In April 2010, a senator and a group of representatives introduced a bill called the Employee Misclassification Prevention Act in both houses of Congress. Its goal is to require employers to keep records of independent contractors (ICs) they use, and penalize employers that misclassify employees as ICs. Then in September, another group of legislators introduced The Fair Playing Field Act of 2010, also in both houses. This bill would end the current moratorium on IRS guidance regarding worker classification, and increase tax penalties for misclassifying workers.
Both bills were referred to committee, and lacking bipartisan support they aren’t likely to be reintroduced in the current Congress. But this doesn’t mean that the battle is over. The broad goal of this legislation is also being pursued through regulation, as the U.S. Department of Labor (DOL) has placed a high priority on reducing worker misclassification; and it has identified the construction industry as one of the largest offenders. Although large commercial, industrial and home building contractors will obviously be first in the DOL’s sights, all contractors that use ICs will be subject to this enhanced focus – and the motivation is strong. The General Accountability Office is said to have estimated that in one year, the government lost $4.7 billion in federal income and employment tax revenue through improper classification of workers.
To address this, the DOL plans to “redouble its efforts to combat worker misclassification” by funding state grants to improve data-sharing between states and the IRS (and other federal and state agencies - click here). According to this budget report, the DOL grants will also pay for targeted audit strategies, and a cross-state agency task force to “target egregious employer schemes to avoid taxation through misclassification.”
In its 2011 budget, the DOL calls for a “joint Labor-Treasury initiative” to coordinate federal and state efforts, with 100 new hires focused on misclassification and litigation. To expand on that, the 2012 budget would allow for a high performance award program for states that are most successful at prosecuting employers. The bonuses paid will be used to upgrade states’ programs for detection and enforcement.
The DOL’s We Can Help program encourages workers to notify the department if they think they’ve been improperly treated by an employer. To deal with the increase in investigations produced by this campaign, the DOL’s Bridge to Justice program refers claimants to private trial lawyers through the American Bar Association – which has spiked misclassification litigation.
And last, but not least, there’s a proposed rule called the Right to Know Under the Fair Labor Standards Act which will require employers to perform an analysis of all their ICs and notify them of their reasons for classifying them as such.
So if you use ICs in your business, don’t assume that the mere existence of a written contract will be sufficient to immunize you from the efforts of the DOL or its partners. Since neither the DOL nor IRS have a “bright line” test, you should familiarize yourself with the similar but different factors each department uses on a case-by-case basis to determine IC status, and make sure your business practices are compliant.
(My July 2010 web column on this topic can be found here)
Sunday, May 29, 2011
Monday, January 3, 2011
How to Make Your Own Silver Lining
Weather-related metaphors are good for capturing the mood of many life experiences, with “gray, cloudy skies” being appropriate for this economy. The natural reaction to cloudy economic prospects is to hunker down and complain about the lack of sun. Then there’s Jim Finlay, owner of Archadeck of Suburban Boston, who recently said “I’m not religious, but thank God for this recession!” Jim is one of those who see silver linings when the skies get cloudy.
Finlay started his remodeling business in 1993, when the country was just coming out of recession; and he recalls hearing some wisdom about how recessions force new business owners to develop frugal practices and watch expenses like a hawk. At the time he was skeptical, but now he embraces the concept. “Slower sales have given me the time and the motivation to examine my business closely,” states Finlay. “I’ve shifted and sharpened my marketing, adjusted my sales process to focus on prospects who appreciate (and who will pay for) our services… examined overhead and project costs and corrected my pricing software to significant bottom line advantage.”
In one example of his analysis, Finlay talks about job costing. “Jobs that end up with high expenses and low contribution attract attention.” But don’t overlook those that come in at target contribution, he advises. When digging into the details of those projects, he has from time to time discovered some offsetting errors – pricing problems that went in his favor hid pricing mistakes that cost him money. By understanding the errors he can make adjustments, critically important to avoid future pricing mistakes that don’t go his way; especially when business is booming again (because it will someday, inevitably).
In expressing a broader, more philosophical benefit of periodic recessions, Finlay says it gives him a chance to re-learn exactly why he’s in business: “To give our clients the world class service they deserve while giving us the satisfaction of having enriched their lives.”
But there can be very tangible financial benefits when slow times allow the business owner to re-evaluate costs. When his office lease was up for renewal, Finlay sent the landlord a polite letter saying “Vacancy rates are up, rents are down… can we negotiate this?” He suggested the rate from two years prior, and the landlord accepted it. Over a two-year lease, he will save $7,700 in rent.
Creative cost control can be habit-forming. After feeling increasingly annoyed by the price increases and unreliable service of his concrete supplier (which has a near-monopoly in his area), he learned of an ingenious engineering solution from a fellow franchisee. So now, instead of paying the concrete supplier to NOT deliver three times as much concrete as he typically needs for his deck footings, Jim exclusively uses helical footings. Not only do they cost slightly less per footing, but they give him a measurable advantage in productivity. No longer does he risk the collapse of 17 four-foot-deep footing holes after a heavy rain (which actually happened on one job); no longer does he have to wait for the building inspector’s approval, or for the concrete to set up. The helical system also has just the right documentation needed to quickly satisfy inspectors. “And I get to thumb my nose at the concrete company,” Finlay says with a laugh.
But ultimately, the down time affords him a chance to “push the reset button” on his business to help achieve his personal goals: “What I really enjoy is focusing on the client, determining what he needs and wants, then giving him exactly that – to his absolute satisfaction. I’m in the renovation business to make some money, yes, but also to enrich peoples’ lives… which sounds corny, but that’s part of my compensation.”
Silver linings, enriching lives. Sounds like the kind of business that will thrive in good times and bad.
Finlay started his remodeling business in 1993, when the country was just coming out of recession; and he recalls hearing some wisdom about how recessions force new business owners to develop frugal practices and watch expenses like a hawk. At the time he was skeptical, but now he embraces the concept. “Slower sales have given me the time and the motivation to examine my business closely,” states Finlay. “I’ve shifted and sharpened my marketing, adjusted my sales process to focus on prospects who appreciate (and who will pay for) our services… examined overhead and project costs and corrected my pricing software to significant bottom line advantage.”
In one example of his analysis, Finlay talks about job costing. “Jobs that end up with high expenses and low contribution attract attention.” But don’t overlook those that come in at target contribution, he advises. When digging into the details of those projects, he has from time to time discovered some offsetting errors – pricing problems that went in his favor hid pricing mistakes that cost him money. By understanding the errors he can make adjustments, critically important to avoid future pricing mistakes that don’t go his way; especially when business is booming again (because it will someday, inevitably).
In expressing a broader, more philosophical benefit of periodic recessions, Finlay says it gives him a chance to re-learn exactly why he’s in business: “To give our clients the world class service they deserve while giving us the satisfaction of having enriched their lives.”
But there can be very tangible financial benefits when slow times allow the business owner to re-evaluate costs. When his office lease was up for renewal, Finlay sent the landlord a polite letter saying “Vacancy rates are up, rents are down… can we negotiate this?” He suggested the rate from two years prior, and the landlord accepted it. Over a two-year lease, he will save $7,700 in rent.
Creative cost control can be habit-forming. After feeling increasingly annoyed by the price increases and unreliable service of his concrete supplier (which has a near-monopoly in his area), he learned of an ingenious engineering solution from a fellow franchisee. So now, instead of paying the concrete supplier to NOT deliver three times as much concrete as he typically needs for his deck footings, Jim exclusively uses helical footings. Not only do they cost slightly less per footing, but they give him a measurable advantage in productivity. No longer does he risk the collapse of 17 four-foot-deep footing holes after a heavy rain (which actually happened on one job); no longer does he have to wait for the building inspector’s approval, or for the concrete to set up. The helical system also has just the right documentation needed to quickly satisfy inspectors. “And I get to thumb my nose at the concrete company,” Finlay says with a laugh.
But ultimately, the down time affords him a chance to “push the reset button” on his business to help achieve his personal goals: “What I really enjoy is focusing on the client, determining what he needs and wants, then giving him exactly that – to his absolute satisfaction. I’m in the renovation business to make some money, yes, but also to enrich peoples’ lives… which sounds corny, but that’s part of my compensation.”
Silver linings, enriching lives. Sounds like the kind of business that will thrive in good times and bad.
Friday, December 10, 2010
Still Crazy After All These Years
Many of us boomers spent our youth exploring the boundaries of what society defined as “normal.” We grew our hair long and wore pants with comically wide leg bottoms. We engaged in certain illicit activities, hitchhiked around the country, and invented a glossary of special terms to describe our state of being. We saw ourselves as a tribe of merry pranksters that would bring peace and justice to the world, and rock ‘n’ roll was our weapon of choice. All in all, we behaved in a way unlikely to inspire confidence among employers.
So we found jobs in construction and other businesses that would have us.
Forty years later, some habits are hard to shake. The part-time work became a career. We still love the Beatles; and while bell-bottomed pants and words like “groovy” have thankfully passed into history, a few aging hippies are still looking to create some peace and justice in their corner of the world.
A couple of years ago, Paul Lesieur, owner of Silvertree Construction near Minneapolis, had had enough of the caveman attitude on a popular construction forum; he wanted to start his own forum, to promote a more thoughtful and constructive dialogue. So with the vision and determination of an idealist he outlined his master plan, found a web designer who built the site for a piece of the action, and rolled out RemodelCrazy in August 2009. Sixteen months later, the site is self-supporting and steadily building membership and advertiser participation.
Lesieur says, “the intent is to gather the industry, from plumbers to tile salespeople; they’re all equal, and we’re all going to help each other raise the industry as a whole. Very far-reaching and idealistic, but that is the plan. I want all of us to move forward, even the guy who sweeps the job site.”
“When you go to a NARI awards meeting, the larger firms with the resources to go after the awards are usually the winners,” states Lesieur, “yet there are 200 other very capable contractors in the audience who aren’t getting recognition. I respect the guys who earn those awards, but the two-man company in the audience that does a good job for their customers – those guys deserve the same recognition, and that’s what I’m about.”
At one time Lesieur was upset with NARI and NAHB because he didn’t think they represented the remodeling industry as a whole. But he came to appreciate the positive things they have accomplished, so part of his objective with RemodelCrazy is to create a community that could enhance their reach. With a combined membership numbering less than 20,000, NARI and the NAHB Remodelers don’t have the political clout of an organization like the over 1 million members National Association of Realtors (NAR). While building an organization of NAR’s size isn’t literally his goal, Lesieur hopes that his more inclusive approach can create enough scale to increase the influence of the remodeling community – to be “one voice for the industry,” as Lesieur envisions it.
Unlike those utopian ventures back in the 1960’s, Lesieur’s plan includes making a profit, or “monetization” in the parlance of the digital era. In addition to traditional advertising revenue, RemodelCrazy will also take a percentage of sales generated through the site for products that have been reviewed by selected RemodelCrazy members. Each review will be based on the members’ actual hands-on use (no testing lab), and be bluntly honest, but fair-minded. No money will change hands until a review is complete – good, bad or indifferent. Some of the products currently under review or in the pipeline include estimating software, a HEPA vacuum, insurance coverage verification web site and a discount buying club for contractors.
In keeping with the irreverent spirit of the 1960’s, Lesieur – who has ten or so certifications – has created his own professional category: EIEIO (Excellence In Everything I Offer). While that is undoubtedly a tweak directed at the pretentiousness of the alphabet soup approach to credibility-building, he is sincere about establishing a peer-to-peer credential. “The key is to establish respect among your peers. It’s serious, it’s fun; but we want to be responsible, and we’re doing that by combining the two,” he says.
A few minutes spent on the RemodelCrazy site confirms this dual objective. Meaningful commentary stands side-by-side with photographs of a member’s breakfast. Maybe this is what the age of Aquarius is really about.
So we found jobs in construction and other businesses that would have us.
Forty years later, some habits are hard to shake. The part-time work became a career. We still love the Beatles; and while bell-bottomed pants and words like “groovy” have thankfully passed into history, a few aging hippies are still looking to create some peace and justice in their corner of the world.
A couple of years ago, Paul Lesieur, owner of Silvertree Construction near Minneapolis, had had enough of the caveman attitude on a popular construction forum; he wanted to start his own forum, to promote a more thoughtful and constructive dialogue. So with the vision and determination of an idealist he outlined his master plan, found a web designer who built the site for a piece of the action, and rolled out RemodelCrazy in August 2009. Sixteen months later, the site is self-supporting and steadily building membership and advertiser participation.
Lesieur says, “the intent is to gather the industry, from plumbers to tile salespeople; they’re all equal, and we’re all going to help each other raise the industry as a whole. Very far-reaching and idealistic, but that is the plan. I want all of us to move forward, even the guy who sweeps the job site.”
“When you go to a NARI awards meeting, the larger firms with the resources to go after the awards are usually the winners,” states Lesieur, “yet there are 200 other very capable contractors in the audience who aren’t getting recognition. I respect the guys who earn those awards, but the two-man company in the audience that does a good job for their customers – those guys deserve the same recognition, and that’s what I’m about.”
At one time Lesieur was upset with NARI and NAHB because he didn’t think they represented the remodeling industry as a whole. But he came to appreciate the positive things they have accomplished, so part of his objective with RemodelCrazy is to create a community that could enhance their reach. With a combined membership numbering less than 20,000, NARI and the NAHB Remodelers don’t have the political clout of an organization like the over 1 million members National Association of Realtors (NAR). While building an organization of NAR’s size isn’t literally his goal, Lesieur hopes that his more inclusive approach can create enough scale to increase the influence of the remodeling community – to be “one voice for the industry,” as Lesieur envisions it.
Unlike those utopian ventures back in the 1960’s, Lesieur’s plan includes making a profit, or “monetization” in the parlance of the digital era. In addition to traditional advertising revenue, RemodelCrazy will also take a percentage of sales generated through the site for products that have been reviewed by selected RemodelCrazy members. Each review will be based on the members’ actual hands-on use (no testing lab), and be bluntly honest, but fair-minded. No money will change hands until a review is complete – good, bad or indifferent. Some of the products currently under review or in the pipeline include estimating software, a HEPA vacuum, insurance coverage verification web site and a discount buying club for contractors.
In keeping with the irreverent spirit of the 1960’s, Lesieur – who has ten or so certifications – has created his own professional category: EIEIO (Excellence In Everything I Offer). While that is undoubtedly a tweak directed at the pretentiousness of the alphabet soup approach to credibility-building, he is sincere about establishing a peer-to-peer credential. “The key is to establish respect among your peers. It’s serious, it’s fun; but we want to be responsible, and we’re doing that by combining the two,” he says.
A few minutes spent on the RemodelCrazy site confirms this dual objective. Meaningful commentary stands side-by-side with photographs of a member’s breakfast. Maybe this is what the age of Aquarius is really about.
Thursday, November 4, 2010
Restoration Revisited
In February 2009, I wrote a column about how remodelers hard hit by the recession might be able to get some work in the insurance restoration industry. The gist was that since many restoration contractors don’t have the resources to handle reconstruction work, a remodeler might want to pursue this as a subcontracting opportunity. I concluded, “After all, fires and burst pipes don’t care about the economy.”
Here we are almost two years later, and the remodeling market isn’t what anyone would call robust. While my original advice still holds true, there’s another opportunity to consider: Become a restoration contractor. Now, on the face of it, this contradicts my original argument. I had discouraged remodelers from jumping into restoration work because it’s an entirely different business from remodeling, with different technical skills, pricing methodology, equipment requirements and marketing tactics. Given these differences, it would be highly risky for a remodeler with no prior insurance industry experience to make the attempt – without a lot of guidance.
There happens to be an established model for guiding people through a business start-up in an unfamiliar industry. It’s called franchising. As a former executive of a remodeling franchise, I can argue both the merits and the disadvantages of franchising as a business strategy – it’s not for everyone. But in the right circumstances for both the franchisee and the franchisor, it is an excellent option.
There are a number of national insurance restoration franchise organizations serving various segments of the insurance restoration industry: water mitigation, fire damage, catastrophic loss (hurricanes, earthquakes, etc.), carpet and upholstery cleaning, laundry and dry cleaning, and so on. The logical opportunity for a remodeler would be with organizations that work mostly in water mitigation and fire damage, which frequently involve reconstruction work. A downside, though, is that the big players in these markets have pretty much reached market saturation–there aren’t a lot of open territories remaining. Another issue is that, by and large, their target profile for a franchisee is an existing independent restoration contractor or cleaning contractor.
One franchise organization, though, has made the strategic decision to target remodeling contractors. First General Services (FGS), based in Orlando FL, has a business strategy centered on the belief that a remodeler can easily be trained to do water mitigation and fire restoration work; but there isn’t enough classroom time for a cleaning contractor to learn the building skills that a remodeler has spent a career acquiring.
When asked how becoming a franchisee would be a growth opportunity for a remodeler, FGS’s president Joel Dagenais says, “There’s a steady stream of work after you get on the carriers’ lists and develop good relationships with adjusters and agents. Margins should be better than in remodeling with this economy because you’re not competing against the pickup truck contractors–most established competition comes from larger, high-overhead operations. And with insurance work, you know that the money will always be there, because insurance companies are footing the bill; so collections are less of an issue. There’s also less marketing to do after developing the relationships, because you have a recurring relationship with just a few companies and people.”
This is all well and good, as long as the contractor can develop those relationships. This is where Dagenais believes remodelers bring a competitive advantage to the game. “After years of doing things the old way, carriers are pulling back,” he says. Many established restoration contractors have gotten a little too comfortable being treated generously by insurance carriers, and have grown high-overhead companies that don’t run as lean as a typical remodeling company. Dagenais believes that since remodelers have had to develop lean organizations because of the economy, they have a competitive edge over existing restoration contractors who've become used to the old way of doing things.
Most seasoned remodelers remember the expensive mistakes they made in the early days, and would advise any startup to have a mentor to help them develop the skills necessary to run a viable enterprise. Dagenais recognizes this, which is why FGS’s goal is to provide the training and support to replace the first three years of the learning curve. Nothing is guaranteed in this world, but for remodelers facing an uncertain future, a little research into the world of insurance restoration might be worth the effort.
Here we are almost two years later, and the remodeling market isn’t what anyone would call robust. While my original advice still holds true, there’s another opportunity to consider: Become a restoration contractor. Now, on the face of it, this contradicts my original argument. I had discouraged remodelers from jumping into restoration work because it’s an entirely different business from remodeling, with different technical skills, pricing methodology, equipment requirements and marketing tactics. Given these differences, it would be highly risky for a remodeler with no prior insurance industry experience to make the attempt – without a lot of guidance.
There happens to be an established model for guiding people through a business start-up in an unfamiliar industry. It’s called franchising. As a former executive of a remodeling franchise, I can argue both the merits and the disadvantages of franchising as a business strategy – it’s not for everyone. But in the right circumstances for both the franchisee and the franchisor, it is an excellent option.
There are a number of national insurance restoration franchise organizations serving various segments of the insurance restoration industry: water mitigation, fire damage, catastrophic loss (hurricanes, earthquakes, etc.), carpet and upholstery cleaning, laundry and dry cleaning, and so on. The logical opportunity for a remodeler would be with organizations that work mostly in water mitigation and fire damage, which frequently involve reconstruction work. A downside, though, is that the big players in these markets have pretty much reached market saturation–there aren’t a lot of open territories remaining. Another issue is that, by and large, their target profile for a franchisee is an existing independent restoration contractor or cleaning contractor.
One franchise organization, though, has made the strategic decision to target remodeling contractors. First General Services (FGS), based in Orlando FL, has a business strategy centered on the belief that a remodeler can easily be trained to do water mitigation and fire restoration work; but there isn’t enough classroom time for a cleaning contractor to learn the building skills that a remodeler has spent a career acquiring.
When asked how becoming a franchisee would be a growth opportunity for a remodeler, FGS’s president Joel Dagenais says, “There’s a steady stream of work after you get on the carriers’ lists and develop good relationships with adjusters and agents. Margins should be better than in remodeling with this economy because you’re not competing against the pickup truck contractors–most established competition comes from larger, high-overhead operations. And with insurance work, you know that the money will always be there, because insurance companies are footing the bill; so collections are less of an issue. There’s also less marketing to do after developing the relationships, because you have a recurring relationship with just a few companies and people.”
This is all well and good, as long as the contractor can develop those relationships. This is where Dagenais believes remodelers bring a competitive advantage to the game. “After years of doing things the old way, carriers are pulling back,” he says. Many established restoration contractors have gotten a little too comfortable being treated generously by insurance carriers, and have grown high-overhead companies that don’t run as lean as a typical remodeling company. Dagenais believes that since remodelers have had to develop lean organizations because of the economy, they have a competitive edge over existing restoration contractors who've become used to the old way of doing things.
Most seasoned remodelers remember the expensive mistakes they made in the early days, and would advise any startup to have a mentor to help them develop the skills necessary to run a viable enterprise. Dagenais recognizes this, which is why FGS’s goal is to provide the training and support to replace the first three years of the learning curve. Nothing is guaranteed in this world, but for remodelers facing an uncertain future, a little research into the world of insurance restoration might be worth the effort.
Thursday, October 7, 2010
Both Sides of the Satisfaction Equation
Jim and Mary Finlay believe in more than just delivering a high-quality project for their customers; their business philosophy is driven by personal values, and they’re compensated in ways that aren’t only measured in dollars and cents. For the past 18 years, Archadeck of Suburban Boston has earned a loyal following of repeat customers, and this is a case study of how that is done.
About ten years ago, the Finlays built a pressure-treated deck for Sarah. After completion Sarah gushed in praise of the workmanship, causing Jim no small amount of embarrassment. When it came time to replace her old curved-glass bumpout off the kitchen with a stick-built room – but save the existing blue tile floor – she had Archadeck of Suburban Boston do the work. And she was just as thrilled with that project.
A couple of years later, Sarah’s boyfriend Frank moved in with her. They decided to build a large addition with a great room, basement, garage, workshop area, and office. The addition was to match the home’s contemporary roof lines, with 4” x 14” exposed fir beams and structural insulated panels. It was a substantial project, and Sarah’s loyalty to the Finlays resulted in a no-bid contract.
Archadeck had a construction manager who was self-sufficient and able to solve problems without any direction. He was also a good carpenter and able to jump in and work if needed, so there was no hesitation on Jim’s part to delegate this size of project to him. What Jim hadn’t known at the time, though, was that the construction manager occasionally let his personal feelings affect his work – if he didn’t like a customer, he wouldn’t go out of his way to please them.
About three-fourths of the way through the job they had a progress meeting, and Frank asked Jim to take over project management. He complained a little about the construction manager’s attitude, and there were some timing issues with the subs, but Jim didn’t hear the complaint as an ultimatum. And since he was overwhelmed with other obligations at the time, Jim politely explained why he couldn’t comply with the request.
Toward the end of the project they had an early walk-through, where Sarah and Frank had a lengthy punchlist. While reviewing it, Jim came to learn that Frank was paying for the project as a way to earn equity in the house. And when Jim thought about it, he realized that Sarah had given Archadeck her unqualified endorsement; yet they hadn’t lived up to those expectations, which might have caused some friction between the couple. It wasn’t until then that Jim recognized the depth of the problem Frank had addressed in the earlier meeting. At the end of the walk-through Frank looked at Jim and said, “You know how much we’ve been inconvenienced. What are you going to do to make this up to us?” Jim said “Let me think about that.” And he did.
He returned for the last meeting to close out the paperwork and resolve the final payment. Jim had recognized that simply giving a cash rebate would have a minor immediate effect, but wouldn’t change the negative emotions that had accrued during the job. So he said, “You asked me what I’m going to do. Here are brochures for three upscale resorts. We’re paying for you to spend a weekend together at the one of your choice.” The idea was to repay them in kind – for their inconvenience, apprehension and stress. They were delighted and Sarah chose one she had always wanted to go to but could never afford. Flowers were waiting in their room when they arrived.
Later, Jim and Mary learned that on that weekend Frank had proposed to Sarah. Goodwill that had been lost during the job was regained in a way that established a unique, unforgettable connection to their customer. Jim says, “Money is probably the least effective form of apology, and I wanted a way to relieve the stress we’d created. But it’s not just that - what’s just as important is the satisfaction I feel in being able to do that. I almost lost a friendship, but was able to save it”
About ten years ago, the Finlays built a pressure-treated deck for Sarah. After completion Sarah gushed in praise of the workmanship, causing Jim no small amount of embarrassment. When it came time to replace her old curved-glass bumpout off the kitchen with a stick-built room – but save the existing blue tile floor – she had Archadeck of Suburban Boston do the work. And she was just as thrilled with that project.
A couple of years later, Sarah’s boyfriend Frank moved in with her. They decided to build a large addition with a great room, basement, garage, workshop area, and office. The addition was to match the home’s contemporary roof lines, with 4” x 14” exposed fir beams and structural insulated panels. It was a substantial project, and Sarah’s loyalty to the Finlays resulted in a no-bid contract.
Archadeck had a construction manager who was self-sufficient and able to solve problems without any direction. He was also a good carpenter and able to jump in and work if needed, so there was no hesitation on Jim’s part to delegate this size of project to him. What Jim hadn’t known at the time, though, was that the construction manager occasionally let his personal feelings affect his work – if he didn’t like a customer, he wouldn’t go out of his way to please them.
About three-fourths of the way through the job they had a progress meeting, and Frank asked Jim to take over project management. He complained a little about the construction manager’s attitude, and there were some timing issues with the subs, but Jim didn’t hear the complaint as an ultimatum. And since he was overwhelmed with other obligations at the time, Jim politely explained why he couldn’t comply with the request.
Toward the end of the project they had an early walk-through, where Sarah and Frank had a lengthy punchlist. While reviewing it, Jim came to learn that Frank was paying for the project as a way to earn equity in the house. And when Jim thought about it, he realized that Sarah had given Archadeck her unqualified endorsement; yet they hadn’t lived up to those expectations, which might have caused some friction between the couple. It wasn’t until then that Jim recognized the depth of the problem Frank had addressed in the earlier meeting. At the end of the walk-through Frank looked at Jim and said, “You know how much we’ve been inconvenienced. What are you going to do to make this up to us?” Jim said “Let me think about that.” And he did.
He returned for the last meeting to close out the paperwork and resolve the final payment. Jim had recognized that simply giving a cash rebate would have a minor immediate effect, but wouldn’t change the negative emotions that had accrued during the job. So he said, “You asked me what I’m going to do. Here are brochures for three upscale resorts. We’re paying for you to spend a weekend together at the one of your choice.” The idea was to repay them in kind – for their inconvenience, apprehension and stress. They were delighted and Sarah chose one she had always wanted to go to but could never afford. Flowers were waiting in their room when they arrived.
Later, Jim and Mary learned that on that weekend Frank had proposed to Sarah. Goodwill that had been lost during the job was regained in a way that established a unique, unforgettable connection to their customer. Jim says, “Money is probably the least effective form of apology, and I wanted a way to relieve the stress we’d created. But it’s not just that - what’s just as important is the satisfaction I feel in being able to do that. I almost lost a friendship, but was able to save it”
Thursday, September 2, 2010
Weather or Not
The Weatherization Assistance Program (WAP) has been around since 1976: a federally-funded program designed to reduce energy consumption in lower-income housing. According to the U.S. Department of Energy, over 6.2 million homes have been weatherized since the inception of the program. Along came the Great Recession, and Congress responded with the American Recovery and Reinvestment Act (ARRA). Included in ARRA was $5 billion of additional funding for WAP, with the intent to kick start job creation in the construction industry.
The first installment occurred in March of 2009, with the goal of using at least half of the $5 billion by June 17, 2009. To quote a U.S. Department of Energy announcement about the weatherization program, “Special consideration will be given to projects that promote and enhance the objectives of the Act, especially job creation, preservation and economic recovery, in an expeditious manner.” This is why ARRA was nicknamed “the stimulus.”
The Department of Energy recently announced that $2.6 billion, or about 52% of the funds had been expended as of August 20, 2010, or 14 months after the target date – more of a push start than a kickstart. It’s fair to say that the goal of creating jobs in an expeditious manner was not achieved (blamed on the lack of infrastructure to process the increased funding, which is now in place). The good news is that a large amount of funds remain. This provides an opportunity for contractors that could still use some stimulation, and who are capable of bidding and delivering low-margin volume work and carrying receivables for 30 days or more. Some conditions of working under this program include:
- Reporting, tracking and segregation of incurred costs;
- Reporting on job creation and preservation;
- Access to records by Inspectors General and the Government Accountability Office;
- Ensuring that manufactured goods are produced in the United States;
- Certification and registration;
- Ensuring that wage rates are comparable to those prevailing on projects of a similar character.
This last condition comes from applying the Davis-Bacon Act requirements to ARRA-funded projects, and will be the first time it’s been required in the 34-year-old weatherization program. While these requirements are common in federally-funded construction projects like highways (which are heavily unionized), they’re not typically applied to residential work. Depending on the region, Davis-Bacon wages may be higher than a given company’s pay scale (see Wage Determination by State), which would put pressure on margins and could introduce some dissonance among employees that are paid less on typical company jobs. Also, compliance can be cumbersome for a small contractor, which argues for outsourcing payroll to an expert – adding another cost to overheads.
One billion dollars of the $5 billion enhancement to WAP is set aside for funding technical assistance and training at both the state and national levels. The goal is to “help form the foundation for a sustainable energy efficiency industry in America that can extend to the more than 100 million middle-class homes that stand to benefit from weatherization.” If this fits in your strategic plans, you should utilize the resources.
An additional $3 billion of ARRA funds above the $5 billion for WAP have been allocated to the State Energy Program (SEP), which is primarily intended for developing and implementing comprehensive state energy conservation plans (technical assistance, training, education, etc.) and not for construction projects. However, it will fund rebates to consumers for home energy audits, which is another opportunity for contractors that are positioned to provide that service.
The states deliver federal WAP funds through a network of local community action agencies, non-profit organizations and local governments, which may perform the work themselves or put it out to bid (for a list of agencies, see your state’s department of housing and community affairs). More information on the weatherization program can be found at ARRA and WAP and WAP Online.
Various estimates of the number of new jobs created by the additional $5 billion put the cost of each job at between $37,000 and $57,000. Perhaps this could be one way of making your tax dollars work for you.
The first installment occurred in March of 2009, with the goal of using at least half of the $5 billion by June 17, 2009. To quote a U.S. Department of Energy announcement about the weatherization program, “Special consideration will be given to projects that promote and enhance the objectives of the Act, especially job creation, preservation and economic recovery, in an expeditious manner.” This is why ARRA was nicknamed “the stimulus.”
The Department of Energy recently announced that $2.6 billion, or about 52% of the funds had been expended as of August 20, 2010, or 14 months after the target date – more of a push start than a kickstart. It’s fair to say that the goal of creating jobs in an expeditious manner was not achieved (blamed on the lack of infrastructure to process the increased funding, which is now in place). The good news is that a large amount of funds remain. This provides an opportunity for contractors that could still use some stimulation, and who are capable of bidding and delivering low-margin volume work and carrying receivables for 30 days or more. Some conditions of working under this program include:
- Reporting, tracking and segregation of incurred costs;
- Reporting on job creation and preservation;
- Access to records by Inspectors General and the Government Accountability Office;
- Ensuring that manufactured goods are produced in the United States;
- Certification and registration;
- Ensuring that wage rates are comparable to those prevailing on projects of a similar character.
This last condition comes from applying the Davis-Bacon Act requirements to ARRA-funded projects, and will be the first time it’s been required in the 34-year-old weatherization program. While these requirements are common in federally-funded construction projects like highways (which are heavily unionized), they’re not typically applied to residential work. Depending on the region, Davis-Bacon wages may be higher than a given company’s pay scale (see Wage Determination by State), which would put pressure on margins and could introduce some dissonance among employees that are paid less on typical company jobs. Also, compliance can be cumbersome for a small contractor, which argues for outsourcing payroll to an expert – adding another cost to overheads.
One billion dollars of the $5 billion enhancement to WAP is set aside for funding technical assistance and training at both the state and national levels. The goal is to “help form the foundation for a sustainable energy efficiency industry in America that can extend to the more than 100 million middle-class homes that stand to benefit from weatherization.” If this fits in your strategic plans, you should utilize the resources.
An additional $3 billion of ARRA funds above the $5 billion for WAP have been allocated to the State Energy Program (SEP), which is primarily intended for developing and implementing comprehensive state energy conservation plans (technical assistance, training, education, etc.) and not for construction projects. However, it will fund rebates to consumers for home energy audits, which is another opportunity for contractors that are positioned to provide that service.
The states deliver federal WAP funds through a network of local community action agencies, non-profit organizations and local governments, which may perform the work themselves or put it out to bid (for a list of agencies, see your state’s department of housing and community affairs). More information on the weatherization program can be found at ARRA and WAP and WAP Online.
Various estimates of the number of new jobs created by the additional $5 billion put the cost of each job at between $37,000 and $57,000. Perhaps this could be one way of making your tax dollars work for you.
Friday, August 13, 2010
Connecting the Dots: Safety and Profitability
The most efficient weight-loss book would have only two chapters, each with one sentence: Chapter One – “Eat less.” Chapter Two – “Exercise more.” There’d be a similar book for improving your company’s health: Chapter One – “Reduce costs.” Chapter Two – “Increase revenues.” This article hopes to make a case for the financial benefits of implementing a rigorous safety culture – a commitment that can both reduce costs and increase revenues.
The first and most obvious area where cost savings can be achieved is with Workers Compensation insurance. Many business owners don’t realize how much control they have over their experience modification rate (EMR or Mod Rate), which is used to adjust the “book rate” for Workers Comp premiums. A company’s EMR is based on how its claims experience compares to industry averages in its classifications, with a 1.0 rating representing the average. “Insurance costs are controllable costs – they’re not a fixed expense,” says Mark Oldham, CSP, an executive consultant in risk management for Fireman’s Fund. Insurance is a significant percentage of the overall cost of business (just add up your Workers Comp, liability, automobile, property, inland marine, umbrella, professional liability, and employee benefits). “It’ll have a disproportionate impact when costs can be lowered,” states Oldham. “Insurance trades fixed costs for unknown costs, and premiums are directly influenced by prior experience and control over operations.”
In fact, Workers Comp operates like a line of credit, where the insurer spreads the cost of a company’s predicted future losses over time, meaning that premiums are in essence just a way of financing a company’s cost of accidents and injuries. So, obviously if a company can reduce its claims over time, it will reduce its cost of business. This can translate to a measurable effect on the bottom line. The example below illustrates the difference in premiums between a .80 EMR and a 1.20 EMR for just one of a contractor’s job classifications:
Modifiers are also applied to a company’s general liability and auto insurance, but the EMR is a key indicator of a company’s performance. Oldham says, “It’s used as a litmus test of how you run your business. If you can’t work safely, you can’t produce a quality product.” Many insurance carriers will meet with a prospective client before offering a quote, and perform a loss control survey to gather information on its operations. This will assist the underwriters in understanding what the company does and how well it does it, and can have a direct bearing on cost. Underwriters make empirical decisions based on these tangible factors to determine debits and credits against the book rate. The carriers will also advise the client on how to control losses, identify risks, and develop appropriate action plans and follow up properly.
Fireman’s Fund also provides its clients with post-loss consulting services if warranted. They will help prepare a mutual action plan with specific objectives and timelines for the risk consultant and the client – then execute the plan in concert. At the conclusion, the desired reduction in hazards and risk factors should be clear enough for the client to give an “as a result” statement. If it can’t, the plan was merely a series of activities rather than a strategic effort.
For those contractors that don’t have a full-time safety department (or even those that do), Oldham suggests taking advantage of the many services that insurance carriers offer, such as subscriber-only content on their web sites with training programs, educational resources, topics for safety meetings, and so on.
Oldham emphasizes that successful companies are engaged. There’s an awareness of the true costs of risk, an understanding of what drives risk, and mechanisms to control the cost of risk (such as diligent hiring practices, strong training programs, aggressive injury investigation and correction efforts, and claims management like bringing injured employees back to work ASAP). When Fireman’s Fund performs a loss control survey, Oldham says that they look for employers who “get it.” These are companies that don’t just focus on the cost of insurance premiums. They understand that accidents and injuries affect their other business costs (such as the state unemployment compensation billing, which increases with the turnover rate); and they understand why.
Creating and keeping a safety culture
Some contractors look to incentive programs as a way to reduce injuries and accidents. But, according to Dianna Wiggins, an independent loss control consultant, “There’s a place for safety incentives after you’ve changed the safety culture – by developing a really good safety program.” First, stop the injuries and accidents by implementing a good program with excellent training and management. And a prerequisite to culture change is a genuine, highly visible, unwavering commitment from the very top of the organization. Because good safety practices can be perceived as slowing productivity, there is a natural tendency for line employees to view them as arbitrary and annoying rules that are imposed by “the office.” This isolates the safety personnel, who are peers, putting them in the role of “safety police” (with all the associated avoidance behaviors that accompany that mindset). A key part of the visibility shown by management is active and vocal support for the safety staff.
“After the accidents stop, employees can get complacent,” states Wiggins. “Two to three years after instituting culture change, safety incentives can help sustain the performance.” In a previous position as Safety Manager for a medium-sized manufacturing company, Wiggins implemented a highly-successful safety program that helped reduce the company’s EMR to .76. This reduced the Workers Comp premiums by almost 60%, which translated to hundreds of thousands of dollars saved per year. Once that was achieved, she maintained that level of performance with clever incentive programs (costing only around $10,000 per year), and the company won over 30 national safety awards.
Wiggins also advocates for an early return-to-work policy, which can help reduce the cost of Workers Comp. This policy allows injured employees to return to work in a light or modified work position until they’re fully recovered and can resume normal work duties. Everything that can be done to reduce the claim cost and get the employee back will have a positive impact on the employer’s cost of business. Justin Cremers, a Safety Coordinator for SMI, a safety consulting firm, counsels his clients on the benefits of an early return-to-work policy. “The type of claims experienced and what’s done to control the cost of claims has a significant effect on Mod Rates,” says Cremers. Claims for medical treatment only are usually less severe and are reduced by 70% before they’re applied to the formula. Cremers urges his clients to take advantage of this by ensuring that injured employees return to work as soon as possible. “This is where an effective claims management and return-to-work program can have a dramatic effect,” he says.
“It’s critical that a job description should include what kind of physical demands are placed on the employee,” emphasizes Wiggins. That document should be given to the doctor so (s)he’ll know what light-duty or modified work the injured employee can perform while recuperating, which will make it more likely that (s)he’ll approve a quick return rather than keeping the employee off work. (A key point to remember is that the employee must have signed the policy.) “You can even get your employees to work at a not-for-profit location, and write it off as a charitable contribution,” she suggests.
Another factor affecting costs can be the OSHA 300 log and 301 Incident Report. Wiggins says that many companies have a high incident rate because they’re recording things that they shouldn’t – they don’t realize that first aid, visits to a doctor for x-rays or blood tests, and even drilling a fingernail or toenail to relieve pressure are not recordable. “The effect of that,” she points out, “can be losing business with companies that don’t allow contractors with an incident rate higher than the national average.”
Similarly, opportunities to perform work for the government and large companies that have rigorous safety standards exist only if a company’s EMR is below 1.0; and the chances improve the lower the Mod Rate gets. But this is only part of the equation. If your firm becomes noted for safety excellence, your customer base is much more likely to increase and repeat – which is exactly what happened during Wiggins’ tenure.
Actions, when allowed to repeat, become behaviors; and behaviors develop into cultures. “A culture of safe work practices and intelligent/informed risk-taking is the strongest operational mindset any employer can ever hope to have,” says Oldham. Companies that "get it" focus on the actions of their employees to protect and nourish a safe-work culture – not just "Can we do it at a profit?" but "Can we do it at a profit, safely?"
The first and most obvious area where cost savings can be achieved is with Workers Compensation insurance. Many business owners don’t realize how much control they have over their experience modification rate (EMR or Mod Rate), which is used to adjust the “book rate” for Workers Comp premiums. A company’s EMR is based on how its claims experience compares to industry averages in its classifications, with a 1.0 rating representing the average. “Insurance costs are controllable costs – they’re not a fixed expense,” says Mark Oldham, CSP, an executive consultant in risk management for Fireman’s Fund. Insurance is a significant percentage of the overall cost of business (just add up your Workers Comp, liability, automobile, property, inland marine, umbrella, professional liability, and employee benefits). “It’ll have a disproportionate impact when costs can be lowered,” states Oldham. “Insurance trades fixed costs for unknown costs, and premiums are directly influenced by prior experience and control over operations.”
In fact, Workers Comp operates like a line of credit, where the insurer spreads the cost of a company’s predicted future losses over time, meaning that premiums are in essence just a way of financing a company’s cost of accidents and injuries. So, obviously if a company can reduce its claims over time, it will reduce its cost of business. This can translate to a measurable effect on the bottom line. The example below illustrates the difference in premiums between a .80 EMR and a 1.20 EMR for just one of a contractor’s job classifications:
Modifiers are also applied to a company’s general liability and auto insurance, but the EMR is a key indicator of a company’s performance. Oldham says, “It’s used as a litmus test of how you run your business. If you can’t work safely, you can’t produce a quality product.” Many insurance carriers will meet with a prospective client before offering a quote, and perform a loss control survey to gather information on its operations. This will assist the underwriters in understanding what the company does and how well it does it, and can have a direct bearing on cost. Underwriters make empirical decisions based on these tangible factors to determine debits and credits against the book rate. The carriers will also advise the client on how to control losses, identify risks, and develop appropriate action plans and follow up properly.
Fireman’s Fund also provides its clients with post-loss consulting services if warranted. They will help prepare a mutual action plan with specific objectives and timelines for the risk consultant and the client – then execute the plan in concert. At the conclusion, the desired reduction in hazards and risk factors should be clear enough for the client to give an “as a result” statement. If it can’t, the plan was merely a series of activities rather than a strategic effort.
For those contractors that don’t have a full-time safety department (or even those that do), Oldham suggests taking advantage of the many services that insurance carriers offer, such as subscriber-only content on their web sites with training programs, educational resources, topics for safety meetings, and so on.
Oldham emphasizes that successful companies are engaged. There’s an awareness of the true costs of risk, an understanding of what drives risk, and mechanisms to control the cost of risk (such as diligent hiring practices, strong training programs, aggressive injury investigation and correction efforts, and claims management like bringing injured employees back to work ASAP). When Fireman’s Fund performs a loss control survey, Oldham says that they look for employers who “get it.” These are companies that don’t just focus on the cost of insurance premiums. They understand that accidents and injuries affect their other business costs (such as the state unemployment compensation billing, which increases with the turnover rate); and they understand why.
Creating and keeping a safety culture
Some contractors look to incentive programs as a way to reduce injuries and accidents. But, according to Dianna Wiggins, an independent loss control consultant, “There’s a place for safety incentives after you’ve changed the safety culture – by developing a really good safety program.” First, stop the injuries and accidents by implementing a good program with excellent training and management. And a prerequisite to culture change is a genuine, highly visible, unwavering commitment from the very top of the organization. Because good safety practices can be perceived as slowing productivity, there is a natural tendency for line employees to view them as arbitrary and annoying rules that are imposed by “the office.” This isolates the safety personnel, who are peers, putting them in the role of “safety police” (with all the associated avoidance behaviors that accompany that mindset). A key part of the visibility shown by management is active and vocal support for the safety staff.
“After the accidents stop, employees can get complacent,” states Wiggins. “Two to three years after instituting culture change, safety incentives can help sustain the performance.” In a previous position as Safety Manager for a medium-sized manufacturing company, Wiggins implemented a highly-successful safety program that helped reduce the company’s EMR to .76. This reduced the Workers Comp premiums by almost 60%, which translated to hundreds of thousands of dollars saved per year. Once that was achieved, she maintained that level of performance with clever incentive programs (costing only around $10,000 per year), and the company won over 30 national safety awards.
Wiggins also advocates for an early return-to-work policy, which can help reduce the cost of Workers Comp. This policy allows injured employees to return to work in a light or modified work position until they’re fully recovered and can resume normal work duties. Everything that can be done to reduce the claim cost and get the employee back will have a positive impact on the employer’s cost of business. Justin Cremers, a Safety Coordinator for SMI, a safety consulting firm, counsels his clients on the benefits of an early return-to-work policy. “The type of claims experienced and what’s done to control the cost of claims has a significant effect on Mod Rates,” says Cremers. Claims for medical treatment only are usually less severe and are reduced by 70% before they’re applied to the formula. Cremers urges his clients to take advantage of this by ensuring that injured employees return to work as soon as possible. “This is where an effective claims management and return-to-work program can have a dramatic effect,” he says.
“It’s critical that a job description should include what kind of physical demands are placed on the employee,” emphasizes Wiggins. That document should be given to the doctor so (s)he’ll know what light-duty or modified work the injured employee can perform while recuperating, which will make it more likely that (s)he’ll approve a quick return rather than keeping the employee off work. (A key point to remember is that the employee must have signed the policy.) “You can even get your employees to work at a not-for-profit location, and write it off as a charitable contribution,” she suggests.
Another factor affecting costs can be the OSHA 300 log and 301 Incident Report. Wiggins says that many companies have a high incident rate because they’re recording things that they shouldn’t – they don’t realize that first aid, visits to a doctor for x-rays or blood tests, and even drilling a fingernail or toenail to relieve pressure are not recordable. “The effect of that,” she points out, “can be losing business with companies that don’t allow contractors with an incident rate higher than the national average.”
Similarly, opportunities to perform work for the government and large companies that have rigorous safety standards exist only if a company’s EMR is below 1.0; and the chances improve the lower the Mod Rate gets. But this is only part of the equation. If your firm becomes noted for safety excellence, your customer base is much more likely to increase and repeat – which is exactly what happened during Wiggins’ tenure.
Actions, when allowed to repeat, become behaviors; and behaviors develop into cultures. “A culture of safe work practices and intelligent/informed risk-taking is the strongest operational mindset any employer can ever hope to have,” says Oldham. Companies that "get it" focus on the actions of their employees to protect and nourish a safe-work culture – not just "Can we do it at a profit?" but "Can we do it at a profit, safely?"
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