Volume 11 2

Builder

VOLUME 11ISSUE 2

MARCH 2007

In This Issue...

Project Spotlight 2Foundation 3Legal News 4Insurance News 5Labor News 6AGC News 7Guest Article 9Safety News 11Milestones 15Marketplace 15

builders associationBUILDING YOUR BUSINESS please see Risks, page 8

The

Reducing RisksReducing Risks

3D Modeling was used extensively in creating Kansas City’s Sprint Center, which will open later this year. Offi cials hope the $276 mil-lion arena - which is already slated to host the Big 12 Conference bas-ketball tournament beginning in 2008 - will lure a National Hockey League or National Basketball As-sociation team to the area.

3D Technology Is The Seat Belt 3D Technology Is The Seat Belt Of Modern ConstructionOf Modern Construction

BUILDING YOUR BUSINESS

BY RICHARD H. LOWEDuane Morris LLP, Philadelphia

The argument in favor of using virtual 3D modeling as a way to reduce risk for the construction community seems as simple as the reasons to use seat belts. When seat belts became popular in the 1960s, insurance companies offered discounts to encourage their use to reduce the cost of losses in a crash.

Today, a similar technological leap presents itself in the construction arena. With the advent of 3D modeling and virtual “clash detection,” the project team can catch potential confl icts sooner and cheaper, with more cooperation from subcontractors. A 3D model offers more specifi c design information than 2D drawings. Given that the world is 3D and not 2D, how can that

additional specifi city be a bad thing for project liability?

Despite the obvious benefi ts of “clash detection,” some designers and constructors are leery of moving into 3D modeling because they sense other impediments in the allocation of risk. Most of those skeptics don’t realize that the risks are no greater (and sometimes smaller) in the 3D world than in the traditional 2D world.

Consider these facts. First, the 2D world is hardly free from risk. Decades worth of construction litigation have proven this point. Second, the use of 3D virtual modeling for fabrication and construction is nothing new. Engineered projects (think process-piping plants) have been using 3D modeling for decades and subs have been adding the third dimension in shop drawings – such as spool drawings – for a long time. Those projects aren’t less complex or risk free.

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How Can WeHelp You?

Have a construction-related problem or question? Call your professional trade

association. While each BA staff member can assist you, you may often fi nd it help-ful to speak directly with the individual who has primary responsibility for a par-ticular area. His or her name is provided

for your convenience.

Al Leitschuh………………BA Governance Industry Relations Strategic Planning AGC Liaison

Mike Schultze.………....Industry Relations Government Relations Denise Capasso.................................Labor SafetyRyan Schoonover........................Marketing Membership DevelopmentAndy Cole....…........……Communications

Media RelationsStacey Kelly....….........……Administration Education ProgramsKatie Sells......…...Communications Intern

T H E B U I L D E RT H E B U I L D E R

please see Spotlight, page 14

Arrested DevelopmentProject Spotlight

Sollitt Answers Orland Park’s Call For Green Police StationSollitt Answers Orland Park’s Call For Green Police StationKATIE SELLS

Green Building has becoming an increasing prevalent trend in construction, especially to The George Sollit Construction Company.

“For Sollitt, it makes sense,” said Sollit Director of Marketing Tom Lena, “We believe in LEED and it’s like we are living in history with each project that we complete.”

In addition to Sollitt’s other LEED

certifi ed projects, they will be the fi rst to achieve a LEED Gold Certifi cation in the south suburbs for The Orland Park Police Headquarters which is expected to be completed this spring.

The project consisted of gutting the 65,175 square foot warehouse down to the building shell and structural elements.

The new headquarters will feature new South and East elevations and incorporate a mezzanine, library, staff and administrative offi ces, training room, evidence room,

library, men’s and women’s locker rooms, processing area with eight male and female holding cells and sally port.

The Orland Park Board of Trustees approved the “green” design of this facility.

“We put together a project team that had previous green building experience and put forth a plan that contained LEED elements as well as the quality that the client wanted.” Lena said.

The Sente Rubel Bosman Lee Architects Ltd. design incorporates several sustainable features which will meet both current and future operational needs, as well as promote energy effi ciency and an environmentally friendly work climate.

It will also consist of several Green

The Orland Park Police Headquarters will include solar ban window panels (above), which draw in natural light and reduce the amount of electrical light needed. Green building features also include light sensors (right), which are responsible for balancing the amount of natural and electrical light. The sensors reduce the amount of electrical lighting needed, saving energy and reducing operating costs.

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V O L U M E 1 1 ; I S S U E 2V O L U M E 1 1 ; I S S U E 2

Feeley, Galasso Win ScholarshipsBuilders Foundation

List Of Builders Foundation-Aided List Of Builders Foundation-Aided Construction Students Reaches 15Construction Students Reaches 15

BY ANDY COLE

Josh Galasso and Brandon Feeley have their eyes fi xed on careers in construction. Thanks to the Builders Foundation and generous Builders Association members, they’ll be able to focus a bit more on their studies and by worrying a little less about their fi nances.

Galasso and Feeley have been selected as the Builders Foundation Scholarship winners for 2007. The scholarship is a $3,000 award renewable for up to two years of undergraduate study in a construction fi eld. This year’s honorees are the 14th and 15th students the scholarship has been awarded to since the program’s inception in 2003.

Galasso is a sophomore at Bradley University majoring in Construction Management. The Cary-Grove High School product is on pace to graduate from Bradley in 2009.

He spent last summer as a Jobsite Assistant Safety Supervisor for Pepper Construction Company.

“I like the whole construction process,” said Galasso when asked why he was seeking a career in the industry. “Working together as group and seeing a building go from nothing to something is very rewarding.

“(The scholarship) is going to help me out a lot. There’s been some medical problems in my family, so this scholarship is going to help relieve some of that stress and some of the strain on my parents.”

Bradley professor Burl George sees a bright future in the construction industry for Galasso.

“I feel that he has the ‘fi re in the belly’ when it comes to construction,” George said. “He appears to be extremely interested in the information presented in class. He will be a credit to the industry.”

Feeley will graduate from Purdue University in May of 2008 with a degree in Construction Engineering and Management. He graduated from Lockport High School in 2004 and worked in surveying and layout for Walsh Construction from May of 2005 to August of this year.

Feeley hopes to work in heavy and highway construction upon graduation from Purdue.

“It’s always changing, which makes it challenging,” Feeley said of the construction industry. “From one jobsite to another, you never know what you’re going to face. It’s a great challenge.

“The scholarship is going to help me out a lot, as well as my

Galasso

Feeley

parents. They’ve helped me a lot so it’s nice to take some of that burden off of them.”

While he has many qualifi cations that would make him attractive to construction companies, it’s Feeley’s work ethic that stands out to Purdue Associate Professor Phillip S. Dunston.

“(Brandon) enthusiastically pursues the knowledge that will prepare him for a career in the construction industry and demonstrates an outstanding work ethic in his summer internship with one of our sponsor fi rms,” Dunston said. “He is now consistently performing above average or better in the classroom.”

The Builders Foundation’s Annual Golf Outing will take place this summer at a to-be-determined site. Money generated will benefi t the scholarship fund.

Galasso is the eighth Bradley student to be named a winner of the award, while Feeley is the fi fth Purdue student to win. Two winners have been from the University of Illinois. Iowa State University and Northwestern University students are also eligible to apply for the scholarships on a yearly basis. Applicants must have graduated from a Chicago-area high school.

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If drafted correctly, these clauses serve to al-locate risk and help par-ties deal with problems more effi ciently.

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Legal News

The Wrong Words Can Cost YouRecent Case Showcases Importance Drafting Contracts Recent Case Showcases Importance Drafting Contracts

Correctly When It Comes To Indemnity ProvisionsCorrectly When It Comes To Indemnity Provisions

please see Provisions, page 16

BY JOEL J. RHINER and ARNOLDO B. CONCEPCION

Stein, Ray & Harris, LLP

Risk allocation is a key source of confl ict in virtually all construction projects. Ideally, the parties make a concerted effort to deal with issues of risk allocation during the contract stage, at the onset of the project and before any problems have developed. When these issues are ignored until they come to the fore during construction or after project completion, it is too late to deal with them effectively and costly litigation often ensues.

Two common methods of allocation of risk in construction projects are indemnities and “duty to defend” provisions. If drafted properly, these can be very useful tools in preventing problems down the road. All too often, however, not enough care is put into the drafting of these provisions, as explained by the court in Brotherhood Mutual Insurance Company v. Ervin Cable Construction, LLC, 2006 WL 3431915 (N.D.Ill., November 27, 2006).

Indemnity And “Duty To Defend” ProvisionsIndemnities, or “hold harmless”

provisions, assign risks before they occur; basically, a party agrees to make good a loss, damage, or liability incurred by another.

“Duty to defend” provisions often go hand in hand with indemnities. The party assuming the duty essentially has an obligation, before any liability is ever established, to mount and/or fund the protected party’s defense against any claims that fall under the scope of the provision.

One major pitfall in the use of indemnities and “duty to defend” provisions is that, if drafted incorrectly, these can run afoul of state anti-indemnity statutes, which invalidate agreements in construction contracts that attempt to indemnify persons against the consequences of their own negligence. A recent court decision illustrates the types of mistakes that can

be avoided with careful drafting.

The Brotherhood CaseRecently, the federal court for the

Northern District of Illinois ruled that a duty to defend that is intertwined with a general indemnity will be voided if the general indemnity is in violation of the Illinois Anti-Indemnity Act (740 ILCS 35/1). In Brotherhood, Subcontractor had agreed to indemnify and hold harmless Contractor for claims against Contractor that had been caused by “Subcontractor’s negligence, wrong doing, or other fault even if Contractor or Owner should also be partly at fault.” The court held, however, that the Illinois Anti-Indemnity Act prohibited Contractor from shifting liability for its own negligence to Subcontractor through an indemnity clause. The Act specifi es that, in construction contracts “every covenant, promise or agreement to indemnify or hold harmless another person from that person’s own negligence is void as against public policy and wholly unenforceable.” Because the indemnity clause at issue expressly indemnifi ed Contractor for its own negligence, the clause was void and unenforceable.

The Brotherhood court also voided the “duty to defend” provision in the contract, after fi nding that it was too closely linked to the unenforceable indemnity provision. The “duty to defend” provision obligated Subcontractor to “defend Contractor and Owner against any claim, or legal proceeding which may involve Subcontractor’s obligations under [the indemnity clause].” The court held that this wording tied the duty to defend to the indemnifi cation so closely, that the two provisions were effectively “intertwined.” Because the indemnity provision violated the Anti-Indemnity Act, the “duty to defend” provision also violated the Act, and was unenforceable.

Lessons Learned From The Brotherhood Decision

Careful drafting of indemnity and “duty to defend” provisions will help prevent confl icts with the Anti-Indemnity Act. The Brotherhood decision provides several examples of the type of language to use to avoid having these provisions striken in court. There are two guidelines to consider when contemplating these types of contract provisions: (1) indemnities should be drafted to cover only negligence by the indemnitor; and (2) the duty to defend should be general in scope and separate from the duty to indemnify.

Indemnity Provisions Should Cover Only Negligence By The Indemnitor: In dealing with construction contractors, Illinois courts have found indemnifi cation language that purports to indemnify a party for its own negligence to be in violation of the Anti-Indemnity Act. This can easily be avoided by drafting the indemnity provision to cover only negligence on the part of the indemnitor. Language such as “Indemnitor agrees to indemnify and hold harmless Indemnitee for claims resulting from, arising out of, or occurring in connection with Indemnitor’s execution of the work” has been held valid under the Act.

Duty To Defend Should Be General In Scope And Separate From The Duty To Indemnify: Because courts will invalidate “duty to defend” provisions that are closely tied to indemnifi cation clauses that violate the Anti-Indemnity Act, a careful drafter will separate these two provisions,

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Insurance News

Certifi cates Of Insurance Not Enough To Protect Your Business

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Our Practice Is Building

On behalf of contractors, architects,

engineers, subcontractors, public and

private owners, Seyfarth Shaw provides

legal representation and risk management

counseling at all stages of the

construction process.

A T L A N T A B O S T O N C H I C A G O H O U S T O N L O S A N G E L E S N E W Y O R K S A C R A M E N T O S A N F R A N C I S C O W A S H I N G T O N , D . C . B R U S S E L S

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To learn more about our Construction Practice, please visit www.seyfarth.com/construction

If your business uses sub-contractors or independent contractors, simply requesting they provide certifi cates of insurance does not afford your business suffi cient protection. A certifi cate of insurance only states the contractor had insurance at the time the certifi cate was issued. It does not validate that there is and will be insurance in-force during the time their work is completed.

In addition, certifi cates of insurance are widely abused and fraud is not uncommon. If a lawsuit is fi led, all parties involved will be named, and your insurance company will at a minimum incur defense costs, regardless of your negligence.

If you want to ensure protection, you must specifi cally be named as an Additional Insured (AI) in the contractor’s insurance policy. AI endorsements provide

an additional insured with coverage for its liability for “bodily injury” or “property damage” arising out of the named insured contractor’s work performed on its behalf.

Among the key benefi ts of being named an Additional Insured:

• AI status allows you to tender your defense to the contractor’s insurance company.

• Transferring your risk allows you to keep premiums down because reserves are not necessarily incurred on your own experience rating.

• Insurer must defend the entire complaint if any portion of it is potentially covered.

• AI endorsements are not the same between insurance companies and each have specifi c caveats, so each must be

carefully evaluated to ensure it gives you the protection you need. It is always a good idea to review these forms with a legal representative.

The best way to ensure your sub-contractors and independent contractors name you as an AI in their policy is to contact your insurance broker and develop an appropriate strategy. Working with a broker that specializes in your industry can be a real advantage because of their expertise in dealing with the specifi c issues you will face.

Remember, a certifi cate of insurance is a nice piece of paper, but it is not enough to protect your business.

For more information on this article, please e-mail [email protected] or phone (847) 463-7800.


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Labor News

Short Form Can Be Long TermWhen Signing An Agreement, Know The Facts About How It Will Impact Your BusinessWhen Signing An Agreement, Know The Facts About How It Will Impact Your Business

please see Labor, page 14

BY STEVEN H. ADELMANLord Bissell & Brook LLP

The construction industry is unique with respect to certain aspects of federal labor law. For example, an employer confronted by a union organization attempt ordinarily has the right to refuse

recognition of the Union unless there is proof that a majority of the employees have designated the Union as its collective bargaining representative. In fact, it is generally a violation of the National Labor Relations Act (“NLRA”) for an employer to recognize a Union as the bargaining representative of its employees without

proof of the Union’s majority status. But the construction industry is exempt from this requirement. Rather, Section 8(f) of the National Labor Relations Act allows employers to recognize a Union as the exclusive bargaining representative of its work force even before any employees are hired!

In view of this ability to obtain instantaneous recognition without having to prove that a majority of the employees want to be represented by a union, unions in the construction industry have developed a document that is generally referred to as a “short form agreement”. The short form agreement often consists of only one or two pages – but it can bind an employer to a collective bargaining agreement that contains so many restrictions and obligations that it takes over 100 pages to cover them all. Generally, the short form agreement specifi cally states that, by signing it, the employer is bound by the collective bargaining agreement that the Union has negotiated with one or more trade associations in the area. Sometimes the agreement covers multiple geographic areas. It is therefore very important for an employer to review a short form agreement thoroughly to make certain that it knows the full implications of what it is signing before it actually signs such an agreement. If an employer is not certain as to what the agreement means, it is critical to get advice from an experienced labor lawyer or other person experienced in the area of labor relations – not from the Union. A recent decision from the National Labor Relations Board (“NLRB”) highlights what can go wrong when you rely on a union to explain the meaning of the short form agreement.

In Horizon Group of New England, 347 NLRB No. 74 (2006), the company (“Horizon”) was awarded a contract for work on three schools in Burlington, New Jersey. The work was covered by a Project Labor Agreement (“PLA”). At that time, Horizon was not a party to any collective bargaining agreements. A

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AGC News

While “Be Prepared” may be known best as a Boy Scout motto, two fi nancial experts expressed their opinions that remembering that phrase could also help contractors avoid some of the pratfalls associated with subcontractor default.

An AGC audio conference in late February covered managing the risk associated with subcontractor default, with Paul Head, Chief Financial Offi cer of Myrick Gurosky & Associates, and Griff Moody III, Executive Vice President of Willis Atlanta Construction Risk Practice, offering their views.

The presenters outlined what to look for when searching for a subcontractor, including “red fl ags,” such as a history of default or unrealistic growth patterns. The presentation also covered how general contractors can better shield themselves and incur a minimum of damage should subcontractor default occur.

The increase in the number of default cases is cause for concern to everyone in the industry, and just one of the many reasons the presenters listed for being prepared for default before it happens.

“I’ve seen more defaults in the last 18

every job.”

After studying cases of subcontractor default and the diffi culties contractors encountered due to those cases, Head and Moody underscored the importance of learning lessons from those cases by:

Having a contract with the owner

Overmanaging a company that has “red fl ags”

Keeping proper insurance materials offsite for fabricators

Teaching Project Managers to be business people who know as much as possible about the market

The fourth point was particularly important to Moody.

“It’s absolutely vital that the Project Managers have their ear to the ground,” he said. “It’s helpful if they know who went broke and who isn’t paying their bills. There’s a whole host of ways in which having that knowledge helps your organization.”

For more on subcontractor default, see future editions of The Builder.

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Audio Conference Covers Subcontractor DeFaultmonths then I’d seen in the previous fi ve years combined,” said Moody, who pointed out that the number of claims is going up and the cost of an average single default claim is up $840,000.

One of the ways to avoid default is knowing as much as you can about your subcontractors before you hire them. Knowing the track record of the company, its surety status and its growth history were three ways Head and Moody suggested. Another angle included limiting the number of jobs a subcontractor works for a general contractor, thus limiting the damage done to that contractor if the subcontractor goes out of business.

“One subcontractor might be working on multiple jobs for your company because that subcontractor is cheaper, faster or better than anyone else,” Head said. “As much as you might want to, it’s not a good idea to keep using that company on multiple jobs. If that subcontractor defaults, it impacts all those jobs and impacts your entire business.

“It’s a tough decision to make, but it’s the right decision, company-wide, to avoid using the same subcontractor for

Builders Association Board Selects Volunteer Offi cersPaul Hellermann of Bulley & Andrews,

LLC, J. David Pepper of Pepper Construction Group and John Russell of W.E. O’Neil Construction Company have been elected as Volunteer Offi cers by the Builders Association’s Board of Directors.

Hellermann was elected as Chairman of the Association, while Pepper and Russell were elected as Vice Chairman and Treasurer, respectively. The appointments are effective immediately.

Paul Hellermann, President & COO of Bulley & Andrews, LLC, is responsible for estimating, project management, fi eld operations, marketing and the management of day-to-day operations. A 1974 graduate of Bradley University, he served as Vice President of Construction for

E.W. Corrigan Construction Company. He joined Bulley & Andrews, LLC as Executive Vice President in 1988 and was named President and COO in 1992. Paul is Chairman of the Mid-America Regional Bargaining Association and the Builders Association Labor Relations Committee.

J. David Pepper is Chairman and Chief Executive Offi cer of the Pepper Construction Group. He serves on the Advisory Board of Directors for Good Shepherd Hospital and is an active member of the Associated General Contractors of America’s Foundation Research/Education

Committee. David also serves on the Board of Directors for Junior Achievement of Chicago and United Cerebral Palsy of Chicago, in addition to serving as Treasurer

for the Builders Association Foundation.W.E. O’Neil Construction Company

Executive Vice President John Russell is a graduate of the University of Illinois and Northwestern University’s Kellogg Graduate School of Management. John joined O’Neil in 1982 and has held positions of Project Engineer,

Project Superintendent, Project Manager and Project Executive in the company. He was promoted to Executive Vice President in 2005 and will assume the role of President in 2008.

In this role, John is responsible for all the operations of W.E. O’Neil and insures that all commitments including owner relations, schedule, costs, project management and quality are met.

Russell

Hellermann

Pepper

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Risks, from page 1

Third, as a practical matter, the use of 3D modeling fosters a broader collaborative effort, especially when the contractor is invited into the process early. Design reviews and clash-review meetings bring everyone into the same room, working to solve a problem. This signifi cantly reduces everyone’s risk.

In ChargeA concern from the design side is

whether the architect-of-record or design-builder remains in “responsible charge” of design, as required by many state laws. That’s based on the faulty assumption that the line between design and construction is blurred using 3D design, including fears that someone other than project leaders can change the model without their knowledge or approval.

That issue can easily be addressed by adopting a protocol where all changes to the model must come from the designated team leaders. They need to establish tight access controls and an audit trail of additions to the model that clearly identifi es the source and date of all changes.

It is overly simplistic to assume that a single, “master” model for projects exists. In fact, each construction discipline maintains a model for its area of responsibility and the project leaders then use an integrated model that refers to the 3D models for structural steel or mechanical and architectural components.

The integrated model can be distributed to all parties to detect clashes, but the only place where design changes can be made is in the models of individual disciplines, not the integrated model. When a clash is detected, a joint decision is made about what needs to be adjusted to address the problem. The architect moves a wall, the structural engineer changes a beam and the MEP designer adjusts ductwork.

Another assumption is that 3D modeling compels the project team to include more detail than in a traditional approach, thereby causing designers to move into a “means and methods” arena, for which the contractor – not the architect – should be responsible. That concern can be alleviated by everyone acknowledging that the design team is creating no more than a design-intent model. This has less detail than the construction-intent model, which results from incorporating the contractor’s shop drawings and submittals into the deisgn-intent model.

in 3D coordinates, or a soft dash, where distances between two objects are not large enough.

In a 3D model, the contractor remains as responsible for shop drawings and submittals as it was in the traditional 2D project. In addition, the parties should acknowledge that the contractor still handles dimensions and quantity takeoffs. That rule should apply even if the contractor uses takeoffs prepared by the designers’ software programs. Use of such takeoffs is done at the contractor’s own risk, standard procedure for items like door schedules. In contrast, current software packages may not be robust enough to calculate cast-in-place concrete quantities. There is no reason for those practices to change simply because the project is being 3D modeled.

Liability ProtectionAnother concern of the design team

is how its liability protection may be diminished with 3D modeling. One doctrine that prescribes a designer’s duties to third parties is the “economic-loss doctrine,” which bars third-party claims for economic loss in the absence of physical injury, but the analysis should not change using a 3D model.

In either situation, the question is how foreseeable is it that someone will rely on the designer’s work. That analysis should

DifferencesThe difference in those two levels or

detail in an integrated model can be clarifi ed by describing in the project specifi cations, on a discipline-by-discipline basis, the level of detail designers are responsible for and the level of detail for which the contractor and its subs are responsible.

We need look no further than the American Institute of Steel Construction’s Code of Standard Practice for Steel Buildings and Bridges for a dear delineation between the structural engineer’s deliverables – specifi c information about the connections the fabricator must detail – and the fabricator’s deliverables – connections based on that information. Although this delineation may have been lacking in many traditional projects, 3D modeling does not prevent project leaders from clearly establishing who owes exactly which deliverables at what level of detail.

Some designers might also be concerned that 3D modeling compels them to coordinate construction, which is the contractor’s responsibility. This concern, however, confuses two concepts. The contractor must coordinate its subs, but the architect must coordinate the various disciplines in the project design so it can be built. Surely, there is no cheaper or more thorough process to check constructability than doing a clash check to determine if two or more objects will have a hard dash, literally taking up the same space

The Sprint Center in Kansas City begins to take shape with the help of Building Information Modeling.

please see Risks, page 11

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Note: The following is the fi rst in a two-part series from FMI on why contractors fail fi nancially. The installment in the next Builder will cover business development, picking the right customers and managing risks.

BY HUGH RICEFMI

Construction is a risky business. Often that risk rears its ugly head and causes life-threatening losses for construction fi rms. The ultimate reason that contractors go broke is that they run out of money to meet payroll and pay bills. But, what events lead up to that point? What are the underlying causes of contractor failure?

In conjunction with the Construction Industry Round Table (CIRT), FMI is currently researching the causes of contractor failure. The fi rst part of this research involved a study of the existing literature to determine what is known about business failure. The initial research confi rms that the failure rate for construction fi rms is higher than most other industries. The following compilation represents FMI’s “Top 10 Reasons Contractors Fail.”

STRATEGIC ISSUESOverexpansion/Flawed Strategy

Growing too fast and beyond the fi nancial and human resources of the fi rm is a classic reason for contractor failure. Eternal optimism is part of the contractor mentality and frequently leads to over-committing the fi rm. Having a rational, sustainable business strategy is key to survival and success.

Volume ObsessionContractors defi ne their success by

their ENR ranking in terms of revenue or sales. Unfortunately, size and profi tability

are not necessarily related. Focusing on volume instead of profi ts causes over-leverage and a lack of a fi nancial cushion when inevitable problems arise. Perhaps ENR should publish a Top 400 list of the most profi table contractors.

Poor Project Selection, Onerous Contracts, Unrealistic

Commitments, and Risk Concentration

Sometimes a contractor’s “best” job is the one they did not get. Very often one bad project can put a contractor

Guest Article

What Steps Not To Take From A Financial Standpoint FMI Articles Outline Reasons Contractors Go BankruptFMI Articles Outline Reasons Contractors Go Bankrupt

out of business. Doing the wrong job, for the wrong owner, under the wrong contract terms can be terminal. Spreading risk through diversifi cation can avoid catastrophic failure.

ORGANIZATIONAL ISSUESInsufficient “Real” Capital or Profits

Construction company fi nancial statements are notoriously suspect due

please see FMI, page 12

Overconfidence/Arrogance/Incompetence

Poor Strategy

Poor Owner Selection

Poor Project Selection

Loyalty to People Bad Projects Market Slowdown

Liquidity Crisis

Bank Line Called

Bankrupt

FMI Example Chain Of Failure

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OGLETREE DEAKINSAttorneys at LawConstruction Industry Group

Two First National Plaza, 25th Floor • Chicago, Illinois 60603P: 312.558.1220 • F: 312.807.3619 • www.ogletreedeakins.com

LIFTING SERVICE TO NEW LEVELS

Safety News

Strong Starts = Safe StartsJOHN E. SCHUMACHER, CSP

Safety Director, Assurance Safety Consulting

Time is ticking and time is money. However, before any crew begins to work it is essential that they complete a safety evaluation which could prevent serious injury to crew members.

In many cases, crews set up the work and start measuring, cutting and installing without considering some of the obvious hazards on the job site. The majority of accidents and injuries are due to obvious hazards that were in plain view at the beginning of a job.

There are three main hazard areas that crews should consider prior to beginning any project:

Mutli-Employer Work SitesMany jobs will have other trades working in the immediate

area which can create hazards for your crew and put other workers at risk from your operations. It is important that your crew considers what other operations are in progress in their work area and what additional hazards that may be present.

Fall ProtectionFalls are the leading cause of death to the American construction

worker, thus, it is important for crews to pay special attention by following these guidelines:

Safe access to the work area: Stairs need to have hand •

railings installed if there are 4 or more risers. Metal plan stairs must not be used if they are not fi lled in. Landing areas at the top of stairway must be equipped with safety railings.

Floor and Wall Openings: If a wall opening is larger than 18” x 30”, it requires a railing. Railings should be installed with a top rail at 42”, mid rail at 21” and a 4” toe board. Floor holes must be covered to prevent employees from falling into them. Floor hole covers must be marked as a fl oor hole, strong enough to support the load and secured in place.

Personal Fall Arrest Equipment: If an employee must accept a crane load on an upper fl oor of a building, they will likely need to wear a safety harness as fall protection. The crew will need to anticipate this hazard and have the proper equipment available on the job.

Tools And EquipmentA crew should determine if the proper tools and equipment

are available to complete the job safely by evaluating:Ladders: All employees should know that ladders must

be in good condition and that the top two rungs of a step ladder are off limits. The crew should evaluate if they have the right ladders to do the work safely.

Fire Extinguisher: A properly functioning fi re extinguisher must be within close reach when sweating pipes or doing other “hot” work.

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please see Safety, page 16

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Safety NewsJSA Programs Among Safety Forum Topics

be no different whether the 2D plans are copied and distributed to someone on the project than if a 3D model is made available to the same person.

What if there’s a glitch in the 3D modeling software where the integration of individual discipline models is still a relatively new technology? The project owner should bear the risk of those glitches, provided the participants are adhering to the protocol. After all, the owner hopes to benefi t from the lower costs of 3D modeling.

If an owner is unwilling to take that risk, the project team leaders must weigh the risks of a software glitch against the existing risks that designers could fail to coordinate drawings. From a practical standpoint, the risk of making a drafting mistake in carrying a change from one 2D drawing to another is greater than the risk of glitches in the model-integration software going undetected until too late. With 3D models, risks are reduced that the design of a specifi c component is unexpectedly different than the typical design because the virtual model can readily replicate the typical without taking countless drafting hours to do it.

When all of these issues are analyzed, the perceived legal risks in using 3D modeling melt away and are outweighed by the obvious benefi ts of clash detection and greater project collaboration. It should be only a matter of time before insurers offer discounts to encourage clients to wear the clash-detection “seat belts” of 3D modeling. Ultimately, the question will morph into whether team leaders actually increase risks by not using 3D modeling, much like not using seat belts.

Reprinted from Constructor magazine with permission of the McGraw-Hill companies.

Rick Lowe, Attorney-At-Law, is a construction lawyer in the Philadelphia offi ce of Duane Morris LLP. Contact him by phone at (215) 979-1137 or by email at [email protected].

Risks, from page 8

Michael Wiedmaier of Hayes Industries makes a point about job safety analysis programs during the Builders Association Contractor Safety Forum Feb. 7 at the Chicagoland Construction Safety Council. Seventeen professionals attended.

Those not found wearing a hard hat on a consistent basis on a Weis Builders jobsite could fi nd themselves wearing a pink hard hat. It’s just one of the many ways Builders Association members have of making sure a seemingly simple - but often forgotten - safety measure is followed.

Seventeen safety professionals gathered for the Builders Association Contractor Safety Forum Feb. 7 at the Chicagoland Construction Safety Council in Hillside. Bob Smith of The Levy Company led the discussions, which approached the following topics:

When is an extension cord no longer usable? What does the Occupational Safety and Health

Administration (OSHA) want out of a Job Safety Analysis Program?

What can be done in a situation where there are two substance abuse programs on the same jobsite?

Smith and Michael Weidmaier of Hayes Industries underlined the importance of an effective Job Safety Analysis program. Smith suggested that every job have site-specifi c safety plans and an analysis of each potential hazard on a site.

“Once you identify a hazard, you have to tell people how to work within those hazards,” Smith said. “The lines of communication have to be open. You have to sit down and evaluate each (hazard).”

A question by Peter Kleczynski of Airtite Contractors prompted a discussion on what OSHA inspectors look for when it comes to broken casing on extension cords. Peter Cole of DLZ Industrial talked about different union workers on a jobsite being under different substance abuse policies. The consensus of the safety professionals was that the more a group is tested, the safer things will be a jobsite.

“As a subcontractor, I love it when a General (Contractor) says ‘I’m gonna test everybody,’” Smith said. “It makes things easier on everybody and it makes for a safer environment.”

The assembled professionals also discussed the importance of continuity when it comes to wearing hard hats on a jobsite, the advantages of having workers perform more than one task during a single work day and the upcoming signing of the Builders Association/OSHA Partnership. To date, 20 companies participate in the partnership.

••

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New MemberThe Builders Association welcomes:

Construction Management Solutions, Inc.3973 75th StreetAurora, IL 60504

www.cmsolutionsgroup.comBrad McGill, Sales Manager

Construction Management Solutions specializes in helping you select the right software for your construction company. We have over 20 years of combined experience working with accounting software for the construction industry and with construction estimating software.

12


to the large amount of estimates used to prepare them. Not infrequently, a substantial portion of a contractor’s equity is based on percentage of completion estimates of projects, the actual results of which will not be known until the projects are completed. “Phantom” profi ts or equity can disappear and leave the fi rm in fi nancial distress.

Poor Business Acumen Many good builders are poor businesspeople. More and

more, business skills determine success. Financial management capability, marketing knowledge, business strategy, and risk management are frequently lacking. Even good technical builders can go broke.

Poor Leadership and SuccessionConstruction is a people business. Frequently, it is a “person”

business because of the importance of a single strong leader. The most common denominator of success or failure of a contractor is the person leading the charge. During the transition from one generation of leaders to the next is when many fi rms falter.

FMI, from page 9

Poor Field PerformanceMoney is made and lost in the fi eld. It is often said that great

execution can overcome poor strategy. However, the wrong project manager or superintendent, or turnover at those positions can spell trouble. Adequate project control systems are critical to identifying problems early and making mid-course corrections.

Problem OwnersA diffi cult owner is frequently the downfall of a contractor. A

poorly fi nanced owner may lead to slow pay or no pay, creating liquidity problems. Disputes resulting in claims, litigation, and unsigned change orders leave the contractor in a poor negotiating position with substantial cash tied up in the project. That situation can spell bankruptcy. Customer selection is key.

UNCONTROLLABLE ISSUESEconomic Volatility

The construction market is currently very strong, which can lead to good times, overexpansion, and failure. Downturns in construction tend to be sudden and severe and can catch the unprepared fi rm with too much overhead or precipitate taking very low margin work. Vigilance is necessary to avoid crashing aimlessly on the waves of economic cycles.

Credit Market ChangesSurety and banking credit are the lifeblood of the contractor.

Changes in the underwriting standards, such as those that occurred

please see FMI, page 13

Downturns in construction tend to be sudden and severe and can catch the un-prepared fi rm with too much overhead.

13


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after 2001, can create serious diffi culties for contractors who are pressing the outer limits of their credit availability.

Several fi rms have had to sell or seriously downsize in the past few years due to unforeseen changes in the credit markets. This list is only the beginning of the story. For every risk factor or cause of contractor failure there is a “cause behind the cause.” For instance, a chain of failure could look like the chart on page 9.

FMI’s ongoing research will evaluate 30 to 40 major contractor failures to determine the underlying causes and common themes. Our objective is to help other fi rms be more successful by studying past failures.

In the meantime, the best advice is to keep some “dry powder.” Bad things happen to good contractors. Make sure the fi nancial position of your fi rm is adequate to withstand the inevitable negative event so you can live to tell about it. Future success is predicated on being in business to take advantage of opportunities.

Hugh Rice is FMI’s chairman. He is based in FMI’s Denver offi ce and can be reached at 303.398.7223 or via e-mail at [email protected].

FMI, from page 12

Occupational Safety and Health Administration Area Director Diane Turek (left), The Levy Company Safety Director Bob Smith (center) and Builders Association President Al Leitschuh sign the Builders Association/OSHA Partnership March 2nd at OSHA’s Des Plaines offi ce. The new accord will be in effect until Dec. 31, 2009 and replaces the original agreement signed in 2003. Look for more information on the OSHA Partner-ship and what it can do for your company from a safety standpoint in future issues of The Builder.

OSHA Partnership Signing

14


Labor, from page 6

representative of the Laborers Union visited the job site and gave the Project Manager a document entitled “Short Form Agreement” to sign, as well as a copy of the collective bargaining agreements between the New Jersey Labor District Councils and a statewide contractors association. The Project Manager asked the Union Business Agent what the documents were for, and the business agent answered that the Project Manager needed to sign the Short Form Agreement “to get men to work.” When the Project Manager asked if the Short Form Agreement was part of the Project Labor Agreement, the Union Business Agent answered in the affi rmative. The Business Agent made it clear that there would be “trouble” on the job if Horizon did not sign the agreement. The Project Manager asked for time to review it further, and he then consulted with one of the owners of Horizon (the Project Manager’s brother). Being concerned about the threat of trouble and knowing that the PLA required the work to be done by Union-represented employees, Horizon agreed to sign the Short Form Agreement.

After the three-school project in Burlington was completed, Horizon sent a letter to the Union terminating its labor agreement. The letter was sent in September 2003. However, the collective bargaining agreement was not scheduled to expire until April 2007, almost 3 ½ years after the termination letter was sent. The collective bargaining agreement specifi cally provided that it could only be terminated at the time of its expiration, and, even then, the employer was required to send a non-renewal letter 90 days prior to the agreement’s expiration or it would be automatically renewed for an additional year.

A few months after sending the (invalid) termination letter, Horizon began performing work at another school in New Jersey. This project was not covered by the PLA. Several months later, the company received a contract to perform work at another school in New Jersey. Again, there was no PLA applicable.

Sometime after each new job was started, the Laborers Union made a demand that Horizon apply the collective bargaining agreement. The Union took the position that Horizon was required to follow the collective bargaining agreement at these other projects in New Jersey because the recognition clause of the collective bargaining agreement specifi cally stated that the Employer recognized the Building and Construction District Councils and Local Unions covered by the CBA as the sole bargaining representative for all employees employed by the Employer throughout the State of New Jersey with respect to

work within the scope of the collective bargaining agreement. The Union also said that the termination letter was not effective, because it was untimely. When Horizon refused to follow the collective bargaining agreement at its other construction sites in New Jersey, the Union fi led labor practice charges with the NLRB.

In the NLRB hearing on the unfair labor practice charges, the company claimed that the Short Form Agreement should not be binding because it was procured by “fraud in the execution”. While a 3-member panel of the NLRB agreed that the Union misrepresented the Short Form Agreement when it said that it was part of the Project Labor Agreement, a 2-1 majority of that panel concluded that the Short Form Agreement was so clear as to its scope that Horizon did not have the right to rely on the Unions misrepresentation.

The NLRB panel majority also found that there was no “fraud in the execution,” because the company could not prove it signed the Short Form Agreement in reliance on the Union’s misrepresentation. Rather, the NLRB said that there was evidence that Horizon decided to sign the document to avoid the “trouble” that was threatened. The NLRB panel majority also found that Horizon was not off the hook simply because the Short Form Agreement did not specifi cally state that it covered all projects in the state of New Jersey. Instead, they found that it was the company’s obligation to review the full collective bargaining agreement, since the Short Form Agreement specifi cally stated the company was being bound to that collective bargaining agreement.

The fi nal result -- Horizon was bound to the collective bargaining agreement for all of the other jobs it did in the State of New Jersey. Therefore the company owed back wages for the differential between the rate it paid the employees and the wage rate set forth in the CBA. Additionally, it owed money to all of the Union trust funds for all the hours worked by the jobsite employees (even though they were not members of the union).

Clearly, Horizon Group learned a very expensive lesson – a short form agreement can create a very long term obligation. That company now knows that, when presented with such an agreement, it is not only critical to get a copy of any collective bargaining agreement being adopted by signing the Short Form Agreement, it is important that a knowledgeable determination be made as to how adopting such an agreement will impact the contractor’s business.

Steve Adelman is a partner at Lord Bissell & Brook and has concentrated his practice in labor and employment law for over 30 years. Contact him at [email protected].

Building elements such as recyclable materials and fast growth products, mechanical systems for better indoor breathing quality and daylight harvesting which detects and measures the daylight levels and adjusts the output level of electrical lighting to create a balance saving energy.

While Sollitt is a veteran to Green Building this is a fi rst for the Orland Park community.

“Going ‘green’ is the right thing to do,” Dan McLaughlin, Mayor of Orland Park said.

“LEED certifi ed buildings create healthier workplaces, conserve energy and protect the environment,” McLaughlin said. “We hope that our having the fi rst LEED certifi ed building in the community sets an example for future construction in Orland Park.”

“Achieving LEED Certifi cation was the most diffi cult aspect of this project.” Jim Zelinski, Sollitt Vice President said, “Such as fi nding the right materials to make a sustainable sound building with less impact on the environment.”

Green Building’s main purpose is to

design a sustainable design/build which minimizes environmental impact and energy consumption. It is a two step process in which the architect and contractor work closely together in which they mutually decide how many points they are trying to achieve to receive a LEED certifi cation.

“The industry is driving us” Lena said “The LEED system is a constant learning process and is looking to architects and builders innovation and completed ‘green’ projects to improve the point system.”

Spotlight, from page 2

M e m b e r M i l e s t o n e s

Member Marketplace

ADP’s employer services division provides human re-sources, payroll, workforce management and benefi ts ad-minitration products and services. ADP has focused efforts within the construction and contractor industries in order to provide specialized services to employers with these workforces.

ADP100 Northwest Point Blvd.

Elk Grove, IL 60007847-718-2267www.adp.com

Scott Eidle, District [email protected]

Zurich North America holds a leadership position in serving the broad fi nancial services and needs of contrac-tors and project owners. Our insurance professionals are construction specialists. Zurich North America can provide a comprehensive package of coverages and services com-bined with loss sensitive options to protect your physical assets, intellectual property and capital.

Zurich North America Insurance550 W. Washington Blvd.

Chicago, IL 60661312-496-2400

www.zurichna.comScott Rasor, Manager

[email protected]

The Builders Association’s Affi liate members are respectable and responsible companies. The products and services are among the best in the area in their fi elds. By virtue of their association membership, these companies support the Chicagoland construction industry.

T h e B u i l d e r s A s s o c i a t i o n e n c o u r a g e s i t s c o n t r a c t o r s t o u s e A f f i l i a t e m e m b e r s w h e n l o o k i n g f o r p r o d u c t s o r s e r v i c e s.

15


Two Builders Association companies were recognized at the 19th Annual Chicago Commercial Real Estate Awards Dinner, Mar. 15 at the Hilton Chicago. McShane Construction Corporation was nominated for Build-To-Suit Project Of The Year for its work on the John B. Sanfi lippo & Sons Corporate Headquarters in Elgin, and Ryan Companies US, Inc. was up for both Developer Of The Year and Development Of The Year for its work on the Sears Centre Arena in Hoffman Estates.

The Sears Centre was featured in the December 2006 issue of The Builder. Watch future issues for a feature on the John B. Sanfi lippo & Sons project.

Five Builders Association members were among the top 600 specialty contractors in the United States in 2006, according to Engineering News-Record magazine. James McHugh Concrete Construction was rated 61st last year, up from 162nd in 2005. Also listed were: Hill Mechanical Group (88th); Case Foundation Company (132nd); Westside Mechanical (330th); and Thorne Associates (560th).

W.B. Olson, Inc. was named a fi nalist in the race for the 2006 Chicago Building Congress Design/Construction Merit Award for its work on the Highland Park Community Center. The Center includes a six-lane, 25-yard lap pool, a 5,000-square foot fi tness center, a track overlooking new basketball courts and meeting or multi-purpose rooms with state-of-the-art audio and visual equipment.

LAPPCO, a division of The Lombard Company, was awarded

a contract to provide 750 architectural precast panels for HSBC North America’s new corporate headquarters. Pepper Construction Company is the General Contractor for the project. The six-story building, located in Mettawa, will cover 440,000 square feet and house 2,400 employees. It will include a cafeteria, a coffee shop, a fi tness center, prayer rooms and private rooms for new mothers.

LAPPCO will provide precast, brick-clad wall panels for the Provena St. Joseph Medical Center in Will County. The eight-story addition to the facility will be composed entirely of private rooms.

Related Midwest, a leading Chicago-based developer of landmark residential and commercial properties, selected McShane Construction Coporation to provide construction services for a 22-acre site downtown Orland Park known as the Main Street Triangle. The project will redevelop the downtown area to include restaurants, shops, residential units and foot and bike paths surrounding the Orland Park Metra Train station.

McShane/MetLife industrial development alliance hosted a groundbreaking for its recent industrial co-development—Liberty Point Corporate Center (LPCC). This development is located in Libertyville, Illinois on a 25-acre parcel at Midlothian

please see Milestones, page 16

BuilderThe

The Builder is published periodically by the Builders Association, a trade association of com-mercial, industrial and institutional contractors and affi liated industry fi rms dedicated to quality construction in the Chicagoland area.

2007 Board of DirectorsChairman

Paul HellermannBulley & Andrews

Vice ChairmanJ. David Pepper

Pepper Companies

TreasurerJohn Russell

W.E. O’Neil Construction Co.

John BenzWilliam J. Scown Building Company

George FerrellHenry Bros. Co.

Leon LaJeunesseCustom Contracting, Ltd.

John O’MalleyCase Foundation Company

Howard StrongGeorge Sollitt Construction Co.

Sheri TantariMcShane Construction Corp.

Dana ThorneThorne Associates

Lynn TreatRyan Companies US, Inc.

The Builder StaffAndy Cole

Editor, Advertising Sales

Katie SellsCommunications Intern

Builders Association9550 W. Higgins Rd., Suite 380

Rosemont, IL 60018(847) 318-8585www.bldrs.org


Representing the Associated General Contractors of America in the

Chicagoland metropolitan area.

16

projects have regular overhead hazards and potential eye injuries, safety glasses and hard hats should be in use by all crews. Use of a respirator may also be needed if primer/glue is used in an area without good ventilation.

Other: Working in a multiple story building, the crew leader should determine safe exits from the building and establish a meeting area for the crew in the event of an emergency.

By taking the time to do a hazard assessment of each job, crews may identify hazards and take corrective action and prevent a tragic injury.

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Safety, from page 10

Milestones, from page 15

Road and Franklin Boulevard. This facility is comprised of two speculative industrial buildings totaling over 359,000 square feet.

McShane and Heitman Architects, inc. are providing design/build construction services for both the speculative and build-to-suit facilities totaling over 950,000 square feet of concurrent construction with an estimated completion date summer of 2007.

Mike Mann joined Assurance Agency, Ltd. as Executive Vice President in December. He is responsible for managing and directing one of Assurance’s property and casualty production teams.

Before joining Assurance, Mann was the Regional Marketing Offi cer for Willis North America’s Central Region. He graduated from the University of Illinois with a degree in Political Science in 1986.

BryceDowney, LLC recently welcomed Justin L. Weisberg and Tina M. Paries to its practice in the area of construction law. Weisberg graduated from the University of Illinois in 1987 with a Civil/Structural Engineering degree and graduated from Chicago-Kent College of Law in 1992. He was named an Illinois Super Lawyer in the area of Construction Litigation in 2006. Paries, who lists construction law among her practice areas, graduated from Northern Illinois University in 1991

rather than make them part of the same contract clause. In addition, parties should consider wording the “duty to defend” provision in general terms, such that the duty is triggered when there is potential liability arising from the construction project rather than by virtue of the indemnifi cation obligation.

It is generally good practice to include indemnity and “duty to defend” language in construction contracts. If drafted correctly, these clauses serve to allocate risk and help parties deal with problems more effi ciently. You should consult with your attorney when negotiating a contract, to tailor the agreement to your specifi c needs, and help you avoid any potential pitfalls in the process.

Joel J. Rhiner and Arnoldo B. Concepcion are attorneys at Stein, Ray & Harris, located at 222 W. Adams Street, Suite 1800, Chicago, IL 60606. For more information, call 312.641.3700 or email them at [email protected] or [email protected].

Provisions, from page 4

Contact Andy Cole With Your Projects,

Promotions Or Other News For The Member Milestones

[email protected]

Documents

Volume 11 2