More Questions Answered: Strategies for Small, Emerging and Minority-Owned Firms

The challenges of small and emerging growth firms are unique. Here are great questions about business development strategies for small, emerging and minority-owned firms.

It seems that most of the work that gets “won” is garnered by firms that do a lot of networking and getting an “in” with the potential client (in this case I am talking mostly about municipal and institutional clients). As a small, woman-owned firm, my comfort level in doing this is very low and I have pegged my hopes of succeeding on past experience/good work. Am I doomed if I can't do the kind of schmoozing that's needed these days?

"Doomed" is being a little hard on yourself. You didn’t tell me what kind of work you do or where, so grant me some leeway. You have some options:

• Option A. Target clients who have smaller projects with whom you’d be comfortable in developing a relationship. If you are an architect, by definition, you have what I call “rejection issues.” You hear “NO,” when really the client is saying “not now.”
• Option B. This isn’t my favorite and it assumes that you could carve out a role, but you might be more comfortable as a sub consultant. As a sub, direct client marketing isn’t required. Instead, develop relationships with prime firms for smaller work scopes where they might derive credit for your WBE certification (assuming you have this).
• Option C. Focus on small projects that are “set-asides” for WBEs or underutilized business enterprises and then develop relationships with people you’d like to support you. That way you’re in a more comfortable position.

The economy has caused me to strike out on my own to keep working. What advice can you offer a 1-person start up practice with a focused market for consulting services, not so much design?

Network. Your first line of business is going to come from and through people who know you. Remember my breakfast, lunch and coffee rules! Have coffee with anyone, whether you see a fit or not. Save lunch for potential clients, and only have dinner if you have a signed contract. Aside from managing your waist, this manages your marketing budget, too!

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.

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.

Is It A Public or Private Job?

It is extremely important to know whether the project you are working on is public or private. That determination will dictate what payment-security tools can be used. The proper and necessary prerequisites to enforce any payment claim on the project must also be followed. Unfortunately, a subcontractor learned these lessons the hard way in the case California Paving & Grading Co. Inc. v. Lincoln General Insurance Co. (2012).
 
In order to enforce a labor and materials bond claim on a public job, a claimant must either serve a preliminary notice if required to do so under the law, or alternatively, make a claim on the bond within 15 days after recordation of a notice of completion. If no notice of completion has been recorded, you must make your claim within 75 days after completion of the work of improvement.[1] The lawsuit on the bond claim also has to be filed within 6 months from the expiration of the stop payment notice period.

In this case, the subcontractor filed suit against the general contractor and its surety, on the labor and materials bond, seeking to recover $55,958 plus interest. The surety demurred (attacked the complaint at the outset of litigation) on the ground the complaint was time-barred arguing that the subcontractor failed to submit a written claim within 75 days after completion and further failed to file the action within 6 months from the expiration of the stop payment notice period.

In opposition, the subcontractor contended the improvements for which the bond was issued are subdivision improvements, not a public work within the meaning of the Civil Code sections. Therefore, the payment bond is not a public works payment bond and the foregoing statutes of limitations do not apply. The trial court disagreed and found that the deadlines stated above applied because the project was contracted for by the City, a public entity and thus a public work. The subcontractor appealed.

The threshold issue for the Court of Appeal was whether the project was for a public work. Civil Code Section 3100 defines “public work” as “any work of improvement contracted for by a public entity.” The Court held that the subdivision improvement agreement and contract between the developer and the City expressly required the developer, at its “own cost and expense", to construct and install all public improvements required in and adjoining and covered by the final map."

In furtherance of that contract with the City, the developer entered into a contract with the general contractor to construct the public improvements. The general contractor in turn contracted with subcontractor. Because the subcontract was in furtherance of the underlying agreement between the City and the developer, the subcontract was for a “work of improvement contracted for by a public entity.” (§ 3100.) Therefore, the trial court properly rejected the subcontractor's argument this was not a public work.

The Court also found that the subcontractor failed to serve a preliminary 20-day notice pursuant to Civil Code Section 3098 (public work), on the public agency concerned … .” (§ 3098, subd. (a), italics added.)

Make sure you know what kind of project you are working on and the applicable legal requirements to enforce your claims.

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[1] This case involved Civil Code §3252. That now has been repealed and the operable section is §9560 which is similar. Other sections discussed here as well have been renumbered under the new law. Obtain a copy of our handbook Get Paid! to find out more about the changes.

Wahid E. Guirguis, Esq., Contributor to Industry Speaks. 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 construction contracts, please contact him at guirguis@huntortmann.com.

Stop, Look, and… READ! Don't Sign That Subcontract Just Yet

You've just been informed that your subcontract bid has been accepted on a public works project and your company will receive a subcontract agreement shortly.  When you receive the draft agreement, you look it over and confirm that the scope of work and exclusions are consistent with your bid.  As to the rest of the "boilerplate" clauses, you do a cursory review and assume that the terms and conditions are customary and consistent with other agreements that you have seen and reviewed in the past.  So you sign it.

This approach to executing subcontract agreements is risky, to say the least.  Not all subcontracts are the same and can vary significantly.  There are often material differences which can be found in clauses ranging from indemnification to attorney's fees provisions.  Subcontractors should closely review and, when warranted, negotiate the terms and conditions in subcontract agreements.

In one case, the failure to review the subcontract terms almost had the unintended consequence of changing the very core of a subcontractor's business from a non-union shop to a union shop.  In this example, the subcontract agreement contained the following provision:

"Subcontractor agrees that it is bound to and shall comply with all the terms and conditions of the Master Labor Agreement including wages, trust fund contributions, working rules, the grievance/arbitration procedure and any other mechanism for the resolution of dispute contained in the Master Labor Agreement, whether or not the work is performed for the contractor.  Subcontractor further agrees to bind all its subcontractors performing job site work of the type covered by the Master Labor Agreement referenced above and to become bound and comply with all of the terms and conditions of the Master Labor Agreement.  Subcontractor acknowledges that the [Unions] are the intended third party beneficiaries of this contractual provision and may enforce the provision directly against Subcontractor."

By signing the agreement, the general contractor and Union contended that the subcontractor was now a full signatory member of the Union for all projects, which of course would have changed the very essence of the company.  As a result of not thoroughly reviewing the subcontract agreement before signing it, even though such provisions may arguably be unenforceable, the subcontractor ended up spending resources fighting the Union's attempt to audit its payroll, assess dues, and make the subcontractor a signatory member simply because it signed the subcontract agreement containing the Union clause.

Don't let this happen to you.  Review your contracts carefully before you sign them or have a qualified attorney do it for you.

Richard Mah, Esq., Contributor to Industry Speaks. 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 construction contracts, please contact him at mah@huntortmann.com.