Construction Economic Outlook: An Underwriter’s Perspective

by Paul K. Reimer, AFSB, Liberty Mutual Surety

At the end of fiscal year 2016, the vast majority of construction companies had an optimistic but cautious outlook on the economy. Backlogs were healthier than they had been in years, profit margins had returned for GCs and subcontractors alike, and construction spending overall was on the rise. Per the U.S. Census Bureau, Construction Put in Place in 2016 was more than $1.18 billion versus $1 billion just two years prior. This resulted in what many felt was the true start of an economic turnaround after several struggling years. The outlook was bright. Daily discussions revolved around how a new government majority would result in increased infrastructure spending, increased bank lending, and tax reform.

The outlook has somewhat adjusted as we move through 2017 and toward 2018. We are no longer seeing prominent growth in the marketplace but more of a sustained outlook. The market has remained consistent with the overall economy, a general 2 percent to 3 percent gain, while certain pockets of the construction market are exceeding others.

From this surety underwriter’s perspective, the market has flattened out and remains steady in the majority of marketplaces. Construction contractors pushing programs have somewhat leveled off and profit margins appear sound. Work is more steadily available than in recent years and we are now hearing stories of subcontractors turning away work because they are at capacity after downsizing their organizations in prior years. As we continue to progress through the year and beyond, three topics that will remain on the forefront of an underwriter’s mind while evaluating contractors are the current skilled labor shortage, material costs, and interest rates.

Skilled Labor Shortage

Whether you are a union or non-union firm, you have been affected by the inability to find qualified skilled labor. Per Tradesman International, over a five-year period through 2011, the construction industry lost 2.3 million jobs. As backlogs shrunk from the rougher times of the construction downturn, underwriters constantly questioned how overhead would be covered and what, if any, cuts could be made. Numerous contractors reduced their work forces’ overtime to cut overhead that simply could not be covered. A surplus of available employees was created that had limited options.

In the past few years, the market has returned but the laborers have not. Many individuals either left the industry altogether for other careers or simply retired. Compounded with a generation of students whose high schools were graded on college placement or did not encourage the trades, we have a current shortage and troubling labor outlook.

The average subcontractor now faces an abundance of profitable work with a depleted staff and resources. While cutting staffs down to their “A&B” teams may have saved their organization in the downturn, it now hamstrings their ability to expand. Many find themselves forced into bringing in new employees who may not understand their corporate mindset and methodologies. This is a major concern from the underwriting side as owners are forced to decide between simply standing firm with the resources on hand or hiring and growing. If you can find an employee with the skills you are looking for—great. However, keep in mind that hiring the wrong employee could have drastic ramifications on the project you assign him or her. What is the potential trickle-down or up effect on the overall organization? One poor decision could potentially jeopardize the company’s balance sheet and ability to obtain future work.

In order to have the construction marketplace grow as an industry, we need to focus on acquiring the right talent and retaining it. Without a newfound emphasis on this somewhat simple principle, we could see a combination of poor construction products and increased costs driven by wages. This mixture could have long-term negative results on construction returns.

Material Prices

Material pricing for contractors on long-term projects has, and always will be, a concern and a key component to overall project pricing. Once a project has started, a contractor has little leverage to bill material cost increases to a job (unless they include an agreement in their contract) so the ultimate effect is a reduction of the original profit margin. We have recently seen increases in fuel, metals, drywall, and lumber, which are key to multiple facets of construction.

Per the Producer Price Index, increases in metals—copper, iron and steel scrap and brass—have shown the highest increases over 2017. Products such as drywall, glass, and cement have all shown lesser increases—2 percent to 7 percent respectively—over the year. The only material decreases we are seeing in 2017 have been insulation and asphalt paving.

“Buy American” provisions have also become more prevalent in many construction contracts. These clauses typically require GCs and subs to purchase at minimum a certain percentage, or a particular product, for a project from a U.S. supplier. This has, in certain instances, increased trade costs and put stress on suppliers. While the intent of these provisions is to stimulate the U.S. economy, it has artificially increased construction cost and added another stress point to contractors prosecuting work.

Ideally, contractors can lock in prices with suppliers at the time of award and also bill for stored materials either on-site or in warehouses. This limits price fluctuation risks. Having strong supplier relationships remain key to protecting contractors, especially specialty contractors with limited sources to find materials. As contract terms become more onerous, owners look to push costs such as stored materials back on the contractors. If these terms are accepted, we could see additional stress put on subcontractors and material suppliers.

Interest Rates

One of the biggest factors driving construction has been, and will always be, cost. With interest rates low, we have seen private sector building increase. One of the major beneficiaries of this low-interest rate cycle has been single-family construction. New starts hit a historic low in 2009 and increased by double-digit margins through 2015. Low availability of existing inventory combined with first-time buyers looking to take advantage of low 30-year mortgages has provided a boost. Residential building has historically been a leading indication of economic cycles. With interest rates at historic lows, one would think that this trend will hold steady until we see significant adjustments.

Nonresidential construction has not seen the same robust uptick that residential has from low-interest rates; however, things remain steady for most. We do, nevertheless, continue to see an overall lag in infrastructure spending resulting in site work and heavy/highway contractors continuing to look for work. Many now await to see what President Trump’s infrastructure plans turn out to be and what Congress will ultimately approve. The belief of seeing any impact in 2017 or early 2018 is no longer a reality.

As we have already seen the Federal Reserve do in 2017, we will continue to see increases in interest rates throughout the coming quarters that will affect construction lending and overall borrowing. Many authorities believe that we will only see moderate increases in an attempt to deter any downturns.

From a corporate standpoint, contractors have been able to take advantage of low-interest rates over the last several years as well. Refinancing or purchasing of equipment at lower rates has driven down CAPEX and allowed fleets of construction equipment to be revamped at a lower cost. We have also seen the decreased cost of bank line usage, which has helped reduce interest expense burdens. The flip side of this is as interest rates rise, underwriters will be concerned about those same interest expenses now increasing. Contractors should be proactive, lock in low rates when possible, and limit working capital line usage where possible. Cash will remain king in the underwriting world and the ability to self-finance or float costs without bank help will continue to be beneficial.

Outlook

While some economic experts see insecurity for 2018 and beyond, I believe the industry will continue to see moderate growth in large metropolitan markets around the United States, with additional opportunities via larger, mega projects. The AIA Consensus Forecast projects annual growth in the 3.5 percent to 4.0 percent range for the remainder of 2017 as well as for 2018. Potential factors such as corporate tax cuts, increased private investment through public-private partnerships, and state and local governments playing a more pivotal role in infrastructure improvements will be critical moving forward.

As several sectors of construction have shown positive trends, we must continue to monitor infrastructure, healthcare, and retail closely. Uncertainty around a potential infrastructure spending package promised by the federal government, the failed attempt at repealing/replacing the Affordable Care Act, and the continued closing of major chain stores that move shopping to the internet will all play key factors.

I truly feel that the economic outlook through 2018 is a positive one. Contractors must continue to stay the course, maintain the profit margins they have worked back to, and invest in the future so construction can continue to evolve and advance itself in a fiscally allowable way.

Paul Reimer is a contract underwriting officer at Liberty Mutual Surety. He began his career in Liberty’s training program in 2007 before working in the field and eventually assuming a home office role in 2014. Reimer graduated from Penn State University with a Bachelor’s of Science in marketing.

Advertisements

When Two Doesn’t Go Into One—The Mistakes and Pitfalls and Mergers and Acquisitions

by Gregg M. Schoppman, FMI

Experts will tell you that the mergers and acquisitions market is ripe for activity. Several conditions lend themselves to creating an attractive marketplace. First, the industry is seeing continued positive traction in revenue growth and more importantly profitability. Secondly, the demand for construction services, specifically in the infrastructure arena, provide a stimulus thus further improving the attractiveness of many candidates by inflating potential backlog. Finally, the industry still continues to age, leaving many firms seeking a quick and expedient succession plan. There are arguably plenty of other reasons driving firms to seek acquisition or seek to be acquired. While valuations will vary and due diligence abounds, there are plenty of hazards that firms fail to identify long before the transaction is complete.

It’s the Strategy!

Mergers and acquisitions often fulfill the strategic needs of a firm. It may be a niche market or geography that enables the buyer to claim an additional competitive advantage. However, there has to be more to a firm than either of those characteristics. Using this rationale, if a buyer moved to a new city, any residence would be acceptable. In reality, the sector, niche or geography should be the starting point to engage in deeper conversation rather than a terminal point to make an offer. An acquisition target should have some other compelling feature(s) that makes them desirable. For instance, it may be that firm’s strategy in dealing with customers or maybe some internal system discovered during the due diligence phase. So often a firm acquires another only to conduct a wholesale overhaul, leaving very little semblance of the original target. By forcing an integration or wholesale change to the parent firm, teams, customers, vendors and trade partners become disenchanted and there is flight, leaving that parent with nothing short of an office. Leverage the acquisition appropriately and view the target as something with more intrinsic value than simply an office and equipment. It should be attractive for multiple reasons. Find a way to learn from this new organization and bring those lessons back to the mothership.

It’s the Technology!

It sounds simple but so many firms forget the costs of integrating multiple and sometimes incongruous systems. This is more than just transferring data from Timberline or Viewpoint or Spectrum. Think about all of the costs and challenges associated with some of the following:

  • Estimating platform—Whether it is some customized, elaborate macro-enabled spreadsheet or some off-the-shelf estimating program, there is a level of integration that must occur.
  • CRM platform—Are customers and activity tracked via a database or by a cloud-based application?
  • Accounting—This is normally the item that has the most hair and gets the most attention, but integrating disparate systems can sometimes be a big-dollar proposition.
  • Web sites and social media—The good news is the firm will be able to announce the assimilation of the new firm. The bad news is does this look like one firm or two firms that share an accounting system and a light bill?
  • Infrastructure—With a mass migration to the clouds, there seems less emphasis on hardware and storage. Regardless, this takes time and requires a great deal of thought.
  • Phones and hardware—Apple vs. PC. Samsung vs. iPhone. VOIP and rotary phones. Hopefully no one is concerned about the latter but the mechanics and costs associated with simply determining the “right tools” opens up Pandora’s box.
  • Other considerations—There are no shortage of tools outside of the traditional spreadsheets and word processing programs. Scheduling, BIM, document control, project management, close-out/punch list control, etc., are just a sample of considerations that may or may not require additional transition time and energy.

Often, firms look at the equipment with a heavy emphasis on yellow iron. In today’s construction world, acquisitions would be better suited to look equally at the integration of these new tools. The raw costs are one serious consideration, but when one adds in the effect of transitioning 10, 50, 100, 500 people onto a new system, as well as all the training and heartache associated, it may drastically change the complexion of the deal.

It’s the Culture

In the end, it all comes down to the people. For all of the bluster about strategy, information technology, yellow iron, offices, etc., it truly is about the people. The bells and whistles of the deal lie within the most important asset within the transaction. These are the people that know the market, know the players, know the customers, know the “hot buttons” and know the intricacies of doing business within that sector or geography. The fascinating aspect is that this is the one variable of the deal that is NOT guaranteed. In the end, the computers, the office, and the equipment will stay put. If the people do not buy in, they will leave. One of the most common reasons for acquisition failure is the failure to recognize the impact of culture. This amorphous, intangible component that so many leaders wrestle with has such an important impact on strategy and tactics yet defining it accurately is almost impossible. In the end, there has to be a cultural fit between the two companies. Hostile takeovers resembling an episode of “Dallas” or “Dynasty” are farfetched and usual fail. Think of an acquisition as a marriage—it is an intricate blending of two individual firms into one that often begins with a relationship predicated on similar compatibilities. The people must buy in so careful consideration should be given to the following:

  • Communication—How frequently will the parent and target be in communication? How will this transaction be portrayed internally? In the marketplace?
  • Leadership—How will the satellite or target firm be lead? Who will lead this initiative from the parent company’s perspective?
  • New opportunities—How will the satellite or target be brought into new opportunities within the firm? For instance, as promotions and advancements spring up, how will the new target’s team be tapped as potentials?
  • Culture integration—As said previously, what can the parent firm learn from the target? What can be brought back “home” to make everyone better and demonstrate a truly symbiotic relationship?

All signs point to a fertile market, ripe for organizations to expand their empires. Growth can often occur organically through key leaders migrating to a new market or sector and plopping out their shingle. There are no shortages of challenges associated with this strategy, but it is clearly another perspective to consider. Mergers and acquisitions are an excellent vehicle to allow firms to grow quicker. However, in the haste to do something, it is always important to do it right.

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.

Common Misconceptions of Self-Funded Healthcare

by Mike Bechtol, Redirect Health

Interest in self-funded healthcare has skyrocketed in recent years, but so have misconceptions and bad information about this healthcare option for businesses.

For many subcontractors, self-insurance seems a perfect solution to their healthcare challenge. The model seems custom-built for contracting workforces—benefits are flexible, costs are low, and workers’ compensation costs are minimized—but many employers have questions about self-funding and are hesitant to adopt this method.

Here, we address common myths and misconceptions about self-insurance to provide a clear snapshot of how the model works for construction industry businesses.

“I don’t know how self-funding would work in my business.”

In a self-funded health plan, businesses create their own benefit plan for their employees, pay health claims directly, or work with a third-party administrator (TPA) to manage the plan. Self-insurance benefits can include medical, chiropractic, dental, vision, prescription medications and workers’ compensation.

Businesses also have the option to customize benefits according to the needs of their employees. For example, an employer with a young workforce may choose to offer comprehensive family planning benefits, while a construction firm may opt for injury care. This level of flexibility simply isn’t available in fully-funded plans.

For employees, a self-funded health plan may look and operate exactly the same as a traditional insurance plan.

“It’s too time-consuming to implement and manage a self-funded plan.”

It may seem difficult from the outside, but self-insurance is typically more manageable than traditional insurance plans. Costs are easy to control, and administration is streamlined and simple.

Most companies hire a third-party administrator to manage their self-funded health plan. TPAs handle the bulk of the administration: they collect monthly premiums, pay health claims, communicate with employees about claims, and report back to the employer on the performance of the plan.

In many ways, the administration is similar to a traditional insurance plan. But, there’s one critical difference: with a traditional plan, the insurance carrier collects and keeps the money. With self-funding, the TPA keeps the funds in the company’s claims bucket. The money benefits the business—it doesn’t go to back into the profits of the insurer.

Moreover, TPAs provide monthly utilization reports to the business owner, allowing him or her to see how the claims dollars are being spent, identify any red flags (e.g., inflated pharmacy costs), and to make adjustments as needed.

“My healthcare costs will go up.”

This myth is particularly pervasive, but easily exposed.

With traditional, fully funded medical plans, employers have very little, if any, control over healthcare spending. Rates go up every year—even if utilization goes down. A business owner wouldn’t accept a 10 percent, or more, annual increase on the cost of materials or supplies—why should he or she agree to big increase in the cost of health insurance?

With self-funding, employers maintain a high level of control over their costs. Among the tools for keeping costs in check:

  • Stop-loss insurance: With a smart self-insurance plan, the company covers health services up to a certain dollar amount; stop-loss kicks in if health claims exceed that cap. For example, if an employee is injured in a bad accident, stop-loss ensures the employee receives the healthcare he or she needs while protecting the business’ bottom line.
  • Employee education: Consider that an MRI costs $4,000 at a hospital, but just $400 at an independent imaging center—with absolutely no difference in quality. In fact, hospitals charge five to 20 times as much as offsite clinics for identical services—things like blood tests, X-rays and other common procedures. Why would anyone choose to go to a hospital for a non-emergent issue if they understand the difference in price?

The same is true of prescription prices. A common antibiotic might cost $40 at a corner store pharmacy, but just $10 at a supermarket pharmacy. For a company that fills 500 prescriptions each year, simply switching pharmacies can add up to $15,000 in savings.

Simply educating employees on factors that impact costs will help keep claims in check.

  • Workers’ Comp: For contractors, self-funding can bring down workers’ comp costs by providing lower-wage employees with an affordable place to get healthcare.

Consider that many workers—particularly those who earn less than $15 an hour—don’t have any healthcare except workers’ compensation. Sometimes these employees file workers’ comp claims for injuries sustained outside the workplace—simply because they don’t have money to pay for the care they need. A smart self-funded plan provides routine healthcare services at low or no cost, removing barriers for low-wage employees.

As a result, workers’ comp costs go down and EMOD scores improve. It’s a win-win.

  • Extra funds: With self-funded healthcare, employers don’t pre-pay for coverage—they pay only when claims are incurred. In addition, they keep any extra money they’ve put into their claims bucket at year’s end. With traditional insurance, the carrier keeps all of the money the business has paid into the plan, even if the money they paid far exceeded their claims.

Likewise, businesses don’t bear the burden for insurance companies’ marketing costs or profit margins, a savings estimated at 10 percent to 25 percent in non-claims expenses. Self-funded plans are also exempt from state health insurance premium taxes—which typically cost 3 percent of the total premium dollar value of a traditional plan. The company gets these extra funds.

“My employees will be unhappy.”

With a smart self-funded plan, employee satisfaction will likely improve dramatically.

To fully leverage the benefits, many companies choose to partner with an affordable healthcare provider to help their employees navigate the system and access care, while protecting the company from overpaying for services. The partner provides a concierge-level of service to ensure employees get the right care at the best price.

For businesses, this means lower costs. For workers, it’s a simple, convenient and satisfying healthcare interaction—a tremendous difference from most people’s experience of healthcare.

Mike Bechtol is director of Care Logistics for Redirect Health. For more information about self-funded healthcare for subcontractors, or visit redirecthealth.com/asa or call Redirect Health at (888) 995-4945 or email nextsteps@redirecthealth.com.

LEGALLY SPEAKING: Securing Payment for Your Work and the Priority When Equitable Subrogation Applies

by Karen A. Palecek and James J. Palecek, Palecek & Palecek, PLLC

How do you secure payment for the work you do on a construction project? Most states have mechanic’s lien laws which are statutory remedies that protect the rights of contractors, subcontractors, material suppliers, and certain professionals who add value to the property of another. Given the fact they are statutory, subcontractors will need to be aware of the specific details of mechanic’s lien statutes in their state. However, the concept is that those that improve private property should be protected because they have improved the property and they should have a secured position given the fact that they have incorporated labor and materials into the project and should be allowed to be paid out of the sale of the property that they improved.

The essence of a lien is that if a contractor, subcontractor, or supplier to whom the obligation is owed remains unpaid for work performed, the lien claimant or subcontractor who records the lien can foreclose their mechanic’s lien. Through the foreclosure process, the improved property is sold and the contractor is paid out of the net sale proceeds. Many states require a notice before work begins to be given to the owner of the property and construction lenders that may have recorded deeds of trust on the property. Each state has different requirements and subcontractors are advised to know those requirements and prerequisites so that they have the ability to record a mechanic’s lien if they are unpaid. Clearly, this elevates an unsecured payment claim to a secured claim in the real property that has been improved.

Liens on Leasehold Interests

Mechanic’s liens are also available to claimants that perform tenant improvement work and may serve as liens against not only the landlord’s fee interest but a mechanic’s lien against the tenant’s leasehold interest.

The right to claim a mechanic’s lien on the landlord’s fee interest extends to everyone who, at the instance of the owner or its agent, furnishes services or materials for construction on the property. The contractor, architect, and others having control of construction are considered agents of the owner for this purpose. Thus, a subcontractor or materials provider on a tenant improvement project with no contract with the owner may still claim a mechanic’s lien against the fee if the claimant provided services or materials at the instance of the owner. In addition, that claimant could lien the leasehold and sue the party with whom the claimant was in privity for breach of contract. An analysis is required on whether or not the specific lease requires a tenant to perform some of the construction or if the lease merely permits the construction. If the owner has knowledge of the tenant improvements, a mechanic’s lien would extend only to the tenant’s leasehold interest in the property and not the underlying property of the owner. Each state has specific law relating to not only mechanic’s lien claims relating to the underlying real property or fee interest in the property, but may also have different laws and applications as it might relate to the leasehold interest in the real property. Subcontractors should seek counsel about the state laws with regard to not only mechanic’s liens on the real property, but mechanic’s liens on the leasehold interest. Once that information is obtained, a subcontractor can determine whether it can lien both the real property and the leasehold interest.

Priority and Equitable Subrogation

Subcontractors should also be aware that their mechanic’s lien rights and the property that they improve may be subservient to the Deed of Trust lien of the lender on the project. For example, in Arizona, a construction lender has priority over a mechanic’s lien claimant if the construction lender records its Deed of Trust prior to or within 10 days of the date that the lien claimant began work. Each state may have difference statutory rules with regard to that priority position. What a subcontractor may not realize is that the original lender’s Deed of Trust lien may survive and remain senior to all mechanic’s liens, even though the Deed of Trust has been released. This concept is known as equitable subrogation.

The Doctrine of Equitable Subrogation is widely recognized in American Juris Prudence and allows a creditor who satisfies or pays a prior creditor’s lien to acquire that lien priority position based on the payment made. Again, each state may have specific rules and regulations that have been adopted as this doctrine has been evolving since the downturn in 2008.

The four primary elements for contractors to be aware of with regard to equitable subrogation in general are: 1) the party claiming subrogation has paid the debt; 2) the party was not a volunteer; 3) the party was not primarily liable for the debt; and 4) no injustice or prejudice will be done to the other party by allowing the subrogation.

Equitable subrogation may then be extended to elevate a junior deed of trust holder to a position superior to the subcontractor’s mechanic’s lien to the extent that the junior interest satisfied a senior lender’s interest.

Part of the analysis involves the prejudice to the intervening lienholder, which would be the mechanic’s lien claimant. The reason this doctrine has been evolving, especially after the downturn, is there were many cases where a mechanic’s lien claimant’s work started before the priority date of the Deed of Trust. The mechanic’s lien claimant was then the intervening lienor, and whether or not the doctrine of equitable subrogation applies depends on whether or not there was prejudice to the mechanic’s lien holder. If the junior lienholder is elevated to the senior lienholder position through the Doctrine of Equitable Subrogation, then the mechanic’s lien claimant would not have priority. However, the analysis also involves how much was paid for that position and what the value in the property is.

Thus, the advice to subcontractors is that it is always wise to follow the statutory prerequisites to perfect the mechanic’s lien regardless of the potential equitable subrogation doctrine that may or may not apply to the particular project.

The position of the mechanic’s lien from a priority position may need to be analyzed, but most states’ analysis addresses the commencement as what was visible activity at the project site. The subcontractors that do work on the building, but not necessarily the original excavation ultimately will have the same priority position as the date the first shovel turns the dirt on the property. It is important for subcontractors to know what the law of the state is with regard to the priority position of the mechanic’s lien and the best advice for subcontractors is to obtain legal advice to perfect the mechanic’s lien and get legal advice with regard to the priority position.

Because the law is an evolving doctrine regarding the priority position of mechanic’s lien and each state has its unique laws, the subcontractor should perfect the mechanic’s lien so they have the potential of not only a secured position in the underlying real property but potentially a leasehold interest and even a potential for a secured priority position to be able to be paid for the work that they did to improve the value of that property.

Karen A. Palecek is co-managing member of Palecek & Palecek, PLLC, where she has more than 29 years of experience in the areas of construction law and litigation. Her clientele includes specialty trade contractors, suppliers, general contractors, design professionals, and owners. Her practice and experience is focused on every aspect of the construction industry including but not limited to contract review and negotiation, mechanic’s liens, bond claims, arbitration, mediation, bench trials, jury trials, payment and performance issues, claim evaluations, litigation from complaint through to collection on judgments, and appeals. James J. Palecek is co-managing member of Palecek & Palecek, PLLC. He has advised construction and other clients for over 21 years. His clientele includes subcontractors, general contractors, developers, and consultants in both the public and the private sector. In addition to a focus in construction law, he has also led the firm corporate transactional and real estate practice areas for the last 13 years. They can be reached at (602) 522-2454 or info@palecekaw.com.

Contractor Community

November 2017

Appeals Court Hears Oral Arguments on OSHA Silica Rule

On Sept. 26, business and labor lawyers, as well as representatives of OSHA, made oral arguments concerning OSHA’s silica rule before the U.S. Court of Appeals for the District of Columbia Circuit. Industry attorneys, including those representing ASA and the Construction Industry Safety Coalition, argued that the OSHA rule is not technologically or economically feasible for construction employers. They also contended that OSHA’s use of various control measures as alternative means of compliance shows that OSHA is acknowledging that its new permissible exposure level is not attainable. However, lawyers for organized labor argued that the rule does not go far enough to protect already-exposed workers. In addition, attorneys representing OSHA told the court that OSHA’s risk assessment findings are supported by numerous public health organizations, including the National Institute of Occupational Safety and Health and the American Public Health Association. They questioned industry assertions that the rule is not technologically feasible, arguing that respirators may be used if companies can not reduce exposures below the new PEL. The three-judge panel hearing the case vigorously questioned the advocates for all the parties. Judge Karen Henderson noted that silicosis is the most common occupational illness in the world. Judge Merrick Garland posited that OSHA has discretion to protect workers in the face of scientific uncertainty over the level of exposure that health effects will occur. Garland said, “The law is clear when scientists on both sides” draw different conclusions, “it’s perfectly appropriate for OSHA to weight in favor of occupational safety.” OSHA began enforcing its rule on Sept. 23; under a temporary enforcement policy, OSHA will take into account the good faith efforts of employers to comply with the rule for 30 days. The oral arguments in the case can be heard at www.cadc.uscourts.gov/recordings/recordings.nsf. ASA’s legal fees in this case were paid for by its Subcontractors Legal Defense Fund. Contributions to the SLDF may be made online.

ASA Calls on OSHA to Delay Crane Operator Certification Requirements

In comments submitted on Sept. 29, ASA called on the Occupational Safety and Health Administration “to proceed promptly to finalize the proposed rule” that would extend the deadline for operator certification of cranes and derricks in the construction industry by one year to Nov. 10, 2018, and extend the existing employer duties for the same period. In August 2010, OSHA issued a final standard establishing requirements for cranes and derricks used in construction work. In September 2014, OSHA extended the deadline by three years to Nov. 17, 2017. That rule also extended by three years the employer’s responsibility to ensure that crane operators are competent to operate a crane safely. OSHA is now proposing an extension of the enforcement date to address construction industry concerns over the operator certification requirements.

ASA Calls on OSHA to Halt Beryllium Rule for Construction

In an Aug. 28 letter to the Occupational Safety and Health Administration, ASA told the agency that neither its final rule for general industry nor its proposed rule for construction and shipyards on occupational exposure to beryllium are necessary to protect workers in the construction industry. ASA said that its review of academic and industry safety literature found “no evidence that exposure to beryllium in the construction industry causes a significant risk to workers.” ASA also joined with the Construction Industry Safety Coalition in more detailed comments to OSHA, addressing procedural issues with the rule, the cost effectiveness of the proposed rule, and regulatory alternatives proposed by OSHA. The CISC told OSHA it “believes strongly that a comprehensive standard regulating beryllium exposure in construction is unnecessary from a safety and health standpoint and would impose significant burdens on construction contractors.” CISC posited that while the rule for construction that OSHA proposed on June 27 is preferable to the final rule for general industry on Jan. 9, “substantial evidence does not support lowering the permissible exposure limit for beryllium in construction at all. Furthermore, substantial evidence does not support adoption of a Short Term Exposure Limit broadly in the construction industry.” CISC wrote that both the final and proposed beryllium rules represent “regulatory overreach, requiring contractors to expend resources to address health outcomes that do not exist in construction.” Both the ASA and CISC letters requested that OSHA adopt the approach set forth in the agency’s 2015 proposed rule and maintain the previous PEL for beryllium compounds in construction.

Register Now Marketing Email

Make Your Hotel Room Reservations for SUBExcel 2018

Make your hotel reservations at Tempe Mission Palms in Tempe, Ariz., and register online for SUBExcel 2018, the premier education and networking event for construction subcontractors and suppliers. ASA’s annual national convention will take place Feb. 28-March 3, 2018. ASA has negotiated the special room rate of $204 single/double. The early-bird registration deadline and cutoff date for the hotel room block is Jan. 31, 2018. For more information, visit ASA’s SUBExcel 2018 Web site or enter via the SUBExcel 2018 Web portal, www.SUBExcel.com.

ASA Asks House-Senate Conferees to Approve Freeze of Miller Act Threshold

ASA called for approval of a freeze of the statutorily-required periodic inflation adjustments to the threshold for the federal Miller Act in an Oct. 16 letter to members of a Congressional conference committee appointed to resolve differences between the House- and Senate-passed versions of the National Defense Authorization Act for 2018 (H.R. 2810). ASA Chief Advocacy Officer E. Colette Nelson told the conference committee, “This provision is necessary to help protect the payment of construction subcontractors and suppliers on federal construction.” The provision, which was included only in the House-passed bill, would freeze the threshold at $150,000, rather than allowing it to increase by $50,000 every five years. The 1935 Miller Act requires a prime contractor on federal construction projects to provide a performance bond for the protection of the government and a payment bond for the protection of subcontractors and suppliers. Congress is expected to approve the NDAA before the end of the year.

ASA Supports Extension and Changes to OSHA Reporting Rule

ASA called on the Occupational Safety and Health Administration to postpone its previously-established enforcement deadline for its employer reporting rule. In a July 12 letter, ASA said the enforcement delay would give employers additional time to comply with the rule, which require many employers, including those in the construction industry, to submit the information on their OSHA Forms 300A to OSHA electronically beginning on July 1, 2017. On June 28, OSHA proposed to delay the initial submission deadline to Dec. 1, 2017. In its letter, ASA also urged OSHA to reconsider the rule’s reporting requirements. OSHA has indicated it intends to reconsider and will likely revise the rule before the new Dec. 1 effective date.

ASA Introduces White Paper on ‘Subcontractor Bidding and the Law’

ASA’s newest white paper explores the ways subcontractors can get in trouble when bidding, from failing to comprehend the scope of work upon which they are bidding to making careless errors. Subcontractor Bidding and the Law discusses the bidding process, contract award, bid errors and the legal concept of promissory estoppel. The white paper sets forth seven guidelines:

  1. Beware of bids that refer to the prime contractor’s standard subcontract which is not furnished with the bidding documents.
  2. Avoid acceptance based upon the prime contractor’s standard subcontract.
  3. Consider developing and using your own bid proposal that includes those subcontract terms that are the most important to you. ASA includes a model “Subcontractor Bid Proposal” as part of its Subcontract Documents Suite, which is available to ASA members on the ASA Web site.
  4. Watch out for acceptances that vary or add to the bid documents upon which your bid is predicated.
  5. When bidding via email or telephone, establish that the bid is an estimate only and not a firm price. Advise the prime contractor of any variation to the bid documents.
  6. Verify a telephone bid with an email to the appropriate representative of the prime contractor, stating the date, time, place, the nature of conversation, variation to bid documents, and the conditional aspect, if any.
  7. Upon discovery of a mistake, take the following actions immediately:
  • Notify the prime contractor of the error in writing.
  • Take no action that could be construed as an acceptance of the subcontract.
  • Offer to meet with the prime contractor’s representative and bring your work sheets to explain the basis of the error.
  • Demand the return of your bid deposit.
  • Offer not to rebid the project if excused from your bid to avoid charges of collusion.

The new white paper is available under “Bidding and Market Development” in the members-only section of the ASA Web site.

ASA Publishes White Paper on Progress Payments

Receiving timely payment for work properly performed is vital to any subcontractor. Avoiding or preventing late payments is essential. Education is the key. An educated subcontractor negotiates better contracts. ASA’s new White Paper on Progress Payments advises subcontractors to keep in mind that:

  • You are not only a subcontractor but also a creditor. You are a creditor because your work is performed on the promise of a future payment by a customer.
  • You, as a responsible creditor, must hold up your end of the bargain according to the payment rules to which you agreed in the contract document.
  • You must have and use collections tools.

The white paper also provides tips that a prudent subcontractor can use to protect itself from the potentially devastating effects of late progress payments, including starting with the bidding process, establishing unambiguous terms, submitting proper invoices, and implementing an effective collections program. The white paper is free for ASA members and is located in the “Contracts & Project Management” section of the Member Resources area of the ASA Web site.

ASA’s Manual Charts State Anti-Indemnity Laws

How does your state handle indemnity? You can easily find out with ASA’s Anti-Indemnity Statutes in the 50 States: 2016. This chart 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 chart 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.

Anti-Indemnity legislation is important to subcontractors because too often contractors and owners shift their own liability and risk to the subcontractors. 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-three 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 28 states prohibit a subcontractor from indemnifying another party for its sole or partial fault, meaning 15 of the states with some form of anti-indemnity legislation only prohibit a subcontractor from indemnifying another party for its sole fault. Even fewer states have addressed the additional insured dilemma so far. Only six states prohibit a party from requiring another party to name it as an additional insured under a policy of insurance, but the trend is moving in this direction.

ASA-member law firm and ASA general counsel, Kegler, Brown, Hill and Ritter, Columbus, Ohio, prepared the manual, which contains contributions from construction attorneys from across the country. The ASA Anti-Indemnity Statutes in the 50 States: 2016 is a members-only resource located on the ASA Web site in the “Insurance and Risk Management Documents” section under “LogIn/Access Member Resources.”

FASA Manual Helps Subcontractors Navigate Retainage Laws in the 50 States

A reference manual published by the Foundation of ASA, Retainage Laws in the 50 States, is helping construction subcontractors understand retainage laws where the projects they bid and work on are located. As it applies to subcontractors, retainage is the practice of regularly holding a portion of progress payments that subcontractors earn for performing construction services. “In many states, the retained funds are to be held in escrow, to be paid back to the contractor or subcontractor with interest,” the guide explains. “Many states also permit contractors and/or subcontractors to substitute securities in lieu of retainage. The majority of states permit contracting agencies or owners to reduce or even eliminate the rate of retainage once a certain portion of the contract is complete.” Each state entry in the manual reviews critical factors in retainage law for private and public work, including the retainage rate permitted under law, retainage release milestones, and any options to provide alternative securities in lieu of retainage. Retainage generally is held as an assurance for the timely completion and quality of a contractor’s or subcontractor’s work. It is calculated as a percentage of the total contract price. However, the practice places a severe financial hardship on contractors and subcontractors. When contractors and subcontractors are forced to complete work without full payment, they, in essence, finance the job, making it difficult to timely pay their own creditors. In some cases, contractors and subcontractors are burdened with sizable retainage receivables long after project completion. The ASA-member law firm and ASA general counsel, Kegler, Brown, Hill and Ritter, Columbus, Ohio, prepared the manual. The manual is available to ASA members as a downloadable PDF document in the Member Resources section of the ASA Web site under “Contracts & Project Management.”

Report Sheds Light on Veteran-Owned Businesses and Their Owners

The U.S. Small Business Administration has released a report on veteran-owned businesses. The report gives a detailed profile of this robust business population based on the latest available data, the U.S. Census Bureau’s 2012 Survey of Small Business Owners.

  • In 2012, the United States had 21.2 million veterans, and 2.52 million businesses were majority-owned by veterans.
  • Almost all of veteran-owned businesses (99.9 percent) were small businesses.
  • Veteran-owned firms had receipts of $1.14 trillion, employed 5.03 million people, and had annual payroll of $195 billion.
  • These firms represented 9.1 percent of all U.S. firms.
  • 13.2 percent of these firms were in the construction industry.
  • The three states with the most veteran-owned businesses were California, Texas, and Florida.
  • The three states with the highest percent of veteran-owned businesses in their populations were South Carolina, New Hampshire, and Virginia.

The report, titled Veteran-Owned Businesses and Their Owners: Data from the U.S. Census Bureau’s Survey of Business Owners, is one of the only large-scale compilations of data on veteran-owned businesses in the United States, and it provides valuable data for analytical and policymaking.

Build a Relationship with a Bond Producer

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

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

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

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

Unfortunately, some subcontractors don’t avail themselves of the services that their bond producers offer. “The clients that don’t work quite as well with us are those who only call when they need a bond,” Miclette explained. “Outside of just providing performance and payment bonds, professional bond producers are a free resource of information to the subcontractor to build and help grow his or her business,” added Todd Loehnert, president, L A Surety Solutions, Louisville, Ky.

“Because we have been in the bond business for 40-plus years, we have seen a lot and learned something from each experience that we can impart onto other clients that find themselves faced with similar business matters,” Miclette said.

 A Sounding Board That Listens and Offers Feedback

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

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

Another area he has helped clients with frequently is perpetuation and continuity planning. Miller said recently, one of his clients was considering ways he could exit the business. “We talked about what he planned to do and the steps that entailed,” Miller said. “I asked him questions and made him aware of several things he hadn’t considered, including reputational and legacy issues.”

Referrals

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

“We help to align the subcontractor with quality, construction-oriented CPAs, lawyers, and banks,” said Eric Zimmerman, vice president, Propel Insurance, Seattle, Wash. “This benefits both our client and our surety.”

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

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

Business Planning and Hiring

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

Zimmerman said he helps subcontractors grow their balance sheet. “We help our clients with setting objectives and with determining where they want to be in five years,” Zimmerman said. “We then coach them, where we can, to keep them on track with their business plan. Our goal is to help our clients build wealth in the long term.”

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

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

Financial and Project Trend Analysis

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

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

Zimmerman said, “A good relationship also comes with a certain amount of future forecasting for the [client], anticipating what is going to happen next, anticipating what the upcoming questions might be, and then giving them counsel on some ways to prepare for that and/or change the direction, so that they can achieve what they’re looking to achieve from a bonding standpoint.”

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

Contract Review and Dispute Assessment

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

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

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

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

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

Don’t Assume You Won’t Qualify for a Bond

Many bond producers want to help clients to obtain bonds who have had difficulty. Denny Scully, partner, Mapes Insurance Agency, Inc., Grand Rapids, Mich., said he likes the challenge of helping a subcontractor that may have had difficulty obtaining bonding in the past.

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

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

“If someone needs help with bonds, I’ll always talk to them,” Miller said. “There is a real satisfaction in getting someone their first bond, or working out a reasonable solution in a difficult situation.”

Communication Is Key

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

Bond producers don’t rely solely on email to communicate with their clients and regularly meet face-to-face with their clients. Keeping in touch helps the subcontractor share what is happening with the company and ensures the bond producer remains informed. “We are always discussing jobs and how they fit into their capacity with the bonding company or how they may view certain new projects,” Scully said.

Michael Petrasek, Sr., who recently retired from Seubert & Associates Inc., Pittsburg, Pa., said, “Technology can get in the way [of forming strong relationships with clients], because there are tough questions in the construction business and in the surety business. One question may lead to another, and your email strings can go on and on. Somebody once said to me—and I adhere to this philosophy—that the internet and email are a great way to exchange information but a lousy way to communicate.”

McMahon said: “[When there is a problem] I never handle that by email. I want to make that a face-to-face discussion. I want to lay out the issue. I don’t want to sugar coat it, and I want to make sure that we both understand what caused the issue and that both of us make a commitment to fix the problem.”

Expect to Learn About the Surety Product

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

Some subcontractors may not understand how their internal business decisions can impact their surety credit. The subcontractor’s ability to qualify for his or her next bond can be jeopardized. “Bond producers can provide insight and guidance into how to maintain and protect a subcontractor’s bonding program,” Loehnert said. “But the subcontractor needs to keep his or her bond producer apprised of decisions that may impact the subcontractor’s surety credit, such as plans to make distributions, to increase staff, and to lease or purchase equipment.”

The client education process includes providing information about the sureties, as well. “Subcontractors need to be wary, especially in today’s soft market, to ensure that they verify, not only their own bond, but that of the prime/general contractor to ensure it is issued by a licensed, U.S. Treasury-listed, reputable surety carrier,” Loehnert added.

Consider your business reputation and credit and find the right professional surety bond producer that offers business relationships built on trust, honesty, and frequent communication. You will find that “[bond producers] do many things beyond the bond; we are a friend, a trusted advisor, a sounding board, a devil’s advocate, a cheerleader, and a shoulder to cry on,” said Chris von Allmen, producer, Garrett-Stotz Company, Louisville, Ky.

For more information about the bonding process, visit www.suretylearn.org, a site with free resources to help orient contractors and subcontractors to the bonding process and obtaining surety credit.

Kathy J. Mapes Hoffman is director of communications, National Association of Surety Bond Producers, Washington, D.C. She can be reached at (202) 464-1175 or khoffman@nasbp.org. Find a NASBP bond producer at nasbp.org.

 


 

Questions to Ask Your Producer

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

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

  • What is the reputation of the bond producer? Does he or she have a reputation for integrity and respect in the industry?
  • What percentage of his or her overall business are construction clients?
  • Does he or she have an understanding of the construction industry and of the construction process, particularly the management and administration of construction contracts?
  • Does he or she possess knowledge of construction accounting procedures, especially an ability to analyze financial statements, work-in-progress, and cash flow?
  • With how many sureties does the producer work?
  • Is the producer specifically authorized to issue bonds on behalf of sureties?
  • Has the producer developed solid relationships with surety underwriters?
  • Has the producer developed solid relationships with other professional service providers, such as attorneys, CPAs, and lenders?
  • How aware and interested is the producer in local, regional, and national construction markets?
  • How active is the producer in local or national construction associations, such as the American Subcontractors Association, and in local or national surety industry associations, such as the National Association of Surety Bond Producers?
  • Can the producer demonstrate a commitment to maintain frequent client contact through newsletters, site visits, or visits to client offices?
  • What other services does the producer provide clients to help them with their business needs?

 

Cold Calling Is Dead, Networking Lives

by Tom Woodcock, Seal the Deal

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

Today, the ability to get advanced information on a potential customer is at its highest level in history. Via the Web you can secure company information, market presence and even contact information. This eliminates much of the need for a cold call. The issue here is you lose the physical presence with the customer. Therefore, we need to find a way to accomplish this in order to gain the initial meeting. The best way to do this is by going backwards to move forward—using associations, organizations and chambers of commerce. Yes, that’s right—pools of people! Add your own, designed network of contacts and you have a lead machine. Getting to events, happy hours, business breakfasts and business groups is paramount to finding opportunities. There are some qualifiers to keep in mind so you don’t waste time and effort. They are:

  1. Customer Rich: Does the event appear to attract customers or potential customers? Though often you’ll never really know until you attend, promotional media will give you an indication on the target market. Customer-rich environments are always your best shot at direct business opportunities.
  2. Network Development: Will there be current or potential network contacts in attendance? These are individuals who also sell to your customer base. They can be great sources for introductions and inside information. Your personal network should have a high concentration of these types of individuals.
  3. Association Affiliation: Events that are hosted by associations are often well attended. They tend to cater to specific groups ,so it’s easy to qualify attendees. Many times the events are limited to members and their guests, but every so often they’re open to visitors. Grab those chances.
  4. Known Host: These are events hosted by individuals or companies well known in the industry. People will attend because they know historically that host has strong networking meetings. Some have a knack in setting up these programs. Why reinvent the wheel. Take advantage of their expertise!

Simply using these four criteria will produce results. Then it comes down to your personal approach to networking. You have to develop a methodology that you’re comfortable with and that matches your personality. Some people can simply own a room. Others need a good, structured plan of attack. Either way, its best to attend with a little information and strategy. Here are some tricks to get more bang for your buck.

  1. Get There Early: Check out those nametags and select a couple of targets you want to approach.
  2. Permission to Call: Politely asking if you can contact a potential client goes a long way. Do not be challenging or confrontational. You’re hoping to get permission to contact them.
  3. Use Your Existing Network: Connect with those already in a network relationship with you to meet new contacts. This is the easiest way to gain new personal contacts.
  4. Stay Late: A lot happens after the scheduled meeting is over. Those who hang around tend to be more open and freer in their discussions. This can provide an inside track on potential projects or opportunities.

I’m a firm believer in the power of networking. If you combine a good physical network with a functioning electronic network you’ll have the basis for a lead-generating machine. Finding business opportunity is a primary goal of all companies. Without leads there aren’t sales, without sales there aren’t projects, without projects there aren’t contractors. Continually priming your network will result in a steady stream of leads and prospects. Under-valuing the power of networking can not only be short-sighted, but also may result in business decline. Forcing a cold-call-first mentality displays a dated sales approach. It also reveals a weakness in network development. With the increase in communication and social connection, it is far easier to find, as well as secure, sales leads.

The final piece of the networking puzzle is to be sure to follow up on the information secured at the networking event. This of course is assuming you gained some information. What good is information that is never acted on? It happens all the time. Taking the time to make the phone calls and get the appointments is where the real rubber meets the road. Not turning networking information into business is inexcusable. The discipline to attend networking events has to be followed by the discipline of acting on the results. A healthy sales effort includes between four to eight networking events a month. That’s roughly 50 a year! I find it hard to believe that kind of networking commitment will not produce results. As a matter of fact, I know it will, because I do it myself. The results have been impressive and it will always be a part of my sales regimen.

Before my age-related peers shout at this article and tell me I’m killing their sales direction, I throw you a bone and say the occasional “fill in” cold call may be worth a shot. But with the need to maximize the time of those doing the selling, effectively networking will get you greater bang for the buck. The overall issue is how much time and effort is put into generating business. So many people in the construction industry that are tasked with selling have other responsibilities as well. They either estimate or manage projects on top of getting business. This is completely understandable in a small company, but is inexcusable in larger ones. It always amazes me that most company owners will admit sales is the most important aspect of their business, but have no one dedicated to specifically that area of importance. They’ll spend more and staff up on the administrative side of the business while neglecting to properly support the sales team—if there even is a team!

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

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