Selling Thru a Challenging Economy

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By TOM WOODCOCK

Tom Woodcock

I’ve been around the sales block a few times in my life. I’ve seen trends and varying market conditions. I’ve gotta be honest: I’ve never before seen what’s taking place in the economy right now.

Many contractors are still thriving with the backlog they’ve established. Some are even having record years.

Don’t be fooled. When interest rates go up, construction slows. Period! Combine that increase with the inflationary aspect of building, and eventually you price out construction consumers – regardless of the size of the customer or project. This, my friends, is about to happen. I’ve been sounding a clarion cry to my consulting clients, and from the stage at every event I speak at. I think if most contractors are honest with themselves, they see it coming.

So how do you counter a potential slowdown in construction?

There really is only one answer: Sell. No, not your business. Sell your services. By expanding your customer base, you can counteract any slowdown that takes place in the market. This means getting out there with your existing customer base, protecting the volume you have with these clients to make sure it continues, while also hitting targets that are opportunities.

Here’s the challenge: You have to manage your current projects. Some of you may be at your wit’s end timewise to even take care of what you have now. I completely get that. The first order of business is to evaluate your time management and determine where you can find some additional time to increase your sales work. We all waste time. If we’re being honest with ourselves, it’s just human nature. Finding three to four extra hours in the week can result in two sales calls. If that’s two more than you’re doing now, you’ve increased your sales effort.

The second course of action is to qualify the existing or target accounts you want to pursue. Which give you the most realistic bang for the buck in relation to your time spent? Next, determine the best way to connect with these individuals. Can you invite them out for lunch, meet them before an association meeting or catch them at a networking event? Any strategy that can help bring you face to face with these prospects is worth the time committed. That needs to be your goal, as most salespeople will rely on email or social media communication, which is lazy selling. The more personal contact you have with existing or potential clients, the more you’ll stand out from the pack. It’s a more time-consuming and expensive process, but well worth the investment of both.

Frequently when the economy tightens and construction slows, a common first reaction is to spend more on marketing. Though there may be a legitimate reason to increase that spend, if it’s not tied to a stronger sales effort it ends up wasted. Combine your sales and marketing strategies to have a significant impact on the marketplace. It’s more common to put money into a website than increase the amount of time a company puts into its sales effort. It’s the age-old mentality that your marketing sells for you. This is rare. Marketing can create interest, but it’s the sales work that lands the projects. Sales work isn’t always easy. There’s a lot of rejection, and often customers are hard to read. Understand that sales is a numbers game. The more people you’re in front of, the more you’ll succeed. It’s a basic sales formula that cannot be denied.

We are almost to pre-pandemic levels with respect to personal contact. People are meeting in person again and spending time together. Association attendance has increased significantly, and major events are back on. These contacts should be a part of your regular sales regimen. Begin to be creative in your approach. Learn your client’s tastes and preferences. Cater to those tastes in your sales work. Small things make a difference. Your customers will notice you took the time to understand them and their needs.

As the economy contracts, most forecasters are saying a recession is either upon us or imminent. Be prepared by setting your sales strategy. If you don’t know how that’s done, get help.

Tom Woodcock, president of seal the deal, is a speaker and trainer for the construction industry nationwide. He can be reached via his website,  www.tomwoodcocksealthedeal.com, or at 314.775.9217.

How Construction Companies Can Protect Their Reputation in Times of Crisis

By TIM LEON

Tim Leon

In 2020, more than one in five workplace deaths occurred in the construction industry, according to the U.S. Bureau of Labor Statistics. While your company may have great safety protocols in place, the fact is that accidents can still happen, and how you communicate with the public and employees in the wake of a tragic event can make or break your reputation.

Is your company prepared to handle the media inquiries that will come your way if an employee is seriously injured or killed on the job? What about if violence erupts at the workplace, or if a facility you built is found to have a structural problem that has harmed or could harm occupants?

With that in mind, here are the top things to know about communicating during a crisis.

It’s important for companies in the construction industry – builders, architects, engineers, electricians and others – to have in place a crisis public relations plan to help preserve your reputation as you navigate requests for information from media and the public. 

A PR plan allows an organized response during a chaotic time

When a crisis event occurs, obviously your first objective is to mitigate further injury or damage, making sure people are safe. Handling media requests will need to be a priority as well. That’s where having a solid crisis communications plan comes in handy. You will already know who the spokesperson(s) will be, and you’ll have guidance on constructing talking points. You’ll also know how you will notify your company’s various audiences: employees/families, media, business partners/sub-contractors, neighboring businesses or residents and government officials, as appropriate.

Having a pre-determined crisis team and communication plan in place will reduce the anxiety that comes with handling a stressful event and instead give you a better sense of control over the situation. 

“No Comment” can backfire

These days, a “no comment” response appears to the public as trying to hide something. It’s always best to be forthright and to do it in a brief, measured way.

If you decide not to face the TV cameras and microphones right away, you can instead release a statement to the media. This allows you to control your message and also satisfies reporters and editors eager to get a response of some kind for their story.

Failing to provide information can result in media coverage that is one-sided or inaccurate, putting your company in a bad light.

What to say

With integrity and honesty as your guides, find ways to communicate only the relevant information, with no speculation or extraneous details that can muddle the message. Don’t release figures unless you’re certain about the accuracy.

Draft talking points, rehearse them and stick to them. A PR professional can help develop the points and provide media training to prepare the spokesperson to handle unexpected or “trick” questions.  No matter the question, it’s important to return to the talking points as much as possible when responding.

Show empathy

Don’t be afraid to express sorrow or sadness about the loss of life or property. It’s important to carefully word media statements and talking points for interviews to show your humanity while also factually stating what has occurred.

Monitor social media

Thanks to social media, negative news can spread rapidly, often before the media even picks up on it. It only takes one person on the scene to Tweet or post about the event and the word is out. That’s why it’s important to actively monitor your social accounts and respond appropriately and with empathy. Again, as with the media, stick to the facts and keep it brief.

Micro-site for updates

For an ongoing or extended crisis, it can be helpful to create a micro-website to post regular updates. Direct reporters and the public to the site so they feel connected to the latest news.

Finally, keep the messaging consistent across all channels – media statements, talking points for interviews, press releases, social posts and websites. Frequent updates will help quell rumors and allow your side of the story to be told.

Having a crisis PR plan can considerably reduce the chances of a negative incident harming your company’s reputation. Instead, you’ll be able to minimize the impact of the crisis and protect your standing in the community as a builder of integrity.

Tim Leon is president of Geile/Leon Marketing Communications. He can be reached at tim@geileon.com.

Construction Collections 101: Five Ways to More Effectively Pursue Collections

By QUINN MURPHY

Quinn Murphy

There are few commonalities in construction. The phrase “no two projects are exactly alike” permeates the industry and is on the tip of every bidding contractor’s tongue. The truth is, every project is just as unique as the conditions that surround it, and because those conditions are rarely identical, similarity is rare.

But if there is one commonality in the construction industry, it is contractors’ need to efficiently collect payment for work performed or labor/materials provided. Payment delays pervade the construction industry and have only gotten worse during the pandemic and globalization of construction supply chains. Creating a system to efficiently pursue payment is critical to long-term success in the industry. Collections can make or break a project and ultimately make or break a contractor. But many contractors don’t know where to begin with construction collections. The process is stressful, expensive and all too often unproductive, creating a very real sense that deciding when and how to pursue collections should be based on a “gut feeling,” reading the proverbial tea leaves or a random flip of a coin.

But the truth is, effective collections require planning, intentionality, discipline and partnering with collections professionals who are committed to these principles for the contractor’s sole economic benefit. While there is no “one size fits all” corporate collections policy that can be implemented across contractors, trades and industry professionals, there are common methods and tools that help contractors recoup payment and maximize net recovery. Here are five of these methods:

  1. Effective collections requires a plan, so have one.

Start to think of collections as an investment, for which a healthy return is both anticipated and expected. You wouldn’t invest in the stock market without a well-defined and thought-out plan, so don’t invest in collections without one either. Many contractors “trust their gut” about which payments to chase and which to let go. Resist this urge. You earn your money through experience and expertise; collections professionals do the same, so utilize that expertise to create a plan that you and your accounting folks can reasonably believe will recoup the money that rightfully belongs to you.

  • Set AR parameters for collections, then revisit them every six months.

Set well-defined parameters for which amounts you will pursue and which you will let go. Set these parameters before the frustration with non-payment sets in on any particular project. Perhaps a contractor may decide to pursue any receivable over $10,000 that is more than 30 to 45 days overdue. The particular parameters aren’t as important as the discipline of holding yourself to the policy without exception. Then revisit the policy every six months and adjust those parameters to maximize your net recovery.

  • Request payment bonds at project onset and send notices of intent.

For bonded projects, always request a copy of the payment bond at the onset to avoid delay if you need it later on. For non-bonded projects, state mechanics’ lien statutes can be confusing, often inconsistent and complex. There is no realistic way for a contractor to learn or adequately digest the legal nuance of precisely what is required under each state law where projects are located. Some states require notice of intent to lien, and some don’t. If you are a contractor operating in multiple states, make it a policy to calendar and serve a notice of intent to lien at the very onset of all projects. This will assure your compliance in states that require it and will have no negative impact in states that don’t.

  • Analyze collectability pre-suit.

Many a contractor has won at trial only to be told that the defendant has no assets and is effectively judgment-proof. We recommend you flip this analysis on its head and run asset searches through counsel on debtors before referring the matter to an attorney or collections professional. A dollar saved is no less valuable than a dollar recovered, so ask for pre-suit asset searches and collectability analysis to avoid throwing good money after bad. Focus on debtors that have robust bank accounts, largely unencumbered real property or expensive equipment that you can lien and sell to maximize recovery.

  • Should I use a collections agency or attorney? Both.

One common dilemma for contractors is determining when to send receivables to an attorney versus collections agency. As a general rule, collections agencies (operating on contingency fees) are better suited for smaller receivables and attorneys for larger ones. The reason is purely economic. If a contractor assigns a $10,000 receivable to a collections agency who writes a half-hour demand letter and collects, the contractor pays that collections professional $4,000 (40 percent) for writing the letter rather than $100 to $200 (one half-hour of time) for an attorney to do the same thing. On the other hand, a collections agency can chase smaller receivables longer without incurring any additional cost unless they recover. In the end, both are important partners in a contractor’s collections toolbox that should be utilized where they are most efficient and effective. As a general rule, most contractors refer receivables under $10,000 to collections agencies and over $10,000 to attorneys, but this should be tracked and revisited periodically to adjust allocation to the most productive debt collector.

No collections system is perfect. All are a work in progress. But by utilizing these five ways to more effectively pursue collections, contractors can recoup payments and maximize net recovery for years to come.

Quinn Murphy, heads both the construction and receivable recovery industry teams at Sandberg Phoenix & von Gontard P.C. He represents contractors in non-payment claims in all 50 states and in helping contractors create internal collections policies that maximize net recovery. Murphy can be reached at qmurphy@sandbergphoenix.com.

Perspectives: Seeing the Future

I recently had dinner with my younger sister who has been a proud resident of Philadelphia for the last few decades. She was back in St. Louis for the weekend to attend a reunion of former employees of the St. Louis Post Dispatch. She has spent life as a journalist. As dictated by geography, we only get a chance to see each other once or twice a year.

During dinner, my sister mentioned that she thinks about our father, who passed on in 2007, every day. That struck me. I think of my father and mother, who died in 2017, often but not every day. It also made me think about the long list of both terrible and wonderful things that our country and the world has experienced in the last decade or so. And how each of us get to see just a few minor threads of the long rope of history.

As a person gets older, you start to notice things that are planned or already happening that you might not get a chance to see completed. Things like calculating the payback of adding solar panels to your home or planting new trees. Or large-scale community building projects like bridges and highways. Or something as fundamentally important as the future of our country.

People sometimes ask, if you could go back in time, which famous person or persons would you like to meet with and have a chat. It’s an intriguing question, and I am a big history buff. For me, though I would rather go forward in future and see how things turned out.

I often find myself on a golf course wondering how someone tromped through densely-wooded hills and valleys and had the vision to see how a beautiful golf course might be coaxed from that landscape. I have the same admiration for those who have that same vision for the built world.

Last month, CNR editor, Kerry Smith and I had a chance to visit and interview a small roomful of people who are bringing the new National Geospatial-Intelligence Agency’s $1.7 billion campus to completion in near north city St. Louis. The 97-acre footprint of the site at the intersection of Jefferson and Cass avenues is a literal phoenix rising from the ashes of urban decay. The site itself is an amazing facility that will accommodate some 3,000 plus people who now work in a near-windowless facility near the AB brewery in the Soulard area. When complete, the site will be a jewel of a project with a 713,000-square-foot, four-story main office building, two parking garages, a visitor center, delivery inspection facility and central utility plant.

Looking at the beautiful new facility, outfitted with all of the fittings and security of a small military base, I can’t help but think of the massive new development of the surrounding area which is sure to come. And that surrounding area is still in dire need of a massive face lift.

The nearby, new Homer G. Phillips healthcare facility is already in operation and we know that big plans, some already revealed, some not, are on the drawing board. These kinds of projects provide comfort and optimism for the future of our society.

What’s Your Strategic Marketing Plan in a Changing Economy?

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The economy is a big topic lately. How does a changing economy affect small businesses and the St. Louis construction industry?

What do we do in an unsettled economy?

Get more sales.

Now more than ever, sales and marketing teams needs to be aligned. Marketing’s job is to provide qualified leads for the sales team. Sales’ job is to nurture those leads and convert them into sales. Companies with better sales and marketing alignment are 67 percent better at closing sales.

In times of economic uncertainty, we need to go back to the basics. First, we need to know and keep our customer base. Second, we need to maximize the efforts of marketing and sales to increase that customer base. Increasing our market share helps offset any reduced spending that can occur with our regular clients. The two teams need to be aligned to do this. How do you develop an effective marketing strategy in a changing economy?

Build your brand and go back to the basics. Here’s how:

#1 – Fortify your existing customer base.

It costs six to seven times more to acquire a new customer than to retain an existing one. 

In a downturn, the market can get more competitive, as everyone scrambles for market share. The weakest competitor will get desperate and undercut with price.

Knowing your customers and building up those relationships increases brand loyalty.

Create a customer advisory board. What better way to gain that knowledge than through your existing customers?

Use your salespeople. They are the frontline and know the customer. That knowledge is gold and should be maximized by marketing. Marketing teams should be interviewing salespeople and developing plans together on tactics and strategies to increase leads and sales.


#2 – Know how your customer is reaching you.

Part of knowing your customer better is knowing how your customer found you. Referrals, associations, supplier/ vendors, online searches, LinkedIn, website leads, email marketing – all are ways for customers to find you. Any lead that comes into a company through a marketing channel is considered an inbound lead.

For B2B companies, inbound leads are on the rise. Why? Buyers are getting more educated. They prefer to research a company independently because information is so easily accessible.

Knowing how they found us helps us know what marketing channels to continue to develop. Creating a better customer journey increases the overall brand experience and loyalty.

#3 –Build Better Brand Position

Every company has a brand position. Your customers are looking at your website to find out what that is. A good marketing team provides the best first impression and a proper “brand position” at a glance.

Because of the rising trend of inbound leads, leading B2B companies increasingly respond to intensifying global competition by putting customer centricity and experience at the heart of their strategy.

For example, Monsanto (now Bayer) transformed itself with an online platform from a supplier of seed and crop protection products to a productivity partner, providing advice on subjects ranging from product selection to sowing and harvest timing.

The company saw the trend of more educated buyers and decided to meet that need with more information about the overall market, creating a stronger brand position of being customer driven.

In the same way, we should be thinking about our brand position. Are our marketing channels portraying our brand position and meeting the needs of our future customers? Marketing is not just for the company’s benefit. It’s for the customer’s benefit.

#4 – Develop Buyer Personas for Ideal Customers 

A buyer persona is a target customer profile that describes an ideal customer – what their days are like, the challenges they face and how they make decisions.

Knowing what ideal customers need to make decisions helps us craft the best customer journey.

In B2B companies, we know the customer has a unique journey. Relationships go deeper, are long-term and usually have recurring sales. They also involve more individuals. Customization is more widespread in B2B than B2C. The stakes are higher in B2B deals. One customer could make or break a company.

It’s sales’ and marketing’s responsibility to predict and craft that journey to be as seamless as possible.

#5 – Treat Your Company Like a Publication

Because buyers consume more knowledge, we need to keep feeding them information. That means ramping up our content marketing. It’s a dirty job, but someone’s got to do it. Write! Content marketing generates three times more leads than outbound marketing, with LinkedIn being used by 96 percent of all B2B content marketers.

Many people within their own company tend to assume others know what they know. It’s known as the “Knowledge Curse.” Once we know something, we find it hard to imagine not knowing it. Our knowledge has “cursed” us. This presents a problem when we want to share our knowledge with our customers. We can’t readily recreate the simple problem and solution.

The key to communicating with customers is finding out what they still don’t know about us and giving them those answers. The audience is everything. Many companies can create content, but it may not be meeting the needs of their target audience.

Simple communication sounds easy, but simple is not easy.

The magic in marketing is when you can pave that information highway with effective, simple communication to correct the information imbalance that can occur between people inside and outside a company.

Simple communication and breaking the knowledge curse is the key to building relationships that will endure through a changing economy.

It’s a simple formula. Build your brand + Back to the Basics = Better Marketing.

No one knows what you know. Let’s change that and get creative.

Stephanie Woodcock is president of Too Creative, a St. Louis-based marketing and creative design firm for businesses in the building industry. Contact her at Stephanie@toocreativestl.com or (314) 753-1148.

To Litigate or Arbitrate, that is the Question: When in Doubt, Mediate

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By RICHARD STOCKENBERG

The decision whether to litigate or arbitrate a construction contract dispute is a judgment call. It all depends, but what is clear is that mediation offers a viable alternative to reach peaceful resolution without the need to resort to either.

What are the Differences?

Litigationis a public court proceeding utilizing and enforcing rules of evidence and procedure with attorneys representing the litigants. The decision maker is either a jury or a judge. The decision is binding and enforceable and is subject to review by a higher court.

Arbitration is a private proceeding that is voluntary, officiated by a single arbitrator or, in some cases, by a panel of three arbitrators. While there are rules governing procedures, arbitration does not follow the strict rules of evidence. The decision is binding with only limited rights of appeal. Attorneys are not required but are generally used.

Mediationis a non-binding settlement process facilitated by a neutral mediator, usually an attorney experienced in construction law. While mediation is generally voluntary, some courts will require litigants to engage in the process, though neither side is required to settle – just to make a good faith effort. Selection of the mediator is by agreement of the parties.

Contract Provisions

While parties cannot be required to surrender their rights to litigate, when a party signs a contract agreeing to arbitration, courts will typically enforce the clause.

In prior iterations, the American Institute of Architects family of documents required disputes to be resolved by arbitration using the services of the American Arbitration Association. However, to afford the parties options, the forms were modified to require the parties to check the box selecting either arbitration or litigation. Unless the arbitration box was selected, litigation became the default procedure.

Microchip Plant Construction Boosted by CHIPS and Science Act Funding

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By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

In August, the Biden administration signed into law the CHIPS and Science Act (H.R. 4346), which provides U.S. semiconductor manufacturers with $52.7 billion over the next five years to increase the production of microchips.

The funding, paired with local and state project-specific tax incentives, is spurring plant construction in Ohio and elsewhere.

The U.S., the country that created the semiconductor industry, currently ranks behind Taiwan in manufacturing volume. The aim of H.R. 4346 is to stem the two-year-plus chip shortage and buoy other related U.S. market sectors including construction.

Intel U.S. Government Relations Vice President Al Thomson says in January 2023 the global company will spend $20 billion on two chip fabrication plants – known as fabs – near Columbus, OH. The new “megafab” site could eventually house a total of eight Intel fabs in a collective construction effort totaling $100 billion. Intel is calling upon all commercial contractors statewide and beyond to build the 7,000-person workforce that will construct the plants, with the goal of opening them in 2025.

Congressional support for the CHIPS Act came in large part due to worries about the U.S. falling behind China in terms of technological leadership and strength, and from concern that without intervention, the U.S. tech industry’s manufacturing capacity would remain second to Taiwan’s.

The European Union’s Chips for Europe initiative, $17.1 billion strong in terms of new funding, echoes the thrust of the CHIPS Act.

Asian competitors are also planning an increase in the manufacturing of microchips. Taiwan Semiconductor Manufacturing Co. is estimated to be investing up to $44 billion in new chipmaking plants and equipment.

A leading driver of chip demand on all fronts was the COVID-19 pandemic, which spiked the demand for work-from-home technology including PCs, tablets and webcams. Chips serving as the brains for other work-life resources such as dishwashers, LED light fixtures and baby monitors added to demand intensity. Play at home devices such as game consoles also fueled increased chip demand since the pandemic began.

Crippling Texas freezes in February 2021 that knocked more than 70 power plants offline and cut power to a Samsung chip plant also magnified the shortage. COVID worker lockdowns worldwide fed into the lack of microchips being produced for the automotive industry and other market sectors.

The CHIPS and Science Act is spurring domestic construction. Indiana-based SkyWater Technology Inc. plans to invest $1.8 billion in a chip research and production facility in Indiana, in partnership with the state and Purdue University. Boise, Idaho-based Micron is planning to build a $40 billion memory chip manufacturing plant. And the partnership of Qualcomm and GlobalFoundries is expected to materialize in a $4.2 billion chip plant expansion in upstate New York.

“Federal investment will enable SkyWater to more quickly expand our efforts to address the need for strategic reshoring of semiconductor manufacturing,” said SkyWater CEO Thomas Sonderman.

Data Center Design Features Redundant, Sustainable Power Systems

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By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

Specialty contractors engineering data centers consider the back-up power system the “pacemaker” of these mission-critical spaces.

Jacobs Mission Critical Global Technology Leader Ken Kutsmeda has led the construction of more than one million square feet of data centers, adapting the latest technologies to electrical systems design for mission-critical facilities worldwide.

“Data centers are meant to operate 24/7…they can’t have downtime,” Kutsmeda says. “Their systems must be designed with redundancy and resiliency so that concurrent maintenance can be performed without shutting down the data center, and to ensure continuous operation if one part of a system fails.”

Nearly every piece of mechanical, electrical and plumbing (MEP) equipment – the generator, transformer, uninterrupted power supply (UPS) feeding each server rack, power distribution unit (PDU), chiller, pump and fan – has at least one redundant component. “There is also redundancy in the mechanical piping and in the electrical infrastructure, as well as water storage tanks within the cooling system, should public water loss occur.”

In years past, the redundancy strategy for these facilities was to back up IT and cooling through a large, paralleled back-up power generation system. These days, Kutsmeda says, many hyper-scalers such as Amazon, Microsoft and Google are engineering redundancy at the IT level to protect from outages while also engineering power back-up for the network.

“One configuration is providing back-up power in smaller individual power trains,” he says, “pairing a generator with a transformer and UPS system so they can be easily phased with construction.”

A current, growing trend, Kutsmeda adds, is sustainability and carbon emissions-free back-up power generation that replaces the carbon-based diesel generator with sustainable solutions including hydrogen fuel cells, hydrogen generators or even micro-nuclear generators.

Rosendin Vice President of Engineering Ron Wilson, who has been involved with data center engineering for more than 25 years, says many of the larger data centers require as much power as a small city in terms of electrical loads.

“Most power redundancy today is compartmentalized,” says Wilson. “Whereas 20 years ago you may have seen the designs with all the power for the data center within one block, these days that power distribution is sectionalized so that one issue doesn’t impact the entire facility.”

Controls play as integral a role today as redundant systems do, according to Wilson. “Controls and monitoring have become huge because data center users want to be able to monitor their capacity and move it to wherever it is needed. That’s where the complexity and flexibility of current distribution systems come into play.”

Overhead busway that feed power to specific server rows, allowing flexibility for server refresh, is one distribution strategy.

Higher temperatures produced by modern servers are another challenge in engineering data centers. “Placing coolers that are localized at the server rack rather than cooling an entire room is becoming more common in high-density data centers today,” Wilson says.

Material Delays Killing Sales? Hold On

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By TOM WOODCOCK

Tom Woodcock

Are material and equipment delays are killing your ability to secure projects and orders?

Who can do business in this climate? Is there an end in sight?

These are all very common questions in this construction sales environment. If you’ve followed my articles for any length of time, you’re well aware I’m not a fan of excuses. In 35 years of selling in the construction industry, I’ve determined the best companies see any negative influences on the market as opportunity. The conventional response is to complain and find blame. This is the easy position to take, eventually throwing up one’s hands and saying, “Oh, well.”

I’m currently hearing this reaction often.

Hold on a second. This might be a better situation than you think.

It’s no secret delays and pricing increases are all over the construction arena. Bids are only good for a week and pricing on materials may only be good for a day. Pricing escalation clauses are being incorporated into contracts. Project work is held up waiting for material or equipment. This can make it difficult to complete a project on time or on budget.

Yet from a sales standpoint, this is the best vehicle to close business! It takes some guts or a good firm approach, but you can secure projects and work by closing a bit more aggressively. I’m usually not a proponent of hard closing, but in this economy, it is actually a benefit to the customer. How? It’s very simple.

You are the expert in your industry or trade. Clients are counting on you to steer them in the right direction, of course couched in integrity. You see everyday what’s happening with material and supply availability as well as pricing. By informing customers that they need to pull the trigger quickly on deciding who their contractor is, you are saving them both time and money. The next step is to simply state you need to order material and supplies asap to avoid price increases or change orders. Say this in a fashion where it’s obvious you really mean it, because you do really mean it. And although I’m describing this as a sales technique, in reality it’s simply fact.

The tough part is that many contractors fear being this firm with their clients. They would rather leave information ambiguous instead of applying a little professional pressure. They fear this will push the customer away and they’ll not get the project.

In reality, it’s the opposite. A good close can secure the project with more immediacy. Trying to massage the customer in this climate is ineffective and somewhat of a disservice. Different market conditions often warrant a different approach. The construction market has been holding, but there’s a slowdown looming as interest rates increase and construction spending cools down. Securing projects now is critical to carry companies through any dip in the market. Throw in the challenging labor shortage, and you have a recipe for a significant market shift. We’ve seen it before, and it wasn’t pretty. It’s especially true with customers that reward you with recurring business. You have an even stronger platform with this type of client to apply a little extra closing pressure. You already have the client’s trust, so your client will more readily embrace your insistence to move quickly. They’ll understand you’re not crying wolf and are looking out for their best interests. It may even deepen the relationship to the point where things improve, and they still move on your direction.  The truth is, they need your guidance as they most likely aren’t acutely aware of the circumstances in your area of expertise.

Sales can be challenging, even in times when there’s an abundance of projects. The number-one buying motive is trust. This is a great time to either establish or increase this key deciding factor with your clients.

It’s not a half-bad idea to even roleplay this firmer closing technique within your own company. The more comfortable you are being firm with advising your customers, the easier it is for them to accept the premise. Not applying that pressure can increase the bleeding.

Instead of whining about the current pricing, availability and labor issues that exist, convert that into securing a higher percentage of your opportunities. A higher close rate always beats increase your estimating volume.

Tom Woodcock, president of seal the deal, is a speaker and trainer for the construction industry nationwide. He can be reached via his website,  www.tomwoodcocksealthedeal.com, or at 314.775.9217.

Contractual Protection: Sharing the Risk of Escalating Prices for Material

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By RICHARD A. STOCKENBERG

Dick Stockenberg

Lump sum construction contracts are designed to provide for the comfort of certainty, or at least relative predictability. But in times of uncertain and volatile economic conditions when prices for materials are neither certain nor predictable, an enhanced level of risk is introduced into the equation, resulting in a need to head to shore to seek the comfort of a safe harbor.

During periods of escalating prices, not even an owner with an ironclad lump sum contract can be assured it has the best deal it can get. For example, when contractors are unsure that they can procure materials for the duration of the project at the same price as contained in their bids, it will not come as a surprise that savvy contractors have built into their bids a “material escalation factor” that is perhaps more than is needed. In that case, the owners may be paying more than necessary.

To avoid such a dilemma, an option that may work for some owners, but not others, is to pre-purchase materials, especially if there is storage space available and insurance coverage.

Another source of possible relief is to provide for a line-item contractual contingency fund to be drawn upon when material prices exceed a defined level.

Contractors and subcontractors sometimes qualify their bids to allow for adjustments when there are unusual price increases in materials, equipment and energy. In such case the bidder, in order to receive an adjustment, will have to reveal how it priced these commodities, and most importantly it needs to assure that the price escalation qualification language found in the bid finds its way into the contract. This is particularly important for subcontractors who often have subcontract language saying that their bid does not become a binding contract document.

However, in reality there is no perfect solution that will eliminate all risk for all parties. As a matter of principle, risk should be borne by the party who can best control the risk. But when it comes to price escalation for materials, it can be generally said that parties who sign construction contracts have little, if any, control over such escalation. Fortunately, stakeholders in the construction industry are not totally averse to risk; if they were, they would find employment elsewhere.

ConsensusDocs’ Response

ConsensusDOCS is a consortium of 40-plus trade associations formed for the purpose of agreeing on fair and equitable – but not perfect – contract terms, especially as those terms deal with how risks are shared, not shifted. These documents do not contain one-sided clauses designed to purposefully shift risks downstream. Instead, they are drafted to find a balance that is equitably apportioned.

ConsensusDOCS is believed to be the first, if not only, publisher of a standard material price escalation clause (ConsensusDocs 200.1). This material escalation clause allows users to list specific materials affected for their project, and it may adjust the contract price by referencing an agreed-upon objective market index. In fact, only commodities specifically identified can potentially be adjusted up or down, and the parties may limit the extent of the adjustment.

The new language is intended to be completed and executed contemporaneously with the construction contract. Because it is intended to be flexible and to cover many different kinds of materials, calculation methods are suggested, e.g., established market or catalog prices; actual material costs; material cost indices. 

The document can also be incorporated into subcontract agreements and others, such as design/build and construction management at risk.

Safeguards are built into the language. For example, documentation for adjustments is required. The number of increases/decreases can be limited; however, the Associated General Contractors has noted that using a cap eliminates some of the benefit of a contractor eliminating contingency in submitted bid amounts.

The new form also addresses time extensions in the event of project delay caused by scarcity or delivery delay. Adjustments to time and money are not allowed for impacts caused by the contractor or its subcontractors or suppliers.

Also, the clause can function as a de-escalation clause when prices go down, thus allowing for mutuality to the owner’s financial benefit.

In addition to the duty of both the contractor and the owner to mitigate damages due to price escalation, the contractor is not allowed to include overhead and profit in any price adjustment.

Like the entire family of contract documents published by ConsensusDOCS, the new price escalation clause represents a consensus of a broad spectrum of construction industry stakeholders. Whether the ConsensusDOCS form is used, parties at all levels should consider some form of contractual protection extending the entire length of the contractual food chain, starting with the owner and extending down to the lower tier subcontractors and suppliers.

Richard A. Stockenberg, founder of The Stockenberg Law Firm LLC, limits his law practice to construction law. He can be reached at richard@stockenberglawfirm.com.

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