the company is a bad place to work but they will quickly give a halleluiah to the maverick that is bad mouthing the establishment. Leadership is not optional. Someone will lead and sometimes the bad apples assume the role of leadership. Failure to get rid of bad apples can trickle throughout the company.

In closing, your employees don’t need you to be a friend, they need you to be a leader and their boss. If you need a friend, buy a dog. They are loyal and always glad to see you.

Monroe Porter is president of PROOF Management Consultants, Richmond, Va. Renowned for his innovative, practical solutions to the problems that businesses face, Porter has been conducting seminars and consulting business owners and employers about the value of their organization for over 20 years. He can be reached at (800) 864-0284.

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Complimentary Human Resource Staff and Services for ASA Members

As a member of the American Subcontractors Association, your organization is eligible to receive complimentary Human Resources services: Member Service Agreement – ASA member companies can establish a service agreement with SESCO Management Consultants to provide ongoing professional services.

Free Telephone/Email Consultation – SESCO staff is available to answer your human resource questions on a daily basis at no charge. Whether it be a federal or state employment compliance question, such as wage and hour, FMLA, COBRA, insurance, Equal Employment, etc., SESCO staff stands ready to assist you! In addition, staff assists in research, handling difficult people problems such as terminations, disciplinary actions, substance abuse or other day-to-day issues that arise.

Free Handbook Review – SESCO staff will review and analyze your current employee handbook or policies to ensure compliance with federal and state employment regulations.

Human Resource Compliance Manual – The SESCO staff has prepared a custom compliance manual for ASA members and the industry. It is over 200 pages and contains sample policies, forms and SESCO staff recommendations!

Discounted Employee Satisfaction Survey Program – Employee morale is at the core of whether a company is profitable and successful. SESCO offers a discounted employee satisfaction survey program to help ASA-member companies identify employee relations issues that may be impeding optimum productivity and quality customer services.

Discounted Consulting Services – The SESCO staff is available to provide consulting services as requested.

Contact a SESCO consultant at (423) 764-4127 or sesco@sescomgt.com

ASA NATIONAL CONSTRUCTION BEST PRACTICES AWARDS 2016 ASA offers national recognition to prime contractors that are committed to superior business practices like prompt payment. ASA’s annual National Construction Best Practices Awards, developed by the Task Force on Ethics in the Construction Industry, recognize elite prime contractors that uphold best practices and refuse to do business according to the “lowest common denominator.”

The deadline for prime contractors to submit applications is Nov. 11, 2016. The application fee is $495. Each prime-contractor applicant must supply three sealed business-practices recommendations from specialty trade contractors that have worked for it in the past year, along with a copy of its standard subcontract, with its application. ASA will honor recipients during an awards ceremony at the ASA annual convention, SUBExcel 2017, March 15-18, 2017, in Denver, Colo.

HELPFUL LINKS

• Watch the National Construction Best Practices Award Video.

• Prime contractors: Download the 2016 National Construction Best Practices Award Application Form.

• Specialty trade contractors: Download the 2016 National Construction Best Practices Award Form for Evaluating the Applicant’s Business Practices.

ASA Chapters: Download the ASA Chapter Guideline for Processing the 2016 National Construction Best Practices Award and other materials under “Industry Relations” in the ASA Chapter Toolbox.

APPLICATION DEADLINE: NOVEMBER 11, 2016

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New On-demand Videos from FASA When it comes to managing your business, the Foundation of ASA is your partner in education. View and listen to FASA’s on-demand videos at an individual workstation or in a conference room for group training. Your order includes access to the on‑demand video any time, and as many times as you’d like! These are just two of the ondemand videos available through the FASA Contractors’ Knowledge Depot to meet your business management training needs.

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“Proposed Wage and Hour Regulations” (Item #8088)

In this video-on-demand, presenter Jamie Hasty, SESCO Management Consultants, Inc., Bristol, Tenn., gives an overview of the Department of Labor’s proposed revisions to the Wage and Hour regulations and examines current white-collar exemptions, how construction companies can analyze and prepare for the proposed regulations, optional pay plans for consideration, and profession/industry-specific realities.

“Websites, Email, Social Media and Your Domain Name” (Item #8089) In this video-on-demand, George Minardos,

.BUILD, Santa Monica, Calif., explains how subcontractors can seize control of their business’s online identity.

$65 Members; $95 Nonmembers

Order online at www.contractorsknowledgedepot.com or call ( 703 ) 684-3450, Ext. 1321

Feature The 2.76 Million Challenge— The Importance of Connecting with Tomorrow’s Workforce

by Laura Cataldo Here is a challenge to scare even the most astute human resource pro: 2.76 million employees will be needed in the construction industry by 2020 to replace retirements and meet employment growth projections of 2.9 percent.

Generation Z, those born after 1996, are the high school students and young adults that we need to connect with today in order to meet that 2.76 million challenge. In a world that has emphasized “college for all,” how does a technical-based industry like construction compete for the best and the brightest?

of the jobs in the future will require skilled training or certification, not a college degree.

Here is the good news—change in the educational world is coming and career preparation is now taking center state. Studies like

for this same audience of students interested in technical skills. Here are a few suggestions to help your company stand out from the crowd and capture the attention of young people that will make up one-third of your workforce in the next 10 years:

the Pathways for Prosperity by the Harvard Graduate School for Education questioned whether the only successful outcome of a high school education was enrollment in a four-year college or university. The study emphasized the need for more post-secondary education or training to equip young people with the skills and credentials to make successful transitions into the labor market.

The bad news is that other industries (automotive, manufacturing, etc.) are competing

1. Engage and Support Educators—As school districts are changing philosophies and shifting the focus of “career preparation,” many educators feel challenged by a lack of knowledge about our industry. Educators do not know what to ask our industry for and contractors do not know what educators need. Take the first step by offering your time and talent and donating surplus materials.

Reach out to your local school and offer to engage students by providing jobsite tours, math

Whose Job Is It? Students, educators and employers are misaligned in the expectations of who has responsibility to prepare our future workforce. Students want the skills necessary to get their first job; educators want to teach students for long-term success; and employers want both. Students want a good job, so 70 percent went to college and the results were: • 13 percent ended up unemployed.

• 40 percent did not get a job in their major.

• 42 percent said their job does not require a four-year degree.

• $29,400 is the average student loan debt.

Our industry does need collegedegreed individuals, but a large percentage of our careers require advanced training through apprenticeship, technical college and certification programs. Harvard University predicts that 57 percent

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exercises focused on construction application (bid day simulation, crane loads, etc.) and classroom visits. By stepping forward to serve as a resource to educators, you are helping them educate students about construction careers.

2. Provide Real Life Experience for Students—Student employment numbers hit a record low in 2010 because of the economic downturn. The numbers are slowly getting better, but young people struggle to find paid work experience—a critical piece in teaching employability skills and exciting students about our industry. While there are many aspects of construction work that cannot be done by those under the age of 18, there are many ways that students can “assist” within the guidelines of child labor law. Some states have a formal youth apprenticeship program that allows students to begin preparation for apprenticeship in high school. State and federal workforce programs have dedicated funding to youth outreach that may be available to help fund student wages. It is important to remember that hiring a young person through an internship or summer employment is a long-term investment in building your workforce. They will not be as productive as your experienced employees.

3. Emphasize the Aspects of Our Industry That Excite Them— Generation Z is characterized as technology-focused, creators and collaborators, future focused and wanting to work for success. These traits are all a great fit for the construction industry and we need to demonstrate to them why.

Technology The construction industry is changing at an incredible rate due to the use of technology. BIM, Total Station, Blue Beam and

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Modularization are changing the way contractors design, build, and manage projects. Many trades now rely on computer-based technology, GPS, and joy sticks to operate equipment. This is not what young people envision when they think about construction.

Creating and Collaborating Construction requires collaboration with many different entities in order to design and build a project to meet user needs. The relationships you have with architects, engineers, subcontractors, users and owners require that you collaborate on a daily basis. We are not just plumbing contractors that put pipes and drains in a building. We are part of a larger team that is creating an environment with other professionals to meet user needs, protect natural resources, and employ the most efficient technologies. While it seems like a normal part of project coordination, it is the type of collaboration that young people seek in their future career.

Future Focused Today’s young people want to make a difference in the world and construction offers many opportunities to do that. We build the hospitals where babies are born and illnesses are cured, the schools that prepare our next generation, and the infrastructure that provides clean water, transportation and safe communities. Spend a day sharing with young people the projects you have worked, the lives you touch, and they will quickly relate to the opportunity to make an impact on the world through construction.

Work for Success Recent generations have been dubbed ‘slackers’ but Generation Z is characterized as hard-working and driven. They have witnessed their families and friends struggling through the recession and have realistic expectations of what

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employers should offer them. In the construction industry, an individual can start in any position and, through hard work, rise to become a president or owner of a company.

Engage students with employees that continue to advance in the company through hard work—the carpenter that is now vice president of field operations or the CAD detailer that now leads the virtual design department. The entrepreneurial spirit of the construction industry is attractive and promises the opportunities for success that hard work demands.

Meeting the employment demands of our industry is not going to be easy and it will not happen overnight.

We offer the use of technology, collaboration and opportunity to impact that young people are looking for in a career. As an industry, we need to do a better job of “telling our story” to engage our future workforce. Pick up the phone today and reach out to an area school offering help for the upcoming semester, post a position for a student intern, or use social media to tell your story. What are you waiting for? 2.76 million new hires in the next 10 years are waiting to hear from you.

Laura Cataldo, associate director at Maxim Consulting Group, works with construction organizations of all sizes to evaluate business practices and assist with management challenges. Having worked in the construction industry for over 20 years, Cataldo offers a depth of experience working with contractors, associations and workforce partners to improve profitability and succeed in the changing marketplace. She understands the challenges of today’s construction marketplace and is keenly in touch with future trends. Cataldo can be reached at (608) 616-2835 or laura.cataldo@ maximconsulting.com.

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Feature Foreign Workers and Spouses: What’s an Employer Got to Do with This?

by Irvina Plumlee and Elvia Munoz

Last spring marked a new beginning for many foreign nationals holding U.S. H visas. The multi-year debate as to whether spouses of the popular H-1B work permit holders should be allowed to work while residing in the United States alongside with their spouses, has finally resulted in a regulatory advance: H-4 dependent spouses of H-1B visa holders may now apply for their own open market work permits. While, unfortunately, this development benefits only some individuals—i.e., those whose H-1B worker spouses have applied for permanent immigration, also known as a green card, and either have their PERM applications pending for at least one year by the time they reach their sixth anniversary of H-1B employment in the United States, or have secured Immigrant Petition approval—this still is a significant lifestyle (and, frequently, livelihood) improvement for thousands of foreign nationals, mostly females, many with extensive education and work experience credentials, that have been homebound for years, allowing their working partners to advance their careers in the United States.

The sacrifice of H-4 status spouses of foreign workers is hard to fully

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appreciate for those of us used to making our own decisions as to whether we work or stay at home and tend to the family, or—even more importantly, if we can afford making a choice in the matter. In an era when many U.S. families have come to the conclusion that quality of life maintenance and their ability to move into or stay in the middle class requires both spouses’ entry into the workforce, our immigration system had dictated a different decision to foreign nationals lawfully residing in the United States while benefiting U.S.-based companies through their talent and, often, unique skills. These individuals were residing here under the legal prohibition for their spouses to work while in H-4 status and until the H-1B workers obtained their green cards which, in some cases, may be taking over a decade. Personal hardship for these individuals and families aside, the detriment to our economy that resulted from the exclusion of a highly educated and motivated segment of population from participating in productive labor, has been unfortunate as well. Now that at least some of the individuals in this group are eligible to obtain open market work permits and join

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the work force, how does it affect the H-1B workers’ employers? How does this new development for H-1B employees tie into their sponsoring employers’ business and should employers take note at all?

The answer for responsible employee-centered employers is a definite “yes.” In many respects, this is no different from the way health care reform, FMLA, minimal wage increases, and other employee benefits impact the companies’ business. Few employers would not consider these developments significant enough to consider their effects on the workforce morale, performance, and the worker’s well-being. For the foreign nationals whose spouses have, for the first time in decades, gained the ability to legally gain employment, the change is of paramount significance.

While the law does not obligate their employers to undertake any specific steps to assist their employees’ H-4 spouses with the work permit (Employment Authorization Document, or EAD) obtainment, valuable benefits to employee relations and the company’s market reputation are likely to come to thoughtful employers.

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HR managers may wish to review their H-1B workers’ pending green card proceedings to determine what stage of the process these proceeding are at, and follow up with the sponsored workers to find out whether their spouses are in the United States and are interested in filing EAD applications.

The investment for the EAD application preparation and the related government filing fees are fairly modest, but, just like an H-1B petition, these proceedings should be completed and filed properly and per the immigration service’s policies and instructions. An employer willing to offer a spousal EAD filing assistance to a foreign worker will be gaining ample good will and loyalty without bearing significant costs. Moreover, depending on the H-4 individual’s qualifications, this may be a unique chance for the employer to fill a

position without recruitment fees or formal advertisement. Open market EADs allow companies to hire their holders just as they would hire U.S. workers—without having to file H-1B petitions and related Labor Condition Applications. Additionally, since the green card process is already underway for the H-1B worker, there should be no need to provide this type of sponsorship for the EAD holder spouse.

Many employers are already filing H-4 status extensions while taking care of H-1B status maintenance for their workers, and the added benefit of EAD assistance should not add significant costs, but the likely positive impact to employee relations is priceless.

Irina Plumlee is an immigration attorney at Munsch Hardt Kopf & Harr and heads the firm’s immigration practice in the Dallas office.

She specializes in all aspects of business immigration and provides assistance to companies with regard to immigrant and nonimmigrant proceedings for executive, managerial, and professional personnel. She also advises U.S. and international business regarding immigration compliance and international transfer options for corporate employees. Elvia Munoz is an associate in the immigration section of the Dallas office of Munsch Hardt Kopf & Harr. Munoz’s practice focuses on business and family immigration, mainly executive and managerial personnel transfers, H-1B visas for professional workers, and employment and family based permanent immigration proceedings.

They can be reached at iplumlee@ munsch.com or elviamunoz@ munsch.com.

ASA EXCELLENCE IN ETHICS AWARDS 2016 ASA will honor selected firms that demonstrate the highest standards of internal and external integrity during an awards ceremony at the ASA annual convention, SUBExcel 2017, March 15-18, 2017, in Denver, Colorado.

HELPFUL LINKS • Watch the Excellence in Ethics Awards Video.

• Download the 2016 Excellence in Ethics Awards Brochure.

• Download the 2016 ASA Excellence in Ethics Awards Application.

• ASA provides useful model documents to help with your submission and your ethics program. View the 2016 Excellence in Ethics Awards Resource Guide.

• Download the 2016 ASA Excellence in Ethics Awards Timeline.

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• ASA’s Excellence in Ethics Awards Program Q&A LinkedIn Group—a forum for getting answers to your questions about the award and application process.

This forum includes current award recipients who have been through the application process and are willing to help guide new applicants through their application process.

• Recipients of the 2015 ASA Excellence in Ethics Awards may re-apply for 2016 using the Re-Certification Form.

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AMERICAN

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APPLICATION DEADLINE: DECEMBER 16, 2016

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www.SUBExcel.com

March 15 – 18, 2017

Denver Marriott City Center Denver, Colorado

Feature Immigration 101: Strategies for Employing Foreign Workers

by Irvina Plumlee and Elvia Munoz Mr. Straight-A has just come in for an interview at your office. He has recently graduated with, of course, nothing but straight As in his master’s program in construction engineering, along with a slew of other academic accolades— exactly the candidate you were looking for to fill the entry-level position in your company! However, when you ask him whether he can start the very next day, he informs you that he is currently in F-1 student status and will need employment authorization sponsorship.

No problem, you think, your company has sponsored a few other employees before. There’s the engineer who you know has an H-1B visa, the engineering manager who transferred from your offices in the Philippines, and the management consultant who hails from Canada. Your only question now is “H1B, L-1, or TN,” or is it not as simple as that?

For most employers, these are the three visa categories that come to mind once they have decided to sponsor a foreign individual for work authorization. However, as discussed below, limiting immigration planning to these three categories could prove to be detrimental. H-1B (for foreign professionals with a bachelor’s degree or equivalent to be employed in a specialty occupation), L-1 (for intracompany transferees), and TN (for Canadian and Mexican nationals to be employed in specific occupations) are some of the most common visa categories used to employ foreign workers. Unfortunately, the H-1B program is becoming an increasingly uncertain immigration route due to a shortage of available visas. With immigration regulations allowing only for 65,000 regular H-1B petitions and 20,000 for individuals with graduate degrees from U.S. universities, the annual “cap” for the much sought-

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after H-1B visas is usually met within the first seven days of availability. In 2014, U.S. Citizenship and Immigration Services received more than 172,000 H-1B petitions, more than double the amount of available visas, while in 2016, more than 236,000 H-1B petitions were received—close to three times the number available! The received petitions are subjected to a computerized lottery to determine the petitions accepted for processing, and the thousands of rejected applications are returned to the employers, along with the burden of delivering the bad news to the H-1B candidate.

Similarly, the L-1 program, which involves the transfer of executive, managerial, and specialized knowledge applicants who have been employed with a related company abroad for at least one year, has also become extremely challenging in the recent years. Petition processing for these types of petitions is often severely delayed due to the USCIS’s requests for additional evidence after initial L-1 petition submission for more than 40 percent of L-1A petitions and nearly 50 percent of L-1B petitions. TN visas are part of The North American Free Trade Agreement, and permit-qualified Canadian and Mexican citizens to be employed in certain professional occupations. However, only specific occupations listed in the regulations are eligible for TN classification, including accountants, engineers, lawyers, pharmacists, scientists, and teachers.

What is an employer to do if the H-1B annual cap has been reached, their company does not have an affiliated company abroad, and the individual is not a Canadian or Mexican national?

The foreign worker would be ineligible for any of the three visa categories discussed. Should the employer wave the white flag and give up their chance

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on employing a gifted foreign worker?

In a period of time when it is becoming increasingly difficult for employers to find qualified candidates, a better idea may be for the employer and their immigration counsel to begin exploring less commonly used nonimmigrant visa options. Key questions employers should ask themselves when attempting to figure out whether a promising candidate could be eligible for an immigration benefit are as follows: Is the candidate a U.S. college or university graduate and eligible for 12 months of optional practical training?

Many foreign national students in the United States are in F-1 student status and, as such, are eligible for 12 months of optional practical training in a field related to their course of study. F-1 students with a degree in a science, technology, engineering, or mathematics (STEM) field are eligible for a 17-month extension of their oneyear OPT. This option is usually a great choice for recent graduates, much like Mr. Straight-A, and often serves as a safety net should a candidate’s H-1B petition not be selected under the H-1B lottery!

Does the candidate have extraordinary ability or achievement?

The O-1 nonimmigrant category is for foreign nationals who possess extraordinary ability in the sciences, arts, education, business, or athletics.

To be eligible, employers must submit evidence that the candidate has received a major, internationallyrecognized award, such as a Nobel Prize. If your candidate has not reached the point in his or her career of Nobel prize achievement, not to despair, alternatively, the employer can provide

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evidence that the candidate meets at least three of the following: 1. Receipt of nationally or internationally recognized prizes or awards for excellence in the field of endeavor; 2. Membership in relevant associations which require outstanding achievements; 3. Published material in professional or major trade publications about the beneficiary and the beneficiary’s work; 4. Original scientific, scholarly, or business-related contributions of major significance; 5. Authorship of scholarly articles in professional journals or other major media; 6. A high salary or other remuneration for services; 7. Participation on a panel, or individually, as a judge of the work of others; 8. Employment in a critical or essential capacity for companies that have a distinguished reputation; or 9. Comparable evidence.

The O-1 visa category may initially seem daunting and employers oftentimes immediately assume it is impossible that their candidate meets the requirements. However, after some digging into the candidate’s academic and professional background, and with some help from immigration counsel, employers often find that they can put forth a strong case.

Is the candidate a national of Australia, Singapore, or Chile?

The E-3 nonimmigrant classification is for professionals with Australian passports and the H-1B1 classification is for those from Singapore and Chile, with a bachelor’s degree or equivalent.

The proffered job should be a degreelevel position. These visa categories are very similar to the H-1B but, because they are not in as high demand as the H-1B visa category, a petition is unlikely to be rejected because of visa shortage.

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Will the candidate be partaking in training?

The H-3 nonimmigrant category is for foreign nationals coming to the United States as trainees to receive training in any field of endeavor, other than graduate medical education or training, that is not available in the foreign national’s home country.

Importantly, the H-3 classification is not intended for U.S. employment, but is designed to provide foreign nationals with job-related training for work that will ultimately be performed outside of the United States. Plans for the trainee’s employment abroad, after completion of the U.S. training, should be developed early in the training curricula planning. Any productive employment by the H-3 trainee in the United States should be incidental and necessary to the training.

Although not designed for actual U.S. employment, the H-3 trainee visa is a great route for companies with international branch offices looking to bring individuals employed at a branch office abroad to receive training in its U.S. offices.

Is the candidate looking to invest in a U.S. business or engage in international trade?

The E-2 Treaty Investor classification is for foreign nationals of a country with which the United States maintains a treaty of commerce and navigation (treaty country) and who have invested or are investing a substantial amount of capital in a U.S. business and are seeking to enter the United States solely to develop and direct the investment enterprise.

The E-1 Treaty Traders classification is for foreign nationals of a treaty country who are seeking entry into the United States solely to engage in international trade on his or her own behalf. The treaty trader must carry on substantial trade and the trade must be principally between the United States and the treaty country.

Importantly, treaty investors and treaty traders do not have to be

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individuals, and, if certain owner nationality requirements are met, can be organizations. Additionally, certain employees of treaty investors and treaty traders who are engaging in duties of an executive or supervisory character, or have special qualifications, are also eligible for E-2 and E-1 visas, respectively.

The immigration landscape is in constant movement, and as once fail-proof immigration options begin to become increasingly difficult to accomplish, employers must look to nontraditional immigration routes if they want to hire and retain the best talent. Parsing through different visa categories with your immigration counsel should prove to be a worthwhile investment in helping secure employment of talented foreign nationals that can help your company’s growth and success. Importantly, while interviewing candidates, employers should carefully consider their line of questioning—candidates may volunteer certain information, but employers should never ask impermissibly invasive questions!

Irina Plumlee is an immigration attorney at Munsch Hardt Kopf & Harr and heads the firm’s immigration practice in the Dallas office. She specializes in all aspects of business immigration and provides assistance to companies with regard to immigrant and nonimmigrant proceedings for executive, managerial, and professional personnel. She also advises U.S. and international business regarding immigration compliance and international transfer options for corporate employees. Elvia Munoz is an associate in the immigration section of the Dallas office of Munsch Hardt Kopf & Harr. Munoz’s practice focuses on business and family immigration, mainly executive and managerial personnel transfers, H-1B visas for professional workers, and employment and family based permanent immigration proceedings. They can be reached at iplumlee@munsch.com or elviamunoz@munsch.com.

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Legally Speaking

So You’ve Contracted Your way into a Pickle

by Nicole Sornsin and Jim Sienicki Everyone has been there. Excited to obtain work and start a new project with a new contractor, you agreed to let the contractor use its form contract. You signed on the dotted line without much review (other than the scope of the work and the price) and without consulting an experienced construction lawyer.

But, hindsight is 20/20 and now that there have been some significant delays, impacts, cumulative impacts, loss of productivity, acceleration and/ or complications during the project, you realize the contract you signed is extremely favorable to the general contractor. Is there anything you can do going forward to protect yourself?¹ Take comfort that all is not lost.

There are many things you can do to protect yourself going forward and to prepare a claim against the general contractor and/or owner which could turn a losing project into a profitable project.

Step One—Document, Precisely Follow the Contract Provisions, and Do Not Waive Your Claim

Perhaps the most important thing you can do is begin or continue to document your activities on the project and the delays, impacts, cumulative impacts, loss of productivity, acceleration, and disruptions you are incurring. An experienced construction attorney can help you determine what is important, and can engage scheduling or other appropriate consultants to help you document and prove your claim and your damages. For example, did the general contractor or owner significantly expand the scope of your work or issue voluminous change orders affecting your work?

Have there been numerous delays or impacts caused by the owner, general contractor or other subcontractors?

These events should be documented, daily logs should be meticulously prepared, and photos should be taken and identified by date and location.

All key documents should be saved in the event litigation becomes necessary.

Likewise, read the contract carefully and make sure you are following it to a “T” going forward. There may be remedies with strict timelines or that require you to take certain actions to preserve your claim. Most contracts have “notice” provisions, requiring you to give timely notice of changes and claims, or notice of events or conditions constituting a default or breach of the contract, among other things. These notice provisions should be studied carefully and complied with timely and completely.

Otherwise, you will spend additional legal fees that are now necessary to attempt to overcome the lack of proper or timely notice defense to your claim.

In addition, thoroughly review the contract (or have your attorney do so) to find any ambiguities. For example, if a general contractor is seeking to enforce an unfavorable provision against you, read elsewhere in the contract to determine if there may be a conflicting or more favorable provision. If conflicting provisions exist, they may create an ambiguity that may be construed against the

¹ This article is also applicable to general contractors who likewise sign form contracts of the owner.

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general contractor as the drafter of the form contract and that would prevent the general contractor from enforcing the unfavorable provision against you.

Finally, do not sign change orders, lien waivers, or payment applications without specifically reserving your rights to pursue your claims.

Otherwise, the general contractor may assert you waived, released, or signed away your claim in one or more of these documents. Then, you will again be faced with spending additional legal fees to have your attorney attempt to overcome these defenses to your claim.

Step Two—Understand Your Options

You may have options to circumvent an unfavorable contract provision. First, there may be a statute or other legislation that specifically prevents or trumps the enforcement of an unfavorable provision. Second, there may be case law that likewise specifically prevents or trumps the enforcement of an unfavorable provision. Finally, there are implied terms in contracts that may help you prevent the enforcement of an unfavorable provision.

A. Was the General Contractor the First to Materially Breach the Contract?

Other options may change the tide for you. If the general contractor is the first to materially breach the contract, such actions might discharge your obligations or entitle you to compensation. Under the doctrine of “first material breach,” a contractor that commits the first material breach discharges the remaining obligations of the subcontractor². In other words,

the subcontractor is relieved of any further contractual obligations due to the contractor’s first material breach.

Prompt payment acts, which trump contractual provisions in most states, provide a strict payment schedule and structure, and a basis for arguing that a material breach occurred.

See, e.g., A.R.S. § 32-1129.02(A) ([n] otwithstanding the other provisions of this article, performance by a … subcontractor … in accordance with the provisions of a construction contract entitles the … subcontractor … to payment from the party with whom the … subcontractor … contracts.”). If you have not been timely paid for work performed, you may be entitled to remedies under your state’s prompt payment acts.

However, you may have obligations that you must timely meet under the controlling prompt payment act in order to preserve your right to payment, including possibly providing notice regarding the general contractor’s failure to pay and its resulting material breach of the contract.

As another example, the general contractor or owner may have first materially breached its obligations under the contract by not timely and appropriately providing the materials, equipment and/or fixtures that were needed to be complete as a precursor to the scope of work you were to perform.

Another circumstance that may constitute a material breach is where the general contractor or owner makes a “cardinal change” to your scope of work. A cardinal change is a significant change or series of changes beyond the scope of your

contract that constitutes a material breach.³ The cardinal change doctrine serves “to provide a breach remedy for contractors who are directed … to perform work which is not within the general scope of the contract” and which is therefore not redressable under the contract.4 The premise of the cardinal change doctrine is that compensation for costs resulting from the general contractor’s or owner’s abuse of authority under the contract’s changes clause5 should not be limited by the terms of that changes clause. Essentially, if the changes are significant enough to constitute a cardinal change, which most likely is a question of fact, a subcontractor can refuse to perform or can perform and be paid the reasonable value for the work, and not just its contract price. 6 B. Options Without a Material Breach.

Even if the contract was not materially breached first by the general contractor, you may have other remedies.

1. Did the Contractor Breach One of the Implied Duties in the Contract?

Many states imply into a contract as a matter of law a duty of good faith and fair dealing, an implied duty not to hinder or delay, and an implied duty to cooperate.

The implied mutual duties require that neither party to the contract will do anything to prevent performance by the other party or commit any act that will hinder or delay

² E.g. Zancanaro v. Cross, 85 Ariz. 394, 400 (1959) (the victim of a material or total breach is excused from further performance); Gallagher v. Southern Source Packaging, LLC, 564 F. Supp. 2d 503, 508-09 (E.D. N.C. 2008). ³ See, e.g., Greenlee County v. Webster, 25 Ariz. 183, 192 (1923) (quoting Cook County v. Harms, 108 Ill. 151 (1883)).

4 J.A. Jones Contr. Co. v. Lehrer, McGovern Bovis, Inc., 120 Nev. 277, 293 (Nev. 2004) (quoting PCL Contr. Servs., Inc. v. U.S., 46 Fed. Cl. 745, 804 (2000)).

5 J.A. Jones Contr. Co. v. Lehrer, McGovern Bovis, Inc., 120 Nev. 277, 294 (Nev. 2004).

6 See, e.g., Greenlee County v. Webster, 25 Ariz. 183, 192 (1923) (quoting Cook County v. Harms, 108 Ill. 151 (1883)).

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performance.7 Specifically, the duty of cooperation dictates that the owner, contractor, and subcontractors will all act reasonably and timely as to elements of performance within their control.8 For example, did the contractor actively engage in conduct to prevent you from receiving the benefits of the contract? Did the contractor actively interfere with your work?

Did the contractor or owner deny you access to the site to perform your work? These are examples of conduct that may constitute a breach of the duty of good faith and fair dealing, or one or more of the other implied duties, and entitle you to damages.

2. Are You Entitled to Payment for a Constructive Change?

A constructive change exists when a subcontractor (1) performed work beyond the contract requirements and (2) additional work was ordered, expressly or impliedly by the owner or contractor.9 For example, did the contractor or owner require you to comply with multiple design changes beyond your contract requirements? Did the contractor or owner require you to accelerate your work to comply with a new compressed schedule?

These examples may entitle you to additional compensation since they may be constructive changes to your contract.

3. Can You Circumvent a No Damages for Delay Clause?

Finally, in response to your claim, the general contractor or owner may raise the defense that your contract has a “no damages

for delay” clause. However, such a clause may be unenforceable if there is bad faith or active interference.10 Courts have found several other generally recognized exceptions to a “no damages for delay clause” where the delay: (1) was not intended or contemplated by the parties to be within the purview of the provision; (2) resulted from fraud, misrepresentation, or other bad faith on the part of one seeking the benefit of the provision; (3) has extended for such an unreasonable length of time that the party delayed would have been justified in abandoning the contract; or (4) is not within the specifically enumerated delays to which the clause applies.11 As a subcontractor claiming active interference on the part of the owner or general contractor, you may just need to show that the owner or general contractor committed an affirmative, willful act that unreasonably interfered with your performance of the contract. For example, was other preceding work performed by the contractor or its subcontractors defective? Was the scheduling that was done by the general contractor deficient? Did the owner or contractor delay in sending you the revised design documents, or the materials or equipment that was necessary before you could begin your work? As discussed above, where these circumstances exist, you must carefully and thoroughly notify the general contractor and document them to preserve your rights and claims.

These claims, legal arguments and remedies are by no means exhaustive. Every contract is different, as is every project. However, hopefully this article will help you identify potential claims, issues and options in current or future projects that become contentious. Armed with the information in this article, you may be better prepared to preserve your rights and claims, and perhaps turn a losing contract into a profitable one by being more aware of your options.

Nicole Sornsin’s practice is concentrated in commercial litigation with experience in construction litigation, financial services litigation, and general business torts and contract-related disputes. Her construction litigation practice includes the representation of general contractors, subcontractors and material suppliers in performance and payment disputes, contract termination matters, mechanic’s and materialmen’s lien foreclosures, surety bond claims, registrar of contractors’ administrative proceedings and bid protests. She can be reached at (602) 382-6392 or nsornsin@swlaw.com. Jim Sienicki’s practice involves construction law representation and litigation, procurement law and bid protests, general commercial litigation, creditors’ rights and other litigation, alternative dispute resolution and appellate matters. Sienicki is the head of the firm’s construction practice group, and the firm’s construction litigation practice has been recognized as a National Tier 1 practice for the last two years by U.S. News and World Report/Best Lawyers. He can be reached at (602) 382-6351 or jsienicki@swlaw.com.

Bruner and O’Connor Construction Law § 15:50 (March 2016).

Id. 9 See Nova Group/Tutor-Saliba v. United States, 125 Fed. Cl. 469 (2016).

7 8

Zachry Const. Corp. v. Port of Houston Auth. of Harris Cty., 449 S.W.3d 98, 114-16 (Tex. 2014), reh'g denied (Dec. 19, 2014); Tricon Kent Co. v. Lafarge North America, Inc., 186 P.3d 155, 160-61 (Colo. App. 2008).

11 Zachry Const. Corp., 449 S.W.3d at 114-16.

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ASA/FASA Calendar 9 – Webinar: Sleeper ClausesContract Clauses That’ll Make You Lose Sleep at Night

10 – Webinar: Most Popular Benefits Employees Are Purchasing Without Employer Contribution

30 – Webinar: DOL Overtime Rule (Complimentary)

24 – Webinar: OSHA Transgender Bathroom Requirements (Complimentary)

September 2016 13 – Webinar: Using the ASA Subcontract Document Suite October 2016 4 – Webinar: OSHA Illness/ Injury Data Collection Requirements (Complimentary) 11 – Webinar: Is Your Cash Working for You? Understanding the Competitive Advantage of Cash Management 21-22 – ASA Legal & Advocacy Meetings, Kansas City, Mo.

in the August 2016 Issue of ASA’s

THE

August 2016

Coming Up

January 2017

February 2017 14 – Webinar: Cost Coding Made Simple March 2017 1 – Webinar: OSHA Silica Rule—Applications for Subcontractors (Complimentary) 15-18 – SUBExcel 2017, Denver, Colo.

Management Accounting & Forecasting Best Practices

• Lien

& Bond Waivers Best Practices

• Case

Study: Using the ConsensusDocs 750 with Marketing & Sales

April 2017 11 – Webinar: Incentive Compensation Plan Best Practices May 2017 9 – Webinar: Prompt Payment and How/When to Suspend Work

December 2016 13 – Webinar: U.S. Election Outcome & Potential Impact (Complimentary)

• Cash

• Working

November 2016 8 – Webinar: Change Orders—The Bane of All Subcontractors

THEME: Establishing Best Practicies

June 2017 13 – Webinar: Killer Contract Clauses

• Networking

Practices

Best

• OSHA

Illness/Injury Data Collection Requirements

• Legally

Speaking

Look for your issue in August.

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

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

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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. Copyright © 2016 CNA. All rights reserved.