The Contractor's Compass October 2017

THE

ASA’s

THE OFFICIAL EDUCATIONAL JOURNAL OF THE AMERICAN SUBCONTRACTORS ASSOCIATION

WWW.ASAONLINE.COM

Build a Relationship with a Bond Producer

by Kathy J. Mapes Hoffman, National Association of Surety Bond Producers

OCTOBER 2017

Networking

Cold Calling Is Dead, Networking Lives

by Tom Woodcock, Seal the Deal

Building Business Relationships

by Tom Woodcock, Seal the Deal

Networking Is a Mental Game}

by Donna Fisher, CSP, and Jerry Teplitz, JD, Ph.D., CSP

Healthcare 2018: Five

Questions to Ask Your Broker

by Mike Bechtol, Redirect Health

Legally Speaking: Risk

Transfer Gone Amok: Indemnity and Hold Harmless

by Lee Brumitt, Esq., Dysart Taylor Cotter McMonigle & Montemore, P.C.

Register Now!

TM

February 28 – March 3, 2018 Tempe, Arizona

AMERICAN

SUBCONTRACTORS ASSOCIATION

Register Now! February 28 – March 3, 2018 TEMPE MISSION PALMS HOTEL & CONFERENCE CENTER | TEMPE, AZ

THE

October 2017

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.

Features Build a Relationship with a Bond Producer............................. 8

by Kathy J. Mapes Hoffman, National Association of Surety Bond Producers

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).

Cold Calling Is Dead, Networking Lives................................ 12

EDITORIAL STAFF Editor-in-Chief, Marc Ramsey

by Tom Woodcock, Seal the Deal

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.

Building Business Relationships............................................ 14

by Tom Woodcock, Seal the Deal

Networking Is a Mental Game.............................................. 17}

by Donna Fisher, CSP, and Jerry Teplitz, JD, Ph.D., CSP

Healthcare 2018: Five Questions to Ask Your Broker............. 18

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.

by Mike Bechtol, Redirect Health

Departments

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

EDITORIAL SUBMISSIONS Contributing authors are encouraged to submit a brief abstract of their article idea before providing a 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..... ........................................................... 4 LEGALLY SPEAKING.............................................................................. 20 Legally Speaking: Risk Transfer GoneAmok: Indemnity and Hold Harmless

by Lee Brumitt, Esq., Dysart Taylor Cotter McMonigle & Montemore, P.C.

Quick Reference ASA/FASA CALENDAR.......................................................................... 22 COMING UP............................................................................................... 22

LAYOUT Angela M Roe angelamroe@gmail.com © 2017 Foundation of the American Subcontractors Association, Inc.

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CONTRACTOR COMMUNITY ASA Files ‘Friends of the Court’ Brief in Texas Wrap-Up Insurance Case Workers’ compensation insurance has long played an important role for the construction industry in managing the many risks that are inherent in the construction process, and insureds should be able to depend on the workers’ compensation policies and Texas laws to provide protection against financial harm, ASA and others in the construction industry told a Texas appeals court in an amici curiae, or “friends of the court,” brief filed on Sept. 25 in the case of Manhattan | Vaughn, JVP, Appellant, v. Josefina Garcia, Individually and as Heir to the Estate of Angel Garcia; and Orbelinda Herrera, as Next Friend of A.G. and B.G. (Minors).

The issue before the appeals court is whether the trial court erred when it refused to use the “exclusive remedy” provision of the workers’ compensation bar on negligence claims to dismiss lawsuits against the contractor participants in a controlled insurance program (CIP). Texas appellate courts almost uniformly validate and uphold CIPs, noting that one of the benefits is to provide workers’ compensation coverage for the industry. In this case, however, the trial court rejected the defendants’ attempt to use the “exclusive remedy” provision of the workers’ compensation laws and the result was an almost $54 million verdict against two contractors who were enrolled in the CIP. ASA and the amici curiae urged the First Court of Appeals in Houston, Texas, to reverse the judgment of the trial court.

In the underlying case, Texas A&M University hired Manhattan | Vaughn as a general contractor on a $4.5 million project to expand and renovate Kyle Field, and Manhattan | Vaughn

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hired Lindamood Demolition as a subcontractor to perform demolition work. The project was insured under an Owner-Controlled Insurance Program, often referred to as a wrapup insurance policy, purchased by Texas A&M, and both the general contractor and subcontractor were OCIP participants. Such an insurance program provides compensation coverage to all employees on the project site. An employee of the subcontractor, Angel Garcia, fell to his death when a piece of machinery he was operating was overloaded and tipped over and fell. The family sued. The general contractor and subcontractor have appealed.

Under Texas law, an employer can choose not to subscribe to workers’ compensation and therefore can be subject to a civil suit for an employee’s injury or death. (This is different from most other states where workers’ comp is the exclusive remedy for an employee’s injuries or death unless the employer can be found guilty of intentionally bad conduct.) Even though all parties involved in this case were OCIP participants, and the OCIP included workers’ compensation coverage for the enrolled participants and their employees, a trial court denied the defendants’ motion for summary judgment as to the provision of workers’ compensation coverage through the OCIP (and extension of exclusive remedy protection) to all OCIP participants. The jury returned a verdict for $53.8 million against the general contractor (who the jury determined bore 75 percent of the responsibility) and against the subcontractor (who the jury determined was 25 percent responsible) for the circumstances at the stadium that led to Garcia’s death.

“Manhattan | Vaughn provided workers’ compensation insurance as

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contemplated by the [Texas Workers Compensation] Act, coverage was in place, and the Garcias received workers’ compensation benefits as prescribed for Mr. Garcia’s unfortunate death,” the amici curiae said. “As a result, the exclusive remedy rule applies. The trial court’s ruling to the contrary runs afoul of a substantial body of Texas case law and frustrates the purpose of the Act. It also ignores the most recent Texas Supreme Court precedent interpreting OCIPs, which unequivocally extends exclusive remedy protection throughout all tiers on a project and provides an alternate means for extending exclusive remedy protection to Manhattan | Vaughn.”

The amici curiae continued, “... the death of Angel Garcia was a terrible and heart-rending occurrence. But the mechanism contemplated in the [Texas Workers Compensation] Act performed flawlessly, and Mr. Garcia’s family received their statutory benefits in exchange for giving up the right to sue their employer. They were not left without a remedy.”

The amici curiae cited cases in the brief where Texas appellate courts have supported their position: “... by recognizing and approving CIPs, that is, insurance programs in which an upper tier provides compensation coverage to all employees on the project site through the CIP, Texas appellate courts have universally upheld a CIP as a means whereby an upper tier owner, such as Texas A&M, provides workers compensation to employees of a lower tier, such as Manhattan | Vaughn and its subcontractors. The result is that a CIP provides protection for all of the employees on the job site through workers compensation insurance for employee injuries, and at the same time, all parties

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on the job site are also protected by the exclusive remedy protection conferred under … [the Texas Workers Compensation Act]. By providing workers compensation protection for all workers on the jobsite, a CIP is a perfect vehicle by which to advance to public policy of Texas ... to extend workers compensation insurance to as many workers as possible.”

Amici curiae in the brief are: Texas Building Branch of the Associated General Contractors of America, Associated Builders and Contractors of Texas, TEXO—The Construction Association, Associated General Contractors—Houston Chapter, American Subcontractors Association, Inc., Higginbotham Insurance and American Contractors Insurance Company Risk Retention Group.

Patrick J. Wielinski and Travis M. Brown of Cokinos Young, Irving, Texas, filed the brief for ASA and the amici curiae. ASA’s Subcontractors Legal Defense Fund financed the brief.

Contributions to the SLDF may be made online.

ASA Files Comments on New Overtime Rule In a Sept. 25 letter, ASA urged the U.S. Department of Labor to revise regulations for overtime eligibility under the Fair Labor Standards Act. Earlier this year, Labor Secretary Alexander Acosta said the salary threshold proposed by DOL under the Obama administration was excessive and too burdensome on many employers. The Obama-era rule, which was struck down by the courts, would have raised to $47,476 the salary threshold under which virtually all workers are guaranteed overtime pay if they work more than 40 hours per week. Acosta suggested, however, that the current minimum salary

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level of $23,660 should be updated.

Subsequently, on July 26, DOL’s Wage and Hour Division published a request for information, a first step to revise the overtime regulation. The overtime rule was last adjusted in 2004.

ASA’s comments focus on how potential changes to overtime eligibility would impact construction employers. Fundamental to ASA’s response is the understanding that the whitecollar exemptions’ minimum salary level must be set at a level that satisfies the historical gatekeeper function. That is, the salary level should be set at a level which the employees below it clearly would not meet any duties test; above the level, employees would still need to meet a duties test in order to qualify for exemption. Further, ASA recommended that any means and methods established as a duties test be easy to understand and implement so that both employers and employees to reduce administrative burdens and claims of misclassification.

Attorneys to Discuss Using Drones in Oct. 24 ASA Webinar In the Oct. 24 ASA webinar, “Using Drones: What Subcontractors Need to Know,” attorneys Brian Esler, P.C., and Seth Row, Miller Nash Graham & Dunn, LLP, will explain what subcontractors need to know to use drones legally on the job, including the new FAA regulations on drone use, and what steps to take to minimize risks from drone use including insurance traps for the unwary. The webinar will take place from noon to 1:30 p.m.

Eastern time. Registration is $99 for ASA members and $179 for nonmembers. Register online. For more on drones, read “Drones—Coming Now to a Construction Site Near You” by Esler and Row in the May 2017 edition of The Contractor’s Compass.

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IRS Proposes Security Change to W-2 Tax Form On Sept. 20, the Internal Revenue Service proposed a rule to amend the Form W-2, Wage and Tax Statement, to require employers to obscure employee social security numbers. In the proposal the first five digits would be obscured or replaced with a symbol. The final four digits will remain clear. The goal of the change is to protect employees from identify theft. If the change is implemented, the IRS plans to incorporate this into forms and instructions. Employers would be permitted to use a truncated taxpayer identification number or TTIN on the employee’s copy of the report.

Interested parties can submit comments at www.regulations.gov, the federal government’s regulation portal, on or before Dec. 18, 2017.

Make Your Hotel Room Reservations for SUBExcel 2018 Make your hotel reservations online at Tempe Mission Palms, site of SUBExcel 2018. ASA’s annual national convention will take place Feb. 28-March 3, 2018, in Tempe, Ariz.

ASA has negotiated the special room rate of $204 single/double. The cutoff date for the room block is Feb. 5, 2018. You can also make hotel reservations by calling (800) 547-8705.

Most registrants will plan to arrive on Wednesday, Feb. 28, 2018, in time to attend the ASA President’s Welcome Reception that evening. Unless you’re planning on staying longer, plan on departing on Sunday, March 4, so you can join us on Saturday night for the reception, banquet and awards ceremony. Online registration is coming soon! For more information, visit ASA’s SUBExcel 2018 Web site or enter via the SUBExcel 2018 Web portal, www.SUBExcel.com.

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OSHA Announces Policy for Enforcing Silica Rule Beginning on Sept. 23 The Occupational Safety and Health Administration announced that from Sept. 23 through Oct. 22, it will help employers who are trying to comply with its rule on respirable crystalline silica, which requires construction employers to limit worker exposure to silica and to take other steps to protect workers. During that 30-day period, all citations under the rule will be reviewed by OSHA at the national level. The memorandum from Thomas Galassi, acting deputy assistant secretary for the U.S. Department of Labor, to OSHA regional administrators, states: “During the first 30 days of enforcement, OSHA will render compliance assistance and outreach to assure that covered employers are fully and properly complying with its requirements. Given the novelty of the Table 1 approach, OSHA will pay particular attention to assisting employers in fully and properly implementing the controls in the table. OSHA will assist employers who are making good faith efforts to meet the new requirements to assure understanding and compliance.

“If, upon inspection, it appears an employer is not making any efforts to comply, OSHA’s inspection will not only include collection of exposure air monitoring performed in accordance with Agency procedures, but those employers may also be considered for citation. Any proposed citations related to inspections conducted in this time period will require National Office review.”

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Under the OSHA standard, construction employers can either use a control method, as laid out in Table 1 of the standard, or they can measure workers’ exposure to silica and independently decide which dust controls work best to limit exposures to the permissible exposure limit in their workplaces.

ASA, in collaboration with 22 other construction associations, has initiated a lawsuit to prevent OSHA from implementing its rule; oral arguments were scheduled for September. In addition, ASA, as part of the Construction Industry Safety Coalition, has filed a petition with OSHA requesting the agency to stay and reopen the rulemaking. For more information, see the ASA Fact Sheet on OSHA’s Rule on Respirable Crystalline Silica, the ASA Frequently Asked Questions on the OSHA Standard on Respirable Crystalline Silica, and the free ASA videoon-demand, “OSHA Silica Rule— Applications for Subcontractors” (Item #8101), presented by Gary Visscher, Esq., Law Office of Adele L. Abrams, P.C.

ConsensusDocs Celebrates 10th Anniversary In September, ConsensusDocs celebrated its 10th anniversary. During these first 10 years, ASA has worked within ConsensusDocs to develop more than 100 construction contract documents that incorporate best practices and fairly allocate risk to help reduce costly contingencies and adversarial negotiations.

ASA representatives in these negotiations include the chair of ASA’s

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Task Force on Contract Documents Brian Cubbage, contracts administration counsel, Heico Construction Group, Alexandria, Va., and ASA Chief Advocacy Officer E. Colette Nelson. ASA also has worked within ConsensusDocs to develop an easyto-use platform that is Microsoft Word-based. As a result, the ConsensusDocs platform provides instant access to your contract documents from any computer through a Web-based portal. A subscriber can simply log-in and use his or her personalized dashboard to locate recent projects, edit contracts, review changes made by his or collaborators or start a new contract.

Construction Industry Unites to Prevent Worker Suicide ASA members work in an industry that is focused on safety and is increasingly aware of the critical role wellness plays in the lives of workers. However, too often employers neglect an important topic that can positively impact the safety, wellness and productivity of employees—mental health. This issue was spotlighted in a study by the Centers for Disease Control and Prevention, which ranked construction first in the number of suicide deaths and second in the suicide rate. To address this threat, ASA, as a member of the Construction Industry Alliance for Suicide Prevention, is working to reduce suicide in the construction industry. One tool to help you in your own company is A Construction Industry Blueprint: Suicide Prevention in the Workplace, a 15-page handbook that lists danger signs, suggests

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conversation tips, and provides sample tool box talks. September is National Suicide Prevention Month—a great time for construction firms to explore the Alliance’s Web site for helpful resources.

Superior Prime Contractors and Specialty Trades: Apply for ASA’s Best Practices Awards by Nov. 3 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 encouraged to apply for ASA’s National Construction Best Practices Awards. These awards 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 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,

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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. 3, 2017, and the application fee is $495. Awards will be presented during ASA’s annual convention, SUBExcel 2018, which will take place Feb. 28-March 3, 2018, in Tempe, Ariz. Information about these awards is located under “About ASA” on the ASA Web site.

the program brochure, download an application, and access a resource guide to help them prepare and submit an application. 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. Certificate recipients will be announced during an awards ceremony held in conjunction with SUBExcel 2018, which will take place Feb. 28-March 3, 2018, in Tempe, Ariz.

Information about this certificate is located under “About ASA” on the ASA Web site.

Apply for ASA Certificate of Excellence in Ethics by Dec. 15

Employers Must Use New I-9 Effective Sept. 18

The deadline to apply for an ASA Certificate of Excellence in Ethics is Dec. 15. This certificate recognizes subcontractors that demonstrate the highest standards of internal and external integrity. Applicants must meet a number of critical milestones before the Dec. 15 deadline, particularly those who have not yet developed a documented ethics program.

ASA provides a timeline to help applicants keep on track. Each applicant is also required to respond to questions concerning the firm’s corporate ethics policies and procedures, its construction practices, and its general business practices. Each applicant must submit detailed documentation, including sealed letters of recommendation from a customer, a competitor, and a supplier. Applicants can learn more about the judging criteria and submission requirements in

Effective Sept. 18, all employers must now use the new Form I-9, Employment Eligibility Verification, which was published by the U.S. Citizens and Immigration Services on July 17. The changes to the form impact the instructions and the “List of Acceptable Documents. In the instructions, the new form reflects the change in the name of the Office of Special Counsel for ImmigrationRelated Unfair employment to Immigrant and Employee Rights Section. It also removes the words “the end of” from the phrase “the first day of employment.” For more information, see the USCIS Wage page on I-9, Employment Eligibility Verification.

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Feature Build a Relationship with a Bond Producer

by Kathy J. Mapes Hoffman, National Association of Surety Bond Producers

In addition to providing a bond, a surety bond producer can offer valuable guidance on improving your company and its profits.

Bond producers specialize in providing surety products to subcontractors and other project participants. They also provide a myriad of other services for free that their clients may not be aware of or know to ask about.

“We try to explain to our clients that they can lean on us first for any and all business matters,” said Toby Miclette, surety bond producer, senior VP, Bowen, Miclette & Britt Insurance Agency, LLC, Houston, Texas. “Our advice is free and we have lots to offer.”

Bond producers have a broad knowledge of the changing insurance and surety products for subcontractors and familiarity with the surety market and the business strategies and underwriting differences among sureties.

Unfortunately, some subcontractors don’t avail themselves of the services that their bond producers offer.

“The clients that don’t work quite as well with us are those who only call when they need a bond,” Miclette explained. “Outside of just providing performance and payment bonds, professional bond producers are a free resource of information to the subcontractor to build and help grow his or her business,” added Todd Loehnert, president, L A Surety Solutions, Louisville, Ky. “Because we have been in the bond business for 40-plus years, we have seen a lot and learned something from each experience that we can impart onto other clients that find themselves faced with similar business matters,” Miclette said.

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A Sounding Board That Listens and Offers Feedback Some subcontractors may not have a lot of people to talk to about their business concerns, and the bond producer can be that person whom they can trust, Miclette said.

J. Spencer Miller, managing director, NFP Property and Casualty Services, Inc., Chicago, Ill., said that he sees part of his role as a not-at-risk partner for his clients and a person they frequently talk to when facing challenging decisions. “I often find myself serving more in a consultative role, concerning my client’s business at large, not just limited to surety and insurance issues.” Some clients have spent hours talking with Miller. Miller said he helps them understand the impact of actions they are considering taking and if their intended approach is a sound one.

Another area he has helped clients with frequently is perpetuation and continuity planning. Miller said recently, one of his clients was considering ways he could exit the business.

“We talked about what he planned to do and the steps that entailed,” Miller said. “I asked him questions and made him aware of several things he hadn’t considered, including reputational and legacy issues.”

Referrals Bond producers often refer their subcontractor clients to service providers and consultants in the construction industry.

“We help to align the subcontractor with quality, construction-oriented

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CPAs, lawyers, and banks,” said Eric Zimmerman, vice president, Propel Insurance, Seattle, Wash. “This benefits both our client and our surety.”

That applies when general contractors and owners are looking for subcontractors and suppliers; bond producers will introduce them to their subcontractor and supplier clients. Bryce Guignard, president, Guignard Company, Longwood, Fla., said, “We often refer prequalified viable and bondable subcontractors to general contractors and owners seeking qualified, responsive subcontractors for their projects.”

“We will introduce and recommend that a client meet with a general contractor,” said Michael Lischer, surety account executive, IMA, Inc., Denver, Colo. “Helping a subcontractor make a connection with a contractor is always appreciated.”

Business Planning and Hiring “A significant part of helping my clients realize their business goals is truly understanding them and their risk tolerances and then working with them to help them understand, manage, and mitigate risk in their business operations, through training, contract reviews, acquisition analysis, financial and benchmarking analysis, client and subcontractor/supplier prequalification, and continuous business discussion and dialogue,” Lischer said.

Zimmerman said he helps subcontractors grow their balance sheet. “We help our clients with setting objectives and with determining where they want to be in five years,” Zimmerman said. “We then coach them, where we can, to keep

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them on track with their business plan.

Our goal is to help our clients build wealth in the long term.”

Brad Babcock, owner, Babcock Solutions, said, “We work with a subcontractor’s project management group on understanding the need to send billings out, to reduce retainage, and to maintain cash-flow best practices for a project. Also, we have helped arrange joint venture relationships, occasionally advising a client not to pursue a joint venture relationship.”

Zimmerman added, “We also assist our clients with a depth of services in commercial property and casualty insurance and life insurance.”

Financial and Project Trend Analysis Subcontractors can call their bond producer for advice on market conditions and the project history of contractors they are considering working with on a project. “We can provide a tremendous amount of market knowledge and historical perspective,” Loehnert said. “Bond producers involved with industry trade groups, like NASBP, have access to numerous resources and perspectives on the market place.”

Guignard agreed, “Given our broad scope of local, state and national market intelligence and our participation with industry trade groups and surety relationships, we provide our subcontractor clients with insight and information on the market place along with information on the viability and credibility of obligees, with which they are working or seeking to work with through verification of bonds, including references from agents and sureties.”

Zimmerman said, “A good relationship also comes with a certain amount of future forecasting for the [client], anticipating what is going to happen next, anticipating what the upcoming questions might be, and then giving

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them counsel on some ways to prepare for that and/or change the direction, so that they can achieve what they’re looking to achieve from a bonding standpoint.”

Brian Edmunds, vice president, Rosenberg & Parker of Canada Inc., said, “It’s not enough just to know the client. Bond producers have to know their client’s competition, because what the client’s competition is doing impacts on what he or she does and how he or she does it.”

Contract Review and Dispute Assessment Surety bond producers are familiar with reviewing contracts, and subcontractors should take advantage of having a bond producer who has their interest in mind make such reviews.

Loehnert said he will point out the onerous language in subcontracts and subcontract performance and payment bond forms that subcontractors are asked to sign.

Miclette said, “Some subs are used to signing contracts without an in-depth review or because they feel they have no options but to sign.”

Guignard encouraged subcontractors to seek assistance of a bond producer to help identify possible onerous language. “It’s in the client’s best interest when we can review contracts and bond forms with them and work through the difficult language,” he said.

In the event of a dispute, Loehnert said he offers a perspective and an explanation of options for the subcontractor to consider.

Don’t Assume You Won’t Qualify for a Bond Many bond producers want to help clients to obtain bonds who have had difficulty. Denny Scully, partner, Mapes Insurance Agency, Inc., Grand Rapids, Mich., said he likes the challenge of helping a subcontractor that may have had difficulty obtaining bonding in the past.

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Scully will often consult with clients and prospective clients on ways to make themselves more attractive to sureties, such as improving financial reporting, increased bank support, and, if necessary, funds control or escrow arrangements.

In addition, bond producers can help a subcontractor seek assistance from a mentor program, such as the U.S. Small Business Administration Surety Bond Guarantee Program. “A subcontractor participating in one of these mentor programs should take advantage of all of the program’s resources,” said William F. Maroney, senior vice president, national practice leader of Surety, Well Fargo Insurance Services, USA, Inc., New York, N.Y. “Throughout their participation in the program— usually one to two years, they should maintain financial discipline; secure a surety professional, banker, and construction CPA; and work toward being bondable upon completion of the program.”

“If someone needs help with bonds, I’ll always talk to them,” Miller said.

“There is a real satisfaction in getting someone their first bond, or working out a reasonable solution in a difficult situation.”

Communication Is Key Subcontractors should plan to meet with their bond producer face-to-face.

Lawrence McMahon, executive VP/ surety manager, Construction Services Group, Alliant Insurance Services, San Diego, Calif., said, “We have to know the character of the people we are dealing with, so you have to have faceto-face contact with them.”

Bond producers don’t rely solely on email to communicate with their clients and regularly meet face-to-face with their clients. Keeping in touch helps the subcontractor share what is happening with the company and ensures the bond producer remains informed. “We are always discussing jobs and how they fit into their

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capacity with the bonding company or how they may view certain new projects,” Scully said.

Michael Petrasek, Sr., who recently retired from Seubert & Associates Inc., Pittsburg, Pa., said, “Technology can get in the way [of forming strong relationships with clients], because there are tough questions in the construction business and in the surety business.

One question may lead to another, and your email strings can go on and on. Somebody once said to me—and I adhere to this philosophy—that the internet and email are a great way to exchange information but a lousy way to communicate.”

McMahon said: “[When there is a problem] I never handle that by email.

I want to make that a face-to-face discussion. I want to lay out the issue. I don’t want to sugar coat it, and I want to make sure that we both understand what caused the issue and that both of us make a commitment to fix the problem.”

Expect to Learn About the Surety Product Loehnert believes an important part of his job is to increase the client’s knowledge of the surety product. “As bond producers, we have a responsibility to educate clients about the surety product and bonding process,” he said.

Some subcontractors may not understand how their internal business decisions can impact their surety credit. The subcontractor’s ability to qualify for his or her next bond can be jeopardized. “Bond producers can provide insight and guidance into how to maintain and protect a subcontractor’s bonding program,” Loehnert said.

“But the subcontractor needs to keep his or her bond producer apprised of decisions that may impact the subcontractor’s surety credit, such as plans to make distributions, to increase staff, and to lease or purchase equipment.”

The client education process includes providing information about the sureties, as well. “Subcontractors need to be wary, especially in today’s soft market, to ensure that they verify,

not only their own bond, but that of the prime/general contractor to ensure it is issued by a licensed, U.S. Treasurylisted, reputable surety carrier,” Loehnert added.

Consider your business reputation and credit and find the right professional surety bond producer that offers business relationships built on trust, honesty, and frequent communication.

You will find that “[bond producers] do many things beyond the bond; we are a friend, a trusted advisor, a sounding board, a devil’s advocate, a cheerleader, and a shoulder to cry on,” said Chris von Allmen, producer, Garrett-Stotz Company, Louisville, Ky. For more information about the bonding process, visit www.suretylearn.org, a site with free resources to help orient contractors and subcontractors to the bonding process and obtaining surety credit.

Kathy J. Mapes Hoffman is director of communications, National Association of Surety Bond Producers, Washington, D.C. She can be reached at (202) 4641175 or khoffman@nasbp.org. Find a NASBP bond producer at nasbp.org.

Questions to Ask Your Producer

Be sure to ask these questions when assessing whether a particular bond producer might be a good fit for your company’s needs.

• Is the producer licensed in your jurisdiction and that of the project?

• What is the reputation of the bond producer? Does he or she have a reputation for integrity and respect in the industry?

• What percentage of his or her overall business are construction clients?

• Does he or she have an understanding of the construction industry and of the construction process, particularly the management and administration of construction contracts?

• Does he or she possess knowledge of construction accounting procedures, especially an ability to analyze financial statements, work-in-progress, and cash flow?

• With how many sureties does the producer work?

• Is the producer specifically authorized to issue bonds on behalf of sureties?

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• Has the producer developed solid relationships with surety underwriters?

• Has the producer developed solid relationships with other professional service providers, such as attorneys, CPAs, and lenders?

• How aware and interested is the producer in local, regional, and national construction markets?

• How active is the producer in local or national construction associations, such as the American Subcontractors Association, and in local or national surety industry associations, such as the National Association of Surety Bond Producers?

• Can the producer demonstrate a commitment to maintain frequent client contact through newsletters, site visits, or visits to client offices?

• What other services does the producer provide clients to help them with their business needs?

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Feature Cold Calling Is Dead, Networking Lives

by Tom Woodcock, Seal the Deal

For decades people have tried to find business through the painstaking process of cold calling. I battle old school sales managers all the time who swear cold calling is the way to go. Think about, do you like someone coming in and interrupting you in the middle of working on a project and trying to sell you tools? No! Then why would you think someone else would? Don’t get me wrong, I grew up as a salesperson cold calling my little guts out. Back in the day we had no choice. Our lead source was the Yellow Pages. We hoped we would be greeted by a cordial receptionist and often only had the building sign as advanced information. This made cold calling not only necessary but mandatory.

Today, the ability to get advanced information on a potential customer is at its highest level in history. Via the Web you can secure company information, market presence and

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even contact information. This eliminates much of the need for a cold call. The issue here is you lose the physical presence with the customer.

Therefore, we need to find a way to accomplish this in order to gain the initial meeting. The best way to do this is by going backwards to move forward—using associations, organizations and chambers of commerce.

Yes, that’s right—pools of people!

Add your own, designed network of contacts and you have a lead machine. Getting to events, happy hours, business breakfasts and business groups is paramount to finding opportunities. There are some qualifiers to keep in mind so you don’t waste time and effort. They are: 1. Customer Rich: Does the event appear to attract customers or potential customers? Though often you’ll never really know until you attend, promotional media will give you an indication

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on the target market. Customerrich environments are always your best shot at direct business opportunities.

2. Network Development: Will there be current or potential network contacts in attendance? These are individuals who also sell to your customer base. They can be great sources for introductions and inside information. Your personal network should have a high concentration of these types of individuals.

3. Association Affiliation: Events that are hosted by associations are often well attended. They tend to cater to specific groups ,so it’s easy to qualify attendees. Many times the events are limited to members and their guests, but every so often they’re open to visitors. Grab those chances.

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4. Known Host: These are events hosted by individuals or companies well known in the industry. People will attend because they know historically that host has strong networking meetings. Some have a knack in setting up these programs.

Why reinvent the wheel. Take advantage of their expertise!

Simply using these four criteria will produce results. Then it comes down to your personal approach to networking. You have to develop a methodology that you’re comfortable with and that matches your personality.

Some people can simply own a room.

Others need a good, structured plan of attack. Either way, its best to attend with a little information and strategy.

Here are some tricks to get more bang for your buck.

1. Get There Early: Check out those nametags and select a couple of targets you want to approach.

2. Permission to Call: Politely asking if you can contact a potential client goes a long way. Do not be challenging or confrontational.

You’re hoping to get permission to contact them.

3. Use Your Existing Network: Connect with those already in a network relationship with you to meet new contacts. This is the easiest way to gain new personal contacts.

4. Stay Late: A lot happens after the scheduled meeting is over. Those who hang around tend to be more open and freer in their discussions.

This can provide an inside track on potential projects or opportunities.

I’m a firm believer in the power of networking. If you combine a good physical network with a functioning

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electronic network you’ll have the basis for a lead-generating machine.

Finding business opportunity is a primary goal of all companies. Without leads there aren’t sales, without sales there aren’t projects, without projects there aren’t contractors. Continually priming your network will result in a steady stream of leads and prospects.

Under-valuing the power of networking can not only be short-sighted, but also may result in business decline.

Forcing a cold-call-first mentality displays a dated sales approach. It also reveals a weakness in network development. With the increase in communication and social connection, it is far easier to find, as well as secure, sales leads.

The final piece of the networking puzzle is to be sure to follow up on the information secured at the networking event. This of course is assuming you gained some information. What good is information that is never acted on? It happens all the time. Taking the time to make the phone calls and get the appointments is where the real rubber meets the road. Not turning networking information into business is inexcusable.

The discipline to attend networking events has to be followed by the discipline of acting on the results. A healthy sales effort includes between four to eight networking events a month. That’s roughly 50 a year! I find it hard to believe that kind of networking commitment will not produce results. As a matter of fact, I know it will, because I do it myself.

The results have been impressive and it will always be a part of my sales regimen.

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Before my age-related peers shout at this article and tell me I’m killing their sales direction, I throw you a bone and say the occasional “fill in” cold call may be worth a shot. But with the need to maximize the time of those doing the selling, effectively networking will get you greater bang for the buck. The overall issue is how much time and effort is put into generating business. So many people in the construction industry that are tasked with selling have other responsibilities as well. They either estimate or manage projects on top of getting business.

This is completely understandable in a small company, but is inexcusable in larger ones. It always amazes me that most company owners will admit sales is the most important aspect of their business, but have no one dedicated to specifically that area of importance. They’ll spend more and staff up on the administrative side of the business while neglecting to properly support the sales team—if there even is a team!

Cold calling is a system going the way of the pay phone. Every now and then you see one but day-to-day, it’s just not productive enough—a dinosaur of sales days past. Why, there may even be a day when a sales employee asks, “What’s a cold call?” Actually, that just happened last week with a brand new, millennial rep I’m training. I know, Zig Ziglar is rolling in his grave. The master of sales would even admit in this day and age, networking has replaced the cold call.

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

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Feature Building Business Relationships

by Tom Woodcock, Seal the Deal

The core of any sales effort is the ability to build productive, interactive relationships. Regardless of what some may tell you, relationship is still the preferred method of gaining customers. It develops loyalty, brand extension and strategic advantage. Many discount the effectiveness in this age of electronic selling—a concept I find dubious in its scope. Reducing the sales process to numbers and digital images negates the claims of workmanship, service level and efficiency so prevalent in the construction industry. Having the opportunity to successfully communicate a company’s differentiation in these areas requires a level of relationship that allows them to be

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communicated—not just mechanically, but persuasively. Just stating factual data about what you and your company bring to the table is not enough. People have to believe it. That takes trust. What is the core of relationship? Trust! If a customer doesn’t trust you, you’re sunk. This is where we start.

Once you realize trust is the No. 1 buying motive, your sales approach begins to shift. Now you can begin take your personal inventory of assets and start incorporating them into your sales approach. What are those assets? Items such as education, work ethic, passion, experience and likeability come to mind. Understanding

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these are attributes most customers expect from their business relationships, you can incorporate them into your regimen. I know, it sounds like manipulation, doesn’t it? Truth be told, you already use these aspects in your everyday life. If you’re wondering how, let me ask you a question.

“Can you make a friend?” Before you laugh too hard, this is your process in developing business relationships.

Why try to force a sales system that is completely contrary to who you are? If you can make a friend, you can develop business relationships. Use the same process. In everyday friendships the goal is to find common likes and experience them together.

In business relationships, the goal is

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to find common ground and turn that into a fruitful business opportunity.

Not a lot of difference.

The issue is that many people treat their personal assets with platitudes such as; “I give great service” or “I have a ton of experience.” That’s not enough. Everyone says they’ll give great service and experience doesn’t automatically guarantee you’re the best choice for my project. How do you service differently than the competitor down the road? What about your experience makes you the best option on this particular job? See, you have to quantify those assets to the point I prefer them on my project.

I also need to trust you’re shooting straight with me about those assets.

If I recognize and believe in the value they represent, I’ll choose you as well as pay more to use you. This is not nearly as complicated as some make it out to be. How do you achieve this level of influence? Great question, but there’s a very simple answer—time and commitment.

Often people give a tacit effort toward sales. They invest a small percentage of their time and money toward cultivating relationships. They look at golf tournaments, happy hours and association events as unnecessary spending. If they don’t get immediate business from a couple events, they throw their hands up and discount the value. It doesn’t matter that they met new people, continued relationships with past connections or increased their influence with that group of people. They want a Point A to Point B result. Relationships are too much work and the ROI isn’t there.

Now there’s an attitude I want to connect with! The more approachable you are personally, the more approachable you’ll be perceived to be professionally. This is just the fact, folks!

If you seem to be too put out to get through the awkwardness of initial introductions, you won’t ever have to worry about developing deeper

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connections. I even run into people who claim certain contacts know them well and I find out they’ve simply overestimated the interest that potential customer has in them personally. It takes more than two lunches a year to move the influence bar. You can’t expect to secure the inside track on such a feeble effort to develop relationships. I often run into people in our industry who are dead set against using company funds and precious time in developing relationship with customers that result in having their number shopped anyway. They even state that no matter what they do, the job still goes to the lowest bidder. Well, I’m here to tell you the cold, hard truth. Most of the time it’s not the customer, it’s you.

Sorry, the truth can hurt sometimes.

I hear from the customers and often the easiest way to get someone they don’t particularly have relationship off their back is to tell them their number was beaten. This frustrates the bidder, but they don’t know how to fight it. The reality is, the source with the best relationship most likely received inside information that positioned him- or herself to secure the project.

You’d be shocked how often I run into this scenario!

I’ve even been challenged to my face in seminars by these folks and you can see just by the way they approached me why people don’t want to do business with them.

Normally, after those particular exchanges occur, someone else walks up to me and says the challenger has no idea what they’re talking about and that they get business through relationship development all of the time. It’s the struggle to accept the fact not every connection can provide the opportunity they represent or you assume. You go all the way down the road of relationship and there’s no pot of gold. That doesn’t mean you give up on the process. You keep plugging and making business friends. Expand

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that group as wide as you can. You’ll have people who know you and even promote you when you’re not around.

It expands your sales influence tremendously. Growing an active, structured network with relationships that helps put you on top of deals is critical as well. Those who are doing business with the same customer base as you and will help you get a foot in the door with those customers, are invaluable. Though they may not directly give you projects, they can help you get in position to do just that. These relationships are often the most overlooked. It can cause people to skip an event or drop out of an organization because there isn’t an obvious cash register. This is a huge mistake. Any trainee I work with must develop a lead generating network. Usually, it’s the first external place I point them.

If they can’t cultivate these types of relationships, how are they going to cultivate customer relationships?

Doing the necessary work to develop good, solid business relationships is far from easy. Having strong people skills and a thick skin usually helps. If you’re easily offended or hate working a room, it’s going to be tougher for you. Getting past those roadblocks can be your biggest challenge. Doing so will ignite the fuse and get in the game. All of us have a level of apprehension when initiating a relationship to some degree. Overcoming that apprehension can actually be a bit of an energizer. Setting a template that puts you in as many people-contact situations as possible will begin to break down those walls. It will also put you on the path to building projects!

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

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2017 ASA BEST PRACTICES AWARDS 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. 3, 2017. The application fee is $495. Each prime-contractor applicant must supply three sealed businesspractices 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 2018, Feb. 28-March 3, 2018, in Tempe, Arizona.

Helpful Links: • Watch the National Construction Best Practices Awards video.

• Prime contractors: Download the 2017 National Construction Best Practices Award application form.

• Specialty trade contractors: Download the 2017 National Construction Best Practices Award “Form for Evaluating the Applicant’s Business Practices.

APPLICATION DEADLINE: NOVEMBER 3, 2017

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

“Change Orders—The Bane of All Subcontractors” (Item # 8096) How should subcontractors maximize their collection of change orders?

When should subcontractors be concerned? Should subcontractors ever refuse to perform change orders without a signed change order?

What happens when the general contractor or owner disagrees with the proposed change value? In this video-on-demand, Joseph Sweeney, Esq., Sweeney, Mason, Wilson and Bosomworth, Los Gatos, Calif., answers these and other questions about change orders. $65 ASA members | $95 nonmembers This and other on-demand videos are available through FASA’s Contractors’ Knowledge Depot.

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ORDER ONLINE AT www.contractorsknowledgedepot.com A AU UG GU US ST T

’ S C CO OM MP PA AS SS S T TH HE E C CO ON NT TR RA AC CT TO OR R’ S

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Feature Networking Is a Mental Game

by Donna Fisher, CSP, and Jerry Teplitz, JD, Ph.D., CSP

Imagine if networking was as easy and natural as helping out a friend, brainstorming with a business associate, and having your favorite customer refer you to another contact?

When people have difficulty networking, it’s often because they haven’t developed the degree of confidence and clarity that’s required to make networking easy and natural.

After all, it’s not enough to simply connect with people in a friendly way.

The reason for networking is to open the door for new opportunities. And that requires connecting with people in a way that is meaningful.

Although networking is a natural process of meeting people and sharing information with one another, there are very specific skills and attitudes that make it easy and fruitful that most people have simply not been taught.

Networking is a blend of attitude, awareness, skills, and habits.

Ineffectiveness in any of these areas leads to haphazard networking and inconsistent results. Networking

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involves being aware of all the people around you and being aware of the power of networking to enhance your life. Your attitude affects how you approach people, your willingness to make requests, and even how you follow up with people.

Without a productive attitude and approach to networking, people can come across as robots, simply going through the motions without making any meaningful connections. And without effective communication skills, you may mean well and yet miss out on creating opportunities that are right in front of you.

Yes, your introduction is important.

And, of course, every networker knows to keep plenty of business cards handy to give out to the people they meet.

And now there’s social media and the benefits of posting online on a regular basis. I could go on and on and yet all of those things are the “mechanics” of networking.

What really fuels your networking success is mental—your state of mind, your attitude about helping people, your ability to think as a resource, and your willingness to accept support. We believe that networking is a natural process as simple as friendship.

The skill side of networking is easy to teach. The mental side of networking is easy to talk about and yet, up until now, has been more difficult to influence.

However, with more and more research available on how our brains influence our actions, attitudes and choices, we are now able to teach you how to reprogram your brain to create more positive outcomes. Balancing the brain is about allowing the right

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and left hemispheres to effectively communicate and collaborate with each other. “Switching-On” the brain is the process of removing any negative charge from an area of the brain called the amygdale, which triggers the fight or flight response. This overrides the rational part of the brain called the cerebrum, which is where you can choose how you will react and respond to something.

Any memory you have of an unpleasant networking experience can trigger your amygdale and negatively influence your networking effectiveness. However, what you can do is rewire your brain to literally remove the negative charge by using the Brain Gym® processes presented in our Switched-On Networking book.

Following the Brain Gym® instructions you “switch-off” your brain’s programmed negative response and “switch-on” your ability to choose a new, effective networking approach.

This Switched-On Networking approach allows you to “switch-on” your brain so that your brain, your people skills, and your habits are all in sync.

Imagine going through life being able to naturally connect with people and creating opportunities for yourself and others—because you were able to switch off old negative “charges” associated with networking and “switch-on” your brain’s natural ability network with ease and effectiveness!

Donna Fisher, www.donnafisher.com, is author of Power Networking, People Power and Professional Networking for Dummies. Jerry Teplitz, www.Teplitz. com, is author of Switched-On Living, Brain Gym for Business, Switched-On Selling and Managing Your Stress in Difficult Times. Fisher and Teplitz coauthored the new book Switched-On Networking: Balance Your Brain for Networking Success, which reached Amazon Bestseller Status.

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Feature Healthcare 2018: Five Questions to Ask Your Broker

by Mike Bechtol, Redirect Health The U.S. healthcare system is more volatile than ever before, raising concerns among subcontractors and other employers weighing their options for employee healthcare benefits in 2018.

Business owners everywhere are looking for ways to save money on their company’s healthcare.

But regardless of the outcome of the nation’s healthcare shake-up, many employers will be surprised to learn that it won’t reduce the cost of healthcare for businesses. As in years past, companies of all sizes can expect health insurance rates to continue to rise. In fact, 2018 marks the fifth consecutive year that health insurance costs are expected to increase by at least 5 percent.

These annual rate increases leave many business owners feeling trapped, but there is another option for business owners who are looking for easy and affordable healthcare for their business—and it may just prove to be the silver bullet for companies that want to save money and fuel the growth of their business.

Subcontractors that want to break out of the cycle of paying for expensive health insurance that doesn’t meet the needs of their business can start by asking their brokers the following five questions.

1. Why do my premiums go up every year? Most companies offer employees a traditional medical insurance plan. Business owners believe their insurance rates will stay the same or even decline if their company’s claims are low, but this is simply not true.

No matter how low their utilization, the insurance carrier will set rates using a risk pool system that “pools” their business with other companies of the same size and in the same

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geographic area. One business’ utilization hardly matters—it’s a drop in the bucket of the risk pool. Their rates are almost guaranteed to increase, every single year.

2. Are there other options to a fully funded medical plan? There are options for subcontractors and other business owners who want an easier, more affordable healthcare plan, but many brokers are unfamiliar with these options. In fact, most brokers only have a traditional medical plan in their portfolio, and this almost always means annual rate increases. Unfortunately—for brokers and their clients—few companies are happy when their insurance rate goes up, even if their broker fought hard to minimize the increase. Brokers usually have their clients’ best interests in mind, but it’s the business owner who understands the needs of his or her employees.

There are other options, but business owners may need to urge their brokers to search for a healthcare strategy that makes it easy and affordable to provide healthcare for their employees.

3. Could a self-funded health plan work for my business? Self-funded health plans are gaining in popularity. While the vast majority of large companies have saved a lot of money being self-insured for decades, the trend is now taking hold among smalland mid-sized businesses—especially because self-funded plans yield such high cost savings.

Employers who self-fund design a plan that fits the specific needs for the business. Benefits may include medical, dental, vision, prescription medications and workers’ compensation. For employees, a self-funded health plan offers better benefits than many of the traditional plans they are used to.

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Unlike fully funded plans, self-funding allows companies to customize their benefits to meet the needs of their workforce. For subcontractors, this may mean providing robust benefits for injury and chiropractic care. Employers can determine how the plan will be funded and whether employees will pay a percentage of claims.

Of special note to construction companies, a well-designed self-insurance plan can dramatically reduce workers’ comp costs, improve eMod scores, and provide an affordable way for lower-wage or support-level employees to access healthcare.

4. How can self-funding helps contain costs? Many businesses contain costs and save money in a few different ways: • Stop-loss insurance: With this coverage, the business pays employees’ health claims up to a certain dollar amount. Stop-loss kicks in after that threshold is reached, typically in the case of catastrophic diagnoses or accidents that require ongoing, specialist treatment. A stop-loss policy allows companies to modulate their risk and protects them from unexpected financial loss.

• Use of data: Businesses seeking to control costs must own their healthcare data—but this isn’t an option with traditional health insurance.

With self-insurance, companies have access to every claim, from prescription medications and primary care visits to ER usage and specialist care. This allows businesses to benchmark their utilization against other companies’ or flag and address any worrisome trends. The bottom line is that by owning the data, they can react to it as needed, allowing them to better manage

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their healthcare program while keeping costs in check.

5. How do I optimize my selffunded plan? Businesses that want to maximize the benefits of self-funding must understand the factors that impact costs. For example, a hospital charges about $4,000 for an MRI, but an identical MRI costs just $400 at an offsite imaging center. The same is true of X-rays, blood and urine tests, and other common procedures. In addition, a simple antibiotic may cost $40 at a corner store pharmacy, but just $10 at a supermarket pharmacy. Simply directing employees to the right place of service can yield thousands of dollars in savings—with no compromise in quality.

Likewise, managing care for employees with complex health needs also improves the bottom line. For example, closely monitoring a diabetic to ensure he or she is stocked up on insulin and other supplies can help avoid a costly episode—a tremendous benefit to both the employee and the business.

All of that said, few businesses have the time or expertise to manage employees’ health. While TPAs typically handle the administrative aspects of a self-funded plan, employers should also consider working with a partner organization to aid employees in navigating the healthcare system. This partner helps with injuries and illnesses from beginning to end,

ensuring employees receive the care they need, at the most appropriate site of service and at a fair price.

Self-funding offers a smart, innovative healthcare solution for construction and building companies—and businesses across all industries. Simply asking your broker these five questions can transform your company’s healthcare strategy, drastically cut costs, and provide your employees with a simple, convenient and satisfying experience—a 180-degree difference from most people’s experience with healthcare.

Mike Bechtol is director of Care Logistics for Redirect Health. For more information about self-funded health plans, contact Redirect Health at (888) 995-4945 or visit redirecthealth.com/asa.

4 TIPS TO SOLVE YOUR FINANCIAL CHALLENGES

1.

Get your financial books in order with accurate and up-to-date entries.

3.

Understand your lien rights and stay compliant.

2.

Understand your financial risks before you provide a proposal or enter a contract.

4.

Improve your cash flow.

Take the next step today to ensure your businesses financial success by partnering with CapitalPlus for all your bookkeeping, back office and financial needs.

Get more information today at (865) 670-2345 or www.capitalplusfinancial.com/capitalplus.

Legally Speaking CONTRACTOR COMMUNITY Risk Transfer Gone Amok: Indemnity and Hold Harmless

by Lee Brumitt, Esq., Dysart Taylor Cotter McMonigle & Montemore, P.C. There is no more prevalent or dangerous clause in a subcontract than the one transferring the responsibility for claims “arising out of” a project to the subcontractor. This provision routinely makes the “Killer Contract Clauses” list. Risk-shifting provisions by which subcontractors indemnify, hold harmless, and/or defend those upstream should be the subject of much more attention by the subcontractor community.

Perhaps one reason why these commonly found provisions are often glossed over by subcontractors is that they employ terms like “indemnify” and “hold harmless,” terms which are not taught in an estimating or construction course. “Indemnity” is the shifting of responsibility from one person to another. “Hold harmless” is frequently understood to mean the same thing as “indemnity.” However, the phrase “hold harmless” really means “release.” Therefore, one who agrees to hold someone else harmless for claims covered by the provision is agreeing to release them from any such claims. Lastly, the subcontractor which agrees to “defend” another is agreeing to hire an attorney and pay the legal fees and expenses generated.

When subcontractors purchase insurance, they do so to protect assets in the event they make a mistake and cause an accident. One of the most publicly-debated issues in the construction industry is the practice of contractually shifting the damages caused by one’s own mistake to another, i.e., the practice of a general contractor shifting the damage for its mistake to a subcontractor. Most states now make such “broad form indemnity” clauses in construction

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contracts void, unenforceable and against public policy.

Some states have gone even further. For instance, Kansas went a step further and made construction contract provisions which waive or extinguish insurance subrogation rights void and unenforceable. Therefore, in Kansas, insurance carriers which pay a claim may seek reimbursement for paid claims from the party or parties whose negligence caused the damages. Most states have not adopted this right and still allow parties to contractually waive such insurance subrogation rights.

Despite efforts to limit contractual “broad form” risk shifting so that all parties are responsible for their own mistakes, it is still common practice to require subs to name general contractors as “additional insureds” on subs’ insurance coverages. The practical effect is to undermine the prohibitions against transferring risk to another for one’s own mistake. Under this practice, if the general contractor makes a mistake, and it causes personal injury, death or property damage, the general contractor can make a claim on the subcontractor’s insurance policy. If the liability insurer pays that claim, the limits of the subcontractor’s coverage is reduced by the same amount. Very few states have closed this loophole by voiding provisions in construction contracts in which a party is required to provide liability coverage as an “additional insured” for another.

Put this in perspective. You are a subcontractor and you have 10 separate projects. On each of those projects, you are asked to name the owner, architect, and general

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contractor as “additional insureds” on your liability insurance. A mistake by one of the additional insureds causes a catastrophe in which a person is killed and substantial property is damaged. When claims are inevitably made against one or all of the additional insureds, the additional insureds seek coverage from your liability coverage. If your policy has a limit of $2 million and claims are paid in the amount of $1,750,000, your limit is now $250,000, even though you were not at fault. Such a small limit leaves your assets exposed in the event of other claims. Needless to say, if you are able to renew that insurance, your premium will be substantially higher. If you need bigger limits to accommodate the increased claims potential, you will pay more in premium.

Subcontractors can take steps to lessen the financial impact of risk transfer provisions.

Understand coverage afforded by general liability policies, as well as common coverage gaps. General liability carriers agree to cover claims for “bodily injury or property damage” resulting from an “occurrence.” An “occurrence” is “an accident … which is neither expected nor intended from the standpoint of an insured.” General liability policies exclude coverage for (a) damage “expected … from the standpoint of the insured” or damage which is simply not considered an “occurrence” because it is a contractual liability, not a tort liability; (b) “your work”; (c) damage to property which cannot be used or is less useful, i.e., “impaired property,” arising out of a defect in “your work”; and (d) mold-related claims.

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Limit your indemnity and hold harmless obligations to the extent of your own negligence and only for “occurrences” covered by a general liability policy. In no case should a subcontractor agree to indemnify or hold any other person harmless for that person’s own mistakes contractually or through “additional insured” status. Additionally, because general liability policies only cover “bodily injury or property damage” caused by “occurrences,” i.e., “accidents,” any indemnification or hold harmless obligation should extend only to claims arising from “bodily injury and property damage” and then only to that part caused by the fault of the subcontractor or those under its control. Also, consider adding reciprocal provisions whereby the general contractor agrees to indemnify and hold the subcontractor harmless for claims caused by the general contractor’s fault.

Understand the risk you are being asked to assume and modify the subcontract accordingly. Contractual terms defining the risks transferred affect the timing as to when a subcontractor’s obligation to indemnify is triggered. For instance, courts have held that indemnity for “damages,” “costs,” “losses,” or “obligations” is not actually payable until the person indemnified sustains a loss by being compelled to pay something. On the other hand, indemnity for “liabilities” is considered broader and requires payment when the liability has become fixed and established. An indemnity for “demands,” “claims,” “actions,” “causes of action,” or “suits” triggers an immediate obligation when the third party

T H E

C O N T R A C T O R ’ S

asserts a complaint against the person indemnified. Temporally then, it is more beneficial for subcontractors to limit indemnity to “damages,” “costs,” “losses,” or “obligations” rather than assuming a contractual obligation to indemnify for “demands,” “claims,” “actions,” “causes of action,” or “suits.”

Do not agree to “defend” a general contractor, owner, or other participant. The duty to defend is universally considered independent of and broader than the duty to indemnify.

A sub which has agreed to provide a defense for a claim asserted against a general contractor must immediately and actively defend against that claim by hiring counsel and incurring attorney fees often leading to a strong desire to settle the claim before incurring the full brunt of the costs of a lawsuit and determining the fault attributable to the general contractor.

Alternatively, an agreement by which the subcontractor agrees to pay its percentage portion of fault related to the defense costs is fair. There is no reason why a subcontractor which by contract or state law pays only that portion of a claim caused by its fault should pay 100 percent of the costs of defense.

Omit language requiring a subcontractor to name a general contractor as an “additional insured.” This is one of the most entrenched practices in the construction industry and, therefore, one of the hardest to break. If you are in a state such as Kansas that prohibits insuring general contractors as “additional insureds” for their own fault, you should insist on incorporating the state law into the contract language. If you are located in a

C O M P A S S

state that allows a general contractor to be added an “additional insured” and insured for its own fault, you might consider offering an Owners and Contractors Protective policy as a substitute. An OCP policy is a standalone policy that covers the named insured’s liability for bodily injury and property damage caused, in whole or in part, by an independent contractor’s work for the named insured. The cost is easily identifiable and should be easily quantified in the subcontractor’s bid.

Remove language waiving subrogation for claims covered by workers’ compensation or general liability policies. Like the “additional insured” requirement, waiver of subrogation is commonplace. Again, if you are in a state like Kansas that prohibits waiver of subrogation, you should insist on marrying the contract language to the state law. If you are not in such a state, advise the general contractor with whom you are negotiating that you have no problem waiving subrogation claims against the owner, but all other parties with an active presence on the jobsite must be responsible for their own mistakes and fault.

Lee Brumitt is a director and shareholder with the Kansas City law firm of Dysart Taylor Cotter McMonigle & Montemore, P.C. He has more than 30 years of experience in construction law and litigation. He represents subcontractor trades and specialty contractors on public, commercial and residential projects. He currently serves as the attorney for ASA–Greater Kansas City. Brumitt can be reached at (816) 714-3027 or lbrumitt@dysarttaylor.com.

O C T O B E R

2 0 1 7

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ASA/FASA Calendar February 2018

20–21 — ASA Legal & Advocacy Meetings, Santa Ana Pueblo, N.M.

13 — Webinar “Getting Better Subcontracts” presented by Eric Travers, Kegler, Brown, Hill and Ritter

24 — Webinar “Using Drones: What Subcontractors Need to Know” presented by Brian Esler and Seth Row, Miller Nash Graham & Dunn LLP

28–March 3 — SUBExcel 2018, Tempe Mission Palms Hotel, Tempe, Ariz.

March 2018

November 2017 14 — Webinar “Employment Law Mistakes Most Commonly Made by Subcontractors” presented by Philip J. Siegel, Hendrick, Phillips, Salzman & Flatt

13 – Webinar “Technology and Transparency, Part II—Linking Technology to Performance” presented by Stephane McShane, Maxim Consulting Group April 2018

December 2017 12 — Webinar “Ownership Succession Planning” presented

by Stephen Bonebrake, Maxim Consulting Group January 2018 9 — Webinar “Indemnity and Hold Harmless” presented

by Lee B. Brumitt, Dysart Taylor Cotter McMonigle & Montemore, P.C. 23 — Webinar “How the Difference Between Extra Work and Additional Work Can Impact Claims for Payment” presented

by Stephen Moore and James Morris, Galloway Johnson Tompkins Burr & Smith

10 — Webinar “Lien & Bond Claims” presented by Timothy Woolford, Woolford Law, P.C. May 2018 8 — Webinar “Change Orders” presented by Joe Katz, Huddles Jones Sorteberg & Dachille, P.C. June 2018 12 — Webinar “Cash Management” presented by James L. Salmon, Benjamin, Yocum & Heather, LLC

in the November 2017 Issue of ASA’s THE

October 2017

Coming Up

Theme: Construction Outlook • Construction

Economic Outlook: An Underwriter’s Perspective

• When Two

Doesn’t Go Into One: The Mistakes and Pitfalls of Mergers and Acquisitions

• GPS • Misconceptions

of Self-Funded Healthcare Plans

• Legally

Speaking: Mechanic’s Liens and Equitable Subrogation

Look for your issue in November.

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

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

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

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

To learn more about CNA’s coverages and programs for building contractors, contact your independent agent or visit www.cna.com/construction.

The examples provided in this material are for illustrative purposes only and any similarity to actual individuals, entities, places or situations is unintentional and purely coincidental. Please remember that only the relevant insurance policy can provide the actual terms, coverages, amounts, conditions and exclusions for an insured. All products and services may not be available in all states and may be subject to change without notice. “CNA” is a service mark registered by CNA Financial Corporation with the United States Patent and Trademark Office. Certain CNA Financial Corporation subsidiaries use the “CNA” service mark in connection with insurance underwriting and claims activities.

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