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Struggling Firms Get a Second Chance

in Columns/Finance

Submitted by: Schmersahl Treloar & Co.

For many business owners and executives, filing for Chapter 11 bankruptcy proceedings seems like admitting defeat, but it shouldn’t be that way. 

The bankruptcy code exists to provide second chances. Chapter 11, which covers business reorganizations, allows struggling companies to right themselves so that they may once again be profitable engines of the nation’s economy.

No provision in the Bankruptcy Code is more important to achieving this goal than the automatic stay provision of Section 362.

Current Bankruptcy Law

A wide-ranging law that makes major changes to the country’s bankruptcy laws was signed by President W. Bush on April 20, 2005 and went into effect on October 17, 2005.

Under the Bankruptcy Abuse Prevention and Consumer Protection Act, it is more difficult for individuals to file for Chapter 7 bankruptcy, which wipes out most unsecured debts — including credit card debt. Lawmakers say the changes, which prohibit some individuals from filing for bankruptcy altogether, are necessary because at the time this law was passed, filings had reached historic highs.

In addition to the major changes in consumer bankruptcy, the Bankruptcy Act also contains numerous changes for business bankruptcy cases, including rules for reorganizing under Chapter 11. It also created a new chapter of the Bankruptcy Code, Chapter 15, which addresses cross-border insolvency.

Time-Out

The automatic stay provides a time-out — a window of opportunity to fix problems. In some cases, time is all that’s needed.

Whenever a company — or an individual — files for bankruptcy, the automatic stay kicks in. Like a temporary injunction, the automatic stay prohibits any action by a creditor against the debtor or its property.

Actions prohibited to a creditor under an automatic stay include repossession, foreclosure and lawsuits. The automatic stay even affects the IRS. While the stay is in place, the IRS is prohibited from issuing tax liens or seizing property.

There is one major difference between the automatic stay in bankruptcy and a typical temporary injunction: No hearing is needed for the automatic stay to take effect. It occurs as soon as a petition to file for bankruptcy proceedings is stamped at the court.

Power to Punish

A company can then move forward without fear. The bankruptcy court has the power to punish creditors that knowingly violate a stay by filing a contempt charge against them. Harassing letters and phone calls should stop. If they don’t, notifying the court of a creditor’s transgression generally ends the problem.

While the automatic stay is in place, the debtor company is prohibited from paying most of its pre-petition debts. This provides a chance for the company to rebuild itself as a going concern.

However, recent changes in the bankruptcy law impose limits on the duration of the stay for certain repeat filers (see box). These debtors must seek a stay from the court in order to have the protection of the automatic stay.

You might think that filing for bankruptcy to get an automatic stay sounds all well and good, but filing will surely dry up the pool of available credit for things such as operating expenses. Won’t bankruptcy tie the company’s hands and kill any hope of future success? This is generally not the case. Sometimes, a struggling company has an easier time obtaining credit once bankruptcy has been filed and the automatic stay is in place.

Credit availability tends to increase because of the prohibition against paying pre-existing debts. All debts incurred after bankruptcy has been filed (post-petition debts) must be paid first, before any pre-petition debts. As long as the company shows that it can operate profitably if it doesn’t have to immediately pay its pre-petition debts, credit is likely to be available.

Fruitful Negotiations Count

Consult with your accountant about the best way to proceed. And keep in mind that corporations that successfully come out of bankruptcy almost always do so because of fruitful negotiations with creditors. The automatic stay is not a cure-all. For some businesses, no amount of time can fix things. But for a company that is fundamentally strong, with credit in hand, the automatic stay provides an important opportunity to talk to creditors and get back on track.

Sales Excuses in Place of Sales Effort: Smart Sales Professionals Ditch the Excuses

in Columns/Marketing
Tom Woodcock

By TOM WOODCOCK

I’ve worked with hundreds of people responsible for their company’s sales effort. I’ve seen some incredible individuals who seem to be in the mix on every deal they go after. They nail it and ask little in return, except for their bonus or commission check. Their companies thrive and their profit margins are strong. The economy – whether poor or booming – doesn’t affect them. They are producers, simple and true. They may not be the thriftiest among us, but who cares if they bring home the bacon? For those of you out there who fit in this category, I salute you.

Then there’s the other category – folks who complain about every aspect of sales, who blame the economy and who complain that everything is about price. They find fault with their own company and are seldomly proactive. They argue with you that sales work doesn’t make a difference, but when they get a deal, they’ll tell you how they learned the inside track on the project. It can drive a manager crazy. These responses are very simple to explain. They’re excuses.

I have contractor clients who are securing work in minimum or no-bid competition. They are winning without being the low number and are getting good margins and repeat business. Their clients call them first or keep them on a short list. These contractors set aside time in every work week specifically for sales work. They understand there is no more important aspect to their business than sales. They market properly and do the extras to develop relationships. These folks are networking and not qualifying away opportunity. They don’t discount those who are consultants regarding sales and marketing as less than valuable. They are regularly looking to grow and learn in relation to their sales skills.

Not all of them come by it naturally. Some of them were also excuse makers at one time. The change came for some when there was virtually nowhere else to go but sales work to gain profitable business. A few were sweating things out before they turned the corner.

The first step to excelling in the way you sell is to quit with the excuses.

When I begin working with a someone who is a sales agent for his or her company, the first place I start is to discover how that individual is using his or her time. Most of us get things thrown at us regularly that lure us off task. Having a plan in place that forces you to incorporate sales time can begin to stabilize your schedule. The more you learn and train your customers, the more control you have over your schedule. My next step is to find out why they feel they’re not enjoying the sales success they’d like. This flushes out the excuse. Trust me, there are only three to four excuses in total within the construction industry. These excuses might have slight variations, but really, they’re all very common – although they feel unique to each person. Setting a sales strategy for specific customers and targets is the next step. If you were to do only these few steps, you’d be doing more than most contractors, or for that matter, companies in general.

The pressure to perform in a construction environment as competitive as the current one is great. Many experience failures at a rate they’ve never seen before. The easiest explanation is to find fault in some other area besides one’s sales work. The more difficult response is to adjust your sales approach and focus the same level of attention on that effort as you would to finding profitability on a project. Refreshing marketing collateral, finding time to connect through business-oriented, physical social networking, establishing a strong digital footprint and setting an aggressive call schedule takes time when combined with planning. Finding excuses not to take that time will only result in the same pattern of sales. If that pattern is trending down, deeper it will go.

So many contractors are looking for ways to get an edge or find new opportunity. How do you propose to do this if you are continually excusing a weak or ineffective sales effort? Multitudes of contractors across the country are struggling with the challenge of getting business. Productivity for most contractors is at an all-time high. Field performance is at a premium. Many are working ridiculous hours and giving the operations aspect of their business everything they have. They’ve cut costs to the bone. Still, there’s no light at the end of the tunnel. As we head into the winter, we are entering a prime sales season. Filling your pipeline with quality opportunities now will bring results in the spring.

Evaluate your sales work and determine if you need to make adjustments as opposed to excuses. If you are not an excuse maker but things aren’t where you want them, change your sales strategy. Find areas of weakness and correct them. Maximize your strengths and invest in the customer relationships you have. Expand your network and get out of the office because there aren’t a lot of customers there.

I’ve been watching the continued trend of reducing personal contact with customers. Technology has made it easier to do so. I’ve watched young, millennial sales personnel sit in front a potential customer and blast them with data and information. The data-driven sales processes coming into prominence will do nothing more than increase pricing focus. Unfortunately, in construction, price is a poor decision-making factor if the facility is poorly built or not built to the project owner’s wants and needs. Safety, quality of materials and skill of labor begin to become watered down in the quest for the lowest bid possible. If you don’t think that’s true, you’re not really looking very closely.

Construction lives and breathes with sales. The competitive differences are very real. With millennials becoming decision makers, sales agents need to realize they’re selling the value of relationship, skill and reputation, not simply the project.

Construction has never been black and white. Just ask the excavator who hits bedrock unexpectedly, the demo contractor who discovers an environmental hazard behind a wall or the masonry contractor who discovers the plans are an 1/8 of an inch off. There is still a lot of selling to do in construction, and it needs to be done effectively. One of my most consistent points is simply this: If sales is the most important part of your business, why in construction does it not get the same level of attention that it merits? Without sales, you have nothing else. Construction isn’t so unique that you don’t need to focus or improve in the area of sales. You must, just like in any other business.

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.

Architect’s Mechanic’s Lien Filed Too Late: Timing Is Everything, Appellate Court Says

in Columns/Law
abstract business interior double exposure high tech
James R. Keller

By JAMES R. KELLER

Missouri’s Eastern District Court of Appeals recently decided that an architectural firm filed its mechanic’s lien too late. Consequently, the lien was not enforceable.

The case is Bates & Associates, Inc. v. Providence Bank & Vision Ventures, LLC, 2019 WL 4419698, September 17, 2019.

Architects rarely file mechanic’s liens in Missouri. Their liens are against real estate.

Architects typically work for real estate owners. Liens tend to compromise such working relationships, both on current matters and future opportunities.

The architectural firm in this case is Bates & Associates Inc., a licensed architectural firm under Missouri law. The original owner of the real estate was Vision Ventures LLC.

Providence Bank became the owner through a non-judicial foreclosure. Bates sued both to enforce its mechanic’s lien.

While filing an architect’s lien is uncommon, the facts in this case, although somewhat complicated, are not that uncommon for architects and owners on construction projects.

In 2013, Bates entered into a contract with Vision for architectural design and construction services for a senior care facility. The project was located at 17655 Wild Horse Creek Road in Chesterfield.

Financing was involved to make the project a reality. There was an initial loan secured by a deed of trust for $2.48 million in 2008. An additional promissory note secured a modification to the deed of trust for an additional $1.37 million.

Vision defaulted on the loan and note by failing to make all of the payments when due. Vision also filed for Chapter 11 bankruptcy in March 2015, listing Bates as an unsecured creditor.

Bates filed its lien on July 15, 2015 for the work performed for Vision. By doing this, Bates obviously hoped to become a secured creditor in the bankruptcy estate.

Under Missouri law, a mechanic’s lien relates back to the first day of work, regardless of when the lien was filed – provided it was timely filed. This can provide a potential priority when there are several secured creditors.

Two days later, the non-judicial foreclosure took place. Providence obtained title to the property.

Bates filed a three-count petition against Vision and Providence. In Count II, the mechanic’s lien count, Bates sought $305,279 against both, asserting its lien was superior to Providence’s interest in the property.

Bates sued Vision in Counts I and III for breach of contract or in the alternative quantum meruit (for services rendered where there is no specific contract).

After a bench trial, the trial court awarded Bates $276,000 on its breach of contract claim.  Expressly finding there was a contract, the court denied the claim for quantum meruit. Under Missouri law you can recover for one or the other, but not both.

The trial court also denied Bates’ claim to enforce its mechanic’s lien and granted Providence’s counterclaim to quiet title to the property. This gave Providence ownership over Bates.

The trial court concluded that the architectural services were not directly connected to any construction or other improvements to the property. It also concluded that Bates did not timely file its lien.

The appellate court focused on the timing issue.

What makes the facts of this case somewhat common is that the architect performed design services under an original 2013 contract. Then Bates did work later that it alleges was pursuant to this original contract. Architects often find themselves in this situation. If Bates was correct, its lien could have applied to all the work it did from the first day of work until the last.

The reason the timing is important is because a mechanic’s lien under Missouri law must be filed within six months of the last day of work performed by that party. Missouri law affords no grace period. A lien filed one day too late is the same as a lien filed one year too late.

Under the original contract, Bates’ last day of work was July 7, 2014. A lien for that work expired on January 7, 2015. Bates filed its lien on July 15, 2015.

Bates claimed that it performed additional work between January and March 2015 and this work was an extension of the original contract. Bates’ timesheets showed internal meetings about the project. In February 2015, Bates sent Vision a proposed contract for additional services in the amount of $70,000.

Bates’ proposal included removing kitchens from the second-floor apartments and a redesign on each floor to reduce overall square footage. This work did not advance beyond discussions in meetings.

There was a fact dispute as to whether Vision agreed to the additional services. Appellate courts defer to the trial court’s determination of fact questions. The trial court found there was an agreement for the original work, but it is unclear if the court’s judgment included any of the later work under the breach of contract claim.

Appellate courts decide for themselves legal questions. In this case, the legal question on appeal was whether the work from January through March 2015 was in accordance with the original 2013 contract and thus lienable according to Section 429.015 of the Revised Statutes of Missouri.

The contract between Bates and Vision required that any additional changes to the original scope of Bates’ work required written authorization. In this case, there was no written authorization.

The appellate court concluded for this reason alone, the later work was not within the original scope of the contract and thus not lienable.

In addition, the Eastern District also concluded that the additional work to develop and communicate its proposal was not necessary to complete the original contract. The drafting of a proposal for additional services, according to the court, did not constitute a lienable improvement upon the land.

The court concluded that a “proposal for a contract for additional services is not the same as a partial or complete set of designs.”

James R. Keller is counsel with Sandberg Phoenix & von Gontard P.C. where he concentrates his practice on construction law, complex business disputes, real estate and ADR. He is also an arbitrator and a mediator.  Keller can be reached at (314) 446-4285 or jkeller@sandbergphoenix.com.

Change for Change’s Sake: With Technology, Is Newer, Faster and Fluffier Better?

in Technology
Joe Balsarotti

By JOE BALSAROTTI

Change for change’s sake – or should I say tech for tech’s sake?

The more I mulled over my last column (the one about having dinner with a real live rocket scientist) the more I realized I hit on one of many symptoms of the problem the tech industry has in dealing with customers. It’s no wonder most people dislike dealing with technology.

First off, most in our industry don’t even call you customers or clients anymore. You’re now an end user. Catchy, isn’t it? In the eyes of the manufacturers and designers, what you the customer want really isn’t important. It’s all about what they see fit to drop on your plate.

Like that last column when I wrote of how much useful data was gleaned about Mars from a download speed that would make the average teenager go into a meltdown over its slowness, we’re bombarded with garbage through our cable, fiber or DSL lines, all taking up useful space and making us wait for the useful stuff.

Fast forward to very recently. After about five years, I finally replaced the PC on my desk. I really must raise my energy and courage whenever I replace my primary machine since no matter how easy the industry tells all of us it is, it often winds up being a 20- to 30-hour project.

And so it was again. Transferring the documents and data aren’t the problem anymore. It’s having to reinstall each application, then configure it.

I’m close to the last person to use a new technology for myself, since most of our clients are small businesses. I need to see what they see, and most prefer to stay away from the bleeding edge of technology and wait until proven benefits are shown. Not to say I don’t learn the new things. I spend about 10 hours a week just keeping up with product announcements and updates, but as someone who’s dealt with tech for more than 40 years, I don’t want to be constantly fiddling with my own. I just want it to get the job done for me.

Now that I have Windows 10 on my primary machine, I become more irritated by the day. Microsoft, just like Apple and all the others it seems, has decided that those who pay for the products shouldn’t be able to use them as they’d like – only as the makers envision. Thus Windows 10, for all the new things it can do, is now very much like a Mac in that all the customization has been removed. Stupid little things like changing the icon title size or font, spacing or increasing the size of text inside a program but not on the desktop have become tedious to accomplish. You can’t remove Word or Excel, even if you use competing products. And setting up a machine without creating a Microsoft account (can you say Big Brother?) takes some fancy work.

On the tech discussion boards, the Microsoft techs are instructing people to load third-party tools to hack into Windows to make even the most cosmetic changes which used to be a menu away. Macs have always been that way, paraphrasing the Henry Ford quote, “You can have it any way you want as long as it’s our way,” but now Windows is the same, much like Adobe, that has tried to push its pay-by-the-month cloud for years now.

We see this dumbing down happening in all facets of technology. Automobiles now become more irritating each second, reminding us that our seatbelt is not attached (even if we’re driving five miles per hour down our driveway). Aircraft pilots now need more simulator time. Because automation is so prevalent in the cockpit, it’s feared pilots have lost their edge when they need to take manual control in an emergency. With good old Windows, the settings page now takes the entire screen to present all of 14 items instead of the dozens of options we used to have. As for icons, we’ve gone back in time to hieroglyphics since it seems the designers don’t think you can read. We no longer tape record any show we want on TV as we gave up the old VCR in the name of progress. We’re now stuck with DVRs which can’t permanently save anything. Please remind me which icon means high beams and which is for running lights.

This constant push for faster internet connections, bigger screens to show larger icons (which accomplish less with each version) and exponential increases in the use of storage space (both locally and in the cloud) aren’t really bringing us any meaningful increases in productivity, are they? Do you get more done at your computer now than five or 10 years ago? Or are you presented with more fluff and junk using up the productivity gains from newer technology? Not sure what the answer is, but more and more of us are keeping our gadgets longer and longer, so maybe there’s hope.

Be sure that when your business is told it’s time to upgrade, update or replace technology that there is a compelling reason and productivity benefit. If not, perhaps it’s time to look at technology from another perspective.

Joe Balsarotti is President of Software To Go and is a 40-year veteran of the computer industry, reaching back to the days of the Apple II. Keep up with tech by following him at Facebook.com/SoftwareToGo or on Twitter @softtogo.

How to Turn Referrals Into New Business: Let Marketing Tell Your Story

in Columns/Marketing

By STEPHANIE WOODCOCK

Stephanie Woodcock

As an architectural, engineering, or construction (A/E/C) company, how do you acquire business? Some common answers I’ve heard are through “trust, longevity, relationship, price, expertise and quality.”

I’ve also heard the following: “I don’t need marketing, because most of our business comes from referrals.” In fact, if I had a nickel for every time I heard this, I would be at least a few dollars richer. Companies who rely on their referral business and expertise or longevity in the industry may assume that they don’t need to market. But, the very nature of A/E/C company referrals has changed, and it has significant implications on a B2B marketing strategy.

According to a study conducted by a large marketing firm that surveyed professional services companies, more than 81.5 percent of these B2B companies have received a referral from someone who was not a client.  (Source: https://hingemarketing.com/library/article/referral-marketing-for-professional-services-firms)

There are three types of referral business:

  • Experience-based referrals
  • Reputation-based referrals
  • Expertise-based referrals

Most A/E/C companies are familiar with experience-based referrals. This type comes from direct business such as clients and professional partners. The vast majority of referrals, however, come from people you don’t know. They either recommend your company because they know your area of expertise, or they know you by reputation and know someone who has heard of you.

The key is to capture more of these last two groups of non-client referrals with a strong marketing strategy. In the A/E/C industry, 20 solid relationships will get you farther than 1,000 contacts. Why risk the possibility of not gaining a Top 10 customer because of lack of foresight in your marketing strategy? If 81.5 percent of our referrals are people who have not been our clients, we need marketing materials, brand presence and a digital identity to grab their attention.

How do we convert referrals to new business?

According to the same B2B company study, 51.9 percent of respondents ruled out referrals before they even spoke with the firm in question. While there is a detailed list of reasons the prospect dismissed the referral, the top reason, cited by 43.6 percent of respondents, was a lack of clarity about the provider’s services, expertise or capabilities. Other top reasons included inadequate marketing materials, insufficient clarity or overemphasis on selling rather than education.

Not only are we getting referrals from people we haven’t directly done business with; of those being referred to us, one-half of them are potentially not being converted into business because of a lack of marketing.

Maybe I should give my nickels back. If most of your business relies on referrals, you should be most concerned about marketing to the “low hanging fruit” you’ve worked so hard to attain through your reputation, expertise and experience.

You may let me keep my nickels, because I’m going to save you money with the following list. Of all the bells and whistles available through marketing agencies, here are my top four marketing strategies for B2B companies in the A/E/C space:

1) Content Marketing

Become the expert. Write blogs and newsletter articles. Speak at events. Attend association events. Set yourself up as the authority in your specialized field and watch the referral business come in. Get the word out through press releases, email marketing, social media, event marketing and association involvement.

This is how you help build reputation referrals. By using content marketing in conjunction with the rest of the tactics in this list, you can build a brand with a widespread reputation for your specialty and a greater understanding of your expertise, even among audiences that haven’t worked with you directly.

2) Consistent Website Presence and Marketing

Gone are the days that your website can be a “brochure website.” Eighty percent of buyers look at company’s website to check you out. New people are looking at your site for credibility factors, to see what you do, to find you through search tools, etc. Prospects want to find new content, a responsive website that answers their questions, one that is user friendly and stays up-to-date. Continually update and maintain your site with new blogs, white papers, landing pages, images and social media posts. Having a dynamic online presence that shares the expertise of your key professionals is the key to generating expertise-based referrals.

3) Creative Branding Strategy

Beyond your digital presence and white papers, you need ongoing creative branding and marketing campaigns that resonate with the customer base. This is the fun part of marketing. Introduce a new campaign around a theme that your customer base will appreciate. You need brand recognition, but you also need to make it fun. Keep your message consistent but interesting. This kind of brand recognition can lead to referrals and new business. 

4) Get Face-to-Face

Establishing a robust marketing strategy and digital presence does not mean we can vanish from being face-to-face with our customer base. You need to be at industry events, representing your brand, pressing the flesh and giving a face to the great reputation that is gaining you all those referrals.

Trust, longevity, relationship, price, expertise and quality are all admirable qualities with which to build a good company. How do we transform a good company to a great company? Good to Great Author Jim Collins says the secret ingredient is the discipline to do whatever it takes to become the best within carefully selected arenas, and then to seek continual improvement from there. Collins also says managing your problems can only make you good, whereas building your opportunities is the only way to become great.

The great companies that really stand the test of time and stand out to their customers are the ones who learn to tell their story. Your opportunity lies in how your story is told. Marketing helps tell your story. Marketing creatively outlines the specialties, expertise and reputation a company has in a way that resonates with customers, referrals and prospects. Your marketing message helps clarify why your company is great – and not just good – and gives substance to the words trust, expertise and quality. It’s worth a nickel or two.

Subcontractor Ordered to Repay Contractor for Faulty Construction Plus Lost Profits

in Columns/Law

By JAMES R. KELLER

James R. Keller

Missouri’s Southern District Court of Appeals affirmed on July 30 the decision of the trial court ordering a subcontractor to repay in full its contractor for faulty construction. The subcontractor also has to pay the contractor’s lost profits of 15 percent even though the owner had removed the work and never paid anything for the project.

The primary issue on appeal was whether the trial court applied the wrong measure of damages in the contractor’s breach of contract claim. The court of appeals determined the trail court correctly determined the damages.

The end result is that the owner paid nothing and received nothing of value. The contractor obtained an award for more than it paid the subcontractor, but of course it will have to pursue recovery if not voluntarily made. The court ordered the subcontractor to repay more than it had received.

The case is Fox Creek Construction, Inc. v. Opie’s Landscaping, LLC, 2019 WL 3423236, July 30, 2019.

The trial court, after a bench trial, ordered subcontractor Opie’s Landscaping, LLC. to pay $40,250 to contractor Fox Creek Construction, Inc.

The project was home remodeling for Mike and Annette Ensley. The opinion does not disclose the homeowners’ location, but it was somewhere in the Southern District of Missouri.

One portion of the remodeling project involved the construction of a waterfall outside Annette’s home library window.

The contract between the owners and their contractor was a cost-plus contract. This required payment to the contractor for the actual costs of the work plus an additional 15 percent as the contractor’s profit. (Many cost-plus construction contracts separately provide pricing for contractor overhead in addition to profits. In this case, the Southern District’s opinion only referenced profit.)

The contractor subcontracted with Opie’s to build the waterfall. Opie’s hired a specialist to do the work. The subcontract between Opie’s and Fox Creek was oral.

Oral construction contracts can be enforceable under Missouri law; they are not unusual. Their enforceability depends on the type of contract, its terms and circumstances. In this case, the appellate court did not know the terms. They were not part of the record on appeal. This did not seem to affect the final appellate decision.

Opie’s provided an estimate of $35,000 to build the waterfall. It took approximately one month for Opie’s to complete the work. The contractor paid Opie’s the $35,000 estimated price.

 

The homeowners returned from vacation shortly after the work’s completion. They experienced problems with the waterfall. First, the waterfall was in the wrong location. Opie’s addressed this problem by adding a second, smaller waterfall that could be seen from the library.

The homeowners discovered water flying down their driveway. The waterfall leaked so much that the pumps could not keep the waterfall flowing.

The leak was serious. Two months after the waterfall’s completion, the homeowners’ well pump was running 24 hours a day. This resulted in large electric bills during the summer months of June through August.

Unlevel rocks in the waterfall created another problem; they moved around instead of being stationary. The appellate court noted that someone described the workmanship as looking “shoddy.”

The subcontractor acknowledged it had used the wrong pumps, the wrong floats and the reservoir was too small. It claimed that all of these deficiencies could and would be fixed. The subcontractor also contended that natural evaporation of the water was the sole explanation for any water loss.

Frustrated, the homeowners contacted another contractor with extensive experience in water features, Fitzwater Design. Its owner looked at the waterfall. He noted that the problems included that the liner was showing, the water was falling over natural rock, a water hose was running continually and the reservoir size was too small.

Fitzwater recommended removing the waterfall and building a new one at an estimated cost of $35,000 to $40,000.

After a few more months, the homeowners told the subcontractor to remove the waterfall. Opie’s did this.

The homeowners neither paid the contractor the $35,000 nor the 15 percent additional profit that the contract called for if the waterfall had functioned correctly.

When the subcontractor refused to reimburse the contractor for the $35,000, the contractor filed a breach of contract lawsuit seeking $40,250. This represented $35,000 that had been paid to the subcontractor plus the contractor’s 15 percent lost profit.

Opie’s raised three points on appeal. The thrust of the subcontractor’s argument was that the trial court applied the wrong measure of damage.

Opie’s argued that the correct measure of damage under Missouri law was the costs to repair. The appellate court noted that the “fundamental flaw” with this approach was that Opie’s treated its damage claim as if it had contracted with the homeowners, when in reality its contract was with the contractor.

The appellate court rejected Opie’s argument that the contractor was only entitled to recover $2,500. Opie’s expert estimated this to be the cost necessary to repair the waterfall. The court stated that the cost to repair as a measure of damage is appropriate only when the subcontractor has substantially performed with some defects.

The trial court “implicitly” found that that was not the situation in this case. Opie’s had not substantially performed.

Rather, the trial court decided that Opie’s had breached its contract with the contractor. Opie’s did not contest this finding on appeal. The appellate court considered this concession important in its decision.

Because it was an uncontested fact that Opie’s had materially breached its contract, the contractor was entitled to cancel the contract and sue Opie’s for a total breach of contract.

Had Opie’s constructed a satisfactory waterfall, the homeowners would have been obligated to pay the contractor $40,250. Instead, they paid nothing.

Since the subcontractor did not return the $35,000 to the contractor, the contractor was entitled to recover $40,250 as full compensation for Opie’s breach.

James R. Keller is counsel with Sandberg Phoenix & von Gontard P.C. where he concentrates his practice on construction law, complex business disputes, real estate and ADR. He is also an arbitrator and a mediator. Keller can be reached at (314) 446-4285 or jkeller@sandbergphoenix.com.

Data Here, Data There, Data Even From Mars

in Columns/Technology
Joe Balsarotti

I recently had the opportunity to have dinner with a real-live rocket scientist, Adam Steltzner, PhD, from NASA’s Jet Propulsion Laboratory. Learning about the challenges, the technology involved and leaps of faith required to successfully land a rover on the planet Mars (as Steltzner has done) made for extremely interesting dinner conversation.

Compare the upload speed of the Mars Curiosity Rover – which can communicate directly with Earth at 0.032 megabits per second – with the average home or business connection of 200 megabits per second. But for about eight minutes a day, the Orbiter comes into view of the Rover and can relay signals about like an old DSL line can. Plus, considering that the time for the signal to get from there to here takes an average of 14 minutes, one wonders how in the universe we could retrieve those unbelievable images, atmospheric data and mineralogical analysis.

Something that stands out to me is that those connections are pure, useful data. Our home and business Internet connections, whether they are wired or wireless, are bogged down with endless (and in many cases, useless) data. The average PC is constantly sending out the connection to “ping” other computers to see if the printer is still connected, any email is coming in and if there is yet another update on the way for one of the dozens of programs loaded. Updates come down for antiviruses hour-by-hour, websites are constantly refreshed with new content and synchronization occurs between clocks, files and more; all of this occurs in the background before the user ever opens a window.

Add to all of that the endless garbage filling the data pipelines. By many accounts, more than 98 percent of all email never reaches a recipient. Why? Because it is outright spam or malware and it is rejected at the mail server level. It’s something we techs call “perimeter nuking,” not to mention the misaddressed email that sent to addresses no longer online. All this clutter makes us keep longing for faster and faster Internet speeds to do the basics, while 100 percent of the bandwidth from Curiosity is dedicated to transmitting actual data.

Although the next mission, Mars 2020, is the first step toward bringing Mars samples back to Earth so that maybe we get a version of the 1969 techno-thriller “The Andromeda Strain” that way, the Curiosity data lines don’t have to deal with viruses trying to hack into your home or business router.

Every time you or your staff download a program to your machine or add another online service or sync tool, your overall connection becomes more and more bogged down. Only the applications required to do the job should be allowed on company machines. In this publication on many an occasion, I’ve detailed the pitfalls of users loading unauthorized software, but beyond the security concerns and loss of control of your company’s data, your business also pays for those superfluous programs in slower network and Internet speeds.

My advice: Have both a written policy in your employee manual about loading unauthorized software, and systematically evaluate your company’s use of such programs to remove those which are no longer being used. They take up storage space and utilize bandwidth.

Steltzner’s latest task is as the project lead for the upcoming Mars 2020 mission. He was in charge of the landing team that invented the Sky Crane landing system, which successfully placed Curiosity on Mars. Learn about the landing at https://youtu.be/h2I8AoB1xgU.

Joe Balsarotti is President of Software To Go and is a 40-year veteran of the computer industry, reaching back to the days of the Apple II. Keep up with tech by following him at Facebook.com/SoftwareToGo or on Twitter @softtogo.

Cultivating the Best Customers: Build Them and They’ll Be Yours

in Columns/Marketing

By TOM WOODCOCK

Tom Woodcock

The challenge in developing a customer base is determining which customers represent the best possible opportunity. Which pay the best? Which are easiest to work with? Which are the least demanding? Companies market themselves to death trying to attract these types of customers.

That’s the core problem – thinking all you need to do is attract the best customers. It’s kind of like the woman who only seems to attract loser men or the man who only seems to attract needy women. That’s a lot of people.

Available, perfect customers are virtual unicorns. The key is you don’t attract them. You build them.

This is the secret in building a customer base that is loaded with grade A clients. As with any desire to get ROI in a sales effort, you must ask the question: What am I willing to invest? Too many companies make a passive effort trying to gain business and sales. They sporadically meet with clients, often only in relation to an upcoming project. This is not enough to build a quality customer base. Your investment of time and resources is imperative to achieving this end. Cutting corners or limiting customer contact can reduce the depth of your relationship. Merely evaluating good customers from poor customers is not enough. If a customer doesn’t feel you’re invested in the relationship, he or she can just as easily use your competitor.

The greater the depth of relationship, the stronger the bond of trust with your clients. The greater the trust, the more willing the customer is to accept your interpretation of project scope and pricing. Clients believe you will be fair and look out for their best interests above yours if they trust you. Establishing this level of trust directly impacts your bottom line.

How do you achieve this level of relationship? It’s not as hard as you think.

First, set aside time for the lunch, coffee and happy hour encounters that sometimes seem fruitless. During some of these, don’t even talk about a project or discuss business at all. Just laugh and discuss your favorite team’s season. Ask about their children’s achievements. (Black and white thinkers see this as a colossal waste of time; hopefully those people work for your competitor.) Invest in developing a friendship beyond a project-based relationship. If you do, when a project does arise, you’re the go-to in your area of expertise. If you’re not taking the time to invest in these encounters, you’ll never be considered more than a viable supplier. That’s what most contractors are to their customers.

Second, budget resources to entertain and recognize your customer base. People still appreciate a good lunch meeting, round of golf or a game. (I can hear the CFOs out there sighing in frustration. “Money wasted so sales personnel and customers can go play. What an extravagance.”) I’ve faced this my whole sales career. I even do with my staff now. If I hear one more, “I hope you had fun” in that condescending tone I’m sure many of you have heard, I’m going to snap. Yes, we did have fun. Lord knows, you wouldn’t want to have fun with a customer. Why on earth would you want to share positive life experiences with someone who can give you business? The last thing you want is to spend $100 on a client that can award you thousands or millions of dollars in contracts. This isn’t a license to abuse the privilege, but let’s get past the petty jealousy. We’re going for significantly higher and deeper levels of relationship here. That takes a greater investment. You get out what you put in. It’s that simple.

Third, you need the support of staff and company management. They need to realize you’re aiming for a uniquely deep customer relationship. They need to want that to happen and be willing to do all that is feasible to make that happen. This means assisting in processing paperwork, capturing information and performing with a level of excellence. This can free up sales agents to truly dive deeply into their customer relationships. If all hands are on deck in supporting the sales effort, results traditionally follow. An internal team that is mature enough to understand the need for a sales team to have the space and support to graft customers into the fabric of the company will reap tremendous benefits.

The challenge for many companies is adopting a sales culture that gives sales relationship development its proper priority. Allowing sales personnel to actively pursue relationship opportunities displays a degree of sales maturity not commonly seen. The construction industry isn’t known for this type of sales acumen. The pressure of bidding drives the transaction toward price. This negates the role of relationship and creates a level playing field, regardless of a contractor’s competence or integrity. Contractors would like customers to decide on these factors over price but don’t give enough attention to developing relationships to overcome the force of bidding. Securing premium customers is never achieved through pricing formats.

I’ll often hear one contractor say how much it loves working for a particular customer while another says it’ll never bid that same customer again. How is that possible? Well, the most dividing factor between those two perspectives is simply the level of relationship development. If you have a deep connection, communication lines are clearer and issues are resolved quickly. The customer doesn’t want the contractor to absorb a loss and will work to find an amicable solution to a problem. Those with less or no relationship will be treated more abruptly, and the customer will tend to protect its own interests. Often the customer is blamed, when in reality the contractor didn’t invest in developing that relationship. Many contractor employees whose responsibilities include sales also have other important roles. Whether it’s project management, estimating or even administrative needs, these all eat away at sales focus. It’s difficult to be impactful in sales when your attention is spread over so many areas. Once a project starts, the opportunity to work a strong sales effort diminishes.

Cultivating premium customers is the responsibility of those doing the selling. Putting the onus on the customer to be a premium client is a reverse rationale. A company that makes a conscious decision to invest in deep relationship development will see the loyalty and commitment it longs for from its customers.

Those who choose not to make that investment will battle the low-bid game going forward.

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.

City Immune from Construction Lawsuit after Pedestrian’s Fall off Retaining Wall

in Columns/Law
James R. Keller

Missouri’s Western District Court of Appeals recently dismissed a pedestrian’s lawsuit against the City of Lee’s Summit, MO for serious injuries after his fall in 2017 from an unguarded retaining wall. The court held the city was immune from the lawsuit, even if its actions or inactions were negligent.

The case is State ex rel. City of Lee’s Summit v. Garrett, 568 S.W.3d 515 (Mo. Ct. App. 2019), decided February 13.

The city did not own or operate the property where the retaining wall was located. But it did issue the building permit for the retaining wall.

The plaintiff, Kurt Pycior, claimed that the city negligently inspected the wall or did not inspect it at all.

He also sued various corporations that designed and/or built in 2009 and 2010 the retaining wall and parking lot below the wall. The appellate court ruled Pycior’s lawsuit will continue in Circuit Court against them and potentially will be scheduled for an upcoming trial.

The wall was located between two differently elevated portions of a parking lot. The parking lot was at Summit Fair Shopping District within the city limits.

The City of Lee’s Summit had adopted portions of the International Building Code, more commonly known as IBC, as its governing regulation for design and construction of retaining walls. The IBC provides that “Guards are required at retaining walls over 30 inches above grade when walking surfaces are within 10 feet of the high side of the retaining wall.”

Many municipalities have adopted the IBC in their public contracts. It is widely accepted as a standard – if not the standard – in the construction industry.

The city required the corporate defendants, who remain in the lawsuit after this decision, to obtain building permits. The city’s agent, according to plaintiff’s allegations, either did not inspect at all or failed to inspect the project site and the design plans.

The city did collect the appropriate permit fees and issued the building permits, thereby allowing the corporate defendants to construct the retaining wall. Pycior claimed that the as-built retaining wall did not conform with the building code because it did not include a guard, fence or barrier.

Due to the City of Lee’s Summit’s alleged negligent inspection or lack thereof, the plaintiff sought recovery for his injuries including the award of punitive damages.

The city moved to dismiss, claiming sovereign immunity. The trial court denied this request. The city then sought a writ of prohibition in the Western District Court of Appeals.

A writ of this sort, if granted, prevents the trial court from what it decided and requires it to do something else, generally the opposite of whatever it did.

A lawsuit against a city requires the plaintiff to show enough to prove there is a viable lawsuit that survives a city’s typical immunity. Missouri’s courts have routinely held that sovereign immunity is not for the municipality to plead and prove.

Rather, it is for the plaintiff to allege and to show with specificity that there are facts that merit an exception to the doctrine of sovereign immunity. Sovereign immunity, simply stated, prevents a lawsuit against the city because it is a city.

Loosely speaking, the concept dates way back to the idea that the king and queen could do no wrong, thus they were above the law and thus above any lawsuit. A more modern American version, of course, is the expression, “You can’t sue city hall.”

But sovereign immunity is not absolute. The critical distinction is whether the city engaged in governmental functions or proprietary functions.

Governmental functions are performed for the common good of all. Proprietary functions are performed for the special benefit or profit of the municipality. They involve a municipality providing services or conveniences to its citizens.

The distinction can be elusive. This helps to explain why various plaintiffs over the years believe they have had a viable lawsuit against a city.

There have been many lawsuits before, some successful, and there surely will be many to come in the years ahead.

In this case, the plaintiff maintained that the City of Lee’s Summit engaged in a proprietary function when it negligently inspected or failed to inspect the retaining wall and then issued its building permit.

The city’s code and regulations required that it inspect the retaining wall to ensure safety and compliance with the city’s code and regulations, including the IBC. This duty was mandatory, according to the plaintiff’s allegations.

The opinion does not indicate anywhere that the retaining wall complied with the IBC. Yet, this was not the determining factor regarding the city’s liability.

The appellate court noted that governmental functions do not become proprietary functions merely because they generate a profit or in this case a fee for a construction permit. Instead, the court focused on the general nature of the activity being performed.

The court found this activity to be governmental in nature.

The appellate court stated that the city may have been negligent in its actions or its failure to act. This negligence may even have caused a breach of the city’s duty of care to enforce its building code.

From a legal point of view, however, this did not matter. The City of Lee’s Summit was carrying out its governmental functions by enforcing the building code. Therefore, the city is immune from this lawsuit. In fact, the court found that the city had an “absolute defense of sovereign immunity.”

The court of appeals ruled that the trial court erred in not granting the city’s initial motion to dismiss the lawsuit. The appellate court’s writ of prohibition is now permanent. The city is removed from the lawsuit.

James R. Keller is counsel with Sandberg Phoenix & von Gontard P.C. where he concentrates his practice on construction law, complex business disputes, real estate and ADR. He also is an arbitrator and a mediator. Keller can be reached at (314) 446-4285 or jkeller@sandbergphoenix.com.

Phishing, Spear Phishing and Other Scams in the Digital Age

in Columns/Technology

By JOE BALSAROTTI

Joe Balsarotti

Gotta love the tech industry. We make up names for everything. The newest name to come to the forefront is spear phishing, since misspelling “fishing” makes it sound more futuristic, I guess.

Seriously, scams and outright theft in the digital world have become a sophisticated criminal enterprise. Whereas just a couple years ago, scammers would spam millions of email addresses hoping to reel in a handful of people, now thieves are researching companies, their staff, their suppliers and their customers in extremely targeted attempts to fool people into either giving up their user names and passwords or outright attempts to get money transferred.

Emails purporting to be from your bank, your brokerage, your suppliers or your clients –

recreated complete with company logos and fonts – claim there was a problem with their systems and all you need to do is reenter your credentials via a link they provide. That link takes you to a fake website, again, recreated to match the legitimate one down to the smallest detail. It’s a fake website just waiting like a spider for some person to let his or her guard down, just once, and enter personal info. Once it’s done, scammers quickly use those credentials to access the legitimate site and either spend the limit within seconds, redirecting shipments to a place of their choosing, or sit with the info for months – waiting for the right moment to take control of business dealings that can easily add up into six or even seven figures in a matter of hours. We’ve received warnings of targeted attacks from both our vendors and major clients. They’ve seen evidence of pinpointed attacks of even the smallest businesses.

Another common scam now is the thorough research of spear phishing, in which an email will show up in the inbox of an employee with authorization to transfer funds, supposedly from the boss’s boss, asking for money to be transferred to an account. Usually there is some supposed catastrophe or a “once in a lifetime” deal that will slip away if the money is not transferred immediately.

Luckily, any business with even basic security procedures in place should catch these attempts. After all, no money should ever be transferred to a new account without multiple cross-checks. However, once again, all these crooks have to do is catch the newbie – or someone having an off-day – and the money is gone. I know of two clients who have been targeted with these attempts. In both cases, a bank employee did not follow procedure. In one case the account number was mistyped, so what would have been a disaster was averted. In the other case, the bank involved had to make the client whole since the employee did not follow any of the verification procedures that were in place. Still, in both cases, there was a considerable amount of wasted time and a lot of stress that shouldn’t have befallen these businesses in the first place.

Besides educating staff about these threats, businesses that regularly transfer money should consider using a separate domain (and separate email addresses) that are not connected to the company’s everyday domain name when sending financial data and requests. Also, all emails that contain account numbers, usernames or other such information should be encrypted. Office 365 has this capability, as do several third-party services such as Bracket from Mailprotector. Also, no funds transfer should be initiated without a second type of verification. For example, if the initial request comes in via email, the verification should be by telephone.

The same applies to attempts to snatch employee data. Like the scam I outlined above, this time the scammers pose as someone needing to verify employment info or say they’re from the employee’s bank and are trying to troubleshoot why the employee’s direct deposit didn’t go through. Once these scammers get the SSN and/or bank account info, employees will be dealing with cleaning up identity theft. And if it gets traced back to the employer, look for the lawyers to circle. I had a relative who was scammed by the opposite version of this. She was contacted supposedly by her employer’s HR office to verify bank info for a direct deposit. The result? Scammers redirected her paycheck to their account. The employer’s failure to verify that it was indeed my relative who initiated the change – and failure on my relative’s part (as the employee) to hang up and independently call the HR department to verify the action – led to the success of this scam attempt.

As owners and managers of small businesses, we are very juicy targets to these scammers, who are usually overseas and have significant resources. Using information specific to a business owner, scammers try to find a soft target such as an employee who is distracted, new, not well-trained or just doesn’t follow procedures. Simple searches of company websites, press releases, LinkedIn and the like provides a treasure trove of information that these scammers can use. Fake emails, texts or voicemails ask the employee to transfer money to a supposed new bank account, pay a new vendor in advance to get a project moving or impersonate the identity of one of the business’s long-time vendors, which just so happened to have changed its remittance information today.

Joe Balsarotti is President of Software To Go and is a 40-year veteran of the computer industry, reaching back to the days of the Apple II. Keep up with tech by following him at Facebook.com/SoftwareToGo or on Twitter @softtogo      

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