Five Ways To Avoid Costly Construction Litigation
By Robert Wolf
Nobody, except lawyers, actually likes litigation. It’s time-consuming. It’s expensive. It’s stressful. But, there are some ways to help prevent such an expensive litigation process. Although no plan is perfect, these guidelines could help minimize your time, expenses, and stress level.
1. Use an Attorney To Begin With
I cannot tell you the number of times I’ve seen a contract, purchase order, or employment agreement where I’ve thought to myself or told a client, “If you had just come to us to draft this document to begin with, you would not be in this situation right now.” With so many “samples” of various types of documents on the internet, it seems that many businesses want to try their hand at drafting key contracts, employment agreements, and non-compete agreements themselves. While I can appreciate the need to conserve financial resources, companies often end up spiting their nose to save their face by creating documents tailored for their organizations without the benefit of legal aid.
2. Find an Attorney Who Understands Contracts
“My brother-in-law’s second cousin has a friend married to a guy who knows an attorney, who represented him on some traffic tickets. I’ll just use that attorney.” Well, you’ve at least followed Rule #1 – you are using an actual attorney. But, are you using the “right” attorney?
I don’t want a cardiologist performing brain surgery on my loved ones, and I don’t want an attorney specializing in criminal law to write my contracts. Likewise, I would not want an attorney specializing in contracts to defend anyone in my family on a criminal matter. So, make sure you are using an attorney specializing in the area you need, as opposed to a jack-of-all-trades-but-master-of-none attorney.
3. Find an Attorney Who Does NOT Need a Learning Curve
Although everyone learns something new every day, and the facts of each case are going to be different, you can spend a LOT OF UNNECESSARY MONEY if you don’t research your potential attorney’s actual case experience. You may have found an attorney specializing in contracts, but does that attorney have significant experience with the type of contract that you need, such as a subcontract agreement or independent contractor agreement?
If not, you could be spending thousands of dollars while the attorney conducts online legal research and re-creates the wheel, so to speak. Don’t be afraid to ask questions at the outset and determine your attorney’s own practical experience with the issue you are inquiring about.
4. If You Are Not Using a Litigator, Have a Litigator Review the Contract
So, you’ve done the right thing and found an attorney actually specializing in drafting and/or reviewing the all-important Subcontractor Agreement that you require. The attorney you are speaking to has drafted many of these types of agreements over the years.
But, has your attorney ever cross-examined a witness in a deposition or on the witness stand about the meaning and interpretation of this type of agreement?
Has the attorney had to sit through a deposition where he or she is defending a witness being cross-examined about the Subcontractor Agreement?
It is that last level of experience – actual litigation – that is invaluable. It is one thing to know all of the various statutes and laws, but it is another to have the practical experience of poking holes in the stories of many witnesses over the meaning of a single word or phrase. Litigators can use this experience to help you avoid future mistakes.
If you are not using a litigator, then try to have an attorney specializing in litigation review the document you are having drafted for you. It likely will not cost much, and can save you many thousands of dollars down the road.
5. Get a Budget Up Front
As attorneys, we do not like to be surprised with our clients’ stories, or with a client’s sudden inability to pay for the services rendered by attorneys. Likewise, it is not fair for a client to be unnecessarily surprised for a bill sent by an attorney. Do not just ask for the attorneys’ hourly rates. Find out how many hours are likely involved to complete a task. Ask for an approximate budget. Or, ask about an alternate arrangement such as a flat rate plan where you pay X dollars for the attorney to complete a specific task. In that case, if the attorney takes longer than expected to do the job, then you are not penalized.
There is no Perfect Plan. But, if you take these five factors into consideration, then more often than not, you will save significant money for yourself and your business in the long run.
Robert Wolf is a senior 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.
Vince – the blogger’s Reality Bite: In addition to the points that Robert makes, help yourself out by providing your attorneys well-thought-out and organized documentation with which to represent you. Don’t be the person that gives his/her tax account a shoebox full of receipts. Somebody is going to have to wade through the information, and if your attorneys have to do it, they are probably going to be more expensive than some of the lower paid individuals on your staff.
The Punch List is Triune’s proprietary blog for discussing issues and providing insights specific to the commercial construction industry. Copyright 2014 TMV, LLC (Triune). Any and all rights reserved.
The WIP Report
What it Is, How To Use it, and Why it Matters
By Wesley Middleton
A Work in Process schedule, or a WIP schedule, is a vital document to bankers, bonding agents, and surety underwriters. This is the yardstick they use to measure your success or failure as a contractor. Not only do they look to it as an important metric of your success, but they also would like you to understand what it is and why they use it.
Despite its importance, the WIP schedule can be one of the most confusing schedules to understand. Read on to learn a CPA’s take on what the WIP schedule is, how to understand it, and why it’s important.
The Basic Premise of the WIP Schedule
Although you may look at how much you have billed your client, subtract the costs associated with that contract and think that is your profit or loss, surprisingly, it is not! CPAs determine your profitability with the WIP schedule utilizing the Percentage of Completion Method (PCM) of accounting.
PCM: by the Numbers
Step One:
So how does the PCM work? We’ll first look at your estimated costs. This affects the entire process, so it is important that this estimate be as accurate as possible. Next, look at the costs you have incurred to date on the contract. If you divide the costs incurred by the estimated costs, this will give you the percentage of the estimated costs that you have incurred.
For example, let’s assume you have a contract for $500,000 and you estimate that your costs to do this job are $300,000. During the year, your bonding agent calls and wants to know how much of the contract is complete. You take a look at your costs incurred on the contract to date, and you see that you have incurred $60,000. With this method, the job is 20% complete ($60,000/$300,000).
Step Two:
We’ve determined how much of the contract you have completed. Now we apply that percentage to the contract price. (Note that this next statement is not the absolute, correct accounting answer, but in the eyes of the surety, this amount is how much you SHOULD have billed on the contract.) Using our example above, 20% x $500,000 is $100,000. So if you have incurred 20% of the costs, you should have billed 20% of the contract, or $100,000. This is exactly how the underwriter reads the WIP schedule. In reality, this is not the case: you have usually billed more or less than you should have.
That is where we get these two new confusing terms: over-billings and under-billings. You may see these written as “Billings in Excess of Costs” (over-billings) and “Costs in Excess of Billings” (under-billings).
What It Means: The Implications of Your WIP Schedule
Continuing our example, let’s assume you have only billed $50,000 of the contract. On this WIP schedule, you will be under-billed by $50,000. You “should” have billed $100,000 but you only billed $50,000. What does that say to your surety? This leads them to believe you may have weak project-management controls, and it points to potential future cash flow problems.
Even worse, a consistent under-billed situation leads them to question your ability to estimate your jobs. As the underwriter loses confidence in your WIP schedule, the bonding capacity gets tighter. As you can see, the WIP schedule is crucial to your credibility.
In our example, if you had actually billed $125,000 on the contract, this would mean that you billed more than you “should” have. You are over-billed. Bonding agents love this! It demonstrates that you have anticipated the future needs of the contract, and, assuming your client pays you on time, you have a much better chance of completing the job without a cash flow problem. It shows that you understand what it means to be ahead of the contract.
What Can You Do To Understand and Have a Better WIP Schedule?
1. Adjust your contract price and cost estimate for change orders.
2. Make sure all of your invoices from vendors and subs are recorded in the proper month. If the invoice was for work in January, make sure that it is recorded in January.
3. When you prepare your invoice to your client in February for the January work, make sure you date it and record it in January. Even though you may not actually prepare it until February 5th, record it on January 31st so that it is in the proper period.
4. Let your CPA review it before you send it to the underwriter.
Not sure if you’re on the right track? Try sending your WIP schedule to a CPA (link: http://www.middletonraines.com/) before passing it on to the bonding agent.
Don’t have a good WIP template? You can download a free template from MiddletonRaines+Zapata here (link: http://www.middletonraines.com/wip-schedule-template-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 2014 TMV, LLC (Triune). Any and all rights reserved.
10 Tips to Write a Governmental Proposal Effectively
How to respond an ITB, RFP, RFQ, and XYZ
By Christina Martinez
When the solicitation you are responding to is an Invitation to Bid (ITB), writing your proposal will basically consist of completing forms that the government provides. The key here is to make sure that you diligently complete the forms as instructed. Many a dollar has been squandered by individuals failing to follow instructions and being tossed out of consideration.
When the solicitation is a Request for Proposal (RFP) or Request for Qualifications (RFQ), a formal proposal is required. An RFP is a negotiated solicitation or bid document that outlines the contract and project requirements and asks companies to respond with a proposal.
Therefore, in addition to completing forms, you now have to create your own proposal explaining a plan for meeting the customer’s needs. You may be required to work up drawings, biographies of personnel, management plans, and other types of information that demonstrate the capability of your company to fulfill the requirements. At the same time, the proposal must be straightforward, concise, complete, organized, and reader friendly.
An RFP can take a significant amount of time, effort, and money. So before you even start, take time to evaluate whether the investment is in your company’s best interest. To make your efforts worthwhile, the proposal should present a legitimate opportunity for you to be successful.
At the same time, your proposal to a RFP should adequately address the customer’s requirements, be clearly written, and be persuasive. Here are some pointers:
1. Write Your Proposal As A Sales Document
Your proposal must sell your company’s ability to meet the customer’s requirements and to deliver on time. Be specific but direct, because being vague will only demonstrate that you do not understand what is required and will create questions in the minds of the evaluators. Validate your promises and assertions with facts and details. Your goal is to persuade evaluators that your capabilities are superior to those of competing companies and to prove that your company can do the job.
2. Demonstrate A Complete Understanding
This can be challenging at times. While in some cases the customer will know exactly what it needs, in other cases, it may not know or may make conflicting or vague statements. In either case, it is your responsibility to demonstrate your understanding of the requirements. If your proposal does not respond to the stated requirements or responds to only some of the requirements, it will be considered non-responsive and will not be considered for a contract award.
3. Establish That You Are Qualified
This means that not only must you demonstrate your understanding of the requirements, but you must also demonstrate your ability to meet them. Include the qualifications of staff and relevant facilities, as well as any other qualifications that are specific to the project you are bidding on. Your proposal should communicate clearly your ability to perform the contract successfully. Documentation of successful past performance will help prove your point.
4. Highlight Your Past Performance
Give examples of stellar performance on past contracts. This will show experience in related areas. If you are looking at a project that is much larger than you have ever completed before, show how you will manage it, what you are going to do, who you will be working with (in the case of a joint venture), how you will work together, and who is responsible for what.
5. Respond To The Stated Evaluation Criteria
The solicitation will identify the factors that the customer will look for when evaluating your proposal. Cost is but one factor. If your proposal does not respond to the criteria identified, it will be judged to be technically unacceptable and will not be considered for award.
6. Follow The Required Proposal Format
The solicitation will specify which topics should be covered in your proposal as well as the order in which they should be presented. If you do not follow the required content format and organization, you risk neglecting or omitting important information, which may result in a rejection of your proposal.
7. Use A Consistent Writing Style
Do not get wordy or long-winded. Stay on topic and to the point. Read the evaluation factors and use them to make the reader’s job easy. If there are areas in which you may be deficient, do not try to hide them. Rather, highlight them and show how you will solve the problem. Use graphics and only include a point that needs to be made. Use bullets and headlines that will help keep you on topic.
8. Proofread and Critique Your Proposal
Writing an effective proposal requires time and patience. Be prepared to write, evaluate, and rewrite as necessary. Rewriting gives you the chance to improve the quality and responsiveness of your proposal. Pay close attention to detail. Good grammar and spelling count. Ask another person with those skills to proofread the final draft for you.
9. Provide Clear Explanations
If you use abbreviations, acronyms, or in-house terms, make sure that you spell them out and define them, at least the first time they are mentioned. You cannot assume that all those reading your proposal know what you mean, because they may not. It could then end up costing you some points because you were not clear on what you were trying to say.
10. Keep A Database Of All Your Project Proposals
This can end up saving you time and money. The next time you have to write a proposal, you can go back and perhaps use all or part of a proposal that you did in the past.
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 insights specific to the commercial construction industry. Copyright 2014 TMV, LLC (Triune). Any and all rights reserved.
Creating A Culture Of Well Being
Why the health of your employees can improve your bottom line.
By Marc Pieroni
As a benefits consultant, I am often asked by small-business owners how to cut the cost of health care premiums. One of the best and most effective ways is to create a culture of well-being in the workplace. The cost of health care is rising and it is projected to continue to rise if businesses and individuals continue on the same path.
Employers are spending more today than ever before on the poor health of their employees. A majority of this spending is on diseases and illnesses caused by modifiable behaviors that affect health-plan costs. The way to lower these costs is to slow the deterioration of health in your workplace by reducing the risks and helping the higher-risk employees manage their conditions.
By proactively developing health and wellness programs, a culture of well-being evolves in the workplace and employers will begin to see an improvement in the overall health of employees, which leads to greater productivity and improved revenue.
How do you change this course for your business?
Well, it takes a little more than posting a copy of the food pyramid in your break room. It’s a commitment and a plan that needs to be developed and shared by the entire organization.
A few places to start would be the following:
- Identify your employees’ health status and help your employees know their own risks through biometric screenings and health assessments.
- Focus on getting high participation and engagement for the programs.
- Make a plan and set goals. Evaluate progress and adjust as needed to get results.
- Create an incentive program to encourage participation.
Employers who foster a culture of well-being are likely to have a healthy workforce with more productivity and less absenteeism.
A recent study showed that implementing a culture of wellness gets results:
- 11% higher revenue per employee
- 28% higher shareholder return
- 18-28% lower medical costs per employee
- 37% higher sales
- 31% higher productivity
- 3 x higher creativity
Seeing the cost benefits of a healthier workforce, the Affordable Care Act provides that on January 1, 2014, the maximum reward to employers using health contingent wellness programs will increase from 20% to 30% of the cost of health coverage. Additionally, the maximum reward for programs designed to prevent or reduce tobacco use will be as much as 50%.
A few more statistics show the effect of absenteeism on the employer:
- Unhealthy workers’ absenteeism costs employers more than $153 billion in lost productivity each year.
- Every day an employee calls in sick, it costs the average employer $341 per missed day.
- 38% of all absences are related to health issues.
Where do you focus? Well, part of developing a culture of wellness begins with helping your employees improve modifiable lifestyle habits. There are 8 behaviors that create 15 conditions which are responsible for 80% of all chronic illness costs:
Modifiable Behaviors
| Smoking Physical inactivity Poor diet Alcohol consumption levels |
Poor standard of care compliance Poor stress management Insufficient sleep Lack of health screening |
Conditions
| Diabetes Coronary Artery Disease Hypertension Dyslipidemia Obesity |
Cancer Asthma Arthritis Allergies Sinusitis |
Heart failure COPD Chronic kidney disease Depression Back pain |
The return on investment (ROI) is clear!
Studies have shown that $5.50 is saved in absenteeism and
medical costs for every $1 spent on health improvement initiatives.
The bottom line is when a business promotes an environment that focuses on health and well-being, it will protect profits and present a healthy image for its customers.
Marc Pieroni is the Managing Partner of BenefitCorp, a commercial insurance consulting agency founded in 1995. Marc is dedicated to helping businesses implement, administer and communicate all lines of insurance and financial products. Please call Marc at 972-480-0109. www.benefitcorp.com
Vince Fudzie – the blogger’s Reality Bite: It has been my experience that significant absenteeism for an employee causes a lack of productivity from that employee but also has viral consequences in that it affects the productivity and morale of others in the company.
Basically, other employees may see the often-absent employees as benefiting from additional time off, so why should they work harder?
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.
The 4 P’s of Managing Your Business Without Losing Your Mind
Why Multitasking is Still Alive and Kicking
By Vince Fudzie
A few days ago I read an article titled “How Multitasking Hurts Your Brain,” and since I do it all the time I wanted to make sure I understood the risks. We have probably all become accustomed to the often changing and conflicting views of research scientists, doctors and the like. Last year I even read an article stating that smiling too much was bad for your health. Come on, people, give us a break.
While I am a proponent of moderation, to say that as a business owner multitasking is bad for your health is simply going too far. The author most certainly has never had the responsibility of successfully running their own business. In fact, it goes against conventional wisdom that our brains are only capable of doing one task at a time. I will acknowledge that if you don’t have a system in place to manage your business and the multitasking involved, then it can feel like your losing your mind.
I have been able to keep my mind relatively in check by deploying a framework that I term the 4 P’s of Sanity. Not to be confused with the “4 P’s of Marketing,” the “4 P’s of Sanity” is a guide to help you more clearly view your management responsibility as a business owner. Your construction business at its core is comprised of your people, your processes, your pipeline of work and your pennies (finances).
If you can whittle your oversight to managing these 4 areas then you will be closer to maintaining your sanity and will probably have a pretty good business as well. A systematized company creates consistent quality, controls and results. The following is a broad overview of the mental picture I use to manage the overall business.
1. People
Recruiting, hiring and maintaining a quality workforce is paramount to the success of your business. This encompasses every aspect of maintaining a motivated and competent workforce. Questions such as, “what happens to accrued vacation?” “what is the policy on sexual harassment?” and, “what happens if an employee doesn’t return company-owned property?”
Along with not properly addressing procedures, another often neglected area is developing an ongoing recruitment and retention plan. Although you may not be ready to hire a full-time HR person, there’s still much you can do to maintain a consistent flow of qualified potential candidates, while maintaining your top performers. You don’t want to be caught understaffed and desperate to hire the first individual that comes off the street. Once the system is in place, you will have the luxury of simply monitoring the exceptions to the system.
Remember, everything good and/or bad that happens to your business can typically be traced back to people, so make them a priority.
2. Processes
Processes (standard operating procedures) are imperative for any successful business. These processes should include everything needed for employees to successfully understand their role and how it relates to the team. The typical idea behind standard operating procedures is to reduce the possibility of human errors and/or intentional illicit acts. They also allow savvy managers the ability to oversee operations through “exception” without getting too enmeshed in the details.
The focus here is on identifying and handling issues that deviate from the norm. Through this high-level management approach you will be able to trust, delegate and verify that your business is running as intended. As such, you will be able to hire competent individuals to whom you can delegate essential responsibilities without attempting to do everything yourself. Establish both periodic and random reviews of all your essential processes and quickly make any necessary changes.
3. Pipeline
Okay, say you have great people and processes, but there is no work in the pipeline (backlog). If your company is going to acquire consistent and profitable work then you are going to need a system in place to make it happen. All too often, especially during times of ample work or operational disruptions, business owners tend to neglect a formal business development system.
Don’t make this potentially catastrophic mistake. The system for maintaining your pipeline should be in alignment with the company’s strategy if it is to produce tangible and profitable results. It should allow your company to keep in touch with existing customers as well as encourage future prospects to give you a shot.
In addition, you must target customers that are in line with your services, while being able to provide them a compelling reason as to why your value proposition is better than your competitors. Make sure that top-notch customer service is predominant in your business development system. After all, delivering quality service is the absolute best way to keep your pipeline full.
4. Pennies
To achieve a high-performing business status, you as the owner must effectively manage the pennies (finances) of the business. It doesn’t matter if finance and accounting are not your strengths. While you may need to hire someone to do the bookkeeping, you can ill afford to blindly let other people count your money.
I can give you no better advice than this: hire someone to help you develop an effective internal control system. Along with this, have them assist you in developing the necessary financial reports to run the business. As part of managing the pennies, you are going to need to stay on top of cash flow, financial statements and insurance all while keeping up with the requirements of your bonding and insurance company and banker.
Although it is unlikely that all four of the systems will run optimally all the time, if you keep three out of four running well, while working on the under performer, then you should be on your way to managing a high-performing venture.
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 2014 TMV, LLC (Triune). Any and all rights reserved.
Recent Comments