Earlier this week I attended the AGC of Middle Tennessee’s membership lunch.  Everything was right on!   I love chicken … they served chicken!  I have 5 kids … the guy next to me had 9 kids!  And I like to follow construction industry trends … and the speaker loves to follow construction industry trends.

David Wells, a senior equity analyst for Thompson Research Group, spoke about the 2010 economic outlook for the construction industry.  Some key talking points:

  • There is no longer a drag on residential construction and we may see some improvement in the upcoming year
  • As to non-residential or commercial construction, we have not yet bottomed out … which may occur mid-late 2010
  • Finally, as you can expect, public construction is "the only game in town"

Given the increased investment in public construction, there remains some challenges in this arena.  For example, U.S. government (and other public) borrowing has replaced private borrowing.  This creates a public debt crisis at the federal level, resulting in federal deficit projections of unparalleled amounts.  At the state level, the budget crises stem from the same economic conditions coupled with the requirement to maintain a balanced budget.

This may be new information to some of you.  It is probably old news to many others.  But what does it mean practically?  Here are some of David’s concluding recommendations:

  1. Take cost cuts now, if necessary.  The uncertainty of work significantly impacts employee productivity.  If you are going to need to make cuts, make them now, and reassure your remaining team that they are part of the team.
  2. De-lever your balance sheets.  Use the time now to analyze your debt structures in place and attempt to de-leverage your company as much as possible.
  3. Watch out for opportunities.  Weaker companies will be looking for solutions to their problems.  Stronger companies should be on the watch for opportunities to build and expand through acquisition or partnership.

Question: Any recommendations for improving your 2010 economic outlook?

Graph: Council on Foreign Relations

What did you watch after the Superbowl?  If you are like more than 36 million other viewers, you watched the premiere episode of Undercover Boss . . . a new reality show on CBS that features high level executives who go undercover to interact and work with daily employees.

Waste Management President and COO Larry O'Donnell

The premier episode featured Larry O’Donnell, President and Chief Operating Officer of Waste Management, as he worked alongside his employees.  O’Donnell got down to the nitty gritty, cleaning porta-potties, picking up trash at a landfill, sifting cardboard at a recycling plant, and driving on a trash route.  If you saw the interaction between O’Donnell and his employees, you felt the authenticity of the moment.  Whether you call it "good reality television" or a case of "good scripting," there were a number of lessons that can be gleamed from O’Donnell’s experience:

  • A company’s success depends largely ( …if not entirely… ) upon its people.  While this may be common sense, many company leaders do not realize how far down the ladder this principle applies … all the way down to the bottom man or woman.  If there is a friction between your hourly employees and your middle management, that friction may never be realized by upper management.   
  • No matter what level on the company ladder, innovation and hard work should be rewarded.  O’Donnell saw this in an employee named Jaclyn, who was a paid-by-the-hour administrative assistant.  Jaclyn also acted as an office manager, scale operator, and scale supervisor, and accountant for accounts payable, accounts receivable, and payroll.  Ultimately, O’Donnell promoted Jaclyn to supervisor, placed her on salary status and made her position bonus eligible.
  • Work policies enacted by management should be reviewed for effectiveness and acceptability.  Some of best decisions made from above have the best intentions for the best results.  However, management decisions can achieve an opposite result if not carefully enacted.  For example, O’Donnell heard complaints from an employee who was docked pay for two minutes for every one minute they were late clocking into work.  Wanna know the kicker?  O’Donnell was the one pushing for increased productivity from WM employees.

Question: Did you identify any other "lessons learned" from the undercover boss of Waste Management?

I wonder who that sad little scrap of paper is?  Do you know?  Oh, yeah, he’s just a bill … he’s just a bill on capitol hill.

https://youtube.com/watch?v=H-eYBZFEzf8%26hl%3Den_US%26fs%3D1%26rel%3D0%26color1%3D0xe1600f%26color2%3D0xfebd01%26border%3D1

 

You knew that Nashville was the Music City, right? Reminiscent of the "Schoolhouse Rocks" days, last night I attended the kick off dinner for the AGC of Tennessee’s “Day on the Hill”… an event where AGC members attend hearings and meet with state senators and representatives about various bills relating to the construction industry in the state of Tennessee. Although there are reported to be more than 1300 bills introduced for consideration by the General Assembly in the 2010 regular session, approximately 15-20 of those impact or affect the construction industry in some manner. The top five bills for which the AGC of Tennessee has stated their position include the following:

  • Worker’s Compensation Insurance Reform. There have been a number of bills introduced in the session of the General Assembly regarding the issue of subcontractors not having workers compensation insurance coverage. I previously blogged about Public Chapter 1041, who’s implementation date was recently deferred until March 28, 2011.  The law would have required all contractors to obtain workers compensation coverage, even on themselves if they were sole proprietors. Rather than taking a position on the individual bills that were introduced in this session, the AGC of Tennessee suggests that any legislation proposed on this issue consider the following recommendations:
  1. Allow up to three officers of a company to “opt out” from being required to have coverage;
  2. Require the filing of an affidavit with the Department of Labor that specifically names the individuals who have opted out of coverage;
  3. Proof of at least 10% ownership;
  4. Submission of a federal employer identification number with any filing;
  5. An acknowledgment of a waiver of all rights of recovery, including workers compensation and tort claims, if the opt out individual is injured on the job; and
  6. A provision that any individual who opts and files a claim would be guilty of fraud.
  • Drug Free Workplace.  This legislation was first introduced by 2008 by the AGC of Tennessee. SB 1524 and HB 1604 make certain changes for denying workers compensation claims involving drugs or alcohol. By changing the burden of proof by the injured employee from a “preponderance of evidence” to “clear and convincing” evidence. This legal language change would make it more difficult for the employee to prove that drugs did not contribute to the cause of the accident. AGC of Tennessee strongly supports this change to the current legislation.
  • Listing of Masonry Contractors. SB 2722 and HB 2794 requires information concerning those bidding for masonry contractor work be included on the outside of the envelope containing a bid, in addition to those contractors currently required to be listed. AGC of Tennessee strongly opposes this legislation, consistent with the position taken by the Tennessee Board for Licensing Contractors. Currently, masonry contractors are not required to have a license in Tennessee. Adding this requirement to current legislation as suggested by the AGC, would be put an additional burden on the general contractors bidding a project.
  • Electronic Bidding. SB 3607 and HB 3158 revise the current requirements concerning information that must be contained on the outside of the envelope containing a bid to also require the same information be included in an electronic bid. AGC of Tennessee strongly supports this legislation because it brings the bid process into the electronic technological arena.
  • Local Bid Preferences. AGC of Tennessee strongly supports SB 3607 and HB 3160, which clarifies that the only bid preferences that are permissible in public construction projects of local governments are those created by the General Assembly by general law. This legislation is intended to prevent local jurisdictions and governments from creating special bidding rules for construction projects.

Although there are numerous other bills before the General Assembly, these are the main ones being discussed by AGC members this morning at the “Day on the Hill” program. 

I once worked as a staff member on Capitol Hill more than 15 years ago and I truly miss being involved in the legislative process.  Whether you support or oppose any of the above measures, the real lesson is to get involved to help shape the laws that can (and will) affect your business.

As you may know, the Nashville Metro Council recently passed the $585 million financing package for construction of the new Music City Convention Center.  As reported by the Tennessean this morning, discussions have now turned to project management and how to control the costs.

 Music City Center

When asked about what areas would incur the most cost overruns, two divergent opinions emerged:

  • Marty Dickens, Chairman of the Metro Convention Center Authority, said, "All of ’em."
  • Larry Atema, CEO of Commonwealth Development Group and the owner’s representative on this project, responded: "There aren’t going to be any."

Who’s right?  I am not sure either opinion is completely correct.  Cost overruns can occur when the contractor justifies any reasonable change order, whether it is the result of an owner-directed change request, a change in available materials, a change due to design conflicts, or an unanticipated delay in the work.  While there may be cost-savings built into the project’s estimate, these can be rare on a sizeable project like the convention center. Add to the mix the multitude of players involved in the financing package: mortgage bankers, accountants, and cost engineers.  

To say that every trade or scope of construction will incur a cost overrun simply ignores the fact that there is a contractual guaranteed maximum price.  Additionally, there are a number of reputable, downright excellent contractors involved in this project who will do whatever is necessary to stay on budget.  Sure, there will always be the few participants trying to make an extra buck or two through change orders.  But that should not be the expectation.

On the other hand, to say that "there aren’t going to be any" cost overruns may be simply a case of project management optimism.  Indeed, Atema recognizes that "[d]evelopment and construction is an imperfect process."  Atema continues: "The key is the ability to manage those imperfections." 

Image: Music City Center

Okay, so you think I went to San Francisco just to get some good eats.  Not true.  I also went for the program.  The panel of speakers at the the mid-winter conference of the ABA’s Forum on the Construction Industry was packed with some great government contracting professionals. 

 San Francisco's One Market

To me, some of the best words of wisdom came from the Honorable Steven Reed, a former judge of the Armed Services Board of Contract Appeals who now practices in the Washington, DC office of Smith, Currie & Hancock LLP.

Judge Reed’s talk focused on the alternative dispute resolution process and, more specifically, "… the practical side of developing the contractor’s story in support of a claim."   Some of Judge Reed’s best tips:

  • The big picture: Contractors must anticipate the possibility (if not the probability) of disputed matters. Prevention and preparation are essential to a favorable outcome.
  • Documentation: "Daily reports are generally required under Federal contract.  They "should contain facts … not feelings or emotions." (Don’t call the project manager a "jerk" in the project documents, even if he is one.)  Rather, use the daily report as an "opportunity to create a comprehensive record of performance." 
  • Claim proof:  "Your contractor client will absolutely need its bid papers for evidence in claim against Government."  It’s a no-brainer, but you need a good document management process in place.  
  • Dispute forum:  Picking a forum for resolving your dispute is strategic.  For example, a decision from the Board of Contract Appeals will be "predictable" and the process is more "stable" while the Court of Federal Claims will be more "rule bound."  The forum is also important because the Court has certain jurisdiction over fraud claims, while the Boards do not.

Judge Reed concluded his written presentation with sound advice: "Contractors need to be educated, prepared, aware, and well-represented." 

I am in San Francisco this week for the MidWinter Conference of the American Bar Association Forum on the Construction Industry.  The topic this year is "Government Construction Contracting" and I will be tweeting under the hashtag #ABAConstruct.

Federal Contracting in San Francisco

In news relevant to Federal contractors, construction industry players and Californians, the San Francisco Business Times reported yesterday on the approval of a $171 billion federal loan for the construction of a new transit center in San Francisco.  The loan is earmarked to pay for ramps to the Bay Bridge, a bus storage facility and the design of underground transit facility.  Good for the construction industry in California.  Other states are supposed to get some of the $8 billion set aside by the Obama administration for high-speed rail.

What can we learn from this report?  Almost every "construction news" feed that I follow includes some news article about the sustained decline in construction jobs.  There are also many reports about the stagnant hold on residential building.  Here’s what I think:

  • Federal and state projects will continue to represent the primary areas of growth within the construction industry for 2010.
  • As those projects are the only ones available, there will continue to be increased competition for the limited work.
  • There will continue to be an increase in bid protests and disputes arising out of these projects.

What do you foresee? 

My wife thinks I am nerd.  She’s right.  I rushed the kids to bed early one night last week so that I could sit in the kitchen to watch . . . okay . . . I will say it . . . the Metro Nashville Council vote on the fanancing package of the new convention center and the ensuing aftermath.  I love this stuff!   

  • In a vote of 29-9 last week, the council approved the $585 million downtown convention center, the largest building project in the City’s history
  • Councilmember Randy Foster opposed the measure and tweeted about the bill’s passage right before it happened
  • As reported on the tube, there are 1,329 days between today and the first booked event at the new convention center

There remains one pending lawsuit that could affect construction, although most commentators believe a compromise will be reached.  Tower Investment owns a parcel of land within the convention center’s overall footprint.  The dispute relates to the emminent domain proceedings by Metro to secure the land.  Interestingly, a number of council members have been subpoenaed to give testimony in the case.  Proceedings are set to begin in February.

 

It is hard to begin a day’s work with a warm cup of coffee, a clean office and a (fairly) new computer … knowing about the devastation in another country.  I heard the death toll in Haiti could be as high as 50,000. 

https://youtube.com/watch?v=8CyqBmVS064%26color1%3D0xb1b1b1%26color2%3D0xcfcfcf%26hl%3Den_US%26feature%3Dplayer_embedded%26fs%3D1

 

According to a BBC news article this morning, experts say that it is "no surprise that shoddy construction contributed to the level of destruction in Haiti  following Tuesday’s earthquake."  The primary reason: "It’s sub-standard construction . . . There aren’t any building codes as we would recognise them," says London-based architect John McAslan, who has been working on a project linked to the Clinton Global Initiative in the country.

Also to blame is a lack of quality in building materials and cost-cutting measures for construction.  For example, "[p]eople are skimping on cement to try to cut costs, putting a lot of water in, building too thin, and you end up with a structure that’s innately weaker," said Peter Haas, head of the Appropriate Infrastructure Development Group, a US-based non-profit group that has been working in Haiti since 2006.

What should our response be to a devastation like this?  First, we need to help through international aid organizations like the American Red Cross.  You can find a donate link here.  Second, we can start to learn that "best practices" is more than a buzz word.  In the construction industry, it is our job to promote good building standards, use quality materials, and work together with those less fortunate to help build a better future. 

My thoughts and prayers go out to the people and their families in Haiti.

Stressed out trying to keep up with all the local building codes?  What about green building incentives in your neighborhood?  Have you figured out the changes in LEED 2009?  (…scream…).

"Calgon CalGreen, take me away!" 

Reminiscent of the 1970s commercial involving a certain screaming mom, a few screaming kids, and a bubble bath, you may be overwhelmed trying to figure out the status of green building initiatives in your jurisdiction.  Here’s another one to add to the mix:

Yesterday, the California Building Standards Commission voted unanimously to approve "the most stringent, environmentally friendly building code standards of any state in the nation," as dubbed by the San Francisco Gate.  The new building code, which has been called CalGreen, takes effect January 2011.  According to the new code, builders must do the following for new construction: 

  • Install plumbing to cut water usage
  • Divert 50% of construction waste from landfills to recycling
  • Use low-pollutant paints, carpets and floorings
  • Install separate water meters for different uses (non-residential only)

In addition, CalGreen mandates the inspection of energy systems by local officials to ensure that HVAC systems are performing the energy-saving jobs correctly.  CalGreen, a statewide code, allows local jurisdictions to implement or retain even stricter standards.

CalGreen incorporates sustainable practices into the state building code, as opposed to adopting a third-party rating system such as USGBC’s LEED.  That is precisely what Nashville Councilmember Mike Jameson suggested last week at  a sustainability breakfast in Nashville should be done: "… I would like to see the city code mirror the [third-party version] … to be a stand alone code."

The passage of the code was significant, particularly where six major environmental groups, including the Sierra Club, the Natural Resources Defense Council and the United States Green Building Council, opposed the measures because "some of the rules … aren’t tough enough."

You can beat that the rest of the nation, including localities such as Nashville, are keeping a close eye on state and local codes like CalGreen.

(Hat Tip to @elaineishere for the Tweet!)

A week does not go by without a friend, colleague, or new acquaintance asking me, "How do you do it all?"  The short answer: "It’s tough … very tough … but I have some help.  For home and family issues, I have my lovely wife.  For unloading the dishwasher, I have my son.  For getting out letters, I have my legal assistant.  For researching legal issues, I have a number of associate attorneys who can help.  And for blogging and staying current with the construction industry, I have Google Reader." (…Okay, so my answer was not that short…)

I use Google Reader to track and scan over 100 blogs, news sources and Twitter feeds relating to the construction industry, leadership, marketing and social media.  Rather than try to explain how it works, check out the following short video:

https://youtube.com/watch?v=VSPZ2Uu_X3Y%26hl%3Den_US%26fs%3D1%26color1%3D0xe1600f%26color2%3D0xfebd01

Now, let’s see how Google Reader has helped my blogging efficiency for an actual blog post.  A few months ago, I read an article in my Google Reader about two tunneling machines being used on a project in Puget Sound. Since the article highlighted what I thought was an instance of a "construction project gone wild," I blogged about the incident, as well as some construction management tips. 

How can Google Reader help you? The tool can be used:

  • To track your "go to" websites that you regularly check
  • To track certain terms in the mainstream media (i.e. "construction bids Tennessee" or "green incentives for developers")
  • To follow certain Twitter feeds for people or terms

Since words have different meanings to people, there may be problems with some of the initial feeds you set in Google Reader.  It may take time to determine whether the inquiries you set are returning useful information.  Overall, this is a "must use" for anyone in the construction and green building industry.