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Missouri Appellate Court Adopts Spearin Doctrine

in Columns/Law

By Jim Keller Herzog Crebs LLP

James R. Keller

In one of the most comprehensive and important construction decisions in years, the Missouri Court of Appeals for the Eastern District has found the Spearin doctrine applies in Missouri.  This is the first Missouri appellate court to definitively reach this conclusion.

The Spearin doctrine stands for the proposition that when a governmental entity includes detailed specifications in a contract, it impliedly warrants that if the contractor follows those specifications, the finished product will not be defective or unsafe and if the finished product turns out to be defective or unsafe, the contractor will not be liable for the consequences. The Spearin doctrine is widely accepted around the country, but no previous Missouri appellate court has specifically adopted or rejected this doctrine in a published opinion.

The case is Penzel Construction Company, Inc. v. Jackson R-2 School District, decided February 14, 2017.

This sweeping appellate opinion also discusses expert qualifications and the measure of damages through a total cost approach or modified total cost approach.  Missouri construction lawyers will be citing this case for years to come.

Penzel Construction Company, Inc. on behalf of Total Electric, Inc. brought a breach of contract action against Jackson R-2 School District based on breach of implied warranty for allegedly furnishing deficient and inadequate plans and specifications.

The District had entered into a contract with WNB Architects to build an addition to the Jackson High School. During the bidding process, the district furnished the plans and specifications for the project to Penzel, who gave a copy of the plans to Total Electric.

Neither Penzel nor Total Electric noticed any errors in the plans at the bidding stage. Based on the plans, Total Electric submitted a bid of $1,040,444 to Penzel to furnish and install electrical work for the project.

The district then entered into a contract with Penzel to be the general contractor. Penzel entered into a subcontract with Total Electric to provide electrical work.

Penzel’s claim at the trial court level pursuant to the Spearin doctrine was that the district impliedly warranted that the plans it furnished were adequate for completing the project and that the district breached the contract by providing inadequate and defective plans and specifications.

Alleged defects in the plans included inadequate low voltage switching and wire design affecting the gymnasium and some student areas, incorrect kitchen drawings, failure to specify emergency ballasts, failure to depict all the water heaters and circulating pumps requiring wiring, outdated products, non-compliance with building codes and an incorrect depiction of some site electrical work that actually was to be performed by others.

Total Electric’s claim was for labor loss of productivity and a 16-month delay in reaching substantial completion. Total Electric alleged that its damages were compounded by slow responses from the district and WNB as problems arose. Total Electric argued that it frequently had to wait weeks to months for a response.

This caused inefficiencies requiring Total Electric to pay workers for being on the project site with little or no work available to be performed. Total Electric also claimed higher hourly costs for manual labor due to trade labor wage escalation.

At the trial court level, the district brought a third-party claim against WNB.  The trial court granted motions for summary judgment on behalf of the district and WNB.

In reversing, the Eastern District concluded pursuant to the Spearin doctrine that if a contractor makes a bid in reliance on a governmental entity’s representations of what a project would entail, that contractor should not be punished—and the entity should not receive a windfall—because the entity’s renderings were defective.

The Eastern District also decided that Penzel was not required to use expert testimony to prove the plans were substantially deficient. Rather, testimony that the plans omitted critical components, called for outdated or non-existent products and failed to comply with building codes were issues that a layperson (or a juror) without any technical training could understand.

Also, Penzel could use two witnesses with 40 and 60 years of construction experience to testify that the electrical plans and specifications were deficient, even though neither one was a registered architect, licensed electrician or licensed engineer.

To prove Total Electric’s loss of productivity claim, Penzel used the total cost method or modified total cost method.

The total cost method requires proof of four elements: 1) the nature of the particular loss makes it impossible or highly impractical to determine any loss with a reasonable degree of accuracy; 2) the contractor’s bid or estimate was realistic; 3) the actual costs are reasonable; and 4) the contractor is not responsible for any added costs.

The modified total cost method is more flexible by allowing for adjustments to the total calculation of damages. The four-prong test is still used; however, it is merely a starting point and subject to adjustments to aid in proving the actual losses.

The appellate court concluded that the total cost method or modified total cost method may be an avenue to establish damages in this case.

James R. Keller is a partner at Herzog Crebs LLP where he concentrates his practice on construction law, complex business disputes, real estate and ADR. He also is an arbitrator and a mediator.

When’s The Last Time Your PC or Server Got an Oil Change?

in Columns/Technology
Joe Balsarotti

By Joe Balsarotti is President of Software To Go

The quick lube places drummed the “three months or 3,000-mile” mantra into all of us some 20 years ago and built an industry around it. Later, autos with 100,000 miles were considered exceptions; now 200,000 miles and more is the norm. Any mechanic will tell you that regular preventative maintenance allows cars to last longer. Computers need constant maintenance, too. A network going down can be far more costly to your business than if a truck, van or car in your fleet malfunctions. After all, you can’t just call up Enterprise and rent a new network for a week.

Far too many businesses see their technology as simply a necessary expense rather than the asset it is. After all, how expensive would it be to do your bookkeeping by hand compared to the cost of merely plugging numbers into your accounting system? Computers, networks and the like should be treated as the integral part of your business that they are. Just like changing the oil in a car or greasing the gears of heavy machinery, regularly scheduled preventative maintenance results in saving money rather than costing your business money.

Computer technology changes constantly. A model year for a desktop computer is about four months; major application programs renew every one to three years. In the software realm, most programs are dependent upon other programs that very likely are produced by another company. One vendor finds a bug, a defect or an entry point for hackers and writes a patch or update to fix it. That, in turn, changes parameters in other programs that communicate with it, requiring updates. On the hardware side, printers, scanners, CNC, robotics, entry systems and other connected devices need software updates when the operating systems running on the PCs are updated. Security updates to anti-virus, endpoints and firewalls are conducted daily, if not hourly, behind the scenes.

All those updates and changes need to be managed by someone. We’ve seen many a business user’s system crash, only to discover that the software is two, three or even five years behind. Companies may unintentionally leave their operations vulnerable and accessible to any kid who searched for “hacking tools” on the Internet. A lack of preventive maintenance and monitoring – what our industry refers to as managed services – leads to unexpected and unpleasant future expenses.

Just last month we heard about the St. Louis Public Library’s entire network being rendered unusable as a Cryptolocker type of ransomware was downloaded and encrypted the data, holding it hostage. The patron machines and back-office machines never should have been on the same network in the first place, but I’m sure someone will argue that it was prohibitively expensive to do it the correct way. Oops. We’re left wondering how much that shortcut will cost taxpayers. Was the library paying for update subscriptions to its firewalls? Was all of the software completely updated and was the network being monitored for a mass change in data? At least we do know that St. Louis Public Library had backups of the data and didn’t pay the ransom.

How would your network fare if it were attacked in the same manner? What costs would your business incur if all computers were unusable for a week? Would the idea of preventative maintenance and monitoring suddenly look like a cheap insurance policy?

Gartner research back in 2010 showed that 43 percent of companies were immediately put out of business by a “major loss” of computer records – and that another 51 percent of businesses studied permanently closed their doors within two years, leaving a mere 6 percent survival rate.

Maybe many of those data losses were caused by a major disaster destroying the surrounding customer base, as one possible example. But ask yourself: even if these are extra harsh statistics, what happens if you lose your customer list, your A/R report and aging, blueprints, plans or schematics for all the projects on which you are working? Realistically, would your business survive, and at what cost? More importantly, could it have been prevented by spending a realistic amount of money on managed service and preventative maintenance?

Most managed service plans are flat monthly, quarterly or annual fees based upon either the number of users or devices in the business. Your business gets the advantage of peace of mind that your tech provider’s incentive is to prevent problems because repair and remediation takes more time and is therefore less profitable. Additionally, your business gains a far better grasp on the true expenses of your technology because you can forecast and budget far in advance – and you can hopefully eliminate the unexpected, immediate expenses that failures bring.

I welcome your questions or comments at businesstech@software-to-go.com.

Joe Balsarotti is President of Software To Go and is a 37-year veteran of the computer industry, reaching back to the days of the Apple II. Balsarotti served three terms as chairman of the National Federation of Independent Business’ (NFIB) Missouri Leadership Council, as chairman of the Clayton, Missouri Merchant Association for a dozen years, chaired Region VII of the Federal Small Business Regulatory Fairness Board and currently serves on the Advisory Panel of the ASCII Group, an organization of more than 1,000 independent computer and technology solution providers in North America.

Consider Lying to Make Your Personal and Business Data More Secure

in Columns/Technology
Joe Balsarotti

I’ve written about it before, security breaches allow access to personal data. No business is safe. When the ‘big guys’ get hit, it makes the evening news. When it happens to a small business or an individual, it can still be devastating.

The recent Yahoo hack exposed one billion accounts. That’s one-thousand-million users who got their data stolen. What’s really bad about this second exposure at Yahoo is that not only did user names and passwords get out, but also those security question answers. Oops.

With that in mind, here are some tips on how to make your data and your business’s more secure.

In my opinion, the whole idea of a security question as a way to recover forgotten passwords or accounts is just plain stupid. As Sarah Palin found out during the 2008 elections, just about anyone can find out enough about you to answer the questions usually asked and sure enough, her email account was hacked. Which, of course, means that just about anyone can get your data.

So, what can you do about it?  Lie.

Yes, lie when you enter answers to security questions. If the vendor asks for your high school, enter your college. Enter your father’s middle name when asked for your mother’s, etc. The trick, obviously, is to be consistent so you don’t trip yourself up. You might even consider entering the first of your birth month as your birth date, for example, when registering with most sites. After all, you will still get your free birthday desert at the local restaurant if you keep the month correct but might save yourself grief if the restaurant rewards program gets hacked and your birthday gets out.

The ‘keep it simple’ premise can be utilized in your business. Don’t ask your staff, your vendors or your customers for data that you really don’t need. Remember, once you have that data, its safety is the responsibility of your company. That also means the liability for a breach is on your company as well. Maybe your marketing people say sending a birthday greeting or your sales staff knowing a customer’s anniversary is a plus, but does it really matter if you know the exact day? Would more general data serve the same purpose with lower risk?

Remember, the adage of ‘change your passwords frequently’ is not to protect you, the customer, it is to protect the ones holding that data. Obviously, the best security is to come up with a password very hard for someone else to figure out, but that you can memorize. Constantly changing passwords, do the opposite. People forget them because the most secure and meaningful ones have already been used. Therefore their passwords become simpler and simpler and in most cases end up written down on Post It notes, where a cleaning crew, employees, visitors, or family can easily see them.

The reason password changes are crammed down your throat is due to a valid worry that the data holder may have already been breached and doesn’t know it. Changing the passwords regularly renders the stolen data useless, which does protect you, but it’s really done as an attempt to reduce the holder’s liability.

One way to protect yourself with regards to frequent password changes is to come up with some formula only you know which allows a memorizable password, but also makes it unique at every place you use it.  For example, say you decide your ‘master password’ will be the word “memory”. If you have a Yahoo account, make the password “1Memory1-Y”, for a Gmail account, your password would become “1Memory1-G” and for online banking it would become “1Memory1-B”.   In this way, you’ve kept the basic password as something you can remember and not have to write down, it includes letters of both upper and lower case, numbers (not just tacked onto the end) and a symbol, all things that are required by most sites nowadays. You’ve already figured out the last letter is the first of the site, but when hackers try your data at a host of well-known websites, it will fail. They are not going to analyze your individual password for a pattern. They are already onto trying the next million easy targets in their list.

Turning to the business side of the equation, customer data stored on your systems should always be secured with multiple levels of security, which include hardware firewalls, passwords (or better yet, biometrics), endpoint protection, and security training for your staff. All security products should have update subscriptions and only administrators should have access to install software. Every user should have their own unique passwords and your employee manual should make clear that sharing passwords, or using another’s account could be a fireable offense. Don’t ask security questions of your customers. Instead consider having them enter a second phrase, which only makes sense to them, but not one based on a question which could be obtained by a hacker.

Having your personal data stolen is bad, but losing your company because someone stole all your employee or customer data is worse. Take the necessary precautions and consider protecting yourself with a couple little white lies.

I welcome your questions or comments at businesstech@software-to-go.com.

Joe Balsarotti is President of Software To Go and is a 37-year veteran of the computer industry, reaching back to the days of the Apple II. Joe, served three terms as chairman of the National Federation of Independent Business’ (NFIB) Missouri Leadership Council, as chairman of the Clayton, Missouri, Merchant Association for a dozen years, chaired Region VII of the Federal Small Business Regulatory Fairness Board, and currently serves on the Advisory Panel of the ASCII Group, an organization of over 1000 independent computer and technology solution providers in North America.

Missouri’s Supreme Court Reverses $8,000,000 Punitive Damage Verdict

in Columns/Law
James R. Keller

By James R. Keller

Missouri’s Supreme Court weighed in on another construction case in 2016 by a reversing a jury verdict in favor of the City of Harrisonville of $8,000,000 in punitive damages.

The case is City of Harrisonville v. McCall Service Stations d/b/a Big Tank Oil and the Missouri Petroleum Storage Tank Insurance Fund, 495 S.W.3d 738 (Mo. 2016), decided August 23.

The project was the cleanup from underground petroleum storage tanks at a service station in Harrisonville. An upgrade of an adjacent sewer system for the City prompted the cleanup.

Missouri, by statute, established the Missouri Petroleum Storage Tank Insurance Fund per Section 319.129. This Fund provides insurance to service station owners for the cleanup costs from spills and leaks from underground petroleum storage tanks.

McCall Service Stations d/b/a Big Tank Oil owned a service station. McCall informed the Fund in 1997 that significant gasoline had leaked into the soil around its tank system.

McCall and the Fund hired Bob Fine, an environmental engineer, to determine the extent of the leak. Fine notified the Missouri Department of Natural Resources that the leak was moving toward a nearby creek.

Fine prepared a plan to contain the leak by installing monitoring wells on streets next to the site. McCall thereafter sold the service station to Fleming Petroleum Corporation.

In 2003, Harrisonville decided to upgrade its sewer system given a growth in population. The City awarded a construction contract, after competitive bidding, to Rose-Lan Construction for a multi-million dollar sewer upgrade per a bond issue for this work.

During construction, Rose-Lan encountered contaminated soil next to Fleming’s service station and notified the Department of Natural Resources.

Fine, who had been monitoring the situation since 1997, confirmed that the underground storage tank was the source of the leak. He suggested that the most cost-effective approach would be to leave the contaminated soil in place and install petroleum-resistant pipe and fittings.

The City’s engineer estimated that to completely remove and replace the contaminated soil would cost more than $500,000. BV Construction submitted a bid of $190,226.38 to install the petroleum-resistant pipe per Fine’s approach.

The Fund obtained a lower bid of $175,161.41 from Midwest Remediation.

There were several discussions between the City and the Fund about the remediation and who would pay for it. Three representatives for the City felt based on the meetings that the Fund would reimburse the City for the remediation costs.

After these discussions, the City’s attorney sent a letter to the Fund’s representative that the City was going forward with Midwest in reliance on the “promise” that the Fund would pay the full amount of Midwest Remediation’s costs. The City then authorized Rose-Lan to subcontract with Midwest Remediation to install the petroleum-resistant pipe.

The Fund did not reimburse the City for the work—thus the lawsuit.

The City sued the Fund for fraudulent and negligent misrepresentation.  The City alleged it hired Midwest Remediation in reliance of the Fund’s representative’s express promise that the Fund would pay for the cost of Midwest’s work.

During trial, the City established that it incurred increased costs of $172,100.98 to complete the sewer upgrade project as a direct result of the contamination caused by McCall and Fleming. None of these costs would have been incurred had the City not encountered petroleum-contaminated soil.

The jury returned a verdict for the City of $172,100.98 in compensatory damages against McCall, Fleming and the Fund, $100 in punitive damages against McCall and Fleming and $8,000,000 in punitive damages against the Fund.

Regarding the Fund’s liability, Section 319.131 states that the Fund will pay all of any participants’ cleanup costs that are greater than $10,000 but less than $1,000,000 per occurrence and the Fund shall provide coverage for third-party claims involving property damage or bodily injury caused by leaking petroleum storage tanks.

The Missouri Supreme Court decided the City’s claims against the Fund did not fall within the statutorily authorized claims set out in Section 319.131.  The Fund is not authorized to provide coverage for claims that do not constitute a participant’s cleanup costs or involve third-party claims. The City’s tort claims were beyond the coverage provided by the Fund.

Despite this finding, the Supreme Court left in place the award of compensatory damages solely because the Fund had not appealed this portion of the jury’s verdict.

But the Supreme Court decided that since the City did not have a claim against the Fund for compensatory damages, even though they were awarded, the City could not recover punitive damages from the Fund.

There must first be actual damages to support the award of punitive damages.  Since the actual damages were not allowed by statute, the punitive damages could not be allowed either, the high court concluded. Thus, the Supreme Court reversed the $8,000,000 punitive damage award.

James R. Keller is a partner at Herzog Crebs LLP where he concentrates his practice on construction law, complex business disputes, real estate and ADR.  He also is an arbitrator and a mediator.

Setting Annual Expectations

in Columns/Sales
Tom Woodcock

By Tom Woodcock

As the holidays pass and we barrel into the new year, companies scramble to forecast next year’s performance. Numbers will be thrown around, projections made, and hopes elevated. Ownership will almost always demand better results in either revenue or profitability, or worse, both. Then the great master plan is formatted and presented at a company meeting. At that point, virtually everyone walks away leaving the sales team to make it happen.

Kinda comical if you really think about it. Marketing budgets get cut, entertainment expenses reduced and owner engagement wanes, yet you’re tasked to increase business. “Do more with less!” is the new company motto. You sit there wondering how you’re going to pull it off, if at all. It might be easier to just start making your excuses now as opposed to when the projections are blown. It seems to be an annual ritual. The real question is how do you project what an upcoming year will hold?

Projections can be very strategic or de-motivating in nature. Most are unrealistic in scope and cause unnecessary sales stress. Many have no formulation on how to achieve the numbers. Whether revenue, profitability or expansion of customer base, projecting results without having a plan is a shot in the dark at best. There are a few key areas related to sales that will require a strategic approach. Otherwise, reaching a projected goal will be a seat of the pants proposition. Hitting these main points will at least allow you to hit the basics:

  1. Market Conditions: Understanding and calculating what is taking place in your specific markets is paramount to setting your company’s sales rudder. Is demand trending up or down? Are there economic factors that dictate market direction? Has the customer base shifted in need or demand? These are important questions to answer. These influences can send you in the wrong direction if not addressed.
  2. Historical Sales Data: I find many organizations evaluate their sales teams via gut reaction. You “feel” like someone is doing a good or bad job and approach that person accordingly. The sales data may reflect the opposite of your impression. It’s impossible to project where you’re going without knowing where you are. What’s the starting point? What increases have you been averaging year to year? If historically you’ve realized a 5 percent increase year over year, you’d better have some strong data supporting an expectation of a 20 percent increase for the projected year. Unrealistic growth is never realized.
  3. Ability of Sales Personnel: Being realistic with the talent and work ethic of your sales team can assist in determining what you can truly expect that team to produce. Are they seasoned veterans? Developing rookies? Maybe a combination of both? Break the team down by individuals and measure the past contributions of each to your sales total. Use that as a baseline then incorporate the information you attain in the first 2 points and project growth. Combining the individual results will give you a company wide It’s useless to predict a high level of growth when you don’t have the players to get there. It’s like expecting your nine-player baseball team to hit 90 home runs when no one has ever hit more than five. It is just not possible.

If you’re diligent in at least these three areas, you can expect to make reasonably educated forecasts. Hitting projections will fuel the motivation tank. Over analyzing causes paralysis, insecurity and mistrust. Set your direction and stick with it. Be sure everyone clearly understands the requirements and the result of hitting or missing goals.

Recognizing that your company can fall into the trap of letting external factors dictate your success will keep you working on your strategy. You really do control your growth, not Wall Street or the next President. Rising above circumstances requires more than effort. Having a strong sales strategy tied to that effort has virtually a zero percent chance of failure. Of course each company has its own idiosyncrasies that can affect success, but having your sales ducks in a row can mitigate the negative and extenuate the positive. You are in control.

I’ll be sitting with the companies I work with over the next few weeks setting projections. Owners will argue with me and want to push the numbers. My response will be; “Okay, how are you going to pull that off?”. That will at least light the fuse. From there, reality will kick in and we’ll end up with a good, aggressive, yet achievable projection. Which, truth be told, is exactly what both they and you need. Don’t give in to the wishful thinking of pie in the sky expectations. The eventual result is a bad taste in your sales mouth.

Tom Woodcock, president, seal the deal, is a speaker and trainer to the construction industry nationwide. He can be reached at his website: www.tomwoodcocksealthedeal.com or at 314-775-9217.

Don’t Accept the Slow Season

in Sales
Tom Woodcock
Tom Woodcock

By Tom Woodcock

Winter is approaching. Work conditions will decline, ground will harden and everyone goes from holiday mode to winter blah. No one is spending any money and projects are scarce. Time to hold your breath and ride your line of credit through this annual recession.

Not so fast!

Throwing in the towel before the season even changes is awfully defeatist. The real course of action is to dig down deep and drive your sales effort. Opportunity may slow down, but it doesn’t disappear.

I’ve worked with enough contractors to know the difference between those that thrive through the winter and those who starve. The firms that go hungry are those that resign themselves to the norm and do nothing to move the bar. The true winners are those that look for every sales vehicle possible to get in front of the customer base therefore, opportunity. They gain a presence physically, electronically, and proactively. They’re not sitting by the phone waiting for it to ring or surfing the Internet for hours at a time. They understand that it takes work to find the projects that break over the winter. Not just those that bid this time of year, but also those that begin.

There is always pressure to go with the historical processes that the construction industry has sustained. Get fat over spring and summer then hibernate over the winter.

I refuse to let my clients accept this logic. We sit down and develop aggressive sales schedules and implement them. We keep the company accountable and review the results. Areas that we feel are the most likely to produce opportunity get the greatest sales attention. We then attack from a selling perspective and don’t let up. These opportunities may take more face-to0face customer time but often we’re the only ones actively pursuing them. This presents a great opportunity to steal a regular customer from a competitor.

Most people think that when they are actively engaged with a customer on a project, they’re selling. Not true. That’s servicing.

It’s what you do with customers when there isn’t a project on the table that falls into the sales category. It’s easy to communicate with a customer in the middle of a summer project. There are details to cover and schedules to meet. That’s a main component of a contractor servicing their client. It’s much more difficult to communicate when you’re not reviewing those elements, to actually talk to your customer on another level. Because of that difficulty, few people actually do it.

So this is the scenario: few people are actively calling on customers, you have time, and projects exist. Seems like an ideal situation for securing some business.

The challenge is to have the discipline and the plan to go after it. The first step is eliminating the “slow season” mentality. I’m not sure about you, but I prefer to be busy year-round. It can make sales projections easier and growth more possible when you gain business every month of the year instead of just nine.

Once this becomes part of your sales program, it tends to grow stronger year after year. You begin to recognize the vertical markets that produce opportunity during the winter months. You can then continue to develop your approach and marketing efforts to capitalize on the seasonal opportunities.

It is kind of like landscaping in the spring and summer and plowing snow in the winter, a common practice in property maintenance. Translation in construction terms: ground up in the spring and summer then renovation in the winter. That is just an example.

You can superimpose that formula on almost any construction trade of dynamic, if you’re willing to. That’s the rub. It’s easier to simply ignore this opportunity and kick back. Some see it as a time to catch their breath business wise. In reality, it’s more like holding your breath.

Investigating which market segments are progressing indicate where projects exist. Developing a sales approach to those markets and enacting it can unveil opportunities. Few people do this kind of sales work in the proverbial slow season.

The size of your company is irrelevant if you truly prioritize the sales effort. Breaking the trend is the most difficult part in conjunction with extending patience till results begin to occur. Selling is never a situation where you simply snap your fingers and the business magically appears. It requires planning, effort, and diligence, especially in a season that traditionally is not productive.

Anyone can secure business when there’s plenty for everyone. The real sales professionals secure it during the leaner times. When the bit players disappear and the field opens up, more commonly known as the Slow Season!

Tom Woodcock, president, seal the deal, is a speaker and trainer to the construction industry nationwide. He can be reached at his website: www.tomwoodcocksealthedeal.com or at 314-775-9217.

 

Subcontractor Denied Bond Claim Against St. Louis County

in Law

By James R. Keller

James R. Keller
James R. Keller

The Supreme Court of Missouri recently ruled that a subcontractor cannot pursue a bond claim against St. Louis County, but may pursue its mechanic’s lien claim against the leasehold interest of a company that acted as St. Louis County’s agent. The Missouri Supreme Court rarely decides construction cases involving bonds and mechanic’s liens, making this decision significant in how subcontractors will pursue future claims.

The case is Brentwood Glass Company v. Pal’s Glass Service, Inc., Clayco, Inc., Cornerstone VI, LLC, St. Louis County, National City Bank of the Midwest, N.A., Paul M. Macon, UMB Bank, N.A. and Victor Zarilli, 2016 WL 4444039, decided August 23.

St. Louis County had purchased property known as Six CityPlace Drive in Creve Coeur, Missouri, which the County had planned to develop as the headquarters of Smurfit-Stone Container Enterprises, Inc.

The County entered into a contract with Cornerstone to construct the project on the County’s behalf. Cornerstone acted as the County’s agent.

Clayco, Inc. was the general contractor for the project. Clayco entered into a subcontract with Pal’s Glass to supply glass and glazing work. Pal’s Glass entered into a sub-subcontract with Brentwood Glass for some of this work.

No contractor on the project obtained a bond that would comply with Section 107.170.2 of the Revised Statutes of Missouri. This section provides that all public entities (such as St. Louis County) must require every contractor for work on public property to furnish a bond to cover materials and labor.

Brentwood Glass filed a mechanic’s lien on the property in the amount of $1,061,464.08. Brentwood Glass then filed a nine-count petition against Pal’s Glass, Clayco, Cornerstone, St. Louis County, as well as various banks and individuals, seeking recovery on its mechanic’s lien and in one count pursuing an action against St. Louis County for its alleged failure to require a payment bond under Section 107.170.

Pal’s Glass admitted it owed $593,261.47. It consented to a judgment for that amount plus costs.

Because the property was owned by St. Louis County at the time Brentwood Glass began working on the building, Brentwood Glass could not pursue its mechanic’s lien against the County. Public property is not subject to a mechanic’s lien.

Cornerstone, however, held a leasehold interest in the property. Cornerstone is a private company and not a public entity.

The Supreme Court reversed the decision of the trial court and found that Brentwood Glass could pursue its mechanic’s lien against Cornerstone’s leasehold interest. The Supreme Court of Missouri sent back for further consideration by the trial court whether Brentwood Glass’s lien statement properly complied with Missouri law, which requires a “just and true” account of any money that is due.

The lien statement included potentially non-lienable items. Brentwood Glass admitted that its statement incorrectly included efforts to recover for payments that Clayco had paid directly to Brentwood Glass’s subcontractors and material suppliers.

The Missouri Supreme Court determined that the trial court must decide whether these non-lienable items were included in the lien statement with an intent to defraud or were honest mistakes. If honest mistakes, presumably the trial court will determine that the mechanic’s lien is proper.

Regarding the public bond claim against St. Louis County, Section 107.170.1 requires a bond for any “contractor” that “provides construction services under contract to a public entity,” but not a party that merely arranges for such services to be provided by others. The Supreme Court decided that Cornerstone did not provide construction services under its contract with the County. Therefore, Cornerstone was not a contractor within the meaning of Section 107.170.1.

The Supreme Court of Missouri also decided that even if this section required a bond, Brentwood Glass’s claim must fail because it did not name as a party in its lawsuit any individual officials of St. Louis County, but instead named as the defendant only St. Louis County. The court held:  “The decisive fact is that the County—a political subdivision—is immune from suit under the doctrine of sovereign immunity.”

The Missouri Supreme Court’s decision was far from unanimous. Two of the Justices, including the Chief Justice, filed concurring/dissenting opinions.  They believed that Cornerstone was a contractor within the meaning of the statute and therefore Brentwood Glass should have been able to pursue its bond claim. They also believed that Brentwood Glass should have been given the opportunity when the case is sent back to the trial court to amend its petition to name individual officials as defendants.

Three other Justices filed a different concurring/dissenting opinion. They believed that Brentwood Glass did not demonstrate substantial compliance with Missouri’s mechanic’s lien statute that requires a “just and true account.”  These three Justices believed that Brentwood Glass should not have been allowed to pursue its mechanic’s lien claim.

James R. Keller is a partner at Herzog Crebs LLP where he concentrates his practice on construction law, complex business disputes, real estate and ADR.  He also is an arbitrator and a mediator.

 

Do You Have A Plan to Refresh Your Technology?

in Technology
Joe Balsarotti
Joe Balsarotti

It’s hard to believe any business nowadays not being computerized. After all, without a website or at least email, it would be invisible to the vast majority of the public. Even businesses that get their customers solely from referrals have to be able to communicate in a way that customers and prospects prefer.

Those of us old enough remember the switch to computers. It usually started with an accounting system, maybe BPI, Great Plains, Timberline or Accpac. The time spent on finance and accounting went down significantly as adding machine and ledger paper were replaced. Then came word processing and the days of carbon paper were gone. CAD/CAM drastically reduced time to design and reduced errors. Local area networks started becoming commonplace in even small offices and everyone had access to the data without having to wait for someone to get done with ‘the file.’

Back in the very late ‘70s to the early ‘90s, it was easy to justify the expense of computer technology. The benefits went almost immediately to the bottom line, expanding abilities and reducing labor costs. ‘Selling’ management or the owners on buying equipment and software was an easy task. Technology planning meant calling a rep, getting a quote and saying yea or  nay, then starting the whole process again from scratch five to seven years later.

Some years ago, I had the opportunity to meet Dan Bricklin at an industry conference. You’ve probably never heard of him, but you certainly know the results of his invention, Visicalc. Yes, imagine a world before spreadsheets. The digital marriage of a sheet of ledger paper and a calculator was the brainchild of Mr. Bricklin. During his presentation, he was asked one of the best business questions I’ve ever heard at a tech event (tech events tend to be very techie rather than bottom-line oriented) “How did you arrive at a price of $499 for Visicalc?” He replied that those were the days of timeshare computing and that an hour of computer time was expensive. So, he calculated the average three-month cost for timeshare services then worked backwards, subtracting the cost of an Apple II computer, monitor, disk drive and printer. The result was a difference of about five hundred bucks, so $499 became Visicalc’s price.

Bricklin wanted the selling of Visicalc (and everything necessary to use it) to be a no-brainer. Why, after all, would any company want to pay to rent computer time when in just three months they could have their own system free and clear?

Nowadays it seems the benefits of newer technology are much harder to calculate. How much productivity does your business really gain if an older machine takes two more minutes to start up in the morning than a new one would, or printing takes an extra minute? Realistically, is your staff ready at the first minute of the workday or are they getting coffee, arranging their desk or hanging up their coat anyway?

The gains of new technology for businesses seem to have hit an inflection point. Now, it isn’t how much more you’ll gain as much as how much your business could lose by not keeping current. All those columns I’ve written about security, backup, and data loss might be coming to mind for you right now (at least I hope so). Downtime is an expense and a costly one. What price do you pay if a machine goes down and leaves an employee unproductive for a day? What if that machine is your server? Hard drives have finite life spans, so do cooling fans. They will eventually fail and that means your staff can’t get work done. Parts availability might become a problem with older systems. Even if the parts are available, how long to get them, have the repair completed, and the data restored? Time is money, after all. What’s your plan to deal with a failure?

Security also is a concern on older systems, as is compatibility with newer systems within your organization or those of your vendors, clients, and prospects. It’s hard to calculate the damage if your proposal looks like gibberish or is formatted wrong, because you were running a five-year-old version of Word or Acrobat, but it’s easy to calculate the loss if you miss a deadline because of system failure.

Businesses should have a written plan for a technology refresh. Some businesses can get by with a once-a-five-year refresh if their systems and internal procedures are very solid and scripted. Others, especially ones with more creative aspects such as design and architecture, need to replace machines along with each new version of their primary design software as each version adds new features and therefore requires more power from the hardware.

Even Internet access requires technology refreshes. How many of you have the same firewall from an old DSL connection running a newer cable or fiber line? If so, you are getting half of the speed you’re paying for because the firewall can’t scan the data at the speed of your line. Security improvements aside, a five year old firewall is a dinosaur and if not costing you money, is keeping you from getting what you’re paying for each month.

So, work with your tech provider, develop a plan and stick to it. If your technology people aren’t proactively working with you already in this regard, it’s probably time to find a new provider who can be a true partner for your business. A tech refresh plan will allow you to budget for necessary improvements and go a long way to keeping your company secure and up-to-date.

I welcome your questions or comments at businesstech@software-to-go.com

Joe Balsarotti, president of Software To Go, is a 36-year veteran of the computer industry, reaching back to the days of the Apple II. He served three terms as chairman of the National Federation of Independent Business’ (NFIB) Missouri Leadership Council, was chairman of the Clayton, Missouri, Merchant Association for a dozen years, chaired Region VII of the Federal Small Business Regulatory Fairness Board, and currently serves on the Dealer Advisory Panel of the ASCII Group, an organization of over 1000 independent computer and technology solution providers in North America.

True Sales Support

in Columns/Sales
Tom Woodcock
Tom Woodcock

By Tom Woodcock

I understand sales personnel need to be as accurate as possible before moving transactions to sales support. The better the information on the front end, the better the support effort on the back. With that being said, true sales support is tough to find.

The sales process may vary from company to company or product to product, but each sale has a process. Securing the customer and landing the deal are only the first steps. In construction, there are many additional facets to the sales transaction, any one of which can make or break the transaction.

Efficiency in the sales process directly relates to the customer experience and success rate of the corporate sales effort. Don’t let paperwork, material ordering, or communication with subcontractors interrupt the project or sales schedule. Not keeping the customer first lets details get bogged down in procedures or red tape. Throw a dose of company politics, mixed with mutual disrespect between sales and administration, and a mess develops. This can cause customers dissatisfaction and frustration, which often ripens into negative reviews and lack of referrals. Perish the thought of ever getting another project if that customer has recurring business.

Many companies have brought me in to help generate greater business volume. They want a full backlog of work at great margins. They tend to feel their front end sales approach is the problem. Often, I find their sales process is lacking or broken. There is no sense of urgency, little initiative to help the selling party and often resistance to sales if the documentation isn’t perfect. Whether it’s an issue of control, lack of understanding of the customer’s experience, or a perceived respect problem, the customer takes the hit. This can manifest in delays or cost overruns.

Support personnel need to understand that securing business in a sales environment is the most important aspect of any business. No sales, no paper. Not that their position isn’t critical, but those charged with getting business are there to do just that. Internal support networks are built to do just that, support. They end up making the sales agent look like a rock star, or incompetent.

The reinforcement of the commitments made by the sales rep goes a long way towards the establishment of the company’s credibility. By counteracting the sales person’s commitments, they send the customer the message that the rep is less than genuine and the company is inefficient.

I’m very aware of the fact that many sales agents promise the impossible, but that’s a different topic. Doing everything that you can to meet the customer’s expectations, if at all possible, is the essence of great sales support. The easy thing to do is to not perform and then blame the sales individual. That may be accurate, but it’s not optimum for the company.

I’ve mediated many battles between sales and support, some of them pretty nasty situations. Mutual understanding and respect for each party’s role in the sales process closes the gap between them. Good communication back and forth, verbally if feasible, clears up discrepancies. Avoiding condescending tones, venting, and blaming shows a higher level of business maturity. Few companies take the time to cultivate this type of environment. They let these internal relationships develop organically hoping for the best. Rarely do they end up with the result they hoped for.

Merely stating that you need cohesion between sales and support isn’t enough. It’s a daily practice that needs to be nurtured and reinforced. Ignoring a problem can result in delayed transactions, disgruntled employees, and loss of personnel, all of which are detrimental to a strong sales effort. Investing in training on the internal customer for sales personnel and the critical aspect of sales for the support personnel can bring an awareness of each party’s role.

Companies that work to develop the relationship between sales and support end up with a smooth flowing machine. They achieve a higher standard and set the bar high for competitors. This all takes self-evaluation and effort to be successful. Companies willing to practice this development will enjoy the fruits of it: high morale, extra effort, and increased revenue. Not to mention the value it brings to customers.

The reasons are critical. Gaining separation from the competition is not just the result of value, which is what is often taught. It is also the culmination of team effort, a value proposition rarely taught and seldom seen. The greater the customer experience front to back, the greater the value they perceive. This can reduce competitive influence and breed loyalty.

True sales support is simply part of a more profitable equation. The alternative can only result in more price competition and number shopping. Usually, contractors blame the customer for this behavior. In reality, looking internally may be the solution. Interesting to realize that the way we interact with one another in the sales process is so influential on the sales success of our companies.

Tom Woodcock, president, seal the deal, is a speaker and trainer to the construction industry nationwide. He can be reached at his website: www.tomwoodcocksealthedeal.com or at 314-775-9217.

The Sun Does Not Shine on Homeowner’s Solar Panels

in Columns/Law
James R. Keller
James R. Keller

By James R. Keller

After three trials and one appeal, a homeowner must remove part of its solar panel system, because the homeowners’ association did not approve it, and pay up to $56,000 in attorney fees to the association.

The case is The Lake at Twelve Oaks Home Association, Inc. v. Hausman, 2016 WL 1579124 (W.D. Mo. April 19, 2016).

In July 2012, Matthew and Stacy Hausman installed a photovoltaic solar array system on various roofs and on the ground of their home, which is located within a subdivision in St. Joseph, MO.  The subdivision was part of The Lake at Twelve Oaks Homes Association, Inc. Homeowners were subject to a declaration of covenants, conditions and restrictions for the subdivision.

One of the restrictions was that homeowners must submit written plans and specifications and obtain written permission from the Association’s Design Review Committee (DRC) prior to construction of any structure that materially changed the exterior appearance of that homeowner’s property. The Hausmans did not submit anything to the DRC.  Ironically, Matthew Hausman was a member of the DRC.

The Association demanded that the Hausmans remove the solar array as being in violation of the restrictions of the subdivision. The Hausmans did not remove the system. The Association filed a lawsuit seeking a permanent injunction.

In the first trial, the judge ordered the Hausmans to present their plans for the solar array system to the DRC for its review and approval in total, in part or not at all.

Shortly thereafter, the St. Joseph City Council enacted an amendment to its zoning ordinances regarding solar energy systems within the city limits.  It provided in part that no homeowner’s agreement could be more restrictive than the new city ordinance.

The DRC approved the portion of the system installed on the rear roof but rejected the portion of the system that included the panels installed on the side roof of the garage and the ground-mounted panels on the south side of the garage. The DRC’s decision was based on a provision within the Solar Guidelines previously adopted by the DRC that required panels to be constructed only within a fenced yard or patio at the rear of the main structure.

The DRC also based its decision on how the solar panels affected the character of the subdivision and considered individual homeowner complaints plus compatibility with surrounding properties and impact on the value of subdivision homes.

After a second trial, the court ordered the Hausmans, consistent with the DRC decision, to remove the part of the solar array system erected on the garage and the ground-mounted panels on the south side of the garage.

The trial court then set aside its own judgment, deciding that the parties should have included the city as an indispensable party given its new ordinance on solar panels.

After a third trial, the trial court again found in favor of the Association and ordered the Hausmans to remove the solar arrays not approved by the DRC. The court also determined that the city’s solar ordinances could not be applied retroactively to the Association’s Solar Guidelines and further found that the DRC’s decision was reasonable.

Finally, the trial court awarded attorney fees (provided in the subdivision declarations) to the Association.

The Hausmans argued on appeal that the trial court erred in upholding the DRC’s decision as being reasonable. They argued that sale prices for homes in the subdivision actually increased after the solar panels were installed.

By contrast, the DRC chair testified at trial that most members of the DRC did not find the solar energy system to be esthetically pleasing.  He further testified that the Association had received complaints from approximately 20 neighbors who expressed negative views regarding the appearance of the solar system and concern that its installation lowered the value of surrounding properties.

The Hausmans’ former next-door neighbor testified that the glare from the solar panels focused on his property four to five hours a day.  He further testified that he made $20,000 in concessions in the sale price of his home due to the negative impact of the solar system.

Another neighbor who lives in the home across the street from the Hausmans testified that the glare from the panels during the evening penetrated into his front window and negatively affected the value of his home.

The appellate court discounted evidence from the Hausmans that the DRC had approved a solar array system of another homeowner in the subdivision and thus by denying the Hausmans’ system the DRC had acted in an arbitrary and capricious manner. The Western District noted that the system for this other homeowner could not be seen by anyone and that there were no complaints from the neighbors.

James R. Keller is a partner at Herzog Crebs LLP where he concentrates his practice on construction law, complex business disputes, real estate and ADR.  He also is an arbitrator and a mediator.

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