7 Key Issues Requiring Negotiation in Your Agreement
By Vince Fudzie
This is the second part of a series that discusses what to consider in choosing a partner, what needs to be in your agreement and how the venture will operate.
An alliance has the potential for huge rewards but can conversely result in devastating losses, particularly for the smaller company. Any significant loss relative to your size may be disproportionally large and damaging. As an example, you’re $150,000,000 municipal joint venture project gives you a profit/loss percentage of 15%. Many small companies enter into such agreements barely giving thought to the fact that if the project goes south by $10,000,000, they could be on the hook for $1,500,000. You may want to think twice about entering an agreement if you are not prepared to deal with such possibilities.
As the smaller company, you will probably not have controlling interest in the venture (unless you are in a formal SBA mentor/protégé program which requires it). Nevertheless, this certainly should not preclude you from negotiating good deal points. The overriding principle in your agreement should be to memorialize key terms in order to minimize potential disputes in the future. Many joint venture agreements will neglect to incorporate specific operational details. This is understandable since, at this point, you are probably still chasing the project. However, once the project is secured, you, as the smaller company, will have to push to make sure the operational details are worked out. While it would be easier for your larger partner to simply run the venture operations the same way they run their separate operations, this may not be in the best interest of your company. In Part 3 of this series, we will discuss the points that should be included in your operational agreement.
While you may not be negotiating with the greatest of strength, the following key provisions should still be vigorously pursued for you benefit:
- Consent and Participation. Oftentimes, small contractors are content to be on the team with the potential for a share of the profit. They try to stay out of the way and may even feel they have very little to offer. This is the wrong attitude. Even if you don’t make a cent, you want to secure as much intellectual capital for your company as possible. Therefore, secure your place at the learning table by indentifying what issues require your consent and/or participation – issues such as negotiations, legal/consulting discussions, special project meetings, email distribution lists, etc. Basically, don’t miss out on this learning opportunity.
- Performance of Work and Employees. Past performance and experience are paramount to the success of any company. In any joint venture, you should seek to gain both real and relevant company-wide experience, while increasing the experiences of individual employees. Structure your agreement to glean as much knowledge from the project as possible. This includes, but is not limited to, daily administrative and operational activities in which your people are actively responsible for certain aspects of the project. For example, if your partner wants to assign the project manager from their staff, you may fight to assign the superintendent and/or quality control representative. The main thing is to have your employees participate in a meaningful way on the project.
- Joint Bank Accounts. As mentioned earlier, the fact that you could be responsible for a portion of any losses means that it is wise for you to be somewhat actively involved in the financial aspects of the venture. There is no better place to stake a level of control than having an agreement which requires a joint bank account and dual signatures with an authorized signer from each partner on all checks. In addition, you should notify the project owner that all draws should be made to the joint account. Lastly, be sure that you have access to monthly bank statements and internal bank reconciliation. These measures will help you maintain a good feel of what is going in and out of the account.
- Record Keeping. For a small company, there is a lot you can glean from reviewing the project files and records. Better understanding of contract provisions, improved writing skills through correspondence reviews and valuable project management experience are just a few things available. As a part of your agreement, make sure that you have full access to all project records and familiarize yourself with them. On our joint venture projects, we typically put all project files on a cloud-based storage platform which make them readily available and reduces excess paper. If you ever need the documentation for other reasons, you will not have to rely on your partner to access them.
- Job Costs Pre-Defined. Unfortunately, some partners will see the venture as an opportunity to expense every cost imaginable to the project. These costs will typically fall in the category of preconstruction and general conditions. Every dollar of cost that a partner can transfer to the project goes directly to the bottom line and is shared by you. Expenses such as lavish meals, excessively manned preconstruction and parking at the corporate office are just a few of the questionable costs we have seen. While these costs may not be wrong in and of themselves, why should you pay for your partner’s employees to park at their own building? As such, all parties need to be in agreement as to what costs are acceptably charged to the project. Otherwise, there is no way to determine if the project is as profitable as it should have been.
- Standing Meeting/Open Communication. As with any relationship, open communication is key. If trust is to be developed, all parties must openly share and own issues negatively affecting the project. Recognizing that issues are inevitable and can be resolved, it is more important to find a solution than to point fingers. Make it a requirement of the joint venture that there be periodic, dedicated times to meet and discuss such topics as busts in the estimate, underperforming personnel and administration of the venture. Again, these meetings are of paramount importance, so don’t allow yourself or partners to disregard them.
- Dispute Resolution/Exit Strategy. Unless one of the parties to the venture doesn’t like saying “no” very often, there are going to be disputes. And, at some point in the venture, one or all parties may feel the need to separate. When conflicts arise or someone simply wants out, it is vital to have a formal dispute and/or exit mechanism in place. This avoids potentially costly and distracting litigation. After all, even if you and your partners have a total falling out, you will probably still be required to complete the project together. Having a predetermined means of solving disputes will work to make the completion of projects and ultimate dissolution more pleasant.
Obviously, any legal document created by lawyers is going to include a number of other types of provisions that are needed in your agreement, but you should pay particularly close attention to the ones listed above. As always, check with competent legal counsel before entering into any legally binding agreement.
Vince Fudzie MBA, CPA, CIRA, is the Managing Member of Triune. Founded in 1997 with headquarters in Dallas, Triune is a leading, integrated, design-build general contractor in the Southwest region of the country.
The Punch List is Triune’s proprietary blog for discussing issues and providing insights specific to the commercial construction industry. Copyright 2013 TMV, LLC (Triune). Any and all rights reserved.
6 Things to look for in a partner
By Vince Fudzie
This is the first part of a series that discusses what to consider in choosing a partner, what needs to be in your agreement and how the venture will operate.
Wikipedia defines a strategic alliance as an agreement between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organizations. For our purposes, an alliance between a small company and a larger one can take many forms from a teaming agreement to a 50:50 joint venture.
A simple Google search reveals tons of information discussing the topic of strategic alliances. However, it is a challenge to find one cogent article on how to successfully develop alliances between small and large contractors. In practice, alliances are difficult to manage under the best of circumstances, let alone in a situation that may have been born solely out of socio-political influences.
Because choosing the wrong partner can have disastrous financial consequences for smaller contractors with limited resources, this decision is crucial. I am amazed by how many companies haphazardly form ventures without first thoroughly vetting one another’s cultures, ethics and business philosophies. Before entering into an agreement, as is the case with any relationship, it is wise to get to know your partner first.
If the following character traits sound like advice from a marriage counselor, then you’re absolutely correct. An alliance is very much like a marriage, so make sure that your partner has a good number of these traits:
- Commitment. Without both companies’ wholehearted commitment from the top to the lowest levels of their organizations, the venture is destined to fail. In general, this commitment needs to focus on the overall success of the joint venture which is the only way to assure an equitable relationship. If this commitment does not exist, you should seriously reconsider entering into an agreement.
- Respect. A lack of respect can stem from a number of reasons, but it is often due to the perception by one of the parties that the other is receiving unequal rewards for the level of risk they are incurring. When this perception and resulting lack of respect permeate throughout your partner’s organization, it makes for a very contentious relationship. You need to talk with your partner early on to address such issues. If your company offered no value, then there would probably be no need to discuss partnering.
- Humility. Sometimes the nature of large businesses can breed a level of egotism that flourishes throughout the organization, even for newer, inexperienced employees. Having this type of partner can be disastrous, especially if this characteristic extends to interaction with project owners. Once an owner catches wind of an egotistical contractor, your project success is prone to disaster.
- Trust. Any viable relationship begins with trust between the parties, and, prior to inking any agreement, you must begin to develop it. Just as in personal relationships, trust can be developed in many ways. Behaviors such as developing rapport outside the office, following through on commitments, being well-versed in what you bring to the venture, standing up and taking responsibility for missteps, and being considerate of others’ time – these are the types of actions that create trust in business and in life.
- Shared Values. Good partners should possess shared values. For example, both firms should have similar values of integrity, collaboration, service and excellence. Alignment of core values will be critical for successfully working together. If one of the partners is short sided in any core value, it may lead to disappointing results for the project and discord between the parties.
- Vision. Too often, companies form alliances in a “just in time” fashion – just in time to turn the proposal in. They may even spend time developing a rapport. And, if they don’t win the proposal, there is a likelihood they may not speak again unless another opportune project presents itself. This is not how committed partners act. Partners with vision are committed, not only to the project, but to the relationship being built. They find a partner with the right traits and build upon their mutual bond. Otherwise, you are playing the game alone and never really creating a team with the best possibility of winning.
Choosing the right partner is simply the beginning of a potentially fruitful relationship. However, a successful venture will require not only the right partners, but well-thought-out and well-implemented agreements with the right heart and spirit by those involved.
Vince Fudzie MBA, CPA, CIRA, is the Managing Member of Triune. Founded in 1997 with headquarters in Dallas, Triune is a leading, integrated, design-build general contractor in the Southwest region of the country.
The Punch List is Triune’s proprietary blog for discussing issues and providing insights specific to the commercial construction industry. Copyright 2013 TMV, LLC (Triune). Any and all rights reserved.
By Ed Krum
In today’s competitive market, everyone is looking for ways to reduce overhead in every aspect of their operation. This includes the basic costs associated with estimating projects.
The old adage, “it takes money to make money,” has gone out the window. The opportunities to connect with your clients, subcontractors and suppliers via the internet has changed the way most companies look at estimating.
In the past, procurement of the plans and specifications by means of either a deposit or direct purchasing was both costly and cumbersome. With the advent of electronically distributing the bidding documents either via disk, FTP site or electronic plan room, you can reduce the cost to only printing the plans you need and, in most cases, a reduced size set (11×17). This now allows the general contractor more access to many more subcontractors in various trades to ensure a quotation is received. This makes things much easier, since sorting through pages of documents is no longer necessary.
While electronic document management may seem very obvious, it takes a dedicated person to contact each and every subcontractor and supplier to remind them of the proposal required from them.
Owners, developers and other entities that bid out work are slowly catching on to benefits of electronic submissions and are now letting contractors submit their bid/proposals electronically. This change in attitude by owners has now allowed contractors to take advantage of the “late” arriving subcontractor bid, thus reducing the overall cost of the proposal to the owner among other benefits.
Although there is no sure-fire way to reduce bidding cost, prudent general contractors only peruse the bid jobs that have the best advantage in their favor of winning. While larger projects are tempting, they also draw the most bidders and, therefore, are harder to compete. This type of bidding is like throwing money away. Ardent contractors will try to find those projects where the amount of bidders is limited in order to increase their chances of being successful.
Whatever type of project you choose to bid on, electronic bidding allows you to streamline communications, check on bidding subcontractors and suppliers, and use the system for document management.
Ed Krum, Senior Estimator for Triune, is a highly accomplished, multi-talented project manager with over 25 years of commercial construction experience. He is skillful and highly regarded in value engineered, conceptual, competitive, negotiated and design-build estimates.
The Punch List is Triune’s proprietary blog for discussing issues and providing insights specific to the commercial construction industry. Copyright 2013 TMV, LLC (Triune). Any and all rights reserved.
By Sarita Smithee
Construction contracts often contain a liquidated damage clause that provides for payment a stipulated amount in the event that work is not completed within a specified period. Owners often impose these clauses against contractors to ensure the timely performance by penalizing the contractor if the work is not completed on time.
Purpose of Liquidated Damages Clauses
Construction contracts include liquidated damages clauses for project delays because damages caused by delays are often difficult to foresee. Liquidated damages may be assessed by owners for failure to timely complete a project, or, less commonly, they may be claimed by contractors when owner delays increase the costs of project completion.
Typically, a liquidated damages clause specifies an amount per day that the owner is entitled to recover in damages if the contractor fails to complete the project by the contracted completion date. The term “liquidated” is used to signify the agreed amount of damages an owner will recover in the event of a delay, and eliminates what can be a lengthy and expensive process of proving the actual damages.
However, the inclusion of a liquidated damages clause does not always mean that provision is enforceable. Although competent parties generally have the right to make their own bargains, this right is not unlimited.
The enforceability of a liquidated damages clause depends on multiple factors
Generally, a liquidated damages clause will be be upheld if it was created by the parties in an attempt to estimate, in advance, the actual damages that would be suffered in the event of a material breach. However, if the only rationale for enforcement of the clause is that the project was not completed on time, the Court will likely view the clause as a penalty and unenforceable if it is challenged, absent some other evidence that late completion caused actual damages.
In evaluating whether a liquidated damages clause is enforceable, Texas courts have generally looked to the following factors:
- Whether the amount stipulated in the contract was a reasonable forecast, at the time the parties contracted, of just compensation for the harm that is caused by the breach;
- Whether the harm that was caused by the breach is one that is incapable or very difficult of accurately estimating;
- Whether the amount of liquidated damages to be assessed was disproportionate to the amount of actual damages incurred;
- Whether the liquidated damage provision applies equally to both material and minor breaches; and
- Whether the liquidated damage provision was not intended to provide fair compensation for the breach but instead to secure timely performance of the contract.
Drafting considerations
Owners may attempt to address these factors by specifically drafting the liquidated damage clause to state that it is not intended to be a penalty. If the clause was negotiated by the parties, as opposed to boilerplate language inserted by the owner, this language can help the owner prove the parties’ intent.
If an owner uses the same amount for liquidated damages in all of its contracts, courts will often find that the provision was intended as a penalty and, therefore, unenforceable. The liquidated damage provision therefore should be tailored to the particular contract. Similarly, if the same amount of liquidated damages will be triggered by either a material or minor breach, courts have held that the liquidated damage provision is unenforceable even if there has been a material breach.
A party who is seeking to craft a liquidated damage provision that would be upheld by the Texas courts should consider a pre-contract analysis as to what the potential damages could be if the work were not completed on time, and should document it in the file.
Provisions should be crafted so that they do not apply equally to both a minor and material breach. A liquidated damage provision that applies equally to “the failure to perform any obligation required by the contract” should be avoided.
As noted above, the inclusion of liquidated damages clauses is commonplace in construction contracts. Knowing what is required for those clauses to be enforced is useful information for either party to a construction contract, whether attempting to enforce a liquidated damages clause or trying to defeat its enforcement.
Sarita Smithee is an associate with The Beckham Group in Dallas, Texas. The Beckham Group has extensive experience with, and specializes in, business litigation both as a Plaintiff and a Defendant. The firm drafts and prosecutes/defends civil cases involving numerous types of contracts, and has just about seen it all.
The Punch List is Triune’s proprietary blog for discussing issues and providing insights specific to the commercial construction industry. Copyright 2013 TMV, LLC (Triune). Any and all rights reserved.
5 Ways to immediately reduce your costs
By Christina Martinez
Many so-called traditional marketing methods such as advertising, trade shows and print literature are huge cost-drivers in any marketing budget. The good news is that it is possible to reduce these marketing costs and still be highly effective. Here are 5 ideas to immediately reduce your costs while still maximizing marketing results.
- Know the Customer. Marketing is expensive, and mistakes can crush a marketing budget. Avoid mistakes by getting acquainted with the customer. Know the segments, needs, decision makers and more by collecting and using data. House all of your customer data in a database or by using marketing automation software that can be updated easily.
Conduct research. One of the easiest ways to do this is by regularly surveying your customers and their needs. Surveys are inexpensive, and they will give you valuable information that can be used as a foundation for guiding marketing decisions. If you have trouble getting your customers to take your surveys, then provide incentives.
- Establish On-line Presence. Advertising is often the most costly component of any marketing budget. Gear your budget to invest more into search engine optimization (SEO) and content marketing through blogging and social media.
Your website ranking can also make or break your marketing efforts. Chikita, an ad network, has continuously monitored search results to find that the top result on Google sees a 32.5% click-through rate, with continuous drop-offs from there (91.5% of clicks occur on the first page). So what exactly does this mean? Unless your website is ranked in the top few search result positions, all of the advertising in the world will not help you. Establish a quality website that is comparable to your leading competitors. And don’t forget to make sure that your site is mobile-friendly.
- Print Brochures are so 2005. Print may not be dead, but it could use some help. Whether seeing decreasing success in direct mail or increasing costs in brochure printing, it may be time to put more resources towards digital branding. Actively provide PDF versions of your advertising, and reduce print runs. You can always keep brochures ready to be printed on a single-run, as opposed to wasting the money and space to store thousands of brochures. Furthermore, you can upload all of your PDF’s to a cloud storage provider like Dropbox, allowing potential customers to view your material more easily!
- Shape your Brand with Publicity. A saying that you need to take to heart: “Advertising and marketing is about saying how great you are. PR is getting others to do it for you.” PR or publicity placements are free by definition, with awareness building that rivals advertising! One such way to utilize publicity is through the issuances of new worthy press releases.
A few examples of how you can use PR to your advantage:
- Release Products using Free or Paid PR Wire Services
- Free: Check out this list of Free PR Submission Sites
- Paid: Great sites include PRWeb, BusinessWire, and PRNewswire
- Build Relationships with Reporters and Journalists
- Find Public Speaking Opportunities
A few good ideas for what to share:
- Participating in a philanthropic event
- New, significant customer
- Receiving an award
- Partnership and strategic relationships
- Names of significant new hires and/or promotions
Become familiar with the many facets of PR and make it a fundamental piece to your integrated marketing communications strategy.
- Repurpose Your Content. Content is king, but it doesn’t have to take up a huge portion of your marketing budget. Create content that will interest your current and potential customers, suppliers and subcontractors. Use the same content in different formats. Blog about your projects, post about the projects on social media, create a corresponding video, introduce yourself to customers and prospects via email, develop surveys, host a webcast or podcast and much more.
In addition to this, generating evergreen content will allow you to stretch your money. Evergreen content is quality, useful content that is relevant to readers over a long period of time. The fundamental key with evergreen content is that it is relevant to readers whenever they may run across it. It has (virtually) no expiration date and ideally will retain its value over the long-term.
Reducing marketing expenses for your business can be simple. Just be sure that you have a plan and follow through. It’s worth the savings!
Christina Martinez is Triune’s Director of Marketing and Business Development. Christina brings over 10 years of high level marketing experience to Triune. Triune is a leading, integrated, design-build General Contractor founded in 1997. Triune is headquartered in Dallas, TX – www.tmvllc.us
The Punch List is Triune’s proprietary blog for discussing issues and providing insight specific to the commercial construction industry. Copyright 2013 TMV, LLC (Triune). Any and all rights reserved.
Small changes add up to big dollars
By Bill Goodman
Every dollar counts, and every penny wasted is precious. Losing incrementally small amounts on your construction projects can add up to thousands of dollars very quickly by the end of a project.
So what can be done about it? Maximizing profit must be a top priority along with completing projects on time. It’s key to not only focus on daily tasks and responsibilities, but to make time for cultivating the financial tools and strategies that can help you meet your goals. Consider implementing these two proven strategies to maximize your bottom line and grow your competitive edge:
- Accurate General Conditions. General conditions in construction include the onsite administration, supervision, temporary facilities, temporary protection and soft costs required to get a project built. Estimating accurate general conditions for projects can be a simple task when the estimator is accountable for getting it right. Most estimators use unit prices that are rarely checked against the actual final job cost. For example, creating a budget for a temporary toilet seems easy, right? An eight month job should cost $100 per month, but when the field superintendent sees that there are 40 extra men on the job and more than one toilet, it means that more than one service a week is required. This might increase the actual job cost by as much as $200 per month. These extra costs will add up to lost cash.
The estimator’s primary job is to calculate an accurate estimate of what it will cost to build each project. After each completed project, the estimator must look at the actual job cost to see if he miscalculated, overestimated, or underestimated any of the project line items. Before pricing any project, the estimator should meet with the project manager and field superintendent to determine what will be required to run the project that’s being bid on. Estimators should also research to determine if they are charging the right price for the project needs and staffing, specifically temporary signage and barricades, fencing, temporary power, safety and first aid, and final clean up, just to name a few.
- Charge for All Amendments on Change Orders. Change orders are written documents amending the original contract agreement between parties observing an addition or change in scope, price, time, schedule, terms or work items on a construction project. Most often they require extra finances for the additional services required by the change.
If formal approval or authorization for extra work is postponed for days, weeks or months after the event occurred, then the customer is in a great position to settle or offer to pay a discounted price, change his/her mind or decide that the additional work should have been included in the original contract. To avoid this problem, present a complete cost breakdown for every proposed change order that your customer requests before starting the job. Use a standardized format, cost template and rate sheet to ensure that you include all additional costs ensued from added work. Every time extra work is performed, extra costs become evident. What are these extras costs? Some examples include processing paperwork and payments, writing change orders to subcontractors and ordering materials and equipment. Liability insurance and overhead cost may also go up. If the project has a payment performance bond, this should be calculated into the pricing. The general condition costs that are needed due to time extensions caused by the additional work or services should be included. Some items may have to remain on the job site for extended times, such as: construction trailers, temporary facilities, fencing, protection, etc. Do not short change your company by failing to ask for everything necessary to complete a job. Most commonly, change order requests are presented as labor, materials and hard cost plus markup, without extra required soft costs for many of the items noted above.
Making money is not easy in the construction industry. Look for every advantage that you can to boost your net profit margin, so that you are not giving it away.
William Goodman, Senior Project Manager for Triune, is a highly accomplished, multi-talented project manager with over 30 years of construction experience. He encompasses excellent skills in preparing schedules and managing job costs, budgeting, contract negotiation, design-build and pre-construction services.
The Punch List is Triune’s proprietary blog for discussing issues and providing insight specific to the commercial construction industry. Copyright 2013 TMV, LLC (Triune). Any and all rights reserved.
Increasing your bid-hit ratio
By Ed Krum
Competition in business is often fierce. In order for a company to thrive, it must achieve reasonable growth by means such as increasing profitability, jobs and sales volume. With contracting businesses, one of the primary means to obtaining jobs is through bidding.
The bid-hit ratio shows the percentage of jobs bid on in relation to jobs/contracts secured. A ratio of 5-to-1 would indicate that a company is averaging one contract for every five jobs being bid upon. In a perfect world, a low bid-hit ratio, like 2-to-1, would be ideal. A company that typically negotiates their jobs creates a false bid-hit ratio because they count all work under contract vs. work that they actually bid. Contractors that get most of their jobs from bidding public works or from bidding against a long list of competitors have a higher bid-hit ratio.
Once a contractor has identified the specific customer types that he wants to pursue, there are some simple strategies for increasing the bid-hit ratio and maybe improving overall profit margins.
- Limit the Competition. Typically all contractors want to bid on projects that have only 3 or 4 contractors selected to bid. Look for opportunities where the owner procures work through a short list of bidders. Pursue potential customers where you can compete on value and qualifications. Find those owners who recognize that the services that you offer are not simply commodities meant for the lowest bidder. Such opportunities exist, but you will have to cultivate them. This strategy will definitely increase your chance of a greater bid-hit chance. Obviously, less competition equates to a higher probability for success.
- Try Something Different. Getting stuck in chasing after the same types of projects and customers over and over hurts your bid-hit ratio greatly and reduces the efficiency of your estimating staff. Be more selective, eliminate jobs with long bidder lists and pursue only the jobs where you have some type of competitive advantage. Having a strong relationship with someone on the selection committee is one example. Making this a top priority and working hard to get pre-qualified for the targeted projects greatly increases your bid-hit ratio.
- Let yourself be Known. Try not to bid projects without first getting a chance to meet the decision maker. Your goal should be to find owners that are concerned with more than just price. When you meet the decision maker, ask questions such as: a) How many are bidding? b) Who are they? c) Who won your last project? d) How will the bids be opened and evaluated? e) What is the most important factor in selection of the contractor? f) Will they negotiate?
- Limit your Affinities to Others. As a subcontractor, why not send your proposal to every contractor bidding on that project? Oftentimes trades have an affinity to one or a few general contractors and will bid only to them. While loyalty is important, you should not utilize this practice if it negatively affects your bid-hit ratio and, ultimately, your business.
In closing, these simple guidelines may prove to substantially help your company win bids, stay competitive and increase profitability, and, in an ever-increasing market, not much could be more valuable.
Ed Krum, Senior Estimator for Triune, is a highly-accomplished, multi-talented project manager with over 25 years of commercial construction experience. He is skillful and highly regarded in value-engineered, conceptual, competitive, negotiated and design-build estimates.
The Punch List is Triune’s proprietary blog for discussing issues and providing insight specific to the commercial construction industry. Copyright 2013 TMV, LLC (Triune). Any and all rights reserved.
How the National Association of Minority Contractors (NAMC) paved the way
By Vince Fudzie
As we close out this abbreviated month designated to the accomplishments of African Americans, I cannot help but ponder the contributions made to the construction industry, not only by African Americans but by other minorities as well. However, I can assure you that there has been no greater contribution than that of the founding members of the National Association of Minority Contractors (NAMC).
Here is my story and my experience with the NAMC, a fantastic organization and resource to minorities in our industry: Several months ago a friend asked me to get involved in the start-up of a local chapter of the organization. My first inclination was to waste no time with another ineffective, self-serving advocacy organization. To this point, I had been cynical toward the seeming lack of progress of minority contractors and the organizations that advocate for them, as construction dollars for minorities have been so low that it is a wonder minority contractors exist at all. My friend’s persistence ultimately peeked my curiosity, and I took it upon myself to research the group. And, wow, was I blown away by its almost 50 years of accomplishments on behalf of minority contractors (i.e. African, Asian and Mexican-American). In reality, social-political organizations such as NAMC have, since the sixties, fought courageous battles to achieve equity and fairness in all areas of life in America. Unfortunately, many of these victories have been diluted over the past thirty years or so.
As a child growing up in Oakland, California, in the sixties, I was immersed in the coverage of groups such as the Black Panthers and the Mexican farm workers led by Caesar Chavez. Little did I realize that along with the fight being waged for social justice, there were luminaries such as Congressmen Parren Mitchell and Ronald Dellums, Congresswoman Eleanor Holmes Norton, Assemblyman Willie Brown, Jr. and Mayor Maynard Jackson who were also waging a war on an economic front. It is from this social-political backdrop that Ray Dones and Joe Debro co-founded NAMC. The following is a brief history of the evolution of minorities in construction that you should know and be encouraged by:
1964 – The Civil Rights Act of 1964 was a landmark piece of legislation outlawing discrimination based on race, color, religion, sex or national origin. It ended unequal application of voter registration requirements and racial segregation at the workplace and by facilities that served the general public. It is considered one of the crowning legislative achievements of the Civil Rights Movement.
Pre-1966 – Minority contractors were receiving less than .001% of the total publicly funded construction dollars in the country. In addition, many states were unionized, and it was virtually impossible for most minorities to get in. Add to this the lack of bonding, financing and insurance options, and it was downright tough being a minority contractor.
1966 – Ray Dones and Joe Debro, recognizing that they both had mutual interest in the success and development of minority contractors, began discussions with other contractors in the Oakland Bay Area to formulate a strategy to improve their mutual plight. Through these discussions, they decided to create an educational association, the General & Specialty Contractors Association, which would educate and train its members to excel in light of the changing social and political atmosphere. This would ultimately be the genesis of NAMC.
1968 – Realizing that minority contractors around the country were experiencing similar issues, such as lack of access to financing, bonding and projects, Ray Dones believed that the formulation of a national organization to advocate at the federal level would provide the greatest impetus for change. In 1969, the first conference of the National Association of Minority Contractors was held in San Francisco, in which Ray Dones was elected President and Joe Debro, Executive Director.
1970 – As a result of the pressures brought on by NAMC and other advocacy groups to level the playing field for minority contractors during the 70’s, tremendous gains in opportunities were achieved. What was once a paltry one-tenth of 1% of publicly funded construction projects grew to more than 1.5% of construction dollars going to minorities during this period. These gains were bolstered by such programs as loan guarantees, federal and state set-asides, training programs, bonding assistance and the perpetually besieged 8(A) business development program.
1980 – Unfortunately during this decade, 1.5% of publicly funded work going to minority contractors was too much for some to handle. As a result, numerous opposing entities began to challenge the constitutionality of various minority programs. The landmark 1989 Supreme Court decision, City of Richmond v. J.A. Croson Company, would forever change the effectiveness of affirmative action as a whole. In this decision, the Court ruled that city ordinances requiring 30% participation by minority contractors on all city contracts were unconstitutional. Subsequently, numerous other challenges to affirmative action related programs were initiated, and, still today, mandatory set-asides are virtually non-existent in all fifty states.
2016 – Although NAMC and others continue to fight, it looks like minority contractors have almost come full circle in the quest for equity, once again being relegated to receiving less than 1% of all publicly financed construction dollars and even less of private spending. However, we will not be deterred, as we are now better trained, have greater resources and information, and have the same spirit of those who came before us. We CAN, we Must turn things around.
So as we close another Black History Month, let us not forget those who paved the way for us and our responsibility to carry the same determination and inspiration, so that those who come behind will have every opportunity afforded them. In my years, I have personally witnessed the ebbs and flows of minority inequality in all areas, and I take it upon myself to do everything in my power to see workplace equality in its fullness. Partnering with the NAMC has given me a foundation to make a difference.
Vince Fudzie, MBA, CPA, CIRA, is the Managing Member of Triune. Founded in 1997 with headquarters in Dallas, Triune is a leading, integrated, design-build General Contractor in the Southwest region of the country.
The Punch List is Triune’s proprietary blog for discussing issues and providing insights specific to the commercial construction industry. Copyright 2013 TMV, LLC (Triune). Any and all rights reserved.
Understanding the Federal Government Weather Clauses
By Kay Kendall
You have probably seen the clause in your government contract discussing time extensions for unusually severe weather. The clause specifies the procedure for determining time extensions for unusually severe weather in accordance with the Default Clause for Fixed-Price Construction.
In order to qualify for a time extension under this clause, the weather experienced at the project site during the contract period must be found to be unusually severe and it must actually cause a delay to the completion of the project.
Schedule of Anticipated Adverse Weather Delays
Many government contracts include a schedule of monthly anticipated adverse weather delay days. It is important to read the clause carefully. Normally the monthly anticipated adverse weather delays are based on a five-day work week. If the Monthly Anticipated Adverse Weather Schedule shows five days of anticipated bad weather for January, and the contractor experienced (10) workdays of delay as a result of bad weather, then the contractor experienced (5) working days of delay more than was anticipated. This means the weather in January was “Unusually Severe”. If the (5) days of unusually severe weather impacted the contractor’s contract-completion date, then the contractor is entitled to a non-compensable time extension. Government contract durations are based on calendar days, not working days. Therefore, the time extension for the (5) unusually severe weather delays should be converted to calendar days. This is done by merely dividing the 5 unusually severe weather delay days by five working days per week, then multiplying by seven calendar days per week.
(5) unusually severe days/(5) working days per week = (1) x (7) calendar days per week = (7) calendar days.
The time extension to the contract should be (7) calendar days in this example.
Be sure to check the contract specifications for any additional criteria that may entitle the contractor to a time extension for unusually severe weather.
Weather Documentation
The contractor is required to record the weather on a daily basis on the Contractor’s Quality Control Reports and discuss if any adverse weather prevented work on critical activities for 50% or more of the contractor’s scheduled workday.
The government will normally send the contractor a letter each month advising that they have performed an analysis of the weather conditions for the month and whether their analysis shows that contract work was affected or delayed by unusually severe weather beyond what was expected for the time period. If the contractor does not agree with their findings, written notification should be provided with information to support the contractor’s position. This notification should be provided within seven days of the government’s letter.
If the contractor is performing earthwork and experiences a “mud” day after a day of rain, and both days impact critical path work by 50% or more, then the contractor should note that in the Contractor’s Quality Control Report and include it in their own analysis of anticipated adverse weather delays.
Time extensions issued under the Default clause for weather delays are non-compensable.
Kay Kendall is currently president of Kendall-Dinielli Consulting, providing consulting services to government and commercial clients. She has extensive experience in preparing requests for equitable adjustment proposals and claims for government construction contractors. She has also consulted Contractors with DCAA audits and resolving audit disputes. You can visit Kendall-Dinielli Consulting at www.kendall-dinielli.com.
The Punch List is Triune’s proprietary blog for discussing issues and providing insights specific to the commercial construction industry. Copyright 2013 TMV, LLC (Triune). Any and all rights reserved.
6 Reasons for Profit Fade
By Wesley Middleton
Profit fade. This is a situation that your bonding agent doesn’t want to see. Company owners and controllers seldom use this tool, despite the fact that it can be very effective in identifying situations and issues inside your company. Preparing a fade analysis on a regular basis can help identify trends that may warrant further investigation.
What is a fade analysis? In a very general sense, it is simply a comparison of your original estimated gross margin on a job to your actual progression throughout the construction period to completion. Generally, a fade of 10% or more will result in a call from your bonding agent with questions about why it is happening. The more variability in your contract over time, the more of a risk you appear to be to your bonding agent, and the less confidence they have in your ability to estimate and manage jobs.
A Note on Fade/Gain Calculations: Avoiding a Common Error
If you have an estimated profit of 2% and your profit drops to 0%, then technically you have a 100% profit fade. The calculation should be a percentage change of a percentage, rather than the difference between 2 percentages. Let’s look at another example: If your 2% gross margin represented $1 million and the job broke even, then you’d want an explanation of the 100% profit fade. The current schedule would only show a 2% fade.
Sources of Contract Fade
When preparing a fade analysis, it is important to break it down by project manager, estimator, category of construction work, or other categories that may exist in your company. This can further isolate the cause of the contract fade. Here are six important reasons that you may be experiencing contract fade:
- An estimator who is not competent at estimating jobs and is too optimistic in his estimates, or aggressive bidding by an estimator who is struggling to win contracts.
- Change orders that are unprofitable or simply have not been approved and recorded in the accounting system.
- An under-performing project manager who is not effective in managing the costs and people on the job.
- Jobs that are outside the company’s expertise, resulting in a learning curve that causes additional costs or job delays.
- The accounting department is not coding job costs to the correct job. Having the project manager and estimator review and approve the final job costs will help in this area.
- Cost shifting, otherwise known as fraud. It can be in the accounting department or from the project manager. The project manager could be shifting costs from one job to another to cover up the fraud, or the accounting clerk could be doing the same thing. Either way, the same review process in #5 above would help prevent this from happening.
Seeing the Better Picture
Comparing the total actual costs to the estimated costs simply isn’t enough. Seeing the change in gross margin from year to year adds an additional level of analysis. A well-planned deception of systematically “shifting” job costs from one contract to another between periods may not be detected by only comparing estimated costs to actual. Preparation of the fade analysis is better supported by a well-prepared WIP or contract schedule.
For a basic contract fade analysis template, click here. (link to: http://www.middletonraines.com/contract-profit-fade-analysis-download)
“Wesley Middleton is the Managing Partner at MiddletonRaines+Zapata, LLP, a leading Houston-based CPA firm offering a full suite of accounting, tax, audit, and consulting services to the small and middle markets.” wmiddleton@middletonraines.com
The Punch List is Triune’s proprietary blog for discussing issues and providing insights specific to the commercial construction industry. Copyright 2013 TMV, LLC (Triune). Any and all rights reserved.
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