The image is as iconic as it is stereotypical: an attractive, usually short-skirted lady walks past a construction site. The pounding of hammers and whining of circular saws suddenly stop, replaced by wolf whistles and catcalls.

That behavior, if it ever really existed, has gone the way of lime green leisure suits and the Burt Reynolds mustache. Unfortunately, not all the boys-will-be-boys, nudge-and-a-wink attitudes toward workplace harassment have been relegated to the anachronistic workplace junk heap.

Workplace harassment – in the form of unwanted romantic or sexual advances or teasing based on race, religion, gender, sexual orientation, age, disability or other attribute – not only is hurtful to the victim but can be expensive for the employer if not nipped in the bud. Contractors must walk a fine line, taking the accuser’s complaint seriously, while also protecting the rights of the accused. They also must remember that C-level executives are just as capable as the hammer swingers on the jobsite to commit harassment at work. Policies for white collars and blue collars must remain consistent.

While the following suggestions have been developed for dealing with accusations of sexual harassment, most apply to other forms of unwanted attention from supervisors or co-workers.

When someone makes a harassment complaint, it is essential that the company handle it professionally and compassionately. Appoint a “go to” person or persons to handle complaints. It might be a good idea to have both a male and a female who are trained in dealing with complaints. Women may be less embarrassed to tell another woman about workplace goings on than she would be to a man.

“Choose investigators who employees will feel comfortable approaching and who are viewed throughout the company as fair, reasonable and neutral,” advises Construction Business Owner magazine, “[I]f the allegations are serious enough or pervasive throughout a department or work shift, an employer may want to bypass the in-house investigator and hire a third party to oversee a thorough investigation.”

No matter who handles the interviews with the alleged victim, company policies should ensure that all are taken seriously and every complaint is thoroughly and promptly investigated. Construction Business Owner cautions that company personnel should be empathetic, but should neither agree nor disagree with the complainant that a harassing environment exists.

It should go without saying that all construction companies should enforce a strict policy against harassment of any kind. All employees should attend classes as part of their training to learn to identify situations that could lead to or be considered harassment. Overlooking or abiding harassment – especially when a victim brings it to management attention – not only allows the situation to fester and the victim to feel unappreciated, but it also could make the company ripe for a lawsuit.

Because the alleged perpetrator and possible witnesses will have to be interviewed, the allegations probably will not remain secret for long. After ensuring the complainant understands anonymity cannot be guaranteed and wishes to pursue the claim, continue with the investigation, taking statements from anyone involved. The alleged victim and alleged harasser under no circumstances should be allowed to discuss the situation between themselves – even with a neutral third-party present. If possible, place the two on different shifts or jobsites to avoid awkwardness, retaliation, or other unpleasantness.

As with anything involving labor, regulatory, or legal disputes, thorough documentation now will save countless headaches tomorrow. When collecting statements from witnesses, victims, and alleged perpetrators, record their words and evidence in a confidential, locked, file. Make sure everyone reviews or writes themselves their statements and sign them.

If the evidence points to wrongdoing, decide on the appropriate action, from termination to a stern talking-to, depending on the severity of the offense. While the victim’s desired outcome should be considered, it should not be the only factor used in determining the appropriate punishment. Inform both parties of the decision, and follow through decisively. If the action is something short of termination, meet with the victim regularly for several months to ensure the inappropriate behavior has not returned.

Finally, harassment accusations give contractors an opportunity to review their harassment policies and ensure all employees understand the employer takes all allegations seriously and will aggressively enforce its policies. If the investigation reveals harassment is pervasive on the jobsite or in the office, develop a retraining regimen.

One company’s anti-harassment policy provides a solid framework for any construction company:

[The Company] is firmly committed to a work environment free from all forms of harassment of any employee or applicant for employment by anyone, including supervisors, co-workers, clients / customers, other contractors or visitors. Such harassment may be in violation of the harassment policy as well as state and federal discrimination laws. This policy prohibits any conduct (verbal, physical or visual) by an employee or within the work environment that belittles or demeans an individual on the basis of race, religion, national origin, sex, age, color and disability. This policy specifically prohibits sexual harassment as well as all other forms of harassment. Sexual harassment includes any unwelcome sexual advances, requests for sexual favors or other verbal or physical conduct of a sexual nature when:

• Submission to such conduct is an explicit or implicit condition of employment;
• Employment decisions are based on an employee’s submission to or rejection of such conduct; or
• Such conduct unreasonably interferes with an individual’s work performance or creates an intimidating, hostile or offensive work environment.

Perhaps even more than a 60 Minutes camera crew or the Internal Revenue Service, a visit from an OSHA inspector can strike terror in the heart of a construction project manager. Like Morley Safer and the IRS, OSHA often shows up on a project’s doorstep unannounced, the result of a tip from a disgruntled current or former employee, or just the simple (un)luck of the draw.

As with most aspects of running a construction company, the most onerous consequences of an OSHA surprise inspection can be mitigated with proper and comprehensive planning. Contractors should guard against being lulled into a false sense of security both when it comes to providing safe environments for their workers and in assuming their jobsites are immune from OSHA scrutiny. As Indianapolis-based Trinity Safety Group notes on its website, companies that have remained unscathed by safety incidents may find it “tempting to be less than 100 percent rigorous about compliance with all OSHA rules. The effort to train new or transferred employees can be onerous, especially as other pressures increase in our stressed economy. But you should never assume that your employees are so skilled or knowledgeable that they don’t need more training. And it’s dangerous to assume that employees are so well protected that they would never report a potential violation or hazardous situation to OSHA.”

The recipe for the ounce of prevention for OSHA inspections includes much more than simply keeping all employees current on potential hazards, safety measures and equipment and emergency procedures. While all these are non-negotiable for construction companies, OSHA wants to see proof of compliance, along with extensive recordkeeping as well, according to Tiffani Hiudt Casey, Esq., an attorney in the Atlanta office of Fisher & Phillips, LLP.
“Once OSHA knocks on the door, it’s kind of too late,” she said. “Ninety percent of being ready that day happens before that day. You’re not going to have advance notice of their arrival; they could come any day and any time. That again just means always being prepared.”

Beyond instituting and enforcing actual jobsite safety measures, here’s how to ensure an inspector finds nothing of interest when he visits your site:

•    Display the OSHA poster, “Jobsite Safety and Health: It’s the Law” prominently, in high employee-traffic or break areas.

•    Always record injuries sustained on the job. Keep these records current by cross-referencing workers compensation payments and timelines with OSHA’s “Work-Related Injuries and Illnesses” form (Form 300).

•    Develop procedures for employees to notify management about potential safety hazards; make sure these concerns are addressed promptly; and make it known to everyone on the site that management not only appreciates employee participation in safety matters but also efficiently eliminates those hazards brought to its attention through worker notifications, site walkthroughs, and third-party inspections.

•    Have an action plan ready to deploy if and when an OSHA inspector comes knocking.
“I always recommend that employers put together an OSHA inspection kit: Casey said. “Include paper and pen, video camera and/or digital camera, measuring tape, flashlight, a dry-erase board to record picture details, an air and noise sampling kit, a tape recorder.”

•    Coach everyone on the jobsite on how to respond appropriately to all questions and requests made by the inspector. And ensure you assign a professional, well-versed employee or representative to accompany the inspector on his rounds. This person may be the company safety director, a safety inspector employed by a trade association such as the Associate Builders and Contractors or Associated General Contractors, or a firm hired by the company.

OK, you’ve done your due diligence, and that fateful day arrives when OSHA comes to investigate your construction site. Ask for his credentials and call the OSHA office to verify them. This information should be included on the contractor’s OSHA inspection form. Other information should be filled out by the company’s authorized representative, who accompanies the inspector throughout the inspection process. If that person is not onsite, explain the situation to the inspector. She likely will wait a reasonable amount of time before commencing the inspection.
“You can ask them to wait,” Teague Lottman, a claims specialist and loss control specialist told the Fremont (Neb.) Tribune. “If it’s a routine inspection they will usually give you 30 minutes, maybe sometimes an hour, to get in order. But if it’s imminent danger, they’re going to start immediately.”

Employers can insist on a warrant, but Lottman said it would likely only aggravate the isnpector.
“I guarantee they’ll go get one, and then they’ll be back with all their friends and they’ll go through your business with a fine-tooth comb,” he explained.

Once the inspection begins, Construction Business Owner magazine recommends the company’s qualified person “document the compliance officer’s comments and actions throughout the inspection process; cooperate fully with the compliance officer’s requests for interviews and documentation; provide records that support…compliance efforts or assist OSHA in determining the time needed to correct any identified hazards; [have employees] correct any violations identified by the compliance officer immediately, if possible; and make sure [the] OSHA Inspection Report form is filled out completely, along with copies of notes, pictures and any documentation provided to the compliance officer.”

The inspector should not begrudge the shadowing representative. On the contrary, Lottman said, it will show him that the company “care[s] about safety and [doesn’t] allow anybody just to walk around on your premises. It also gives you a chance to see what he’s looking at, write it down, take notes, and ask questions.”

If there’s anything worse than not being able to land a construction project, it’s getting the job, performing admirable work, and then not getting paid. Cash flow issues are perhaps the single biggest contributor to construction firm failures, and a slow-playing owner is essentially using his contractors to finance his project.

Don’t let this happen to you!

Construction work is enough of a financial risk with an already-thin profit margin without the extra burden of tracking down late payments or resorting to legal action to get paid.  The best cure is prevention, of course, and contractors can minimize the possibility of foot dragging by owners by establishing face-to-face relationships with the owners and developers they do business with.  “This way, you are dealing with people with faces, not just names on a document,” explains Nick Ganaway of Construction Business Management, LLC., in an article for Reed Construction Data. “A commitment sealed with direct eye contact…is not easily forgotten and reinforces the written terms of a construction contract.”  In other words, it’s a lot harder to stiff someone with whom he has shaken hands than someone the owner may consider merely a nameless hired hand.

LIEN RIGHTS
Still, a pattern of late payments may necessitate more formal action than a polite email or telephone call. On private projects, that probably means preparing a lien on the project. In most cases, anyone who performs work that improves real property through a service or a physical emplacement on that property has the right to file a construction or mechanic’s lien. Contractors should take steps to secure their lien rights on all private projects before work begins. These rights allow the contractor to foreclose on the property before other claimants get their hands on it.

Contractors must hop through a few legal hoops to use the lien tool. Putting the owner on notice through a pre-lien – simply informing him that the contractor is preparing to exercise his lien rights is the first. Thankfully, this preliminary step often is enough to motivate a dilatory owner to reach for his checkbook. Most jurisdictions enforce strict timelines throughout the lien process, so the pre-lien notice should be filed as soon as anything smells fishy.

Some common sense and meticulous recordkeeping can make the lien process more palatable. It may go without saying, but I’ll say it anyway, general contractors should always insist on a written contract with the owner, and subs should do likewise with the general. The contracts should spell out payment amounts, due dates, and material and labor costs for all portions of the work, cautions the Walnut Creek, Calif.-based law firm Bowles and Verna on its website.  Contractors also should document anything associated with the work itself, such as change orders – make sure they’re signed by the owner! – as well as monetary transactions and liabilities like time sheets and material invoices.

As outlined above, subcontractors usually have lien rights as well. But Often the law allows them to lien funds owed them by the owner through the general contractor. If the owner has paid the general, or if the GC has breached his contract, the owner is under no liability to pay the subs.

PAY IF PAID
In jurisdictions where “pay if paid” and “pay when paid” contract clauses are enforceable, subcontractors can have even more trouble collecting what’s owed them. Of course, general contractors generally favor these clauses, while they are the bane of subcontractors. Generals want to share the risk with subs. But subs point out that their contract is with the GC. It is the GC’s responsibility, they argue, to perform due diligence in ascertaining the owner possesses the financial wherewithal to pay. They should not be penalized for bad business decisions on the general’s part.

PAYMENT BONDS
Subs have better legal recourse on public works projects. Builders cannot lien a bridge, courthouse or other property that belongs to the taxpayers. But they can attack the payment bond governments require general contractors to post for public works jobs. These bonds guarantee the subs and suppliers will be paid what’s due them. While the general may offer payment bonds on private projects (they’re subject to subcontract negotiation) he must do so on public projects, as prescribed by the federal Miller Act and similar provisions in all states’ laws.

“The bond is primarily for the benefit of the principal’s suppliers and subcontractors. The bond obligates the principal, whether a contractor or subcontractor, to pay for labor and material furnished for use in performance of the bonded contract. The claimants are usually limited to subcontractors or suppliers to the bond principal or sub-subcontractors or suppliers to a subcontractor of the principal,” according to the Small Business Exchange.

“Claims against payment bonds are sometimes made against financially sound principals,” that don’t actually owe the subcontractor or supplier. “This occurs when a claimant has no contract with the principal but has not been paid by the principal’s subcontractor or sub-subcontractor… The bond principal, therefore, can find that it has to pay twice for the same work – once to the subcontractor and again to the subcontractor’s supplier. To give the principal an opportunity to protect itself from such double liability, most bonds require that a claimant that does not have a contract with the principal give the principal or the surety, or both, written notice of its claim within a relatively short time after the claimant furnished the labor or material for which claim is made.”

It seemed like a good idea on paper. President Obama’s recovery act sought to put a big percentage of the stimulus where it would help the economy most (and, cynics would say, provide the biggest boost to Democrats heading into the 2012 midterm elections). By endorsing “shovel-ready” infrastructure construction projects, the President followed sound economic theory. Analysis varies, but most economists accept that for every dollar spent to upgrade the nation’s roads, bridges, water facilities and other undergirding, the economy grows by $1.59 to $2.28; that is, the direct construction jobs created, tax revenue generated, and consumer demand stimulated will create that much more in additional jobs, family spending, etc.

“If people are able to buy a little more in the grocery store, then someone has to stock it, shelve it, process it, package it, ship it,” explained Secretary of Agriculture Tom Vilseck, after Obama recently unveiled The American Jobs Act, stimulus redux. “All of those are jobs. It’s the most direct stimulus you can get in the economy during these tough times.”

Again, the theory holds water.  Unfortunately, all the dams, flood control channels, and sewage treatment plants created by the stimulus package don’t,  because they haven’t been built.  The plan was to get Americans working again by focusing stimulus funding on “shovel-ready’ projects – jobs which are vetted for funding eligibility, have had all their paperwork filed with the relevant government agencies, have passed all requirements, have all the players such as engineers, architects, project leadership, and technical support in place, and have either passed or do not require environmental impact studies. Those that passed muster could get the money and break ground in as little as a month.

Here’s where the plan springs a few leaks.  When was the last time you encountered a government-run, -funded, -overseen, or –controlled agency or project that could hit the ground running when given the go-ahead?  Outside of military operations, it has probably been awhile.  According to The Economist magazine, “Hopes for an immediate jolt of activity were misplaced….States did have a backlog of maintenance projects, such as repaving dilapidated roads. Nevertheless, work moved more slowly than some Democrats expected.  By October 2009 even the fastest programs – those under the highway and transit headings – had seen work begin on just $14.3 billion-worth of projects.”

To paraphrase an aphorism, “The government can deliver your project, good, fast, and cheap; pick the one you want.”  Cheap was out of the picture from the get-go. The entire stimulus package cost taxpayers nearly $800 billion.  Good went out the window when the bill forced government bureaucrats to do something they weren’t accustomed to – implement a program efficiently.  And The Huffington Post notes that “fast” wasn’t that all that fast, either.  Funding was slow in getting to the states – even those most in need of an employment bump. Officials from transportation agencies in Arizona, Nevada, and North Carolina say that as of September 2011, they were still awaiting funding on more than $600 million in shovel-ready projects.  It seems the money was going nowhere fast, and that much of it went slowly to the wrong places.   The Economist again: “It is unclear that the money spent has been money spent well. The attempt to begin work hastily meant that both good and bad projects have moved forward.”

Those results have Republicans going ballistic over the President’s American Jobs Act.  Though the administration is careful not to use the phrase “shovel-ready,” the plan again calls for immediate infrastructure investment –  $50 billion this time – and promises to put American contractors back to work on high-priority improvement projects on 150,000 miles of road, 4,000 miles of railroad tracks and various airport projects.

“Shovel-ready’ has become a national joke, and the more-than-$787 billion stimulus has failed to deliver the jobs that were promised,” House Transportation and Infrastructure Chairman John Mica (R-Fla.) fumed in panning the act. “The Administration is merely using existing authority to better coordinate project reviews, but it is not actually streamlining the project process. Why is the Administration suggesting improved coordination for only a few projects and not all?”

The workers are champing at the bit, the check’s almost in the mail, the projects are needed, but, “Unfortunately, there aren’t many jobs ready to go at the snap of a finger,” William Ibbs, a professor of civil engineering at the University of California at Berkeley and construction project consultant, told Politico.com.  “As a rule of thumb, you’re looking at three years for a project, really going from the time the federal government says we have the money and want to spend it,” Ibbs said.  But that’s for the easiest, simplest projects, such as building a road through an uninhabited piece of land.  “The politicians really don’t understand how cumbersome the process is these days,” Ibbs said.  “Environmental permitting, especially on road projects can take years. You’re hiring attorneys, not really shoveling a lot of dirt.”

Like a runaway locomotive, the recession of the 2000s seems to have applied the brakes, but inertia will keep the recession screeching down the rails for some time to come, most economists agree. Speaking at Reed Construction Data’s webcast economic summit entitled “Flat, Down or Up? Where is Construction Heading?” Ken Simonson, chief economist for the Associated General Contractors of America, said manufacturing and multifamily housing is poised to lead the nation out of its fiscal doldrums.

Simonson said factories’ increased productivity will create jobs both in the manufacturing and the construction sectors, two of the hardest hit by the recession. The malaise in manufacturing has suppressed gross domestic product growth and created widespread unemployment since the recession began in 2006. But that should change over the next nine months.
“Manufacturing construction has had a recent upturn and will continue strongly in 2012.” “Warehousing construction has good prospects” as a result, he explained.

He said a strong forecast for mining also should translate into construction jobs in the energy sector as factories return to full capacity. The continued trend toward renewable energy sources also will continue, putting construction workers back on the line on generation and transmission projects.

Simonson’s counterpart at the Associated Builders and Contractors, Anirban Basu, agreed that hospital construction also is positioned to lead the construction industry out of the recession.
“If there is one sure thing in the world of construction economics, it’s that the health care sector will serve as a source of opportunity for contractors in the future,” Basu wrote in Construction Executive magazine. “[B]y the year 2030, one in five Americans will be at least 65 years old. In 2009, about 5,800 registered hospitals existed in the United States with nearly one million staffed beds, according to the American Hospital Association. If the number of hospitals expands in conjunction with the senior population during the next two decades, the nation would [need] more than 2,000 additional hospitals with approximately 340,000 more beds.

Basu said the economy has quashed construction in all sectors, including health care, and will continue to spin black clouds in the short term. But he contends that the aging population, technological advances and the resolution of the current health care reform debate make increased hospital, clinic and medical office building a sure bet beginning early in 2012.
“[N]ew construction’s share of spending may dip while spending on renovations and IT infrastructure may expand,” he said.  “During the fourth quarter of 2010, there was an estimated $24.9 billion of new hospitals and clinics under construction, a 10 percent decline from a year earlier. While the planning pipeline is now more crowded—up to nearly $28 billion from $26 billion a year earlier—much of this could be attributed to projects put on hold.”

Housing traditionally has served as a leading indicator of the construction economy. But Kermit Baker, chief economist of American Institute of Architects, says it’s different this time. While the current recession certainly led the economy over the cliff, the reasons it did so – bad loans, overextended credit, etc. – are not going to sort themselves out quickly.
“Housing typically is an early sector to rebound in the 20 percent to 30 percent range in the first year of recovery,” Baker said on the Reed webcast. “We haven’t seen that this time. Prices fell off 30 percent from the peak. The low point in housing was in early 2009. Following that there was growth in the next few quarters. New home sales are down 15 percent.”

Potential home buyers are wary to pull the trigger on mortgages, having witnessed the carnage of the past half decade. For that reason and others, “Apartments should boom,” Simonson said, citing flat multifamily housing construction year over year for 2011 – an indication that the free fall is over.

Government predictions call for non-residential private construction to turn positive over the next five years, while total construction to increase at healthy 6 to 10 percent margins over that period, according to the latest Construction Outlook newsletter from FMI Corp.
“Our construction forecast for the remainder of 2011 calls for a 2 percent increase in overall construction put in place to $834.8 billion and a 6 percent rise in CPIP for 2012” in current dollars.

Robert Murray, vice president of economic affairs for McGraw-Hill Construction, was not as optimistic, though he did outline several sectors poised for growth in 2012.
“The construction industry has struggled to see recovery take hold over the past couple of years. After plunging 24 percent in 2009, new construction starts leveled off in 2010 and have hovered within a set range during 2011,” he said. “[T]here will be variation within the major construction sectors, with some gains predicted for housing and commercial building assuming the U.S. economy avoids recession.”

Among the non-residential construction growth sectors, Murray calls for an 8 percent increase in commercial buildings, with warehouses, other manufacturing facilities, and hotels leading the way.

Construction companies that survived the Great Recession can take solace in one silver lining – the economic turmoil has thinned the field competing for the few current jobs and those that will emerge as the market strengthens and the pool of potential workers is wide and deep. Companies looking to expand may be in position to add highly qualified workers to strengthen their share of the construction market and finally return to profitability.

It’s safe to say few contractors have added personnel over the last few years, so a refresher course on new-hire paperwork, record keeping and compliance is in order. After all, the last thing builders need after this hellish half-decade is a fine from the Department of Labor and additional scrutinizing from state regulators.

New companies or small subcontractors who work for themselves will need an Employer Identification Number before they expand their payroll. The number, available from the Internal Revenue Service, is how the IRS tracks the company’s tax withholdings and payments. Of course, contractors must keep accurate records of hours worked and taxes withheld. This is not only required by the IRS, but is also crucial in tracking business expenses and preparing profit/loss statements, balance sheets and other financial statements. All employees must fill out, and the employers submit to the IRS, their W-4 forms detailing the workers’ tax withholding exemptions. And each year, the company files a W-2 form for all employees; this information also is reported to the IRS. The employer’s responsibilities are outlined in an IRS booklet. State’s that collect income taxes will have additional requirements. Keep all employee tax records for at least four years, advises the Small Business Administration. Within 20 days, companies also must report new hires to their state’s agency monitoring the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. Find your state’s procedure here.

Of particular interest to contractors is the I-9 form. This form is used to verify employees’ eligibility to work in this country. The onus is on employers to ensure the worker submits acceptable documentation to prove she is eligible for employment. The form and instructions are available from U.S. Citizenship and Immigration Services. Employers do not file this form with the government, but keep it (or a signed electronic version) at the worksite. Only if the contractor is audited for I-9 compliance must the form be presented. The firm HRdirect recommends that though I-9 forms may be kept in the employee’s personnel file, they be housed in a separate binder or computer file. “This makes retrieval easier and it shields confidential employee records not connected with immigration issues from [Department of Homeland Security] inspectors.”   It is crucial that all I-9s are complete and accurate. If DHS audits a company, every deficient form could engender a fine of up to $1,100, ruining your whole day and seriously denting your profit statement. Keep these forms for at least three years from the date of hire or one year from the employee’s termination.

If this is your first hire, you’ll need to contract for worker’s compensation insurance through self-insurance (available from construction associations such as the Associated Builders and Contractors, Associated General Contractors, Independent Electrical Contractors, etc.), commercial carriers or your state. You’ll also need unemployment insurance from the state, and, if your company is in California, Hawaii, New Jersey, New York, Rhode Island or Puerto Rico, you’ll need disability insurance for your employees.

Whether this is your first or 500th hire, accurate, up-to-date employee records are critical. At the minimum these records should include job descriptions and the entire hiring process from placement of help-wanted ads and postings to completed applications, resumes and interviews with potential employees and personnel files.  Again, these forms are from the federal government, and they’re here to help: Taxes; Labor; Equal opportunity.

Finally, federal contractors are subject to affirmative action requirements. According to Mary M. Krakow of the law firm of Fredrikson & Byron, companies with 50 or more employees (whether full-time, part-time, and temporary employees at all sites) must comply with federal AA requirements if it:

•    Has a federal contract or subcontract of $50,000 annually;

•    Is a financial institution that is an issuing and paying agent for U.S. Savings Bonds or Notes;

•    Serves as a depository of federal government funds in any amount;

•    Has government bills of lading that in any 12-month period total or will likely total $50,000 or more; or

•    Has an open-ended or indefinite quantity federal non-construction contract or subcontract that will total $50,000 or more in a 12-month period.

The Department of Labor oversees these affirmative action initiatives to ensure government contractors make real efforts to recruit and advance qualified minorities, women, persons with disabilities and covered veterans, including training program and outreach efforts. The department offers instructions on compliance here.

Some economists predict the worst is over for private-sector construction, though the numbers have yet to lend much credence to such optimism. Nevertheless, savvy contractors must start preparing their companies now for a return to private building, even if their public works backlog have helped them survive the economic downturn. That safety net already is fraying around the edges, says Aaron Smith, senior accountant with Moody’s Analytics.  “Public construction is likely to have contracted as state and local governments reduced spending and federal stimulus funds dried up,” Smith said.

The evaporation of public projects played a big role in overall construction spending’s unexpected drop in July. According to the U.S. Commerce Department, public spending on construction took its biggest fall in four years, leading to a 1.3 percent decrease in overall construction spending.

Contractors should look to the private sector, not because it promises safe haven, juicy profits and job security – non-residential private building fell 0.4 percent in July – but because “The weakness in the public market is likely to persist,” Smith noted.  Private work, though still scarce, will be tasked with leading the nation out of the doldrums.
It pays to be ready when the recovery gains steam.

Taking advantage of the private construction recovery requires a change in mindset for contractors who, either through choice or necessity, have built their business on public works. In public building, where the low bid is king, cost control through use of quality crews, tight scheduling and tight inventory control keeps make companies winners on bid day.

These issues are critical in private construction as well, of course, but success on private work hinges on the builder’s ability to add value for their clients. Solving problems, offering alternatives regarding constructability or cost and adopting technologies such as green building and building information modeling that make maintenance easier are just some of the ways contractors can prove their worth. That often means repeat business, word-of-mouth advertising and a more robust profit margin.

Author and business coach George Hedley puts it succinctly in a series of articles for Construction Business Owner magazine.  “In private work, it takes a lot more than bidding and negotiating to win contracts. You’ve got to give customers a differentiating reason to hire your company,” he explains. “It’s not just about the price, inclusions and exclusions. Now there are too many competitors who can do the same job as your company and will cut their bid below their cost to get a job. To win more contracts at your price, you must face reality-you are not only in the construction business, but you must also be in the sales business!”

Mud-on-the-boots construction company owners and managers may not feel comfortable in the world of manicures, slick portfolios and swanky sales presentation, but with a little practice anyone can promote their company.  Here’s how:

• Emphasize to clients that low cost does not always equal best value. Unlike government contracts, private owners enjoy some flexibility in awarding jobs. There’s a reason BMWs cost more than Hondas.
• Put your expertise on display. Show owners that your experience and your employees make your company the best option for building a project, meeting deadlines, giving more than what is in the contract and building trust that results in repeat business.
• Create an atmosphere of cooperation with the owner. Become not only his contractor but his partner in the success of the project, in pre-construction, the building phase and over the lifetime of the building. Even today, who you know is as important as what you know in construction. Many decisions are based on friendship and personality.

The potential client is more apt to believe your company can deliver all it promises if it looks the part. According to Hedley’s article, that means presenting a professional image, from the company president through its field crews. Make sure your firm’s ability and competence is reflected through a regularly updated website with no spelling or grammatical errors; develop several means for keeping in touch with past clients and potential new ones such as newsletters, jobsite and truck signage, thank-you cards or certificates, discounts and refer-a-friend rewards.

To make your company stand out, develop a competitive advantage based on Michael Porter’s generic strategies.  Cost could be your competitive advantage, but only if your company can deliver the project at a quality acceptable and known to the owner. It’s true that not all construction projects require bells and whistles. If you can offer the lowest price on, say, a storage facility, meeting codes and safety requirements, turning a profit, you may have found a niche in cost leadership. Likewise, cost is never a non-issue, even if the client is building a luxury resort. If he is satisfied that all bidders will deliver the quality he demands, the low bid may well get the job.

Or, you could emphasize your company’s unique products or services. By creating and marketing clear differences between your firm and the competition – processes, development, engineering, technology, project delivery etc. – you can command a higher price and a better profit.

A final option is the focus strategy. In this approach, a contractor concentrates on a thin slice of the market – medical clinics, say. This reduces the number of biddable projects, but it makes it easier to position the contractor as an expert. That engenders client loyalty which, again, can lead to higher profit margins.

Any contractor seeking to establish a niche in public works construction must understand the concept of prevailing wage legislation. Non-union contractors, in particular, in order to produce a competitive and profitable bid, must take into account the labor costs involved in these projects. Simply put, prevailing wage (or “Davis-Bacon” as the laws are often referred to) is the hourly rate and fringe benefit contribution contractors are required by law to pay when working on federal or state construction projects. The pay and benefit rate is set by the U.S. Department of Labor for federal projects and by labor commissioners, departments of industrial relations or similar agencies for individual states.  The need for adhering to Depression-era labor law, the specific rates set by governments and even the methods that states use to determine them are often debated.  Furthermore, the rates are typically slanted towards inflated union wages, as opposed to the market rate wages.

Davis-Bacon was established to ensure that tradesmen on public works construction projects will receive fair wages to support themselves and their families. A living wage in rural Georgia would hardly support a family in Manhattan, hence the need for computing regional prevailing wage. Second, prevailing wage ensures that union contractors, who must pay inflated hourly labor rates, can compete with open shop builders on public works projects. Today neither reason is why the law still exists in its present form.

Prevailing wage gained a foothold in the United States with a minimum wage law that passed in Kansas in 1891. The federal government adopted a prevailing wage law in 1931 after workers imported from Alabama to New York were paid the going rate for laborers in Alabama. The resulting Davis-Bacon law – named after its sponsors in Congress – with subsequent amendments and updates, forms the federal prevailing wage regulation and the framework for most state laws.

Not all states have enacted prevailing wage laws. Those who have generally determine trade/location using one of several methods:

•    Surveys of contractors and adopting the median or mean rate

•    Collective bargaining

•    Allowing an official to set the rates

•    Using the federal prevailing wage rate

Unfortunately, all these methods introduce flaws into the process. And the flaws almost invariably inflate the wages that must be paid on public works projects, not only increasing the cost to taxpayers, but also eroding the ability of non-union contractors to successfully bid on them.

According to a March 2011 report issued by the Government Accountability Office, Davis-Bacon wage determinations often are made using samples that are statistically insignificant and/or skewed by an overabundance of union contractor data. K&L Gates notes that when responses to wage surveys are low, “[u]nionized workers, in particular, are overrepresented in wage determinations because unions actively mobilize their members to complete and return the surveys. The Report notes that 63 percent of Davis-Bacon wages are union prevailing, when unions only represent 14 percent of construction workers nationwide…[T]raditionally, many non-union contractors do not respond to DOL wage rate surveys due to the fact that the non-union contractors see such responses as a waste of time. They believe that DOL typically defaults to the union wage, thereby making the open shops’ responses ineffectual. The DOL Report appears to support this widely held belief.” (so please fill out the surveys whenever possible!)

While the GAO report studied the federal law, it’s easy to see how state prevailing wage rates could be even more susceptible to these problems. Plenty of anecdotal evidence indicates this is the case, especially when surveys are used to set the rates or states simply accept the federally mandated rates.

A study in Oregon, which uses the rates set by the federal DOL, recently determined that the state’s prevailing wages were, on average, 25 percent higher than those actually paid on private projects and those public jobs that are not subject to prevailing wage laws.

The conservative Nevada Policy Research Institute has determined that “although union labor comprises only 13 percent of the construction labor force, trade unions in Nevada currently control 77 percent of the wage rates announced as ‘prevailing.’  The Nevada labor commissioner’s office surveys contractors to determine the rates typically paid to construction workers.  Still, NPRI maintains the study indicates that “prevailing wage laws in Nevada are used to protect unionized labor — whose wage demands are typically far higher than wages seen in open labor markets — from competition…[A]nalysis shows that the average wage premium paid for the construction of public infrastructure is 44.2 percent in Northern Nevada and 45.8 percent in Southern Nevada.”

The U.S. Department of Labor publishes a guide to help contractors comply with federal prevailing wage legislation. Contractors seeking entry into military or other federally funded (or federally assisted state or local) projects can obtain information on which projects are covered, monetary thresholds, record keeping rules and more. The website also offers help with compliance issues. Most states with prevailing wage laws operate similar sites.

The non-residential construction market typically follows the residential construction market by 6 to 12 months, both into the recession and coming out of the recession.  Well, this time around it was not the case.

But I can make a prediction that if the residential market can turn the corner and improve their prospects, then those of us in the non-residential market should see some increased ability to both increase our profit margins and build quality products at a solid negotiated price.

The most recent financial study information from Shinn Consulting shows home builders are beginning to turn the corner toward profitability and gives indications of the effect of their decisions throughout the downturn. (This is great news for the non-residential market!)

Since 1993, Shinn Consulting has been collecting and analyzing financial data about their home builder clients, who have some of the best-run companies in the industry. The trends and benchmarks that Chuck and Emma Shinn have established from this research and other work have become industry standards.

Below is a recap of the results for their most recent study, from a webinar titled “Building Profitability in a Downturn: The Shinn Group’s 18th Annual Financial and Operations Study Results.”

Most of their builders made the right decisions early on, but they faced a couple of problems. They could not move fast enough and nobody expected the downturn to last 5 years.

From 1993 (when they began collecting information) until 2006, Shinn Group clients saw increases in profitability by becoming more efficient and by being able to raise prices above the cost increases.

In 2006, the pressure for pricing began, which marked the beginning of  the stall in profits.   2007 was saved because of the backlog that was still in place during the first half of the year.  2008 was the first year of full downturn and began the precipitous decline in profits.

Builders were able to get rid of land, but they were stuck with their existing product. The downturn was so steep that they couldn’t get new product onto the market.  So, in order to sell, they had to discount existing product.  As a result, they took hits on volume and gross profit.   2009 was almost a duplicate of 2008 with a slight decline. Finally, in 2010 we begin to see a recovery on the profitability front.

The losses were fueled by two components: Direct Costs and Operating Expenses. Nobody expected the downturn to last this long, so they held on to staff. Many of the builders held on even until last year. So, their operating expenses went from 18% to 25%. Many builders admitted that shedding staff was the hardest thing they had to do, and they especially wanted to keep their core group around.

During 2008 and 2009, the pressure on prices continued, and the builders tried to reduce cost by negotiating with trades. But they are still building the same product. (There is a limit on how much cost you can cut on those houses.)

The builders pay a big price for holding onto staff.  Now, sales volumes have declined significantly, and the percentage of cost to sales continued to increase because of the down push on prices and the failure to cut cost from the trades while building the same houses as in the past.

Because sales revenues decline significantly and the builders are maintaining the same levels of staff, they get a double whammy. Operating expenses go totally out of kilter, rising to almost 25%.

In the end of 2009 and beginning of 2010, the builders were able to make changes to their overhead and get new product in place.  In 2010, we finally see the results of some hard choices made by the builders. There is a significant increase in gross profits, which is a result of redesigning the product to meet the new price ceilings adjusting for cost of the structure and specs.

On the operating side, the builders are closer to reaching a balance between their operating expenses and their sales revenue. Staff has been cut to the levels required to sustain the new volumes. These costs are still above our target as builders are trying to protect their core management team but there has been a significant adjustment from 2009 to 2010.

If you are in the non-residential market, get ready to follow our home builder brethren’s example and turn the corner to profitability and growth.

Depending on your political leanings, the 1,400 waivers granted is either proof the Obama administration’s Patient Protection and Affordable Care Act is flexible or evidence that it harbors a fatal flaw. And with so many high-profile businesses, labor unions and health insurance companies gobbling up waivers, construction company owners naturally are wondering what’s in it for them.

Waivers, temporary permission not to participate in PPACA, ostensibly are issued to organizations that offer “mini-med” insurance plans that cost employees little and offer severely limited benefits. The thinking is, an inferior plan is better than no plan. But these programs do little to allay workers’ liability if they become seriously ill. These limited benefits are why the government banned mini-meds effective 2014, with mandates that benefits rise until that effective date. Waiver applicants want to keep their minimal plans, arguing they can’t afford to increase payouts. It’s interesting that more than half the workers exempted so far are union members, while unions represent far less than 15 percent of America’s workforce.

Congressmen Mike Rogers (R-Mich.) and Dan Boren (D-Okla.) introduced the Health Care Waiver Fairness Act that would allow every small-business owner and even individual citizens to apply for a waiver from the new health care law. Until that bill becomes law, the federal Department of Health and Human Services says a group health plan or health insurance issuer may apply for a waiver. Here’s how to apply:

Send the following in an email to healthinsurance@hhs.gov (use “waiver” as the subject of the email):
1. The terms of the plan or policy form(s) for which a waiver is sought;
2. The number of individuals covered by the plan or policy form(s) submitted;
3. The annual limit(s) and rates applicable to the plan or policy form(s) submitted;
4. A brief description of why compliance with the interim final regulations would result in a significant decrease in access to benefits for those currently covered by such plans or policies, or significant increase in premiums paid by those covered by such plans or policies, along with any supporting documentation; and
5. An attestation, signed by the plan administrator or Chief Executive Officer of the issuer of the coverage, certifying 1) that the plan was in force prior to September 23, 2010; and 2) that the application of restricted annual limits to such plans or policies would result in a significant decrease in access to benefits for those currently covered by such plans or policies, or a significant increase in premiums paid by those covered by such plans or policies.

Employers with more than 50 workers are required by the act to offer health insurance to their employees or pay a fine for each worker who buys coverage on his or her own.

In applying for a waiver from the employer mandate, companies may benefit from taking a page from business groups arguing for a wholesale repeal of the provision. Companies can tailor their waiver request to their own situation. Waiver-seekers could argue that because workers are compensated through both wages and benefits, an artificial – that is, non-market-driven – increase in one (health care benefits) necessarily must result in the decrease in the other (wages).

As Brian Blase, political analyst at the Center for Health Policy Studies at The Heritage Foundation notes, “Productivity gains, not acts of Congress, are required to increase worker compensation over time. The Congressional Budget Office estimates that the employer mandate will cost businesses $52 billion in penalties from 2014 to 2019.”

A similar decrease in wages not only hurts working families, but also stymies economic activity and leaves huge gaps in state and federal tax revenue.

It also can be asserted that the mandate retards hiring practices at a time when the economy is just beginning to recover. Because the rule covers employers of 50 or more workers, those businesses hovering near the threshold will be chary to make hires that make them subject to the mandatory coverage. This will be especially true for low-skilled and low-wage workers, where the cost of providing health care coverage represents a disproportionally high cost.

Finally, applicants can show that the cost of additional health care coverage, or conversely the penalties for not providing it, will be shifted to consumers. Blase notes, “who actually pays the tax is determined by the market forces of supply and demand, not by where Congress ‘places’ the tax. Therefore, a significant part of the cost increase will be passed on to businesses’ customers in the form of higher prices.

On a lighter note, if your company is large enough to be affected, it is unlikely that as a non-union company, your health care package (unlike those of the unions, apparently, given all the waivers organized labor has received) falls into the woefully inadequate mini-med category, John Hayward, a writer at the Conservative-leaning Human Events, offers a few tongue-in-cheek suggestions on how to obtain a waiver. Among his advice is to join a union; work for a health care company, a big company, or the government; better yet, live in a district or state represented by a friend of Barack (it has been well-documented that businesses in Nancy Pelosi’s district have received a metric truckload of waivers and that the entire state of Nevada, represented by Senate Majority Leader Harry Reid, has secured a waiver as well).