The Contractor's Compass October 2016

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ASA’s

THE OFFICIAL EDUCATIONAL JOURNAL OF THE AMERICAN SUBCONTRACTORS ASSOCIATION

WWW.ASAONLINE.COM

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Building the Builders— Developing the Right Formula for Becoming a Talent Magnet Who’s Going to Run Your Business When You Are Gone?

Leadership Development to Ensure Success Today and in the Future Three Key Essentials to Management Level Hiring Update on the Department of Labor Overtime Rule Legally Speaking: The Ten Commandments of Construction Risk Management

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March 15-18, 2017 Denver, Colorado

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October 2016

Features

EDITORIAL PURPOSE The Contractor’s Compass is the monthly educational journal of the Foundation of the American Subcontractors Association, Inc. (FASA) and part of FASA’s Contractors’ Knowledge Network. The journal is designed to equip construction subcontractors with the ideas, tools and tactics they need to thrive.

Building the Builders—Developing the Right Formula for Becoming a Talent Magnet........................................... 10

by Gregg Schoppman

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).

Who’s Going to Run Your Business When You’re Gone?................................................................................. 12

EDITORIAL STAFF Editor-in-Chief, Marc Ramsey

by Gregg Schoppman

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.

Leadership Development to Ensure Success Today and in the Future........................................................................ 14

by Laura Cataldo

Three Key Essentials to Management Level Hiring....................... 16

by Larry Silver

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

Update on the Department of Labor Overtime Rule...................... 19

by Marcus Renwick

Departments

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.

CONTRACTOR COMMUNITY..... ........................................................... 5 LEGALLY SPEAKING............................................................................... 21 The Ten Commandments of Construction Risk Management

by Eric Travers, Esq.

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

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

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Contractor Community Is Your Cash Working for You? ASA’s Oct. 11 Webinar Focuses on ‘Cash Management’ For subcontractors, effectively managing cash is an ongoing and high-stakes challenge. In the Oct. 11 ASA webinar, “Is Your Cash Working for You? Understanding the Competitive Advantage of Cash Management,” Kevin Jacobs and Aaron McFarland, Moss Adams LLP, Seattle, Wash., will outline steps subcontractors can take to adjust their allocations so they have cash on hand when they need it, while earning a return on their long-term reserves: • Examine current liquidity structure.

• Analyze business cycles.

• Project company’s needs.

• Understand the impact on third parties and owners.

This live, 90-minute webinar will begin at 12:00 p.m. Eastern time/9:00 a.m. Pacific time. The registration fee is $99 for members and $179 for nonmembers. Register online.

DOL/FAR Council Publishes Final Fair Pay, Safe Workplace Rule On Aug. 25, the U.S. Department of Labor and the Federal Acquisition Regulatory Council issued the final rules and guidance implementing the so-called Fair Pay, Safe Workplace Executive Order, published in July 2014. These regulations are intended to ensure that federal contractors and subcontractors comply with federal labor laws.

Under the new rules, prospective contractors will have to disclose violations from the reporting period

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(the previous three years, once the rule is fully phased in) of 14 basic workplace protections, including those addressing wage and hour, safety and health, collective bargaining, family and medical leave, and civil rights protections.

The FAR rule requires prospective contractors to publicly disclose whether they have violations of covered laws within the reporting period and, for prospective contractors being evaluated for responsibility, certain basic information about those violations.

Contractors with violations will have the opportunity to voluntarily provide to the government additional information, such as mitigating circumstances, remedial measures, and other steps taken to achieve compliance with workplace protections. The new rules also create a process for contracting agencies and DOL to help contractors come into compliance with labor laws and to ensure that contractors who get federal contracts continue to comply with labor laws while they are receiving federal funds. The new rules will be phased in over a two-year period as follows: • Week of Sept. 12, 2016 Preassessment began. Under this process, current or prospective contractors may go to DOL for a voluntary assessment of their labor compliance history, in anticipation of bids on future contracts but independent of any specific acquisition.

• Oct. 25, 2016: The final rule will take effect. Mandatory disclosure and assessment of labor law compliance will begin for all prime contractors under consideration for contracts with a total value greater

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than or equal to $50 million. The reporting disclosure period initially will be limited to one year and will gradually increase to three years

by Oct. 25, 2018.

• Jan. 1, 2017: The Paycheck Transparency clause will take effect, requiring contractors to provide wage statements and notice of any independent contractor relationship to their covered workers.

• April 25, 2017: The total contract value threshold for prime contracts requiring disclosure and assessment of labor law compliance will be reduced to $500,000.

• Oct. 25, 2017: Mandatory assessment will begin for all subcontractors under consideration for subcontracts with a total value greater than or equal to $500,000.

ASA Publishes FAQ on New Fair Pay/Safe Workplace Rule In order to give subcontractors a greater understanding of the new federal Fair Pay, Safe Workplace rules, ASA has published a Frequently Asked Questions. Under the new rules, published by the U.S. Department of Labor and the Federal Acquisition Regulatory Council on Aug. 25, prospective contractors and subcontractors for federal contracts will have to disclose violations from the reporting period (the previous three years, once the rule is fully phased in) of 14 federal labor laws, including those addressing wage and hour, safety and health, collective bargaining, family and medical leave, and civil rights protections.

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The new rules also include a wage transparency provision that requires covered contractors and subcontractors to provide wage statements to covered workers, giving them information concerning their hours worked, overtime hours, pay, and any additions or deductions from their pay. Contractors also must provide workers whom they treat as independent contractors a document informing them of their independent contractor status.

In addition, the new rules require contractors with contracts exceeding $1 million and subcontractors with subcontracts exceeding $1 million (except for subcontracts for the acquisition of commercial items) to agree that a decision to arbitrate claims arising under Title VII of the Civil Rights Act of 1964, or any tort related to or arising out of a sexual assault or harassment, be made only with the voluntary consent of employees or independent contractors after such disputes arise.

The new ASA FAQ answers questions on: • The background of the rules.

• The implementation schedule.

• How contractors will disclose labor violations.

• The applicability to subcontractors.

• Assistance available to contractors and subcontractors.

• Agency Labor Compliance Advisors.

• The relationship to suspension and debarment.

• The paycheck transparency requirements.

• The bar on mandatory arbitration.

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OSHA’s New Silica Rule’s Medical Surveillance Requirement On June 23, 2017, construction employers will need to be in compliance with OSHA’s new rule on crystalline silica. The new rule applies to all occupational exposures to respirable crystalline silica in construction work, except where employee exposure will remain below 25 micrograms per cubic meter of air (μg/m3), as an eight-hour time-weighted average under any foreseeable conditions.

The rule contains an extensive medical surveillance provision with which covered employers must comply. In general, the employer must make medical surveillance available at no cost to the employee, and at a reasonable time and place, for each employee who is required to use a respirator for 30 or more days per year. The employer also must ensure that all medical examinations and procedures required under the rule are performed by a physician or other licensed health care professional (PLHCP). In addition, the employer must ensure that the PLHCP explains to the employee the results of the medical examination and provides each employee with a written medical report within 30 days of each medical examination performed.

The PLHCP’s written report must contain: • A statement indicating the results of the medical examination, including any medical condition(s) that would place the employee at increased risk of material impairment to health from exposure to respirable crystalline

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silica and any medical conditions that require further evaluation or treatment.

• Any recommended limitations on the employee’s use of respirators.

• Any recommended limitations on the employee’s exposure to respirable crystalline silica.

• A statement that the employee should be examined by a specialist if the chest x-ray provided in accordance with the medical surveillance requirement is classified in 1/0 or higher by the B reader, or if referral to a specialist is otherwise deemed appropriate by the PLHCP. In addition, the employer must obtain a written medical opinion from the PLHCP within 30 days of the medical examination. The written opinion shall contain only the following: • The date of the examination.

• A statement that the examination has met the requirements of the rule.

• Any recommended limitations on the employee’s use of respirators.

ASA, in collaboration with 22 other construction associations, has initiated a lawsuit to prevent OSHA from implementing its rule. In the meantime, ASA urges construction employers to identify a PLHCP who can meet the rule’s requirements to set up internal procedures to comply with the medical surveillance procedures under the OSHA rule.

To learn more about OSHA’s silica rule, see the webinar prepared for the Construction Industry Safety Coalition. Access the webinar using the password: CSC4. A hard copy of the webinar slides is available on the ASA Web site. For more information,

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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 will offer a complimentary webinar, “OSHA Silica Rule— Applications for Subcontractors,” from noon to 1:30 p.m. Eastern time on March 1, 2017. Presenter Terry Foy, Foy Safety Consulting, Inc., Abingdon, Md., will examine the OSHA rule and explain what subcontractors need to know, including general information about performing construction work on silica containing materials, how the rule will affect the construction jobsite, and what is necessary to comply.

Professional Subcontractors Deliver on Their Promises Failure to perform is one of the biggest complaints prime contractors level against subcontractors. For this reason, ASA’s Professional Standards of Practice for Construction Subcontractors stresses the importance of performance throughout. In the first standard, the professional subcontractor is advised to: Become familiar with job requirements in sufficient detail to assure that it has the expertise, finances, people and time to complete its portion of the work as prescribed.

ASA Task Force on Contract Documents Chair Brian Cubbage, contracts administration counsel for Heico Construction Group, Alexandria, Va., agrees that overpromising is one of the greatest faults of subcontractors. “They bid the job based upon people they think they can get with materials they think they can get on the cheap,” he said.

The second problem he sees is a failure to examine all bidding

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documents, including contracts, bulletins, bidding addendum, plans and specifications.” Cubbage urges subcontractors to eliminate any ambiguity by requesting an addendum to the specifications for the benefit of all bidders. “You have to pin down anything that you have to put money into,” Cubbage said, such as who pays for permits and fees, bonds, insurance and taxes.

Cubbage says subcontractors shouldn’t take on-site and sub-surface conditions for granted either. This is particularly critical for excavation and structural trades. Without an on-site pre-bid visit, when the unanticipated conditions occur, either the contractor or the owner will file delay claims. The safest time to get that clarification is prior to submitting the bid. If a subcontractor clarifies its bid at bid time, it runs the risk of being considered a non-responsive bidder.

“When you identify ambiguities in the specifications, contact the prime contractor in sufficient time prior to the bid for it to provide a clarification—perhaps a week or more earlier. If you wait, you have to base your bid on your interpretation of the ambiguity. If you had to give numbers without qualification, you may not be responsive,” Cubbage said. “Courts generally don’t grant relief for errors of judgment in bidding such as incorrectly estimating labor costs or material cost or bidding based upon a method of performance which will not work. The error prone subcontractor cannot rely upon a sympathetic court to automatically correct the error in its favor.”

Once the specifications are clear, the Standards recommend that professional subcontractors “submit bids promptly with the terms of its offer clearly defined, including any obligations of others

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that are not made clear in the bid document.” Cubbage recommends that subcontractors use a proposal form that outlines the scope of work on which the subcontractor is bidding and expressly stipulates what work is being excluded. “A comprehensive proposal form is the foundation of a good commercial relationship.

Therefore, maximum effort should be put into it,” Cubbage said. “The description of the scope of work in the proposal should be precise, including date, date of last revisions and addenda.”

According to the Guideline on Bidding Procedures, developed

by ASA, the Associated General Contractors of America and the Associated Specialty Contractors, “each subcontractor should deliver a bid scope form to the general contractor at least 24 hours prior to bid time. The scope form should set forth the scope of his proposed form without dollar amounts, which alternatives will be bid on, which addenda and bulletins have been received and any special conditions of the bid. The scope form should designate specification sections and paragraphs fully covered by the bid and related plans or portion of the plans by page number.” If the proposal form can be submitted in advance without the price, it can work favorably for the subcontractor.

It Looks Like a Change Order—What Do You Do Next?

“There probably has never been a project built without changes meriting additional compensation occurring during the work,” said Don Gregory, partner with the Columbus, Ohio, law firm of Kegler, Brown, Hill & Ritter, ASA’s general counsel.

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Contractor Community

“Sometimes these changes result in a change order, while other times a disagreement simply results.” In order to increase the changes that they will be fairly compensated for the additional time or money associated with a change, Gregory recommended that contractors and subcontractors take the following actions: • Give timely written notice before the work takes place. Though this is a simple concept, it is frequently violated during the press of the job. Many contracts have a provision requiring prompt notice (within hours or days of the discovery of the occurrence) of the proposed changes or the claim will be waived. This provision can be simply satisfied by providing language like: “The purpose of this [email, letter, etc.] is to notify you that we recently discovered [the changed condition], which differs materially from the contract documents we bid upon and which may result in cost and time ramifications and be appropriate for a change order. Further information will be provided upon request as we learn more about the cost and time ramifications associated with this issue.”

• Provide supporting cost and time documentation as soon as possible. Rather than waiting until after the work is done, or the job is finished, provide back-up for the projected costs as soon as possible, even if it is just an estimate. For example: “The [changed condition] we previously notified you of will likely result in additional costs of at least [$____] and additional time of [___ days] through no fault of our own. While this is just an

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estimate, your contract states that we should have a written change order before performing the work, and we are unable to proceed with this extra work without your goahead. If we do not timely receive it, we cannot be responsible for any adverse effects on the project.”

Only proceed with the changed work after receiving a directive to do so. The safest course of action is always to insist upon some written direction, not only to proceed with the work, but also that the change is an extra to the contract, before performing the changed work. However, sometimes this may not be practical or in the best interests of the project. If a change directive or change order is not received, or at least committed to in writing, and you still find it necessary to proceed at your risk, you can write a self-serving letter designed to minimize that risk: “Even though you have asked us to proceed with extra work to avoid delaying the project, you have not followed the change order process, therefore we will consider that process waived and proceed with the extra work reserving our right to recover our additional costs.”

• Do not sign a change order for less than full compensation (for time and money) without reserving rights. Frequently, the change order references paying for only the direct costs of the change but expressly states that “all direct and indirect costs associated with the change are waived.” Courts have been harsh to contractors and subcontractors who do not reserve the effects of “cumulative cost” or additional time in such change orders. If there are delay damages

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or additional time is potentially needed, rights should be reserved similar to the following: “We have only priced the direct costs, so Change Order Number ___ is returned to you as executed with one exception and deletion.

We have deleted and initialed the portion of the change order that would waive claims for any delays, inefficiencies, disruption or suspension, extended overhead, acceleration, and the cumulative impact of this and other change orders issued to this date. Please return an executed and initialed copy to us.”

Add language to the change order section that addresses the number of additional days required by such change order. Assuming at the time the change order is presented no additional days are required, sample language that should be added as provided below: “No additional time is sought as of this date based upon what is foreseeable now. But we are not waiving claims for additional time should circumstances change.”

“Of course, all of this letter writing can be avoided if the owner or contractor simply agrees not to enforce language in its contract requiring a written change order before work is performed,” Gregory said. “While these qualifications will not avoid change order disputes, if followed, they will increase the chances you will be compensated for additional work.”

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Feature Building the Builders—Developing the Right Formula for Becoming a Talent Magnet

by Gregg Schoppman It could be the weather. It could be the election season. Whatever it is, this has the familiar feeling of “Groundhog Day.” It seems like just yesterday, executives were saying, “We can’t find good people anywhere!” It was just a few years ago that firms hunkered down and ran their operations with a lean skeleton crew. As the construction market continues to show signs of steady growth—for the time being— firms are clamoring for talent and the secret recipe to retain these super stars. Building an enduring organization should be the keystone with the outcome being talent generation. There are no silver bullets or secret sauces for finding the best in the business. The organization that serves as the magnet, regardless of the economic cycle, will be the one that positions themselves for the long term.

One of the first considerations that high-performing organizations make is the movement away from “Human Resources” to “Talent Director.” This is more than just some superficial title change. More importantly, there is a movement away from the sterotypical human resources department—complete with all of the fun paperwork that goes along with it—to a group focused on growing the next generation of high performers within the firm. This is not to say that we need to forget all of those tax and immigration forms but rather incorporate a higher level of employee growth within this person’s role or as a more comprehensive vision for this department.

Attracting Talent Firms have to realize that a key to attracting the most elite in the talent pool requires a deep reflection on the following question: “Why would anyone work for your firm?”

The boilerplate answers include a

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paycheck, great projects, and great people. Those are all admirable qualities but hardly differentiators.

In fact, most firms will reference that list. This list hardly evokes passion and will definitely not capture the hearts and minds of the true best of the best. In much the same way that a firm would explore why a customer would choose them when compared to the competition, it requires the same deep thought. It is important to consider a firm’s “image” in the marketplace. In a world that is ruled by social media and an infinite number of sources of information, a savvy firm not only investigates its image but then proactively works to answer the question of all questions. Whether it is industry leading benefits, a superior culture dedicated to lifelong learning or simply a niche based presence that appeals to a certain type of individual, the leaders have a superior magnetic quality making them radiant in a pool of mediocrity.

Screening Talent Fogging a mirror is hardly a distinguishing screening tactic.

Consider how a firm traditionally goes about hiring—application, interview with a senior manager, obligatory reference screening with references that were provided by the interviewee.

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Hhmm … Best of class firms have a more robust process. Does it take more time? Absolutely. Does it help prevent the “bad hire?” Absolutely. Being blunt, everyone will have a bad hire and regardless of the process, there will always be that “regret.” However, consider adding some of these steps to the process: • Mandatory four to five manager screening—Whether it is individual interviews or panels composed of the key personnel within the firm, a candidate can be appropriately vetted with a higher level of scrutiny.

• Interview Areas—By using groups of individuals, a candidate can be screened deeper, utilizing the specific talents of the interviewing parties. For instance, one group focuses on “conflict resolution” while another deals with “customer management.”

• Case Studies—Google and Apple have used this technique for years.

While the focus is different, provide a candidate with a relevant topic and see how well they dance.

• Testing—If someone says they are an estimator, test them. They don’t need to estimate a $20 million building, but they can provide context on their approach.

• Personality Profiling—Whether it is DiSC, Predictive Index, MyersBriggs, etc., there are no shortage of outstanding tools to gauge the personality fit of a candidate.

On-Boarding Talent What does the first 90 days look like in the firm today? Does it set the land speed record for paper processing in an effort to get that individual on the site, managing work? Thrown to the wolves, thrown to the fire? Hopefully, firms will do less throwing and more

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onboarding. Consider mapping the onboarding for new hires and assign specific tasks so a new associate experiences the full breadth of the organization: Required Task/Module Day 1

History of Firm X HR Paperwork IT Orientation Tour of Office/Staff Introductions First 30 Day Overview

Day 2–10

Shadow Estimator Shadow PM Shadow Superintendent Tour of Notable Projects Customer Etiquette Email Procedure/Etiquette

Day 11–29 Financial Management 101 Change Order Management 101 Pre-Job Planning Short Interval Planning Post Job Review Exit Strategy Day 30

30 Day Evaluation

While most firms do some semblance of this, it is normally handled reactively. Additionally, think of the power of learning about a firm’s history, its vision, mission and core values as told to them by the president or some other key stakeholder.

Training and Developing Talent Training is something that receives a great deal of attention from new associates. Firms run the gambit of training exclusively on subjects such as a safety to more advanced institutionally led “corporate universities.” Training needs to evolve from the obligatory safety focused modules. First, it is important to reflect an understanding of a firm’s best practices. For instance, does the firm have training and approach for the following: • Brand X Construction Preconstruction Planning—What is the typical firm-wide approach to planning? Is this institutionalized across the whole team?

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• Construction Techniques—What

are the true innovations within the firm? How are they shared, short of water cooler conversation?

• Customer Service—What is the firm-wide standard of customer service? How do you recognize true service? How can service be replicated across the firm?

Too much thought goes into training—for instance, the firm either has one of the following conditions: • Ad hoc disconnected approach— Training is largely left up to the individual and focuses outwardly with industry experts.

• Full employee engagement—There is a lot of thought around subjects, delivery, calendars, etc. but little in terms of actionable training.

Simply put, start simple! Use a firm’s core values as the infrastructure for training. Assign trainers to allocate the load and find subjects that will give you the most bang for the buck. Once a calendar is developed and milestones achieved, shoot for higher “masters level courses.”

Lastly, the component that is usually discounted is the latter part of this section—development. Mentoring is essential and associates should all be connected. It is most likely not a direct report/superior but someone that has an earnest interest in personnel development. It is also important to recognize who might not make a good mentor. As much as we would like everyone to take a part in associate development, it is important to remember this is not everyone’s strong suit.

Retaining Retaining talent sounds like a quick and successful culmination of doing the aforementioned items.

However, talent retention requires as much attention as onboarding for new associates. Many firms focus on training for junior associates.

Additionally, a project engineer or assistant project manager can often see career progression with greater clarity. However, it is important to consider the 10-year project manager or 15-year estimator—while no one would expect training to be identical for these seasoned veterans, so

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many organizations neglect these key associates’ long-term training and development. It is important to realize that these leaders are effectively the same people that will convey “passion” during the first steps of the “attracting talent” phase—do they act and sound like passionate “salespeople” or tired, exhausted associates simply running the rat race?

Career paths are important for everyone. Not only do they convey a future but they also speak to the firm’s long-term management succession plan. If the only training and development occurs at the zeroto three-year timeframe, what does this say about the current state of the leadership running the business at the tactical and strategic levels? It is imperative that organizations continue to hone their leaders, keeping them razor sharp and armed with the best tools to drive the business and its talent forward.

Building a deep talent rich organization requires plenty of work and focus. It is easy to lament about the quality of the workforce or even reflect on the lack of desirability of the construction industry as a main culprit for a labor crisis. Additionally, there will always be free agents in the marketplace. However, those firms that make talent leadership a core tenet tend to garner the best. And the best generates the best performance.

As a principal with FMI, Tampa, Fla., Gregg Schoppman specializes in the areas of productivity and project management. He also leads FMI’s project management consulting practice. Prior to joining FMI, Schoppman served as a senior project manager for a general contracting firm in central Florida. He has completed complex and sophisticated construction projects in the medical, pharmaceutical, office, heavy civil, industrial, manufacturing, and multifamily markets. He has also worked as a construction manager and managed direct labor. Furthermore, Schoppman has expertise in numerous contract delivery methods as well as knowledge of many geographical markets. He can be reached at (813) 636-1259 or gschoppman@fminet.com.

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Feature Who’s Going to Run Your Business When You Are Gone?

by Gregg Schoppman Procrastination. It is hardly a word that defines the nature of many of the world’s construction leaders. However, the same group of leaders that have forged so many of the strongest construction empires procrastinate about the one element that often requires them to examine their own mortality. Ownership transfer. While most people recognize that their life on earth is finite, confronting the brutal facts about that timeline is largely uncomfortable. There are many cases where owners decide that they are having way too much fun to hang up the saddle. Reminiscent of the cowboys of old, going out “with their boots on” seems like an acceptable approach. On the other hand there are plenty of leaders that realize they want to enjoy the later years in life but choose to “kick the can down the road.” Living in a reactive construction universe creates a lack of proactive strategy. Building backlog over the next six to 12 months is often the immediate and urgent task that requires attention. “Heck, I’m only 45/50/55/60 years old … I have plenty of time to deal with succession.”

Unfortunately, the same can that was kicked, year in, year out, tends to boomerang sooner than you think.

The Strategic View So often, strategic plans focus outwardly. Finding new customers and new markets trump dealing with immediate personnel challenges.

Furthermore, talent development appears limited to younger or newer associates. Onboarding and education focuses on expediting growth of that newer generation to serve as a

catalyst for volume growth. However, strategic planning should include the following elements: • Gap Analyses—As leaders move up in the organization, what spots are vacated, leaving voids in talent.

• Training the Successor—For that next generation leadership group, what concrete plans are being utilized to avoid large gaps.

• Ownership Transfer Modeling— How will the ownership be compensated for their shares/ equity? Put another way, how long will it take for the purchasers to acquire the funds to make the buy-out effective?

• Management Succession—For some organizations, they steer toward an ESOP or Employee Stock Option Plan. While this solves the aforementioned ownership transfer problem, there is still the dilemma of “management succession.” You will still need someone to run the business even if the stock is handled.

The most important item to recognize is that ownership transfer/ management succession should become part of the firm’s strategic plan. For instance, training is often viewed in the “short view” —provide skills to improve profitability, customer relations and efficiency.

Take the “long view” —migrate skill development to teaching people to lead the business more than just projects.

Invincibility and the Transition Dilemma Everyone knows that working in the world of construction is one of the most exciting activities

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anyone can have within their life. All snarkiness aside, there are plenty of people that truly enjoy everything about the industry and their career.

Ending their career not only represents an end to this fun, but also a possible mortality indication. Failing to deal with succession allows leaders to brush this critical issue under the carpet. Plus, we’ll all live forever, right?

There are countless stories of business failures due to succession.

Whether it is the desire to stay in the business because of ego, invincibility, etc., firms run the long-term risk of losing star talent. Potential successors need to see the light at the end of a current owner’s tunnel. If they don’t see opportunity, they will go somewhere that will give them what they seek. Do not let pride write a chapter in your firm’s strategic plan that will only doom it in the long term.

Future Generations of Ownership Millennials and how to manage the younger generations dominate the headlines of many business journals.

One consideration that should be recognized sooner rather than later is the desire of that millennial generation and their perspectives on “ownership.” Regardless of age, there are plenty of talented individuals that are excellent managers but have zero desire to be an owner. Whether it is risk one assumes or simply the encumbrances ownership demands, there are plenty of people that do not want to be an owner.

The lesson is this—educate your “high potentials” early and often on what it means to be an owner. For all of the positive aspects, there is

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no shortage of entanglements that owners deal with daily that may dissuade someone. This is something to know early in the ownership transfer/management succession process.

Management Depth Running a business requires so much more than the CEO/President.

Said sarcastically, most of your businesses would go on without you. However, this is normally not the lynch pin for true succession issues. Who will succeed your general superintendent? Your top senior project manager? Your controller?

As discussed before, the gap analysis is imperative to identify massive operational voids that will be left with retirements and departures.

Bluntly speaking, what if a key leader were to go down to a health issue?

What happens to the business? While it seems callous to even consider at a time such as this, the business must persevere. Management succession is as important as ownership transfer, especially when literally discussing, “Who will run your business when you are gone?”

Family Family owned businesses and construction often go hand-in-hand.

For many leaders it is important to maintain the sanctity of being family owned. There are many considerations that firms should recognize when dealing with family issues: • Development of future owners— It is a safe bet to realize that leadership traits are not genetically predisposed. How will future leaders be grown? Should family members be forced to leave the

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“Family Fold” before they assume any role in the business?

• Considerations of non-family members—Are you losing talent because you are not willing to look outside of the family for management, leadership? Is the maintenance of the “family name” that important to you or is maintaining a vibrant business for future generations more important?

• Make them earn it—Fair or not, family members always face a cynical up-hill battle— “They are only in that position because of their name …” The most successful transitions usually involve family members that have spent time in the trenches, figuratively or literally. While this isn’t always feasible, think about the future generations’ credibility and the loyalty of the team they will eventually lead.

• Rules of engagement—Family members may not be in the immediate future. This is the perfect time to develop rules around the treatment of a brother, sister, son, daughter, niece, nephew, etc. Rather than make case-by-case determinations, create fair and equitable rules around: m Ownership limits. m Assumption of ownership. m Voting rights. m Extended family rules— brother-in-laws, cousins, etc.

• Accept the brutal truth— Sometimes the hardest part of any construction business is coming to the conclusion that the son, daughter, nephew, etc., is not the “Chosen One.” Sometimes it is

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a developmental issue that with corrective action, can be rectified.

In some cases, it just is not the right choice. Confront the brutal truth and be proactive. Ripping the Band-aid off over a 10-year timeframe does no one any good long term.

Ownership transfer and management succession are two deeply integrated issues every firm will deal with multiple times throughout its life. In the end, every business also has the opportunity to simply (word chosen very loosely) liquidate and close the doors when the time is right. Most leaders realize we are all custodians, keeping the seat warm for the next generation with the desire to leave a successful legacy for the second, third, nth generation. However, the strategy and tactics must be very well thought out, deliberate and reflect the same importance as maintaining sufficient profitable backlog.

As a principal with FMI, Tampa, Fla., Gregg Schoppman specializes in the areas of productivity and project management. He also leads FMI’s project management consulting practice. Prior to joining FMI, Schoppman served as a senior project manager for a general contracting firm in central Florida. He has completed complex and sophisticated construction projects in the medical, pharmaceutical, office, heavy civil, industrial, manufacturing, and multifamily markets. He has also worked as a construction manager and managed direct labor. Furthermore, Schoppman has expertise in numerous contract delivery methods as well as knowledge of many geographical markets. He can be reached at (813) 636-1259 or gschoppman@fminet. com.

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Feature Leadership Development to Ensure Success Today and in the Future

by Laura Cataldo

It is safe to say we all agree that hiring employees in this expanding economy is difficult, especially with 10,000 Baby Boomers retiring from the workforce every month.

Experts predict that within the next four years, Millenials (those 38 and under today) will represent 50 percent of the workforce. Take a look at your company’s management team—are you grooming the talent necessary to remain successful in the next five to 10 years? Surveys conducted by Maxim Consulting with construction companies reflect that workforce development, leadership development and continuing education are three of the top concerns that contractors have during the next three to five years.

Growing the leadership pipeline in your organization begins from the moment you bring a potential

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candidate onboard. Getting employees in the door is only the first step. Retaining and growing the leadership capabilities of employees is more critical than ever and requires an effective plan of: • Onboarding the Right Talent • Performance Management • Coaching and Training • Career Planning and Succession In the past, the typical response to building the leadership pipeline was to start a search to hire senior level talent. That is not a successful plan in today’s labor market. A recent construction industry survey reported that 89 percent of contractors find it very difficult or somewhat difficult to find senior talent. Unless you have unlimited financial resources and a strong recruitment process, it is doubtful you will be successful

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in hiring experienced employees with leadership skills. For most contractors, the reality is that you must develop the leadership abilities in your employees because it will become increasingly harder to hire them.

Employee Development Is What Millenials Want PwC conducted a Millenials Survey to determine what factors make an employer attractive. Two of the three top responses for employer attractiveness are related to employee development: • Opportunities for career progression • Competitive wages and financial incentives • Excellent training and development programs

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Building Balance—Soft Skills for the Technical Professionals The majority of the construction workforce is composed of technically trained professionals such as the skilled trades, engineers, and estimators. Their educational training is founded on learning the technical or “hard skills” of their profession.

They understand constructability, scheduling, materials, labor management and estimating. They excel in their respective positions because they have the technical skills necessary for the job. Yet, many of these same “experts” struggle with the people-focused or “soft skills” such as leadership, communication, negotiation, problem-solving, decision-making, team building or motivating.

Why is it that the super-star project manager that brings every job in under budget and on-time, fails when moved into a position of leading others? Technical skills are critical to project success, but without applying the right set of soft skills, the employee won’t be successful. We understand the impact that training and development has on the ability to grow future leadership, but we cannot forget the impact that this investment can have on every project. Look at the top 10 reasons that projects fail and it is apparent that lack of soft skills are

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largely to blame.

• Poor leadership at any and all levels • Failure to adequately identify, document, and track requirements • Cultural and ethical misalignment • Misalignment between project team and business/organization it serves • Inadequate communication, including progress tracking and reporting • Inadequate or misused methods • Inadequately trained or inexperienced project managers • Failure to set and manage expectations • Poor plans and planning processes • Poor effort estimation A training and development program that incorporates both technical and soft skills is critical to recruiting and retaining employees, building a leadership pipeline, and company-wide project success. It is highly recommended that companies utilize outside resources to assist in the development and delivery of leadership training and coaching to maximize the impact. Outside resources often have proven content and delivery processes that help accelerate the deployment internally without having to re-create the wheel.

Training needs can be met with

an internal development program, through external educational opportunities (association, Chamber of Commerce, apprenticeship program or area colleges), or through a combination of the two. An ideal employee development program incorporates: • Soft skills (negotiation, leadership, public speaking, etc.)

• Technical skills (systems and process) • Industry-specific knowledge (BIM, LEED, etc.)

You will see the return on your investment in the profitability and success of each project and build the skills necessary for employees to lead your organization into the future.

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 industry 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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Does your company offer career progression and training and development programs for your employees? Construction is an industry that relies heavily on education of many sorts: apprenticeship for skilled trades, drafting and technology training through technical colleges, and engineering and construction programs at the university level. But historically, we are not an industry that has stressed ongoing education or advanced degrees. While budgets and workloads change with the economy, impacting your company’s ability to invest in training and development, it will be increasingly important to make this investment in order to build your future leadership.

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

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

That’s a win-win situation.

To advertise in The Contractor’s Compass, contact Richard Bright at (703) 684-3450, Ext. 1335 or rbright@asa-hq.com

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15

Feature Three Key Essentials to Management Level Hiring

by Larry Silver It’s a cliché to say that “our people are our greatest asset.” It is so overused, that it almost has no meaning. The funny thing is, it is quite a true statement. Your people are your greatest asset and give your firm a brand identity, a reputation in the marketplace, a certain feeling that emanates from your offices.

The problem with the statement is that it is not just your people by themselves that make the difference.

It is the collection of a team that your people form and how they collectively serve the needs of your clients, carrying out an intentional corporate culture and strategy consistently over time. This is what makes the difference and what separates one company from another, no two being alike.

When to Hire: Chicken or the Egg? There are two primary reasons why managers are hired for construction.

The driving reason is because the firm is going after work and there are no existing leaders who are ready to perform it. In this case, it is the potential project driving the hiring bus.

The second reason is for strategic growth’s sake. We decided to open an office in that city and we need someone from there to manage it who knows their way around. Perhaps your strategic plan calls for a few managers to be hired to accomplish the anticipated growth over the next 12-24 months. The first year can be a steep learning curve to learn the company and their approach to projects or work acquisition (which some call business development).

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My clear preference is the second reason. Hire when you are not desperate. Hire for growth. Do not just hire because you have the need to fill a warm body into a new project.

That can be very risky all the way around.

Owners are not naïve, nor are they stupid. If they find out that your project team was hired to cover your needed resume on the project, your firm will get a black mark against it.

The exception would be if they know the person and like their work.

That is acceptable. However, you will probably have to pay top dollar and a premium bump to acquire the person. This can upset the pay scale in your firm and cause division and dissension in the ranks.

If you pursue management talent on a more relaxed timeframe, you can hire excellent execs for an attractive package without having to give the farm away and perhaps, in the process, actually select a keeper who will stay long term.

Three Hiring Essentials My overview of hiring the top talent to help your firm grow lies in three essential keys for you to consider as you move forward to hire talent to grow your firm.

Essential #1—The Executive Must Be a Good Cultural Fit I believe that this first key essential should be the biggest deal breaker of them all. The following is a strong statement, but my experience and many others have proven it to be true. If you hire someone who does not fit your corporate culture, you are making a hiring mistake which will cost you significantly in time and money over the long term. Don’t do it.

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This is presuming that you understand and realize what your corporate culture is. Every firm has one, but not every firm has their culture clearly spelled out. I think it wise to be clear what your organizational DNA is and do a good job of communicating it first internally and second, externally. This approach will save your human resource effort so much time and money; there is no way to calculate it.

For example, let’s say you are a small, privately held general contractor that focuses on designbuild negotiated projects, and you value teamwork, excellent communicators, and those who appreciate various sports. There is a certain mindset and person who fits into this set of values. You can consider each of these cultural elements when hiring.

Make sure moving forward that your culture is clear to your employees and to the marketplace.

People are attracted to certain things.

If they like what they see in your firm, they may be willing to consider employment when a recruiter calls them unexpectedly. But, if they are turned off or not attracted to the culture you portray, you will filter them out because of it.

Essential #2—Employ an attractive and streamlined process.

Hiring is a process and it takes time. Learning how to go about this process in a streamlined way is imperative and could make the difference between getting someone or losing them.

I have found that using a scoring matrix is a safe and superior approach in that you score candidates to discern whether they are worthy of

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hire or not and also to be able to compare one with another for the same position.

The example matrix shown is for a business development manager position. Your firm can change the criteria and the weighted averages for each interview performed. I recommend using a team approach and averaging the scores over the group. This keeps the score more accurate and takes the blind spots and the more subjective aspects out of the equation.

Remember that the interview is not a chemistry test to see whether you like one person over another. That is not the purpose of the interview. It is to find the best talent for a given position within your firm. A candidate who scores a 70 or above is worthy of hire. Below a 70, do not hire the person. You are determining the hiring criteria using the matrix as your gauge. This is intentional, planned, and systematic. It works well if you

use it as it was meant to be used.

Do not violate the matrix, even if the entire candidate pool scores below a 70. For those who do score above a 70, the scoring should make it clear who is the best hire, the best fit for your firm and the open position.

Begin by attempting to negotiate with the best first and then working your way down the list if you are unsuccessful.

Remember that interviewing is a mutual two-way activity. It is not just you as the employer interviewing the candidate. It is also them interviewing you. Remember this principle. If someone asked me why I would want to go to work for them, I might say “I am unsure that I want to yet, perhaps this interview will give me some solid reasons to encourage me?”

I am being a bit sarcastic, but you get the gist of what I am saying.

Put your best foot forward in every interview. Leave every person on a positive note. You may end up doing business in one way or another with

this individual, so be careful to show professionalism and respect in this process.

You are revealing your uniqueness as a company as you go through this process. For higher level positions, have multiple interviews. Compare notes to others who have interviewed the same candidates. As the matrix reveals your best choices, move quickly to bring them into your fold. I have lost many a candidate because my client was moving so slowly in the process that either the candidate lost interest or was snagged by another firm who did not drag their feet.

Essential #3—Hire with Clear Mutual Expectations and a Monitored Career Path Now that you have gained the ultimate goal of this hiring process, a brand new exec to represent your firm, let’s get started on the right foot to minimize any anxiety or remorse for their decision. Like any sale, you must reinforce that they made a good decision to join your firm.

Business Development (BD) Manager GENERAL CATEGORIES

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Candidate 1

Candidate 2

Candidate 3

Appearance

7

Self- Motivated/Aggressive/Tenacious

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People Person/Friendly

10

Construction Experience

8

Presentation/Listen/Communication

10

Sales Ability/Close Deals

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Culture Fit/Team Player/Teach.

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Honest/Integrity

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Network of Existing Contacts

7

Interest Level/Retention?

5

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Reaffirm your culture and their fit into it. Communicate in superior fashion by writing down mutual expectations for the position. It is one thing to have a written job description and another to write down clear expectations for both sides.

Job descriptions are a dime a dozen. Have you ever seen one that gets you excited? I have not. They are boring and serve a purpose I suppose, but they say nothing about the dayto-day stuff you will be doing from a management standpoint.

I have discovered that the exercise of writing down your mutual expectations and then reviewing that progress over periodic intervals is a great way to bring an exec on board and to help them speak up if there is any deviation. If the new hire runs into trouble and has no way to seek help or to reach out regarding the expectations communicated, then they often suffer remorse and can possibly leave in the first year as a

result, more money or not. Making good money is important, but enjoyment, expressed appreciation, and solid achievement are real plusses for a new hire to deposit in the HR bank.

Time to Use a Recruiter?

Most construction management and upper level positions today are better served by using a recruiter. Why do I say that? Lower level positions can be advertised and sorted out by midlevel managers looking for unskilled folks.

But executives require special attention and treatment to win them over. If an exec responds to your ad, why are they responding? Most execs are not seeking to find new employment. An accomplished exec typically likes where they are at.

You can dangle money, but for most, that is not enough to bring them to the table. If an exec responds

to an ad, there is something not right. The best talent, the ones you are seeking, need to be reached out to and engaged before they become open.

The recruiter needs to know what your corporate culture is and not waste time by throwing resumes in your inbox. They should have a sense what you are seeking and focus their efforts on firms and individuals that fit the profile that makes sense for your position.

Larry Silver is president of Contractor Marketing Inc., a consulting/recruiting firm in the AEC Industry. Silver performs strategic planning, marketing/business development audits and training, and is currently the publisher/editorin-chief of Business Development, an ezine that is distributed to more than 100,000 firms. Silver can be reached at (937) 776-7170 or larry@ contractormarketing.com.

New On-demand Video 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!

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

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“Department of Labor Overtime Rule” (Item #8092)

The Department of Labor’s new overtime rule modifies the exemptions to the Fair Labor Standards Act overtime rules for white-collar employees (executive, administrative, professional, computing and outside sales positions) and highly-compensated employees. In this complimentary video-on-demand, Jamie Hasty, SESCO Management Consultants, Bristol, Tenn., examined the new rule and explains what employers should be doing to prepare for compliance.

Price: This webinar is complimentary for members and nonmembers.

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

Feature Update on the Department of Labor Overtime Rule

by Marcus Renwick As most of us know, there are two ways to compensate an employee.

There is salary which is a periodic payment given to employees for performing their tasks in a set period of time, usually based on one week or two weeks. On the other hand, there is the hourly method of compensation. Under the hourly method, employees are paid on a set day based upon how many hours they have worked. Since Aug. 23, 2004, salaried employees must have made over $455 per week or $23,660 per year to be eligible. Currently, the poverty level for a family of four is $24,300. The salary of $455 is low, but worked well for many establishments, opening the possibility to pay a manager a generally low compensation, but have them work over 40 hours per week. That changes on Thursday, Dec. 1, 2016.

In 2014, the President ordered the Secretary of Labor to update the Fair Labor Standards Act in accordance with its original intent. The new number the Secretary of Labor came up with: $913 per week or $47,476 per year. That is the amount of money an employee must make before they are eligible for salary as of Dec. 1, 2016, at 12:01 a.m.

Additionally, the employee must fit into an exemption classification as described by the Department of Labor to qualify for a salary basis

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compensation payment. The different exemption classifications are: • Executive—The primary duty must be to manage an enterprise or unit including two full time employees.

Part-time employees do not count.

• Professional—A professional must do work which requires the application of advanced knowledge. The advanced knowledge can generally be gained from a bachelor’s degree, but can also be gained from experience.

• Administrative—The administrative duties must be related to management activities and the employee must exercise discretion and judgment in their decision process to qualify for the exemption.

• Highly Compensated—If an employee is making over $100,000 per year, they qualify as being highly compensated and are generally exempt.

Outside Sales People The above exemptions do not exempt pay for manual laborers such as plumbers, mechanics, carpenters, etc., regardless of the amount of pay.

Additionally, this rule also does not apply to firefighters, police, and other first responders. This is important, because even if these employees earn above $100,000 annually, they cannot

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qualify for the highly compensated test. Such workers must receive overtime pay when they work beyond 40 hours in a workweek.

Issues According to the Department of Labor, there are 4.2 million administrative staff, executives, and professionals (otherwise exempt), who are affected by the rule change.

Some of those affected individuals make between $455.00 and $912.99 per week. What happens on Dec. 1, 2016? Obviously, these people can no longer be salaried, but must be switched to hourly compensation.

One problem going forward is that many of these people are under contract. That contract must be modified by Nov. 30, 2016, at the close of business in order for that employee to be properly compensated the next day under this change in regulation.

For some, a simple bump up in pay will solve the issue. Others are going to either cut hours to 40 hours per week or they are going to have to lower that individual’s pay to fit the same payroll expense. The employer must be able to prove the individual employee is not working over 40 hours without being compensated for the time.

Some professional firms, right now, do not require time clock entries. The entire staff legally falls under overtime

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exemptions. For a lot of employers, the substantiation requirement is going to be an adjustment as well.

Even though that has not changed, how do you prove an engineer arrived on the jobsite at 9:00 a.m. on Monday as opposed to 8:30? How do you prove your manager, who manages your operation around the clock didn’t work more than 40 hours? Many firms have time clocks, others don’t. We need to get prepared and fast!

So, where do we stand now?

Case 1:16-cv-00407 Twenty-one states and governors are listed as plaintiffs in Document 1, which was filed on Sept. 20, 2016, against the U.S. Department of Labor and The Wage and Hour Division of the Department of Labor. Texas is the first state listed in the lawsuit, and it is worth noting that Texas has sued the United States 44 times during the current administration’s tenure.

The technical stuff includes: The 21 listed plaintiffs listed as parties are subject to the new overtime rule because each plaintiff, “is an employer that pays a salary less than $913 per week to certain of its employees working in a bona fide EAP capacity.” Subject matter jurisdiction is listed under 28 USC 1331 because the suit concerns authority under the Constitution of the United States and Venue is proper in the Eastern district of Texas under 28 USC 1391 (e) because a part of the plaintiff’s claims happen within that jurisdiction.

The complaint neatly lays out and points to the fact that the legislators, not the executive, have always been the ones to amend or addend the FLSA, which became law on June 25, 1938.

The plaintiffs point out that: In 1976, the Supreme Court held in National League of Cities v. Usery, 426 U.S. 833 (1976), that the Tenth Amendment limited Congress’s power under the Commerce Clause to apply FLSA’s minimum wage and overtime

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protections to the states. The Court recognized that “[o]ne undoubted attribute of state sovereignty is the states’ power to determine the wages which shall be paid to those whom they employ in order to carry out their governmental functions, what hours those persons will work, and what compensation will be provided where these employees may be called upon to work overtime.” And they also point out that in the same decision the Supreme Court held that the federal government does not have the authority to usurp the policy choices of the states as to how they structure the pay of state employees or how states allocate their budgets.

What this effectively means is that the Supreme Court has ruled it can get involved in situations where a federal law unduly burdens states and their capacity to govern their own affairs.

The plaintiffs go on to complain that the impact will be too costly, state governments will have to eliminate essential functions, the states will be irreparably harmed, bad things will happen, and private employers will suffer the same issues.

It asks for relief as declaratory judgment insofar as the new rules are violating the 10th Amendment, declaratory judgment as the new rules exceed Congressional Authorization, declaratory judgment under the new rules are being imposed based on improper observance of procedure required by law, declaratory judgment as the new rules are arbitrary and capricious, and declaratory judgment the rules are unlawful by improperly delegating legislating power (saying Congress messed up even). Generally, the petitioners want this law stopped in its tracks at least temporarily.

Likely Outcome to the Texas Civil Action Keep in mind, Texas has sued the federal government 44 times since President Obama took office in 2009.

Its win-loss record is seven wins, 12

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losses, and nine cases withdrawn (would have lost) and 16 cases pending. Thank you to the Texas Tribune for that! So, you have Texas at seven wins and 21 loses.

This case certainly has merit in its corner. This is a far reach for the President and Department of Labor to change any rules this much without the authority of Congress. We can’t predict the outcome of the case, but given it is filed in a politically red state, placed in front of a conservative judge, I think this court will grant declaratory relief, but our word is not law. There is also the appeals process which could last years.

Conclusion This Texas judge may rule in favor of the plaintiffs in this case effectively halting the implementation of this new rule. However, no matter if they do or don’t, this is going to be a challenge either way for many businesses and their employees.

Raising someone’s pay adds expenses to an employer’s bottom line.

Lowering a professional’s hourly rate or hiring additional help to make up for the lost work-time has its challenges, but it will have to be done in some instances. Telling an engineer or manager, who never expected to clock in and out during their work career, that they must clock in and out and for lunch as well, will be humbling. It is advisable to put together a plan before Dec. 1 and meet with the affected individuals.

Marcus Renwick is an attorney with Basi, Basi, & Associates at The Center for Financial, Legal & Tax Planning, Inc., Marion, Ill. The Center routinely advises and educates on these matters as well as company matters, business succession, valuation, tax and accounting among other services.

Call the Center at (618) 997-3436 if you have any questions or visit www. taxplanning.com. Renwick can be reached at (618) 997-3436 or Marcus@ taxplanning.com.

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Legally Speaking The Ten Commandments of Construction Risk Management

by Eric Travers, Esq. It is a common saying that construction projects are “problems in progress.” Subcontractors, who often are the ones financing the project through their labor and materials, bear inordinate risk that the financial impact of any problems will fall on them. If you follow the commandments below you won’t eliminate problems, but you can set yourself up to avoid some problems and minimize the cost and expense of resolving the problems that will arise.

1. Thou shall condition thy bid The financial success of a project for many subcontractors is determined in the earliest stage of the project: the bid. And while the value of a good estimator is obvious, the less obvious but equally important, part of the bid is how you present it.

Subcontractors that “condition” their bids on fair subcontract terms (and the principal risk assumptions they made in calculating their bid price) keep valuable leverage, particularly if your customer relied on your bid

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to win the job, to walk away from a project if your customer will not give fair contract terms.

ASA has developed sample bid conditioning language its member can access at www.asaonline.com after logging in under “Log In/Access Member Resources with their email address and password. Review it on your own, and with your counsel, and use it or something like to ensure you’ve conditioned your proposal for the work upon acceptable contract language.

2. Thou shall read your contract In the heady days after getting the call that you have ‘won’ the job, even the most sophisticated subcontractors can fall prey to charging ahead with the work without taking care to read the subcontract they are given and confirm that its terms are consistent with your bid assumptions and conditions. This is begging for trouble. All the hard work you put into your bid, and that went into preparing a well-conditioned

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bid, is probably wasted if you agree to subcontract terms that differ from your bid conditions.

3. Thy duty to read extends to all contract documents Remember that a subcontract typically consists of far more documents than the “subcontract” you are asked to sign. A typical subcontract probably “flows down” the prime contract, incorporates plans and specifications, addenda, and supplemental conditions. Read those so you aren’t surprised later.

And don’t forget that the “subcontract documents” also include documents that may not have existed, when you bid the project, such as change orders, lien waivers, etc. Because the “subcontract” can be changed after contracting, it is very important that the care you take care not only to read the subcontract documents before you sign, but that you scrutinize any document you later are asked to sign during performance.

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Your right to additional time or compensation, your right to a mechanic’s lien or payment bond claim, and a host of other rights can be affected or even waived by signing an overly broad change order, lien or bond waiver, or other document.

Know that each clause in a typical construction document is there for a reason. If you do not understand it, ask for an explanation and do not hesitate to reach out to legal help early if necessary. A dollar spent on early advice is cheap insurance against a potentially huge unwelcome surprise later.

4. Thou shall become comfortable with using stickers (or stamps) to reserve your rights in lien waivers, pay applications, and change orders Because the fine print of many common construction documents (schedule approvals, payment applications, lien/bond waivers, etc.) often contain surprises, ASA has created a set of simple tools in

firsthand learning experience.

This means that when entering a subcontract you should not only consider what your contract says about payment terms, but should actively investigate the project’s financing and the reputation of those who control the cash flow in the tier or tiers above you. Many current industry forms like the ConsensusDocs 750 Agreement Between Constructor and Subcontractor expressly give subcontractors the contractual right to information about the owner’s project financing. Prudent subcontractors will exercise that right if they have questions or concerns about a project they are considering bidding.

the form of “stickers” that prudent subcontractors can use and keep in their “risk management” toolbox.

These stickers deal with what should be non-controversial reservations of rights that subcontractors can affix to routine project documentation to avoid the inadvertent waiver of important rights. ASA’s stickers are available as a download to members at www.asaonline.com for the following documents: • Signed change orders.

• Signed lien or bond waivers.

• Signed payment applications; and • Signed schedule approvals.

5. Thou shall educate yourself about the project contractor and owner The importance of knowing the parties for whom you are working cannot be understated. If you are not familiar with the reputation of the contractor, owner and other project participants, ask around. What you learn might save you from a costly

6. Thou shall not waive your mechanic’s lien and bond rights without payment Mechanic’s lien and payment bond rights offer vital payment security to subcontractors. They should not be waived without payment. It is a common belief, and a mistaken one in

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

AMERICAN

SUBCONTRACTORS ASSOCIATION

TM

many states, that such rights cannot be waived either upfront (before starting work) or prospectively (by signing an overly broad waiver before work is complete). Think of your lien and bond claim release forms as receipts you give to evidence that you’ve received payment for certain work, but nothing more.

Understand too that mechanic’s lien and payment bond rights can be waived by inaction at the start or end of a project. Many states require subcontractors and suppliers to take certain steps up front to preserve their mechanic’s lien rights through the filing and/or service on the owner and/or prime contractor of preliminary notices and other documents, and by putting tight time limits on when you must assert those claims.

If you inadvertently waive these important rights either explicitly (by signing an overly broad waiver) or inadvertently (by not taking the steps you needed up front to preserve those rights, or waiting too long to assert them at the end of your work) you have needlessly squandered valuable leverage and almost assuredly increased the time and cost to collect what you are owed.

7. Thou shall not perform change order work without written authorization Almost every subcontract has a “changes” clause that provides that the subcontractor shall not perform additional work without first obtaining a written change order. Most every proprietary subcontract form will go a step further and state that claims for additional work performed without prior written authorization are waived.

In the heat of a project, and the desire to “get along” many subcontractors perform additional work on a “verbal” directive. Though that may sometimes work out OK, it is a recipe for disaster.

Many contractors have lost otherwise legitimate claims, even where there has been actual notice by their customer, by failing to dot the i’s and

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cross the t’s on what the subcontract requires as a condition precedent to performing additional work.

8. Though shall have a list of ‘killer clauses’ Part of any good risk management practice is understanding the common risk-shifting contract clauses in the industry and what they mean to your company. Each company may have a different tolerance level for the clauses, but because you will see the same clauses over and over again, it makes sense to spend time on your own and with your construction counsel to review the common “killer clauses” (such as “pay-if-paid,” “‘broad-form indemnity,” “additional insured,” “no damages for delay,” etc.) and decide what is or is not a deal killer for your company.

ASA has many resources that can help this process. You can make a contract review or negotiation process much smoother by deciding in advance what the sticking points are for your company, and creating a “bottom line” cheat sheet for management on negotiating tips, and acceptable “compromise” language or exceptions, if there are any, on some of these terms.

For example, a pay-if-paid clause may be a deal killer on most jobs, but perhaps you are less a concerned with it on public jobs, or owners and/ or contractors with a good reputation.

Know and trust. Though an absolute obligation to be paid quickly is priority No. 1, “pay-when-paid” language, giving your customer a reasonable amount of time to collect payment before having to pay you, may be a fallback compromise you can live with.

9. Thou shall understand your leverage Many subcontractors are cowed by the inequities of the bargaining relationship between them and their customer — and there’s no denying that often the subcontractor has

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far less leverage than its customer.

But, you wouldn’t be talking to your potential customer unless you have something it wants, which means you have leverage.

The general contractor wants you to perform for the price you quoted (or *cough cough* a little less than that), and it (and the owner) want reliable subcontractors they can trust to complete the project and do a good job. The problem comes when you are asked to accept risk that you hadn’t factored into your bid price. As long as you are prepared to walk, have properly conditioned your bid, and your customer must pay more and/or use a less desirable replacement, you have leverage. Use it.

10. Thou shall be prepared to use your leverage See Commandment No. 9.

Subcontractors that remember these commandments, and implement procedures to follow them will minimize their financial risk and be better equipped to not only weather the inevitable difficulties that arise but to prosper. But if you aren’t prepared to use your leverage and accept that you may lose a job or two along the way, all the hard front-end work will be for naught.

Eric Travers, Esq., is a director with Kegler, Brown, Hill & Ritter, Columbus, Ohio, practicing primarily in the firm’s Construction Law area, representing subcontractors, general contractors, owners, suppliers, architects, sureties, construction managers, and others. Kegler, Brown, Hill & Ritter, serves as legal counsel for ASA. Travers can be reached at (614) 462-5473 or etravers@ keglerbrown.com. This article originally appeared in the July 2015 edition of The Contractor’s Compass.

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ASA/FASA Calendar

21-22 – ASA Legal & Advocacy Meetings, Kansas City, Mo. November 2016 8 – Webinar: Change Orders—The Bane of All Subcontractors December 2016 6 – Chapter Leadership Webinar: Building a Collaborative Community with General Contractors (Complimentary) 13 – Webinar: U.S. Election Outcome & Potential Impact (Complimentary) January 2017 10 – Webinar: Most Popular Benefits Employees Are Purchasing Without Employer Contribution 12-14 - ASA Mini-Committee Week: Executive and Finance Committee and Rap Council Meetings, Napa, Calif.

24 – Webinar: OSHA Transgender Bathroom Requirements (Complimentary)

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14 – Webinar: Cost Coding Made Simple

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11 – Webinar: Is Your Cash Working for You? Understanding the Competitive Advantage of Cash Management

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in the November 2016 Issue of ASA’s

February 2017

October 2016

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Coming Up

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

THEME: Looking at Technology • Fleet

Management for Small Businesses

• Documentation That

Makes the Company Money

April 2017 11 – Webinar: Incentive Compensation Plan Best Practices May 2017 9 – Webinar: Prompt Payment and How/When to Suspend Work June 2017 13 – Webinar: Killer Contract Clauses

• Technology: The

Key to Handling the Increased Administrative Requirements Associated with Subcontracts

• Augmented

and Virtual Reality in Construction

• Retrofitting

Light Fixtures with LED Lighting

• Advances

in Technology Streamline Timecard Process

• Certified

Payroll Reporting

• Legally

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

Speaking: Inadvertent Disclosure of Electronic Information Look for your issue in November.

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

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