I'm Gonna Sue You!

A close friend of mine told me the other day, "You have a gift." She went on to say, "You see the worst of people's situations and you hold their hand, give them hope and help them through." This is true, but I’ve experienced some sleepless nights wondering how to help folks get out of some pretty ugly messes.

Case in point: Two partners established a firm after working together for ten years in a major practice. Unfortunately, they didn’t establish a solid understanding that went beyond the relationship they had at the big firm. In the beginning, it didn't matter. The work was good, the money flowed, the projects came. Then came the crash of 2009. The debt rose, the staff left and there was more than enough blame to go around. The partnership became acrimonious.

This is where I came in. I asked one simple question. “Where is the shareholder agreement? Maybe there are clauses that one of you could exercise to buy your way (sell your way) out.” Well...you probably know what the initial answer was. They had no shareholder agreement, no clearly defined roles and responsibilities and a team that didn’t know who or what to follow.

I am not an attorney, but I can testify to the significance of a shareholder agreement. Aside from obvious recitals and boilerplate, there are clauses than can and do address everything from roles and responsibilities, to the dissolution of shares as a result of divorce or death, to the criteria for new shareholders. It is the adjudicating document in the dissolution of a firm, and it should be drafted under the best circumstances, when clearer heads and emotions prevail. Without it, firms have imploded from unrealistic expectations and poor financial decisions.

Before implosion, it is never too late. If your firm doesn't have a shareholder agreement, seek legal counsel and get your house in order.

Believe it or not, as contentious as this situation has been, we are just weeks away from clearly defined roles and responsibilities, employment contracts and yes, a shareholder agreement. As for me....I can finally get some sleep. Until the next time that phone rings.

Karen Compton, CPSM. Karen Compton is principal of A3K Consulting (Glendale, CA), a business development and strategic planning firm specializing in the architecture, engineering and construction industries. Ms. Compton is also the founder of Industry Speaks™, a web-based business-to-business portal that connects AEC firms with experienced consultants, provides peer reviews of consultants, reports on key industry trends, and publishes expert reviews of professional courses and books. Contact her at kcompton@a3kconsulting.com.

SSSPTM:Surviving the Worst Day of Your Life in Business

Several weeks ago, a former client called to tell me about his "worst day in business" since inception 20 years ago. The firm had received notification that after litigating a case for almost two years (a case they should have won), they lost and lost big - nearly a half million dollars for this small practice!

Without getting into whether they could appeal or not, etc., the immediate focus had to be on "What next?" What guidance can I offer in such situations? Here’s what I’ve observed, and here are the steps my client had to take so he and his firm could survive and move forward:

First, you have to acknowledge the Shock (S) of it all. Whether you lose a case, lose a project, lose a partner or are undercut in a deal, you must first acknowledge and get through the Shock. This takes time, and nothing can change that.

Second, you have to acknowledge your own personal Sadness (S). In my client's case, he was in bed sick for nearly two weeks. Again, time is the only cure, but know that like the stock market crash of the 1920s or the economic downturn we have all weathered, there is a path forward. Having a peer network, business management consultant or advisor can help you avoid rash decisions during this time.

The final (S) is Struggle: the "difficult" piece. This is the move from "What do I now?" to “This is my path forward.” Seek multiple perspectives—financial, legal, human resources—while knowing there isn't always a "right" answer, there's just “What's next.” It may not be what you want—laying off staff, realigning operations, notifying clients—but your larger vision should remain.

Peace (P) is the place you will arrive at, having struggled with your options and weighed them objectively going forward. Then comes the challenge of Transition (T). Have a plan. It is not enough to have made it through the worst day in business. You have to have a plan to see your way to solvency or success. Write it out, empower your people and your staff and MOVE (M) FORWARD.

Move forward knowing that each day will become incrementally better than the last, if you have a plan, and strong advice and counsel. Have you had your worst day in business? If so, how did you survive?

Karen Compton, CPSM. Karen Compton is principal of A3K Consulting (Glendale, CA), a business development and strategic planning firm specializing in the architecture, engineering and construction industries. Ms. Compton is also the founder of Industry Speaks™, a web-based business-to-business portal that connects AEC firms with experienced consultants, provides peer reviews of consultants, reports on key industry trends, and publishes expert reviews of professional courses and books. Contact her at kcompton@a3kconsulting.com.

AIA 1st VP Seeks Federal Reforms of Design-Build Contracting to Help Small Firms

From Building Design and Construction, May 23:

Testifying before the House of Representatives Small Business Committee, AIA First Vice President Helene Combs Dreiling, FAIA, called for reform of the design-build contracting process so that design and architectural firms can bid on federal contracts without fear of bankrupting themselves in the process.

Read the article for Dreiling's testimony on risks small firms face now in competing for federal contracts.

Alternative Delivery: The Small Firm Challenge

Man! What a tough crowd. I had 50 minutes to impart "wisdom of the ages" (that's a lot of years) on the subject of business development best practices. While the feedback was largely positive, one person wrote in saying I didn’t spend enough time addressing business development and alternative project delivery. Ok!

Alternative Delivery, let me count the ways:

Group One

• Design-Build
• Design-Build-Operate
• Design-Build-Operate and Maintain
• Lease-Leaseback

Group Two

• LEAN Construction
• Integrated Project Delivery (IPD)

Each one of these methods requires a slightly different business development strategy. For simplicity, we're going to put them into two groups, as shown above. Now, let's talk strategy.

In traditional design-bid-build pursuits, architects pursue client and try to develop design teams to fulfill client facility needs. The game changes, to say the least, when the delivery method changes. Clients who seek to deliver projects through any of the methods in Group One shift the architects’ pursuit from the client to the contractor who is likely to lead the pursuit. As a result, architects need to develop strategic relationships with general contractors adept at delivering various building types from student services buildings to parking structures. Further, it becomes incumbent upon the architect to demonstrate (to the contractor) some previous design-build experience or some previous experience with the contractor in order to be able to have a seat at the table. No small order.

This is made even more complicated by end-user clients who seek to deliver buildings via LEAN or IPD. LEAN and IPD delivery require not only early involvement of the entire team, but collective versus individual responsibility for the design and construction of the project. Moreover, they use technology and tools such as BIM or Rivet to model the input and generate everything from schedules, to materials schedules, to costs (over-simplified, but you get the point). Talk about a BD game changer!

Under the latter scenario, architects must be able to accept the collective risk (and reward) and demonstrate their ability to utilize BIM or Rivet. For a mid-sized to large firm this is easy. For a small practice, it's an unacceptable risk.

So what do you do? Andy Warhol said, “They always say time changes things, but you actually have to change them yourself.”

• First, define the type(s) of clients that you want to work with and understand their preference in delivery methods.
• Second, adapt your business development strategy to who will be leading the effort. You may find that you now have to market to GCs as much as you do to your end user client.
• Third, know your value proposition. If you've never done a design-build project and don’t have a "story to tell" with a contractor, adjust your expectations and your messaging to focus on your strengths.

Finally, if IPD or LEAN are in your future, learn the technologies and manage your collective risk accordingly. This is no longer about just your firm, it is about the delivery team.

Got more questions? Send them along to me at kcompton@a3kconsulting.com. And for more information, see the AIA PMKC webinar Wisdom of the Ages: Best Practices in Business Development Part 2. This popular series and other resources are available on A3K Consulting's "Inform" webpage.

Karen Compton, CPSM. Karen Compton is principal of A3K Consulting (Glendale, CA), a business development and strategic planning firm specializing in the architecture, engineering and construction industries. Ms. Compton is also the founder of Industry Speaks™, a web-based business-to-business portal that connects AEC firms with experienced consultants, provides peer reviews of consultants, reports on key industry trends, and publishes expert reviews of professional courses and books. Contact her at kcompton@a3kconsulting.com.

Cloud Services: Clearing Away the Fog

Editor's Note: The following is an edited excerpt from Surviving the Zombie Apocalypse: Safer Computing Tips for Small Business Managers and Everyday People, slated for release later this year.

I'm more or less a fan of what the cloud can do for a small business. At the same time, I don't think it's wise to hail it as an end-all-be-all replacement for having your own software on your own platforms within your own IT infrastructure. As of this writing, there are too many minefields and unresolved issues. Here are a few:

1. Privacy -- No matter what, the cloud service provider you're paying has access to all of your data. Anyone that works in their company potentially has access to your data, too. And depending on the terms of your service agreement, there's no telling how much data they might collect based on your activities and how they might use (or sell) that information.
2. Local Availability -- if your Internet connection goes down or your cloud service provider goes offline, your business is down, leaving you without access to your information until the service provider is accessible again. And since most cloud services are subscription-based, God forbid if money gets tight and you can't pay your bill.
3. Cloud Access during a Disaster -- Not all cloud services are created equal. How fault tolerant is your cloud service provider? All it takes is a prolonged blackout, network outage, or even a simple unpaid Internet bill and any cloud-dependent part of your business might as well be buried on the dark side of moon.
4. Control over Your Data -- if you decide to cancel the cloud service, there are all kinds of issues to contend with regarding your data. How much of it can you get back? Will you be able to get your data back and, if so, can you import it into something (or somewhere) else to resume business? And since you've decided to go in another direction, how can you be sure that the service provider will not keep your data?
5. Data Security -- some types of cloud service providers have become a magnet for attacks from cyber criminals and Botnets all over the world. For example, back in 2009 there was an incident where cyber criminals had exploited Google's AppEngine and used it to house a Botnet command center that controlled legions of zombie computers. These kinds of incidences aren't isolated.
6. Marketing Hype versus proven substance.

Many industry-specific laws and regulations are rooted in 20th century business concepts. They don't take into consideration the use of third-party cloud computing services as part of a core business model. If your data gets destroyed, how are you compensated for your loss? Could you sue for damages even though there was probably an indemnity clause in your service agreement when you started using the service? And whose laws apply: the laws where you live, the laws where the company is registered, or the laws wherever your data is physically located?

Using offsite freebie cloud services as part of your business workflow is a little like building a room addition onto a house that you're renting and can never own -- you'll become dependent on it although you have little or no contractual control and the landlord ultimately holds all the cards.

Max Nomad is an IT Consultant, Graphic Designer, and author of Surviving the Zombie Apocalypse: Safer Computing Tips for Small Business Managers and Everyday People. His past design and consulting clients include the U.S. Department of Veteran’s Affairs, STIHL Inc., Atlantic Video (and ESPN), the United Way of Richmond, TGIFriday’s, the Racing & Gaming Commission of the Northern Territory (Australia), and Spirit Cruises (nationwide). He can be reached at nomad@bgpublishing.com.

Subcontractors Rejoice! California Legislature Bans Type I Indemnity Clauses

Legislation took effect in California at the beginning of 2013 that protects commercial contractors and subcontractors by eliminating Type I indemnity agreements. The bill’s sponsor, Senator Noreen Evans, said the new law “ensures construction contracts in California are consistent with our public policy of holding the responsible party liable.” Evans added, “For too long, contractors and subcontractors have been footing the bill for injuries and damages on construction sites that were not caused by them because Type I indemnity clauses required them to do so.” Under these indemnity clauses, the proponents argued, negligence and construction-defect costs are shifted from at-fault parties to non-fault parties.

Under existing law, public agencies cannot pass down their active negligence to general contractors. The new law extends this prohibition to private owner. In a construction contract for private commercial projects entered into on or after January 1, 2013, any indemnity obligations (including the cost to defend) arising out of the active negligence or willful misconduct of the indemnified party are void and unenforceable.

Because of their negotiating leverage, developers and general contractors routinely use a Type I indemnity provision in construction contracts. Type I indemnity allows a general contractor (or owner or developer) to require a subcontractor (or supplier or other party) to indemnify the general for the general contractor’s own active negligence or fault. Active negligence generally includes a person’s negligent acts or omissions as opposed to “passive negligence,” which is a failure to do something, such as failing to inspect for safety violations, failing to notice or discover a dangerous condition, failing to identify defective work. Indemnity agreements for passive negligence, or Type II, aren’t affected by the new law.

A subcontractor who signs a contract with a Type I indemnity clause is often demanded to indemnify and defend other parties against claims and lawsuits that in any way touch the subcontractor’s work, regardless if the subcontractor was actually responsible. In an owner’s construction-defect action against the general contractor, the subcontractor’s insurer paid $20,000 to remove the subcontractor from the lawsuit, even though the subcontractor hadn’t contributed to the defect. In another instance, an HVAC subcontractor was dragged into litigation involving water leaks on the exterior of a building and paid $500,000 to settle the claim even though the subcontractor wasn’t at fault. These were a sampling of the problems created by Type I indemnity clauses reported by the bill’s sponsors.

The new law has other important aspects. If you’re a design professional, it doesn’t apply to you. The legislation doesn’t affect additional insured endorsements covering the acts or omissions of a party during ongoing and completed operations. Nor does it apply to any wrap-up insurance policy or owner-controlled insurance program. The definition of “construction contract” was expanded to include agreements respecting water lines, sewer lines, oil and gas lines, electric utility transmission lines, among other things. As for public agency contracts, the new changes apply not only to a contractor but also to a “subcontractor, or supplier of goods and services.”

“This bill, by making each party responsible for their own active negligence,” said Evans, “will promote a fair business climate and improve safety on construction sites. When subcontractors do not have to budget for damage payouts that were caused by other parties, these subcontractors will be able to increase the number of jobs bid on and increase their labor force.”

California joins sixteen other states, including New York, that have now banned Type I indemnity clauses.

Carlo Paciulli, Esq., is an Associate Attorney with Hunt Ortmann. Republished with permission from Hunt Ortmann Palffy Nieves Darling & Mah, Inc., a leader in California construction law and one of our many Industry Speaks™ consultants. If you have any questions about this bulletin or laws pertaining to indemnity, please contact him at paciulli@huntortmann.com.

Great by Choice: Uncertainty, Chaos and Luck - why some thrive despite them all

Check out the Industry Speaks™ review of Great by Choice: Uncertainty, Chaos and Luck - why some thrive despite them all.

Reviewer Bernie Siben, CPSM, notes that the authors report their results to enable the reader to examine his/her own choices, firm behavior, and the values by which firms survive, succeed and move forward.
Read the full review here.

Project Management: From Design Through Closeout

Editor's Note: This is the third of six Industry Speaks™ installments reviewing sections of PSMJ's updated Ultimate Project Management Manual.

The Ultimate Project Management Manual (UPMM) is an excellent reference and “how to manual” for design professionals, project managers, business management consultants, and owners. The templates, checklists, and diagrams are exceptional in their applicability, simplicity, and usefulness, and they correspond well with individual chapter and overall manual content.
To read the full review, click here.