The Professional Contractor Spring 2012

THE PROFESSIONAL

SPRING 2012

A Publication of the Associated Subcontractors of Massachusetts, Inc.

SUBS MAKE HISTORY

AT ISABELLA STEWART GARDNER MUSEUM New Wing is a First for Fenway Institution

Getting to Know Martha Coakley An Interview with the AG

Safe Driving Study What Your Drivers Need to Know

Fine-Tuning Your Financial Operations What Your Financial Statements Say

THE PROFESSIONAL

A Publication of the Associated Subcontractors of Massachusetts, Inc.

cover story

16 A Creative Endeavor

Gardner Museum Project Stretched Skills and Talents to the Utmost

features 04 PRESIDENT’S VIEW 14 TAXES

Successful Business Leaders

Out with the Old, in with the

Choose ASM

New: 2012 Tax Planning 06 BEACON HILL SPOTLIGHT 22 SAFETY

The Story of Massachusetts’

Commercial Drivers and

Attorney General

Distracted Driving

08 FINANCES 24 BONDING

Fine-Tuning Your Financial Operations

The State of the

Surety Industry 10 INSURANCE

Contractors’ Equipment 26 Insurance TECHNOLOGY

Training Tomorrow’s 12 PROFILE

Green Workforce

Meet Carolyn Hendrie,

Principle of BH+A

departments 28 MEMBER NEWS

The Professional Contractor

3

PRESIDENT’S VIEW

BY DAVID G. CANNISTRARO

Successful Business Leaders Choose ASM

M

y father loves the old adage “If you want to be successful, look successful!” If only it were that easy in life to achieve success by getting a haircut, wearing a nice suit and shining your shoes.

Doesn’t hurt, and it may be a good start, but succeeding in life and in business requires many other factors, including surrounding oneself with good friends, mentors and leaders. If you surround yourself with great people, you will have the tendency to become great. And there is no better way to achieve that, and promote the success of your business, than by joining successful organizations and networking with leaders.

That’s what I had in mind eight years ago when I first became active in ASM. Since then, membership has provided me the opportunity to get to know some of the most successful business owners in the construction industry, and gain valuable information and insight, often just through casual conversation at ASM events.

That’s why today, as president of ASM, I encourage all subcontractors to join our organization and start benefiting immediately from the ability to associate with our 350 members.

Not only do you surround yourself with successful industry professionals, you tap into a wealth of resources and industry information that cannot be obtained through any other organization. This information builds into knowledge that will enable you to make the best decisions in a more timely manner that

David G. Cannistraro is executive vice president of J.C. Cannistraro in Watertown, and president of ASM.

is the key to your business’ growth and success.

The knowledge you gain through ASM comes from the people you meet at our events, the experts you hear at our seminars, the information you receive in our newsletters and in this magazine. One of the best networking and knowledge opportunities was our recent seminar in February on “Fine-Tuning your Financial Operations.” If you missed it, you can still enjoy the benefits by reading the two articles in this issue that summarize key points from the seminar. And check the ASM website for upcoming seminars that will be equally valuable.

While you are gaining knowledge through ASM, you are also gaining a strong voice, through the work we do on Beacon Hill. You might say that membership in ASM is like insurance for your automobile.

You wouldn’t risk the liability of driving without it, so why risk exposing your business to gaps in knowledge, connections and influence? Imagine a business climate without the Lien Law or the Prompt Pay law – without ASM, these good laws simply wouldn’t exist.

It’s the power of ASM members that makes it happen!

Finally, membership in ASM makes great financial sense. The money my company saves from the discounts from our leasing program with Enterprise, our discounts from Lorman and the legal advice from our hot line with Corwin & Corwin more than pays for our annual investment. Other members receive financial benefits from our dividend-insurance program with Acadia and discount program with Verizon.

I invite you to join ASM to associate with leaders and further your success. For more information on membership, call 617-742-3412 or visit our website at www.associatedsubs.com – or contact me personally at president@associatedsubs.com. s

The Professional Contractor is published by

The Associated Subcontractors of Massachusetts, Inc. One Washington Mall | Fifth Floor | Boston, MA 02108 tel 617-742-3412 | fax 617-742-2331 mail@associatedsubs.com | www.associatedsubs.com

ASM Officers

President: President Elect: Vice President: Vice President: Vice President: Treasurer: Past President: Past President:

4

ASM Directors

George A. Allen Sr. | Steven T. Amanti | Clement P. Clare | R. Lindsay Drisko | Roger A. Fuller William M. Gillespie | Wayne J. Griffin | Robert B. Hutchison | Dana E. Johnston Jr. Michael S. Kosiver | William J. (Mac) Lynch | Susan Mailman | Erik S. Maseng James B. Miller | Louis J. Sannella | Nancy H. Salter | Ann T. (Nancy) Shine | Frank J. Smith Lee C. Sullivan | Carolyn M. Francisco, Counsel | Monica Lawton, CEO

David G. Cannistraro J.C. Cannistraro, LLC Richard R. Fisher Red Wing Construction Joseph H. Bodio Lan-Tel Communications, Inc. Steven P. Kenney N.B. Kenney Co. Gregory A. Porfido Mark Richey Woodworking & Design, Inc. Russell J. Anderson Southeastern Metal Fabricators, Inc. Sara A. Stafford Stafford Construction Services, Inc. Scott H. Packard Chapman Waterproofing Co.

Spring 2012

The Warren Group Design / Production / Advertising www.thewarrengroup.com custompubs@thewarrengroup.com ©2012 The Warren Group, Inc. and Associated Subcontractors of Massachusetts, Inc All rights reserved. The Warren Group is a trademark of The Warren Group Inc. No part of this publication may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher.

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BEACON HILL SPOTLIGHT

BY CASSIDY MURPHY

The Story of Massachusetts’ Attorney General An Interview with Martha Coakley

G

rowing up, what inspired you to become a lawyer and set out on a path leading to your election as the first female attorney general in Massachusetts?

Growing up in North Adams, I was a big fan of Perry Mason, and that really interested me in becoming a lawyer, specifically a litigator. I also read a lot of Nancy Drew. I loved the mysteries. There were not a lot of female role models at the time, and she was one. The combination led me to law school and becoming a litigator.

Which position do you consider the most formative of your career prior to becoming attorney general?

How so?

My time as district attorney in Middlesex County. Middlesex is about 25 percent of the state, and it’s not only criminal prosecution, but I learned a lot about what it means to manage a large office and recruit talent. I learned that it’s not just about responding to cases – doing the research, putting in the time, deciding whether to settle or prosecute, and not being afraid to try a case – it’s also about problem-solving. I realized in my time in that office that many of the issues facing our society don’t have easy answers, and it’s important to look outside of the office and work with others to address that, something that I continue to do as attorney general.

What first attracted you to public service?

I grew up in the ’50s and ’60s, and I remember that attitude of “ask not what your country can do for you; ask what you can do for your country.” My dad was very involved in his church and the community. I think I grew up believing that we were lucky to have what we did, and that good citizens give back to their communities and their country. When I graduated from law school in 1979, women were just starting out, just coming into the professional workforce. I thought that it was important for me to do something I thought could make a difference.

Being an attorney in public service, speaking for the commonwealth, I thought that was important.

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Spring 2012

What do you consider your most memorable/rewarding accomplishment(s) prior to coming to the Attorney General’s Office?

My time as district attorney. I’m really proud of my record as DA, working with everyone in Middlesex County – the police, schools, domestic advocates – everyone who worked with me and the office to help prevent crime.

What did you most hope to accomplish as attorney general? What problems did you want to address?

I continue to work for public safety. Being attorney general is different from being a district attorney, but it’s important to continue to work to keep kids safe. We have done, and will continue to do, a lot of work with financial crimes, cyber crime; I continue to be a consumer advocate. When I was running for office, we were already aware of the foreclosure crisis and were already working on that, which we continue to work on.

How has the AG’s office changed under your leadership?

I’m very proud to follow my two predecessors, Scott Harshbarger and Tom Riley. I think they were each able to build on works of the other, and I’m proud to continue what they started. We have also started several new divisions, including the Health Care Division, working on health care cost containment; and the Business, Technology and Economic Development Division. I’ve also worked to make the office both more efficient and more transparent. A lot more information is available online, and we’ve updated the infrastructure. We also have a new focus on dedicating investigations and attorneys to fighting corruption through the Public Integrity Division.

What changes/new initiatives would you consider most significant to the business community?

In listening to the business community and hearing their concerns, we created a new division, the Business, Technology and Economic Development Division, that is a voice in the attorney gener-

al’s office for them. Business is not the opposite of consumers – they are concerned about many of the same things; economic development, energy efficiency, rising health care costs.

When we’re preparing to issue new regulations or initiatives, we listen to their concerns and work with them to promote a healthy economy in Massachusetts. We’ve had great luck with the division – affectionately called BTED – working across a range of issues. The business community talks to the office on issues they think we can help them with, and we hear them.

How would you describe the relationship of your office with the construction industry?

We’ve done a lot of work with enforcing fair wage laws, and it was surprising and gratifying to see that the business community is very happy to see us enforcing the law, bringing citations against those in construction who are paying employees under the table, or not insuring their workers – it creates unfair competitive advantage for those who do comply with the law. We are making sure that there is a level playing field for those who play by the rules, and the business community is receptive to that. Employers in Massachusetts, particularly in the construction industry, are trying to get the job done and help turn the economy around, and we want to work with them to accomplish that.

What are some of your priorities for the office this year?

We are very focused on trying to resolve the foreclosure crisis in order to move our economy forward. In December we filed suit against five major banks, which hold 60 percent of the mortgages in the state. We have since settled part of that case, which will bring an estimated $318 million in assistance to Massachusetts borrowers. We believe this resolution makes sense for Massachusetts and Massachusetts’ consumers. The agreement also allows our office to continue to pursue other claims against the banks.

In addition, we will work closely with other players on controlling the costs of health care; on addressing financial fraud and white collar crime; and rooting out public corruption. I’m looking forward to this year; we are hosting a national conference on cyber crime, with police and private investigators, addressing ways to prevent and respond to that. We’re also working with some of the state’s junior colleges, setting up programs to work with returning veterans, creating ways for them to transfer the skills they learned in the armed forces into jobs here.

Are there particular areas of focus that you would like to mention? Wage and hour violations? Business ethics? Transparency and accountability?

We were very active in creating an anti-human trafficking law, which the governor signed. We’ve brought together nonprofits who work with victims of labor and sex trafficking, along with law enforcement, so we can start enforcing the law.

The statute is only as good as we’re able to train people to use it and implement it, and I’m thoroughly committed to focusing on education and enforcement on that issue this year.

What would you say are the greatest challenges for the office in meeting your goals?

I’d say this is a huge challenge for every government office, and that’s attracting and retaining talent. I think that’s a challenge we’ve been able to meet. We have a terrific staff that’s energetic and enthusiastic, despite salaries that are less than in the private sector. I’m proud of the office and the staff, particularly on their legal work around the issues. In litigation, we go up against some of the best firms in Massachusetts, if not the country. I think we’re equal to the task, and I’m really proud of that.

What do you see as the role of the Attorney General’s Office as these difficult times continue?

Our primary focus is on helping turn the economy around. We’re also addressing the rising cost of health care, working on energy issues, and working with other elected officials, to address the things that are a barrier to turning the economy around. We’re always happy to bring others to the table; we take that very seriously here in our office.

What would you like people to know about you, that may not be common knowledge?

I do have a sense of humor! I think in people’s image of the district attorney and the attorney general, they mostly see me on television, announcing indictments of politicians or bringing suit against major companies, and that’s serious business that I do on behalf of the commonwealth. I really enjoy the work, and I enjoy our office – people who don’t know me might not see that very often.

What do you like to do in your spare time, to relax and recharge?

I love to cook. I find it very relaxing to shop for a meal, prepare it, fool around with a recipe until it’s mine. I have two labs who require walking, which is good for them and good for me. We take long walks around the Middlesex Fells, which I enjoy. I try to stay active in the summer by bike riding with my husband, and in the winter, I’ve been skiing for a long time, which I still like to do. Growing up in the Berkshires, I think I started skiing about the time I started watching Perry Mason. I love to read. I like to stay abreast of current events, but I also like novels. I watch movies. When I have time.

Any closing comments?

I really enjoy being the attorney general, and I look forward to the challenges of 2012. I’m confident that we’ve made a lot of progress so far, and will continue to do so this year. s

Cassidy Murphy is associate editor of custom publications for The Warren Group, publisher of The Professional Contractor.

The Professional Contractor

7

FINANCES

BY WILLIAM F. RUCCI, JR. CPA, MST

Fine-Tuning Your Financial Operations What Your Financial Statements Tell You – And Why You Should Listen

W

ith the construction industry facing yet another season of tepid market demand and tight credit, having access to accurate and timely information about your company’s financial health will be more important than ever this year.

Whether on a monthly, quarterly or annual basis, construction business owners can turn to a trio of financial measuring tools to stay on top of how the company is doing, where it’s going, and whether there are any trouble spots that need to be addressed before any long-term damage occurs.

Taking a Broader, Deeper Perspective So, what kind of information should you be getting, and how often? At a minimum, your end-of-the-year financial statements will give you a detailed picture of the financial health of your company over the past year. But it’s important to dig deeper.

Run a comparison of your most recent year against how the company has done over the last three to five years to uncover broader trends.

Then analyze how you are doing in comparison to others in the industry. These benchmarks will give you valuable insights into how your business is actually doing, and provide deeper context to your planning and decision-making.

Better yet, review your company’s performance on a monthly or quarterly basis. More frequent information can give you more time to think about – and react to – worrisome trends that may need correcting.

Tip: A particularly helpful tool is a weekly flash report – a simple, one-page snapshot of cash on hand, receivables, payables, line of credit balance, and cash flow needs for the next week. Your bookkeeper should be able to compile this fairly easily.

Bill Rucci is a partner with the Boston area accounting and business advisory firm Rucci, Bardaro & Barrett (www.rb-b. com), where he heads the firm’s Construction Business Services Group. For a complimentary copy of “The 17 Most Useful Financial Indicators for Construction Businesses,” contact him at (781) 321-6065 or billr@rb-b.com.

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Spring 2012

The idea is to collect and review information at a pace that makes for better decision-making.

Armed with the right information and gathered in near real-time, you will have a more sensitive barometer with which to prepare for any storms that may be forming on the horizon.

The Metaphor of the Three-Legged Stool Most construction companies use three distinct reporting tools to measure and monitor their financial health – the profit and loss statement (P&L), the cash flow statement and the balance sheet.

Imagine your business as a three-legged stool.

The seat represents all the working parts of your business. The relative health of your business is reflected by the three financial reporting mechanisms or the “legs.” These legs support the business by performing at high levels.

Many turn to the P&L statement first, because it answers the question, “Did I make money?” The statement of cash flow is usually the next most interesting to the owner, because it answers the question, “How much cash did my company produce?”

But in determining the true financial health of your company, the most important of the three legs is the balance sheet. This is the tool that measures how well a company can weather a downturn in business. It is the information on which banks and sureties make some of their important decisions about lending and bonding.

And as such, the owner’s attention needs to be focused on creating a strong, low leveraged, balance sheet.

Working Toward a Positive Bottom Line This is not to say that the P&L is a trivial document. Obviously, companies need to grow revenue, and need to ensure that they are accurately determining the “cost of revenues” to produce a profit from their sales. Accounting software systems like Timberline, CF Data and QuickBooks can be possible solutions for this process.

It is especially important to correctly calculate direct costs in the bidding process in times like these when margins continue to be under pres-

sure. (See the articles, “Understanding the Variables of Successful Bidding,” by Sal Falzone, in the Fall and Winter 2011 issues of this magazine.)

Tip: Always have a target range in mind for your overhead. This is where industry benchmarks play an important role. As a percentage of sales, overhead might range from 10 to 25 percent, but companies operating at the upper end of this range typically end up struggling to survive.

Cash Flow as a Measure of Financial Strength It’s been said that plenty of profitable companies have gone bankrupt. Why? Because businesses don’t pay their bills with profits – they pay their bills with cash.

It’s important that owners read and understand the statement of cash flow, especially the section that reports cash flow provided by operating activities. That number indicates the true amount of cash profit the company is producing, and the resources it has on hand to pay the company’s SullGroupTPC 1/29/09 3:49 PM Page 1 obligations – job materials, rent, payroll, benefits,

unions, debt service, and the like.

Do you know your break-even cash flow? Remarkably, some owners don’t know the amount of cash they need to collect every week in order to pay their bills. The ratio “days-of-cash” is a good start to determining how much cash you need to have on hand at any given time during the year.

This number can also be compared to industry benchmarks. More than 20 days of cash is a good target. Anything below this number begins to put pressure on receivables collections, and ultimately impacts the company’s ability to fund its day-today operations.

Tip: Having a working capital line of credit is one way to weather short-term disruptions in cash flow. It’s usually best to set up this arrangement continued on page 27

Editor’s Note: This article is based on a seminar presentation given by the author for ASM members in February. ASM is grateful to Mr. Rucci for making this excellent information available to readers of The Professional Contractor.

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The Professional Contractor

9

INSURANCE

BY BERNARD K. QUINLAN, CIC, CRM, CPCU

Contractors’ Equipment Insurance A Primer

A

“contractors’ equipment floater” is a form of inland marine insurance that covers mobile equipment and tools. An “installation floater” protects a contractor’s building materials. This article addresses the contractors’ equipment floater, and the installation floater will be the subject of our next article in the summer issue of The Professional Contractor.

Contractors’ equipment insurance policies are offered by a number of underwriters including Acadia, CNA, Chubb, Hanover, Hartford, Liberty Mutual, Peerless and Travelers, among others. This coverage is not subject to a standard policy form, so coverage offered by two underwriters may differ significantly. As with any product or service, the lowest cost might not provide the best value.

Contractors’ equipment insurance is available on a scheduled, blanket (unscheduled), or combination basis. Scheduled coverage specifies the equipment covered, including model and serial numbers, and states the limit applicable to each piece of equipment.

Blanket coverage, which applies to all equipment and tools, may be subject to limits per location and per item, and a catastrophe limit. Contractors’ equipment policies can cover any type of construction equipment or tools, including but not limited to: • Cranes and cherry pickers • Bulldozers, backhoes, forklifts, scissor lifts • Compressors, pumps, generators • Office and utility trailers • Tools and spare parts Contractors and their insurance providers should review the policy form carefully (especially with respect to blanket coverage) to make sure the tools and equipment they desire to cover are included in the policy definition of covered property. Coverage for the following types of property is often limited or specifically excluded: • Property of others. If you lease, rent or borrow equipment, make sure that your policy provides coverage. If you regularly rent equipment, read the rental agreement carefully. If you are purchasing insurance as part of the rental fee, you may Bernie Quinlan is a principal with Sullivan Group. He can be reached at bquinlan@sullivangroup.com or by visiting the company’s website at www.sullivangroup.com.

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Spring 2012

find that this is very expensive coverage. If you elect to cover rented equipment on your policy, be careful to check the valuation requirement.

The rental agreement may require replacement cost valuation, but your equipment floater may provide actual cash value (ACV) coverage that factors depreciation into loss settlement.

• Newly acquired equipment. Most policies provide some coverage for newly acquired equipment.

However, the coverage typically includes a time limitation, 30 to 90 days, during which the insured is required to report the acquisition to the underwriter. There may also be a value limitation for newly acquired equipment.

• Equipment loaned or rented to others. If you lend or rent equipment to other contractors, or to your subcontractors, you may need to modify the policy.

• Vehicles. Vehicles licensed for road use are more appropriately covered by auto insurance policies.

However, equipment permanently mounted on vehicles, such as compressors and generators, may be covered by the equipment floater.

• Aircraft and airborne property.

• Watercraft, waterborne property, and property under water.

• Construction materials. Building materials are intended to be covered by an installation floater or builders’ risk policy.

As stated above, coverage for certain types of property may be excluded or limited by the policy form.

Many underwriters offer coverage for the following items on an optional basis: • Leased or borrowed equipment.

• Rental reimbursement coverage for the cost of renting equipment to temporarily replace your equipment that has been damaged or stolen.

• Employee tools.

• Pollutant cleanup costs resulting from damage to equipment.

• Expediting expense coverage to help speed up the replacement and delivery of specialized equipment.

Most contractors’ equipment coverage is written on an “all-risk” basis, which covers all perils except

those specifically excluded. Some of the more typical exclusions are: • Dishonest acts of employees. Virtually all property insurance policies have an exclusion for loss resulting from employee dishonesty. Contractors must purchase employee dishonesty or fidelity bond coverage to address this exposure.

• Weight of load exceeding designated capacity and loss to crane or derrick booms while in operation.

• Wear and tear, depreciation, etc.

• Electrical injury and mechanical breakdown.

• Voluntary parting due to fraudulent scheme.

• Mysterious disappearance or shortage discovered by inventory reconciliation.

• War, nuclear hazard, government seizure.

• Terrorism. Coverage can typically be included for 1 to 2 percent additional premium.

• Coverage for flood and earthquake is sometimes excluded, limited, or subject to a larger deductible.

Carefully review policy exclusions with your insurance agent.

The premium for contractors’ equipment policies is a function of the amount and types of equipment covered, protection (alarms, LoJack, fenced yard, etc.), job locations/territory, type of work performed and deductible. Loss settlement is typically on an ACV basis, which includes depreciation, although replacement cost coverage may be available for newer equipment. The policy may have a coinsurance clause requiring the insured to purchase limits equal to 80 percent, 90 percent, or 100 percent of total equipment value. If the policy includes a coinsurance clause, take care to meet this insurance to value requirement. Whenever possible, negotiate an agreed value provision to eliminate the coinsurance clause.

Contractors equipment floater is important insurance coverage for most ASM members. Keep in mind that all policies are not the same. Work closely with your insurance provider to specifically tailor coverage to address your needs. s

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The Professional Contractor

11

PROFILE BY JACKIE RAFFERTY

Meet Carolyn Hendrie, Principal of BH+A

T

he dream of designing a building, a cityscape or an entire town from a clean slate has been an allure for architects for centuries. Architects have a unique and integral role in construction, so naturally we wanted to learn more about the role they play.

Carolyn Hendrie, AIA, principal of Bargmann Hendrie+Archetype, Inc. (BH+A), has fulfilled that dream and agreed to share her insight into the relationship between architect, contractor and subcontractor.

Carolyn began her career working for large, national architectural firms in Cambridge and New York, where she worked on a range of international projects in Europe and the Middle East. She spent the next 10 years as principal of ADD, Inc, where she managed a wide range of award-winning commercial projects, office buildings and interiors.

In 1997 Carolyn and her husband, Joel Bargmann, drawing from their experiences as principals of ADD, Inc, and Archetype, Inc., respectively, launched BH+A, a 40-person architecture firm based in Boston. The firm is a woman-owned business enterprise (WBE) with expertise in workplace, housing, athletic, historic and childcare projects. Carolyn’s work focuses on buildings and interiors for financial service firms, law firms and facilities for manufacturing companies. Notable clients include Convexity Capital, TA Associates, Baupost Group, Hasbro and Kollmorgen Electro-Optical, among many others.

Notable museum, educational and housing projects include The Basketball Hall of Fame, Independence Hall National Historic Park, Phillips Exeter Children’s Center, Minute Man National Historical Park and Mezzo Apartments.

What is unique about your work and what are you working on now?

What inspired you to start your own firm?

Yes and no – it’s always gratifying to share our work with others but I understand and accept that the details of these projects are private. Some of our projects have created some buzz in the market so even without providing details, the news gets around. Maybe the mystery enhances the hype!

Creating our own firm allowed us to determine the focus, direction and design character of the firm and each of its projects. While it is true that owning a firm means that you really never stop working, the alternative path (working for others) was simply not an option.

For more information about this story or ASM please contact Jackie Rafferty at (617) 742-3412 or jrafferty@associatedsubs.com.

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Spring 2012

Our niche is designing workspaces that connect all people within an organization, whether by means of a dramatic open stair or perhaps a centrally-located destination such as a café or all-hands area for a single floor project. As an architect, my approach is to integrate our design carefully with the existing building structure, including removing beams and slabs in order to maximize these connections. We always look to take advantage of the building’s natural assets (sunlight, higher ceilings between beams, exterior views from elevator lobbies, etc.), which is what will take a design from good to great.

By using glass instead of solid partitions, by creating shared amenity spaces as staff destinations and by connecting floors with a new open stair, we can help create organizational change. A workplace that fosters and creates formal and informal collaboration and interaction can expect to see enhanced productivity and innovation, effectively becoming more competitive. When we hear this from clients, it is better than any design award!

We have several large projects pending and we are currently working on two design competitions where our involvement came about because the prospective client had seen our work. It is refreshing to be valued for what we can create! In today’s economy too many architects try to compete on price, which ultimately devalues the profession and we become our own worst enemy.

Is it frustrating to keep clients confidential?

What challenges does that present?

How has the field of architecture changed?

Project timelines have become shorter, requiring the whole team to move faster, and we have responded to these changed expectations by structuring a large project team as a series of smaller

teams each led by a senior designer/manager. It is imperative to be nimble and tactically prepared to address all project requirements with a design team that includes specialists who work simultaneously. Thus, in the aggregate, a team of specialists can create an integrated, complex solution in less time.

Critical to success is that we remain focused, flexible and committed despite design changes and budget challenges. Not making our deadlines is a non-option and creating the best possible design regardless of interim design changes is the single most important commitment we make on every project.

What is your relationship with owners, contractors and subcontractors?

How has BH+A embraced changing technology?

How would you define “success”?

For years BH+A has been committed to sustainable design, with or without LEED certification. In 2012 a new natatorium we designed received LEED Platinum; that is an achievement because of the inherent conflict between a controlled environment and reducing energy consumption. We are extremely pleased that the construction premium to build a LEED project is diminishing. The choice to certify is more common as clients become more educated about the benefits, and the costs are stabilizing as the construction industry becomes more experienced in sustainable products, waste management, etc. The rebates and reduced operating costs we have identified for our clients are indicators that sustainable design is an expectation, not a want-to-have; this is a change that we celebrate.

Success depends on constant communication – no surprises, except for good ones! Critical to this is for us to gain an understanding of our client’s goals and what they need to make decisions. Our deliverables (renderings, mockups, drawings, budgets) are the tools to help the client make informed decisions and to be confident that the space will meet their goals and might even exceed their expectations.

We value our relationships with contractors and subcontractors. The complexity of some of our projects requires that we work closely with subcontractors, particularly millwork, flooring, HVAC, electrical and AV subs. I not only welcome this but expect it because the end result will be better constructed and may even cost less. When the subcontractors understand the intent, they may suggest a better way to build it, generating buy-in and pride shared by all. I enjoy the “healthy tension” that accompanies this process and the pride of authorship that we share at the end.

What is your view of the economy’s impact on construction today?

The window of competitive construction is still open, translating to great opportunities for clients. Come on now, it’s not going to last forever, so take the plunge! s

The Professional Contractor

13

TAXES

BY LOUIS J. SANNELLA

Out with the Old, in with the New: 2012 Tax Planning

Y

our tax planning for 2011 may be coming to a close, but it’s not time to sit back as there are a multitude of changes coming in 2012. It’s important to be aware now of what could happen down the road.

Politics play an important role in tax planning.

When the Bush tax cuts were originally passed in 2001, they were scheduled to expire in 2010. After nearly a decade of debate, Congress agreed in 2010 to extend these laws, but only until Dec. 31, 2012.

Without further legislation, these laws will expire, which could cause your tax liability to increase. That being said, 2012 is a presidential election year. Major tax legislation is unlikely to occur before the November 2012 elections, which will make planning for the 2012 tax year even more difficult.

Only time will tell what the tax situation will look like after 2012. Here are some tax items to keep in mind for your tax plan.

Individual Income Tax Rates The lower tax rates enacted with the Bush tax cuts have been extended through 2012. Therefore, the same rates that applied in 2010 continue to apply for 2011 and 2012. Depending on your personal taxable income, you will fall into the 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, or 35 percent rate brackets. These rates are set to increase with a top rate of 39.6 percent in 2013. Speculation will continue to build through the year, but we could be in a wait-and-see scenario until after the November elections.

Capital gains and qualified dividends will be taxed at reduced rates again in 2012. The top tax rate on capital gains and qualified dividends is 15 percent. If the reduced rates are not extended again, capital gains will be taxed at 20 percent and qualified dividends will be taxed as ordinary income beginning in 2013.

Tax planning normally involves trying to accelerate deductions into the current year and deferring income until later tax years. However, if you believe the tax rates will increase in 2013, you may want to Lou Sannella is partner and managing director at McGladrey & Pullen, LLP. He can be reached at (617) 241-1576.

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Spring 2012

consider accelerating income into 2012, if possible, while the tax rates are lower.

Gift and Estate Tax The gift and estate tax lifetime exemptions and top tax rates were reunified in 2011. The lifetime exemption is $5 million with a top rate of 35 percent for both tax systems. Without legislative action, the lifetime exemption will drop to $1 million in 2013 with a top rate of 55 percent. If you anticipate making large gifts in the near future, you may want to make the gift in 2012 to ensure that you can take advantage of the larger exemption and lower tax rate.

For taxpayers who die in 2012, the unused exemption can be used by the surviving spouse. In order to utilize this portability, the executor of the estate must make an election on the deceased’s estate tax return to transfer the unused exemption to the surviving spouse. Since this is an election, it’s important to file an estate tax return, even if it would not otherwise be required. The surviving spouse can then use the remaining lifetime exemption on his/her gift tax returns or estate tax return. This portability can only be used once and does not apply to people who die after 2012.

Depreciation Issues Bonus depreciation has been extended for property acquired and placed in service during 2011-2012. The additional first-year depreciation was 100 percent of qualifying additions in 2011. The bonus depreciation deduction drops to 50 percent for property acquired and placed in service in 2012.

Currently, no bonus depreciation will be allowed for property acquired in 2013 and beyond.

Section 179 expensing was also expanded for 2011. Section 179 allows immediate expensing for qualifying property additions. In 2011, the limit was $500,000 of additional expense with an investment ceiling of $2,000,000. This is scheduled to drop in 2012 to $125,000 of additional expense with the phase out beginning at $500,000.

Surtax on Unearned Income In March 2010, two laws were passed to overhaul the healthcare system. To help pay for this initiative, the Medicare tax will be imposed on unearned

income beginning in 2013. The surtax of 3.8 percent will be imposed on the lesser of your net investment income or the excess of taxable income over the income threshold ($200,000 or $250,000 depending on your filing status).

Unearned income includes taxable capital gains, dividends, royalties, and interest income. It also includes net rental income and taxable gains on the disposition of rental real estate if the rental activity is a passive activity (i.e. the tax will not apply to taxpayers’ net rental income if they are active in the rental activity). Unearned income also includes the income earned on the disposition of an interest in a partnership, LLC, or S corporation if the taxpayer was passive in the activity.

Alternative Minimum Tax The original intent of the alternative minimum tax (AMT) was to require high income taxpayers who use tax shelters to pay a minimum amount of income tax. However, more taxpayers are becoming subject to AMT because legislative action is required

to increase the AMT exemption; it’s not automatically indexed for inflation. The latest AMT patch in the form of an increased AMT exemption was only effective through 2011. As it stands right now, the AMT exemption amounts will drop significantly this year, which will cause a lot more taxpayers to become subject to AMT.

Conclusion The tax area is constantly changing. A majority of the tax items discussed above are subject to change within the next two years, unless Congress extends the current tax laws. This year, pay close attention to tax legislation because this will impact your planning for 2012-2013. In addition, please also consider the impact of your state tax rules, as many states have decided to not follow the federal tax benefits including the bonus depreciation and estate rules. All of these aspects should be considered as you position yourselves in the coming year – the earlier you plan, the more effective your tax plan can be. s

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The Professional Contractor

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16

Spring 2012

A CREATIVE ENDEAVOR Gardner Museum Project Stretched Skills and Talents to the Utmost

BY SCOTT VAN VOORHIS

The acclaimed expansion and renovation of the Isabella Stewart Gardner Museum put the skills – and creativity – of some of the Boston area’s top subcontractors to the test.

The $114 million project was overseen by one of Boston’s premiere general contractors and featured a small army of dedicated subs with a range of specialties, from concrete to woodworking.

The challenging design/build process called for on-the-spot problem solving. And it gave subs, often used to following orders in a hierarchical command structure, the opportunity to work directly with one of the world’s top architectural firms, the Renzo Piano Building Workshop.

The result has been acclaimed by one writer as a “marvel,” a work of clear, colorless glass and copper that both provides a badly needed new wing while keeping open views of the ornate, 19th century Fenway mansion/art palace.

But getting there was a journey, one that summoned the creative energies of all those involved in the construction of the 70,000 square foot addition. “‘Meticulous’ is a good word,” said Whitney Hammett, project manager on the Gardner for Mark Richey Woodworking and Design, of the experience working with the famed Renzo Piano

team. “It was very precise. Everything was looked at from a design perspective … from the perspective of visual impact.”

Working with a Superstar Architect The project itself was years in the making; the strategic planning process was launched by the museum a decade ago.

With more than 200,000 annual visitors, the museum had outgrown the Victorian mansion it has been housed in since Isabella Stewart Gardner’s death, but major changes to the structure were barred in her will.

Museum officials decided to solve the problem by putting a new wing on the museum, a stunning glass structure through which can be seen the historic Gardner Museum and gardens. Features include a new performance hall and an adjustable height gallery.

Given the sensitivity of the project, it took three years alone – from 2006 to 2009 – for museum officials to line up the necessary city and state approvals.

ALL PHOTOS ON LEFT HAND PAGE COURTESY OF: Nic Lehoux

The Professional Contractor

17

ALL PHOTOS BELOW AND ON RIGHT HAND PAGE COURTESY OF: Nic Lehoux

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Spring 2012

Initial site work began in the fall of 2009, and the museum and its new glass-encased wing opened to the public in January.

Shawmut Design and Construction, which took part in the massive renovation and expansion of the nearby Museum of Fine Arts, served as general contractor on the Gardner project.

While the design had been hammered out by the time work began on the building, implementation was a step-by-step process.

The design/build approach used with the Gardner differs from traditional methods, where all the detailed blueprints would have been hammered out beforehand and turned over to the general contractor to carry out. The GC, in turn, would dole out the orders to his subcontractors.

But with the design/build process that was used to build the new Gardner addition, all three parties, the general contractor, architect and the subs worked together on each step.

“It was definitely unique in that there was more involvement across the board,” said Chris Leitz, senior project manager for Shawmut. He noted the unusual levels of collaboration between the designer and the manufacturer and the installer and the museum – which meant more than a few meetings around the table with architects from Renzo Piano’s

firm. It was an exciting, refreshing experience for the subs involved.

Problem Solving Mark Richey Woodworking, which fabricated and installed the architectural woodworking and casework throughout the museum, also faced one of the trickiest design challenges.

The plan for the Gardner’s music hall required intense attention to acoustics, with the paneling playing a key role. The new hall has a hollow wall, behind which curtains are adjusted to modify the sound in the space. That required Mark Richey to devise a new approach to designing and hanging the 6,000 square feet of paneling.

“It was our biggest challenge,” said Hammett, project manager. “We had to create this entire unique structure to allow the paneling to be [sound] transparent.”

Tim Griffin, owner of Griffin Interiors, also recalls the Gardner’s new music hall as one of the more challenging projects he has ever encountered.

Griffin, who helped hang the panels, noted that absolute precision was needed in order for the hall’s acoustics to work properly. That meant some panels were installed at an angle – laser levels were used to get the measurements just right.

“It took a lot of time and precision,” he said.

The music hall also presented some rewarding challenges for Southeastern Metal Fabricators, which was in charge of the rail inside the performance venue, said Elio Roffo, estimator and vice president. The design of the rail was changed by the architect midstream, requiring Southeastern to make changes on the spot. The main staircase, which required metric sized components, required the Rockland-based firm to go through a German supplier.

Even the bolts on the stairs – designed to look like buttons – required intense attention to detail.

“The hardware, the connection bolts, were all custom made,” Roffo said.

Concrete, a seemingly mundane building material, was elevated to a high art form requiring painstaking attention and labor.

After looking at other potential floor stones, the architectural team decided to go with polished concrete, a technique popular in West Coast architecture and now starting to catch on in Boston. The cement is polished with high-torque grinding machines, creating a smooth surface sheen.

Hudson-based S&F Concrete Contractors handled this part of the project, installing the floors in the Gardner’s greenhouse. It required some complicated logistics, noted project manager Bassel Isreb.

When the concrete was being ground down and then polished, all other work stopped in the area.

Isreb credited teamwork between the subs – and great overall coordination by Shawmut – in keeping everything moving smoothly along. “It’s an area where nobody else can work – you stop every other trade,” Isreb said.

And there were other challenges as well – last-minute changes and tweaks as the architect and the museum saw how different facets of the building looked in real life. One involved the coat check area, which had to be reworked to bar views of the coat racks. Overall, such fine tuning is typical of a design/build project, which requires step by step collaboration between all players, from the owner (in this case, the Gardner), on down to the subs.

“As the end user becomes more familiar with the space, they start to realize things they didn’t see before,” said Greg Porfido of Mark Richey Woodworking.

“The design team, the contractor and the subcontractors need to respond and adjust and make the accommodations.”

But it’s a small price to pay to work alongside a renowned architect on a project of major architectural significance, say the subs who worked on the Gardner project.

“When someone hires a renowned architect, their job is not to do something that everyone else is doing,” Porfido reflected. “Their job is to push the envelope of architecture and building design.”

The Professional Contractor

19

TOP LEFT: Construction photo of the Richard E. Floor Living room in the new wing at the Isabella Stewart Gardner Museum designed by Renzo Piano.

TOP RIGHT: Construction photo of the Anne Hawley Grand Staircase in the new Renzo Piano designee wing of the Isabella Stewart Gardner Museum.

BOTTOM LEFT: Construction photo of the interior balconies of Calderwood Hall, the new performance space in the new extension at the Isabella Stewart Gardner Museum designed by Renzo Piano.

BOTTOM RIGHT: Construction photo of the faรงade of the new Renzo Piano designed extension of the Isabella Stewart Gardner Museum. This is the glass north-facing exterior of the new Special Exhibitions Gallery.

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Spring 2012

ALL PHOTOS ON THIS PAGE COURTESY OF: George Bouret

The job of the general contractor and subs, in turn, is crucial for bringing this vision to life. “Your job is to come to the table and figure out how to make all those unique details work,” he said.

Fireproofing Art History J.C. Cannistraro was in charge of installing critical fire protection systems in the new Gardner wing. The Watertown-based contractor installed four different systems – “both VESDA and deluge systems, as well as two dry systems,” said Mike Cray, project manager for Cannistraro on the Gardner project.

The challenge was configuring the fire protection systems so that they would not be noticeable to patrons, especially around the project’s grand staircase, a centerpiece of the new wing. To do this, the ceiling needed to be “tied off at three different points,” Cray recalls.

A highly complex project, the Gardner required a high level of coordination and cooperation with everyone from other subs to the architectural team, said Tom Palange, marketing director for J.C. Cannistraro.

“It was a highly complex, architecturally challenging building,” Palange said. “It inspired us to be even more creative and collaborative.”

Pride in Craftsmanship The subs who worked on the Gardner project were all veterans of big projects. Some had worked on the Museum of Fine Arts expansion, while others were involved in retrofitting space in the Hancock Tower for Bain Capital.

But the Gardner project is likely to be a memorable one for all involved, having challenged everyone from designers on down to the concrete contractor to stretch their skills and talents to the utmost.

The project is especially meaningful for Mark Richey Woodworking, which does extensive work in the Boston market. “There is an enormous amount of pride that we were involved in renovating an iconic facility,” Porfido said. “These are iconic Boston institutions.”

Overall, the Gardner expansion stands out for the unique ways common products and materials were put to use, noted Shawmut’s Leitz. “It ended up being a unique project because everything was touched with customization in mind,” he said. s

Scott Van Voorhis is a freelance writer.

Mark Richey Woodworking crafts and installs high-end architectural millwork for corporate, institutional, retail, restaurant, and residential clients. Our reputation is founded on peak performance and keen attention to client satisfaction.

www.markrichey.com

The Professional Contractor

21

SAFETY

BY RICHARD KORDELL

Commercial Drivers and Distracted Driving Impacts On Your Bottom Line

D

riving presents significant risk of injury and property damage, and driving while distracted increases these risks. Intuitively, most of us would agree that distracted driving magnifies the likelihood of crashes. Ongoing research has quantified those risks, leading state and federal regulatory agencies to enact tougher laws. In the U.S. in 2009, 33,308 people were killed and 2,217,000 were injured as a result of motor vehicle crashes. Of these, 16.5 percent of the fatalities and 20.2 percent of the injuries were the result of distracted driving.

In 2010, the Federal Motor Carrier Safety Administration (FMCSA) banned texting by commercial drivers. Most recently, effective Jan. 3, 2012, all handheld cell phone use by commercial drivers was also banned. Some businesses incorrectly believe that FMCSA regulations do not apply to them since they only operate in one state, or they do not have vehicles requiring operators to have commercial drivers licenses. However, some states, including Massachusetts, have accepted federal regulations as state law. FMCSA regulations include all commercial motor vehicles with a gross vehicle weight rating over 10,000 pounds, certain vehicles transporting passengers and vehicles transporting hazardous materials.

Local laws on cell phone use and texting should also be considered. In New England and New York, all states ban text messaging by all drivers. Only Connecticut and New York have banned the use of handheld cell phones as well. All states, except for New Hampshire, have banned cell phone use for “novice drivers,” those under age 18. These bans are all primary offenses, meaning drivers may be cited without other violations. The National Transportation Safety Board and other groups, such as FocusDriven, have gone so far as to recommend a complete ban on cell phone use and text messaging while driving.

Researching the Dangers of Distracted Driving Virginia Tech Transportation Institute (VTTI) is a leading researcher that has employed sophis-

Robert Kordell is a senior loss control representative for Acadia Insurance.

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Spring 2012

ticated technologies in numerous large scale, real world, driving studies. Their research is the basis for many of the changes in the regulations, including the bans on texting and hand held cell phones.

One of their recent studies concluded that “talking [or] listening on a cell phone while driving was generally found not to impact significantly the odds of involvement in a safety-critical event (and was even found to decrease the odds significantly in some cases), while other cell phone sub-tasks (e.g., texting, dialing, reaching) were found to increase significantly the odds of involvement in a safety-critical event.”

The chart at right demonstrates the specific likelihood of a “safety critical event” (likelihood of crash situation) as reported in the VTTI study.

Without question, distracted driving does increase the likelihood of motor vehicle crashes. According to VTTI, “driving is a visual task and nondriving activities that draw the driver’s eyes away from the roadway, such as texting and dialing, should always be avoided.”

Business Impact of Distracted Driving Violations Violating the FMCSA bans can impose substantial fines – up to $2,750 for drivers and $11,000 for employers. States, however, may choose to set the amount at or below those levels. These violations are documented in a company’s CSA score, maintained by the Federal Motor Carrier Safety Administration, in the “Unsafe Driving” BASIC. Exceeding the threshold score of any CSA BASIC exposes employers to a compliance review by state or federal enforcement agencies.

Distracted Driving Safety Considerations Employers, and drivers, are responsible to be knowledgeable and comply with applicable federal and state agency regulations. Employers need to demonstrate that they have instructed drivers. If not already in place, all businesses should establish a written policy informing your drivers of your company’s intent to comply with the bans on texting and hand held cell phone use.

Educating employees about the dangers of distracted driving may serve to decrease, if not eliminate, their cell phone use while driving. The U.S.

Task governments’ website, www.distraction. gov, provides compelling testimonies and information on distracted driving.

Many businesses have gone beyond these minimum standards by implementing total bans on cell phones while driving. In a National Safety Council 2009 survey on cell phone policies, businesses with a distracted driving prevention policy reported over a 20 percent decrease in crashes and more than 70 percent reported an increase or no impact on productivity.

For businesses seeking to institute a policy curbing distracted driving, the National Safety Council has a free how-to kit available at www.nsc.org. s

Odds Ratio Comments

Text message on cell phone

23.24

Highest risk of all tasks studied.

Write on pad

8.98

Reaching for object/ other device

6.72

Dialing cell phone

5.93

Diverts eyes away from roadway.

Personal grooming

4.48

Distraction goes beyond electronic devices.

“Cell phone use”

1.22

Implies any manner. Certain subtasks, (e.g. dialing) have greater impact than others.

Talk/listen, hand-held Phone

1.04

Talking/listening to a cell phone allowed drivers to maintain eyes on the road and were not associated with an increased safety risk.

Talk/listen, handsfree phone

0.44

True “hands-free” phone use, such as voice activated systems, are less risky if they are designed well enough so the driver does not have to take their eyes off the road often or for long periods.

ASM Membership

What’s in it for you?

Who we are The Associated Subcontractors of Massachusetts (ASM) is a non-profit trade association representing subcontractors, suppliers and service providers across the Commonwealth.

Established in 1950, we are the only organization that addresses the business objectives of all subcontractors, including union and open-shop. We provide the best legislative advocacy, legal resources, education, networking and news and information to our more than 400 members.

How we add Value • Be the first to learn about important legal and legislative policies that impact your business – and benefit from one of the most effective lobbying teams on Beacon Hill.

• Attend top-rated seminars addressing industry related trends, changes and regulations.

Associated Subcontractors of Massachusetts, Inc.

One Washington Mall, 5th floor Boston, MA 02108 (617) 742-3412 | www.associatedsubs.com

• Receive important information and news delivered to you in a variety of formats.

• Get noticed with complimentary promotional opportunities in The Professional Contractor.

• Reputation – ASM has rapidly earned a reputation for “getting things done” within the subcontractor, general contractor and legislative circles.

Become a Leader – Join Today Be part of the most recognizable and respected subcontractor organization in the Commonwealth and enjoy the many benefits that membership has to offer. Feel the pride of being part of an organization dedicated to subcontractors and their businesses.

The Professional Contractor

23

BONDING

BY FRANK J. SMITH

The State of the Surety Industry Signs of Trouble, Advice for Contractors

T

he past three years of recession have been a roller coaster ride for New England contractors and their surety companies. Last year at this time the market seemed to be improving, but even with 2012 well underway there is still a great deal of uncertainty, and all signs continue to point to a long, slow recovery.

Because of the depth and duration of the recession, it will take a long time to get back to a “normal,” healthy construction economy.

This article will take a look at the surety industry’s response to recession, both today and in the past, and what it means for contractors.

The construction industry has been through recessions before, but they have been different, and past experience has not been a good predictor of today’s reality.

In the recession of the late 1980s and early 1990s, the construction industry went into a deep slide, and after a short lag time, the surety industry followed. For the most part, the surety industry did not show signs of suffering until well after the construction economy began to improve. The cycle of fall and recovery was relatively swift.

In the current recession, the cycle has been slower, deeper and longer. Unexpectedly, contractors fared better in this recession than they did in prior ones for several reasons: • They had strong cash balances and solid working capital and net worth positions.

• They were better managers of their businesses and did a better job aligning overhead to available profit dollars.

However, as contractors burned off backlogs by performing lower margin work, they began to lose both cash flow and profitability. Losses began to build and gradually ate up their strong balance sheets.

It was only about a year ago that the surety industry began to feel the effects, receiving a growing number of notices from subcontractors or suppliers that they had not been paid. That was the proverbial smoke, and the industry began to smolder.

Frank J. Smith is executive vice president for Eastern Insurance Group, Commercial Construction Division. He can be reached at (800) 649-0522 or fsmith@easterninsurance.com.

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At that point, the surety industry expected to see many contractors fail. But it didn’t happen, until 2011 was well underway. In fact, in 2011 the surety industry results were still good – in theory. However, when you get inside the numbers, the smoke is easy to see. And the flames are starting to spread.

Good Results Hide the True Story The surety industry loss ratio for the first six months of 2011 was very low, just 12 percent, while surety expense ratios averaged about 55 percent. With a combined ratio of just 67 percent, the industry on the whole was very profitable, as the average surety company earned a 33 percent profit.

These results don’t tell the full story, however, because the numbers are heavily influenced by the experience of the top five surety companies, including Travelers and Liberty, who together write about 50 percent of the volume of the entire industry. The other 50 percent is written by 95 much smaller surety companies.

Liberty and Travelers (who alone account for 33 percent of the volume) write many of the large general contractors, and their loss ratios were negative. This means that they recovered more from the prior year’s claims or by reducing reserves, than they incurred in current year losses. So their negative loss ratios skewed the industry results dramatically.

In general, larger sureties bond the larger contractors, and the smaller sureties bond smaller contractors. In today’s economic environment, most of the problems are occurring with the smaller contractors who have smaller financial buffers between them and adversity.

• Of the top 20 surety companies the loss ratios of 5 are bad or very bad (i.e., 25 percent have bad results).

• In the middle tier of 40 smaller surety companies 16 (40 percent) show poor results.

• And in the final tier of 20, five (25 percent) are suffering.

These numbers show the losses are beginning to hit the industry, with greatest impact on the smaller surety companies bonding the small to medium-sized contractors. When surety losses start trending up they historically continue to get worse before they get bet-

ter. The prediction now is for increasing loss ratios for the next couple of years.

What Does all this Mean to You? Surety companies will close their doors when they lose too much money or when the rating agencies downgrade them and no one will accept their bonds.

A case in point is First Sealord Surety, who just closed its doors and is being liquidated by the Pennsylvania Insurance Department. The first surety to exit the business in this recession, First Sealord was the 36th largest surety in the U.S. and wrote a lot of bonds.

The failure of First Sealord may be devastating for general contractors who accepted First Sealord bonds from subcontractors, and equally devastating to subcontractors who relied upon First Sealord bonds for payment protection, and now may be without. Not only that, but contractors forced to replace the First Sealord bonds they provided may end up having to pay for bonds for a project a second time.

Most surety companies who get hit with losses will have the staying power and desire to remain committed to the business. But one way or another, contractors will be affected when companies begin to adjust their underwriting standards. Surety companies have a tendency to overreact when the underwriting pendulum is set in motion, so contractors should expect some volatility in the coming months.

How Will Companies React?

They may: • Want stronger working capital and net worth cases.

• Want higher quality financial information.

• Want frequent financial information.

• Want frequent WIPs and AR schedules.

• Be more conservative regarding job size, scope, location, duration LDs, etc.

• Want a better indemnity position including personal indemnity, and the indemnity of realty trusts and related entities.

• May zero in on working capital composition rather than just a working capital number.

• Look closely at cash and debt positions.

• Will not want to bond contractors who are heavily reliant on bank debt for working capital and financial survival.

If you run a good company you should be able to weather a tightening surety underwriting period for the next few years.

To make certain you receive the best possible surety program under the best possible terms and conditions (capacity, indemnity, rate and service) you should: • Get your bonding company’s analysis worksheet.

• Understand how your surety analyzes your company.

• Like the surety, watch the trends; working capital, net worth, cash, debt, profit margins, overhead, backlog, under billings, etc.

• Understand what is important to your surety and take that into consideration when making operational decisions.

• Keep your firm strong and liquid.

• Not take officer loans for outside purposes.

• Keep the bottom line profitable and working capital and net worth increasing or at least not decreasing.

• Communicate frequently with your agent and surety underwriter.

• Provide high quality, timely, financial information.

• No surprises! Deliver bad news early.

• When you deliver the bad news also present a sound recovery plan.

Dealing with the surety industry will be increasingly difficult. But there will always be a market for good contractors who deserve bonds, and the surety credit you need will be available. However, you and your agent will need to negotiate very effectively to secure the surety support you need under the best possible terms and conditions. You will also need to provide a good flow of timely high quality underwriting information to support the fact that you deserve the credit you are seeking.

The best advice for contractors today is to maintain a close working partnership with a surety agent who is committed to helping you succeed in these challenging times. s

Editor’s Note: This article is based on a seminar presentation given by the author for ASM members in February. ASM is grateful to him for making this excellent information available to readers of The Professional Contractor.

The Professional Contractor

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TECHNOLOGY

BY ARTHUR LEVINE

Training Tomorrow’s Green Workforce Local 12 and PHCC Secure Grant

A

11-0234 Boston Cedar_Layout 1 7/11/11 11:10 AM Page 1

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s part of a $307,000 government ARRA grant, two solar thermal systems and a rainwater reuse system have been installed on the roof of Plumbers and Gasfitters Local 12’s training center in Boston, to serve as real-world learning models for green technology classes. ASM member and PHCC of Greater Boston contractor E. H. Marchant Co., Inc., of Quincy, installed the systems, while Vanderweil Engineers of Boston donated the design services.

Proposed by Rick Carter, Local 12’s training director, and Hugh Kelleher, executive director of the PHCC of Greater Boston, the federal grant was used to install the equipment and develop the training curriculum. “This is a quite a coup for us,”

Finances continued from 9

says Carter. “It helps support our commitment to leading-edge training that keeps our members in the forefront of green technology.”

The solar thermal systems, which are used to pre-heat the hot water in the training center, consist of both traditional flat panel conductors and newer, more efficient evacuated tube collectors. The rainwater capture system collects water that would have otherwise gone into the building’s gutters and saves it to flush water closets and urinals. The fixtures are demonstration units in the training center, and class participants learn how to install, test and maintain the rainwater reuse systems. Part of the training, for example, focuses on proper pipe labeling to prevent cross-connections.

Local 12 and the PHCC brought Kimberly Garside on board to help oversee construction of the systems, develop the curriculum and manage the green technology training program. A member of the union for 14 years, with experience on many green installations, Garside has been an instructor at the training center for nine years. She is one of three instructors who teach the green technology courses, which began in early 2011. “There is lots of interest among contractors and members for the program,” Garside says.

Each class includes 12 to 15 students, and the modules, which offer 18 hours of training, are open to both apprentices and journeymen. Eventually, Carter notes, the classes will be required for all apprentices. He foresees 250 journeymen enrolling in the training.

“We are seeing more and more demand for solar thermal,” says Carter.

“In addition to new construction and retrofitting green technology to existing buildings, there will be a great need for trained plumbers to maintain and repair these systems. This grant is helping us prepare for the future.” s

with your lender before you actually need the money. This added safety net will really come in handy if the company hits a rough patch.

A Strong Balance Sheet Can Weather the Storm As important as these two documents are, it is the balance sheet that serves as the cornerstone of your financial statements. This is the instrument that answers the question, among other things, how leveraged is my company? The ratio “debt to equity” is the key barometer that measures leverage.

A ratio of under three to one usually indicates that a company has enough resources to withstand a downturn in business. A higher ratio shows that the company is more highly leveraged, and that it may be operating under growing financial stress.

Even if a company shows a net loss on its P&L, or if it reports a negative cash flow on its year-end cash flow statement, it can still continue to operate provided it has a strong balance sheet. A weak balance sheet makes it more difficult to continue because there will likely be fewer resources available to fund operations, pay bills, and make the kind of investments necessary to return to profitability.

Generally, if your balance sheet is strong, your lender will be less likely to pull your line of credit or send you through the work-out process. In fact, it is one of the factors that has allowed healthier (i.e., less-leveraged) construction companies to absorb the downturn in business these past few years.

And as these same companies prepare themselves for improving market conditions, a strong balance sheet will be a key in securing the resources to fund their future growth. s

Protection starts here

and here.

DeSanctis Insurance Agency

Serving the Bonding and Insurance needs of the N.E. construction industry for over 35 years.

Ad a m De Sa n c t i s Gre g o r y Ju w a Ja m e s A xo n Mi c h a e l Ca rn e y Wi l d e r Pa rk s Mi c h a e l Gi l b e r t Br y a n Ju w a Da v i d B o u t i e t t e Pa u l Pa t a l a n o Dick Caruso Ryan Prentis

DeSanctis Insurance Agency, Inc. 100 Unicorn Park Drive Woburn, MA 01801 (781) 935-8480 www.desanctisins.com

The Professional Contractor

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MEMBER NEWS Acadia Insurance (Marlborough) announced in February that the ASM Insurance Program would return $353,597 in dividends to qualifying ASM members for the 2009 and 2010 plan years. Approximately 100 members have since received dividend checks, averaging more than $3,500 each! Since the start of the program in 2003, Acadia has distributed over $4 million in dividends to qualifying members.

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American Contractors Corporation (Randolph), an acoustical wall and ceiling subcontractor, recently completed a 140,000 square foot renovation and construction project for JetBlue in Terminal C at Logan International Airport. The space required major renovations and the construction of a secure, cross-terminal walkway that would enable travelers from multiple airlines to seamlessly pass between the terminal’s 21 gates without passing through multiple security checkpoints. American Contractors fabricated all the custom metal work and installed the custom perforated metal ceiling panels and wall system. The project received two renovation awards in April from the Ceiling and Interiors Systems Construction Association (CISCA).

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J.F. Shine Mechanical, Inc. (West Roxbury) recently completed the installation of a unique rainwater harvesting system at Terminal B at Logan International Airport. The system will capture rainwater that will be used to irrigate landscaping throughout the airport. Members of the J.F. Shine Mechanical team carried out the challenging installation under the direction of foreman Frank Sullivan.

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Marr Scaffolding, Aerial Lifts Division (Boston) recently designed and installed an Altrex suspended scaffolding system to erect Microsoft signage to the façade of One Cambridge Center. The suspended scaffold system was comprised of 46 feet of Altrex platform with a 24-foot counterweighted rolling roof beam. Marr & Son Company also installed the miscellaneous steel to support the sign’s structure.

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Spring 2012

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Robert B. Our Company (Harwich) is pleased to announce two new projects, one in Orleans, Mass., and the other in Barnstable, Mass. They were selected to replace the River Road Boat Ramp in Orleans with a new ramp implementing their cofferdam systems to assist in the dewatering efforts. They were also selected as the prime contractors for the construction of the Barnstable Sewer Pump Station.

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Marr Equipment (Boston) is pleased to announce that John S. Rob8

ertson III was named general manager in charge of crane and rigging operations. He will be responsible for the management of all operational functions including the development of new business, the direction and oversight of the sales function and overall growth of business. Robertson is a fully-trained crane operator with over 19 years of experience in the equipment and construction industry.

United Solutions (Marlborough), a Sage business partner, is pleased to announce that

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they were named by Sage to their prestigious Chairman’s Club, President’s Circle and Million Dollar Club for 2011. The Chairman’s Club is a level of distinction for exceptional Sage business partners who develop a high level of new business through defined sales and marketing. The President’s Circle designation was awarded for top sales and service of Sage construction and real estate software products.

Three Generations of People Protecting People The Herlihy

Construction Division We speak your language.

Our Construction Division has specialized in your industry for over 85 years.

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Contact us today and see the difference an expert can make in your business.

Property/Liability | Fleet Automobile | Workers Compensation | Surety Bonding Contractors Equipment | Group Health | Subcontractors Design E&O Pollution Liability | Railroad Protective

888-756-5159 www.herlihygroup.com/construction 51 Pullman Street, Worcester, MA 01606

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Jim Herlihy CIC, CRIS jimherlihy@herlihygroup.com Mark Herlihy CIC, CRIS mherlihy@herlihygroup.com

Member: Associated Subcontractors of MA | Builders Association of Central MA HIG.Contractor2012.F.indd 1

1/25/12 10:24 AM The Professional Contractor 29

MEMBER NEWS

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ASM members enjoyed a fabulous evening at Gillette Stadium where they were treated to private tours of the stadium, not open to the general public, including time on the playing field, which was a special treat for many members! Patriots alumni and Super Bowl champions Rosevelt (Rosey) Colvin and Joe Andruzzi captivated the audience with their personal stories, witty repertoire and very popular Q&A session.

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Wayne J. Griffin Electric, Inc. (Holliston) has completed the electrical installation at the new East Greenwich Middle School in East Greenwich, Rhode Island. The three-story, 105,000 square foot institution will accommodate students, house administration, gymnasium, cafeteria, music suite, kitchen and classrooms. In addition to complete electrical, fire alarm, telecom and security systems installation, Griffin also provided a 50 KVA utility interactive photovoltaic system and a data acquisitions system, responsible for the display of various “green” building The_Professional_Contractor_1st_quarter_2012.pdf 1 3/26/2012 5:07:39 PM features and more. s 14

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Training is Our Strength Temple Beth Elohim Wellesley, MA Credit: Bruce Martin Photographer

Griffin Electric provides ongoing training and education for all of our employees. Preparing our team to be leaders in the electrical industry is the commitment we make to ourselves and to our clients. We firmly believe our opportunity to be the best stems from the continuous improvement of our most valuable resource – our people. This dedication to training is evident in the quality of the work we do.

Corporate Headquarters: 116 Hopping Brook Road Holliston, MA 01746 (508) 429-8830 Regional Offices: Charlotte, NC Raleigh, NC Duluth, GA Pelham, AL

www.waynejgriffinelectric.com 30

Spring 2012

MA Lic A8999

THREE TIMES THE REACH!

READERSHIP

Bay State Apartment Owner magazine now reaches THREE TIMES the amount of Massachusetts landlords.

*Apartment owners *Property managers *Condominium managers *Subsidized housing owners *Rental and condominium property developers *REALTORS® *Brokers and rental agents *Service providers

With the addition of 1,000 APARTMENT OWNERS to the Bay State Apartment Owner mailing list, you have the potential to reach 1,525 targeted multiunit property owners. In total distribution, your message can REACH MORE THAN 8,000 TARGETED PROSPECTS within a content rich publication.

But, these powerful decision makers will only receive the magazine in 2012. DON’T DELAY. Showcase your business in the Rental Housing Association’s official magazine, which reaches Bay State apartment owners, typically of larger apartment complexes, and additional owners through the insertion of the magazine into Banker & Tradesman.

Your consistent advertising message will speak directly to the decision makers for hundreds of different products and services.

BE WHERE THESE PROFESSIONALS GET THEIR NEWS. • The deadline to reserve advertising space is May 17.

• Copy will be due by Thursday, May 24.

• Don’t forget about our affordable directory ads.

• Call 617-896-5344 or e-mail custompubs@ thewarrengroup.com for more information.

PUBLISHER OF BANKER & TRADESMAN

Helping You Build Your Future

401 Edgewater Place, Suite 220, Wakefield, MA 01880 Toll Free: 1-800-531-5211

Proud Sponsor ASM / Acadia Insurance Program

www.TGACross.com