Prescription For Hard Times

Gino Wickman is a good friend from Strategic Coach, a program on How the Best Get Better. Gino is a business consultant/coach and author of Traction: Get A Grip On Your Business. Here's his recent article on Four Critical Disciplines For Tough Times that will give you helpful guidance for the coming months. Read on for these tips . . .
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"When the tide goes out, it reveals who has been swimming naked."



People have been surprised to hear that most of my clients are still growing, and that almost all are remaining profitable in these challenging times. Obviously this is contrary to what you hear in the media. How are they beating the odds? They are doing the basics, and staying disciplined and logical (more on that in a minute).



Please understand that I am not oblivious to the challenges companies are facing. I have had some very difficult sessions helping some clients make very difficult decisions that are experiencing drops in revenue as much as 20%-30%.



My business mentor Sam Cupp used to say, "In a normal 10-year business cycle most businesses will have two great years, six good years, and two very difficult years that could potentially put you out of business, so always be prepared." These are those two tough years for many. My Dad also says that "good things happen and bad things happen and neither last."



It is important that we are strong leaders for our people and our companies. With that said, there are four critical disciplines that have been helping clients and will help keep you focused and doing the right things:

• Put the company first, stay logical, and set your ego aside. You must save the company first and foremost. One of the biggest mistakes leaders make in tough times is trying to hang on to everything, not letting go of the past, and getting way too emotional. Every decision has to be for the greater good. Your business has a purpose and vision that must lead your decisions. While this is not easy, it is vital.
  


• Reverse accountability chart. As you know, the accountability chart is one of the foundations of EOS and you must always be looking out 6-12 months and structure your organization the right way to manage growth. The same rule applies when things take a turn for the worst. Reverse accountability chart means you must look out 3-6 months, and if you anticipate revenues dropping, you must structure the company for that revenue drop, which means making tough decisions. Sometimes leaders have to fulfill roles that they used to fill for the greater good.
  


• Work twice as hard, stay disciplined, and do the basics. While the old mantra is to work smarter, not harder, unfortunately that's not always the case in hard times. While the pie is smaller, there is still business to be had. You just have to get a bigger piece of the smaller pie. Doing the basics means making sure the vision is right, that you have all of the right people in the right seats, that your meetings are at a level 10, that you have a pulse through good data, that you are maximizing sales efforts, taking good care of existing customers, and solving all problems fast and at their core.
  


• Be at your best-you owe it to your people. People are looking for a strong leader in these times, and that needs to be you. You have to be at your absolute best. You must keep yourself up. To do this you must stay realistic-not optimistic, not pessimistic. but realistic. A great read is chapter 4 of Good to Great, "Confront The Brutal Facts." Surround yourself with strong leaders, books, and resources.
  

As the saying goes, "what doesn't kill you makes you stronger." The leaders that embrace these disciplines will endure and come out of these times better than ever. Many reading this message are doing just fine. If you know of someone who needs to hear this message, please pass it on.

I'd also like to express my deep gratitude. My book, Traction: Get A Grip On Your Business has been out now for a year. In our first year we have moved almost 4,000 copies! This would not have happened without your support. The other exciting news is that in addition to www.amazon.com and our website www.eosprocess.com, the book is now available in Barnes & Nobles and Border's bookstores! While this took some time, it finally happened.



With the holidays around the corner, if you are looking for a gift for clients, vendors, or friends who are business owners, please consider my book. With this selfish suggestion I offer a win-win in that I would be happy to sign all copies and personalize them. In addition I'll offer a discount. To coordinate and take advantage of this, please order the books from Karen direct at 248-672-1192 or by email at kgrooms@eosprocess.com.



Please do not hesitate to contact me if you feel I can help with anything. I would love to hear your thoughts and comments.



Stay focused,



Gino

Contractors Professional Liability Insurance

Today I ran across this excellent article on the need for Contractors Professional Liability written by Jim Schabarum, CPCU, AFSB, Executive Vice President of Cavignac & Associates of San Diego, California and published in the NASBP Pipeline. This gives an understanding of the insurance coverage available as well as your bonding company's perspective on design issues. Call me or email me with questions.

The Importance of Contractors Professional Liability Insurance

This is the first in a series of articles on risk management and insurance topics related to surety that the NASBP Risk Management and Insurance Committee will be publishing in Pipeline.

The author of this article is NASBP Risk Management and Insurance Committee member, Jim Schabarum, CPCU, AFSB, Executive Vice President of Cavignac & Associates of San Diego, California.

No one questions the fact that design-build contractors have a significant professional liability exposure. They are directly responsible to the owner for the design of a project, and whether they do this in house or sub it out, they remain responsible. Sureties are very aware of the need for contractors professional liability coverage and the importance of appropriately managing this exposure.

Over the years, however, the line of distinction between “means and methods of construction” and “professional services” has blurred. In addition, even when general contractors are not working under a design build project delivery method, they may actually subcontract out design to certain subcontractors (mechanical, electrical, etc.) In fact, many components of buildings, such as elevators, curtain walls, and fire sprinkler systems, typically are designed by specialty trade contractors. Furthermore, standard construction contracts have changed how they allocate design responsibilities and risk. As a result many “ordinary” contractors may have a professional liability exposure.

To understand why a contractor needs professional liability insurance, you really need to understand what your commercial general liability policy does not cover. The basic commercial general liability policy, published by the insurance services office (CG0001) does not contain a professional liability exclusion, although most insurance companies do add an exclusion by endorsement. Even if a professional liability exclusion is not added, a commercial general liability insurance policy responds only to liability arising out of either bodily injury or tangible property damage; economic damages are not covered. Unfortunately, more than 50% of the claims against design professionals are for economic damages. If a claim were made for economic damages, there would be no coverage under a commercial general liability policy, even if there were no professional liability exclusion.

Since nearly all, if not all, insurance companies providing coverage for construction contractors will specifically exclude liability arising out of the professional services typically performed by architects and engineers, this creates the need for a contractors professional liability policy.

“But I sub out the design,” you might say, “and my design professional carries professional liability insurance and has agreed to indemnify me for any liability arising out of his negligent acts, errors or emissions. Why do I need professional liability?” Here are a few of the numerous reasons:

Hold harmless provisions can be declared unenforceable.

The design firm may be out of business and/or may have dropped its professional liability insurance when the claim is made. (Professional liability insurance policies are written on a claims-made basis, and coverage must be in force at the time a claim is made to trigger coverage.)

The design professional’s insurance policy only extends to contractual assumptions of liability that the design professional would have had in the absence of a contract. In laymen’s terms, this means the design professional can only indemnify you for his/her negligent acts errors or emissions, and cannot assume your concurrent tort liability.The design professional’s policy limits may be inadequate or may have been exhausted by other claims

In addition, some contractors have direct professional liability exposures. They may have in-house design professionals, or they may provide construction management advisory type services that are consultative in nature (as opposed to construction related).To address a contractor’s direct professional liability exposure, the insurance industry developed contractors professional liability policies. This coverage is offered by several different insurance companies, and typically provides direct and contingent liability coverage. Almost all contractors have either a direct or indirect professional liability exposure and should evaluate this type of policy and the appropriate risk management techniques available.

What Does Contractors Professional Liability (CPL) Insurance Cover?

To be brief, a CPL policy provides coverage for claims alleging an act, error or omission arising out of the performance of professional services. The key here is defining “professional services,” and this can be done in two ways. One is to include a standard list of covered activities in the policy, and the second is to tailor the definition for each insured contractor, based on the types of services they actually provide. Whichever approach is taken, it is critical that the definition of professional services encompass all the services that the contractor might provide.

Claims-Made Form

As previously mentioned, most if not all professional liability policies for contractors are written on a claims-made basis. This means that in order for coverage to apply, the policy must be in force when the claim is made. In other words, if you decide to carry contactors professional liability insurance, it should be a long-term decision.

Recognize as well that every policy has a retroactive date. The retroactive date is usually the inception date of the first professional liability policy. Any claims arising out of work done prior to the retroactive date are specifically excluded.

What Constitutes a Claim?

A claim is generally defined as “a demand for money or services.” In other words, if someone claims that you did something wrong and demands that you either pay them money or perform additional services, this would be considered a claim. There may also be circumstances, which you are aware of which might give rise to a claim, but has not been the subject of a demand. A well-written contractors professional liability policy will allow you to report this under the policy, and the insurer will recognize it as a claim if there is a subsequent demand made for money or services.

Extended Reporting Periods

Sometimes, when the decision is made to discontinue a professional liability policy, you will have the option of purchasing an Extended Reporting Period (ERP) endorsement. This extends the period of time within which a claim can be made for services arising prior to the date that the endorsement was purchased (this is commonly done at retirement). Recognize, however, that extended reporting period endorsements tend to be expensive due to what is known as “adverse selection.” Those who think they need it tend to buy it, and hence the claims experience for this is not good.

What Isn’t Covered Under a CPL Policy?

Contractors professional liability policies are all manuscripted policy forms created by the insurance companies providing the coverage. Before selecting a specific policy, the coverage form should be reviewed by your insurance broker (assuming he is a specialist in this area and is capable of providing such an analysis for you). Like most open peril or “all risk” types of insurance policies, everything is generally covered except what is specifically excluded. Some common exclusions are listed in the side bar that accompanies this article. Some exclusions are more critical than others, and these should be specifically addressed.

Express Warrantees Are Guarantees

The law does not require design professionals to be perfect. It merely requires them to perform to a standard of care, typically defined as “that degree of care and skill ordinarily exercised by members of the same profession currently practicing under similar circumstances.” Most design professionals avoid agreeing to express warrantees or guarantees. Contractors, however, commonly provide express performance warrantees to project owners that exceed a design professional’s “standard of care,” and this becomes a problem.

Basically, if the contractor agrees to warrant not only its construction services but also its design services, it has agreed to a standard of care that is not covered by its professional liability policy. Candidly, this is one of the most significant benefits to an owner of the design-build delivery process. It transfers this gap (alternatively known as the “liability gap” or the “Spearin Gap”) from the owner to the contractor. With this in mind, the contractor needs to avoid, if at all possible, guaranteeing or warranting the design aspects of the work. This also includes long term efficiency guarantees that promise the finished product will meet a certain performance standards, for example in the design of a clean medical testing room.

Contractual Liability

Contractors have become accustomed to agreeing to sign intermediate form indemnification agreements. Such an agreement requires the contractor to hold harmless and indemnify the owner not only from the contractor’s negligence but also the concurrent or joint negligence of the owner. This is legal in most states and is usually covered by the contractor’s general liability policy. This is because the general liability policy typically provides broad form contractual liability, which allows the contractor to assume the tort liability of a third party.

Unfortunately, professional liability polices provide narrow contractual coverage. It only extends to such liability that would have attached by law in the absence of such agreement because of a negligent act, error or omission of the design professional. Because of this, it is imperative that you carefully review the indemnity agreements you are asked to sign to make certain that you are not assuming uninsurable obligations from a design standpoint.

Pollution Liability

Most commercial general liability policies specifically exclude pollution, and usually mold as well. Most contractors professional liability policies are written without a pollution exclusion. Note, however, that this does not close the gap created by the exclusion in the general liability policy. It merely extends pollution coverage to damages arising out of professional services.

In order to correctly close the gap in the general liability policy, you would need to buy a separate contractors pollution liability policy. (These are occasionally written in conjunction with a contractor’s professional policy.)

Means and Methods of Construction

For obvious reasons, the professional liability policy usually contains a “means and methods of construction” exclusion. The purpose of this is to avoid overlap with the commercial general liability policy.

What Does It Cost?

In order to determine the premium for a contractors professional liability policy, a rather exhaustive application is required. In addition to the application itself, a number of other supplements are usually requested. The premium is based on what the underwriter perceives the risk exposure to be. Because the nature of professional services differs so greatly between contractors, one is hard pressed to provide a ballpark figure of cost. Typically, however, it is a fraction of what the commercial general liability policy costs.

Sureties’ Perspective

Performance bonds are improperly suited for guaranteeing direct or indirect compliance or completeness and accuracy of plans, specifications and efficiency expectations for construction projects. When professional liability exposures exist in bonded contracts, the surety and the contractor become “insurers” of design liabilities arising out of the performance of the contract. Obviously, sureties and contractors have no financial basis or technical expertise to handle professional liability claims.

Before bonding a design-build contracts, there are several underwriting issues considered; extent of the project’s design and efficiency requirements, known and unknown scope and costs, owner’s participation in progress conformance verification, financial cash flow requirements, term of liability, etc. These contract issues are evaluated along with the design-build teams experience, capabilities, financial strength, and risk management plan.

Sureties’ strongly advise or often require contractors to properly manage this exposure by procuring the appropriate contractors professional liability coverage. Additionally, sureties prefer to limit or remove the exposures to professional liability from a bonded contract when it is practical to do so. This includes contractually limiting the exposure of professional liability to the amount of collectable insurance or separating the design and efficiency requirements from the bonded contract and bond forms, i.e. “The bond does not cover any responsibility for negligence, errors or omissions in design OR warranty of design. Coverage under the bond is limited to only the construction phase and post construction phase of the contract. The bond premium is based upon the value of the construction and post construction phase of the contract and not upon the design aspect of the contract.”

Sureties expect contractors to be aware of their professional liability exposures and manage them.

Common CPL Exclusions

Express warranties or guarantees
Assistance provided with respect to project financing
Obligation to obtain insurance or bondsProduct manufactured or supplied by the insured
Auto, aircraft, watercraft or mobile equipment
Employers liability
Workers compensation claims
Employment-related practices
Nuclear energy liability
Insured versus insured claims
Claims brought by a related entity
Claims based on events the insured knew about prior to policy inception
Claims that have been reported under prior policies
Failure to perform professional services on time
Failure to complete a project on time
Bankruptcy or insolvency of the named entity
Pollution
Specification, use, or removal of materials containing asbestos
Losses to which project-specific insurance applies
Return or reduction of professional fees
Punitive damages
Personal injury
Cost estimates exceeded
Fiduciary liability/securities violations
War (and other hostile acts)
Deliberate noncompliance with a statute or regulation
Bodily injury or property damage resulting from means and methods of construction

Concensus Docs

Here's some educational opportunities on the new Concensus Docs:

UPCOMING AUDIO CONFERENCES & WEBINARS:

Wednesday, July 30: Tailoring ConsensusDOCS for Contractors Webinar 2:00 - 3:30 PM Eastern Time www.agc.org/Tailoring Many will want to tailor the new ConsensusDOCS agreements for their project's specific needs and risk strategies. This Webinar will highlight issues to address when in contract negotiations with Owners or Subcontractors, including what should not be altered and when to consider modifications.

Thursday, August 7: Why ConsensusDOCS is the New Choice for Owners Webinar 2:00 - 3:30 PM Eastern Time www.agc.org/Owners ConsensusDOCS can change the way the construction industry does business, and Owners know it. Listen as the speakers share the impact that these new contracts have had toward achieving timely completion of projects, reducing or avoiding claims and disputes, and improving the quality of work on the project.

Visit www.agc.org/AudioConferences for schedule and online registration.

Here are more details:

Tailoring ConsensusDOCS for Contractors Webinar Wednesday, July 30, 2008 · 2:00 – 3:30 PM (Eastern Time*) www.agc.org/Tailoring

The newly released ConsensusDOCS are the first industry consensus standard contracts. While the ConsensusDOCS contracts provide the best foundation to finalize a contract, many parties will want to tailor their agreements for their project's specific needs and risk strategies.
This Webinar will highlight issues to address when in contract negotiations with Owners or Subcontractors. It will include an evaluation of standard provisions which should not be altered and a review of sections where modifications or additions should be considered based upon specific project needs.

Learning Objective: Identify the risk allocation principals and negotiation strategies concerning the following provisions:

ConsensusDOCS 200
Scope of design delegation and authority
Correction of defective work
Reliance upon digitized documents
Waiving consequential damages and potential use of liquidated damages
Payment provisions, including retainage
Indemnity
Duty to defend
Insurance provisions including additional insurance
Owner's termination for convenience
Dispute mitigation and dispute resolution

ConsensusDOCS 750
Scope of work
Specialty contractor flow down issues
Contractor's responsibilities
Progress schedule
Payment terms
Indemnity, insurance and waiver of subrogation
Termination
Dispute mitigation and dispute resolution

Price: AGC Members: $149 Non-members $229
If you have registration questions, contact Cassia Griffin at griffinc@agc.org or (703) 837-5408.
* Begins 2:00pm EDT, 1:00pm CDT, Noon MDT, 11:00am PDT, and 9:00 am HDT.

Why ConsensusDOCS is the New Choice for Owners Webinar Thursday, August 7, 2008 · 2:00 – 3:30 PM (Eastern Time*) www.agc.org/Owners

ConsensusDOCS can change the way the construction industry does business, and Owners know it. Listen as the speakers share the impact that these new contracts have had toward achieving timely completion of projects, reducing or avoiding claims and disputes, and improving the quality of work on the project. This Webinar will help anyone involved with construction understand the challenges that face Owners and how ConsensusDOCS handles those issues.

· Learn how Owners jointly drafted these documents with other construction groups and the particular issues that were considered.
· Analyze how Owners should consider and complete "check the box options" in the contracts.
· Understand how different procurement methods (negotiated, hard-bid or best-value) will impact your use of the agreements.

The Webinar will cover the following contracts:
· ConsensusDOCS 200 Owner-General Contractor Agreement
· ConsensusDOCS 240 Owner-Architect/Engineer Agreement
· Owner's rights to design plans
· ConsensusDOCS 300 Tri-Party Collaborative Agreement
· ConsensusDOCS 500 Owner-Construction Manager-At-Risk Document

Price: AGC Members: $149 Non-members $229
If you have registration questions, contact Cassia Griffin at griffinc@agc.org or (703) 837-5408.
* Begins 2:00pm EDT, 1:00pm CDT, Noon MDT, 11:00am PDT, and 9:00 am HDT.

TPE3

The Imperfect Board Member: Discovering the Seven Disciplines of Governance Excellence by Jim Brown

Have you ever served on a board and not known what your job was? This outstanding and interesting book is a guide to "imperfect board members" (that would be you!) on how an effective board and its members should operate. The book is written in the style of Patrick Lencionis great series of management fables - The 5 Dysfunctions of A Team, etc.

Here are some quotes from Amazon.com:

"Everyone wins with good governance--countries, corporations, and community groups. In a compelling style like no one before him, Jim Brown helps leaders understand the keys for boardroom excellence. The Imperfect Board Member ought to be required reading for people on every type of board. The great thing is that it won't need to be required—it’s such a fun book, every leader will want to read it."—Jim Balsillie, chairman and co-CEO, Research in Motion; chair, Centre for International Governance Innovation

"Jim Brown has delivered a business fable that is as provocative as it is unconventional. Do you know the Secret Formula for Organizational Effectiveness? Are you making the wrong sacrifice? Does the board lead with its nose or its fingers? The Imperfect Board Member presents these concepts in a manner that is both illuminating and engaging."—Scott Green, author, Sarbanes-Oxley and the Board of Directors

"It’s hard to overestimate the difference between an excellent board, a mediocre board, and a failing and complacent board. But all three have this in common: each of their board members is imperfect. What makes the difference? A clear vision of what a board is for, and how a good board functions. Jim Brown’s new book is the best resource I know of to convey that vision. What The Five Dysfunctions of a Team does for staff members this book can do for boards—from charitable organizations to local churches to educational institutions to professional associations."—Brian McLaren, author, A New Kind of Christian and A Generous Orthodoxy

"I’ve consulted with, served on, and even chaired boards in the profit and not-for-profit sectors for over twenty-five years. Most boards are well-intended, but confused at best, about their roles and responsibilities. I’m delighted to recommend The Imperfect Board Member to help board members and leaders to be confidently on-purpose."—Kevin W. McCarthy, author, The On-Purpose Person and The On-Purpose Business

"Jim Brown nails it. With big print, mind-grabbing graphics and a story line in the tradition of Ken Blanchard and Patrick Lencioni books, you'll value the author's seven disciplines in this leadership fable about business boards, nonprofit boards and faith-based boards. Example: "The best boards keep their noses in the business and their fingers out!" Brown warns, "The only way a board can responsibly do its job without meddling is by monitoring very well." Buy a bunch and give a copy to each board member and senior executive on your team." Reader Review

Jim Brown is a founding partner of Strive!—a leadership development firm that specializes in governance. With offices near Toronto and Cleveland, Strive! provides coaching and consulting services to boards and leaders across North America and in various countries around the world. Brown's seasoned wisdom and inspirational support have made him a trusted coach for leaders, and a sought-after speaker. Contact him at www.strive.com.

Check out this great book at http://www.amazon.com/Imperfect-Board-Member-Discovering-Disciplines/dp/0787986100/ref=sr_1_1?ie=UTF8&s=books&qid=1217341021&sr=8-1

Tom Watson's Timeless Advice

As I looked for some material for the first entry in this blog I found this article I transcribed in 1984 from Newstrack. It is particularly fitting for today's issues. Enjoy!

Tom Watson's Timeless Advice

Most business failures do not stem from bad times, they stem from poor management; and bad times just precipitate the crisis. It is during prosperous times, the kind we are coming into now, when we sow the seeds for the next bumper crop of bankruptcies.

I won't claim credit for the above observation, it came to me from the late Arthur K. "Dick" Watson, younger son of Thomas J. Watson, Sr., who founded IBM. His father, Dick told me, was serene and confident in bad times. While the rest of the world was wringing or sitting on it's hands, Tom Watson was forceful, confident and moving ahead. But prosperity unsettled him, he was uneasy with it. Like a good ship's engineer he could detect those sounds of trouble others found easy to ignore.

As with so many stories I heard from Dick Watson during the years I worked for him, that story about his father puzzled me and I brooded about it. Why this curious fear of good times in business? It was only after I had been through a whole economic cycle of the venture business that I realized why Tom Watson was unsettled by good times. They really are the times when we sow the seeds of our own later destruction.

Recessions are blamed for failures, but in fact they're simply harvest times for the crops, of seeds so lightheartedly sown in better days. What are the signs? What is the difference between taking advantage of prosperity and being beguiled by it? One sign I think is taking on projects that have to succeed or they will take the company down with them. This is the kind of project some businessmen attempt to undertake when things are booming and they are feeling especially macho. There is rarely justification for reacting like a poker player turned compulsive gambler and pushing everything into the center of the table. Businesses are just too hard to start to risk them when anything short of survival is at stake. Of course, I am not talking about startup companies, which are always a gamble, but about drawing to an inside straight with the future of an established business.

Sloppiness, especially with people, is another seed which is sown in good times and reaped in bad. When orders are pouring in, and customers are quoting the sales for us, it is not hard to convince yourself that now is the time to scoop up everyone you can hire just to fill those orders . . . don't do it. Lose orders, lose share of market, but don't lose control of the business by bringing in weak personnel. Their ineptness their lack of real loyalty and the inability to train them properly will hurt, margins in good times and destroy the business in bad. Though it shows up later in a business's life, bidding wars to get key personnel are another sign of trouble ahead. For example, this is the second year of boom times on Wall Street and some wirehouses are deep into this kind of thing. I've heard of successful stock salesmen who are demanding and getting $75,000. to $150,000. in upfront bonus money as well as Vice Presidencies as a reward for switching loyalties. But loyal for how long?

The millennium delusion is another of prosperity's beguiling traps. In the late 1960's for instance, a great many otherwise intelligent business people fell into the delusion that prosperity was going to go on forever. With our superior understanding of economics, the reasoning went, the extremes of the business cycle were things of the past... wise government policy would eliminate them. A sharp little recession in 1971 came as a nasty shock to this belief, but 1974 was the absolute killer. It was a killer because the logic of the millennium delusion leads people to overexpand and to become avid borrowers and just at the time that they should be cutting back.

Until I had considerable personal experience in running businesses, old Tom Watson's words as expressed to me by his son, didn't make much sense. How could prosperity be more dangerous than recession? Well, it can be and it is. It was for a good reason that Tom Watson, Sr. was regarded as one of the great businessmen of all times. This column may sound faint hearted and old fogeyish to ambitious young business people eager to turn the rising economy to maximum advantage. To paraphrase, "whom the gods would destroy, they first make overconfident".

By the way, there is a flip side to Tom Watson's advise, just as booms are a time for caution, so are recessions a time for boldness. Watson knew this well. During the depths of the depression, Watson, unwilling to lay people off, kept turning out punch card machines for which there was no visible market. Then came the new deal and social security and IBM was the only company that could supply the needed equipment. IBM made a great step forward when other companies were pulling in their horns. The time to be bold is when nearly everyone else is timid. But when nearly everyone else is bold a little timidity is an excellent thing to have.

(Transcribed from Newstrack Executive Tape Service, February 21, 1984
Original Article from Forbes, January 16, 1984)