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The Contractor’s Best Friend /09-11-2013/ A Risk Management Conversation with a Risk Management Expert
In a previous articles on risk management I have shared some insights on areas of “safety” in its broadest sense, covering ways to protect the well-being of your workers and to provide for the well-being of your business. Some of the insights shared in those articles worked as well at protecting the “indirect” folks associated with your construction efforts such as customers, suppliers and even on-lookers who might be a bit too close to your work site.
The tips presented in this two-part article come from a well-regarded risk management expert -- Jeff Copeland, a consultant who comes with quite the credentials. An engineer from Purdue University with a Master’s Degree in Business Management, Jeff was President of a large Columbus-based general contractor for many years. Upon realizing the seriousness and costs associated with poor management of risk, Jeff improved his own firm’s safety and then began assisting other companies.
Recently retired, Jeff now consults with contractors of all sizes and provides key insights to reducing their risk in construction. He has provided critical and expert testimony at many construction-related lawsuits. Considered a true industry expert in risk management, here then is my discussion with Jeff that he made possible exclusively for The Contractor’s Best Friend.
In preparing Jeff for our interview, I informed him of our previous articles, providing copies for his better understanding of our past direction. A few of his safety tips have been addressed in our previous articles, a few have not and it is these tips that we’ll expand on for your firm’s benefit.
Brad: Jeff, first of all, welcome to The Contractor’s Best Friend audience and thanks for making some time for us.
Jeff: Well thank you, Brad. I’m all for helping any construction owner and leader who is out to protect his or her company, people and projects.
Brad: Well, let’s get right to it. If you could provide 10 tips to contractors of all specialties to manage their risk better, what would you include on that list?
Jeff: I think there’s probably more than 10 but let’s start there and perhaps we can provide additional insights in a later series on risk management. Let me share the 10 right out of the shoot and then we can go back and expand on those that you feel might be of greater importance to your readers.
- Safety - Be proactive! Bad Workers Comp ratings or OSHA fines can put you out of business.
- Collect your receivables. Know the billing cycles and don’t be late. Being a couple of days late with your bill can delay your payments an additional 30 days.
- Know the language of your contract as well as the GC’s contract with the Owner.
- Understand the difference between “Pay if paid” vs. “Pay when paid.” The interpretation can vary state to state so talk to your lawyer if you have any doubts or questions.
- Retainage requirements. If you are one of the early subcontractors on the project, push for early partial release.
- Levels of authority
- Change notice requirements
Brad: OK, that’s a pretty exhaustive list to begin with. Let’s go back and expand on a few of the items for greater understanding and benefit. First, thanks for reminding us as to the seriousness of poor Workers Comp ratings and OSHA fines.
Jeff: It’s huge! Trust me when I say that most hardworking and well-intentioned contractors pay secondary attention to some of their safety efforts…until they get nailed. My advice to your readers is to work hard at making everything their workers do easier, from a safety perspective. Look, I don’t like it either but the agents or inspectors for both Workers Comp and OSHA are not messing around anymore. I’ve seen some very good contractors who have been severely punished and fined for taking a less-than-high-priority approach to implementing safe work processes and requirements. A clean, safe site is a more productive site no matter whether you are an asphalt paver, a flatwork concrete expert or an electrician.
Brad: What about your second tip, the one involving collecting your receivables and knowing the billing cycles. I assume you are referring to the billing cycles of the customer? Is this a tip for safety?
Jeff: It’s actually part of the bigger picture of risk management. Remember, risk management is about managing any risk that can place a contractor in a financial difficulty. Now, referring to your first reference, are receivables and billing cycles related to our focus on safety? I think they are and let me briefly explain why.
I’ve worked with contractors who don’t do a very good job getting their receivables handled promptly or their billings were always a bit later than they should be. This often is a symptom of a contractor who is not disciplined. And if a contractor is not disciplined in such things as billings and accounts receivables why wouldn’t he also be less disciplined in the area of protecting his workers and company? I have found a real connection here for some contractors.
Brad: Jeff, your third tip is really interesting and looks complicated. I’m not sure that many of the readers of The Contractor’s Best Friend have to deal with some of the items you have shared. Can you maybe shed a little light on how this might apply to a smaller contractor, perhaps one that does not work directly for a GC but rather works directly for a customer such as a property manager of apartments or a residential home owner?
Jeff: I would admit there might very well be some differences concerning my “contract language” tip for the subtrade professional who as a rule does not work with general contractors. However, no matter who you are I do think it wise to really understand the contracts that you are entering into. I don’t think it’s a secret that our country is less afraid to sue another person and contractors are probably close to the top of that list.
One additional insight if you are a contractor who is working for a general contractor or construction manager: Pay close attention to the payment conditions. I’ve seen many subcontractors, very respectable contractors, sign a contract with a GC only to have overlooked the terms of payment. They signed the contract because they needed the work to keep their own crews busy but they either neglected or purposely overlooked the provision in the contract that they would not be paid until the GC was paid. This often stretched receiving their payments for three to six months and, in a few cases, a year! There are owners today who sign a contract with a GC or CM that says they won’t get paid in “less than 60 days.” Can you afford to finance the project that long?
Brad: Let’s look at your fifth tip. Don’t contractors have better things to do than sit in scheduling meetings? How important is that, really?
Jeff: Again, it’s HUGE! Even if you are a contractor who does work directly for your customer and not a GC or CM, it is important that you are directly involved in the development of the schedule. Brad, I know you’ve educated me on the use of your Next Week Look Ahead; in fact, I know the company I led for years is using a version of your scheduling format. It is just critical for the smallest of contractors to be diligent about scheduling their work for a customer. You can’t afford to have idle time for your field crews.
Brad: What about the contractor who might complete more than one job a day or complete several in a week’s time?
Jeff: More jobs completed means more things at risk by not managing crews, the crews’ efforts and focus, and certainly the safety risk inherent with just strapping down equipment and tools and transporting people, equipment, tools and materials across town. I have found that the smaller the contractor the more at risk he or she is putting the company IF they DON’T schedule their work.
One additional thought on this point, Brad. If a contractor is, by size, smaller and dependent on more volume of work completed each week then they are most likely working with customers who are not going to require a schedule of work. Certainly the big commercial jobs that have multiple contractors engaged with a single site require in their contracts that contractors provide for or participate in developing the schedule. However, my advice to the “little guy” is just as serious: Schedule every job your crews complete…no matter the size!
We’ll continue the conversation with Jeff Copeland next week.
Until then, protect your company my recognizing and better managing the risks we all face every day!
© 2013 Brad Humphrey, Pinnacle Development Group/The Contractor’s Best Friend™
For more information on risk management or about Jeff Copeland, please send your request to The Contractor’s Best Friend™ blog or email Brad@pinnacledg.com.