THE
ASA’s
THE OFFICIAL EDUCATIONAL JOURNAL OF THE AMERICAN SUBCONTRACTORS ASSOCIATION
WWW.ASAONLINE.COM
2019—The Year of Talent: A Reflection on the Major Trends Affecting the Construction Industry for 2019 and Beyond by Gregg Schoppman, FMI
What Version Are You Using? A Reflection on the Need to Audit and Update the Firm’s Standard Operating Procedures
DECEMBER 2018
Looking Ahead
by Gregg Schoppman, FMI
The Construction Industry: Looking Ahead at 2019 by Todd A. Feuerman, CPA, CCA, MBA, Ellin & Tucker
New Construction Starts in 2019 to Hold Steady, Dodge Data & Analytics Predicts by American Subcontractors Association
Top 5 Legal Issues to Think About for the Coming Year and Beyond by Joseph Kanfer, Esq., Woolford Kanfer Law, P.C.
Growing Pains and Three Steps to Relieve the Pain by Larry Silver, Contractor Marketing Inc.
Ensuring Safety with Heavy Equipment Rentals by Jim Arabia, BigRentz
Developing Policy to Address Employees’ Personal Devices During and After Working Hours by Jamie Hasty, SESCO Management Consultants
Legally Speaking: Beware the Performance Specification: When Design-Bid-Build Becomes Design-Build by John A. Greenhall and Michael Metz-Topodas, Cohen Seglias Pallas Greenhall & Furman, P.C.
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SUBCONTRACTORS March 6-9, 2019 | Nashville, Tennessee
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March 6-9, 2019 | Nashville, Tennessee www.subexcel.com
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THE
December 2018
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.
2019—The Year of Talent: A Reflection on the Major ................................. 8 Trends Affecting the Construction Industry for 2019 and Beyond by Gregg Schoppman, FMI
What Version Are You Using? A Reflection on the Need.......................... 10 to Audit and Update the Firm’s Standard Operating Procedures
The views expressed by contributors to The Contractor’s Compass do not necessarily represent the opinions of FASA or the American Subcontractors Association, Inc. (ASA).
by Gregg Schoppman, FMI
The Construction Industry: Looking Ahead at 2019................................ 12
EDITORIAL STAFF Editor-in-Chief, Marc Ramsey
by Todd A. Feuerman, CPA, CCA, MBA, Ellin & Tucker
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.
New Construction Starts in 2019 to Hold Steady,................................... 14 Dodge Data & Analytics Predicts by American Subcontractors Association
Top 5 Legal Issues to Think About for the Coming Year and Beyond....... 15 by Joseph Kanfer, Esq., Woolford Kanfer Law, P.C.
Growing Pains and Three Steps to Relieve the Pain................................ 17 by Larry Silver, Contractor Marketing Inc.
FASA BOARD OF DIRECTORS Richard Wanner, President Letitia Haley Barker, Secretary-Treasurer Brian Johnson Robert Abney Anne Bigane Wilson, PE, CPC
Ensuring Safety with Heavy Equipment Rentals..................................... 19 by Jim Arabia, BigRentz
Developing Policy to Address Employees’ Personal Devices................... 21 During and After Working Hours
SUBSCRIPTIONS The Contractor’s Compass is a free monthly publication for ASA members and nonmembers. Subscribe online at www.contractorsknowledgedepot.com. ADVERTISING Interested in advertising? Contact Richard Bright at (703) 684-3450 or rbright@ASA-hq.com or advertising@ASA-hq.com.
by Jamie Hasty, SESCO Management Consultants
Departments ASA PRESIDENT’S LETTER.............................................................. 5
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........................................................... 6 LEGALLY SPEAKING.....................................................................................23 Beware the Performance Specification: When Design-Bid-Build Becomes Design-Build
by John A. Greenhall and Michael Metz-Topodas, Cohen Seglias Pallas Greenhall & Furman, P.C.
Quick Reference ASA/FASA CALENDAR................................................................... 26 COMING UP.................................................................................. 26
LAYOUT Angela M Roe angelamroe@gmail.com © 2018 Foundation of the American Subcontractors Association, Inc.
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PRESIDENT’S LETTER
• “Reality Capture for Existing Conditions—Save Time,
Dear ASA Members: In last month’s President’s Letter, I talked about how important, and valuable, participation in ASA is to get the most out of your membership. As the education program for SUBExcel 2019 comes together, it is becoming more and more evident to me that the quality of the speakers and the focus of the education sessions and workshops will make your participation worth it. SUBExcel 2019 will take place March 6-9, 2019, at the Renaissance Nashville Hotel in Nashville, Tenn. Register online, make your hotel reservations, review the program, and learn about our speakers at www.subexcel.com. The early-bird deadline ends Feb. 1, 2019, and the hotel cutoff date is Feb. 6. The theme of SUBExcel 2019 is “Technology—for Millennials to Dinosaurs.” Education workshops will examine technology topics and how companies can bridge the gap between “early adopters” and “resisters” of technology to create a cohesive workforce. Just take a look at the workshops related to technology that we have scheduled so far: • “Unique Technology Solutions— A Game Changer for the Subcontractor” by Brian Moore, Kahua, Alpharetta, Ga. This workshop examines unique and available technology solutions and how to leverage them. Brian Moore will discuss how to finally solve the data ownership issue, and he will explain how subcontractors drive change versus change being driven on them by general contractors.
Lower Risk” by David F. Dengler and Garrett Maldoon, Kelar Pacific, San Diego, Calif. David Dengler and Garrett Maldoon will discuss new technologies including 3D LiDAR scanning and UAV/ UAS drone photogrammetry, which deliver the real existing conditions to your computer faster and safer than traditional methods. • “5 Questions You Never Ask a Technology Partner But Need To” by Steve Antill, Foundation Software, Strongsville, Ohio Steve Antill will break down how to properly map your software search, involve all the right team members and understand how to determine the right technology for your construction business. The education program will also include workshops on additional topics: • “The Impact of the A/E Fiduciary Duty on Construction” by Ujjval K. Vyas, Ph.D., J.D., Alberti Group, Chicago, Ill. • “Using Preliminary Notices and Mechanic’s Liens to Make Yourself a Payment Priority” by Jerry Bailey, NCS, Cleveland, Ohio • “The Human Side of Construction™” by Martha-Ann Marley, M.A. Surety, Mooresville, N.C. I know that it’s still early and there’s plenty more to come! But already, I’m excited about how the program is coming together, and I hope you are, too!
Best Regards, Courtney Little, 2018-19 President American Subcontractors Association T H E
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CONTRACTOR COMMUNITY ASA Names Government Relations Expert Mike Oscar as Chief Advocacy Officer ASA has named Mike Oscar, managing partner, Gray & Oscar, LLC, a government relations consulting firm with offices in Alexandria, Va., and Philadelphia, Pa., as its Chief Advocacy Officer, effective Dec. 5. Oscar will lead ASA’s government and industry advocacy programs, including federal legislation, government regulations, and industry collaboration and coalitions. He will also work closely with ASA chapters to establish and maintain effective grassroots advocacy programs. “The ASA Search Committee—composed of ASA Executive Committee members—conducted an exhaustive, six-month search for the right person to direct the Association’s advocacy initiatives into the future,” said 2018-19 ASA President Courtney Little, president and general counsel, ACE Glass Construction, Little Rock, Ark. “Certainly, Oscar has big shoes to fill, and the ASA Executive Officers and Board of Directors are confident that Oscar and his team will successfully execute our strategic legislative action plan and accomplish our advocacy goals, including cultivating and establishing new industry alliances.” Oscar has nearly 20 years of experience in government affairs and 12 years of service on Congressional staff. During his tenure on Capitol Hill, Oscar worked in both Republican and Democratic offices in the U.S. House and Senate, giving him rare institutional knowledge of both chambers and caucuses. His bipartisan experience in Congress has equipped him with a unique set of contacts and networks to access on behalf of ASA. In both public and private practice, Oscar has been deeply involved in key construction subcontractor issues, including prompt payment, the mechanic’s lien law, government procurement, funding for apprenticeship training programs, public-private partnerships, and worker misclassification. His regulatory experience spans multiple
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federal and state agencies, including the Environmental Protection Agency (lead paint remediation), International Trade Commission (tariff), Occupational Safety and Health Administration (workforce safety and silica and beryllium exposure limits), and the U.S. Department of Labor (bid solicitations, worker misclassification, overtime regulations and National Labor Relations Board rulings), Commerce (economic development), and Agriculture (risk management and international trade). As a representative for a national construction trade association, Oscar successfully spearheaded an effort to secure a U.S. Court of International Trade decision regarding aluminum extrusions for curtainwall units. At Gray & Oscar, Oscar has represented major construction trade associations for over a decade. The team at Gray & Oscar includes government relations experts with broad and extensive background in local, state and federal government, as well as judicial and executive branch and political and nonprofit campaign experience. Oscar has a successful track-record on implementing ASA priorities at the state level. In Pennsylvania, Oscar was instrumental in developing a bipartisan coalition of lawmakers to implement the state’s prompt pay law, as well as an update to the mechanic’s lien law. The Pennsylvania Prompt Pay law was enacted under divided government with overwhelming bipartisan majorities. “It’s truly an exciting time for ASA as we chart a new path and look to the future,” said ASA Chief Operating Officer Richard Bright. “We now have an entire team devoted not only to our advocacy and industry initiatives, but also our growing Chapter Network. Oscar and his team will be a tremendous resource and advocacy coach for our 30-plus chapters across the country and will work closely with our chapters to establish and maintain effective grassroots advocacy programs.”
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ASA Taps Verbalocity Founder Clint Swindall as SUBExcel 2019 Keynote Speaker ASA has selected Verbalocity founder Clint Swindall as its keynote speaker for SUBExcel 2019 in Nashville. Swindall will share his inspiring and educational message of employee engagement in the opening general session, “The Power of Personal Engagement—Our Daily Contribution to a Culture of Employee Engagement,” from 9:00 a.m. to 10:30 a.m. on Thursday, March 7, 2019. SUBExcel 2019, themed “Technology—for Millennials to Dinosaurs,” will take place March 6-9, 2019, at the Renaissance Nashville Hotel in Nashville, Tenn. Register online, make your hotel reservations, explore the program, and read about the speakers at www.subexcel.com. The earlybird deadline ends Feb. 1, 2019, and the hotel cutoff date is Feb. 6. The engagement of employees continues to be a top priority for business leaders—and for good reason, Swindall says. Research indicates a highly engaged workforce can increase productivity, profitability, and innovation, while reducing costs associated with attracting and retaining new employees. In a nutshell, engaged employees are good for business, Swindall explains. With research also showing that less than one-third of employees are truly engaged, an ongoing effort must be made to build a culture to overcome employee disengagement. “While we work to engage employees, we must first consider our own level of engagement,” he says. “Every day we walk through the doors of our office we are either adding to or taking away from the culture of the organization. There is no middle ground. Our personal engagement is our daily contribution to a
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culture of employee engagement.” In his keynote presentation, Swindall will take a look at personal engagement and the impact it has on the engagement of those around us. “Often our biggest obstacle to building a strong culture of employee engagement is standing in our shoes,” he says. Swindall will identify some simple steps to focus on personal leadership and discuss how small adjustments can positively impact the engagement of those around us. Swindall is the president and CEO of Verbalocity, Inc., a personal development company with a focus on leadership enhancement. These solutions include leadership development programs, training, speaking and general consulting. The SUBExcel 2019 keynote speaker is sponsored by Commerce Bank.
Free Jan. 8, 2019, ASA Webinar Examines Work-In-Progress Reporting Inaccurate, overly optimistic or overly conservative WIP reporting can have negative repercussions, including tax penalties, added costs for lines of credit, increased bonding rates, and unpleasant surprises to a contractor’s bottom line. In the Jan. 8, 2019, ASA webinar, “Work-In-Progress Reporting,” presenter Stephen Blankenship, Ennis Electric, Manassas, Va., will discuss challenges and techniques for obtaining high quality data from operations personnel for use in decision-making by all the parties that have a financial stake in the success of the company. This webinar will take place from noon to 1:30 p.m. Eastern time. Registration is complimentary. Register online directly at GoToWebinar.
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Some S Corporations May Want to Convert to C Corporations, IRS Says After last year’s tax reform legislation, some S corporations may choose to revoke their S election to be a C corporation because of the new, flat 21 percent C corporation tax rate, the Internal Revenue Service said in a Nov. 20 “Tax Tip.” Before taking any action, S corporations should consult their tax advisors. S Corporations and C Corporations are among the types of business structures. A C corporation is taxed on its earnings, and then the shareholder is taxed when earnings are distributed as dividends. S corporations elect to pass corporate income, losses, deductions and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the pass-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level. The Tax Cuts and Jobs Act includes two changes that affect a corporation’s revocation of an S election to be a C corporation: • The corporation should report net adjustments attributable to the revocation over six years. For more information see Revenue Procedure 2018-44. • Distributions of cash following the post-termination transition period may be treated as coming out of the corporation’s accumulated adjustments account and accumulated earnings and profits proportionally resulting in part of the distributions being non-dividend distributions from the C corporation. The non-dividend distributions may not be subject to tax at the shareholder level if the shareholder has sufficient stock basis. Additional guidance will be coming.
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These law changes only apply to a C corporation that: • Was an S corporation on Dec. 21, 2017, • Revokes its S corporation election after Dec. 21, 2017, but before Dec. 22, 2019, and • Has the same owners of stock in identical proportions on the date of revocation and on Dec. 22, 2017. For more information, see the Corporate Methods of Accounting topic on the Tax Reform – Businesses page.
Interest Rates Increase for the First Quarter of 2019 The Internal Revenue Service announced that interest rates will increase for the calendar quarter beginning Jan. 1, 2019. The rates will be: • 6 percent for overpayments [5 percent in the case of a corporation]; • 3.5 percent for the portion of a corporate overpayment exceeding $10,000; • 6 percent for underpayments; and • 8 percent for large corporate underpayments. Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal shortterm rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point. The interest rates are computed from the federal short-term rate determined during October 2018 to take effect Nov. 1, 2018, based on daily compounding. Revenue Ruling 2018-32, announcing the rates of interest will appear in Internal Revenue Bulletin 2018-51, dated Dec. 17, 2018.
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Feature 2019—The Year of Talent: A Reflection on the Major Trends Affecting the Construction Industry for 2019 and Beyond
by Gregg Schoppman, FMI
With a certain level of redundancy, the industry is still pondering the labor issues that continually wreak havoc on construction projects across the nation. In the face of amazing opportunity, the universal “governor’s switch” for the growth engine remains the war for talent. Talent at all levels seems to be the common denominator. The words “We can’t seem to find good people” remain an ever-present lamentation. However, this phrase is not new and continues to rear its ugly head, dating back to the 1980s. Yes, the 1980s. Scroll through various news releases and thought leadership over the last 40 years and the commonality of construction labor shortages seem to dominate the headlines. So, is it time to cut the charade and realize that this is an inevitable aspect of a challenging industry or proactively manage component of the business? The “Year of Talent” appears to be an appropriate rallying cry for the New Year. In addition to its impact on a firm’s long-term ability to execute work, no one is getting any younger. Businesses are continually wrestling with succession depth for owners and simply business leaders in all facets of the organization. Best-of-class firms have managed to use this industry challenge as a opportunity to develop a strong, competitive yet collaborative, culture that accomplishes many things—soft/hard skill enhancement, business management education, improved communications (internal and external), morale improvement and ultimately leadership growth. Talent is but one trend that is on the horizon for the New Year. While there is always a pall of a potential economic slowdown or market correction,
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businesses remain focused on developing a fact-based strategy to drive success. The key theme is not simply riding the wave of the market highs but in fact driving the wave and being in control of any uncertainly the market will bring.
More firms are evolving to a leadership position that is dedicated to fulltime talent growth and development. While there is a cost impact, the cost of doing nothing in the New Year to cultivate and grow associates may be far greater.
The Year of Talent
Innovation
This is not simply about training and education but a full, comprehensive program that examines the full complement of “people-focused” strategies. These include: • The Brand—What does an employee-driven market think about your firm? Why would they choose you in a sea of great organizations? • Recruiting—Where are you “fishing?” There is no “secret location” but how and where firms fish for talent has to be deliberate, consistent and disciplined. • Hiring—How many levels does you hiring process have? How do you evaluate a candidate? What screening tools are available for ALL positions within your firm? • On-Boarding—What does the first day, week, month, year look like? Is there structure and discipline to how new associates are brought on board? • Training and Education—How are new associates trained? What about mid- and senior-leaders—is their training and education stunted? • Performance Compensation—How do you reward star talent? How do you retain star talent long-term? The knee-jerk reaction for many is that these elements are not easy nor are they done on nights and weekends.
It seems silly to mention the role of technology as being a critical trend. Every year, technological improvements move at an exponential rate in terms of innovation and growth. The best question to ponder is how your firm is keeping in lockstep with these changes. There is a fine line between fascination with technology (the bright shiny object) and true innovation (leveraging technology to enhance all aspects of performance). Whether it be the continued push toward prefabrication and modularization, enhancements in autonomous vehicles and equipment, utilization of Lean/agile/ six sigma principles and systems or simply using the storehouse of data firms sit on to proactively drive business decisions, technology needs to become an action point within every firm’s business plan.
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Risk Management As projects get larger or more complicated or timeline compressed or some combination of all of these, there needs to be a refocused commitment to firmwide risk management. With the rise of tools that serve as “profit centers for risk,” such as captive insurance programs and trade partner default vehicles, contractors will be required to comprehensively think of risk. Coupled with increased life safety requirements from customers and agencies
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and the ever-increasing cost of healthcare costs, risk management requires a trained professional to integrate all of these elements across business units and projects. It is not simply enough to view this as an “annual renewal” process. Rather, it will require integration into areas such as: • Go/No Go Project Selectivity—True risk registers for project or client targeting. • Preconstruction Risk Planning— Balanced life safety and productivity planning. • Post Construction Reviews— Incorporation of best practices and lessons learned. • Quality Assurance and Quality Control—Limiting long-term potential sources of liability. • Employee Health and Wellness— Healthy employees correlate to lower health costs. Risk is an aspect of construction that must be measured, but it is not enough to compartmentalize this within the office of the CFO or Controller. Risk management in the future requires careful, proactive installation in all corners of the firm.
Acute Infrastructure Needs • Channeling Dean Vernon Wermor
from the 1978 comedy Animal House, “0.0.” Well, it isn’t quite that bad but according to the American Society of Civil Engineers, the infrastructure within the United States received a grade of D+. Anchored by D scores in the aviation, energy, schools and transit categories, the nation is grossly negligent across all the areas that serve as the backbone. While there are many questions as to the
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federal, state and local responses to these needs from a budgetary perspective, it is apparent that something must be done. Consider the simple fact that Americans spend an average of 43 hours in traffic annually—what a way to spend a week vacation! What is the impact to logistical needs within the firm and employee health before you even consider the impact to the marketplace should the $4 trillion in spending be funded? The opportunity is vast even if only a fraction of that funding comes to pass but more importantly, there remains opportunity for ancillary businesses. For instance, even if a contractor does not build in the water, wastewater, transportation, aviation, etc., sectors, it is important to consider the industries that complement them or simply the growth that will positively impact a geography.
Ramifications There is no shortage of scenarios that may positively or negatively impact the construction industry. When leaders apply optics to these trends, they can easily provide roadblocks to growth or engines fueling opportunities. Whether the economy wanes or continues to thrive, the critical questions to ask are: • If our best customer went away, what would our business do? • If our niche or sector(s) went away, what would our business do? • If our best people left the organization, what would our business do?
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• What aspects of the organization
not only require the most continuous improvement but also what impact would that have on our long-term health? • What should the leadership team in our organization do now to develop both craftspeople and management to run the business in the future? • If we mined the data our organization has, what would it yield about the firm’s current performance? • What data should the organization use to make future business decisions? Best-of-class performance should not be left to luck. The rising tide that raises ships is wonderful when times are good, but the high performer today may not be the same firms of tomorrow. Winning strategies and tactics require discipline, dedication and ultimately talent to make the next year just the beginning of a dynasty. 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 What Version Are You Using? A Reflection on the Need to Audit and Update the Firm’s Standard Operating Procedures
by Gregg M. Schoppman, FMI
It seems like just yesterday when we were last asked to update the applications on our smart phones. The reason it feels too recent is because it was just yesterday. Whether it is to mitigate the risk of security breaches or simply provide new enjoyment on Candy Crush, the ubiquity of updates/upgrades has become so ingrained in how society uses everything from smartphones to tablets to video game consoles. However, one document rarely sees the prevalence of such spring cleaning. Standard operating
procedures can often be aged in much the same way dinosaur bones are carbon dated. In fact, similar dating can be assigned to the coating of dust that covers the antiquated threering binder that sits atop the shelves of managers and superintendents throughout the world. Ironically, it is the same ambivalence toward monitoring the firm’s “procedures” that has led to an ever-increasing lack of consistency in the way that manager and superintendents govern and more importantly proactively lead their projects. Put another way, firms wrestle with maintaining standards
of management thus creating “Bob’s Way” and “Mary’s Way” rather than the “Brand X Way” of operating. In the end, the version is largely dependent on the individual rather than a set of best practices that are tested, vetted and the best application of the management team.
Relevance How did it get this far? The first question that every firm should ask relates to how loosely held management procedures are driven in the firm. For instance, is the operations
Figures 1 and 2
Preconstruction Process (Version 1.0)
(Version 2.0)
When a project starts, the first thing that a project manager should do is assign a project number. To do this see the controller and they will get you the latest number in the sequence. Next , you should coordinate with the estimator on a day to conduct the hand-off meeting. Once the meeting is set, you should begin the meeting with a discussion on the drawings. The second item should be around safety. During the safety discussion you might want to call the Safety Director. Some of the items around safety should include, fall protection, competent person, etc.
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manual a suggestion or a standard? One reason that leads to management apathy of process and tools is the lack of relevance to the current paradigm. For instance, if the tool and process is not germane to the current business model, it will quickly be scrapped. Are the processes geared toward a “hard bid environment” but the firm is now doing design-build? Are the tools not integrated into the current technology platform? It is easy to see why a superintendent or manager will develop their own work-around when the firm is deeply grounded in an antiquated system. This is not to say that the original versions are abandoned to obsolescence. Better yet, this is an example of integrating version 2.0 into the daily routine. It is imperative for every firm to embrace a culture of continuous improvement to capitalize on these upgrades. Strict adherence to the status quo is increasingly dangerous in this quickly evolving marketplace. Even if the enhancement is as simple as revising a preconstruction planning agenda or creating a new version of the last planner tool (i.e. two-week lookahead), nothing should be relegated to the status of sacred cow territory. In fact, small revisions (think version 1.0001) might get the engine of innovation started and lead to greater incremental progress.
Visualization There is something surreal about using prose to describe something multi-dimensional. Consider an engineer that used a written narrative to illustrate a complex system like a water treatment plant. Rather than drawings, the engineer describes
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everything in words. Complicated? Why take the same approach to internal processes? Consider the comparison in Figures 1 and 2. This commentary is less about whether the steps listed are the correct ones for the process. Rather, it is about creating a linear or simply a logical road map for individuals to process and follow. This is even more important in an industry that relies so heavily on visual models and depictions to provide direction. Lastly, steps in the process can now be assigned ownership to drive the most important element of version control—accountability.
Accountability Pop quiz—are the procedures in the firm a suggestion or is it dogma? Most leaders would say that there is an expectation that procedures are strictly followed otherwise why would they exist. However, if they are to be followed, how does the management team know if the process is followed? For many firms, the only indication is if a project makes money or loses money at the end of a project. This is the equivalent of gauging the success of a diet simply by stepping on a scale but failing to measure food intake or exercise. For a firm to effectively manage the efficacy of its processes, it must measure them. Examples of “upstream” behavioral metrics to consider include: Preconstruction planning. Look-ahead planning (Last Planner for the Lean firms). Close-out meeting. Post project reviews. Trade contractor coordination. For instance, if a firm begins 10 projects in a month, there should
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be evidence of 10 preconstruction planning meetings. While it sounds puerile to measure processes such as these, it probably has a more demonstrative impact on the bottom line. Metrics can also tell a great deal the aforementioned categories. Weak adoption of processes may indicate deeper issues such as lack of relevance or germaneness. Without this information, firms develop blind spots that mask the real problems in their operations. Measuring monthly costs is important but simply using these metrics to manage a business is like driving a car with the rearview mirror. Most operating manuals are 80 percent to 90 percent “there.” Preconstruction planning doesn’t change that dramatically to necessitate wholesale overhauls. However, it is imperative that business knock the rust off and look up under the hood to ensure these guidelines are in fact driving the businesses. As a principal with FMI, Tampa, Fla., Gregg Schoppman specializes in the areas of productivity and project management. He also leads FMI’s project management consulting practice. Prior to joining FMI, Schoppman served as a senior project manager for a general contracting firm in central Florida. He has completed complex and sophisticated construction projects in the medical, pharmaceutical, office, heavy civil, industrial, manufacturing, and multi-family markets. He has also worked as a construction manager and managed direct labor. Furthermore, Schoppman has expertise in numerous contract delivery methods as well as knowledge of many geographical markets. He can be reached at (813) 636-1259 or gschoppman@fminet.com.
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Feature The Construction Industry: Looking Ahead at 2019 by Todd A. Feuerman, CPA, CCA, MBA, Ellin & Tucker “Slow and steady wins the race” would be a fitting mantra for the construction industry moving into 2019. While the uptick of the economy and projected growth in construction contract revenues is promising, business owners and executive teams still face a number of challenges, like tight labor markets, concerned financial lending market and political climate changes, which may impact material pricing on job sites for items imported for construction.
The 30,000-Foot View The momentum is in the numbers: according to a recent survey completed by Engineering News-Record’s Top 400 Contractors, the Top 400 contractors, as a group, generated $375 billion in contract revenue in 2017 vs. $366 billion in contract revenue in 2016. This is a calculated increase of 2.1 percent year to year. Recent reports issued by Dodge Data & Analytics also suggest that U.S. construction starts will increase by 3 percent with additional room for expansion. There is, however, still a lot to be said for the state of construction backlogs. Though recent trends have indicated that the timing of work released into production per se is somewhat unpredictable and subject to delayed starts, the logs themselves are generally quite substantial in size and scope. For instance, the Hudson Yards project in New York City, which is slated to be the largest construction project area in U.S. history, is often delayed by regulatory agencies releasing work and funding needs. The construction market has benefited in certain geographical regions during 2017 and 2018 from very large construction projects. The completed projects include new campus facilities for high-tech giants such as Google and Apple, as well as continued warehousing and distribution centers for Amazon, which recently selected both New York
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and Northern Virginia as the company’s two new Mid-Atlantic headquarters. As more of the giants continue to grow and expand in the market, the need for mega construction projects and related infrastructure projects should follow. Another key element that has provided a boom to the construction industry relates to hurricane rebuilding in the southeastern region of the United States, as well as other natural disaster rebuilding from the wild fires in the western region of the United States. Additionally, certain sectors of the construction and development arena have been and will continue to be impacted going into 2019 more favorably than others. For example, solar and power construction should continue to improve and provide steady growth. While amusement and recreation construction spending have proven to be very “lumpy” and unpredictable. State highway funding may see some improvement even with uncertainty regarding federal funding for large projects. Airports and train infrastructure continue to show signs of significant improvement. Each of these sectors have been impacted by project funding and political scrutiny applied to the larger projects; however, once jobs are released there is generally a significant windfall of work that enters the market place. Let us take a closer look at some the key areas the construction industry should pay close attention to in 2019:
Construction Concerns and Renewed Strategy While there are very favorable signs of continued growth in the construction industry, there are still fears in the marketplace that have caused some to proceed with caution warnings. Risk factors that have caused some level of trepidation in the construction market include the following items: • Political and regulatory uncertainty. • National economic uncertainty. T H E
• Local and regional area economic
uncertainty. • Rising material costs. • Rising interest rates. • Immigration employment protocol. • Overall shortage of construction workers. As the construction industry has improved over the past several years, construction firms have been able to rethink their approach to the market and re-focus resources to projects that will provide an acceptable financial return with a more controllable risk. As the quantity of opportunities continues to increase, so will the overall quality of projects available for bidding. Many construction firms have been able to favorably use the overall improved trends in the construction industry as a means to focus on what they do best as opposed to simply accept any project that comes along, regardless of the job’s ultimate strategic and financial risks.
Labor Shortage One of the single biggest issues that the construction industry continues to face is the extremely tight supply of skilled workers and the perceived negative notion that younger workforce entrants face when entering the construction workforce. With the baby boomer generation set to retire within the next five to 10 years and with the intense federal pressure to limit and reduce the immigrant labor force for Mexico and Central America, the construction industry is faced with a monumental task of finding workers. Industry lobbying groups and special interest groups continue to address these issues at the state and federal level in an effort to develop funding for trade education programs, apprenticeship programs and ways to create a softening approach to immigration protocol, which should all help to some extent. However, time is not a friend and training is critical to develop a
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workforce needed to complete construction backlog now and in the future.
Material Pricing Pressures Building material costs, like all other sectors of the economy, have also continued to increase for many reasons, including but not limited to high demand from the general increase in the construction industry to specific trade products such as steel which continue to rise. Steel costs have become particularly problematic due to the political pressures levied on the tariff costs that will come into play with trading partners of the United States. In addition to steel prices, the varying fluctuation in the oil industry has continued to impact almost every component used in the construction industry. Based on the commodity nature of oil, this is likely to continue into 2019.
Technology Trends Technology continues to become the norm in the construction industry. An industry that was once perceived as archaic is now looked upon as cutting edge. The use of BIM collaboration,
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cloud computing and mobile data has and will continue to be a major asset for construction companies to properly manage operations. In addition to office-related technology, construction firms have been effectively implanting technology in the field as it relates to personnel, equipment and job site viewing. While GPS technology continues to be used in construction, visual job inspections and oversight has been impacted by the use of drones. Drones have become more prevalent in conducting site surveys, site inspections and general site management. Drones have proven to be invaluable in the key area of producing quicker and more accurate land surveys, while reducing the costs associated with inside and outside labor costs. Contractors have been able to more effectively manage multiple jobs and more complex and dangerous job sites through the use of drones.
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into 2019. This progress can only be sustained by a stable economy, improved international relationships, political policy clarification and most importantly, finding the workers to complete the projects. An economy is only as good as the men and women that participate in its success, and the construction industry will be judged by this same thought. Todd A. Feuerman, CPA, MBA, CCA, is a director in the Audit, Accounting and Consulting Department of Ellin & Tucker in Baltimore, Md., where he oversees audit, accounting, consulting and tax services for general contractors, specialty subcontracting and government contracting firms. Feuerman also serves as chairman of the firm’s construction services group. He earned his bachelor’s degree in accounting from Towson University and MBA in finance from University of Baltimore’s Merrick School of Business. Feuerman can be reached at (410) 727-5735, Ext. 3066, or tfeuerman@ellinandtucker.com.
The 2018 U.S. construction market continues to experience solid results and is expected to continue this trend
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Feature New Construction Starts in 2019 to Hold Steady, Dodge Data & Analytics Predicts by American Subcontractors Association Dodge Data & Analytics on Oct. 25 released its 2019 Dodge Construction Outlook, a mainstay in construction industry forecasting and business planning. The report predicts that total U.S. construction starts for 2019 will be $808 billion, staying essentially even with the $807 billion estimated for 2018. “Over the past three years, the expansion for the U.S. construction industry has shown deceleration in its rate of growth, a pattern that typically takes place as an expansion matures,” said Robert A. Murray, chief economist for Dodge Data & Analytics. “After advancing 11 percent to 14 percent each year from 2012 through 2015, total construction starts climbed 7 percent in both 2016 and 2017, and a 3 percent increase is estimated for 2018. There are, of course, mounting headwinds affecting construction, namely rising interest rates and higher material costs, but for now these have been balanced by the stronger growth for the U.S. economy, some easing of bank lending standards, still healthy market fundamentals for commercial real estate, and greater state financing for school construction and enhanced federal funding for public works.” “An important question going into 2019 is whether deceleration is followed by a period of high level stability or a period of decline,” Murray continued. “For 2019, it’s expected that growth for the U.S. economy won’t be quite as strong as what’s taking place in 2018, as the benefits of tax cuts begin to wane. Short-term interest rates will rise, as the Federal Reserve continues to move monetary policy towards a more neutral stance. Long-term interest rates will also rise, reflecting higher inflationary expectations by the financial markets. At the same time, any erosion in market fundamentals for commercial real estate will stay modest. In addition, the greater funding from state and local bond measures passed in recent years will still be present, and it’s likely that federal spending for construction programs
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will increase once all the federal appropriations bills for fiscal 2019 are finalized. In this environment, it’s forecast that growth for construction starts will decelerate further, but not yet make the transition to the point where the overall volume of activity declines. For 2019, total construction starts are forecast to hold basically steady at $808 billion. By major sector in dollar terms, residential building will be down 2 percent, nonresidential building will match its 2018 amount, and nonbuilding construction will increase 3 percent.” The pattern of construction starts by more specific segments is: • Single family housing will be unchanged in dollar terms, alongside a modest 3 percent drop in housing starts to 815,000 (Dodge basis). There will be a slight decline in homebuyer demand as the result of higher mortgage rates, diminished affordability, and reduced tax advantages for home ownership as the result of tax reform. • Multifamily housing will slide 6 percent in dollars and 8 percent in units to 465,000 (Dodge basis). Market fundamentals such as occupancies and rent growth had shown modest erosion prior to 2018, which then paused this year due to the stronger U.S. economy. However, that erosion in market fundamentals is expected to resume in 2019. • Commercial building will retreat 3 percent, following 2 percent gains in 2017 and 2018, as well as the substantial percentage increases that took place earlier. While 2018 market fundamentals for offices and warehouses are healthy, next year vacancy rates are expected to rise as the economy slows, slightly dampening construction. Hotel construction will ease back from recent strength, and store construction will experience further weakness.
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• Institutional building will advance 3
percent, picking up the pace slightly from its 1 percent gain in 2018 which itself followed an 18 percent hike in 2017. • Educational facilities should see continued growth in 2019, supported by funding coming from numerous school construction bond measures. Healthcare projects will make a partial rebound after pulling back in 2018. Airport terminal and amusementrelated projects are expected to stay close to the elevated levels of construction starts reported in 2017 and 2018. • Manufacturing plant construction will rise 2 percent following the 18 percent jump that’s estimated for 2018. The recent pickup in petrochemical plant projects should continue, and cuts in the corporate tax rate from tax reform should encourage firms to invest more in new plant capacity. • Public works construction will increase 4 percent, reflecting growth by most of the project types. The omnibus federal appropriations bill passed in March provided greater funding for transportation projects that will carry over into 2019, and environmental-related projects are getting a lift from recently passed legislation. • Electric utilities/gas plants will drop 3 percent, continuing to retreat after the exceptional amount reported back in 2015. New generating capacity continues to come on line, dampening capacity utilization rates for power generation. The 2019 Dodge Construction Outlook was presented at the 80th annual Outlook Executive Conference held by Dodge Data & Analytics at the Gaylord National Resort and Convention Center in National Harbor, Md. The 2019 Dodge Construction Outlook can be ordered via the Dodge Data & Analytics store.
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Feature Top 5 Legal Issues to Think About for the Coming Year and Beyond by Joseph Kanfer, Esq., Woolford Kanfer Law, P.C. With the end of the year around the corner, it is natural to begin to wonder what the new year will bring. While nobody can predict the future, here are five legal issues that are likely to have a major impact on construction businesses in 2019 and beyond.
medical marijuana patients despite the Drug Free Workplace Act of 1988. If you are a federal contractor, it is important to ensure your company’s drug policy meets the requirements of federal law without violating the laws of any state where your company operates.
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Thirty-three states and the District of Columbia have laws providing for some form of medical marijuana, though precisely what is allowed under the laws varies widely from state to state. In addition, a growing number of states has completely legalized marijuana for non-medical purposes as well. Many states that allow medical marijuana have laws protecting employees who use medical marijuana against discipline. For example, Pennsylvania’s medical marijuana law prohibits employers from refusing to hire or disciplining employees solely because they have a medical marijuana card. However, employees who use or are under the influence of marijuana at work can be disciplined under certain circumstances. Other states’ laws vary widely. With the rapidly changing laws concerning medical marijuana, it is important to know what protections medical marijuana users in your state have and to update your policies and practices accordingly. Companies who perform work as federal contractors must also take into account the Drug Free Workplace Act of 1988, which requires many federal contractors to create and implement drug abuse policies. A federal court in Connecticut recently found that federal contractors can be liable for violating state laws protecting
With the ongoing #MeToo movement, sexual harassment is an increasingly important issue in the workplace. Title VII of the federal Civil Rights Act of 1964, and many states’ laws, prohibit sexual harassment in the workplace. Unlawful sexual harassment can include offensive jokes, slurs, name calling, threats, intimidation, or insults based upon sex or another protected characteristic. There are several types of prohibited sexual harassment, but one common type occurs where an employee experiences sexual harassment that is so severe or pervasive that a reasonable person would believe the employee was experiencing an intimidating, hostile, or abusive work environment. When unlawful harassment exists in the workplace, the employer can be held liable for it if the harasser is a supervisor or if the employer had reason to know of the harassment. The law on sexual harassment is complex, but a successful defense against a harassment claim frequently requires the employer to show that it acted reasonably to prevent or promptly correct harassing behavior. This is best accomplished by adopting a carefully drafted sexual harassment policy and then enforcing it consistently. A good sexual harassment policy should include
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examples of sexual harassment, rules on romantic relationships between supervisors and other staff members, procedures for reporting and addressing instances of sexual harassment, a prohibition on retaliation against employees reporting harassment, and sexual harassment training. Most importantly, the policy must be consistently applied and enforced by management. A harassment policy that is not consistently implemented by management will not help defend against harassment claims and may actually hurt the company in the event of a lawsuit.
Restrictive Covenants The construction industry is facing a shortage of skilled laborers. One approach that some employers are taking to retain employees is having them sign non-compete agreements preventing employees from competing against their employer after separation from employment. In recent years, many states have adopted laws limiting the enforceability of restrictive covenants. Some of these laws prohibit non-compete agreements entirely, while others only limit the enforceability of non-compete agreements in specific circumstances. For example, Massachusetts enacted a law in 2018 limiting the enforceability of certain non-compete agreements for employees who work in that state. The law makes non-compete agreements unenforceable against certain groups of employees, including most skilled laborers or employees who are terminated without cause. For other employees, the law imposes numerous new requirements for non-compete agreements to be enforceable.
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Even states that have not adopted specific laws limiting the use of noncompete agreements often have strict requirements for non-compete agreements to be enforceable. In most states, non-compete agreements must be signed either at the time an employee is hired or in exchange for something, such as a raise. Noncompete agreements usually must be limited in time and geographic area. And, the process for enforcing a noncompete agreement often requires an employer to move quickly to go to court and to show how it would suffer irreparable harm if the non-compete agreement was not enforced. The requirements for enforcing noncompete agreements vary widely from state to state, so it is important to check your state’s laws regularly to make sure that your non-compete agreements can be enforced.
Subcontractor Misclassification Recent years have seen an increase in attention to independent contractor arrangements. At the federal level, the IRS is concerned with misclassification of independent contractors because employers are not required to pay payroll taxes or withhold income tax from independent contractors. Contrary to popular belief, issuing a person a form 1099 does not automatically make a person an independent contractor. Rather, the IRS looks at the particular facts of the employment arrangement to see whether the person is properly characterized as an independent contractor. IRS enforcement activity has increased in recent years, so it is important to ensure that you are not improperly classifying employees as independent contractors. Additionally, many states have enacted laws with specific requirements for independent contractors in the construction industry and are increasing their enforcement of these laws. These laws are intended to prevent contractors from classifying employees as independent
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contractors to avoid making unemployment contributions or paying for workers’ compensation insurance. Misclassification laws often have very specific requirements that must be satisfied for a person to be treated as an independent contractor. Pennsylvania’s law, for example, requires several specific criteria to be met, including a written contract, for a person to be treated as an independent contractor. Delaware’s law prohibits contractors hiring independent contractors to perform work of the same type performed by the contractor, which raises questions about the legality of using sub-subcontractors on Delaware projects. These laws vary widely from state to state, and the penalties for violating them can be serious. It is therefore important to check the laws in any state where you perform work to avoid problems with the state’s labor department.
Digital Construction Documents and BIM Another developing issue in the construction industry is the exchange of construction documents in electronic formats. Today, it is common for design professionals to distribute drawings and other design documents in electronic format, but electronic drawings create issues that do not exist with traditional paper drawings. Design professionals frequently exchange drawings with each other in proprietary formats created by the CAD software that they use. However, there are numerous different CAD platforms on the market, each of which has different versions which may use different file formats. And, the companies that create CAD software frequently release updates and patches to their software. As a result, anybody who distributes or uses CAD files must be very careful to ensure that the creator and the recipient of a CAD file are using compatible software that has been fully updated. Otherwise, the CAD file may
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not render correctly on the recipient’s computer, resulting in the recipient working from a drawing that appears different from what the creator intended. The same problem also affects building information modeling platforms. BIM is an evolution of CAD software that is intended to replace the numerous separate drawings traditionally used in construction with a digital model of a building that can be used for construction. However, like CAD software, there are numerous different BIM software vendors who frequently use incompatible and proprietary software formats. As with CAD software, the result is a significant risk of improper rendering of BIM models if incompatible systems are used. If you are involved in projects that use BIM or digital exchange of CAD software, you should consider including provisions in your contracts that release you from liability for problems caused by software incompatibility or similar issues with CAD or BIM software. The law surrounding BIM is currently undeveloped because the technology is still new. As BIM becomes more widespread, the law concerning BIM will develop rapidly and require further revisions to your contracts to address those developments. The beginning of the new year is a good time to schedule a meeting with your lawyer and discuss these issues and how your company can address them. There are also tasks that businesses should perform every year, such as filing required annual reports with the state and holding annual meetings. An annual legal check-up with your lawyer can help you make sure that you are meeting all of your legal requirements today while helping you plan for the changing legal environment of tomorrow. Joseph Kanfer of Woolford Kanfer Law, P.C., is an attorney in Lancaster, Pa., who represents subcontractors and other construction professionals.
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Feature Growing Pains and Three Steps to Relieve the Pain by Larry Silver, Contractor Marketing Inc. Every business has its start and begins to grow. Each organization like a fingerprint is unique and has a different history. If the company reaches the fiveyear mark (80 percent don’t) and actually begins to thrive, growing pains will emerge to challenge, frustrate, and hinder the firm from its full potential. At the birth of any business, there are just a handful of people who do everything. They wear many hats and both secure and execute the work at hand. But, as the organization grows, the various functions get delegated to specific people who do their level best to keep that function operating well. However, as each department grows and adds people and complexity to the mix, it becomes challenging to communicate well and to stay informed of the day-to-day challenges that bombard the business. The construction industry is notorious for producing strong entrepreneurs who take on gargantuan risks for razor-thin margins. I commend every one of you in that situation for your courage and skill. Another trait that contractors are known for is flying-by-the-seat-of-theirpants. They wing-it every day to get as much done as is humanly possible in the hours given. But as the business grows, this informal approach lacks the professionalism and organization needed to succeed in a larger way, the way most contractors dream about succeeding. Therefore, I want to set forth a threestep solution to this dilemma that most every contractor faces sooner or later as their firm grows.
Step #1
Have a Clear, Written Vision It’s not enough for the president and a few key leaders to know what the vision is. You have to document it, create a visual representation of it, and communicate it frequently throughout the organization. Why? So this is not just
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one person’s vision, but everyone can take ownership and watch it form over time. This promotes enthusiasm, loyalty, retention, and the intangible benefits that employees desire. A vision is where you see your firm in the long run, the distant future—20, 30, and even 40-plus years out. It acts like the North Star giving guidance to your strategic decisions, not only at the annual planning time, but throughout the daily grind. It’s the vision that drives the business, shaping it to be what you visualize over time. The mission describes “how” you will go about accomplishing your vision. It explains the particulars— who to market to, the type of hires you need, the service offering that you focus your energy on. C O M P A S S
Step #2
Create a Culture Where the Right People Are in the Right Positions To expand and grow various aspects of the business, you will need a diversity of talent and experience. This is the main theme of the bestselling book “Good to Great” and makes all the sense in the world. There are many tasks and needs in business that no one person can fulfill. I enjoy hearing the personal stories and testimonials from great business people and their accomplishments. In Dayton, we have Clayton Mathile, the former owner of Iams Pet Foods who sold to P&G in September 1999 for $2.3 billion. N O V E M B E R
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His big focus in business was to properly manage and control growth. At one point, he realized that he did not have the experience to take the firm to the next level, so he hired a president who could. This takes great humility and understanding. Clayton built his empire one competent manager at a time. It doesn’t really matter whether your product is dog food or construction services, the main unchanging growth principle is hiring and maintaining a competent workforce.
Step 3
Align Your Firm and All Its Resources Daily What is the one thing that each employee, each manager, each principal of your company can perform each day to head in the strategic direction to
accomplish the vision? What does this look like? It looks like an organization that functions like a “Team” (Together Everyone Achieves More), doing what is important and a high priority for that day. The firm’s leadership must be sensitive to this need to have synergy among its members. Synergy is when the sum of the parts is greater than the sum of the whole. I encourage leaders to allow employees to have access to the total resources of the firm (individuals, departments, financial info, leaders, clients, vendors, etc.) for the benefit of the whole group. When an organization has access to itself and its resources, there will be active listening and a clear action that results. This will leverage the growth potential in quiet and consistent fashion, like the business has not experienced before.
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.
Work on the Business The leaders must learn to work “On the Business” and not just in the business. So many fires occur that need to be put out. This creates what is commonly called “Tyranny of the Urgent” in our industry. Many think if they are busy putting out these fires, they are doing their absolute best to serve the business. I say these fires are a distraction to what the business really needs to grow. Focus on executing what is important every day for your business (The Three Steps mentioned) and teach your staff to do the same. Watch what happens. Your business will be on a fast-track toward your desired future vision. Larry Silver is president of Contractor Marketing Inc., a national consulting/ recruiting firm specializing in the AEC industry. Silver can be reached at (937) 776-7170 or larry@contractormarketing. com.
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“Using Drones: What Subcontractors Need to Know” (Item # 8115) More and more contractors and subcontractors are using unmanned aircraft for real-time information and monitoring on their construction projects. For those who have not yet started using drones on their projects, attorneys Brian Esler, P.C., and Seth Row, Miller Nash Graham & Dunn, LLP, explain what subcontractors need to know before using drones legally on the construction job. In this video-ondemand, Esler and Row explain the FAA regulations on drone use and what steps they should take to minimize risks from drone use, including insurance traps for the unwary. $65 ASA members | $95 nonmembers This and other on-demand videos are available through FASA’s Contractors’ Knowledge Depot.
ORDER ONLINE AT www.contractorsknowledgedepot.com
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Feature Ensuring Safety with Heavy Equipment Rentals by Jim Arabia, BigRentz
You’ve done all the hard work of providing estimates, securing the deal, and hiring the right crew. Now you need to rent the necessary construction equipment so the work can begin. You’ve hired what you consider to be knowledgeable equipment operators. They have CDL (commercial driver’s license) training and experience running different kinds of lifts. However, there are many additional safety precautions that should be considered. Do your equipment operators meet the specific requirements needed for the exact equipment they will T H E
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be using? Do they understand the many safety precautions and standards that need to be follow? Safety is always the first concern on any construction job site. Most accidents happen due to equipment operators not following safety precautions. It’s important to make sure that your operators have the proper training for all equipment types they will utilize.
Maintaining Compliance Do you know what a proper safety checklist looks like for a
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scissor lift? What about a boom lift? A forklift? What about a steam roller? Not only can lack of training lead to accidents and delays, but also penalties and legal troubles. The Occupational Safety and Health Act of 1970 sets down a set of regulations and rules regarding employees engaging in dangerous activities on the job. Employers are required to provide training on all equipment which is up to OSHA standards. Before renting equipment, make sure that that all personnel who
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will be operating such equipment received all necessary training or provide the opportunity for the operators to receive such training, whether on- or off-site.
Identifying Hazards Working with heavy equipment comes with unique hazards. It’s vital to understand and identify all types of hazards that can cause potential risk on a construction site, including those due to nature, human error, or the equipment itself.
Ensuring Safety Many accidents can be avoided by performing a thorough safety check before beginning any project. Every piece of equipment used on-site should have a corresponding safety checklist that is reviewed before and adhered to during any construction project. While every piece of equipment is different and has its own sets of safety standards, there are a few universal safety precautions that can be taken, regardless of the type of equipment being used, to minimize risk and help prevent injury, accidents, and loss. A few of these fundamental standards include: Do not use ropes or straps to secure a load to a forklift, only use approved rigging. Ensure that all brakes are in place before starting the engine. Do not allow riders on the machine or any unapproved attachments. Never, under any circumstance, operate machinery under the influence. While alcohol and hard drugs are obvious choices to
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avoid when operating construction-grade equipment, precaution should also be taken when taking prescription medication and operating equipment. Certain prescription medication can cause excessive drowsiness and pose a serious safety risk. Be sure to read and follow all prescription warning labels before operating any type of heavy equipment. Comprehensive safety standards and precautions can be found in the operating manual for each piece of equipment. Have these resources readily available on-site and ensure that all relevant personnel have properly familiarized themselves with its contents.
Implementing Training Effective training can go a long way in preventing accidents. One option to consider for an accessible and flexible yet comprehensive training program is an online training program coupled with handson, on-the-job training. Online training makes it convenient for operators to learn new equipment protocols and for more experienced equipment operators to brush up on their knowledge. Online training is often most effective when paired with hands-on, real-world, onsite assignments and practice. Most online training programs consist of two main parts. One is the Aerial Training course and the other a knowledge retention quiz. The Aerial Training is a Web-based platform that is designed to give users experience with the various controls and environments that they may encounter onsite. The
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program contains graphics, video lectures, and various quizzes to prepare trainees to comply with OSHA standards. The second component of the program is a 57-question exam to test each operator’s knowledge retention. After the online portion, the trainee only needs to get handson familiarization from a qualified instructor to be ready to hit the ground running. Safety is always the primary concern on any job site. Whether the job is big or small, accidents can lead to substantial downtime for the project, potential injury to onsite crew, and unforeseen costs to all parties involved. There are numerous training resources available to make ensure that all relevant personnel are up-to-date on current safety standards and best practices, which will help ensure regulatory compliance, decrease risk, and enhance safety during the construction process. Jim Arabia is a marketing and branding executive with over 20 years of experience leading business with growth initiatives. In his current role as vice president of Marketing at BigRentz, the nation’s largest rental network for construction equipment, Arabia leads market positioning strategies and creates programs to support the company’s strategic vision. His previous experience includes awardwinning brand marketing services for technology companies, real estate firms, and professional service firms. Arabia earned his bachelor’s degree from California State University—Fullerton and an M.B.A. from Pepperdine University.
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Feature Developing Policy to Address Employees’ Personal Devices During and After Working Hours by Jamie Hasty, SESCO Management Consultants
Many SESCO clients allow and/or request employees to use their personal devices for work. Also, many clients allow employees to bring to the workplace their personal devices for personal use. The reality in today’s world that we live in is that we are all very closely tied to our mobile phones, tablets, watches, and laptops. For many, it’s a preferred and primary way of communicating with staff, clients and personal friends and family. Personal devices and electronics will only increase in terms of the way we work and live our lives. Employers as well as individuals alike rely on personal devices in the workplace because allowing use, especially for work, provides significant convenience, cost benefits, flexibility, improves overall productivity and responsiveness and increases worker satisfaction. However, with these benefits there also are significant risks to consider as well, such as the loss or theft of devices, Wage and Hour (working time) issues, employee privacy, discrimination and harassment and separation of employment. The following provides SESCO’s recommendation to address the employment-specific legal issues as well as the benefits of personal device
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policies and addresses SESCO’s staff recommendations that clients and employees should incorporate when implementing personal device practices at work.
Wage and Hour—Paid Time SESCO clients should carefully consider the Wage and Hour risks of personal devices in the workplace. Under the Fair Labor Standards Act, employers must pay at least minimum wage to nonexempt employees for all hours the employee is suffered or permitted to work by the employer. In addition, nonexempt employees must receive overtime pay when they work in excess of 40 hours during a workweek (federal—some states are more restrictive). When employees have remote access, hours of work can include time spent on or off the clock drafting and responding to emails, taking conference calls, video conferencing and completing projects or discussing work with other employees. Many employers even require employees to check emails around the clock while others may not; but if such compensable time is not paid, it can expose the organization to potential liability—back-wages for time worked not paid.
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Staff Recommendation: Employers can protect themselves from such Wage and Hour risks by incorporating into policies that address: • Require employees to record and report all time worked—this would include after hours worked when using personal devices. • Set clear policies on working outside of normal scheduled hours—many SESCO policies clearly state that employees should not perform work after hours unless specifically requested to do so or approved by their manager. • Policy should address minimum wage compliance by reimbursing employees for device fees or paying an hourly rate that ensures employees receive at or above minimum wage after device expenses and fees.
Discrimination and Harassment If an employee uses his or her own personal device to bully co-workers, send harassing emails or text messages, or transmit racially insensitive pictures or videos, whether during working hours or not, it can create liability for the employer. This includes
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inappropriate language and communications on social media as well. Staff Recommendation: SESCO recommends that employers train employees on using good judgment when communicating with colleagues on personal devices. This should be included in new-hire orientation as well as annually in reviewing policy as well as harassment training. The company’s policy should include instructions on acceptable use, prohibit inappropriate use and remind employees that the company’s policy prohibiting harassment, discrimination and retaliation apply to the use of all devices under the company’s policy.
Employee Negligence Employee negligence can also put employers at risk. When employees receive a new mobile device, they often store their old one or give it away thus increasing the risk of data compromise. Employees may also inadvertently download malware or become the victim of a phishing scam by clicking on a malicious link. Company data can also be compromised if the employee loses the device, fails to password-protect their device, or the device is stolen. Employees may also accidently expose sensitive company information when communicating through unsecured or public Wi-Fi networks. Staff Recommendation: To reduce the risk associated with data loss and security breaches, clients should educate employees on the importance of maintaining strong passwords, changing passwords and encrypting data stored on the device. Employers may also want to consider adopting a policy that clearly states that the organization owns the company data on the device and requires employees to back up company data and notify the employer in the event their personal device is lost, stolen or damaged. If data compromise is an ongoing concern, employers can establish protocols which permit retrieval and review of company data as well as the ability to remotely locate the device and automatically wipe the device of all data in certain instances.
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Privacy Issues SESCO clients should balance its duty to safeguard sensitive and proprietary information with employee privacy. For example, certain states have enacted laws that protect an employee’s right to social media privacy. These laws prohibit employers from trying to gain unauthorized access to an employee’s private social networking site—including prohibiting against requesting or requiring access to employees’ social media accounts. Privacy protections may also apply to the healthcare information stored on the device as well as the employee’s privileged communications with his or her doctor, attorney or spouse. Staff Recommendation: SESCO recommends that both the employer and employees’ rights be established, including what exactly can be accessed on a personal device, and exactly what will happen if the device is lost or compromised, or if the employee leaves the business. Companies can also mitigate damages by making employees aware of the privacy trade-offs and the reasonable expectations of privacy related to their use of a personal device for work. Employers can, at a minimum, train employees on what their policy says, inform employees of privacy-related issues and if monitoring or an investigation becomes necessary, minimize the potential exposure of employees’ personal and private information.
Termination of Employment Challenges When an employee separates from the organization, segregating and retrieving company data can be challenging from personal devices. Accordingly, policy should include a section detailing what actions must be taken, both by the company and employee, upon separation of employment. Staff Recommendation: Policy might include deleting data, revoking access to a network, deleting certain apps and/or working with the employer’s IT staff or vendor to complete the
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exit requirements and ensure proper removal of company trade secrets, proprietary and confidential information and other company data. Employers may also want to consider adopting a policy advising employees that not complying with the exit policies will result in a full remote factory reset of their devices which can be achieved by the mobile device management toolsets commercially available. Moreover, they should sign a waiver consenting to such activities and holding the organization harmless for any such damage, loss or use of data loss. In summary, although there is no one-size-fits-all policy, all employers should develop and disseminate a comprehensive policy that takes into account the company’s existing infrastructure and risk. As with all information security risk, how the organization defines and treats risk plays a role in choosing the security roles that the employer may implement. It is also essential that employers and employees engage in active communication to include training, discussing policy on a regular basis and making revisions and updates as needed. Jamie Hasty is the vice president of SESCO Management Consultants. SESCO provides results-oriented human resource consulting services to its members. SESCO Management Consultants is retained by ASA to provide HR support on a daily or as needed basis. SESCO also provides services related to employee handbook development and review at discounted rates to ASA members throughout the country. The arrangement provides a free “hotline” to discuss day-to-day employment issues such as policy development, employee challenges such as disciplinary actions, terminations, or workers’ compensation issues, compliance to federal and state employment regulations, and many other management and human resource matters. Hasty can be reached at (423) 7644127 or jamie@sescomgt.com.
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Legally Speaking Beware the Performance Specification: When Design-Bid-Build Becomes Design-Build by John A. Greenhall and Michael Metz-Topodas, Cohen Seglias Pallas Greenhall & Furman, P.C.
Performance specifications in a construction contract can dramatically alter decisions about costs, pricing, and quantities, and therefore profits. Often they make a design-bid-build job feel like it is operating more like design-build, disrupting the predictable process essential to construction contracting and work. So, a contractor must properly understand and account for such specifications in bidding and performance. The following provides some considerations and measures general contractors can employ to protect their legal interests and business objectives when faced with contracts containing performance specifications.
Design and Performance Specifications Specifications for construction projects come in primarily two types:
design and performance. Design specs are a roadmap to the construction. They describe—often in precise detail—the materials the contractor must use, the quantities T H E
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for such materials, the location and requirements for installing such materials, and certain measurements and tolerances. For example, for a water treatment facility, design specifications would require a specific type of water pump, the precise installation location, and its particular connection to other equipment. However, they stop short of directing a contractor’s means and methods—how a contractor performs its work, such as scheduling and manpower. In contrast, performance specifications outline or set a standard or objective for the final construction, leaving the contractor to select the design, methods, and materials necessary to achieve that objective. Performance specs can even include how a project performs over time after construction has completed, as LEED energy efficiency standards illustrate. As an example, a performance specification for a water treatment facility may require certain flow rates and
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pressure standards for water systems, but leave it to the contractor to select the pumps, determine their installation, and create a system that meets these flow rates and pressure standards. Each type of specification has inherent advantages and disadvantages. Design specifications ensure great precision and predictability. The owner has a very exact expectation of the finished product it will receive, and the contractor can determine with reasonable certainty the labor, materials, and equipment needed for the job. Conversely, because a contractor must comply with design specifications it cannot modify, should the contractor discover more effective or efficient means of construction as the project progresses, it cannot undertake such cost-savings work unless all parties agree in writing. Accommodating such changes requires going through an often slow and tedious change order process.
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Performance specifications trade predictability for flexibility. Because the contractor determines the design, the contractor can explore different construction options and determine the most effective and efficient methods, thus delivering the best product at the best value. Also, the contractor can quickly and independently make small design changes to handle unforeseen developments. Despite these advantages, the contractor bears full responsibility for whether the project as designed and built meets the performance standards set, and thus, full responsibility for the costs to get the project right.
Project Delivery Methods: Design-Bid-Build v. Design-Build The type of project specifications bear direct relationship to the project delivery method: design-bidbuild (D-B-B), which typically relies on design specifications, or designbuild (D-B), which uses primarily performance specifications. In a D-B-B project, an owner hires an architect or engineer to design the construction based on the owner’s instructions (or wishes). At the owner’s invitation, contractors review the design and submit bids to perform the work. The contractor awarded the project has the obligation to build according to that design, subject to owner-approved changes. Because a contractor needs only to follow the design, the owner and, of course, the designer have responsibility for any design problems. The D-B model flips the D-B-B model on its head in some respects. Essentially, the owner contracts with one entity to perform the entire project, both its design and construction. The contractor will often form a design-build team to work
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together to understand the owner’s goals and complete construction accordingly. Because the contractor has control over project design, it bears responsibility for any design problems, a risk contractors need to consider in negotiating design-build jobs. The D-B model creates synergies and efficiencies for contractors and owners. Unifying project design and construction under one team eliminates the tension between designer and contractor about causes of project failure. Also, design changes require a less formal process. On the other hand, design-builders need to allocate for extra costs should the project require multiple re-designs and re-constructions to achieve performance objectives. An owner may also find that a contractor employs a design that works to its advantage in terms of cost and efficiency, but not necessarily the owner’s. These advantages and disadvantages of either delivery method play a significant role in contractors’ expectations in entering a construction project contract, in particular, cost, time, planning, and profits.
How Specifications Can Make Design-Bid-Build Feel Like Design-Bid Unfortunately, not all D-B-B projects use only design specifications, and not all D-B projects use just performance specifications. More often, contracts contain a mix of both. Although D-B-B projects feature mostly design specifications, they also rely on performance specifications. For example, in a wastewater treatment plant project, the contract would likely specify acceptable water pumps by size, type, makes, and models and delineate installation requirements—all
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design specifications. The contract may also require that water moving through the treatment system using such pumps achieve or deliver certain flow rates—a performance specification. Presumably, where the system does not deliver such flow rates, the contractor has breached the contract and must investigate and correct the problem, even if the system as constructed meets all design specifications. Contractors faced with such situations typically turn to the project designer for assistance. Unfortunately, design professionals sometimes simply demand that builders comply with the contract, including the performance specifications. Doing so may require the contractor to redesign parts of the project, usually at the risk of increased costs—time, labor, materials—far beyond the builder’s expectations when entering the contract. Further, redesign to satisfy specific performance specifications may result in breaching certain design specifications. A design-bidbuild project suddenly looks much more like design-build.
Courts’ Treatment of Specifications Issues surrounding performance specifications have confounded courts as well. Some clarity came with the development of the Spearin Doctrine. Based on the Supreme Court’s holding in United States v. Spearin, the doctrine provides that plans and specifications provided by an owner or the owner’s designer carry an implied warranty of producibility (or accuracy). The designer implicitly guarantees that if the contractor follows the plans without deviation, the design will yield the intended building. That means that if in constructing the project a contractor follows the
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plans and specifications provided, that contractor satisfies its contractual obligations and would face no liability for design failures or other defects. Instead, the designer has that responsibility. The difficulty comes when a contractor complies with the design specifications, but the project still fails to achieve the performance specifications, as the above water pump example illustrates. If the design specifications restrict the contractor so much that it no longer has sufficient discretion to meet design objectives, courts should find the contractor not liable under the Spearin Doctrine. Contractors, however, cannot rely on a court reaching this result in every instance. So contractors should look to proactive measures to manage and mitigate this risk.
How to Handle Performance Specifications Contractors can manage the risks and potential liabilities of performance specifications during both the bidding process and once the project is underway. At Bidding • Identify Performance Specifications: In reviewing the contract and bidding documents, contractors should keep a keen eye for performance specifications, assess their cost implications, and modify the bid amount accordingly. Language that refers to measurable standards or testing requirements—such as flow rates and water pressure in a wastewater system— often indicate performance specifications. • Seek Clarification: The pre-bid questioning period provides an excellent opportunity to resolve confusion and add precision
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to contract specifications. By taking advantage of this process, contractors can better understand and refine contract terms. In particular, questions about performance specifications should seek to make contractual language and, thus, expectations, as clear and precise as possible. • Assess Cost and Factor Into Bid: Bid amounts should account for expected costs from an initial design failing to comply with performance specifications. Those costs should anticipate redesign, testing, and additional construction expenses. During Performance and After • Contract Review: Reviewing the proposed agreement should include identifying all performance specifications and preparing for potential related design and construction issues. • Keep Written Records of Design Issues: Industry practices afford many ways to document design issues related to performance specifications. Contractors should make use of all those available, such as RFIs, meeting minutes, change order requests, correspondence, and email communications. • Focus on Intent: Some legal commentators have suggested that rather than sorting specifications into design and performance buckets, courts should look at the contract’s overall intent about who has design responsibility—the designer (like in a D-B-B project) or the contractor (like in a D-B project). Confirming that intent in writing can help to resolve ambiguity in the contract. • Determine Whether Performance Specifications Set Impossible Expectations: For contracts with a mix of performance and design
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specifications, design restrictions may rob the contractor of the necessary discretion to comply with performance specifications. That would allow the contractor to argue the owner cannot enforce such performance specifications. To provide the proper factual support for this argument, contractors should document how the design and performance specifications conflict as thoroughly (and as often) as possible and communicate that analysis to the owner and designer. Performance specifications can cause confusion for both construction professionals and legal practitioners alike. The above provides only a general framework of this problem and some broad directives on how to handle this issue. Given some uncertainty in this area of the law, however, cases involving performance and design specifications are often resolved on a fact-specific basis. Further, what a contractor does on a project today can have consequences for future legal disputes. As a result, contractors faced with such issues should consult with their legal counsel for day-today advice with an eye toward litigation and the potential end-game resolution. John A. Greenhall is a partner and Michael Metz-Topodas is an associate in the Construction Group at Cohen Seglias Pallas Greenhall & Furman, P.C.. They can be reached at (215) 564-1700 or jgreenhall@ cohenseglias.com and mmt@ cohenseglias.com.
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ASA/FASA Calendar
Coming Up
May 2019
8 — Webinar: “Work-In-Progress Reporting” presented by Stephen Blankenship, Ennis Electric
14 — Webinar: Corporate and Individual Tax Planning Under the New Tax Law, by Thomas B. Bailey, CPA, CVA, Councilor, Buchanan & Mitchell, P.C.
February 2019 12 — Webinar: “The Best—and Worst—Construction Legal Decisions of 2018” presented by Adam Harrison, Harrison Law Group
in the January 2019 Issue of ASA’s THE
January 2019
June 2019
Theme:
March 2019
11 – Webinar: “A Small Business’ Guide to Human Resources” presented by Jamie Hasty, SESCO Management Consultants
Construction Court Cases You Ought to Care About
6–9 — SUBExcel 2019, Nashville, Tenn.
July 2019
• Prompt Pay Case
19 — Webinar: “Lean Construction— What Subcontractors Need to Know” presented by Lean Construction Institute
9 – Webinar: “Emerging Technologies—Smart Tools, UAVs and Others—and How They Relate to the Internet of Things” presented by Maxim Consulting Group
April 2019
August 2019
• Kemper Case
9 – Webinar: “Avoiding Predatory OCIPs, CCIPs and Builders Risk Insurance Flow-Downs” presented by Jonathan Mitz, Ennis Elecric
13 – Webinar: “Trade Shortage” presented by Michael Brewer, The Brewer Companies
• American Architectural Inc. Case
• Painter Case • Ohio Northern Case • Notice of Furnishing Case
• Dispute Resolution • Legally Speaking: Construction Court Cases You Ought to Care About and Why
Look for your issue in January. PAST ISSUES: Access online at www.contractors knowledgedepot.com
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