The Contractor's Compass November 2018 by American Subcontractors Association

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THE OFFICIAL EDUCATIONAL JOURNAL OF THE AMERICAN SUBCONTRACTORS ASSOCIATION

WWW.ASAONLINE.COM

NOVEMBER 2018

Improving Jobsite Productivity by Brian Lightner, Maxim Consulting Group

The Strategy Spider: A Visualization of Key Performance Indicators to Drive Superior Performance by Gregg M. Schoppman, FMI

The Best of Times, The Worst of Times: Developing a Case for Productivity Improvement in Your Organization by Gregg M. Schoppman, FMI

On Choosing Diamonds by Steve Winn, Marek Brothers Systems

10 Simple Steps to Improve Productivity

by Tyler Riddell, eSUB Construction Software

Using Contract Skilled Labor Mitigates Labor Shortage Challenges, Reduces LaborRelated Costs by Tradesmen International

Network-Based Collaboration: Leveling the Playing Field for Subcontractors by Jeff Burmeister, Kahua

Legally Speaking: Change Orders 201: Practical Tips and Tricks

by Joe Katz, Esq., Huddles Jones Sorteberg & Dachille, P.C.

March 6-9, 2019 | Nashville, Tennessee

Improving Productivity

March 6-9, 2019 | Nashville, Tennessee www.subexcel.com

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November 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.

by Brian Lightner, Maxim Consulting Group

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 M. Schoppman, FMI

Improving Jobsite Productivity..................................................... 10 The Strategy Spider: A Visualization of Key.................................. 12 Performance Indicators to Drive Superior Performance The Best of Times, The Worst of Times: Developing....................... 14 a Case for Productivity Improvement in Your Organization

EDITORIAL STAFF Editor-in-Chief, Marc Ramsey

by Gregg M. Schoppman, FMI

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.

On Choosing Diamonds................................................................. 16 by Steve Winn, Marek Brothers Systems

10 Simple Steps to Improve Productivity...................................... 20 by Tyler Riddell, eSUB Construction Software

Using Contract Skilled Labor Mitigates Labor.............................. 22 Shortage Challenges, Reduces Labor-Related Costs

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

by Tradesmen International

Network-Based Collaboration: Leveling the Playing..................... 24 Field for Subcontractors

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 Jeff Burmeister, Kahua

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.

CONSTRUCTION IN THE COURTS.................................................... 6 CONTRACTOR COMMUNITY........................................................... 8 LEGALLY SPEAKING.....................................................................................26 Change Orders 201: Practical Tips and Tricks

by Joe Katz, Esq., Huddles Jones Sorteberg & Dachille, P.C.

Quick Reference ASA/FASA CALENDAR................................................................... 29 COMING UP.................................................................................. 29

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Paycheck Checkup Can Prevent a Tax-Time Surprise It’s important to check your federal income tax withholding now to avoid an unexpected tax bill or penalty at tax time. The IRS Withholding Calculator can help.

Everyone should check their withholding. Due to tax law changes, it’s especially important to check now if you: • • • • • • • •

Are a two-income family Have two or more jobs at the same time Work a seasonal job or only work part of the year Claim credits like the child tax credit Have dependents age 17 or older Itemized your deductions on your 2017 return Have high income or a complex tax return Had a large tax refund or tax bill for 2017

Use the IRS Withholding Calculator to do a Paycheck Checkup • The IRS Withholding Calculator helps figure out if you should submit a new Form W-4 to your employer. • Have your most recent pay stub and federal tax return on hand. • The calculator’s results are only as accurate as the information you enter. • Find the IRS calculator at IRS.gov/withholding.

Publication 5303 (6-2018) Catalog 71495F Department of the Treasury Internal Revenue Service www.irs.gov

ASA PRESIDENT’S LETTER Dear ASA Members: As I enter my fifth month as president of your Association, I want to emphasize one of the most critical, and valuable, aspects of membership in ASA: active participation. No doubt, you all actively participate in some manner in your local chapter, whether it’s attending monthly membership programs, supporting your chapter’s golf tournament or awards program, or volunteering on a chapter committee or task force. There are, however, additional ways to actively participate in ASA—attend our annual national convention, SUBExcel, for example. SUBExcel 2019 will take place March 6-9, 2019, at the Renaissance Nashville Hotel in Nashville, Tenn. Register online, make your hotel reservations, check out the education program, and get to know the speakers we’ve lined up at www.subexcel.com. By joining us at SUBExcel 2019 in Nashville, you can take advantage of the education workshops and sessions to learn

about issues that affect your business, and, just as importantly, meet your colleagues and fellow members in-person during the many networking events and activities we have planned for you. I can’t say enough great things about how beneficial participation in ASA, and in particular, our annual convention, has been for me and my company, ACE Glass. I have heard success stories of success from other members that encourage me and I wouldn’t know without my time in this organization. My company has become aware of risks and pitfalls because of the sharing of information and lessons learned, and I have developed lifelong friendships. One of my goals during my term has been to do all I can to ensure that you get all you can from ASA. Surely, you’ve heard this before: “You get out of life what you put into it.” The same is true for membership in any association.

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.

The more you put into the association, whether it’s volunteering for your chapter or participating in chapter meetings or the national convention, the more you will get out of your membership. If you would like to discuss what else ASA can do for you or how ASA can better meet your needs, I would be happy to visit with you more. In the meantime, register for SUBExcel 2019 and get to know your fellow members of ASA! I, for one, will be very pleased to meet you! Best Regards,

Courtney Little 2018-19 President American Subcontractors Association

“Group Captive Insurance for Construction Companies” (Item # 8127) In this video-on-demand, Ed Kushlis, Insurance Associates, explains how midsize companies in captives can drastically reduce health insurance expenses and workers’ compensation costs, maintain the same level of benefits, and keep the same network.$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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CONSTRUCTION IN THE COURTS

Ohio Supreme Court Ruling in Favor of Insurance Company in GCL Case Is ‘Disappointing’ by American Subcontractors Association The Supreme Court of Ohio has ruled in favor of The Cincinnati Insurance Company and reversed an appeals court decision in a commercial general liability insurance case that could have tremendous negative ramifications for subcontractors in Ohio and beyond. The decision is a “disappointing” setback in a case in which ASA, AGC of Ohio and the Ohio Contractors Association filed an amicus, or “friend-of-the-court,” brief urging the Ohio Supreme Court to

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affirm the appeals court decision. Allen L. Rutz, partner, Vorys, Sater, Seymour and Pease, LLP, Columbus, Ohio, counsel for plaintiff-appellee Ohio Northern University, and Eric Travers, Kegler, Brown, Hill and Ritter, Columbus, Ohio, ASA’s general counsel, both called the decision disappointing. “The Ohio Supreme Court acknowledges that this decision keeps Ohio swimming against the grain of precedent in other states,” Travers said. “Having swiped aside numerous decisions

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going the other way from other state courts, they double down in reliance on an Arkansas case that is no longer good law even in Arkansas, because the Arkansas legislature changed the result. The Supreme Court then says if the Ohio Legislature wants to do the same it should, which means ASA and ASA of Ohio have some good incentive here to lobby.” In their “friend-of-the-court” brief filed in Ohio Northern University v. Charles Construction Services, Inc., and The Cincinnati Insurance

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Company, ASA, AGC of Ohio and OCA emphasized that “their members have an interest in seeing that the language in commercial general liability policies be given its plain and ordinary meaning, without resorting to the use of judicial interpretation in attempts to alter that plain meaning.” “It is the custom and practice in the construction industry to rely upon the coverage provided by the plain language of commercial general liability policies for defective workmanship by a subcontractor,” the amici curiae said. In the underlying case, Ohio Northern University contracted in 2008 with Charles Construction Services to build a new luxury hotel and conference center on the ONU campus, and most of the project construction work was performed by subcontractors to Charles Construction. In 2011, after construction was complete, ONU discovered evidence of water intrusion and moisture damage to numerous areas of the building. While remediating the problems, ONU discovered serious structural defects which greatly broadened the scope of the remedial work and required completely removing and replacing the brick and masonry façade. ONU sued Charles Construction, who brought in many of its subcontractors. Charles Construction’s CGL carrier, The Cincinnati Insurance Company, moved for Summary Judgment, citing an earlier case, Westfield Ins. Co. v. Custom Agri Systems, Inc., arguing that Charles Construction’s CGL policy did not provide coverage with respect to any of the damages or claims, and therefore owed no duty to defend and T H E

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indemnify Charles Construction against ONU’s claims. Cincinnati Insurance grounded its arguments in the Supreme Court of Ohio’s proclamation in Custom Agri that “claims of defective construction or workmanship brought by a property owner are not claims for ‘property damage’ caused by an ‘occurrence’ under a commercial general liability policy.” ONU and Charles Construction countered that Custom Agri was not as broad as Cincinnati Insurance claimed and was distinguishable because the “products-completed operations hazard” portion of Charles Construction’s CGL policy applied and that while the “your work” exclusion would exclude coverage for occurrence damages arising out of work performed by Charles Construction, the “subcontractor exception” to the “your work” exclusion would bring the damages in this case within the scope of coverage, as the damages were due to the allegedly defective work of subcontractors of the primary insured. The trial court agreed with Cincinnati Insurance, finding that Custom Agri specifically applied and not only was there no coverage, the insurer did not even have a duty to defend the claim, because defective construction was not an occurrence under a CGL policy. ONU, claiming the benefits of coverage as an additional insured, and Charles Construction appealed, and the Hancock County Court of Appeals, Third Appellate District, reversed. The appeals court explicitly rejected Cincinnati Insurance’s position that Custom Agri established that “all property C O M P A S S

damage” regardless of who performed it can as a matter of law never constitute an “occurrence.” Further, the appeals court noted that its decision was consistent with the trend of many other jurisdictions— many of which involved cases in states where ASA has filed “friendof-the-court” briefs—in addressing disputes with the same question. In the brief, the amici curiae, arguing that Custom Agri should be overruled, told the Ohio high court, “The [Custom Agri] decision was wrongly decided, defies practical workability, and no undue hardship would occur from abandoning the precedent,” adding, “Ultimately, the Custom Agri holding is inconsistent with the law of other states considering identical policies, and it is inconsistent with Ohio law, as the general holding renders superfluous existing coverage in the CGL policy.” The amici curiae concluded, “The primary argument relied upon by [Cincinnati Insurance] is the broad holding in Custom Agri. However … Custom Agri was not fully briefed by adverse parties. A full review of the law interpreting this universal CGL policy shows that Custom Agri was wrongly decided. It also defies practical workability because it is in opposition to the law of numerous other states, and ultimately, would not work a hardship if it were reversed. …The holding in Custom Agri should be completely reversed.” Terry W. Posey Jr., Thompson Hine, LLP, Miamisburg, Ohio, and Daniel M. Haymond, Thompson Hine, LLP, Cleveland, Ohio, prepared the brief for ASA, AGC of Ohio, and OCA. ASA’s Subcontractors Legal Defense Fund financed the brief. Contributions to the SLDF may be made online. N O V E M B E R

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CONTRACTOR COMMUNITY

Online Registration Now Available! Don’t Miss SUBExcel 2019 This March in Nashville ASA has launched online registration for SUBExcel 2019, which will take place March 6-9, 2019, at the Renaissance Nashville Hotel in Nashville, Tenn. ASA is using a new online platform for the event, which we hope you’ll find to be much easier to navigate and complete the registration process! Visit www. subexcel.com to read about ASA’s annual national convention and watch a brief video under “Description,” then read a brief “Welcome” message from 2018-19 ASA President Courtney Little, ACE Glass Construction Corp., Little Rock, Ark. You can see who is sponsoring ASA and which companies will be exhibiting at the convention, and you can check out the preliminary program. You can also view “Hotel” details and access the direct link to book your hotel reservations. Please Note: If you wish to participate in the “Music City Pub Crawl,” this is an additional $75/person cost that is not included in the registration fee. Please select this fee for each registrant needing a ticket.

Free Dec. 11 ASA Webinar Examines How to Improve the Change Order Process In the complimentary Dec. 11 ASA webinar, “Improving the Change Order Process,” presenter Ron Churchey, Shapiro & Duncan, will

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explain how to reduce the number of changes by doing better design and coordination and setting expectations early. In the webinar, Churchey will also discuss how to limit open-ended flow down, how to prepare “approvable” change order proposals, and how to vet change proposals before they are submitted. Churchey has served as vice president of construction for Shapiro & Duncan since 2010. He plays a critically important role on the leadership team by ensuring all projects are completed on time, within budget and in accordance with company’s quality standards. This webinar will take place from noon to 1:30 p.m. Eastern time. Registration is complimentary for ASA members and nonmembers. Register online.

ASA’s Manual Charts State AntiIndemnity Laws How does your state handle indemnity? Find out with ASA’s AntiIndemnity Statutes in the 50 States. This manual is a resource for identifying which states have anti-indemnity laws and indicates which states prohibit indemnity for partial fault or sole fault of the indemnified party. Furthermore, the manual indicates in which states a party is prohibited from requiring a subcontractor to name it as an additional insured, thereby closing the additional insured loophole.

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Anti-Indemnity laws are important to subcontractors because too often contractors and owners shift risk to the subcontractors that subcontractors can’t control. Specifically, “hold harmless” and “additional insured” provisions in a construction subcontract seek to hold the subcontractor accountable for worksite accidents or other losses that are not the fault of the subcontractor. These “hold harmless” and “additional insured” provisions are problematic to subcontractors because they may unfairly shift the financial responsibility for claims to the subcontractor or its insurance company. As a result, a party who is indemnified by the subcontractor may use less care to avoid injury or loss because the indemnified party is not liable for its own actions. This carelessness may result in more accidents on the worksite that could have been avoided. Many states have enacted laws that address at least some of the issues in shifting the burden of liability to a subcontractor. Forty-one states have some form of law which prohibits a construction contract that requires a subcontractor to indemnify another party for its negligence (but some of these states limit the application of the law, for example, only to public projects). Only 27 states prohibit a subcontractor from indemnifying another party for its sole or partial fault; 14 states only prohibit a subcontractor from indemnifying another party for its sole fault. Only six states prohibit a party from requiring another party to name it as an additional insured under a policy of insurance. The ASA-member law firm and ASA general counsel, Kegler, Brown, Hill and Ritter, Columbus, Ohio, prepared the manual. The ASA AntiIndemnity Statutes in the 50 States is available under “Insurance and Risk Management” in the Member Resources section of the ASA Web site.

SBA Announces Decrease in Surety Bond Guarantee Fees The U.S. Small Business Administration on Sept. 4 announced the first fee decrease in Surety Bond

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Guarantees in 12 years. The fee decrease will be in effect for guaranteed bonds approved during fiscal year 2019, taking effect Oct. 1 and ending Sept. 30, 2019. The Surety Bond Guarantee program is reducing the surety fee from 26 percent to 20 percent of the bond premium charged to the small businesses and reducing its contractor fee from $7.29 per thousand dollars of the contract amount to $6.00 per thousand dollars of the contract amount. “Reducing the SBG program fees will not only directly help small businesses, but also will incentivize surety companies and their agents to increase support for small businesses in the marketplace,” said Peter C. Gibbs, acting director, Office of Surety Guarantees. Under its SBG program, the SBA guarantees bid, payment and performance bonds for small and emerging contractors who cannot obtain surety bonds through regular commercial channels. SBA guarantees contracts up to $10 million, including the streamlined QuickApp application for those up to $400,000. The SBA’s guarantee gives sureties an incentive to provide bonding for small businesses and, thereby, assists small businesses in obtaining greater access to contracting opportunities. Currently, there are 34 participating sureties and over 350 active agents in the SBG program. On average, completed surety bond applications are reviewed and processed in less than two days. The program is currently outperforming its previous year results yielding 27,000 jobs supported, 3,000 final bonds, and $1.7 billion in final bond contract amounts in fiscal year 2018. To learn more, visit www.sba.gov.

Applications for ASA’s Certificate of Excellence in Ethics Are Due Dec. 7, 2018 The deadline to submit your application for ASA’s Certificate of Excellence in Ethics is Dec. 7, 2018. The ethics certificate is not an awards competition, but rather a program recognizing subcontractors for their commitment to ASA values like quality construction and a safe and healthy work

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environment. Details, resources, and the application are located under “About ASA” on the ASA Web site.

Nominations for ASA’s Subcontractor Advocate Awards Are Due Dec. 31 Nominations for ASA’s Subcontractor Advocate Awards are due to ASA headquarters no later than Dec. 31, 2018. These awards spotlight organizations and individuals who dedicate themselves to advocate before government on behalf of subcontractors, specialty trade contractors and suppliers. Nominees do not have to be affiliated with ASA and there is no fee for nominations. Judging will be conducted by a working group of the ASA Task Force on Government Advocacy. Judges will consider each of the following factors when assessing the entry: • Importance of the issue/objective to the interests of construction subcontractors and specialty trade contractors. • Use of analytical skills to develop and implement a plan to pursue a successful outcome. • Effort and success in developing support for the issue/objective within and outside of the construction industry. • Degree of opposition to the issue/ objective within and outside of the construction industry. • Cost-effective use of resources, including dollars and time. • Demonstrable success with the government advocacy or campaign. • Quality of the presentation. ASA will present the 2018 Subcontractor Advocate Awards in conjunction with ASA’s convention, SUBExcel 2019, which will take place March 6-9, 2019, in Nashville, Tenn.

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SESCO White Paper Helps Employers Determine If They Must Comply with Affirmative Action and Specific Anti-Discrimination Rules

Having a federal government contract or subcontract can trigger the need to comply with serious affirmative action obligations and burdensome record-keeping requirements imposed on “covered” federal government contractors. It is critical that a business know if particular contracts trigger these obligations so that it can properly evaluate the true benefits and burdens of such contracts. A business should not learn of these obligations for the first time in a government audit that could result in significant financial costs. A white paper from SESCO Management Consultants, “Guide to Determining Covered Federal Government Contractor Status,” can help employers evaluate all the costs and burdens, in addition to the benefits, and make intelligent business decisions based on full information. “The costs of compliance can be significant, and costs of noncompliance even more so, such as to make any profits from government contracts illusory,” said Jamie Hasty, vice president, SESCO, a human resource consulting firm. Under an arrangement with ASA, SESCO 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. For more information, contact Hasty at jamie@sescomgt.com or (423) 7644127. The white paper is available for free under “Workforce and Professional Development” on the ASA Web site.

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Feature Improving Jobsite Productivity by Brian Lightner, Maxim Consulting Group We make our money in the field. Or, sometimes, we lose it in the field. Either way you look at it there’s only one place the product purchased by our customers is assembled—literally in the hands of our trades people. How we manage the value our labor produces it, is a big deal. So what does this all mean? Industrywide, the statistics paint a grim picture. According to the Bureau of Labor Statistics, compared to all other nonfarm related U.S. Industries, construction labor productivity is at best flat—some studies claim it is decreasing. Other studies measuring the total percent of directly value-add work on a typical construction site report as low as 5 percent. My own studies over the last 20 years support that data. That’s a lot of different measurements, and they all point to the same conclusion. In general, our industry struggles mightily to effectively manage labor productivity—that screams opportunity! I’ve had the good fortune to work with several contractors who’ve developed the expertise required to gain significant, measurable, and sustainable improvements in labor productivity. The type of improvements that provide agility in the market to get the type of work they want, when they want it. Their success also provides the ability to control risks that come with growth. Two contractors experienced triple digit revenue growth over the past few years without sacrificing world-class profitability. The standards and processes they implemented to manage labor productivity were key to navigating those waters. Unfortunately, many companies fall short of creating the type of change

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required to achieve similar results. It is possible to convert labor productivity from your biggest risk to your biggest advantage. Doing so provides a strategic advantage few other initiatives can do. To do so you’ll have to re-think how you think about production and productivity. Here are a few approaches to managing and improving labor productivity that all of the successful companies I’ve worked with share in common.

Always Have a Goal This isn’t an advanced or difficult concept, yet it surprises me that many organizations don’t set profit targets on self-performed labor at the start of a job, especially among subcontractors where as much as 60 percent of total project cost or more can be direct labor cost. Even more surprising is how often no shared, well-defined goal for production exists at the project or crew level. Before you can expect to become world-class in managing production, it’s imperative to create a culture that routinely defines what winning looks like. If you don’t have this low-hanging fruit in your cultural DNA most other efforts, you exert to drive improvement will be piecemeal with spotty results at best. When working to improve productivity at the crew level the first two

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questions I typically ask are “how much work do we need to do to win?” followed by “is there enough work available where we’re working to win?” If you can’t answer these two basic questions with hard numbers instead of a lot of opinions don’t go any further in your process improvement efforts, you’ve found what needs fixing immediately.

Move Beyond Tribal Knowledge, Be Experts in Production Management Two decades ago when I was a carpenter apprentice I was taught a few basic survival tactics: 1) If you have nothing to do, pick up a broom and sweep, 2) If you have to stand around, don’t stand near the windows where you can be seen, and 3) If all else fails, walk fast and look worried. That’s a true story. I was literally taught to walk fast and look worried. And when it was necessary, it worked. I learned very quickly that, in general, most supervisors consider productivity as “pretty good” if people are busy all the time, putting forth max effort, and in compliance with policies and rules. Unfortunately, much of that “tribal knowledge” approach to evaluating productivity still exists. It turns out that “busyness,” effort, and compliance are lousy indicators of

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production efficiency. So are the other two tools we typically use to manage productivity—labor cost reports and schedules. The weaknesses inherent in those tools are that they: 1) Provide incomplete information late and after the fact 2) Define success vs. budgets not process efficiency, and 3) provide little to no definition of conditions required to support an efficient process. The very definition of productivity tells us we often take the wrong approach. Defined simply, productivity is value divided by cost. Where most project teams can tell me very quickly how much a crew costs per hour, very few are able to answer how much value is being produced during that hour and which steps of a process produce the value. Experts know that information. Here’s an example from a project I worked on a couple of years ago. A customer accepted a bid to hang drywall at a unit price (labor only for this example) of $1.12 per square foot of drywall hung. At $1.12 per square foot, a 4’ x 12’ sheet of drywall has a value of $53.76 (48 sq. ft. x $1.12.) Using process mapping techniques, we identified value-adding steps to install a single sheet (not tops) at 3.5 minutes. Maintaining steady flow of value-adding steps at a 3 ½-minute cycle time could potentially produce 17 sheets of throughput per hour. That’s $913.92 of value … per hour. After doing the analysis, the team then defined the conditions required in the work areas for the ideal process to happen reliably and what crew size was required to maintain those conditions. The first step taken was to define areas or “batches” of space on the floors that could support that rate of production, then make certain all upstream work was completed 100 percent, material staged in exact quantities, and the desired process validated with the crew (overwhelmingly the crew had no issues with the process, it’s how they wanted to do it anyway.) We never achieved the 17 sheet per

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hour target. Our average ended up at 12 per hour, or 96 sheets per crew. Even so, falling short of the potential target by 30 percent still yielded a 35 percent labor savings and a significant reduction in schedule time, which freed up resources to go produce more profitable work—not an insignificant fact. When it comes to the numbers, your mileage may vary, but the approach should be clear—understand the value of your product and the rate at which you can cycle that value—in detail. Cost accrues on projects continuously. What is value doing? Most teams fixate on cost, but my experience is that cost isn’t what kills production—not producing value kills production. If a crew encounters a ½-hour delay it’s not the cost of the crew that kills performance, it’s the $450 in lost production value that kills performance. My experience is that crunching the numbers on the dollars is only required at the project management and field leader level—they need to know the business end of the information to make the best business decisions. But when it comes to crews most of them could care less if they must clean up a room first and then install drywall or if they can just install drywall. Most of them would prefer to just install drywall—it’s easier and less of a hassle. The responsibility to stop putting crews in environments that force them to do unproductive, non-value adding work is Leadership and Leadership alone. Crews can provide a lot of useful information about processes and constraints holding them up, but we must earn their trust by demonstrating we intend to fix the conditions they are working in.

Set New Standards If you think of or use your estimates and budgets as standards or predictors of what the work should cost, you need new standards. Estimates and budgets are simply statements of what the customer has agreed to pay for the work.

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They are based almost entirely on how we’ve done it in the past and include all the waste and non-productive time ever included during daily time card completion. And the waste is always included. By definition, improving means NOT doing it the way we’ve always done it. Set new standards. To do so, study your processes in detail. What could be more important? Learn to identify the direct, value-adding steps to install conduit or drywall or duct work. Use the 80/20 rule to start, 20 percent of your work processes likely drive 80 percent of your labor costs. What does that work look like? What do you want it to look like? What are the basic conditions required to make work areas ready so that the process can be effective? Learn to process map, process chart. Learn to communicate and plan for conditions to support a process. Make it about process, not people. In organizations that attribute inefficiency to people without first learning and coaching proper production management techniques I find that real problems of production are seldom discussed and never solved. Encourage people to set aggressive targets and communicate routinely about why work didn’t go as planned. Set standards that strive for perfection. The game isn’t about achieving perfection, it’s about learning continuously what keeps you from being perfect, so you can solve problems, definitively, one at a time, over and over and over again. That’s the very definition of improvement. Brian Lightner is an associate director with Maxim Consulting Group, responsible for evaluation and the implementation processes with our clients. He has worked with construction firms of various, including the first ISO 9000 certified general contractor in the United States, to lead process improvement initiatives. Maxim Consulting Group welcomes the opportunity to assist with your jobsite productivity. Contact us at (303) 688-0503 or info@ maximcon¬sulting.com.

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Feature The Strategy Spider: A Visualization of Key Performance Indicators to Drive Superior Performance by Gregg M. Schoppman, FMI

Firms wade through reams of data daily. In fact, leaders continually hear about transforming their organization into a data-driven business. Construction firms are hardly exempt. From finance to safety to estimating, there are countless figures that a firm can use to create awareness and further their team members, projects, and strategic goals. However, leaders are constantly trying to extract data from disparate systems. In the end, so many firms end up looking at a small handful of figures—net profit, gross profit, cash, mod rate—and work feverishly to make connective links to correlate their performance with the right information. Key performance indicators will vary for every firm. Additionally, the gradations within the key performance indicators will vary. For instance, a financial metric such as net billings will be extremely customized for any firm. The most important consideration should

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be measuring those items that directly • People Quadrant—Internal and correlate to the vision and core values of external “people” satisfaction (i.e. the firm. A vehicle such as the Strategy employee development, retention, Spider—drawn from its eerie similarity customer satisfaction, etc.) to a spider web—allows for easy visualThere is no shortage of upstream and ization and compartmentalized metrics downstream metrics that a firm could for every aspect of the business. choose from. However, the key is to identify metrics that holistically describe Compartmentalization the firm. For instance, when a firm only As stated earlier, the KPIs are specific looks at profitability, it loses perspective to an individual firm. At a minimum you on other aspects of its health. Just like a patient seeing a doctor, one’s weight would expect some semblance of the might be in line but health metrics such following main headings: • Operations Quadrant—The processes as cholesterol, sugar, triglycerides, blood pressure, pulse, etc. might tell that will drive superior performance another story. (i.e. planning, prefabrication, etc.) • Execution Quadrant—The downstream measure of a firm’s ability to perform (i.e. utilization, productivity, etc.) • Finance Quadrant—The financial metric that combines several aspects other than profitability (i.e. billings, collections, etc.)

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Normalization One asect of analyzing data comes in the form of comparing apples and oranges. For instance, “Employee Satisfaction” is a very subject score while “Collection Rate” is a defined financial formula that is universally

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recognized. One aspect of the Strategy Spider is it creates some level of normalization. For instance, Table 1 examines four specific areas of the Spider: Table 1—Scoring Criteria Explained

criteria that are applicable to its client base, assuming these are also stretch goals and drive higher performance and not accepting mediocrity.

Visualization The scoreboard is the penultimate piece of this entire equation. Senior management and ownership has the ability to look at financial statements and the like to gauge performance, but what about the rest of the team? There is always some trepidation of “oversharing”—by normalizing the scores, there should be less fear of this information “falling in the hands of the enemy.” A score of 80 percent or landing in the yellow area of the web is less damning than a profit number of $6,540,800. While the web is one visualization, a heat map has a similar effect. (See Table 2) Table 2—Heat Map

Process compliance—or a firm’s ability to follow its processes religiously— is somewhat simple to measure. For instance, if a firm started five projects this month, they should have had five preconstruction planning meetings. On the other hand, it is more complicated to connect a score relative to training and development (“Employee Development”). The scores shown are defined by the firm. In this case, if the firm states it ideally expects its associates’ time to be spent in training and development at least 10 percent of their billable time, the correlated score is 100 percent. The key here is this—THE FIRM DEFINES WHAT IS THE RIGHT SCORE. Another great example is collections. A firm that does work for a government or municipal client might expect a lower collection time whereas a private client might have a higher collection time. The firm thus defines the scoring web

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This map technique simply allows the reader to hone in on specific “hot areas.” Similarly, the webbing on the Spider gives the same depiction. If the firm hovers in the green ring, they are performing at a high level. However, as is often the case, the firm can target specific problem areas. For instance, using the Spider shown, the firm is not performing well in the following areas: • Firm Exit Strategy—This is a measure of the firm’s compliance to conducting routine close-out meetings to ensure successful project completion.

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• Warranty Call Backs—The firm has a high level of call backs associated with warranty issues or defects. • Customer Satisfaction—Customer feedback is negative and not within the tolerances the leadership would like. Most importantly, a firm can look at the big picture in one visualization to determine correlation. Is our customer feedback low because we are not complying with our processes? Does this also relate to poor product performance and the subsequent call backs? Once again, a firm shouldn’t be shocked to learn that their incident rate is higher when they are not following the safety protocol. This would be similar to someone being shocked to learn they are gaining weight yet they eat a box of Oreos every night. The aim of the Strategy Spider is not to recreate the wheel relative to KPIs or replace financial statements. Firms need to measure and share this data internally, so the entire team can see how these elements correspond to one another and the overarching strategy. A firm can convey this messaging in many ways, but best-in-class firms provide the target and regularly provide feedback on the bullseye (or the green web if you prefer). 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 Best of Times, The Worst of Times: Developing a Case for Productivity Improvement in Your Organization by Gregg M. Schoppman, FMI

There are two interesting phenomena that occur during times of economic prosperity. The first is the confusion or blurring of lines between superior market conditions and business genius. It is not to say that business leaders are failing to effectively strategize, but it is important to understand that a rising tide will raise all ships. Put another way, business best practices may not be at the root of many firm-wide successes. Secondly, businesses can see significant top-line gains while also seeing dramatic bottom erosion. Doing more work for less reward is not only unfulfilling but also a major source of risk that must be eliminated. Productivity improvement requires serious strategic dedication. Unfortunately, it is the same work that provides the engine for firm growth that distracts the firm from making strides in internal improvements. Taking the time to “tweak” on processes

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and create continuous operational improvements is the equivalent of pulling into the pits during a major race for critical refueling and maintenance, even when you are the lead car. The four key elements of every organization’s operational model should include proactive processes, consistent firm-wide tools, metrics to drive performance, and behavioral change. In fact, that final element—behavioral change—is often the most challenging hurdle to overcome. How many firms accept “any methodology” as long as the managers and superintendents get positive results? On the surface, what’s the harm? On the contrary, lack of consistency and accountability lead to a myriad of issues ranging from the creation of double standards, reactive management styles, complexity in training and development, and most importantly, margin erosion. Additionally,

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many firms tend to address their productivity woes with training alone. Education is imperative, but it often masks the bigger and deeper issues. Awareness of productivity issues does not do enough to make demonstrative change— this is the equivalent of attending a seminar on weight loss. While it is great information, it does not change the deeper behavioral issues surrounding diet and exercise. One of the first steps to productivity improvements begins with a serious investigation into five aspects of a firm’s standard operating procedures: 1) preconstruction planning, 2) short interval planning, 3) daily huddle, 4) exit strategy, and 5) post-job reviews. Many leaders look at this list and scoff at its simplicity. However, true operational excellence begins with a deeper understanding of what these processes and tools should resemble:

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Preconstruction planning • Is the process more of a dictation or a true collaboration of estimating and operations? • Does the process begin with developing a “Foreman’s Book” but lacks real strategy and discussion? • Does the team have a game plan at the outset of a project or do they wing it and “figure it out when the get on site?” Short interval planning • Do managers and superintendents generate a schedule but lack a real plan? • How many different ways do field leaders plan? Dry erase boards? Legal pads? Or is the plan all “upstairs” in the field leader’s brain? • How many last-minute calls does your shop/yard/tool crib/warehouse get on a daily basis? Daily huddle • How do the construction crews begin each day? • If you ask a crew member the goal of the day, would they know it? • What vehicles does your firm have to serve as daily motivation? Exit Strategy • Do projects start off with a bang but sputter at the end of the project? • Does the firm have “preconstruction planning” for the last 10 percent of a project?

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• Does demobilization, punch lists, close-out documentation, etc., plague the firm’s ability to collect retention and truly finish? Post-job review • What types of projects get a postjob review? The bad ones? What about the good ones? • How does the firm capture true best practices and lessons learned to make the rest of the firm smarter? • How does the firm make continuous improvements? While the list could also consist of change order management, document control, CPM scheduling, etc., these five “modules” have the greatest ability to affect project performance. Reflection on these tools, processes, and most importantly, accountability around operating procedures is the first step in true assessment about the health of the firm’s operations. Firms that see this list and feel they exist, but lack internal “stickiness” must question the relevance. Put another way, how germane are these tools and processes? As managers and superintendents create stop-gap measures, work arounds, and simply “their own way,” change agents within the firm must garner improved buy-in. Buy-in or acceptance begins with the people that will use these processes and tools helping create these processes and tools. Having their fingerprints on every aspect of the operational model creates a sense of ownership. Consider this same concept in the world of

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smart phones and applications— how often are smart phone users updating an app to fix a bug/glitch or improve performance? Is the current team building with version 1.0 or 5.0? Productivity improvement is a serious strategic journey that mirrors what firms experienced relative to safety improvement. Safety training only did not make substantial improvement— more importantly, firms that took proactive action reaped the benefits of enhanced safety measure, equipment, processes, etc. Productivity is something that every leader should consciously examine as one element of their commitment to innovation and continuous improvement. Time to pull into the pits to win the race! 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 On Choosing Diamonds

by Steve Winn, Marek Brothers Systems Sir Donald Munger: Tell me, Commander, how far does your expertise extend into the field of diamonds? James Bond: Well, hardest substance found in nature, they cut glass, suggests marriage, I suppose it replaced the dog as the girl’s best friend. That’ about it. M: Refreshing to hear that there is one subject you’re not an expert on! In this scene from “Diamonds are Forever,” M revels in James Bond’s lack of expertise on diamonds. Lucky for 007, his job did not depend upon his skills as a gemologist. As subcontractors, our jobs probably don’t either, but they do depend upon our skills in evaluating our general contractor customers. Sometime in the 1930s, Robert Shipley established the Gemological Institute of America to provide formal training to jewelers and created the 4Cs of diamond quality as the best practices for evaluating diamonds according to standard factors. These 4Cs are Color, Clarity, Cut, and Carat Weight. Using these factors, any diamond can be compared and properly valued on an objective standard allowing anyone from the hopeful romantic suitor to the apologetic husband currently residing in the doghouse to purchase a worthy stone with confidence that the price paid was in line with the market value. Similarly, though it’s unclear who came up with it first, the credit industry developed its own 4Cs for evaluating potential customers for credit privileges. It would be prudent

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to stop here and define “credit,” because I lost count a long time ago of how many times a general contractor, when asked to complete a credit application, incredulously exclaimed, “Credit application?! You’re working for me. I should be checking you out!” “Yes, you should,” I respond, but that is a topic for later in this article. So we define credit as anytime we provide goods or services and do not receive payment before we leave. If we have to go back to the office and send out an invoice, that’s “credit.” The 4Cs of the credit world are: Character, Capacity, Capital, and Conditions. The short definitions of these are: • Character: The willingness to pay its debts. • Capacity: The ability of a business to operate successfully. • Capital: The ability of a business to pay its debts. • Conditions: The global, national, local economic conditions, as well as those of the industry in which the business is operating. There are other Cs that have been added over time, such as Collateral and [Insurance] Coverage, but generally speaking, the original 4Cs work well in separating the diamonds from the “not diamonds” from whom we might need some form of security. Any of these factors can be the most important factor to a creditor. It all depends upon what you’re selling and when. I began my career in traditional credit, which is more cut and dried than what we see in the construction industry. The customer places an order, receives the product, and

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must pay within a fixed number of days or the debt is “past due.” With construction credit, we find a whole other level of complexity. In the construction world, we sign subcontracts that have “contingent pay” terms. Their obligation to pay us is triggered when their customer pays them. Sometimes the operative word is “if.” We get paid if they get paid. In reality, we have based our right to get paid on whether our customer can do a good enough job so it can get paid by its customer. Who does that?! The only other group I can think of that uses contingent pay is the personal injury lawyer. Many of those like to go by the names like “The Hammer” or other tools (but why never “The Screw?”), but I digress. Safe to say, contingent pay terms put us in a unique group and we need to understand the various facets of these gems we call customers and how the 4Cs of Credit Evaluation are shaped by the uniqueness of our industry. As said earlier, all of the 4Cs are important, however the priority of the 4Cs vary by industry and company credit policy. For the construction industry, each of these carries an additional C, which stands for “Customer.” Our customer’s customer to be exact. Much like contracts contain flow-down provisions, when our customer has a crappy customer, expect flush down economics …. Here is how we rank them at our company, an interior finishes subcontractor: 1. Capital: Gotta’ have it. Capital is the blood that feeds the muscles (i.e. operations) so they can work and get stronger. A lack of capital

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doesn’t mean the muscles don’t get fed, but that blood (i.e. money) will be pulled from other areas (i.e. accounts payable), which is why it’s ranked No. 1. Sure we have laws mandating prompt payment and protecting construction payments as trust funds, but isn’t the best fight the one you avoid? Beware the cashpoor customers for they will treat your money like it is their money. Beyond the capital on your customer’s balance sheet, knowing the owner’s source of funds (or if there is a payment bond in place) for this project will help in evaluating the level of risk. Inclusions are dark spots inside a diamond that devalue it and dark spots on the balance sheet devalue our customers. 1. Conditions: We rank this No. 1 because the economic conditions in the world, our country, our community, and our respective industries affect us and they affect our customers. Sometimes to the good, sometimes to the bad. Some industries may be trending up, some may be waning. It could be something broad like oil prices or a specific player like an Enron. We have to respond accordingly to maximize sales and minimize bad debt. Since the construction industry intersects with all others, it’s best to keep in mind that not everything that sparkles is a diamond. We need to not only understand how our customers are faring in the current economy, but how their customer is, as well. 1. Capacity: Our customer’s ability to operate its business successfully directly affects its ability to pay us, so this must rank No. 1 on our list! This factor, though common to all industries, takes on aspects

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peculiar to construction. Our general contractor customers agree to performance obligations with the owner of the project, and we have based expectation of payment on the ability of our customer to successfully operate its business. Its failure to meet its obligations will, at minimum, delay payment, but could cost us severely in other ways like injuries, fines, production overruns, etc. How well do they schedule and coordinate the various trades? Is the job site clean? Do they place a priority on safety? Do they manage change orders timely and pay full value? Is their back office effective at billing and collecting? What quality of subcontractors do they hire? That cheaprate sub might not have the same performance and safety standards that we follow. Do they have a reputation for quality? The answer to each of the questions can make the difference between finding a real gem of a customer or a real jam of a situation. 1. Character: Could there be a more important factor? That’s why we rank this C as No. 1 on our list. Early in my career, my boss helped me understand this when he said, “I’d rather have a bad contract with a good contractor than a good contract with a bad contractor.” I have found this to be true time and again. A man who has both money and bad character will find a way to keep his money, right or wrong. A man who does not have money, but has good character will find a way to get you your money, if at all possible. Some ways we can evaluate character in our industry is to read their contract. It’s not a deal breaker, but much is indicated about a company by this document and how they engage

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negotiating it, such as their sophistication, experiences, typical sector (commercial, residential, government, etc.) in which they perform, how fair and reasonable they are and their general modus operandi. Ask other subcontractors about this contractor’s backcharge practices. What was the bid spread for this project? Are they known for underbidding to get the job and then take it out of the subcontractors later? The answers to some of these questions could mean you have a diamond in the rough to help develop or just a rough character to avoid. We rank every one of these Cs at the top because, like evaluating the value of a diamond, each quality carries an independent impact on that diamond’s (or customer’s) true value. The 4Cs of Construction Credit— because the world of construction can be as hard as … well … a diamond. If we fail to take time to use them in evaluating our customers, we may find ourselves trying to dodge painful hits, in which case, I recommend learning the 5 Ds of Dodgeball! Steve Winn is the corporate credit manager for Marek Brothers Systems. His career in credit spans 31 years, with over 29 in the construction industry. He has written several articles on credit management and contract negotiation. In his spare time, he works out, volunteers, and travels to developing countries building playgrounds for children who have never seen one.

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Feature 10 Simple Steps to Improve Productivity by Tyler Riddell, eSUB Construction Software How closely are your labor actuals coming in to your estimated hours? If you are consistently finding yourself over in your labor hours on projects, perhaps it is time you took a closer look at your team’s productivity. How much time are they spending waiting for materials to arrive? Or perhaps their productivity challenges arise from waiting on other trades? Or maybe they are taking longer breaks and not documenting their time accurately? To improve productivity, you will need to track where the productivity challenges are across your construction firm. It’s most likely more systemic than you think, so below are some simple steps to improve productivity once you’ve diagnosed the problem areas.

Implement Mobile Technology An excellent way to increase effective communication is to adopt mobile technology. This enables members of your team to have instant communication with each other through apps and other communication tools. Having mobile devices can end up saving a lot of time and eliminates the need for on-site visits. By being more productive with their time, employees will be able to get work done faster, ultimately saving you money.

Keep a Constant Flow of Communication Effective communication is essential in ensuring operational efficiency. In the construction industry, there are many different units that need to stay in contact with each other. Maintaining a constant flow of communication between all individuals involved in the project helps to

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ensure the highest level of productivity. This means keeping your workers informed of their start times, locations, and tasks, to reduce any idle time. One benefit of implementing mobile construction technology includes two-way email integration, so all messages related to a particular project (and tasks within a project) are documented.

Implement Electronic Change Orders Losing a change order form is the cardinal sin of subcontracting—you should simply never do it. Still, most commonly on larger projects, it is common for subcontractors to lose change orders and either forget to complete the work altogether or forget to bill for it (even worse!). Implement a change order software system that allows you to create a change order and have it approved by the client as soon as they request it. Once a record has been created, you’re much more likely to remember to complete the work and it’s guaranteed to make it into your customer’s invoice.

Mobile Time Cards Mobile time cards are an easy way to reduce costs and improve productivity. However, it’s not hard to reduce costs with mobile time tracking. You don’t have to order time cards or print timesheets, which ends up being pricey and is bad for the environment. Mobile time cards offer users many benefits. With an average payroll error of 1.2 percent, according to a Nucleus Research Study, and a rise in wage litigation, according

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to Bloomberg BNA, this technology can change businesses for the better. These improvements are but a few reasons why businesses should adopt mobile time cards.

Building Information Modeling As the construction industry increasingly implements building information modeling, real-time data will become more important. Building information modeling is a revolutionary technology that is giving owners and project managers a better understanding of their project. With real-time data, BIM can use the estimates, financial data, scheduling, the almanac, and more to help provide a better estimate. Real-time data can also make it easier to see what any changes will cost and what each stage costs. Companies switching to BIM from traditional drawings will see a big benefit in real-time data and will be able to use the two to improve efficiency.

Use Location Data Location data is another aspect of real-time data. Location data is especially important with equipment and supply tracking. This is what helps you know where the equipment or supplies are. Location data can increase efficiency on the job site because it lets project managers know what needs to be ordered or moved. If a project needs a specific piece of equipment or is ready for a certain step, the project manager can immediately know where things are.

Team Collaboration Cloud-based construction software unites all the members of the project team regardless of their location. The

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crew in the field can document jobsite activity from the field. The team in the office receives real-time updates to process paperwork in a timelier manner. With construction software, communication between the field and the office is improved to enable a more collaborative work environment. Everyone becomes more productive with all the necessary project information at his or her fingertips.

Professional Development Whether it is the desire to earn more money, improve their skills, or advance their career, many employees have the desire to improve themselves. Many job advertisements request their foremen and project

managers have experience with project management software. Take this opportunity to invest in the professional development of your employees.

Make Wearable Technology and Safety Requirement Personal protective equipment is a requirement on the jobsite. Due to the advances in wearable technology, the protection in PPE gear is taken to the next level. Sensors in wearable technology monitor vitals signs, track location, and activity to send alerts to supervisors of any abnormal activity or safety risk. Reduce accidents on the jobsite and your team productivity will certainly improve.

Improve Employee Retention and Satisfaction If your construction company has inefficient processes, such as outdated technology or lack of equipment, workers can become frustrated. It is essential that you provide your employees with the tools and technology that they need to get their job done. This also helps to make your employees feel valued and productive. Tyler Riddell is vice president of Marketing for eSUB. He can be reached at (858) 266-8322 or tylerr@ esub.com.

2018 ASA CERTIFICATE OF EXCELLENCE IN ETHICS ASA will honor selected firms that demonstrate the highest standards of internal and external integrity during an awards ceremony at the ASA annual convention, SUBExcel 2019, March 6–9, 2019, in Nashville, Tennessee. Online Resources: • Watch the Video. • Download the 2018 ASA Certificate of Excellence in Ethics Brochure. • Download the 2018 ASA Certificate of Excellence in Ethics Application. • ASA provides useful model documents to help with your submission and your ethics program. View the 2018 ASA Certificate of Excellence in Ethics Resource Guide. • Download the 2018 ASA Certificate of Excellence in Ethics Timeline.

• ASA’s Certificate of Excellence in Ethics Program Q&A LinkedIn Group—a forum for getting answers to your questions about the application process. This forum includes current recipients who have been through the application process and who are willing to help guide new applicants through their application process. • Recipients of the ‘2017 ASA Excellence in Ethics Award’ may re-apply for the 2018 ASA Certificate of Excellence in Ethics using the Re-Certification Form. • Learn more about this award from asaonline.com.

APPLICATION DEADLINE: DECEMBER 7, 2018 T H E

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Feature Using Contract Skilled Labor Mitigates Labor Shortage Challenges, Reduces Labor-Related Costs by Tradesmen International

No one needs to tell you there is a severe lack of available skilled craftsmen. In fact, The Construction Labor Market Analyzer® projects commercial construction will face a deficit of 1.1 million workers over the next decade, and the need for skilled construction employees is projected to grow at twice the rate of all other industries. Obviously, as that challenge to find job-ready candidates escalates, so do expenditures related to attracting candidates to your business. There are expenses for jobboard postings, print want ads, social media efforts, and referral or sign-on bonuses. Then there

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are costs associated with screening applicants, reference checking, and interviewing. When combined with on-boarding costs related to background checks, skill assessments, drug testing, physical exams, company orientation, safety training, benefits and payroll/HR processing, the overall per-employee hiring cost can easily exceed $2,000. And, that does not even include carrying costs related to lost productivity initially realized with new employees until they are fully acclimated to the company and project at hand. So, what are contractors and subcontractors doing to reduce recruitment-related costs and to increase

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project productivity? They are incorporating contract skilled craftsmen into their overall staffing strategy. As their need for skilled craftsmen grows beyond what their permanent skilled workforce can handle, more and more contractors and subcontractors are relying on partnerships with construction-specific staffing firms. “Subsequent to the economic collapse in 2009, and still holding very true today in 2018, our business witnessed a major shift in the hiring practices of small to very large residential and commercial contractors and subcontractors,” said Ed Rojeck, Tradesmen International’s director of Marketing.

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“Whereas they previously relied primarily on their superintendents, foremen, project managers, and other internal resources to bring on short- and long-term skilled employees, they’re now treating us as their primary recruiting source. They include our recruitment and staffing experts in their on-going projectspecific labor planning sessions; they treat Tradesmen International as their, or as an extension of their, internal human resource departments. Doing so enables us to gain detailed, first-hand knowledge of our client’s project workforce requirements well in advance of the actual start date. This is key, as it enables us to plan ahead, to reserve specific types and numbers of trades from our massive field-tested employee database, and to improve our client order fill-rate percentages with proven craftsmen who meet unique project labor specifications.” For contractors and subcontractors, reliance on contract labor only makes sense. Construction staffing services invest heavily in multiple recruitment advertising channels above and beyond what many construction businesses can realistically handle financially or even manage from a human resource department perspective. In addition, these services have numerous construction-experienced recruiters whose sole job it is to attract, screen, hire, and retain proven craftsmen. In Tradesmen International’s case, they employ nearly 200 full-time construction-experienced recruiters out of 171 locations across North America. Each recruiter, on average, face-to-face interviews 25 craft candidates weekly, hiring only those who meet strict hiring guidelines. As a result, Tradesmen and other

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staffing services have exceptionally large employee databases—extensive trade-specific pools of safetyminded, job-ready contract skilled labor—that can be tapped into to meet a contractor’s or subcontractor’s local, regional, and/or national workforce needs. “Tradesmen International has more than 11,000 employees on residential and commercial jobsites right now,” said Rojeck, “and, by using our proprietary employee tracking software, we know when these individuals will be coming off their current assignments and available for dispatch or mobilization to another client’s project. This technology, combined with our applicant tracking software that helps us manage and maintain constant contact with tens of thousands of other pre-screened craftsmen candidates in our various trade pipelines, gives us the power to meet client labor deadlines. And, with craftsmen who more accurately meet skill-set needs of the contractors we serve.” Essentially, reputable construction staffing services are busting through the seams with growth as the labor deficit expands and construction businesses incur skyrocketing hiring costs and labor-costs related to workers’ compensation, unemployment, benefits, and so on—all of which are covered by companies such as Tradesmen International. In addition, staffing businesses are growing because contractors and subcontractors are recognizing that the quality of contract skilled labor has advanced substantially over the last decade or so. It is also important to note that craft professionals themselves now recognize the heightened

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role staffing companies play in the industry and that they value employment opportunities with these organizations. “The stigma of contingent craft employees as being inferior has been stamped out,” said Matt McClone, Tradesmen International’s vice president of Workforce Development. “Craftsmen recognize that credible staffing services have stringent hiring procedures that have effectively sharpened the overall quality and reputation the nation’s contract employee. We don’t just hire anyone. Our continued leadership, and ultimately our company brand, is reliant on our ability to consistently serve contractors with safe, productive and highly skilled workers. And, at the same time, taking very good care of our valued employees.” Tradesmen International helps ASA trade contractor and subcontractor members meet skilled workforce requirements, increase workforce productivity and reduce labor-related costs through custom staffing solutions. The company has met the skilled labor requirements of commercial, residential, and industrial contractors for 25 years. During that time, Tradesmen has remained focused purely on the skilled trades. This ongoing emphasis, coupled with continual advances in their employee recruitment, development and retention efforts, has resulted in one of the construction industry’s leading craft workforces which now exceeds 10,000 employees who emphasize safety, productivity and craftsmanship. For more information, visit www.tradesmeninternational.com.

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Feature Network-Based Collaboration: Leveling the Playing Field for Subcontractors by Jeff Burmeister, Kahua

Construction-related spending today accounts for approximately 13 percent of the global GDP. The industry provides the accommodations and infrastructure in which we live, work and play, and also accounts for 40 percent of the solid waste produced globally and 25 percent to 40 percent of both the energy consumed and the carbon emissions produced. With the growth of urban population in developing countries and an aging infrastructure in developed regions, even modest improvement in productivity in the construction industry holds the potential for enormous economic, social, and environmental impact. Unfortunately, productivity in the construction industry lags that of other sectors and the economy as a whole, with productivity growth over the last 20 years of only 1 percent. To make matters worse, according to a study by the McKinsey Global Institute, it is the fragmented specialty trades that drag down the productivity of the sector as a whole. While this is not an encouraging situation, there is strong reason to believe that this trend can change dramatically in the coming years.

Construction Technology— A Driver of Change One of the critical drivers for change is always technology, and there are a host of emerging technologies that are reaching maturity today and stand to deliver significant value. For example, the potential of 3D scanning and printing, BIM, autonomous equipment, advanced construction materials, IoT, and drones are all extremely exciting. But one of the industry’s most critical and potentially impactful technologies is collaboration. Improved collaboration and communication lets you work more efficiently, save time, reduce error in entering data, and connect with other project participants to share valuable information.

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A recent study conducted by the World Economic Forum and The Boston Consulting Group defined collaboration as one of eight critical capabilities that form the framework for the transformation of the real estate, design and construction industry. The Boston Consulting Group states “collaboration is, or should be, a hallmark of the construction industry itself: the industry’s future success will rely heavily on effective collaboration among all stakeholders.” According to this study, the industry’s future success will rely heavily on effective collaboration, and our industry as a whole has a responsibility to improve existing forms or establish new forms of collaboration. So … big impact on a big problem … Seems like collaboration is something we should all be interested in.

Challenges with Collaboration When you talk to subcontractors today about collaboration, there is not a lack of interest, but several key

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challenges seem to percolate to the top of people’s list: 1. Data Ownership: By only accessing project data in someone else’s system, you can’t own your data and have no project record when a project is complete. 2. Inefficiencies: By having to log-in to multiple systems to operate, you suffer inefficiencies from duplicate data entry when trying to collaborate with other parties. 3. Data Aggregation and Management: Working on multiple projects on multiple systems, you can’t effectively aggregate and manage data across multiple projects. 4. Integrations: General contractor systems don’t integrate to your internal core systems. In order to manage your internal practices effectively, you are faced with duplicate data entry. As a result, we seldom see value delivered by project management and collaboration solutions to all project participants, particularly subcontractors.

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These challenges are actually symptoms of a deeper underlying problem in the industry today. Our industry takes a 20-year-old approach to collaboration. As a project begins, an influential owner or GC selects the collaboration technology for that project and mandates its use to the project team. This works well for the owner of that system but is highly inefficient for everyone else. Subcontractors are forced to update the collaboration system as well as their own system for every transaction. This duplication of effort is generally accepted and absorbed by the overall project budget.

Network-based Collaboration What if, instead of the traditional project centric hub and spoke model, we established an entirely new form of collaboration? Imagine a model where a company could join a network, where they could immediately collaborate with every other company on the network. No one would have to log onto anyone else’s system. In this industry network, every member could: • Own their own data and project record. • Manage their own unique internal business processes. • Integrate with their core systems, such as accounting. • Enter data once and share it with any other network participant. With modern technology and infrastructural advances in cloud-based technology such a network becomes possible. We are able to move beyond project centric tools, toward a more effective form of collaboration, and the potential for improvement in industry productivity and more importantly, subcontractor productivity, could be significant. The idea of embracing network collaboration to improve productivity is not unique to the construction industry. In fact, several industries have successfully adopted effective network models which embrace the full force of connectivity and communication. In 2018, networks are all around us. You probably connect with old friends on Facebook, Twitter, or Instagram, but

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did you know two-thirds of Americans get their news from social media? These social platforms are actually networks, connecting media providers with us, the general public. Several industry-specific networks also exist to create extensive value for all parties involved. Ten years ago, if you traveled to a new city, you probably took a taxi from the airport to your hotel, and called the few restaurants you knew, hoping for a 7:00 p.m. reservation. Today, with the help of networks, you hop into a rideshare, go to your nearby Airbnb, and book your dinner reservation with the click of a button on Open Table. These niche networks have not only transformed our abilities to connect, but actually provide ease, cost savings, and improved productivity for each party. Rideshare companies like Uber and Lyft provide cost-friendly transportation to riders and allow drivers to benefit from flexible hours and earn back money on the cars they already own. Airbnb lets travelers stay in affordable places and travel like a local, while homeowners earn money on their spare and unoccupied rooms. Open Table lets users see all nearby restaurants to easily book reservations, and helps restaurants fill up faster and market to new eaters. In each case, a network was introduced that significantly improved communication and connectivity between individuals and companies and allowed them to create compelling value for each other.

Preparing for Network Collaboration When you consider that a 1 percent improvement in industry productivity would be worth $100 billion annually, the concept of adopting a network-based approach to collaboration is clearly worthy of our attention. However, as is always the case, there are challenges in adopting this new paradigm. Just as quantum shifts in technology were required to transition from the company centric LAN world of the ’90s to the project centric Web-based world of the early 2000s, a similar leap will be required to enable the network centric model. There also must be a willingness to change. In the ’90s the C O M P A S S

industry was very slow to change, but in the past five years change is happening at a more rapid pace. To help you overcome these challenges and start benefiting from improved collaboration, we’ve included our top tips for embracing Network Collaboration: 1. Hire Millennials: The idea of a network is second nature to millennials. This generation depends on the use of connected networks in their everyday life, and even expects the use of a network in the workplace. Having a millennial presence on your team will help you easily transition to this new technology. Plus, they will be a great resource in helping your senior workforce get up and running on your network. 2. Connect Field and Office: One of the main foundations of a network is connectivity. This means you can communicate directly from the field. Use mobile technology to enable your people in the field to get answers and quickly take action, so you can work productively and get paid faster. 3. Manage All Projects In-Network: Imagine if you had to have 12 different Facebook log-ins to connect with different friend groups—don’t need to treat your projects this way. Migrate to a system built for network collaboration. Use a single log-in to access everything you need. Invest in a system that supports your internal business process, provides access project data, and manages your personal tasks in one place. Make sure it is flexible enough to meet your current and future needs. Finally, make sure it will deliver on the promise of Network Collaboration. Jeff Burmeister is director of the Subcontractor Network for Kahua. Burmeister is responsible for Kahua’s connection and conversation with all subcontractors. Kahua offers a simple project management and collaboration platform which is leveling the playing field for subcontractors. Kahua’s Subcontractor Project Management suite connects field to office, organizes documents and streamlines communication to improve efficiency, reduce risk and deliver superior project outcomes profitably.

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Legally Speaking

Change Orders 201: Practical Tips and Tricks by Joe Katz, Esq., Huddles Jones Sorteberg & Dachille, P.C. In my construction litigation practice I have seen virtually every trick in the book concerning change orders practice: the good, the bad and the ugly. I want to highlight what to watch out for, and the work-arounds you should incorporate within your change order routine.

First, What Is a Change Order? According to R.S. Means, a change order is “a written authorization provided to a contractor approving a change from the original plans, specifications, or other contract documents, as well as a change in cost.” Practically, change orders are most commonly caused by design errors, differing site or project conditions, incomplete drawings at the time of bid, and owner changes. Other, less common sources of change orders include scope gaps, a particular instruction as to means and method or the sole sourcing of manufactured items, project delay, acceleration and the accompanying added labor force (or overtime). In other words, virtually never the cause or fault of the subcontractor. Moreover, when played correctly, the subcontractor maintains tremendous leverage in the change order process, and should both be mindful of that leverage, and use it wisely.

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Pricing A change order should always include pricing to account for the direct costs of the change, as well as the indirect costs. Direct costs include extended manpower (always include the labor burden) and extended equipment (from heavy equipment to scissor lifts and even the company vehicles), as well as the additional material or sub-subcontractor costs, if any. Indirect costs seek to value the less tangible cost impact of the change, and include field supervision (extended project management, superintendent costs), field overhead (extended trailer, on-site personnel and related costs), and extended main office overhead. For large changes or delays, the greater impact of the change should also be calculated—this generally involves utilizing a claim methodology such as the total cost method, measured mile, or other impact tracking formula beyond the scope of this article. Finally, be sure to capture the miscellaneous “reimbursables” such as fuel, lodging, tolls, bond, insurance, etc.—while not separately recoverable in a fixed-fee contract, these costs should always be tracked, captured and priced within a change order request.

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Practice Tip #1 View all project occurrences through a “change order lens” by assessing the suitability of a change order in virtually any scenario. If the field crew is instructed to wash down the steel because it was provided dirty by others, or kept waiting because the trade ahead of it is not ready, a compensable change order should be priced using the above methodology. Realize, of course, that this requires precision coordination between the field, estimating, and the back office to perceive the change order through the fast-paced chaos of a busy construction site—which should be going on in any event.

The Subcontract as an IED Once a subcontract is signed, virtually every imaginable situation is governed by the provisions of the subcontract, including the potential for changes orders and additional compensation for changed or extra work. Understand that subcontracts are drafted to reduce and shift as much risk as possible away from the general contractor and onto the subcontractor. Think of an unmodified subcontract as an improvised explosive device, just waiting to explode when necessary. For example, many subcontracts will include a pre-existing obligation to perform change order work even

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without an agreement on price, or agreement whether such work is even a change. This is compounded when a pay-if-paid provision is in use, which will also apply to change order payment—if the owner does not believe the work is a change, it will most certainly not be paid for! Adding insult to injury, many subcontracts will include a generic no-damages-for-delay clause, and/or a waiver of consequential damages—which will preclude many of the indirect pricing strategies outlined above. Practice Tip #2 All subcontracts should be modified as necessary to reflect, at minimum, (i) the subcontractor’s option not to perform change order work in the absence of an advance, mutually agreed price or pricing methodology, (ii) payment for change order work is not dependent on owner payment, (iii) delay damages may be awarded for change order work, or, at minimum, that the subcontractor is vested with all the rights the general contractor maintains against the owner.

Overbroad Scope Regardless of the subcontractor’s proposal and its specific inclusions and exclusions, standard subcontract language will typically include language similar to the following: “The Subcontractor’s Work includes everything necessary to complete the ____________ scope of work.” Disagreements between what was included in the subcontractor’s price and what was not are one of the most common disputes surrounding change orders—but faced with the above language, the subcontractor will usually not have a leg to stand on. After all, it committed to perform everything necessary, didn’t it? Practice Tip #3 Be absolutely sure you incorporate, at minimum, the proposal’s scope of work within the subcontract. This should be done using language that provides “Notwithstanding anything herein to the contrary, Subcontractor’s proposal is adopted and incorporated herein by reference.” In this way, the proposal can at least be considered on par to the subcontract, and not subservient to it. And in preparing your proposal, be crystal clear what is included within the quoted price, and what is excluded.

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Pass-Through Claims Many subcontracts will permit the subcontractor to make a claim for changes or extra compensation directly to the owner, through the “pass-through” provision. This clause obligates the general contractor to pass-through claims submitted by a subcontractor for consideration by the owner, when the responsibility for the excess costs is attributed to the owner. However, it is a doublededged sword, because it often completely frees the general contractor from responsibility to the subcontractor unless and until payment is made by the owner. I often encounter subcontractors who did not pass through viable claims because they perceived it as too difficult, too expensive or too speculative. Remember, however, that many changes are only an extra cost to the subcontractor, and not the general contractor. If the general contractor does not stand to make any significant money on the subcontractor’s claim, there is little incentive to actually pass it through unless the subcontractor has formally triggered the pass-through requirement. Recently, a client of mine was hit with thousands of dollars in backcharges for supplemental labor. He readily admitted to me he was unable to provide sufficient manpower for the second phase of the job, and the backcharges for supplemental labor were justified. But when I dug deeper, asking how is it that he had the manpower for phase one but not phase two, I learned that there was a differing site condition that had to be remedied in between phase one and two, setting the phase two work back by several months. During that time period, my client’s union employees took other jobs and he could not get enough qualified labor back when phase two was actually ready to begin. Putting my change order glasses on, we drafted a pass-through claim in the amount of the backcharges, representing the increase labor costs on account of the differing site condition encountered at the job.

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Practice Tip #4 Pass-through claims should be initiated as a matter of course. Any claim, including a request for change order, can double as an official “pass-through” claim by identifying it as such, and if necessary on a state or federal job, including the certification language as provided under the Contract Disputes Act or similar state law. This will shift the burden to the general contractor to formally pass the claim through to the owner, where it will hopefully be given the consideration it deserves.

Partial Releases Are Anything But! Beware of the “partial” release used, ostensibly, to ensure that a corresponding amount of each monthly progress payment is released from lien, bond and breach of contract claims. The partial release, however, will often be so broad as to include within it retention, and the work performed since the date of the last pay application through the date of the release, whether billed or not. Pending change orders, and even approved but unpaid change orders, would also be caught in the dragnet of such broad release language. Practice Tip #5 All releases, even “partial” releases, should be modified to include language similar to the following: “Notwithstanding anything herein to the contrary, this release shall not apply to retention, unapproved and/or unbilled change order or other extra work, and work performed since the last pay application for which this payment is made.” I have commissioned a rubber stamp with this language that I send to my clients with instructions to stamp on every release they sign.

Joe Katz, Esq., Huddles Jones Sorteberg & Dachille, P.C., based out of Columbia, Md., has practiced construction law exclusively for nearly 15 years. Katz regularly represents subcontractors and suppliers on federal, state and municipal construction projects. He is experienced in all facets of construction litigation, including mechanic’s liens, Miller Act payment bond claims, arbitration, and civil actions in both state and federal court. He can be reached at (410) 4992615 or katz@constructionlaw.com.

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ASA/FASA Calendar May 2019

11 — Webinar: “Improving the Change Order Process” presented by Ron Churchey, Shapiro & Duncan

14 — Webinar: Corporate and Individual Tax Planning Under the New Tax Law, by Thomas B. Bailey, CPA, CVA, Councilor, Buchanan & Mitchell, P.C.

January 2019 8 — Webinar: “Work-In-Progress Reporting” presented by Stephen Blankenship, Ennis Electric February 2019 12 — Webinar: “The Best—and Worst—Construction Legal Decisions of 2018” presented by Adam Harrison, Harrison Law Group March 2019 6–9 — SUBExcel 2019, Nashville, Tenn. 19 — Webinar: “Lean Construction— What Subcontractors Need to Know” presented by Lean Construction Institute

June 2019 11 – Webinar: “A Small Business’ Guide to Human Resources” presented by Jamie Hasty, SESCO Management Consultants July 2019 9 – Webinar: “Emerging Technologies—Smart Tools, UAVs and Others—and How They Relate to the Internet of Things” presented by Maxim Consulting Group August 2019 13 – Webinar: “Trade Shortage” presented by Michael Brewer, The Brewer Companies

April 2019

in the December 2018 Issue of ASA’s THE

December 2018

Coming Up

Theme: Looking Ahead • Key Business Strategies for 2019 and Beyond • Auditing and Updating Your Firm’s Standard Operating Procedures • Balancing Workload with Workforce • Construction Forecast • Top 5 Legal Issues to Think About for the Coming Year and Beyond • Growing Pains

9 – Webinar: “Avoiding Predatory OCIPs, CCIPs and Builders Risk Insurance Flow-Downs” presented by Jonathan Mitz, Ennis Elecric

• Ensuring Safety with Heavy Equipment Rentals • Developing Policy to Address Employees’ Personal Devices During and After Working Hours

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