Keep Disaster Recovery From Turning Into a Bigger Disaster

At the risk of stating the obvious, we are now well into fall.  The leaves are turning, the days are

At the risk of stating the obvious, we are now well into fall.  The leaves are turning, the days are getting shorter, the PSL is back, and here at the office, my trademark flip flops have given way to fleece layered over more fleece.

Unfortunately, for those along the coasts, fall means more than just Patagonia and pumpkin flavored everything…it also means hurricane season.

Just as the Carolinas are trying to recover from Hurricane Florence, the Florida panhandle is looking at the wreck of Michael’s wrath…and we’ve still got time left in the season.

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With regards to construction, hurricanes are always a mixed bag.

On one hand, they’re personally devastating, but on the other, they mean plenty of new opportunities for work. As Bruce Springsteen once sang, ‘maybe everything that dies someday comes back’, and in no place is that more true than disaster-ridden tourist destinations. All of those windblown roofs and drenched floors have to be replaced, and plenty of contractors eagerly flock to the site of hurricane devastation, ready to bring the dead (or at least rain-soaked) back.

However, even this boon creates a drawback–new jobs mean new potential pitfalls, for both crews and project owners.

The good news is, the good people over at zlien are pretty experienced in dealing with disaster recovery.

https://blog.zlien.com/construction-payment/the-disaster-recovery-playbook-for-construction-projects/

Now, as a landlocked lawyer, I’m going to defer to them on this stuff–living in New Orleans, they have a bit more experience with hurricane damage than I do.

What I will say, though, is that it’s a worthwhile read.  Some of the information is pretty basic, but invariably, the basics are what we all tend to forget once things heat up.

I know this sounds like a boring task, but please, sit down. Read. Then get to work rebuilding.

I promise, the twenty minutes spent researching this stuff now will be time well spent six months from now, once the hope of new granite and new jobs is replaced by the inevitable litigation of jobs-gone-wrong.

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On a lighter note, my vote is that The Band’s rendition gives the original a run for its money.

Scary Contract Terms 101: Indemnification

  As I have mentioned before (Paid when Paid), (Paid if Paid), I have more than a little bit of

As I have mentioned before (Paid when Paid), (Paid if Paid), I have more than a little bit of experience reading construction contracts.

Aside from the payment timing clauses, another common but potentially scary topic that comes up in almost every construction contract is what’s called an Indemnification Clause.

Much like the dreaded Paid when Paid clause, this is another method that GCs use for shifting risk.

In this case, however, the risk being shifted is not that of payment, but rather of tort claims and insurance liability.

In short, depending on the precise language, an indemnification clause means that your commercial liability carrier will be held responsible for claims against the general contractor.

For obvious reasons, this is a clause that can have a pretty big impact on your financial security:  The key is, navigating everything carefully, and making sure that you have the right insurance coverage.

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There are, essentially, three categories of indemnity provisions:  Limited, Intermediate, and Broad.

Limited indemnity provisions aren’t really scary all.  In essence, they only hold you liable to reimburse the GC for any actions brought against them by your negligence.  For instance, if you improperly install a window that falls on somebody, and that person sues the GC, the GC can come after you to reimburse them for what they had to pay out to the person.

Makes sense, right?

…

The second type of indemnity provision is an intermediate indemnity provision.

This provision means that you will have to reimburse the GC for any claims against them that arise at least in part out of your actions.

To go back to the falling window scenario, let’s say that the GC and architect provided faulty plans for installing the window, but you then did a shoddy of installation, making the situation worse than it already was.  As such, this falling window was kind of everybody’s fault.

If this happens, and the governing contract was one with an intermediate indemnity provision, you’re on the hook for reimbursing the GC for the entire value of the claim against them, even though their crappy plans played a role in the whole thing.

Or, to go back to childhood, remember that time when you were eight, and you and your brother decided to play football in the house, and you ended up breaking Mom’s favorite lamp?  And then Mom punished you, even though Stupid Chad was the one who came up with the idea?

An intermediate indemnity clause is the GC’s way of ensuring that they’ll be Chad.

…

Finally, the third time of indemnity clause is the broad indemnity provision.

This is Chad and his even stupider friend Brad playing football in the house, while you’re upstairs in your room doing homework.  You had nothing to do with this stupid idea.  And yet, low and behold, when they break the lamp, your parents still somehow decide to ground you, while letting stupid Chad off scot free.

Or, to go back to the adult world, you installed the window correctly.  When you left the job site, those were the safest windows this side of the Mississippi, installed to standards that no engineer would ever argue.

Then some other idiot came in adjusted the frame, causing it to fall on an innocent pedestrian.

You did absolutely nothing wrong, but under a broad indemnity provision, when that pedestrian sues the GC, he’s going to come back after you to reimburse him for a mistake that you were no party to.

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For obvious policy reasons, some states limit the power of broad indemnity provisions.  Other states, however, do not, and as such, it’s a good idea to read through the indemnity section of each contract.

Know what you’re liable for.  Make sure that your coverage is sufficient to cover your liability exposure.  If need be, ensure that your GC is listed as an ‘additional insured’ on your policy to cover any issues that might come up.

Ninety nine percent of the time, those indemnity clauses will never matter.  The one percent of the time that they do, though, can have a huge impact on your livelihood.  As such, it’s wise to make sure that you’re protected against Brad and Chad.

Happy Labor Day

Did you know that the first Labor Day was celebrated on September 5, 1882 as a celebration of the U.S.

Did you know that the first Labor Day was celebrated on September 5, 1882 as a celebration of the U.S. labor movement, and social changes brought about by it?

More than 200 years later, we’re all still grateful to the men and women who work hard every day to keep the gears of our economy turning.  So to all of you, have a wonderful day, and enjoy the much needed break…you’ve certainly earned it!

Do You Know How Much Your Jobs are Costing You?

As I have mentioned before (A Penny Saved) one ironic part of this job is that I often find myself

As I have mentioned before (A Penny Saved) one ironic part of this job is that I often find myself serving as the world’s least qualified financial planner.

I…made an A in 11th grade Intro to Business?  And I somehow passed algebra.  As far as qualifications go, that’s about all I’ve got.

Then again, my advice is free, so I suppose you’re all getting what you pay for on this one.

Anyway, one issue that I run into again and again is that too many contractors don’t know how much they’re making on each job.  They know that the contract was for $400k.  They know that at some point, they eventually received $400k from the GC.  But, they have no idea how much they spent doing that $400k job.  Did the job cost them $100k to complete?  $200k?  $410k?  No idea.  They just know how much the contract was for, and that they definitely don’t have $400k in their account right now.

The reason?

Sloppy accounting.

Look, accounting sucks.  If ever get moved over to the accounting department, everybody will be in trouble, because I don’t know how much is in my own bank account right now, much less how to manage the books of multiple $5M+ companies.

What I do know, however, is that accounting is important.

On each job, you need to keep track of what you’re spending.  How much did you pay out in labor to complete that $400k job?  How much did you spend on materials?  What does your overhead look like? How much did you spend on finance fees?

I can’t count the number of times where, after finally sitting down with our accounting department to look at the numbers, our clients have realized that only 1/4 of their jobs are actually profitable.  Those profits, in turn, have  been covering the losses on the other 3/4 of their work.

If you really don’t want to have to mess with accountants, at the very least, do yourself a simple favor:  Keep a running tally of every cost on a job.  Write down every box of screws.  Every quart of paint.  Every pack of cigarettes you’re picking up at the gas station to keep an employee happy. Then, when the job is over, look over all of that.  Add up the numbers.  How much of that $400k job was leftover in profit?

On top of telling you how much you’ve actually made on each job, this will also give you a good idea of where you’re leaving money on the table.  Are materials always running 20-30% higher than initially budgeted?  Start giving yourself more of a cushion on material costs when submitting your bids.  Does XYZ Construction Corp. always seem to be hitting you with an extra $20k in work they won’t approve change orders for?  Don’t even consider working for XYZ again unless you tack an extra $20k onto your bid. Are you making 35% profit on service work, and 2% profit on AIA contracts? Focus on trying land more time and materials work, rather than bidding on those $650k projects that sound great but leave you broke every time.

Often, spending a total of five hours on each job doing this will help you see ways that you could be doing half the work for twice the pay.

Also, remember this: It’s not worth doing work that doesn’t make you any money.

Would you accept a job as a foreman where the company owner tells you that you’ll be working for free, but that in return, he’ll let you work for free next month, too? Worse, would you take that job if he told you you’ll have to pay him $20 a day for the privilege of working out in the hot sun from sun up to sun down?

Continuing to place low bids for bad GCs is doing exactly that–you are paying for the privilege of working hard. If you wouldn’t pay to work at Taco Bell, and you wouldn’t pay to go work for that big construction company across town, why would you pay to do this?

Hats Off to the Ladies of Construction

  Today is Women’s Equality Day, created in 1971 to mark the passing of the 19th constitutional amendment. Passed in

Today is Women’s Equality Day, created in 1971 to mark the passing of the 19th constitutional amendment.

Passed in 1920, the U.S. constitution was finally amended to give women the right to vote–a change that suffragettes had been fighting for since 1848! (Side note, compared to that pace, I’m never nagging my husband about taking out the recycling again.  Sure, it’s been two days, but it hasn’t been 72 years, so obviously, things could be worse.)

To all of my fellow ladies of construction, hats off to you! We may not appear in many stock photos, but we certainly do our part to keep the wheels of commerce turning!

Construction Finance Safety Minute: Avoiding Complacency

  Construction is dangerous. Depending on exactly what you do, you are spending every day surrounded by heavy equipment, spinning

Construction is dangerous.

Depending on exactly what you do, you are spending every day surrounded by heavy equipment, spinning blades, and/or things that will crush you if they fall.

Also, you may or may not be 100 ft. in the air while all of these things are going on.

Suffice to say, there’s a reason that construction workers are more likely to be injured on the job than loan officers are.

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Over the years, a lot of time and money has been spent figuring out how to best combat this–after all, people being maimed or killed on the job isn’t good. That’s why OSHA has 9,000 pages of policy on the proper procedures for eating a sandwich.

The big thing about safety guidelines, though, is that in order for them to do any good, you have to follow them.

A hard hat that’s sitting in your truck will keep your upholstery safe, but it won’t do much for your brain. The harness you left on the ground is doing even less good–it’s not even keeping the grass safe!

And so, today’s PSA is an obvious one, but also a really important one:  Don’t fall victim to complacency!

I know this is the 100,000th board you’ve cut. I know this is the 600th cell tower you’ve climbed. I know this the 4th window you’ve installed today.

But you know what?  I’ve typed my name quite a few times over the years, and I still managed to misspell my own freakin’ name in an email the other day.

The difference is, I sit at a desk all day.  I can misspell my own name as many times as I darn well please, and I’m still going to live to misspell something else tomorrow.

Construction isn’t like that.  Falling off cranes is one of those mistakes you usually only get to make once.

So please, be careful out there.  Follow those “stupid” productivity-killing safety precautions your contract mentions.  Wear the hardhats and harnesses and other protective gear they give you. Don’t disable the safety triggers and protective guards on equipment.  Do pay attention to what you’re doing.

I know you’ve done it 100 times, but I want to see you live to do it 101.*

*Edit: Yes, I realize that this is ironic post to write immediately after encouraging our nation’s youth to go into construction.  You know what? I want those future construction workers to be, too!  Because building things awesome, but it can also be ridiculously dangerous if you don’t follow the right precautions.

Dear Young People, The Construction Industry is Hiring

  As those of us on the front lines of construction know, the workers in our industry…aren’t getting any younger. WSJ-Young

As those of us on the front lines of construction know, the workers in our industry…aren’t getting any younger. WSJ-Young People Don’t Want to Work Construction

Tech? Full of kids who don’t remember 9/11, much less my favorite childhood TV show, Rescue 911.  STEM?  Sure, they were lacking qualified candidates for awhile, but every year, we’re getting a new batch of scientists and engineers with names like ‘Skylar’ or ‘Haidyn’.  The service industry? Pretty sure my last waiter was still waiting on a visit from the puberty fairy.

But construction?  We’re a world of guys with names like ‘Bob’ or ‘Steve’, nary a Bradyntyn or full head of hair in sight.

And that’s not a good thing.

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As I say this, I realize I’m only further damning myself–after all, what kid wants to hear Bob and Steve talk about Trans Ams and AC/DC when they can get a free coffee during every shift at Starbucks?

Well my dear kids, the answer is simple:  Bob and Steve can afford to restore Trans Ams!

That’s right–at the risk of stating the obvious, construction pays well.

Or, to elaborate further, construction pays well for regular people.

Being a brain surgeon? Great job if you’re cut out to be a brain surgeon. Not such a great option if you’re like I am, and made a D- in high school algebra. Engineering? Again, the median pay is decent, but not exactly the most sensible choice for those of us trying to figure if a 24oz. can of beer offers a better value for the dollar.  Investment banking? Great if you can make it to the top, but those 80 hour workweeks are kind of a drawback. Law? Same story.

But construction?

Show up. Do your job. Make enough that you won’t need a free frappe per shift as compensation. Stick with it long enough to actually know what you’re doing. Make more than any of us backoffice people.

No college needed. No six figure student loans.  No requirement that you sacrifice your youth to the altar of 17-hour days in hopes of making it to managing partner.  Just…regular hardwork.

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Also, FYI, once you get to know them, Bob and Steve are pretty awesome!  Bob can probably give you good advice on whether to buy that house that looks awesome but has a leaky roof. Steve grills a mean steak, and even though he’s not a mechanic, he’s usually right about why your car is making that funny sound.  Those are the kinds of superpowers that us old people have–our shoes may be sensible, and our jeans may be dorky, but we know lots of useful things that your friend Zaine* won’t learn for another 20 years!

*Are these real names? I don’t know, kids.  I’ll be the first to admit that I’m out of touch. But I do know some nice casserole recipes and how to help you pick a reliable car. Because that’s the kind of knowledge God gives you in exchange for your fashion sense and knees that don’t creak when you walk up the stairs.

Scary Contract Terms 101: Paid if Paid

  Awhile back, I wrote a post explaining the Paid when Paid provisions that, unfortunately, are near ubiquitous to commercial

Awhile back, I wrote a post explaining the Paid when Paid provisions that, unfortunately, are near ubiquitous to commercial construction (Scary Contract Terms 101: Paid when Paid.)

As it turns out, however, Paid when Paid has an even scarier twin–the Paid if Paid clause.

This…is pretty much exactly what it sounds like.  If enforced, it means that if the owner doesn’t pay the general contractor, the general contractor doesn’t have to pay any subcontractors. Ever.

Yikes.

The good news is that unlike Paid when Paid, not all jurisdictions recognize Paid if Paid clauses.

Even in those that do, such clauses are typically construed pretty narrowly–after all, courts don’t like to see people go unpaid as a result of contractual agreements that they had no say in (in this case, the agreement between the owner and general contractor). As a result, generally if there is any ambiguity in the language, courts will choose to construe these clauses as Paid when Paid.

The bad news, however, is that because this is such a controversial provision, enforceability varies greatly from state to state.  If you’re working in a state like New York or California, you don’t have to worry about these clauses at all–no matter how they’re worded, they’re unenforceable!  In other states, GCs are given a pretty wide latitude in shifting the risk, and if the contract says “Paid if Paid”, there will be a whole slew of case law backing it up.

In other states yet, this clause creates a huge grey area due to conflicting case law, precise requirements for wording, and/or a complete lack of precedent.

As a result, there’s no way to give contractors easy answers on what to do when encountering Paid if Paid.

…………

If you do all of your work in the same state, it might be wise to do a little research on your particular state’s laws. A couple of hours and/or a few hundred dollars spent talking to a construction lawyer now will probably be well worth the investment, since this is an issue you may be encountering another 30 times over the next decade.

On the other hand,  if you’re like a lot of commercial contractors, you may be doing work in five or six different states at a time. In that scenario, ultimately, all you can do is run a risk-benefit analysis:  How much will it hurt if you don’t get paid?

For a quick $3k job with good margins, you might feel like jumping right in and taking the risk.  It’s a little scary, but at the end of the day, it’s an absorbable loss if anything goes wrong.  For a $1.5M job with good margins, you should take the time and money to research what that state’s laws are before proceeding. And, if we’re talking about a $200k job that already has a 2% profit margin? Just, no.

In fact, quit placing those bids all together.

National Work Like a Dog Day

  As has already been established (Useless Facts, More Useless Facts) I can really appreciate a useless fact. In that

As has already been established (Useless Facts, More Useless Facts) I can really appreciate a useless fact.

In that spirit, I would just like to announce that today is, in fact, National Work Like a Dog Day.

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Personally, I’m a little torn as what this means I’m supposed to do.

I mean, when someone says they’re ‘working like a dog’, what they really mean is that they’re working their butt off.  But as someone who has had several dogs over the decades, I can assure you, that work ethic left something to be desired.  If I worked like my dog today, there’s zero chance I’d still have a job tomorrow.

Then again, my dog gets to live in a nice big house, rent free. She also gets to spend her mornings laying out in the sun, eating food that somebody else paid for, and being told how adorable she is. I, on the other hand, am quite busy paying for that house she lives in and the Kibbles and Bits she takes for granted.

So…now that I think about it, maybe we should all take some lessons from our dogs.  Just don’t let the bosses catch on.

Today’s Useless Fact: Indoor Plumbing

  One strange thing about my job is that whatever is happening tends to realllllly be happening. I’ve had Dan

One strange thing about my job is that whatever is happening tends to realllllly be happening.

I’ve had Dan Days, where every person I talk to ends up being named Dan.  I’ve had Bob Days, which are like Dan Days, but with Bobs. I’ve had lien rights days, where I spend so much time dealing with weird lien issues that I feel like I should just go out and open a practice that specializes in nothing but liens.

And, I’ve had plumbing days.  Days where I find myself learning entirely more about the plumbing business than I ever set out to learn.

Recently, we had a plumbing day.

Midway through my zillionth hour of hearing about toilet storage issues and impossible engineering specs, I got to thinking:  Plumbing is nice.  Like, really nice.

And, around here, it’s actually a pretty new thing.

My grandparents, after all, grew up with outhouses.  And we were fancy folk.  The people who weren’t my grandparents?  It was going to be awhile before they got an indoor commode.

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In other places, indoor plumbing has a little bit longer of a history.  One of the first buildings built with an indoor restroom was the Tremont Hotel in Boston.  Built in 1829, the four story luxury hotel featured no fewer than eight indoor bathrooms, all located on the ground floor.

By today’s standards, we expect nicer accommodations in places that rent by the hour, but for 1829, that sent shockwaves through the world.

Five years later, The Astor House in New York put the little ol’ Tremont to shame–this six story hotel featured 17 bathrooms…and not just on the first floor.  These 17 bathrooms served 300 guest rooms; a bathroom to guest ratio that was quite luxurious for the time.

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As for bringing indoor plumbing to the masses, there is no single year that a person can pinpoint–like any luxury, bathrooms in the house had a bit of a trickle down effect, making their way from something that only the rich people in the cities could enjoy, to a nice extra that the middle class could obtain (i.e. the stainless steel and granite of 1918), to something that we all take for granted.

One time span that does pretty well encapsulate the spread is 1929-1954.  During this period, sales for plumbing distributors increased by 367%.  It was during this period that having an indoor toilet went from something that you treated yourself to for making Junior Executive VP at the bank to a thing that even people in the slums started expecting. It was also during this time indoor plumbing spread through countryside, bringing those newfangled urban luxuries to those who lived well outside the city limits of St. Louis or Memphis, much less New York or Boston.

So, the next time that you’re dealing with A Plumbing Day, just be glad it’s no longer 1928.

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