Unhealthy Insurance

For some reason, I find myself gravitating more to old Bob Dylan music than usual.  I am particularly fond of the song, “The Times They are A-Changin’ ”.I guess I find this song comforting as I navigate changes in the construction industry. As a business owner, the changes in health insurance are on the top of my list.

Professionals in the construction industry are quite familiar with how insurance affects our industry since we contend with all types of coverage in many different aspects of the business.  Coverage such as bonding, general liability, workers compensation, OCIP, CCIP, and others are just a part of doing business.  Health insurance, on the other hand, has become a major challenge whether you are the owner of the business or the guy swinging a hammer in the field.

Of all of the political changes that have emerged from Washington over the past 50 years, I would have to say that the passing of the Affordable Care Act (ACA) back in 2010 surpasses them all in creating controversy. The new law has created discontent from rich to poor and everyone in between because it involves significant changes for all.  This post is not another bitch session on the unconstitutionality of Affordable Care, or a politically charged diatribe.  I just want to outline the challenges that confront many of us in the construction industry.

According to the Census Bureau, 53.9% of the total population is covered by an employer based health plan.  A very high percentage of architects, general contractors, owners, subcontractors, and union members are beneficiaries of this type of coverage. The average cost of such health benefits is $2.70 per hour or 8.5% of total average compensation.  So we’re talking about significant costs that will dramatically impact this type of coverage in the future as these costs increase.

I wasn’t the only one who found the provisions in the ACA to be complicated as it was being considered on Capitol Hill, signed into law, and contested at the Supreme Court.  The original documents were said to be over 10,000 pages long and many people in Congress even admitted that they didn’t fully understand its implications.  The law itself is 2,409 pages long.  The program went into effect on January 2014 and all of its effects on healthcare in the United States have yet to be seen.

Our company decided to grandfather our existing program back in December 2013 so we could provide the same level of coverage to our employees for the current year.  Over the past decade, we have become familiar with double-digit increases in health insurance costs and have changed from one insurer to another in an attempt to purchase the best deal available in the marketplace. We are now in a position where we have to pay the new rates that are a result of the implementation of the ACA.  Currently we are confronting a 52% increase to renew our coverage for 2015.  Yes, you heard that correctly.  Fifty-two percent!

So what’s a company that is confronting such an explosion in overhead cost do when it already is one of the single largest line items on the financial statement?  We really only have the following options:

1. Absorb the entire increase as a company and increase our prices in the marketplace to cover the difference.  This will result in our customers paying for the added cost of insurance, or will drive the company out of business if we fail to remain competitive.
2. Switch to a self-insurance alternative where the company assumes the risk that our employment base will not suffer catastrophic costs.  My company is in the historic window business; we are not actuarial experts who can effectively gamble on future health outcomes.  We also have fewer than 30 employees, making this option highly risky.
3. Change the coverage of our current plans to new plans where there are higher deductibles, increases in co-pay amounts, reductions in total coverage, and decreases in prescription coverage.  These changes reduce the premiums, but effectively transfer the health costs to the employee who has to fork over more money for every procedure.
4. Change the amount the company contributes to the individual and family plans.  This results in lower corporate costs, but transfers increases in coverage to the employee.
5. Eliminate all coverage and ask everyone to purchase their own insurance on the exchanges.  Who knows what this would mean for our employees?

Our company will probably choose some combination of the above alternatives to meet the challenge.  So in essence, the burden of the costs associated with ACA will be shouldered jointly by the company and by our employees.  This wouldn’t be an issue if the company was flush with cash and our employees were paid like investment bankers.  But that’s not the case at Re-View, nor is it the case for most companies engaged in the construction industry.

What are you going to do?  Here is what the esteemed management consultant Bob Dylan would do:

“Come gather ‘round people wherever you roam

And admit that the waters around you have grown

And accept it that soon you’ll be drenched to the bone

If your time to you is worth savin’

Then you better start swimmin’ or you sink like a stone

For the times they are a changin’”

I Need Some Help

I was having lunch the other day with a friend of mine who works in one of the large law firms in town when the topic of hiring new employees came up.  Although the type of employee one hires for a law firm is quite different from the people I hire for our manufacturing plant, the similarities of our frustrations were incredible.  Our biggest complaint was how difficult it is to find employees who have a passion for work.  Given the fact that the unemployment rate in the United States is around 6.2%, one would think that there are a lot of people out there who are very hungry for employment.  That has not been my experience.  The biggest challenge my company faces right now is finding good employees. This made me wonder what’s going on in this country that is driving a general malaise in the workforce.

I tend to use a lot of sports analogies in running a business.  One of my favorites is the example of how a successful company must attract the best people in the same way a championship team selects the best players.  It is also critically important to have the right people in the right positions.  You won’t make it very far in the NFL by having your wide receiver play on the offensive line.  Jim Collins’ book “Good to Great” emphasizes the importance of effective staff placement.  Since the team is of critical importance, this applies more pressure to hiring the right people.  The days of hiring based upon whether someone can fog a mirror are gone forever.

Last year, I attended a preservation conference where RudyChristian spoke on the serious decline of people trained in the traditional building trades.  The general lack of interest from the youth of America in the trades has caused many schools to discontinue offering these degrees.  We experienced this phenomena 15 years ago when it became increasingly difficult to find talented craftsmen.  As a result, Re-View began to invest in automated equipment that enabled us to manufacture period work without relying on master carpenters for every process.  These investments allowed the company to grow despite the dearth of experienced talent.  Now we are having a major challenge just finding people who want to work in general, never mind finding someone with experience in their trade.  If the people who are protesting raising the minimum wage to $15 applied the same amount of energy to showing up for work and applying themselves every day, I have a $15+ job available for them right now.

This made me wonder whether we are dealing with a generational trend.  Is there something about the psyche of the Millennial generation that contributes to my challenges in finding people with a strong work ethic?  Millennials are defined as people in the United States who are 18 to 35 years old.  William Strauss and Neil Howe wrote several books on the Millennials and generational theory, and they state we are in a period of generational crisis where the current generation is demanding change.  This crisis is largely a result of 9-11, the economic downturn, and the stagnation in government.  Some of the prominent traits of this generation are a sense of entitlement and a narcissistic demeanor.   Jean Twenge wrote a book about the Millennials titled “Generation Me” where she concluded that narcissism is markedly higher in the Millennials than previous generations.   I think I’m on to something.

So let’s take a look at how these generational trends affect a business.  Millennials have a distrust of the country’s institutions, which includes companies like mine.  They don’t think in terms of what they can do for the company as much as what the company can do for them.  Their work is a means to engage in other endeavors rather than as an opportunity to create a career.  Millennials expect to get paid well and move up the corporate ladder as part of the deal, not as a result of expending the extra work to improve your ability and standing.  It’s better to get something for nothing than have to work hard to earn it.  Sitting behind a computer terminal is much more desirable than labor intensive occupations.  Instead of being lucky to have a good job, they feel their employers are lucky to have them show up for work.  After that depressing profile, I am starting to agree with Twenge that we are truly in a crisis right now!

Although I generalize profusely about millions of people above, these trends are having a dramatic effect on businesses’ ability to find people who want to work in either the trades or manufacturing.  Companies are going to have to pay more and have better benefits while they receive reduced output.  There will also be fewer people in the marketplace looking for work that involves sweating for eight hours a day.  If you want someone to work on weekends or extra hours, you had better be willing to compensate them well for the effort.  Team building consultants will no longer be able to use the term “There is no I in the word TEAM” since the employment base is primarily concerned with themselves.  It’s a new world, baby.

I guess we baby boomers have nobody to blame but ourselves.  From the start we spoiled our kids with lavish birthday parties, organized sports for every season, the latest in fashion, personal automobiles, etc.  Helicopter parents were always there to swoop in and take care of any problem no matter how big or small.  Kids were too busy in the summer with their organized activities to hold down a job.  I guess I never should have provided trophies for the losing hockey team back when I coached because I was just encouraging that sense of entitlement. Essentially, we got what we asked for.

So what is a business to do?  Last week, as I dropped my daughter off at college, I told her not to worry about the fact that her art college was 60% female and that a high percentage of the males were gay.  I told her she was more than capable of overcoming the statistical odds if she were serious about finding someone to date.  My advice was to embrace the challenge.  I think that advice also works for businesses that are trying to attract talent during these challenging times.  There are good people out there.  It is just going to take more effort and a strong dose of patience to find them.

Back to School

Over the past two years, I have enjoyed watching my daughter go through the process of selecting a college.  In addition to the typical criteria of the reputation of the school, curriculum, teacher/student ratios, and chances of employment after graduation, I was surprised to discover the extent to which the school’s facilities influenced her decision.  For example, the top school in the country in her field of study got the ax because of the lack of investment in classrooms and the cinder block 225-square-foot dormitory rooms.  Her final selection of the Savannah College of Art and Design was largely based upon the overall energy of the campus.

This made me think about the role that facilities play in the academic experience and the associated opportunities for the construction industry.  The schools that will thrive over the next 50 years will be the ones that have invested in the atmosphere of the campus.  This experience is greatly defined by the architecture.  The investment in the restoration of traditional historic structures and the development of new vibrant buildings is going to be a critical success factor for both public and private educational institutions.

I submit that the post-high school educational sector is currently at a turning point.  Schools are facing more challenges right now than ever before in history.  Tuition rates have risen 1,120% since the 1970’s and over 50% of graduates are either jobless or underemployed.  For the first time I can remember, people are seriously debating about whether a college education is worth the investment.  Add to this depressing statistic that fact that enrollment in higher education has declined over the past ten years and will remain stagnant through 2024.   These serious collegiate challenges have inspired a new documentary on America’s struggling colleges titled, “Ivory Tower ,” that was recently released.

Some might think that the best strategy under these threatening times would be to hunker down, cut faculty, and eliminate programs to survive the financial strains.  Many schools have resorted to these strategies just to stop the bleeding.  Although this strategy might provide temporary relief for the bottom line, it won’t be successful in staving off other educational competition.  The specter of online educational programs is growing by leaps and bounds.  In a study from the American Association of State Colleges and Universities, an estimated 14 percent of students are enrolled in fully online programs, while 30 percent of all college students take at least one online class.  If the bricks and mortar campuses don’t take a proactive approach to the future, they might be joining the likes of Borders Bookstores and Blockbuster.

So how does all of this affect the construction industry?  I see a big opportunity for schools, architects, and general contractors to join forces to enhance the physical environment of higher education. This can be done by restoring and re-purposing the traditional structures on campus that carry the heritage of the institution.  Landmark buildings are in need of restoration, and more modern interior amenities should be incorporated in the design.  Enhancements can also be accomplished by sensitive development of new facilities that complement or even redefine the essence of the particular community.  Although it has suffered from leaks, the Stata Center  on the MIT campus serves as a good example of innovative academic design.

Re-View is very active in the restoration of landmark buildings on college campuses.  We are currently working on projects at the College of William and Mary and HarvardUniversity.  We are manufacturing historically correct wood window replicas that exactly match the existing window systems except for the inclusion of insulated glass for energy efficiency.  These changes enable the colleges to achieve LEED designation while they respect the historic design of the buildings.  The work on the exterior of these buildings must be done very meticulously in order to restore the traditional look of the buildings.  On the interior, the building systems and layouts are being redefined to provide a more comfortable lifestyle for the college dormitory experience. 

The next decade will be challenging for colleges and universities across the country.  The winners are going to be the ones that make investments in their facilities.  It should prove to be an exciting time for the construction industry.  As my second daughter starts through the college selection process this next year, I’ll be watching to see if I detect changes being made on the campuses we visit. I’m sure the environment on the campus will play as large a part in the selection process as it did for her sister. I only hope she chooses a college that also has a strong curriculum to match..

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Business is Business

When I purchased my first business back in 1990, it was a company that had been mismanaged for many years.  The financial statements had been altered for years to hide the ugly truth that the business was going down the tubes.  Top management also had engaged in inappropriate behavior with the staff.  The climate in this company was ripe for a reality show drama that could rival the Kardashians.

As I immersed myself in this culture of debauchery, I knew that the only way to climb out of this mess was to run the business with the highest level of integrity.  Now that I reflect back upon the past 24 years, I submit that the only way to run a business is according to the Golden Rule: Do unto others as you would have others do onto you.  In my mind, this means treat people with respect, support people so they can succeed, be diligent about cutting waste, and be willing to make tough decisions that are in the best interest of the entire organization.  Keep things simple and pragmatic.  And avoid the egotistical nonsense that kills many a company.

That’s why I’m so upset with one of my recent decisions.  Folks, I have officially sold out.  I have succumbed to the political machine.  I am now one of the many who have bought into an economic fraud.  My name is Brooks, and I am a scammer.

So what have I done to violate the basic tenets of good business practice?  What action could be so odious that I would feel compelled to bare my soul to the blogosphere?  What has caused me to sell out after all these good years?  Here it goes folks.  I am prepared to confess. 

I have officially committed the company to become certified by the Forest Stewardship Council.

OUCH.  That hurt.  I think it was easier for Lance Armstrong to admit he lied.  I was hoping I would receive immediate support and words of encouragement.  A Michael Sams kind of vindication; letting me know that I was really over reacting to the circumstances.  But no.  Here I sit, a newly minted scam artist, befriended by the thousands of lemmings who have bought into the FSC program in the past.  I will soon be a member of a group that uses social responsibility as a cloak to hide its economic greed.

I was forced to pursue an FSC certification since Re-View was selected to manufacture historic window replicas for a LEED gold university project.  In order to secure a precious point towards a gold standing, the project team demanded that all wood be FSC and all people who touch said wood be chain of custody certified. 

The Forest Stewardship Council (FSC) was founded in 1993 and says that its mission is to promote environmentally sound, socially beneficial and economically prosperous management of the world’s forests.  What this organization really does is spend its time manipulating the construction industry in an effort to feather its “non-profit” nest.  The pursuit of forestry certification hegemony and the associated fees is the true calling of the FSC.  Social responsibility serves only as the accelerant to drive sales and the associated profits of certifications.

The FSC spends more effort trying to shoot down competitive forestry management programs than it does to promote responsible forestry. For many years now, the FSC has viciously attacked the Sustainable Forestry Initiative (SFI) in an effort to maintain a single standard.  They have publicly attacked consumer product manufacturers who used SFI labels in their packaging.  FSC also pays dearly to sustain its standing as the only certification accepted by LEED.  If FSC was truly interested in the promotion of responsible forestry management, one would think they would encourage other certification agencies that pursue the same goal.  This pit bull attitude towards competition shows the true colors of FSC.

I have a hard time understanding how a “non-profit” organization would need to charge such exorbitant rates for its certification.  In addition to the annual fee, one has to pay to have an auditor evaluate the written procedures demanded by the organization.  Once the auditor is gone, there is no mechanism to police compliance and there have been many cases of lapses in quality standards.  In just the past year, FSC has increased its annual fee by 32.5%.  Wow!  How many non-profits increase their rates by such a grand margin?  I could retire early if my company could increase prices at the FSC rate.

Soon my company will have an eight-page document that outlines our policies and procedures on how we handle wood according to the FSC guidelines.  Why did I take this step?  Because business is business as they say.  Our company won’t have to alter any of our business practices since we already sourced our wood from responsible forests.  After we pay our auditor and the FSC fee, we will be able to proudly display the FSC logo on our products, website, and marketing materials.  We will also be able to charge more for our FSC products even though nothing has changed.  I’m not saying we will do it…but we could.  I feel so good about myself.  It has been a tough week. I think I’ll go crawl into a hole.

We Have Sold Out of Quality

The other day, I was shopping for my daughter’s 16^th birthday present, which dictated that I visit stores like Forever 21 and H & M so I’d have half a chance of selecting something she would actually wear.  While I was browsing through the stores with throngs of female “tweens”, I was amazed at the incredibly cheap design of the clothing.  Virtually everything in those stores is designed to make it through one season.  I’ve purchased rags at Home Depot that are made of better material.  Its pretty obvious that apparel marketers are selling fashion rather than durability.  This made me think about how the same trend toward marketing inferior products is beginning to dominate much of US industry including construction materials.  I decided to delve into this topic to see if I could determine what is causing this disturbing trend.

Why is the quality of clothing, electronics, appliances, building materials, automobiles, etc. on the decline?  The answer turns out to be more complex than just blaming greedy US manufacturers, outsourced Chinese fabricators, or the sluggish economy.  There happens to be several factors that are driving this development.  Although the deterioration of quality has affected all industries, I’ll focus on the factors that seem to be shaping the construction industry.

Just as rapidly changing styles are driving the clothing industry to use materials that only last one season, the construction industry is also a slave to fashion.  Look at the rapidly changing designs of appliances, lighting fixtures, furniture, and plumbing fixtures.  Interior finish colors, floor covering, and hardware finish frequently change based upon consumer preferences and what’s trendy at the time.  It’ll be a sad day when granite countertops and stainless steel go out of style, because kitchens across the country are going end up in the landfill.  This rapidly changing style influences manufacturers to design products with only a ten year lifespan.  There is no need to design a shower head to last more than ten years if it’ll be replaced in eight.  That stainless steel refrigerator is designed for a seven year lifespan since it will be replaced by white enamel in the next decade. Manufacturers are designing their products to perform for the fashion lifecycle rather than focusing on enduring quality.

Another element that contributes to the decline in product quality of the construction industry is the speedy development of new technologies. Innovative technologies have had a big impact on the sales of appliances, windows, wood alternatives, lighting, home automation, and home entertainment. There is no need to design kitchen appliances that will last for two decades if consumers are going to exchange them for Wi-Fi enabled products that can be controlled with a smartphone as soon as the technology presents itself.  Why would a manufacturer waste resources designing a durable product if it is going to become obsolete with a technological change? Consumers are paying for new technologies, not for products that will last for a lifetime.

Another contributor to diminished quality in construction products is the mindset of the American consumer.  The typical American has been conditioned by advertising media for his/her entire life.  Thousands of advertising messages play every day and reinforce how Madison Avenue wants us to think and behave.  The typical American consumer has become a sucker for the media.  The hypnotic effect of the advertising machine convinces the populace that happiness can be found in a new living room sectional.  We are well trained to appreciate the sizzle rather than the steak.  We want new stuff, and we want it to be inexpensive. So manufacturers have responded by providing low-cost products using inferior materials like laminates, plastics, and substandard metals.  Where manufacturers used to be focused on building a better quality mousetrap, they are now designing to meet a price point.  So when you hear someone say, “They don’t building them like they used to,” you only have yourself to blame.

Finally, many markets in the construction industry are very mature and have succumbed to a commodity status.  Product design has matured to the point where there is only minor differentiation between manufacturers.  Take a look at the window business for example.  There are very few differences between one US manufacturer and another.  They use the same glass, wood, aluminum, finish, weather strip, and hardware. They achieve the same results in a battery of performance tests.  In an effort to compete, these manufacturers have scurried to cut costs in materials, manufacturing, and distribution.  The result is a host of manufacturers that produce mediocre quality products at a minimum cost to the company.  I represented one manufacturer for many years that had an edict to cut 10% of their costs every year for four years straight.  Although they gained a competitive advantage in pricing, they lost the quality that originally made the company a success. 

Given the influences outlined above, there is going to be an influx of material heading to the landfill over the next couple of decades.  I believe there is a big opportunity for companies to design and manufacture quality products that double or triple the current lifecycles.  Re-View has been successful in occupying a small niche market that demands a 100 year lifecycle window, which proves there is demand for quality products.  I think there is a nascent trend that recognizes the positive impact of increasing product lifecycles, but until that trend catches on across the board, I’ll have to settle for purchasing this T-shirt that looks nice but will probably fall apart after five wash cycles.    

March Madness in the Construction Industry

As we enter another edition of March Madness for the NCAA basketball tournament, I reflected upon one of the reasons I truly enjoy this time of year.  I think it is fascinating to watch the match ups between teams that are oozing with skilled prima donna players and those teams who rely on teamwork rather than individual talent.  It is great to see teamwork triumph over flair. 

For some reason this battle of talent vs. teamwork make me reflect upon a relatively new project delivery method being used in the construction industry.  The Integrated Project Delivery (IPD) method is just beginning to gain traction in the United States.  This approach does away with the classic delivery method that relies on individual aptitude and creates a team atmosphere where the owner, architect, contractor, and key subcontractors all work together from design to completion.

As I consider some of my company’s most successful projects in the past, there is one common denominator that drove that success.  On our smoothest projects, the owner, architect, and general contractor all worked together effectively during all stages of the venture.  If a design change was required, access to the architect was immediate, and coordination with the contractor was prompt.  Without a doubt, the best projects had players who connected much like a finely tuned basketball team.

The IPD method of running a project is based upon the premise that the project can be structured to facilitate this type of teamwork.  Essentially IPD structures a contract where a preselected architect, general contractor, and key subcontractors sign an agreement to work on the project as a team before the design phase.  In a typical project, the owner selects an architect who designs the work to be performed.  Then the general contractor and subcontractors are selected from the low bids and the work commences.  In the IPD structure, the members are determined prior to the design of the project.  A great deal of emphasis is put on a collaborative design approach where the team works with the owner to mutually work through all design and budgetary issues.  This concerted effort on the upfront design results in a much more streamlined construction phase.

The AIA’s IPD guide states the following benefits for this method of delivery: “The integrated delivery process allows the designer to benefit from the early contribution of constructors’ expertise during the design phase, such as accurate budget estimates to inform design decisions and the pre-construction resolution of design-related issues resulting in improved project quality and financial performance. The IPD process increases the level of effort during early design phases, resulting in reduced documentation time, and improved cost control and budget management, all of which increase the likelihood that project goals, including schedule, life cycle costs, quality and sustainability, will be achieved”.   You can access this guide through the following link:   http://www.aia.org/contractdocs/AIAS077630

When you combine this new means of facilitating cooperation within the construction team with some of the technological developments in the industry, the IPD concept has an even better chance of working.  The flourishing of Building Information Modeling (BIM) and Virtual Design & Construction (VDC) make it possible for the IDP team to work together in the design process.  VDC enables the team to construct the building in the virtual world prior to breaking ground.  These systems provide a platform where all members can collaborate and the 3D modeling displays how everything will integrate. This article in Building Design & Construction does a good job of describing VDC. http://www.bdcnetwork.com/bim-becomes-vdc 

Another element of the IPD process is to force the team members to co-locate.  This “Big Room Concept” relocates the owner, architect, and contractor to a single physical location.  Although there have been great advances in teleconferencing over the years, there is nothing like physically getting people together.  This is especially true when you are combining large egos or dealing with complex or controversial issues.

It makes sense to involve key subcontractors in the IPD delivery method.  Subcontractors who have a unique design process or a niche skill can add a great deal to the design process.  Involving these players early can cut costs, improve quality, and reduce construction schedules.  Re-View, for example, contributes a great deal to the design process.  We often work with architects on upfront design issues relative to historic windows.  We also connect directly with general contractors to coordinate schedules, refine scopes, and wrestle with site logistics.  It also helps to have our company tuned into the other key subcontractors so we all work in concert.

It has yet to be determined whether IPD is going to catch on and become accepted in the mainstream of the construction industry.  Will the construction team be capable of setting aside egos and work as a team as opposed to functioning as disparate individuals?  For now, let’s see if a group of moderately talented basketball players will run away with the 2014 NCAA title because of their passion for the game.  If they do, then perhaps that gives fuel to the argument that teamwork is the best way to go in the construction industry as well.

Take Some Sage Advice

I was absolutely blown away by the winter Olympics men’s slopestyle event this past weekend when American Sage Kotsenberg secured a gold medal.  As a middle-aged snowboarder, I was certainly very impressed with the daring moves, flips, and speed displayed by all of the competitors.  But what really impressed me was the attitude of the victor.

Sage didn’t expect to win a gold medal.  He was just there to compete in an event he truly loves and as a result, he unleashed his raw talent.  Sage didn’t care about expectations, the media, international politics, endorsements, or the competition.  He simply let his gifts speak for themselves.  This made me think about how we in business have a tendency to drift away from our essence and begin to focus more on results rather than on those basic emotional elements that can help get us there.  How does a business nurture the unadulterated spirit displayed in the Olympics to drive success in the future?

The slopestyle competitors are an anomaly to what one typically thinks of as the definition of an Olympic athlete.  They wear baggy clothing with hoods flapping in the wake of their descent, and sport long hair and several days of beard growth.  These guys look more like rock stars than Olympians.  Their mannerisms, vocabulary, and general attitude are anything but the sterling demeanor we've come to expect of Olympic athletes. 

When you contrast the style of the boarders to other sports in the winter Olympics, the differences are amazing.  Alpine skiing, bobsledding, and speed skating are consumed with aerodynamics where the suits, helmets, and equipment are designed for maximum speed.  Figure skating is obsessed with beauty and performance and has a strict set of rules guiding the performers.  Even curling has become fanatical with physical fitness, and participants spend more time in the gym working out than on the ice.

The pursuit of excellence as is typified by the conventional Olympic sports event is the same attitude that dominates American industry.  We become passionate about selecting the right team and equipping them with the finest in support.  Leading businesses dedicate millions to training and development of talent.  Then we install bonus systems to reward positive behavior and dismiss people who are not following the correct path.  Earnings per share, trending stock price, and profitability are goals that are tattooed onto our psyche.  Nothing else really matters…or does it?

I would submit that in this day and age, it is the outliers like the Sage Kotsenbergs who will determine the truly successful businesses of the future.  Slogging towards boring financial goals will yield lackluster results.  What really matters is that spirit that got you excited about the business in the beginning.  How do you capture the soul of your business?  We need to look at our businesses with a renewed clarity so this latent energy can be released. We need to soar like Sage, doing what we love.

Take Re-View for example.  Our company recently made a couple changes that are radical departures from our defined path.  First we exited a line of business that had been part of the company for 21 years because it no longer fit out current direction.  This division was engaged in promoting daylighting products such as skylights and tubular daylight devices.  Over the past two decades our company has exploded into the historic window business.  Our daylighting efforts really didn't fit with our passion for historic windows; it seemed to drag our energy down and interfere with our efforts to be truly successful in the preservation field. What was once a primary business line was now blurring our focus.  It had to go

We also began to pursue the crazy idea of manufacturing specialty wood items with waste from our manufacturing processes.  We have a great deal of exotic wood waste from the manufacturing of our historic windows.  The amount of this unusable material has grown beyond our ability to give it away.  So our brilliant woodworkers came up with designs for quilt racks, chopping boards, stools, and pizza peels.  I have no idea whether this venture will have a positive economic result, but it sure does fit nicely with our passion to create beauty with wood.

So what are the crazy ideas that strike at the essence of your company?  The time is right to jump in and pursue a wild thought.  In addition to energizing your team, a return to your core principles might generate very positive returns.  It is time to follow the wise Sage and get stoked about our businesses.  Come on dudes, let’s get gnarly and create some sick results! 

Raising the Bar

As I was watching the Florida State/Auburn NCAA football title game Monday night I reflected upon the Bowl Championship Series (BCS) system of ranking the teams.  This system uses a combination of polls and computer simulations to determine team rankings and post-season matchups.  Many people have been highly critical of the system over the years and next year it will be replaced by a college football playoff.

This made me think about how the construction industry is in need of a better way to determine who gets to play in the marquee games.  When I say “marquee games,” I am referring to projects that demand highly unique products and skills, or are significant in size.  They are the types of projects that only a select group of architects, general contractors, subcontractors, and manufacturers have the experience and resources to effectively manage.  So here are my thoughts on how the industry can better determine who plays in the championship game.

There are several conditions that may dictate that a project requires a methodical selection process for the construction team.  Here is a list of a few that come to mind:

• The project is of monumental scope requiring the personnel, facilities, background, and financial resources to meet the demands
• A complicated technology is involved in some aspect of the project such as a new curtainwall system, rainscreen design, mechanical system, or unique structural conditions
• A specific skill set or craftsmanship required to perform the work such as finishing, masonry, or window restoration on preservation projects
• A challenging construction schedule that has no room for mistakes
• A very demanding owner that is overly involved in all aspects of the project

When a project contains one or more of the above conditions, it is important to establish a set of guidelines to prequalify who is going to have an opportunity to bid the job.  If no such restrictions exist, the team could be inviting a weak link to manage a critical function.  Instead of creating a computer simulation model to mimic the BCS to screen participants, I recommend that the construction team spend time drafting prequalification criteria for all those disciplines that are vital to the success of the project.  These criteria should consider the following elements:

1. Past Projects

One of the best determinations of future success is past performance.  A good prequalification form will have a list of past projects of the same scope of work and size of project.  The submissions should have a list of contacts so it can be verified that both the scope and magnitude of the work qualify the company.  For example, performing a window replacement scope on a historic project does not qualify a company for window restoration just as painting the exterior of a landmark building does not qualify a company to perform detailed fresco work.  The construction team must spend time to verify the validity of the submissions of past project experience.

2. Company Information

Basic background data on a company can be illuminating  in evaluating a company’s resources to manage a particular project.  The following items should be captured in the prequalification:

·         Number of employees by classification

·         Number of locations and size of locations

·         Legal name, date of incorporation, state of incorporation

·         Legal structure (corporation, S corp, LLC, partnership, sole proprietor)

·         Names, addresses and phone numbers of officers

·         Supplier references

·         Customer references

·         Number of contracts by contract size

·         Lawsuits and judgments against the company in the past five years

·         List of projects that company failed to complete

·         Website

·         SBA, WBE, DBE, MBE, Hubzone certifications

·         Certificate of Insurance from the insurance agent outlining coverage limits

3. Financial Information

The financial background of a company has become increasingly more important in the past decade given the economic challenges confronting the construction industry.  You don’t want a qualified player declaring bankruptcy in the middle of your project.  The following information can be helpful in securing information on the financial stability of a participant:

·         Income statement and balance sheet (preferably audited or reviewed)

·         Five year history of sales

·         Banking information including loans, lines of credit, and banking contacts to verify the information

·         Letter from the bonding company declaring overall and project-specific capacity, and the bonding agent contact information

·         Dun and Bradstreet number

4. Safety

The safety background of contractors and subcontractors is fundamental information for these players.  A well run project shouldn’t have to suffer the burden of lapses in safety.  The following information should be evaluated:

·         Workers Comp Experience Modification Rate (EMR) for the past three years.  Have these numbers submitted from the insurance agent to assure validity.

·         OSHA citations in the past five years

·         Copy of the company’s safety plan

·         Name and contact information of the Safety Officer

5. Project Backlog

A listing of the current projects with contract value, percent complete, and reference contacts can be very useful information in establishing the current condition of the company.  If the amount of current business is sparse, this information combined with the financial data can be a warning flag.  Conversely, an excessive backlog compared to the capacity of the business can indicate problematic conditions for this company in the near future.  It is important to invite balanced companies to the table.

6. Site Visit

I highly recommend visiting the company facilities as part of the selection process.  In this age of social media and electronic marketing, it is much easier to convey an image that doesn’t reflect the true nature of the business.  I have seen many a mom and pop organization look like the next IBM through their website.  There is no room for smoke and mirrors on a well managed project.  A site visit can do a great deal to validate all of the information provided above.

If the criteria outlined above are utilized in a formal prequalification process the construction team is much more likely to thrive.  I have found in the past that it doesn’t take many bad apples to spoil a good project.  Hopefully your prequalification efforts will be as successful as the BCS was this year and you have a result a thrilling as Florida State’s narrow victory over Auburn on Monday.