The Skilled Trades Company

State of the Industry

2011-07-06T07:53:00.000-07:00

The non-residential construction market typically follows the residential construction market by 6 to 12 months, both into the recession and coming out of the recession. Well, this time around it was not the case.

But I can make a prediction that if the residential market can turn the corner and improve their prospects, then those of us in the non-residential market should see some increased ability to both increase our profit margins and build quality products at a solid negotiated price.

The most recent financial study information from Shinn Consulting shows home builders are beginning to turn the corner toward profitability and gives indications of the effect of their decisions throughout the downturn. (This is great news for the non-residential market!)

Since 1993, Shinn Consulting has been collecting and analyzing financial data about their home builder clients, who have some of the best-run companies in the industry. The trends and benchmarks that Chuck and Emma Shinn have established from this research and other work have become industry standards.

Below is a recap of the results for their most recent study, from a webinar titled “Building Profitability in a Downturn: The Shinn Group's 18th Annual Financial and Operations Study Results.”

Most of their builders made the right decisions early on, but they faced a couple of problems. They could not move fast enough and nobody expected the downturn to last 5 years.
From 1993 (when they began collecting information) until 2006, Shinn Group clients saw increases in profitability by becoming more efficient and by being able to raise prices above the cost increases.
In 2006, the pressure for pricing began, which marked the beginning of the stall in profits. 2007 was saved because of the backlog that was still in place during the first half of the year. 2008 was the first year of full downturn and began the precipitous decline in profits.
Builders were able to get rid of land, but they were stuck with their existing product. The downturn was so steep that they couldn’t get new product onto the market. So, in order to sell, they had to discount existing product. As a result, they took hits on volume and gross profit. 2009 was almost a duplicate of 2008 with a slight decline. Finally, in 2010 we begin to see a recovery on the profitability front.

The losses were fueled by two components: Direct Costs and Operating Expenses. Nobody expected the downturn to last this long, so they held on to staff. Many of the builders held on even until last year. So, their operating expenses went from 18% to 25%. Many builders admitted that shedding staff was the hardest thing they had to do, and they especially wanted to keep their core group around.
During 2008 and 2009, the pressure on prices continued, and the builders tried to reduce cost by negotiating with trades. But they are still building the same product. (There is a limit on how much cost you can cut on those houses.)
The builders pay a big price for holding onto staff. Now, sales volumes have declined significantly, and the percentage of cost to sales continued to increase because of the down push on prices and the failure to cut cost from the trades while building the same houses as in the past.
Because sales revenues decline significantly and the builders are maintaining the same levels of staff, they get a double whammy. Operating expenses go totally out of kilter, rising to almost 25%.
In the end of 2009 and beginning of 2010, the builders were able to make changes to their overhead and get new product in place. In 2010, we finally see the results of some hard choices made by the builders. There is a significant increase in gross profits, which is a result of redesigning the product to meet the new price ceilings adjusting for cost of the structure and specs.
On the operating side, the builders are closer to reaching a balance between their operating expenses and their sales revenue. Staff has been cut to the levels required to sustain the new volumes. These costs are still above our target as builders are trying to protect their core management team but there has been a significant adjustment from 2009 to 2010.

If you are in the non-residential market, get ready to follow our home builder brethren’s example and turn the corner to profitability and growth.

Healthcare Waivers

2011-06-16T10:58:00.000-07:00

Depending on your political leanings, the 1,400 waivers granted is either proof the Obama administration’s Patient Protection and Affordable Care Act is flexible or evidence that it harbors a fatal flaw. And with so many high-profile businesses, labor unions and health insurance companies gobbling up waivers, construction company owners naturally are wondering what’s in it for them.

Waivers, temporary permission not to participate in PPACA, ostensibly are issued to organizations that offer “mini-med” insurance plans that cost employees little and offer severely limited benefits. The thinking is, an inferior plan is better than no plan. But these programs do little to allay workers’ liability if they become seriously ill. These limited benefits are why the government banned mini-meds effective 2014, with mandates that benefits rise until that effective date. Waiver applicants want to keep their minimal plans, arguing they can’t afford to increase payouts. It’s interesting that more than half the workers exempted so far are union members, while unions represent far less than 15 percent of America’s workforce.

Congressmen Mike Rogers (R-Mich.) and Dan Boren (D-Okla.) introduced the Health Care Waiver Fairness Act that would allow every small-business owner and even individual citizens to apply for a waiver from the new health care law. Until that bill becomes law, the federal Department of Health and Human Services says a group health plan or health insurance issuer may apply for a waiver. Here’s how to apply:

Send the following in an email to healthinsurance@hhs.gov (use “waiver” as the subject of the email):
1. The terms of the plan or policy form(s) for which a waiver is sought;
2. The number of individuals covered by the plan or policy form(s) submitted;
3. The annual limit(s) and rates applicable to the plan or policy form(s) submitted;
4. A brief description of why compliance with the interim final regulations would result in a significant decrease in access to benefits for those currently covered by such plans or policies, or significant increase in premiums paid by those covered by such plans or policies, along with any supporting documentation; and
5. An attestation, signed by the plan administrator or Chief Executive Officer of the issuer of the coverage, certifying 1) that the plan was in force prior to September 23, 2010; and 2) that the application of restricted annual limits to such plans or policies would result in a significant decrease in access to benefits for those currently covered by such plans or policies, or a significant increase in premiums paid by those covered by such plans or policies.

Employers with more than 50 workers are required by the act to offer health insurance to their employees or pay a fine for each worker who buys coverage on his or her own.

In applying for a waiver from the employer mandate, companies may benefit from taking a page from business groups arguing for a wholesale repeal of the provision. Companies can tailor their waiver request to their own situation. Waiver-seekers could argue that because workers are compensated through both wages and benefits, an artificial – that is, non-market-driven – increase in one (health care benefits) necessarily must result in the decrease in the other (wages).

As Brian Blase, political analyst at the Center for Health Policy Studies at The Heritage Foundation notes, “Productivity gains, not acts of Congress, are required to increase worker compensation over time. The Congressional Budget Office estimates that the employer mandate will cost businesses $52 billion in penalties from 2014 to 2019.”

A similar decrease in wages not only hurts working families, but also stymies economic activity and leaves huge gaps in state and federal tax revenue.

It also can be asserted that the mandate retards hiring practices at a time when the economy is just beginning to recover. Because the rule covers employers of 50 or more workers, those businesses hovering near the threshold will be chary to make hires that make them subject to the mandatory coverage. This will be especially true for low-skilled and low-wage workers, where the cost of providing health care coverage represents a disproportionally high cost.

Finally, applicants can show that the cost of additional health care coverage, or conversely the penalties for not providing it, will be shifted to consumers. Blase notes, “who actually pays the tax is determined by the market forces of supply and demand, not by where Congress ‘places’ the tax. Therefore, a significant part of the cost increase will be passed on to businesses’ customers in the form of higher prices.

On a lighter note, if your company is large enough to be affected, it is unlikely that as a non-union company, your health care package (unlike those of the unions, apparently, given all the waivers organized labor has received) falls into the woefully inadequate mini-med category, John Hayward, a writer at the Conservative-leaning Human Events, offers a few tongue-in-cheek suggestions on how to obtain a waiver. Among his advice is to join a union; work for a health care company, a big company, or the government; better yet, live in a district or state represented by a friend of Barack (it has been well-documented that businesses in Nancy Pelosi’s district have received a metric truckload of waivers and that the entire state of Nevada, represented by Senate Majority Leader Harry Reid, has secured a waiver as well).

Policies That May Help Prevent Union Salting

2011-05-20T12:43:00.000-07:00

As organized labor struggles to remain relevant in the 21st century, unions are using ever more aggressive tactics. Salting is a tried and true method that construction unions continue to use to tilt the level playing field of America’s free market system.

Unions may use salting to achieve two different goals: either to “infiltrate” a non-union company in order to organize its workforce, or to goad a construction company into committing an unfair labor practice. The tactics haven’t changed much over the years because they’re effective and because bad public policy protects the methods used. Typically, a “salt” (so named because one or a few of them among your loyal workforce has the same effect as sodium chloride in your well) under the auspices of the local trade union, will visit the contractor’s headquarters to apply for a job, usually without revealing his or her union affiliation. While on the job the salt will sneak around the jobsite, ferreting out as much information about the company and its employees as possible.

While union organizers often publicly caution their salts never to commit sabotage, steal, lie, or cheat, as does one local of the International Brotherhood of Electrical Workers, they are just as likely to provide tips on exactly how to go about committing these reprehensible acts. The same website advises salts to “get a list of all employees, or make one of your own. If you can, try to include home addresses and telephone numbers.” Where is the spy likely to find this information? In the company’s confidential personnel files, of course.

When applying for the job, the union says the mole should “avoid obvious references to Union jobs in your resume…. If it’s obvious that you’ve worked at a union company, be prepared to give a believable explanation as to why you’re applying for a non-Union job.”
Notice the accepted union plan is to provide plausible explanations and to purposefully omit relevant information; that is, to find ways around the truth.

Perhaps in acknowledgement of unions’ status among loyal, hardworking employees, the site also advises salts, “Don’t tell your co-workers that you’re a Union member or a salt. You want to be seen as being an ordinary worker” rather than someone whose goal is to boost union membership rolls and coffers instead of putting in a fair day’s work for a fair day’s pay.”
More typically, the union’s plan in a salting campaign is to make a case for an unfair labor practice charge against a target non-union company. That is, to harass the company and its management simply for being in the vast majority and choosing to remain an open shop. To do this, the union might send a member to apply for a job while making it obvious she or he is affiliated with the union. The applicant may wear a union shirt or hardhat sticker, may even state outright his intention or may include union organizing experience on her job application. If the applicant is not hired for any reason, the union takes its case to the National Labor Relations Board accusing the company of discrimination based on union membership.

Incredibly, these schemes are protected, despite common sense arguments against that protection. Why should an employer be forced to hire someone whose stated or covert objective is to work counter to the employer’s desires? Refusing to hire a salt would not infringe on current employees’ rights to organize. Nevertheless, given the current law, there are some measures non –union contractors can take to protect their open-shop status.

While not intended as legal advice to prevent salting (always consult a labor attorney) some companies have instituted policies that have met with varying degrees of success while not running afoul of union rights. Here are some ideas worth considering:
• Insist all employment applications be completed on site or in front of an officer of the company. This will prevent a salt from making dozens of copies, distributing them to fellow salts for completion, and flooding the company with union-affiliated applicants, increasing the potential for unfair labor practice accusations.

• Prohibit disclosure of information not requested. Make it clear that just like religious affiliation, ethnic background, etc., you do not want to know about an applicant’s “volunteer” union organizing work history.

• Make it a policy not to accept photocopied or faxed applications in place of the application.

• Keep accurate records of interviews so legitimate reasons for not hiring an applicant can be cited (acceptable reasons may include poor hygiene, insubordinate attitude, etc., which union lackeys may effect to ensure they don’t get the job.)

"Construction Sloooowly Increases"

2011-04-27T06:55:00.000-07:00

The lead paragraph in many national news stories about the country’s economic trends are starting to paint much rosier pictures. But as we continue to read toward the point of the stories’ inverted pyramid, it becomes clear that those three words should appear in the lead.
Raymond James’ almost-giddy April 4-8 Market Commentary is a perfect example:
“Happy days are here again….The job market is now adding jobs at a pace stronger than population growth…. It’s been clear for some time that large-scale job losses are far behind us….Small and medium-size firms have begun to add jobs in recent months….”

The fact is the recession that ended for everyone else nearly two years ago continues to plague the construction industry. Employment rolls remain down; spending for building projects is slow. The construction industry stands at a seasonally adjusted 5,514,000 – about 29 percent lower than it was in April 2006. Just as sad, today’s construction workforce is identical to what it was six months ago. It has been left at the terminal while the rest of the economy takes off on a solid recovery.

The industry’s unemployment rate stands at 20 percent, more than double the overall rate.
“The ongoing drop in construction employment in March, combined with the news that construction spending hit an 11-year low in February, is doubly distressing,” said Ken Simonson, chief economist for the Associated General Contractors of America. “Despite a few signs of an upturn, the industry as a whole has yet to touch bottom five full years after the peak in employment and spending.”

Even the few bright spots for construction, as highlighted in economic reports, come with asterisks. Private commercial construction spending increased 0.9 percent in February, according to a report by the U.S. Census Bureau. That’s welcome news, concedes Anirban Basu, chief economist for the Associated Builders and Contractors. He says the report confirms the beginning of a transition period in the industry from public – especially stimulus package-generated – projects to more private building. But ABC notes the February uptick does little to offset the prolonged downturn. Private nonresidential construction spending is down 13.2 percent in the last 12 months. And total nonresidential construction spending – public and private – is down 6.3 percent for the trailing 12 months. Private building simply is not picking up the slack as federal, state and local government investment in construction dries up.

“As the impact of federal stimulus wanes, and the broader economy continues to recover at a respectable clip, the volume of privately financed construction is now edging higher,” Basu said. “However, for the time being, that slender growth is being more than offset by decreases in publicly financed construction. This pattern is likely to continue into the summer. Demand for privately financed construction will probably expand only gradually due to an excess supply of hotel rooms, office space, retail space and industrial space in many markets. In contrast, the recent decline of construction activity in segments heavily financed by state and local governments will likely continue on that path.”

A combination of intense public construction and policies to stimulate private construction are required to persuade owners hesitant to pull the string on new projects. Here are some suggestions. On the public front:

• Eliminate Davis Bacon on public construction projects thus giving local and state government more bang for their buck in this tight government receipts environment.

• Remove restrictions and limitations on public-private partnerships that would allow construction of optional toll roads and other projects which require little initial outlay of public money.

• Expedite approval processes, environmental impact reviews, licensing, inspections and other red tape to fast track crucial infrastructure projects. While we’re at it, let’s revoke any legislation that requires consideration of project labor agreements.

Getting the private sector building again is the key to a real recovery, however. To jumpstart this vital component to the nation’s good health, we must create private-sector jobs and get money flowing by boosting demand for real estate, manufactured goods, services, travel, etc. Several steps can start us in the right direction:

• Knock down barriers to foreign trade, thereby reducing the cost of imported materials and opening overseas markets to American goods. This will create demand for manufacturing facilities, transportation centers, ports, etc.

• Free up the money supply by not raising taxes, returning retention monies withheld from contractors.

AGC’s “Building a Stronger Future” calls for several of these initiatives, and notes their many benefits: 1. An increase in construction activity will create many new jobs in communities large and small; 2. New construction will increase demand for manufactured goods while boosting global competitiveness. 3. Improved public infrastructure and private buildings will make U.S. businesses more competitive, more efficient and more successful, boosting employment, the economy and overall tax revenue.

When Will Commodity Prices Fall?

2011-04-05T05:40:00.000-07:00

Contractors, especially those in the retail sector, have for months watched helplessly as building costs have escalated. A glut of resale homes and empty office space and American consumers’ bunker mentality on their purse strings as they wait out the economic siege have left contractors powerless to pass the creeping price increases along to consumers. Meanwhile, their wafer-thin profit margins get shaved even closer.

The culprit is commodity prices. In fact, residential construction costs have fallen significantly from their highs in September 2008, according to National Association of Home Builders Senior Economist Bernard Markstein. That crumb, tossed to builders by the recession as it gluttonously gobbled up job opportunities, sustained contractors throughout the worst of the downturn. Construction costs remain well below those 2008 levels, no thanks to lumber, steel, copper, and most of the other raw materials that go into houses, apartments, schools, and bagel shops. Still, “hard” construction costs represent almost 60 percent of a new home’s sticker price, up from 50 percent less than a decade ago. Markstein noted. Commodities are the blame for more than 100 percent of that increase. In fact, with slackened demand driving land costs lower, competition for a slice of the shrinking pie forcing commissions paid to realtors lower, and bare-bones operating budgets – including marketing – streamlining overhead costs, nearly every other component of a house’s selling price has plunged since 2002.

Profits have not been immune. Markstein says contractors earn less than 9 percent profit on their home sales today, compared with about 12 percent in 2002, as they absorbed the commodity price increases caused by soaring global demand, labor issues and natural and political events that limited supply, conservative development policy, speculation, and more.

The common and easy explanation for the inflationary nation of commodities is that China, Indonesia, India and other developing countries are sucking up the world’s steel and concrete as they modernize their infrastructure and their citizens develop more Western – read consumer-oriented – sensibilities. There is much truth to this analysis. But it only goes so far in explaining how construction commodities, especially those produced in the United States, have seen their prices rise in an environment of stagnated markets.

Investment advisors Goldman Sachs provides another part of the reason – one it identified in a report a year and a half ago in suggesting investors dive into the commodities market:

[T]he commodity problem is, at heart, a supply shortage due to decades of suboptimal investment, which has been exacerbated over the past year by the sharp drop in prices and tight credit conditions. As the commodity markets rebound with the broader global economy we expect a redux of 2008 when severe supply constraints forced the rationing of demand through sharply higher prices to keep the markets balanced.

This would point to price increases being temporary, as basic economic principle takes hold and quantity is regulated upward as dictated by the availability of excess profits. When mines, mills, factories, and farms believe demand for their products is sustainable, Markstein writes, they will reopen shuttered plants and increase their production capacities; prices will return to normal. Currently that confidence does not exist.

On the other hand, a recent Economist story points out disturbing evidence that the current commodity price cycle could last well into the next decade. The premise is that “the current surge in commodity prices, at a time of spare economic capacity in the rich world, suggests [e]ither the needs of the developing world are causing demand growth to outstrip supply for an extended period, or new sources of supply can be found only at higher cost. Both explanations add weight to the idea of a “commodity supercycle”, a long-term surge in prices that might last for 15-20 years.”
Still another reason for the confounding commodity inflation is Wall Street’s willingness to take Goldman Sach’s advice and play the market. The Federal Reserve Bank gave this investment strategy a boost late last year with its quantitative easement policy announced late last year. That effectively drove investors out of the bond market. Seeking alternatives, many planted their money in commodities. Increased demand = higher prices.

Anirban Basu, chief economist for the Associated Builders and Contractors, reports that all these causes are putting additional continuous pressure on contractors in their efforts to ride out the economic storm. “With the cost of construction rising in many instances, developers and others may choose to further delay construction starts. This, of course, represents bad news for an industry already associated with an unemployment rate above 20 percent and spending volumes that are nearly 25 percent below late-2008 levels. The hope is that speculators will not continue to pour money into commodities and that material prices will be better behaved in the months ahead,” Basu said.

Whether the current surge in commodity prices is temporary, caused by low production capacity or the beginning of a long-term “supercycle,” contractors who can adapt will be in positions of competitive advantage by finding viable material alternatives and using scarce resources more efficiently.

Opportunities Exist in Transmission Line Construction

2011-03-03T10:12:00.000-08:00

Economic stagnation, national security concerns, geopolitics, national security and environmentalism make strange bedfellows, but all have come together to create perhaps the next big thing for America’s contractors. They’re all factors that make electrical transmission line construction one of the bright spots on an otherwise mediocre horizon. It’s a source of optimism for construction company owners and executives watching helplessly as private-sector projects are slowly getting back on the architects drawing boards and as craft workers keep filling the unemployment lines. Reinvigorated interest in environmental stewardship as well as a renewed desire for less dependence on foreign oil (along with an unreasonable fear of nuclear power, it seems) has catalyzed the movement for development of renewable fuel options.

Whether it’s photovoltaic collectors in the Nevada outback, wind farms covering the Texas plains, or geothermal power plants scattered throughout the West, 33 out of 50 states have some kind established “renewable portfolio standards” – policies that require electricity providers to secure a certain percentage of their power from renewable energy resources by a certain date. These standards have sent utilities scrambling to build generation facilities. Add to this talk of state renewable energy standards – which experts seem to think 12 to 20 percent is an achievable figure – and the country will need some 300 gigawatts of new renewable production capacity.

One limitation solar and wind power, at least, have in common, is that they must be placed in vast, open spaces in order to achieve the economies of scale required to make them economically feasible and to generate enough power to make a difference. By definition, however, these vast, open spaces are empty, far from much human activity – the kind of activity that will consume the electricity generated at these alternate-fuel production facilities.

That’s welcome news for contractors with the institutional knowledge and the field staff know-how to construct the infrastructure that will bring electricity from its remote generation facilities to the cities and other load centers that need it. Act now to take advantage of this blooming specialty within the construction field. For some contractors, it may be the only viable option. After all, non-building construction in December 2010 rose 29 percent, almost exclusively on the back of “exceptionally strong amount of new electric utility projects,” according to McGraw-Hill Construction, which calculated the sector’s growth at 227 percent.

Indeed, according the Associated General Contractors, “power-focused” public construction offered a bright spot, finishing with a seasonally adjusted annual rate of $95.7 billion, up 7 percent from the previous month and 6.3 percent higher on an annual basis, again, the result of “a mix of oil and gas-fired power plants, renewable power projects such as solar and wind generation, and transmission lines,” a trend it says will continue well beyond 2011.
Ah, the transmission line.

According to Martin W. Gross, president and chief executive officer of ABB Lummus Global Inc., “Transmission capacity for this new and mostly remote generation…does not exist. With an average construction schedule of 60 months to 72 months for a 500 [megawatt], 345 [kilovolt] transmission line, it could take well beyond 2025 to build the needed transmission lines.”
Can you say job security?

The Tres Amigas project slated to begin construction in 2012 in Clovis, N.M., near the border with the Texas Panhandle, is designed to link what Phillip G. Harris, the project’s chairman and chief executive officer and Jack McCall, director of high temperature superconductor transmission and distribution systems for American Superconductor, call America’s “balkanized” power grid. Their article in Mechanical Engineering Magazine notes that the Eastern, Western, and Texas interconnections are almost exclusively independent, with “only relatively small, bilateral [direct current] links…between any two interconnections—a mere 2,000 megawatts of combined power transfer. And the three interconnections have never been integrated.”

The Tres Amigas project aims to break the logjam along the country’s electrical stream, allowing utilities to purchase energy from both renewable and conventional sources through a power marketing hub capable of supporting 5,000 megawatts of power transfer capacity. This ability to transmit power in bulk is the key to overcoming the cost and efficiency handcuffs that are retarding the development of renewable energy generation. While many renewable power sources’ intermittent nature creates challenges for grid reliability, proven, readily-available and cost-effective transmission technologies exist to mitigate their impact, Gross contends. These include high voltage direct current (HVDC) transmission systems such as those scheduled for deployment at Tres Amigas, and flexible AC transmission systems (FACTS).

Tres Amigas is a year away from initiation of construction, but several other major projects are on line as well, mostly in California (the leader in renewable energy generation), Texas, Wyoming, Idaho, Montana, Nevada, and elsewhere in the West.

Personal Protective Equipment

2011-02-04T08:51:00.000-08:00

Workers and management don’t always see eye to eye on every issue, but the importance of proper and properly used safety equipment is universally acknowledged. Still, confusion can arise when it comes to determining exactly what constitutes proper equipment, when it must be used, and whose job it is to determine these guidelines. The following suggestions will go a long way toward ensuring no safety considerations fall through the cracks because someone though someone else was taking care of it.

The person in charge of safety on the jobsite, whether a safety director or manager in a large construction company or the designated safety person, should develop, implement, and administer the firm’s site-specific safety standards, including the personal protective equipment policies. A big part of this responsibility involves assessing the jobsite and cataloging the potential safety hazards in order to choose the safety equipment that will mitigate the hazards. Working with supervisors and the project manager, the safety person should walk the jobsite prior to construction, the first day on the job, and at intervals throughout the project, especially when a new construction phase begins, new equipment is put into use, or an accident or near miss occurs.

The safety person then should evaluate the hazards identified in the walkthroughs to fully understand the risk in order to consider the types of PPE that are available to deal with them, and the pros and cons of each option. It’s this person’s responsibility also to ensure his or her choice is effective, made for the specific hazard and working conditions, and, of course, OSHA approved.

Once she has obtained the correct equipment, the safety person will inform the specific employees who will be required to use it, instruct them on the proper usage, fitting, maintenance and reasons for its use.

Supervisors, in addition to assisting the designated safety person with the hazard-assessment walkthrough must ensure the appropriate PPE is available on site and employees are fully trained in its use. This should include much more than “eyeballing” a worker as he dons his safety equipment and giving a thumb’s up, “good to go” approval. Formal training is required, and it must be documented. Each person who receives training should sign a company form to that effect, to be collected and filed by the safety professional. As the ranking company employee at the jobsite daily, the supervisor also must serve as a liaison with the safety professional, ensuring he knows when new hazards are created on or brought to the site, when safety equipment must be replaced or supplemented and enforcing PPE usage policies and all safety procedures.

Though they’re the ones with the most to lose, employees are not always the most conscientious when it comes to safety and use of PPE, especially when they’re performing tasks that have become mundane and routine. Because of this tendency toward complacency toward, even contempt for, safety, construction companies should adopt a zero tolerance toward blatant disregard for PPE. But even the threat of disciplinary action, comprehensive training, and the constant drilling into their heads on the possible tragic consequences of disregarding safety equipment may not be enough to ensure compliance with company policy.

Foremen, Supervisors, and managers must insist employees adhere to the policies, which should be in writing. PPE policies should demand employees wear PPE when required and in the proper manner; attend mandatory sessions to learn when, where, and how the equipment should be used; Maintain and clean equipment as necessary, and inform supervisors when equipment is in need of replacement. Incidentally, it’s a good policy for the employer to supply all safety equipment to ensure it complies with OSHA regulations. Only doctor-ordered equipment should be supplied by the worker, and the employer’s equipment should be housed in the company office or in locked storage facilities at the jobsite.

By including penalties for failure to comply with proper PPE use, contractors deliver the message that they consider safe work practices a prerequisite for employment. A serious accident can devastate a family, but it also can ruin a business. Owners and CEOs owe it to themselves to insist their workers abide by the safety policy. Enforcement often requires both the carrot and the stick. Companies can host outings or lunches for crews who maintain safe standards, but they also must punish workers who thumb their noses at safety policies. A reasonable disciplinary policy might include:

1. An oral reprimand delivered by a company supervisor as soon as the violation is discovered, for a first offense.

2. A formal, written reprimand to be included in the employee’s personnel folder, for a second violation.

3. Time off or termination in the event of a third serious violation.
Remember that PPE is considered safety’s last resort. Other jobsite measures should be used whenever possible to mitigate risks. PPE only protects the person wearing it; measures controlling the risk at source protect everyone in the workplace.

Notes From the Power-Gen Conference

2011-01-21T12:03:00.000-08:00

Power generation, transmission and storage are emerging as key construction sectors not only in the United States, but also worldwide, thanks to the bustling economies of China, India, and other emerging nations. This increased global demand, expanding interest in environmental stewardship placing greater emphasis on renewable energy, and the willingness of governments and companies to reconsider nuclear power created significant buzz at the Power-Gen International conference in Orlando, Fla. in mid-December.

A diverse panel kicked off the conference, exploring the necessity of stable energy supplies to ensure the United States’ security and quality of life through realistic and thoughtful policy. These challenges will be made even more difficult, they agreed, as America works to balance its need to remain economically competitive in an expanding global marketplace with its desire to demonstrate cooperation and a worldwide view on issues such as carbon emissions and other environmental issues.

Dr. René Umlauft, CEO of Siemens AG’s renewable energy division, noted in his portion of the keynote panel discussion that power generation from renewable sources is expected to increase nearly six-fold from 2009 levels to account for 17 percent of all energy sources by 2030. China and India will lead the way, he said, with wind generation accounting for most of the increase, followed by solar and biomass production. Geothermal and other sources will be important fuel sources as well, he said.

While much of his discussion centered on the boon these initiatives will be to manufacturers, contractors skilled in construction of renewable energy facilities and installation of wind turbines, geothermal wells and other components of generation and transmission infrastructure also will find themselves in enviable positions in the coming decades. As more companies enter the manufacturing arena, supply will increase, economies of scale will increase, competition will become more intense, and costs will drop, making green energy more affordable and increasing demand for contractors competent in this niche.

Power transmission, a tricky proposition regardless of the source of power generation, becomes an even more crucial aspect when generation from renewable sources is brought into the mix, according to Susan Tomasky, president of American Electric Power’s transmission subsidiary. “We are beginning to see the market of transmission as a business for building transmission,” she said, in opening statements sure to warm the hearts of contractors able to fill the need.

Since renewable energy resources are often located in remote areas such as the rural Kansas plains or sparsely populated Arizona deserts, transmission is a key component. Longer lines, better maintenance, and the ability to monitor facilities remotely, along with the potential to retrofit fossil-fuel generation plants make for potentially greener pastures for construction companies. “Our present system is … ill-equipped to integrate large-scale renewable resources,” she said. “Getting wind into the system requires a much more robust transmission system.”

Dr. Terry Michalske, director of the Savannah River National Laboratory, spoke to the country’s reliance on foreign oil and the resulting importance of developing domestic power sources, specifically nuclear reactors. Nuclear power is cheap compared to oil and even coal, which is mined domestically, mitigating the national security concerns. Michalske stressed that the cost of nation’s fuel costs and overall economy. Finally, in keeping with one of the conference’s major themes, he noted that nuclear energy’s carbon footprint is lower than coal’s, and innovations in the industry allow it to reduce waste, even by using other generators’ waste product as fuel in metal reactors. He was especially optimistic about the use of small modular reactors, calling them a potential “game changer” because of their efficiency and extended fuel life.

On the other hand, David Fiorelli, president and CEO for Tenaska Energy’s business development group isn’t ready to forsake fossil fuel. He said vast natural gas deposits in the U.S. and technological breakthroughs that will lead to cleaner coal will extend generation plants that use these fuels to produce electricity. With greenhouse gas emissions popping up in headlines every day, the time is quickly approaching when utilities will have to retrofit their facilities – more good news for contractors. And many utilities’ strategies include moving sooner rather than later to take advantage of tax concessions and other allowances; it behooves builders to join the ranks of first movers as well.

Rick Miller, senior vice president of the Hydropower Division at HDR/DTA stressed the importance of building additional pumped-storage hydro capacity projects to maintain a reliable grid and stabilize the fluctuations in generation capacity as less reliable sources, such as wind and solar, gain additional footholds in the country’s matrix.

Working in Cold Weather

2011-01-06T08:26:00.000-08:00

This time of year reminds us of the precious people in our lives: family, friends, and employees. This time of year also brings colder weather and reminds us to take special precautions to keep those precious field employees safe. On the jobsite, that means redoubling our efforts to identify hazards, ensure preventative measures are in place and that protective equipment is used and safety procedures are followed.

Winter temperatures bring special safety and health concerns to the construction site, so take the time to make sure your workers are aware of the added dangers and that your supervisors take the steps necessary to mitigate the dangers. Experts say workers in areas not necessarily known for frigid weather are more susceptible to cold-weather hazards than workers in places where such weather is commonplace. Carpenters in Grand Rapids, in other words, are more adept at taking the correct steps to meet inclement weather than are electricians in Dallas. Be especially alert to problems during the first few days of a cold spell.

Hypothermia and frost bite are the most obvious and among the most dangerous risks for workers when the mercury falls. Hypothermia can strike even at fairly mild temperatures, especially when workers are exposed to chilling winds or wet working conditions. Workers exhibiting signs of hypothermia - shivering, tingling or numbness in the extremities, etc. - should be moved to a warm, dry location, be made to exercise their arms and legs, and have warm packs applied. Frostbite victims should submerge the affected area in warm water. Once normal feeling and color returns, dry and wrap the affected body part.

While the cold itself presents plenty of health and safety risks for workers, winter work also brings additional hazards. Here are some other factors to consider:

• Even with daylight savings time in effect, many projects require workers to awaken in the dark hours of the morning in order to get to the jobsite on time. And shorter days mean the workday may extend until dusk or later. This takes a psychological toll on workers, making fatigue a real threat. When people are tired, their minds can wander, making them forget to properly use their protective gear and observe approved safety procedures. Cold weather also slows reaction time and limits dexterity. Schedule regular rest periods and make sure workers don’t become complacent because they perform routine tasks for hours on end. Keep everyone alert!

• Eating and drinking habits take on added importance during cold weather. Gatorade, flavored water, and other sweet drinks provide energy and the hydration workers’ bodies require for proper blood flow and warmth. Consider providing workers hot apple cider on the jobsite to keep body temperatures regulated. But beware of other hot drinks. Coffee, tea, and cocoa, as well as carbonated beverages contain caffeine that can be detrimental to safety and job performance in cold weather. The body also needs extra fuel to combat the cold, so slow-release energy foods such as pasta and starches should be encouraged. Consider offering energy foods such as raisins and nuts on the jobsite.

• Encourage susceptible workers to monitor and control diabetes, high blood pressure, breathing problems, etc., which the cold can exacerbate.

• Nearly every winter, the news reports the sad case of a family that loses its home due to an accident with a space heater. Fire is a very real possibility on winter construction sites as well. Make sure portable heaters are used solely for their intended purpose. Do not use them to dry gloves or tools, or to keep coffee warm! And, of course, make sure a fire extinguisher is handy.

• Speaking of fire extinguishers, remember to stock up all the things you’ll need on the site for dealing with cold, snow, and wind. These items include sand or salt to melt ice on foot traffic areas, generators, and food and water for crews who may not be able to leave the site for extended periods due to road conditions.

The Occupational Safety and Health Administration offers several tips to help construction companies develop a cold-weather plan. Its Cold Stress card is available in both English and Spanish for free to all employers and workers. The card suggests employers take a proactive role in recognizing and pointing out to workers potentially dangerous conditions around the site and scheduling outdoor work during the warmest part of the day.

Field supervisors also can help workers avoid the worst of cold-weather working conditions by instituting warm-up exercises before the job starts and at frequent intervals during the day. Supervisors, foremen, and project managers also should ensure no one works in isolation. Workers in the same project area often can identify when a colleague is experiencing cold-induced stress and can take action.

2010 Year in Review

2010-12-22T11:43:00.000-08:00

While 2010 was a forgettable year for the nation’s construction industry, it behooves us to take a look back to assess our past circumstances and explore the trends that emerged during this tumultuous timeframe. Contractors who study the issues and circumstances that created the upheaval will be better positioned to take advantage when the business and regulatory climate normalizes.

ECONOMY
Any examination of 2010 must start with the economy. Though construction obviously isn’t out of the woods yet, there is a discernable thinning of the trees, and there’s realistic hope that a clearing looms just ahead. Some unexpected good news came with the October construction spending report. Both private and public construction investment showed signs of life, gaining 0.7 percent for the month. With a similar gain in September, I’m cautiously optimistic that we may be about to turn the corner. Reed Construction Data foresees a modest 0.5 percent gain for 2011 – paltry, to be sure, but a far cry from the 22.8 percent decline this year. The stabilization sets the stage for a 13.4 percent gain in 2013 as we get the train back on the tracks.

TECHNOLOGY
If 2010 taught us anything about the way we run our businesses, it emphasized the need to boost productivity, cut costs, and add value for our clients in order to stand out and succeed among increasingly ferocious competition. Construction’s long-revered “old boy network,” handshake contracts and “the low bidder is always best” mentality have run their course. Clients today demand value and are increasingly able to differentiate between cost and value. This new era in marketing and value-added services has been a boon to construction technology. Today more than ever, builders who understand and use work-saving and cost-cutting technology will continue to get the project.

Among the trends that gained steam in 2010 was lean construction. Long the purview of forward-thinking manufacturing and healthcare organizations, lean has made significant inroads into construction. Builders, not always the most willing to adapt to new realities, are embracing supply chain management, exploring partnerships with other companies and public jurisdictions, and adopting aggressive quality control measures to ensure they are well positioned for the robust economy that will emerge over the next year to 18 months.

GREEN BUILDING
Similarly, contractors in 2010 continued to strive to provide what owners want in terms of sustainable construction. Builders took more active roles in consulting on the constructability of projects and offering green solutions that not only will tax the environment less but also make building management more affordable over the long run. McGraw-Hill Construction’s Green Outlook 2011: Green Trends Driving Growth pegged green building construction at $71 billion, or fully one-quarter all construction in 2010, a figure it says will double by the middle of the decade.

Harvey M. Bernstein, vice president, Global Thought Leadership and Business Development, McGraw-Hill Construction, said builders will miss tremendous opportunities in the future if they don’t catch the green train today. “In today’s economy, firms that specialize in green or serve this market are seeing a tremendous advantage, and they’re doing good at the same time,” he said. “Green building leads to healthier places for us to live and work in, lower energy and water use, and better profitability.”

LABOR ISSUES
The poor economy put thousands of perfectly good construction workers out of work, and companies, like mortgage companies and other lenders are sure to take a “once bitten, twice shy” approach to getting back into the game. The good news for contractors is that temporary staffing agencies offer a way to dip a toe into the labor pool rather than plunging in headfirst by hiring additional staff. Building professionals can try out potential workers by engaging the services of temporary agencies. This “test-drive” makes hiring a bit more of a sure thing, as employers invest relatively little and can reap terrific benefits by hiring only the best-suited workers.

SAFETY
The Occupational Safety and Health Administration cracked down on construction companies and some states’ lax enforcement of jobsite safety rules in 2010, a trend that is sure to continue in 2011. Federal OSHA has opened offices in several jurisdictions where it found the state plan lacking. While federal OSHA personnel will work with contractors on developing acceptable safety plans, a good bit of its effort no doubt will be to correct states’ unwillingness to issue citations for violations. “Our goal is to identify problems in state-run programs before they result in serious injuries or fatalities," said Assistant Secretary of Labor for OSHA Dr. David Michaels. "While we found many positives in the state programs, we also found deficiencies including concerns about identification of hazards, proper classification of violations, proposed penalty levels, and failure to follow up on violations to ensure that workplace safety and health problems are corrected.”

Economic Outlook for 2011

2010-12-07T07:21:00.000-08:00

America’s economy and the nation’s construction industry are treading water. And while that situation is far from comfortable, it does offer some relief from the deluge of malaise that has troubled the industry for nearly three years. It’s bad, but it could be worse. To paraphrase Abraham Lincoln, contractors’ survival strategies amid the downturn are tantamount to holding a wolf by the ears: Builders are not happy with their predicament, but it sure beats the alternative.

And, happily, there are some signs of improvement; the much talked-about but late-in-arriving “green shoots” may have at last poked their tentative heads through the frozen tundra that is the national construction scene. The construction industry may have seen its last year of major contraction in 2010. Signs point to a staging period of up to another year to set the stage for a real recovery in 2012. Construction has weathered the expiration of homebuyer tax credits, the final installments of the federal stimulus program, and the lingering shockwaves from the bursting of the housing bubble. The Bureau of Labor Statistics reported that “mass layoff events,” in which a single employer released 50 or more workers, fell 15 percent year-over-year in October 2010. The news for road and bridge builders was even better, as these stimulus-aided projects helped reduce these events by 33 percent year-over-year.

In fact, according to the Council of Economic Advisors, the third quarter of 2010 saw more than $33 billion invested into clean energy, transportation and other infrastructure projects, creating a million jobs nationwide. The report claims that the stimulus has helped gross domestic product rise for five consecutive quarters, including a 2 percent uptick in the third quarter. It also claims that it "has exceeded the original goal" of creating or saving 3.5 million jobs by the end of the year (you DON’T want to see what that averages out to per job.)

Housing, the stick in the mud that ruined the party for the whole industry, will see a 27 percent rise in single-family residential construction starts in 2012, according to McGraw-Hill Construction. Those numbers aren’t as impressive as they seem, because the baseline is so low, but McGraw-Hill believes retail (and other sectors) will again follow rooftops. The company forecasts increases of 13 percent in office buildings, 25 percent in commercial structures, 13 percent in hospitality construction, and 14 percent in retail.

Reed Construction Data announced that while non-residential construction starts through October 2010 fell 1.9 percent compared to 2009, starts for October boasted a 30% improvement over September. Reed cautioned that October is a traditionally strong month for building starts, but the increase is significant nonetheless. Together, September-October starts were about at the monthly average for the 25 months since the September 2008 financial crisis.
The industry is not out of the woods yet:

• Despite encouraging news on gross domestic product, many economists believe it’s not likely to continue, and even if it is, 2 percent increases aren’t enough to spur job growth and creation.

• The expiration of stimulus funding may leave a difficult hole to fill without private investment picking up the slack.

• Overall unemployment remains stagnant at more than 9 percent, and the construction industry has been hit even harder. Most believe no mass employment relief will be felt until the last half of 2011.

• While Republican victories in the mid-term elections likely will mean lower taxes and a more business friendly environment than if the Democrats had remained in control of both houses of Congress, it also probably will mean a more laissez faire approach to the economy (i.e. no more bail outs)

The ball remains firmly in the residential sector’s court. And there is reason for optimism in the steadying of single family housing starts over the last several months and the uptick in building permits in October, including single-family housing permits rising for the first time in seven months, according to Brian C. Rezny, president of Rezny Wealth Management in Naperville, Ill.
“But there’s more to builders confidence than a good month or two for an index,” Rezny writes. “What’s at play here is a downtrend in new home inventories.”

He cites a National Association of Home Builders report that the country’s single-family housing market “finds itself in a significantly under built state,” a consequence of the major overbuilding in the early 2000s. The residential sector’s response – to stop building houses – leaves the U.S. market “one million units short of what a healthy, functioning U.S. economy would need,” Rezny said. “Once growth stabilizes this means that homebuilders will have some serious catching up to do.”

And the non-residential sectors will follow suit.
Keep praying.

Multi State Workers Compensation Coverage

2010-11-22T07:24:00.000-08:00

One repercussion of the evaporating private construction job markets has been contractors casting increasingly covetous eyes toward regions where projects to exist. Whether these perceived greener pastures are in a neighboring state or across the country, moving into a new geographic market requires planning, analysis, and new bases of knowledge.

Not surprisingly, government requirements will perhaps absorb much of the contractor’s time and effort as she expands into new markets. And perhaps the highest hurdles will be erected by the new state’s division of workers compensation.

Of course, each state has its own unique set of requirements for obtaining and maintaining workers comp insurance. Creating an additional layer of red tape, most states also incorporate special additional rules for construction companies. Florida’s law is typical of the additional measures many states take to ensure everyone working in construction has coverage in the event of an injury. All construction companies, regardless of size, must obtain coverage. Other small (non-construction) companies are exempt if they employ three or fewer workers, not including owners and partners. In addition, general contractors and higher-tier subcontractors who subcontract part of their work must obtain proof of workers' compensation coverage or a Certificate of Election to be Exempt from their subs. If they don’t, “the sub-contractor's employees shall become the employees of the contractor (for insurance purposes). The contractor will be responsible to pay any workers' compensation benefits to the sub-contractor and its employees,” according to the Florida law.

All states require out-of-state companies to secure coverage in state (unless the contractor qualifies for self-insurance) either from a private company or from the state’s own pool.
What’s a risk manager to do?

While individual cases contain special circumstances, there are a few common situations and problems that can be avoided or at least mitigated through proper strategy and understanding of how multi-state workers compensation coverage works.

Most states allow the incoming contractor to purchase workers comp coverage from an insurance carrier. If your carrier is national, it should be able to provide coverage for whichever states you do business, writing a policy that complies with the rules in each jurisdiction, including the particular state’s job classification codes, premium rates, rules, etc.

In 13 states, contractors moving in can buy insurance through the private carriers or through the states’ funds. Only in Ohio, Washington, North Dakota, Wyoming, Puerto Rico and the U.S. Virgin Islands must you go through the government-operated fund. Texas does allow forgoing coverage and taking on all the risk yourself.

In most states and in most circumstances, all employees must be included in the policy. You might find exceptions that allow owners (sole proprietors and partners) to exempt themselves (Florida, and often other states, allows this for companies other than construction firms).

Of special note: if you lease workers through a temporary workforce company, that company’s workers comp coverage extends only to those temporary workers obtained through the agency. Coverage often is determined through examining payroll records. Workers paid through the leasing company are considered leased workers. All other workers would be considered employees, and their workers comp coverage would be the responsibility of the contractor. Anytime a temporary leased worker’s job duties or description changes, the contractor must inform the leasing company immediately to insure the worker maintains proper coverage.

Even if you’ve engaged a national firm to provide insurance in multiple states, it’s up to you to ensure the firm is armed with all the pertinent information to ensure proper coverage. Your agent must understand the scope and scale of your operations in each state in which you operate and that you’re hiring workers who live in those states. This is especially important if the underwriter is unable or unwilling to add an “all states” endorsement to the policy (ask your agent about this endorsement). When changing agents, companies or underwriters, take the time to make sure the new vendor understands your needs. If your previous coverage was sufficient, ensure the new firm is able to match it in terms of coverage. If your situation has changed or you are exploring expansion into another jurisdiction, discuss it with you new carrier – especially the size of your workforce in each location, to which states and U.S. territories your operation extends, and the nature of the work your contracting firm performs in each location – so she’ll know what you require and you’ll know whether she can provide it. If not, you may need to find supplemental coverage.

Jobsite Emergency Action Planning

2010-11-04T10:41:00.000-07:00

It’s a contractor’s worst nightmare. Despite your comprehensive training programs, meticulous inspections, and endless discussions about jobsite safety, accidents can and do occur. Some of those accidents will be serious, and perhaps even fatal.

When a worker is killed on the jobsite, it’s understandable that coworkers, supervisors and company management may not think as clearly as they would like or may not act in the most appropriate manner, owing to shock, panic, misinformation, or self-blame. That’s why it is crucial that part of any contractors’ safety plan contain an emergency response section to ensure other workers, the public, and the company itself is as protected as possible following a catastrophic accident. These fatal accidents will require decisive and correct action from several company departments. Obviously, the safety department will take center stage in the aftermath of any accident, but the company’s legal, risk management, marketing, security, business development, and public relations departments also will be called upon to act.

To ensure these functional departments rise to the challenge, executive management must plan, prepare, rehearse, and have at everyone’s fingertips the roles they will play if that terrible day ever arrives.

While it may seem crass to think of the risk to the company’s financial situation at a time when a colleague has died, these considerations are management’s responsibility. “Emergency planning is a compliance requirement often overlooked or inadequately addressed by most contractors,” notes professional safety consultant Mel Hedin, in an article for Erectors.com. “Not surprisingly, it’s also an area that, if insufficient, could result in significant penalty costs for your organization.”

At minimum, your “fatal event” plan must address everything required by your state and the federal Occupational Safety and Health Administration. This includes the development of site-specific emergency action plans – plans that are relevant to the hazards found at the site, as well as anything that could hinder implementation of the action plan, such as limited access to cellular phone service, difficult access for emergency vehicles, etc. Proactive companies will develop a general emergency plan that covers common situations, then adapt, adjust or add to it when special circumstances arrive at particular jobsites.

The plan should instruct workers how to prioritize their duties. Of course, in the event of a critical accident, the first, immediate course of action is to get emergency aid to the victim and to eliminate the risk of a similar fate for other workers. If the injury is the result of noxious fumes, wall collapse, fire or explosion, etc., this may mean moving the victim and evacuating the area. Once the fallen worker is in the hands of trained professional medical personnel, the employees designated by the emergency plan should work to secure the accident area by sealing it off for further inspection, limiting access to the site to only those company officials and medical aid workers with pressing business inside, and locating and isolating witnesses to the accident.

As these tasks are completed, or once they have been executed, workers should implement the action plan’s communication protocol. This will ensure all company departments and leaders will be informed of the situation so they can implement their own portions of the emergency plan. These procedures may include, but are not limited to:

*Sending someone to meet the police, OSHA, ambulance or paramedics to direct them to the scene (security department)

*Determining to which hospital the victim will be transported (public relations)

*Providing additional personnel to limit site access (security)

*Interviewing witnesses and documenting the scene photographically (risk management)

*Shutting down the site (management and security)

*Informing the worker’s next of kin and provide them with childcare, transportation, lodging, and other needs (upper management) If shutdown of the site is necessary, always conduct a personnel debrief prior to people leaving the site

*Establishing a media relations area, and providing updates on the situation (public relations)

Even with the plan in place, it does no good unless it’s handy and your crisis management team understands its provisions. Just like grammar school fire drills, practice and familiarity with procedures will lead to levelheaded decisions in the event of an emergency. All employees will be called upon to fill critical roles in the event of a serious accident or fatality on the jobsite. Make sure they’re ready and able to fulfill their duties.

“I highly recommended that you engage employees in mock emergency evacuation and rescue exercises periodically to evaluate their knowledge and the effectiveness of the plan,” Hedin writes. “Do not attempt to conduct these exercises until completion of policy development and employee training. Because the emergency action plan must be site-specific, you may have to provide additional employee training at each site.”

Recruiting Trends

2010-10-13T06:51:00.000-07:00

Remember those heady days when contractors could pick and choose their projects and even build in a little extra profit margin? The tanking of the economy, of course, put the kibosh on those flush times. And even if the marketplace continues to build momentum and begins to turn the construction industry around, it is difficult to believe that we will return to red-hot private construction in the next several years.

But one aspect of running a construction firm that is sure to improve throughout the recovery is the ability to find qualified men and women to fill the skilled worker and management functions that will be necessary as firms refill their pipelines and get back to the business of building America. When the economy was rolling along, contractors struggled to staff their projects with competent, proficient, safe tradespeople. Many were forced to raise rates even for entry-level workers in order to lure employees from competing companies. Recruiting budgets ratcheted up; human resources professionals logged long airplane flights to interview soon-to-be-college graduates at campuses across the country; they developed lucrative relocation perks; and they supplemented their field crews by converting temporary workers to full-time employees.

As the recovery gradually builds momentum – the steam train leaving the station – finding workers with the minimum skills required to complete the job will be one of the lesser concerns for contractors. The employment pool promises to be deep, with construction firm closings and layoffs adding to the mix.

But that doesn’t mean restocking the employee cupboard won’t be a challenge, as it is still among the most important management functions for construction professionals. The sea of potential candidates will allow contractors to be selective, ignoring the merely competent and angling for true trophies. And once it becomes clear a contractor is in the market, candidates will circle like sharks with blood in the water. Fortunately, plenty of tools – both traditional and cutting edge – are available to help contractors avoid being bitten in the feeding frenzy.

Job Boards – The Internet and mobile applications are the newest ways to find, attract, track, and manage construction workers. Potential workers now can be found instantly from around the world. In less time than you can write a “help wanted” ad, you could download and print dozens of resumes from qualified applicants. Online job boards – especially the large, general ones – may add to the personnel department’s workload, forcing it to wade through voluminous submissions from applicants with dubious qualifications in order to find viable candidates.

Social Media – The Information Age’s take on networking and relationship building, Twitter, LinkedIn, Facebook, etc. make professional connections easier to maintain. They also allow recruiters to keep tabs on potential future employees, whether they’re working for a competitor, or are currently looking for work but the company has no openings available. Some of these sites (Twitter most notably) have incorporated features that allow recruiters to make contact with people they don’t know but who in the future may be valuable members of the firm. Job-seekers, on the other hand, can use social media to reflect more personality and confidence than shines through in a resume.

Third-party recruiters – Small contractors may be put off by the perceived high cost of engaging a recruiting agency. But the little guy may gain more from it than his giant competitors. A small contractor’s hiring of a poor project manager may prove disastrous because there may be less oversight and fewer checks and balances to ferret out incompetence or malfeasance until it is too late.

“Help Wanted” ads – Some experts warn construction companies not to embrace electronic and technological recruiting tools at the expense of traditional, proven methods. “Often, the best prospective employees are people you hear about from trusted friends or associates,” according to allbusiness.com. “Likewise, an inexpensive advertisement in a trade publication or the classified pages of your paper might draw qualified candidates to your door. Be sure that your ad details the work you need done and the qualifications you require.”

Temp Agencies – More and more temporary worker agencies are incorporating the best of the above methods. Agencies that specialize in providing construction labor are experts in the field. They have stables of tried and trusted workers, so they can assign just the right talent to the jobs contractors require in a timely and cost-efficient manner. Most of these companies have established nationwide networks of local employees, keeping relocated workers in the system, concentrating knowledge of local labor laws, customs, building codes, training requirements, and client needs, while also taking advantage of economies of scale, consolidated back-office functions, and marketing initiatives to keep rates low.

Temp agencies can do for contractors what all that social networking does, but without the need to merge, purge, and otherwise spend time managing contacts. Temp agencies also provide fertile ground for finding potential permanent employees, a tactic that is gaining traction as the economy comes around. Traditionally, temporary jobs rise in the early stages of economic recovery, as companies test the waters without making a full-time commitment. Jobs in the temporary services industry are up 22 percent compared to this time last year, U.S. Department of Labor.

Develop a Culture Around Safety

2010-09-29T16:20:00.000-07:00

The federal Occupational Safety and Health Administration (OSHA) recently opened new offices in San Diego, Oakland, Phoenix and Las Vegas with an eye toward supporting OSHA’s “increased activity, strengthened enforcement and enhanced state plan oversight.” It’s no surprise that these offices are located in what were some of the most active construction markets before the economy collapsed. These areas will once again be the sites of furious residential, commercial, industrial, hospitality and institutional building once the economy recovers. But OSHA’s “increased activity and strengthened enforcement” in the West is a sure harbinger of what the construction industry in other parts of the country can look forward to.

This current and future climate of aggressive OSHA inspections and enforcement makes now a perfect time to institute, review or tweak your company’s safety policies. In fact, a set of policies, procedures and priorities is not sufficient to ensure you’re doing all you can to protect your workers. Instead, it is crucial to adopt safety as a core value in your corporate culture. That means putting safety at the heart of your operations. Noting – not productivity, efficiency or even shareholder value – can be allowed to take precedence over safety. And that requires participation from within all levels of the organization, beginning with the CEO.

SAFETY STARTS AT THE TOP
The boss must embrace safety, not only through policies and directives, but through his own actions that show nothing will stand between his workers and a safe jobsite. The best top managers will create safety programs that make sense to the field workers and supervisors, and they will communicate these policies through every medium possible so workers understand that the suits are not simply paying lip service to safety. One of the best ways to demonstrate this commitment is to empower employees to correct safety hazards by making it clear that all workers have not only the right, but the duty to stop work if they notice a potentially unsafe condition – without regard to timelines, budgets or scheduling.

FIELD IMPLEMENTATION
The biggest gap in construction safety comes between policy adoption and implementation. We all learned to always position our hands on the steering wheel at 9 o’clock and 3 o’clock, but how many of us still drive that way? It’s the same with construction. All workers are drilled in the mechanics of safety, but for expedience sake, many take shortcuts. It’s up to the field supervisors, colleagues and the workers themselves to ensure this “slippage” does not occur.
Peer pressure can do much to ensure safety on the job. If older and more experienced workers observe safety procedures, their juniors are more likely to do the same. It’s a matter of establishing the working climate and atmosphere. Supervisors, foremen and veteran workers can, without saying a word, communicate what is expected of their coworkers in the field.

To foster this transfer of “institutional knowledge,” identify the crew leaders and put them in positions of authority in regard to safety. Studies have shown that soldiers most often perform dutifully – even heroically – in combat not for patriotic reasons, but because of reverence for and a sense of duty to their comrades. This loyalty and respect transfers to any group that is working toward a common goal.

WORKER PARTICIPATION
Employees are more likely to embrace the company’s safety culture if they feel they have some say in its development and evolution. Encourage employees at “toolbox talks” or other safety meetings to discuss innovative ways to assess and mitigate dangers on the construction site. Urge employee involvement by using specific examples from their experiences and demonstrations of their methods for dealing with them. These tactics, rather than memos and directives from the president’s desk, will increase worker “buy in.” By the same token, foster a belief in the safety policies for their own sake, rather than a fear of punishment. You want employees to always wear their hardhats and tie offs because it’s the right thing to do and will ensure their families greet them at the front door rather than at the emergency room, not because they might get reprimanded if the safety director spies them.

EVERYONE IS RESPONSIBLE
You may have heard the expression, “marketing is too important to be left to the marketing department.” The sentiment is true tenfold for safety. Steve Jones, vice president of field operations for the PENTA Build¬ing Group in Las Vegas, understands the concept. “My first responsibility is to provide a safe and healthy work environment for each and every employee, on each and every PENTA project,” he wrote. “I can’t do it alone. I delegate this responsibility to our project management teams at the jobsite level, and I expect every one of our supervisors to hold the same belief in the ideal of safety and to promote our company’s safety culture. Superintendents are accountable for safety on their sites. They know exactly what the company expects from them in the support of safety, as well as the fact that their possible promo-tions and even their continued employment depend on their support and performance of safety.”
This are the words of a supervising executive, not the safety director.

“I can’t expect the safety department to shoulder the burden of accountability for the perfor-mance of safety on the project sites. I could have a safety manager for every single employee on our projects. Would that make us safer? I doubt it. Only you can make yourself safe,” Jones continued. “We are the operations department. We create the hazards that occur on the sites. We are responsible to manage those hazards to eliminate the opportunity for incidents.”

Economic Outlook For Construction

2010-09-10T09:53:00.000-07:00

According to economists, the recovery has begun. It is true that gross domestic product growth has been positive, even approaching normal levels of about 3 percent. Too bad nobody informed the construction industry of its return to prosperity.

The 3 percent GDP growth rate of the most recent quarters is hardly the robust gains America has come to expect in the first year of a real recovery. Non-residential construction will lag any improvement in the homebuilding industry, which in turn, likely will mirror the return to health of the economy as a whole. Residential construction staggered to a record low in the year ended July 2010. That, after many homebuilders ramped up activity to finish houses so they would be available for the new home-buyer tax credit.

First the bad news…According to Kermit Baker, chief economist for the American Institute of Architects, non-residential “prospects have deteriorated” beyond even the dismal 13 percent decline predicted at the beginning of the year. The sector will bottom out 20 percent below already depressed 2009 levels, Baker said. “The worst economic downturn in several generations, a fragile financial sector, excess commercial space, and unease in the international economy all share the blame for the current situation,” he noted.

Contractors are steadily completing projects in their backlogs and growing more frantic in their search for jobs to replace these finished jobs. Supply is scarce and despite attrition resulting from the economic situation, competition is as fierce as ever. This perfect storm sees builders slashing prices, possibly in vain attempts to stay in business, project a viable business face and keep their employees busy. Meanwhile, building material costs – even labor – continue to rise.
The decline is nearly across the board, with manufacturing facilities, office space and hospitality construction among the hardest hit.

The federal stimulus package already has delivered its hardest punch, and over the last year, public construction fell more than 7 percent. Funding from the American Recovery and Reinvestment Act continues to pay for crucial infrastructure projects, projects that will make the country’s emergence from the downturn faster and more dramatic. But state and local governments have not followed Washington’s lead in trying to spend their way out of the recession. And the private sector continues to face a cash crunch and will continue to do so as lenders watch vacancy rates rise and rental rates freefall.

Barring another round of federal splurging, highway and bridge construction, and public works in general, probably will be the last sector to recover. Many states have raided their capital project budgets to pay for social services and day-to-day operations. And those capital budgets were smaller than expected because double digit unemployment means fewer people paying state income and sales taxes. For many municipalities, capital projects are all too easy to put on hold during tough times and the last to be restored during flush times.

Now to the good news….We know that non-residential construction recovers more slowly than residential building – usually about a year’s lag can be counted on. That hasn’t changed; but the housing market’s recovery has been delayed by several months. Where earlier forecasts called for the upturn to begin about this time, experts now say it won’t happen until the end of the year at the earliest. The great news is that the housing recovery could be quite robust – between 6 percent and 16 percent per year through 2014, according to management consultant and investment banker FMI Corp. As new houses are come on line and new population centers are created, supermarkets, tanning salons and daycare facilities will follow.

That’s cold comfort for contractors trying to make a living as building decreases year after year. However, a few non-residential sectors are already bucking the trend. Industrial construction long has been a drag on construction, as owners were forced to put expansion plans, upgrades and maintenance projects on hold, uncertain their investments would be rewarded by consumers putting a lock on spending. However, this sector is showing signs of life, as the nation’s automakers claw their way back from the brink, and other factories see greater consumer spending on the horizon. This sector also has benefited from the sustained interest in and emerging business models pertaining to sustainable energy and manufacturing processes. Wind and solar power initiatives, especially those eligible for federal grants and tax savings, give contractors proficient in building these facilities an advantage in these trying times.

As we’ve cautioned all along, however, the non-residential sector’s recovery will not be a super ball-bounce off the bottom. It likely will be quite gradual at first, with plenty of fits and starts. Hopefully, we are seeing some light at the end of this dark tunnel!

States' Financial Woes May Increase Taxes on Business

2010-08-25T07:12:00.000-07:00

Even as the country struggles to gain any sort of economic momentum, the lingering unemployment debacle threatens to increase business costs well after we turn the corner in terms of stock prices, consumer spending, and increased construction and manufacturing.

Even if the economy suddenly became robust and all signs pointed to two decades of steady growth, the lingering effects of prolonged and rampant unemployment would continue to churn in a vicious cycle. State unemployment insurance coffers have scraped bottom; most states already have begun borrowing from the federal government to pay the benefits they’re guaranteed to receive. Those loans are interest free for a while. But when the grace period expires – and it almost surely will before states can pay back the money – interest begins to accrue. This creates the fiscal Cerberus states will find themselves unable to slay.

First, they must pay interest. Second, they must pay back the principal, a huge percentage of their operating budget. Third, they must replenish their own unemployment insurance funds depleted by the extended recession. To do that, they’ll have to cut social services and entitlements, such as reducing the size of unemployment checks or making qualification more strict (fat chance). Or, they’ll have to trim their own workforce. This would include policy analysts, middle managers, supervisors and other pencil pushers. Or, they can increase the taxes on company payrolls. In fact, if a state can’t pay back the federal money in a timely fashion, the tax rates on all that state’s businesses would go up to begin repayment.
According to CNN Money, “The median increase will be 27.5 percent. And employers in places such as Hawaii and Florida could see levies skyrocket more than three-fold.”

Higher taxes of any kind mean companies have less money with which to hire new employees. Moreover, higher employment taxes on those very employees would be a deterrent to hiring. States are contemplating raising the amount of each employee’s base pay that is subject to taxation, raising the rate at which that base pay is taxed, or a combination of both methods to increase revenue. This, on top of the other taxes that states have already burdened businesses with, as they try to deal with budget shortfalls in other entitlements.

One consequence of this disincentive to hire could be a growing demand for temporary/contract labor workers. “Temps” always have been seen as a way for employers – especially construction and manufacturing companies – to cope with fluctuating workloads. They bring in more people when they receive a large or unusual order or win several building contracts at the same time, stretching their full-time people too thin. When the project ends, the temporary workers go away, without the need to layoff loyal, longtime employees.

In fact, the temporary employment sector is seen as a leading indicator of where the economy is headed. The use of temporary employees declined sharply in the fourth quarter of 2007 - even in the retail sector at the beginning of the traditionally busy holiday period; it was a harbinger of our current recession.
On the flip side, temporary staff and field worker use sees an uptick as the economy improves. Companies don’t trust their good fortune and don’t want to commit to recruiting, hiring, and training new employees just to have to lay them off if the good times don’t last. This is a very real possibility in the construction industry, which is lagging other sectors as the economy tries to turn the corner.

Even programs designed to alleviate the short-term crunch are destined to create even larger problems in the future. States can receive federal stimulus money for use in paying unemployment benefits, but to get the money, they must liberalize their rules for who is eligible, possibly including part-time workers and workers who quit their jobs to take care of family obligations. Most states made qualification more restrictive in the 1980s in the wake of the last serious recession. So what’s the solution?

Maybe the federal government will extend the grace period so the loans to states won’t begin accruing interest until much later. Maybe Washington could forgive a portion of the principle, but such a provision likely would come with more demands to liberalize state unemployment eligibility and increase benefits, which we don’t need. That, of course, would necessitate another round of business taxes to pay for the influx of people receiving compensation when the next round of unemployment hits. That, in turn, means businesses would be more apprehensive to hire and incur the tax - even in good times, therefore extending the jobless recovery.

Honestly, as a business owner, one of my primary concerns is maintaining or reducing the costs to run my business. I hope the politicians keep that in mind when they “solve” this problem.

Social Networking Media For Your Business

2010-08-11T15:20:00.000-07:00

If your company is like many in the construction industry, it may be slow to adopt new technology to its business. While that means you’re not making the most of your communications efforts and public relations initiatives, it also means that it’s probably not too late to gain a significant advantage over your competition.

Just imagine the business your company would enjoy if you were the only builder in your specialty or geographic area to employ value-added engineering, constructability analyses or design-build services. The strategic advantages of social networking are just as great. Even better, the groundwork already has been laid for you, and plenty of vendors, blog hosts and internet service firms are ready and able to help at very low cost. In fact, you probably already have on staff plenty of employees who understand the ins and outs of Flickr, Twitter, Linkedin, You Tube, Facebook and a myriad of other social networking sites and tools who can easily adapt your needs to these social networking media.

The most obvious use of these kinds of sites and services is to extend your company’s public relations endeavors. Slick, 4-color, printed capability brochures are impressive, but they are expensive to produce and, if you’re not careful, can become outdated in a matter of months. Consider the cost savings and immediacy of similar collateral material in an electronic format. When you complete an impressive project or solve a developer’s pressing problem, you can let other potential clients know about it instantaneously, with just a few keystrokes. When you use recycled materials, incorporate methods to reduce waste, use renewable heating, cooling, and lighting resources to mitigate a project’s impact on the environment, you can brag not only in print, but with photos and video.

The construction industry, especially in today’s economic climate, is becoming more competitive all the time. Long gone are the days of the “good ol’ boy network,” where club memberships, handshakes and low bids were the only issues owners considered when choosing their contractor. Perhaps lagging other industries a bit, construction now gets done when contractors can prove to clients they are the best firm to employ because they can save money, time, hassles, and complications. In short, service is the name of the game.

Here are some tips to ensure your public relations program includes social media, networking and other technological innovations to put your company at the forefront when developers are looking for a construction partner:

1. Especially with the growing interest in green construction and environmental stewardship, it is important to keep abreast of concerns the public has over construction projects. Monitor local sites dedicated to these issues – feedback sections on newspaper websites where readers can post their thoughts on news stories about your project, environmental blogs, and – if you’re building a public works project – government watchdog sites. This way, you can find out how the public perceives your project and your employees’ work habits and productivity. You also can post your own responses to these concerns, discussing the efforts you are making to mitigate dust, traffic disruptions, noise and more.
2. Use your own Twitter or Facebook page to publicize these efforts, using video and photography to illustrate your points.

3. Post positive media coverage on your page, and use it to give as many pertinent details as possible about your projects, your company’s culture of social responsibility and environmental stewardship and more. Journalists who can find with little effort much of the background information they require are more likely to view your firm in a positive light, and because much of their work already has been done for them, are more likely to pursue story ideas.

4. Post project pictures on Flickr or other photo-sharing sites, and allow journalists to view them and use them in print and electronic stories.

Other communications, both internal and external, can benefit from social media. If you’re building a LEED-certified project, companies have developed environmental sensors that measure recycling, energy savings and other nature-friendly measures used in your project. These results can be accessed online, in real time. Consider posting these gauges on your website or social networking page.

A social media policy can help your employees and supervisors keep abreast of the happenings in your company, its jobsites and its regional offices. Employees, both office staff and field employees, who are engaged in the company’s activities and decisions have a greater feeling of belonging and engender greater loyalty. Potential employees also can be enticed and recruited through new media. Younger workers, especially, gather large percentages of their daily news and information from the internet, so companies that want to reach them must have a web presence.

Finally, social media also can be used to manage and track bids and sales leads and position your company as the best for certain types of construction and your firm’s executives as experts on issues affecting the industry.

Wind Energy

2010-06-09T08:01:00.000-07:00

With the Gulf oil well disaster on everyone’s mind, renewable energy has received something of a boost in our collective consciences. With that background, I recently attended the American Wind Energy Association conference in Dallas to learn about this green power source and its implications on the construction industry.

Former President George W. Bush, delivered a keynote address that called for a redoubling of efforts to incorporate wind into the nation’s power mix. He said more use of wind power not only would benefit the environment, but also make the nation safer by removing reliance on foreign sources of oil and making it tougher for domestic or foreign enemies to disrupt the flow of power. Bush, while governor of Texas, instituted one of the most ambitious wind-power initiatives in the country. He urged America to encourage technological advances and investment by removing barriers to green power entrepreneurs.

Non-residential construction continues to suffer as a whole in this economic recovery, while green construction and sustainability gain traction. These issues have converged to place greater urgency on renewable energy, and Congress has responded. Senators from the East and Midwest, have expressed to the chamber’s leaders the need to create jobs and maintain the country’s competitive advantage in manufacturing sectors.

Diversifying America’s energy supply also bodes well for contractors. With private-sector jobs very slowing coming back, public infrastructure projects will be the industry’s lifeblood for some time to come. Industry associations have been quick to endorse the senators’ position that American jobs depend on diverse and comprehensive measures to spur investment, limit costs and encourage efficient use of limited resources.

For green energy policies to work, however, tax incentives that allow companies to retrofit and expand plants and equipment, financial incentives to drive investments and loan programs, reasonable regulatory policies to grease the transitional rails, and strong but attainable federal renewable electricity standards will make this energy sector a more inviting target for builders and manufacturers. Time is not on America’s side and we risk losing American jobs if we fail to pass legislation that provides the hard targets needed to strengthen our industries.

he Dallas conference offered some terrific insights into the power, possibilities, and challenges of harnessing wind power. Wind turbines can be an effective way to use “free” energy. Vast expanses of prairie, desert, and offshore locations not suitable for other agricultural or commercial uses, can be prime locations for wind turbines. Texas has proven wind’s efficacy. The state generates nearly 10 gigawatts of electricity from wind. The state made a commitment to this resource, and today is home 30 percent of the country’s wind turbines. As a Texas resident I see evidence of this wind industries growing success on my home town of Amarillo.

Klickitat County, Washington is another success story. Like many areas hit by the decline of manufacturing, the area lost some 700 jobs when an aluminum smelter closed. But a dozen wind farms have recouped those job losses and created a new revenue stream in the form of land leases for farmers also hit by shrinking profit margins. The power projects themselves and the infrastructure, retail, and residential construction needs of a rebounding population also have been a boon to the local construction industry while directly paying $3.5 million into the county’s tax coffers, according to Mike Canon, Klickitat County's economic-development director, in a story from the Seattle Times.

There are more than a few challenges to overcome. Utilities must commit to wind, according to a seminar at the Dallas conference. Wind must also make not only economic sense, but also present manageable start-up costs and fit into their power portfolio. Even then, they must address issues such as owning wind generation vs. purchasing wind-generated electricity and the logistics of transmitting and delivering the power generated.

Another session dealt with the efficiency of wind turbines and the unpredictability of the wind to propel them.

Governments can help ease these and other obstacles to greener building by adopting strong public policy, such as those outlined in the Associated General Contractors’ Building a Green Future plan, which urges that:

• “Pragmatic investments” in research and technology.

• Faster approval for new sustainable forms of power generation, including nuclear, wind and geothermal power facilities be forthcoming.

Immigration Reform

2010-05-22T09:44:00.000-07:00

Arizona’s much-ballyhooed illegal immigration law shows how frustrated Americans have become with the absence of fair, reasonable, comprehensive federal efforts to secure the nation’s borders, deal with the ongoing problem of worker shortages for many jobs and deal with the estimated 10 million to 12 million undocumented workers in the country.

Contractors and others who employ large numbers of Mexican and other immigrants long have supported an all-encompassing federal policy that would ensure an adequate supply of these workers, especially for jobs many Americans are often unwilling to perform. With the ongoing recession and resulting 25 percent unemployment in the construction industry this need for an adequate worker pool is not as pressing as it was a decade ago. Still, the construction industry is cyclical, and it is expected that the need for more qualified craft workers will again become critical as the recovery gains traction.

Like all loyal Americans, contractors support homeland security efforts and understand that keeping undocumented aliens out of the country is an important part of a workable immigration policy. Contractors support policies that strengthen the borders. So too is a better understanding of the impact illegal immigrants have on healthcare, the education system and employment of American citizens and legal immigrants.

But the issue is multi-faceted, and construction contractors, as much as professionals in any other industry, have a vested interest in protecting the rights of their workers. The vast majority of today’s federal immigration resources are spent on enforcement – Immigration and Naturalization Services raids on construction sites, restaurant kitchens and other places of business. Of course, workers who enter the country illegally and the companies that knowingly hire them should face increased penalties.

But the vast majority of contractors follow all the rules. The few cheaters who hire illegal aliens often pay them less than their jobs are worth and may even ignore basic safety measures, knowing workers in the country illegally have little leverage and will not go to the authorities. These few employers not only take advantage of their undocumented workers, they also enjoy an unfair advantage over good companies they compete with for jobs. These companies find it easy to classify illegal immigrants as independent contractors, skirting laws requiring them to provide workers’ compensation insurance and pay payroll taxes.

Because the reality is that these unscrupulous employers do exist, they must face severe penalties when they’re caught. Unfortunately, by-the-book contractors easily can find themselves employing an illegal immigrant because of our cumbersome, flawed system of immigration checks and balances. Currently, the government wants employers to use an inadequate, incomplete computer verification database to ferret out undocumented immigrants who apply for jobs. With this tool as their best resource, mistakes are inevitable. It would be unfair for force contractors to use this flawed database and then penalize them when an undocumented worker slips through the computer network’s cracks and find their way onto the payroll.

Without a safe harbor provision to protect employers if they mistakenly hire an illegal immigrant even after performing their pre-hire due diligence, a reform package would be worse than worthless. It would be counterproductive, presenting incentives for companies to discriminate against applicants who might appear to be of Latin extraction or who speak with a pronounced accent.

A fair immigration policy also must include a reasonably easy way for workers to enter the country legally. A guest-worker program should allow companies to look beyond America’s borders when U.S. workers are not available. The number of H-2B visas are woefully inadequate to fill the construction jobs that will need to be filled as the economy improves.

A workable system must provide an opportunity for those here illegally to achieve legal status and remain in the country to work. Amnesty is a hot-button word. Many hard-working Americans oppose plans to give immunity and citizenship to immigrants who have lived and worked in the U.S. for years – taking advantage of the nation’s health care and education systems while paying no income taxes. Still, those workers have contributed to the country’s productivity and have established ties to their communities. They deserve to be placed on a path to citizenship after meeting fair requisites.

Clearly, immigration reform involves much more than simply building a 30-foot electric fence along the Rio Grande. True reform will respect the dignity of those who wish to make better lives for their families, deal forcefully with those who take advantage of desperate people for their own unfair advantage and ensure the country’s security, education and health care resources are maintained.

Alternative Financing for Construction Companies

2010-05-06T07:55:00.000-07:00

Skittish banks have forgotten the combination to the vault, leaving contractors scrambling to meet payroll, survive cash flow squeezes and even bid on the few jobs in the offing. With little to indicate that trend will turn around - despite stimulus incentives for banks to loosen the purse strings - many builders are seeking alternative financing options.

While some look for other sources of debt financing - hedge funds, insurance companies, pension plans, etc., others are turning to their equity and even their assets to make ends meet or take advantage of business or expansion opportunities.

Equity financing - raising money by selling shares of the company - has been a common method used by many types of businesses. It reduces or eliminates the monthly principal and interest payment, and it reduces the company owners' exposure by spreading the risk. Shareholders have no recourse if a construction company fails. Lenders still must be paid back. While attractive in these respects, equity financing also means surrendering some control of a firm. Many construction companies are family-owned and operated. Handing over autonomy may feel like turning over a child to a foster family. If equity financing is unavailable or too heartrending for you, you may consider capitalizing on the value of your assets. Loans backed by high-dollar assets such as real estate, contractor-owned construction equipment or supplier-stocked inventory make lenders less skittish in the down economy. When the economy goes south, banks are sticklers for maintaining strict standards for underwriting loans. When contractors need quick cash to fund operations, asset-based lenders become more amenable.

"The key for an asset-based lender is the collateral and its availability," Commercial Finance Association Chief Operating Officer Brian Cove told the Wall Street Journal. "Even in a tough economy where providers of credit are really tightening up lending, [asset-based lenders] are still out there. The key for an asset-based lender is the collateral and its availability. Most asset-based lenders keep a close eye on that collateral, with some even making regular visits to the client's warehouse to spot-check inventory."

Accounts receivable is another asset a financier may lend against. This is another common practice for many businesses, though it may not be as widely accepted for contractors because a significant amount of a builder's receivables likely will be in the form of progress payments due. Enter the factor.
Factors are becoming the financing source of choice for many contractors and other business owners faced with impending obligations but far-off windfalls. Factoring allows contractors to sell an invoice (or more than one) in order to obtain cash in a hurry. It allows the factor to turn a profit (the greater the risk the invoice won't be paid, the greater the profit for the factor if it is). Similar to invoice discounting, where invoices serve as collateral for a loan, factoring can be a life saver when short-term debt comes due or when an attractive opportunity arises.

For example, a contractor's $50,000 payroll is due in two weeks, and he's out of cash. A $100,000 progress payment from an owner is due in 30 days. The contractor can sell that invoice to a factor, receiving $70,000 in the nick of time to prevent his employees from revolting because of bounced paychecks. In 30 days, when the owner pays his bill, the factor pays the contractor another $25,000 or so and pockets a tidy $5,000 profit - his fee for letting the contractor use his money for a couple of weeks and, in non-recourse factoring, for accepting the (usually slight) risk that the owner would default.

Alternative financing also can serve as a way to pay off debt more quickly, buy out a competitor, or lease or purchase equipment.

Still, as with any financial decision, you should consider the disadvantages of using factoring as a funding method:

Factors are in the business to make money. They often charge an initiation fee as well as interest based on when the invoice is paid.
If you don't understand the terms of the factoring agreement, you could be in for a nasty surprise. With recourse factoring, if the client defaults on the invoice, the factor can seek redress from you. "One of the most common traps for small businesses using factoring is the assumption that outsourcing the function means outsourcing the responsibility," writes Gregg Elberg, president of Gregg Financial Services in San Anselmo, Calif.
Client relations could suffer if the factor uses business methods different from those used by the contractor - methods customers may have become accustomed to.

How Will the Healthcare Reform Act Affect Construction Firms?

2010-05-06T07:51:00.000-07:00

Love it or hate it, comprehensive healthcare reform is a reality - at least until the lawsuits reach the Supreme Court and the midterm election results are tallied. So, what does the new law mean for construction companies?

If your firm already provides a qualified healthcare benefit that does not include prescription drug coverage for retirees, the answer is, "not much." At least, not for several years. That's good news, considering the Senate version of the bill contained the onerous Merkley Amendment that would have forced all but the smallest construction companies to provide health insurance or pay a fine. The amendment, which singled out construction firms (it applied to companies with as few as six employees while the threshold for other industries is 50 workers) was removed from the House version and the final bill that was signed by President Obama.

While smaller contractors will be spared this additional expense, those with 50 or more full-time workers must comply or face a fine of $750 per full-timer. What's more, employees must be enrolled immediately to avoid penalties for imposing waiting periods.

Although the smaller companies will not be compelled to offer healthcare insurance, the new acts do offer incentives to entice them to provide the benefit to their workers. Companies with 25 or fewer employees can take advantage of tax credits for offering insurance. Down the road - starting in 2014, companies with 100 or fewer workers can form a "buyers group," banding together to act as one large company for insurance purchasing purposes. This pooling of assets and risks will allow them to take advantage of volume discounts from insurance providers. And businesses with 50 or fewer employees can access a "health insurance exchange," a one-stop shop for comparing rates and benefits.

If your company is small enough not to have to worry about this employer mandate, the most immediate effects probably will be felt by your company's benefits administrator and payroll department, as the Patient Protection and Affordable Care Act and the Health Care & Education Affordability Reconciliation Act of 2010 come online.

The bean counters will have to keep track of employees' flexible and health savings accounts to ensure they don't exceed the $2,500 yearly contribution limit beginning next year and that workers aren't reimbursed through the accounts for non-prescription drugs. The payroll department, beginning in 2013, will deduct another .9 percent from the wages of big earners ($200,000 or more per year) to cover an increase in the Medicare tax.

Additional recordkeeping will be required beginning next year to determine the cost of healthcare coverage the employer provides to each employee each year. Using a formula similar to COBRA calculations, according to international law firm Proskauer Rose LLP, the amounts must be reported on employees' W-2 forms.
The Proskauer firm notes that employer-run group health insurance plans may avoid some of the other new requirements. Plans will be "grandfathered" if it was in operation on March 23, 2010. According to Workforce Management magazine's website, new and non-qualified plans must offer coverage that extends to employees' children "up to age 26, eliminate lifetime dollar limits and remove pre-existing condition exclusions, if any, for children up to age 19."
Grandfathering provisions will exempt existing individual and group health plans from the age 26 rule, some lifetime limits, waiting period penalties, and required coverage of certain preventative care procedures.

Still, construction companies with grandfathered plans are not completely off the hook. For example, no employer group plan will be allowed to contain pre-existing condition exclusions from group health plans for children under the age 19 or drop coverage for a patient simply because the person's insurance claims for coverage become extraordinarily costly for the insurance provider. Of course, coverage still could be dropped in cases of insurance fraud.

All plans also must remove lifetime maximum limits on coverage of essentialbenefits and some other limits. Limits still will be allowed on the certain medical procedures

Additional costs and administrative requirements are in store for large contractors and those that offer high-end healthcare benefits. Builders who employ more than 200 workers must automatically enroll otherwise uninsured employees into the companies' health plan. Employers that provide "high-cost" health insurance plans (costing more than $8,500 per individual, $23,000 for families and $9,800 for retirees) eventually will incur a hefty tax of 40 percent of the excess benefit. These trigger thresholds will be indexed to inflation and will increase in states where healthcare costs are among the highest in the nation.

One of the biggest expenses the new healthcare law will impose will apply to companies that provide drug coverage for employees. The subsidies employers receive for providing these Medicare Part D benefits will no longer be excluded from taxation.

Complying With Prevailing Wage Laws

2010-03-26T07:57:00.000-07:00

As the economy languishes, public works projects – which in good times, many contractors wouldn’t touch with a 10-foot length of red tape – are starting to look better and better. If you’re among the contractors who find themselves holding their noses and bidding on government-funded jobs, be aware of the prevailing wage hoops through which you’ll be required to jump. In fact, even if you’re a public works construction veteran, it couldn’t hurt to review the appropriate measures for complying with prevailing wage procedures and requirements.

The Davis-Bacon Act sets forth pay and benefit rules that contractors must follow on projects which are funded by federal money. State prevailing wage regulations do the same for state-funded jobs and vary slightly depending upon the jurisdiction. And, because building projects that use both federal and state money usually are subject to more stringent requirements, the first step when bidding and completing infrastructure projects is to get your hands on the appropriate rules.

Still, most projects will be governed by similar prevailing wage laws. Here is a primer to keep you in compliance:

• Fully one-half of your workforce must be designated as journeymen and be paid at least the full prevailing rates as denoted on the project’s wage. Workers designated as laborers may be subject to lower wage rates. The other half of the workforce can be apprentices and receive a percentage of the full rate, depending upon their level of training. Only those enrolled in a qualified apprenticeship program can be designated as apprentices. “Helpers” have no place in federal projects. Check your state’s law to see if it allows the use of helpers at lower wage rates. Apprentices assigned to a job before or in favor of a journeyman must be paid at the journeyman rate. For instance, if you employ eight electricians on a site four must be journeymen and the other four can be apprentices. But if you assign two journeymen and six apprentices, the four “unpaired” apprentices must get the full journeyman rate.

• All workers on public works projects must be paid weekly. Certified payroll records must be turned in to the designated state or federal agency.

• The wage decision also will tell you the value of the fringe benefits you must provide workers on a prevailing wage project. ALL workers – apprentices, as well as journeymen – get the whole enchilada when it comes to these benefits.
If you don’t offer enough qualified benefits, or if an employee chooses not to participate in some benefit programs, you must pay the difference in cash to each employee. Your benefit program probably is qualified if it’s managed by a third party, but check with a consultant or your human resources professional to be sure. If you offer paid holidays and vacations, you can deduct the fair value of those benefits from the fringe package. Note that worker’s compensation is not considered a fringe benefit, and it cannot be deducted from the package.

• You’ll probably also have to pay into a qualified training program for every hour worked on the job. Some of these programs, notably those run by the Associated Builders and Contractors, apply the contributions to an employer’s account. The employer can draw on this account to pay for training for his apprentices. Others, such as those run by many states, pool the contributions from all contractors on public works projects and divide them among apprenticeship training programs in the state based on the number of apprentices they graduate.
• Projects in rural areas or located far from your base of operations may require you to pay workers extra to account for excess travel time to the jobsite or, in rare instances, to pay for temporary housing if commuting would be impractical.

The addition of Davis-Bacon and state prevailing wage regulation adds a few layers of complexity to the plunge into public works construction. But with a systematic approach to compliance, these hurdles can be easily overcome with minimal headaches. If you’re new to the public works arena, I suggest you consult a labor attorney and accountant to help set up your compliance assurance or contract with an established monitoring and compliance consultant or provider. Your local chapter of the Associated Builders and Contractors can offer tips and recommend sources of assistance.

Whether you keep your compliance team in house or use a consultant, make sure your team reviews your project’s payroll often and communicates any concerns to you. These reviews, including interviews with workers on site and coordination between the general and subcontractors, should begin even before construction commences. Insist your team has a plan in place to catch errors early and correct them with full disclosure to the state or federal agency overseeing prevailing wage compliance on the project. Make sure the team keeps impeccable records of its findings, reviews and payroll and compliance reports.

Stimulus Package Revisited

2010-03-11T07:01:00.000-08:00

President Obama’s administration and his allies in Congress are touting the benefits of the year-old federal stimulus package. While blithely tossing out estimates of 2 million jobs created or saved by the $787 billion American Recovery and Reinvestment Act – a figure disputed by most Republicans, many economists and just about anyone who examines or works in the construction industry – they hedge their bets by heralding the stimulus’s other accomplishments.

The stimulus has helped by “providing a $250 check last year to seniors and disabled veterans,” Congresswoman Debbie Wasserman-Schultz (D-Fla.) wrote in an essay to Broward.net defending the package.
“A cut in personal income taxes through a ‘Making Work Pay’… totals up to $400 per year for an individual…in 2009 and 2010,” noted Senator Ben Nelson (D-Neb.). I hope you socked away that $7.69 a week. Just think how bad things would be without that extra $1.10 coming in every day!

These measures may look good, but they are tantamount to giving a cardiac arrest victim a facelift. Jobs are the only CPR that will save the patient, and the construction industry’s defibrillator has yet to be plugged in.

Mike Pickett, CEO of Seattle-based consultant Onvia, said once the final stimulus installments are released, the real number of jobs created or saved will number around 1.6 million. That’s $787 billion for 1.6 million positions, or $492,000 per job. Given the choice, I think many American workers would take the lump sum option and take their chances with the Sunday want-ads rather than relying on the federal government to create or save their jobs.

Construction – the life blood of the economy – is seeing only 5 percent of its jobs affected by the stimulus package Ken Simonson, chief economist for the Associated General Contractors of America, told USA Today. The simple truth is a jobless recovery cannot be sustained, and ARRA is not doing enough to create jobs. Every U.S. state but one lost jobs in 2009, while the national debt piles up and the mortgage on the country’s future builds. That isn’t to say the stimulus program hasn’t helped at all. Throwing nearly a trillion dollars at any program can’t help but foster some improvement. The discrepancy is one of impact and focus. The stimulus is inefficient and nibbles around the edges of the problem.

Public works projects – especially road construction and repair – remains one of the few bright spots ARRA has provided the construction industry, infusing more than $20 billion into the economy and putting 280,000 workers on the payrolls. Perhaps the best part of these projects is that they result in tangible assets for communities, assets that will streamline commerce once the economy hits its stride. Still, stimulus-funded capital improvement projects are mere Band-Aids, and without tangible, long-term solutions, there benefits will evaporate along with the federal funding – setting the stage for yet another round of construction firm bankruptcies and layoffs in an industry already mired in 25 percent unemployment.

It’s not too late, according to equipment manufacturer Caterpillar, but it will require a retooling of the stimulus package to focus on the infrastructure projects that will create construction jobs.
Caterpillar supported the Obama plan in 2009, and believes it has helped.
“A year ago there was a tremendous amount of economic uncertainty, and it was something we needed…but felt it needed more of an emphasis on infrastructure, including highways and airport runways and ports,” Caterpillar spokesman Jim Dugan explained.

China adopted that strategy and has emerged from the worldwide slump thanks largely to a $468 billion investment in roads, rail, seaports and other capital projects. Compare that to the $70 billion earmarked for infrastructure in the U.S. stimulus package.
“Continued investment and reinvestment in infrastructure is very important. It makes us more competitive as a country. That's the reason why today we advocate a robust highway spending bill, which is up for appropriation by Congress again,” Dugan said.

In my last look at the American Recovery and Reinvestment Act a few months ago, I agreed with AGC’s Simonson that America’s comeback won’t start until the construction industry heals itself: “The problems facing the construction industry aren’t just devastating construction firms and construction workers. These problems are crippling our broader economy. That is because construction spending accounts for 8 percent of gross domestic product. Simply put, you can’t fix our economy until you fix the construction industry.”
I predicted the construction industry will see real long-term recovery only when the unemployment rate eases and state tax revenues rise as a result of sales taxes on construction materials and a boost in the industry’s workers’ disposable income.

I see no reason to amend those predictions. And, sadly, I see no reason to be optimistic about their realization before the end of the year.

Defense Against Union Salting Campaigns

2010-02-24T10:51:00.000-08:00

While the recession has landed a solid jab on the nose of construction companies and merit shop workers, it has sent organized labor to the canvas. According to data from the federal Bureau of Labor Statistics, the economic barrage that has pummeled the construction and manufacturing industries has driven private-sector union membership down 10 percent in the last year, accelerating a 50-year downward spiral.

Unions are in trouble, and like a cornered tiger, they are desperate to find an escape. That means aggressive, often unethical, and sometimes illegal organizing tactics will be on the rise. Unions possess an arsenal of obvious yet effective tools to try to boost membership at the expense of project developers, taxpayers and open-shop company owners.

Among the most effective is the salting campaign, a strategy aimed at forcing a non-union company to sign a union contract, often regardless of the firm’s employees’ wishes. Failing to strong-arm the company, the union’s secondary goal is to bury the company under an avalanche of unfounded labor complaints, forcing it to expend time, money and other resources to defend itself rather than competing for and completing construction projects.

As noted, salting is a tried-and-true method of legal harassment, but with care and meticulous recordkeeping, you can avoid becoming entangled in the union’s unscrupulous attempts to bury you under legal and regulatory red tape.

If you find that you’ve hired a union salt or that the union has been successful in convincing a current employee act as a salt, he probably will actively and vocally recruit for union membership, making no secret of his purpose. At the same time, he likely will perform job functions poorly, exhibit bad work habits and/or violate company work or safety rules to the point of termination. The object, of course, is to claim the termination is the result of the unionizing activity and not the subpar job performance.
Protect yourself by ensuring your workplace rules are fair and non-discriminatory against union sympathizers. When disciplining or firing a salt, ensure and document that the punishment is justified, evenly applied regardless of union sentiment, and vetted by upper management and legal counsel. According to the Independent Electrical Contractors, companies cannot institute or enforce rules prohibiting solicitation and distribution if the rules were not established until the organizing began.

If a job applicant advertises his enthusiasm for unions and desire to organize the company’s workers, he may be fishing for grounds to file an unfair labor practice charge with the National Labor Relations Board, according to Frederick M. Switzer III, attorney with the Clayton, MO firm Danna McKitrick . By announcing his intent, the would-be salt hopes to goad the employer “to drop its guard and commit an unfair labor practice, thus giving the union a basis for filing an unfair labor charge. If the employer is not prepared for this, the likely result will be a formal Board complaint, litigation, and an order of reinstatement, back-pay, etc.,” Switzer wrote. “If a union believes that it has a good opportunity to organize a company from within, the salt may remain under cover until after he is employed. Otherwise, the announcement will come at the application or interview stage.” Like asking his marital status, seeking information on his union leanings is a no-no. Assure the applicant that those sentiments will not be considered when you consider the application. Make sure your hiring practices and policies back up your statements.

Have a labor attorney review your company handbook, and ensure supervisors are well-versed in its contents and apply the procedures uniformly.
“The hiring policy should provide that all applicants complete the employment application, and take the necessary tests, before being considered for hire. References should be checked before an applicant is hired,” suggests Michael L. Fortney of the Ohio law firm Fortney and Klingshirn. “If a non-union employee is forgiven for a rule violation, and a union salt is disciplined for the same rule violation, the prospect of prevailing on an [unfair labor practice suit] suffers.”

Fortney notes that “Supervisors are the company's representatives on the front line. [W]hatever you say as a supervisor can bind the company and be held against the company just as though a top company official had made the same statements.”
He reminds management not to threaten employees for unionizing activity or if the union is successful in its organizing efforts. Don’t ask employees their opinion of the unionization effort or its organizers.

Still, if your company becomes the target of a salting campaign, you are not required to sit by and let the union spread false promises or accusations against your company and its management. Fortney notes that you can tell employees the union wants the company to sign the agreement regardless of employee sentiment or support. It is permissible to inform employees that if the effort is successful, they will be required to pay union dues, forfeit their rights to speak for themselves on wages, work hours, and other employment issues.

As with any labor issue, your best bet when facing a salting campaign – or better yet, before the issue arise – is to consult an experienced attorney.