Boots on the Ground

Subcontractors, The Heartbeat of Construction

Category: Subcontractors

For Subcontractors, A Time for Caution

On Monday May 6th, The Wall Street Journal had an article entitled “Supply Chain Debt Draws Warnings.” The essence of the article was to warn against the practice of big banks such as Bank of America and Credit Suisse promoting supply chain financing. This is the corporate equivalent of taking out a personal loan to make credit card payments. It gives the borrowing company a false appearance of liquidity and its ability to pay its suppliers on a current basis. If the credit line stops, the company crashes.

Those of us in the subcontracting industry know this feeling, because subcontractors basically do the short-term financing on construction projects. Subcontractors are required by law to pay their employees currently. Our suppliers require us to pay for materials in accordance with terms or they will stop selling us. Here is where the crunch happens. We don’t get paid until the architect and owner have approved and the bank releases funds to the general contractor. Then the contractor holds back retainage, usually ten percent, until the job is completed.

So, you can call subcontractors the supply chain financiers of the building construction industry. North Carolina law only gives us minimal protection. The law negates “Pay if paid” clauses of contracts that make the payment contingent on the GC’s receipt of funds from the owner.  However, it allows “Pay when paid” clauses that override promised payment clauses of the contract. The flaw in this law is that it states that general contractor must pay the subcontractors within a reasonable amount of time, even if they have not been paid by the owner. But the law does not define what a reasonable amount of time is. That is left up to the court to decide in an expensive lawsuit.

Having been in the subcontracting industry for nearly a half century, I have seen about a dozen recessions, including four major ones; the oil embargoes of 1973 and 1979, the savings and loan industry collapse in the 1980’s and the “Great Recession” that our younger co-workers are aware of. In most recessions, the subcontractors who are not well capitalized will fail because they run out of money to pay their workers and suppliers.

The warning here is to watch your receivables. A subcontractor can be into the third billing period before they receive their first payment. You need to be diligent. Call the contractor 15 days into the month following your first pay application to make sure they have all the paperwork to get paid and let them know you will be following up. Make sure you have your lien waivers from the first month to submit with the second application and so on.

Make sure you have filed the “Potential Lien Notice” on the NCLiens.com website within 15 days of starting work. Consult your attorney if the contractor hasn’t made a payment 75 days after the job has started. At this point you need to decide whether to put a mechanics lien on the job. Stopping work is usually not advised except as a last resort, since any flaw in your paperwork or workmanship can be claimed to be a breach of contract and you can be penalized.

Finally, be sure you can weather a near or total loss on a project without collapsing your business. There is some wisdom to the old saying, “Don’t put all your eggs in one basket.”

 

NC Subcontractors Select New Leadership

The North Carolina Subcontractors Alliance (NCSA), an affiliate of the National Subcontractors Alliance (NSA), has selected its new officers for the 2018-2019 fiscal year. The new officers are:

President, Joseph Teeter, Senior Project Manager at Axiom Foundations, LLC.

Vice-President, Billy Graves, President/CEO at W. B. Moore Electric Company

Treasurer, Michelle Frankum, Controller at Horsepower Site Services

Secretary, Don Hanson, Partner at Noble Insurance Advisors

Director At-Large, Brady Nails, Contract Coordinator at Binswanger Glass

Additionally, the NCSA created a Board of Advisors to assist the Board of Directors:

Legal Advisor, B David Carson, Partner at Johnston Allison & Hord

GC Council Representative to the Board, Josh Freeman, Project Manager at Miles-McClellan Construction

Past President, Chris Paone, Christopher Bryan Company

Past President, Duff Regan, Regan and Associates

Past President, Art Rouse, Director at National Subcontractors Alliance

GC Council Members for 2018-2019:

Edifice, Inc

Messer Construction

Miles-McClellan Construction

Myers & Chapman, Inc.

The NCSA was originally incorporated in 1976 as the Metrolina Charlotte Chapter of the American Subcontractors Association and was later incorporated into the ASA of the Carolinas. In 2013, upset with the financial strain of supporting a large Washington DC based organization with a national focus, the NCSA voted to leave the ASA and in 2014 became an affiliate of the National Subcontractors Alliance. The NSA is an alliance of independent associations across the country representing over 3,500 subcontractors nationally. The NSA provides support to its affiliates to provide networking, education and advocacy to their members. The NSA also has an Attorney’s council consisting of all the chapter attorneys that meets twice a year to discuss legal issues that affect subcontractors. The NSA affiliation allows the NCSA to emphasize local and state issues with the strength of a national organization.

The NCSA provides networking events, educational meetings and seminars, general contractor access and local advocacy. For membership information, please visit www.ncsubcontractors.com

 

NSA Spring Conference 2017

As members of the National Subcontractors Alliance, NCSA members can participate in the annual NSA Spring Conference. This year, the conference will be May 4-7 at the fabulous Sheraton Tampa Riverwalk Hotel in Tampa FL. This year’s theme will be “Leadership Solutions.” Sessions are designed for Association decision makers who can influence the overarching approach, message, and plan for an organization. To facilitate the goal, there will be national speakers such as Jon Hockman, Ricky Locke and Robert Harris.

Business meetings end daily at 2:30 so you can spend time with your spouse and enjoy the sights and events along the Riverwalk. Nightly, we will take alternative transportation, water taxi one night and a trolley to Ybor City the next for dinner at a special place. Great time to network with subs and chapter attorneys from all across the country. The annual NSA Spring Conference is just one of the many benefits of membership in the North Carolina Subcontractors Alliance. For membership information, contact Robin@ncsubcontractors.com.

 

What side are they on?

No doubt that Risk Management is important in the construction industry. The cost of accidents and improper installation can be immense and can threaten the very existence of a company. But with insurance companies, it is no longer risk management, but risk avoidance.

Have you ever noticed that the same insurance companies that advise General Contractors to add all these additional insureds, waivers of subrogation and other restrictions are the ones telling Subcontractors not to agree to them? In fact, insurance companies are starting to require subcontractors to obtain addenda to subcontracts regarding insurance coverage before issuing a certificate of insurance.

Here are the latest ones I have come across in a contract from a General Contractor that our insurance company absolutely will not bend on.

·         Requiring the general contractor, architect and engineer to be SCHEDULED Additional Insureds. The insurance company insists they are all covered by blanket coverage when required by the contract.

·         No Deductibles. The general contract requires all policies to be no deductible on CGL and WC. How many subcontractors can afford a no deductible policy these days? Our insurance carrier does not even write them.

So to answer the question of what side the insurance companies are on, the answer is THEIR OWN SIDE.

What Are We Teaching Our Kids?

The State of Arizona has just passed a law that a student will not be issued a high school diploma unless they can pass the same Civics test that an immigrant is required to gain citizenship. Why are they doing this? A survey of graduates revealed that only 36% knew there are three branches of government. What does that have to do with construction? It illustrates the lack of attention to basics that infects public school systems throughout the country.

When I was in high school in the mid 60’s, if you were not in the college preparatory program, you were possibly enrolled in a program called Distributive Education (DE), sometimes known elsewhere as Vocational-Technical (VoTec) education where you spent half your school day learning a trade such as carpentry, welding or hair styling. Or, you could be enrolled in classes at the community college taking auto mechanics or auto body repair. And, the high school offered business classes such as typing and shorthand to prepare you to work in an office. Some high schools also offered Jr. ROTC classes to prepare students for a military career. These classes prepared students to be gainfully employed the day after they graduated from high school.

Today, it appears our public schools are turning out graduates that are woefully unprepared to perform an entry level job in construction. They need math. They need to work with fractions. They need to understand geometry. They need to understand shop drawings. They need to be able to read to learn and comprehend OSHA rules and regulations. They need to write legibly in a comprehensible manner so they fill out job reports and time sheets. They need to be able to speak clearly so that co-workers and supervisors can understand.

When I looked at the Charlotte-Mecklenburg Schools website, there is a program called CTE (Career & Technical Education). There are a few courses offered that are applicable to construction: Carpentry, Drafting and Core & Sustainable Construction. There are also some courses listed that are available through CPCC (Central Piedmont Community College.) These coursed are not prominent on the website and I only found them on my second attempt. These courses don’t appear to be promoted or have any outreach or placement programs with employers.

CPCC has a Construction Technologies program at its Harper campus. Several years ago, Steve Corriher instituted a training program to teach the basics of construction. In this case, the basics mean how to use a hammer and read a tape measure. At completion, the class can stick build a storage shed with door, windows, siding, shingles, etc. If this type training was available in high school, students might be ready for a good paying job when they graduate.

These are not dead end jobs. Most people who manage or own construction companies worked their way up through the ranks. In my company, below the corporate office level, people with degrees are in the minority. They have advanced because they work hard, work smart and never quit learning. We can teach someone the specific operations of our industry, but only if they have the basic education that is required to perform the job.

 

 


 

There is No Job Shortage – It’s a Training Shortage

Politicians keep shouting “Jobs, Jobs, Jobs” but it should be “Training, Training, Training.” If you talk to just about anyone in business management, the number one challenge they identify is the difficulty in finding and retaining qualified employees. In addition, the education system has done a very poor job in preparing students for the jobs and careers that are available.

According to the Associated General Contractors (AGC) Worker Shortage Survey, 83% of construction companies have difficulty recruiting qualified craft workers and 61% cannot find qualified construction professionals (project managers, engineers, draftsmen, etc.). The Bureau of Labor Statistics projected in 2012 that in ten years the number of construction trades workers would increase 22%. This compares to 11% for all trades, 11% for heavy truck and tractor-trailer drivers. There will be some dislocation and manufacturing and production occupations will only increase by 1%.

The AGC’s Chief Economist, Ken Simonson was quoted as saying, “Construction firms across the country are having a hard time filling available positions. Considering how much the nation’s educational focus has moved away from teaching students career and technical skills during the past few decades, it is easy to understand why the construction industry is facing such severe labor shortages.”

Due to increasing automation and improvements in production processing, the manufacturing sector is only predicting a 1% increase in the total number of workers. However, in a survey of members by the National Association of Manufacturers, 69% of respondents say they have difficulty filling skilled production positions. As manufacturing plants become more automated, the required skills become more technical and workers need to be familiar with computers and programming. Machine mechanics have become mechanical engineers with far more expertise required.

One industry that affects all aspects of the economy is the trucking industry. There are currently 35,000 job openings across the country for heavy truck and tractor-trailer drivers. My industry, the glass and glazing contracting, is already seeing the effects of this shortage. Transporting the raw glass sheets from the manufacturer to the fabricating and distribution centers is highly specialized. The glass is transported in large sheets 11 feet by 18 feet, bundled into four 10,000 pound blocks (stoces), on an a-frame on a low-boy trailer. The drivers are required to have a minimum number of hours driving experience and special certification. The cargo is top heavy. The route must be considered to avoid low bridges, rough rail crossings and the like to avoid stressing the load. The driver has to stop and inspect the load every 150 miles. The driver is required to inspect the customer’s rigging before unloading begins. As the economy improves, glass deliveries are falling behind and creating delays partly because of the lack of qualified truck drivers.
So, it appears to me that much of the unemployment problem is not due so much to a lack of jobs, but to some of the following:

1. Lack of technical and career training in high schools. Not everyone needs to, or should, go to college.
2. College students are getting degrees in fields not applicable to industry’s needs today.
3. Unwillingness of people to relocate to where the jobs are. Cars are built in the South by robots, not Detroit.
4. A general unwillingness of people to start and the bottom and work hard.

I will tackle the above topics in future postings, but my best advice is to get the education and training to prepare yourself for a career that can sustain you and your dependents. For future college students, one career counselor recently recommended that you get your degree in a career subject such as engineering, computer sciences, geology, chemistry or biology, then minor in business administration or education. Save the arts and social subjects for electives.

Sources:
Bureau of Labor Statistics Occupational Handbook
Katy Devlin, Glass Magazine, December 2014

Outstanding Subcontractors

Handford PS

The closing speaker at the annual meeting of the North Carolina Subcontractors Alliance was Rick Handford, president of Myers and Chapman, Inc. Myers and Chapman is one of the larger general contractors based in Charlotte and serves North Carolina and the surrounding states. Mr. Handford has been and is very supportive of subcontractors in general and the NCSA in particular, which endowed him with their Golden Boot award in November, 2013.

Mr. Handford began by stating that Myers and Chapman, like most commercial general contractors today, does not do any of the work. Their function is to facilitate the construction of a building. They put together the bid, negotiate the contracts, manage the actual construction and manage the risks. The actual work is done by subcontractors and their suppliers. Without subcontractors, the general contractors would be unable to perform their job. And, without outstanding subcontractors, the jobs can’t be performed on time, as specified and profitable.

He said that Myers and Chapman believes that the Charlotte market has depleted its inventory of desirable commercial properties and is predicting a ten year period of continuous growth. He also believes, based on past experience, that this will be a perilous time for subcontractors and encouraged the NCSA to reach out to the small subcontractors that will attempt to perform larger work and residential subcontractors that attempt to move up to commercial work without the proper knowledge.

He also cautions subcontractors to not try to take on more work than they can do comfortably. There is a shortage of skilled tradesmen, and vendors have longer lead times and are raising prices. And, the big thing is you may end up with all your working capital tied up in inventory and retainage. Without available working capital, you are out of business.

Mr. Handford also presented a poster that hangs in Myers & Chapman jobsite trailers. It details what Myers and Chapman expects from subcontractors and what it takes to be on their team:

1. Are committed to safety. – The costs of safety and insurance can be substantial.
2. Communicate well with the team. – Advise them if there are delivery or money problems, they may be able to help you through a temporary condition.
3. Meet schedules. – The schedule is important to the profitability of the job and the failure to meet them impacts everyone who comes after you.
4. Know the job. – Your workmen should arrive with drawings and all the tools and equipment to do their job.
5. Do it right the first time. – The cost of doing it right is always less than re-doing defective work.
6. Represent us well with our clients. – Workmen should always be presentable and respectful on the job. They not only represent the subcontractor, but Myers and Chapman as well.

I put a copy of these in my company’s conference/training room and I strongly advise everyone to do likewise.