PUBLICATION OF ASSOCIATED BUILDERS AND CONTRACTORS OF MICHIGAN FALL 2009
Surviving the Economic Downturn Also: Experts weigh in on ‘fixing’ Michigan Managing a banking relationship in troubled times State business leaders demand reform
Your # 1 Source For Quality Used Equipment www.titaneq.com
2004 JLG 3394 • Gas/LP New unused 2008 PT70 l $36,000 4x4Only • 1,000 Hours • $16,000 3 hours
2002 Nissan 5000# Electric Hilo Side Shift • New Paint • $4,000 2007 John Deere Gator 4x2 • Low Hours • $5,000
2008 Lincoln 500amp Welder $11,900
2005 Snorkel 19’ Electric Scissor New Paint • $6,500 2006 SkyTrak SkyTrak 8042 8042 • 1200 1200 hours hours 2006 New Tires Tires • $36,500 $34,900 New l
l
s Hundred nes of machi for sale Huge Inventory
Rentals Sales Service Parts
Locally Owned Byron Center, Lansing, Midland, Traverse City
Inside
4 Executive Perspective Michigan’s Economic Outlook 5 Economists advise companies to continue finding ways to adapt, because business conditions could get worse in the state before they get better. Still, there are glimmers of hope, both nationally and within Michigan.
Experts Comment 9 Economic on Michigan’s Future
Economic experts respond to the question: “From a public policy standpoint, what does Michigan need to do to improve its business climate and facilitate economic recovery?”
Business Development: 12 Managing a banking
relationship in troubled times By Jeffrey Ammon, J.D.
A checklist of subjects to consider, whether you are negotiating new loans or addressing defaults under your current loans.
VOLUME III, ISSUE III
18 Advertisers Index
Troppo’s restaurant construction, downtown Lansing: A glimmer of economic hope in the center of Michigan.
Legislative Update
ABC defeats prevailing wage expansion. 14 On the cover: ABC members work on the Troppo’s restaurant construction in downtown Lansing.
www.abcmi.com
Spotlight on Members & Chapters
Central MI: HMGO raises $5K for carpentry scholarships; Western MI: Welch Tile takes national award. 16 Fall 20 09 3
ASSOCIATED BUILDERS and CONTRACTORS of MICHIGAN BOARD of DIRECTORS John Parish – Chairman Parish Corporation – Central MI Chapter
For the past few years, the state of the economy has been a top concern of the construction industry and the general business community — and the concern has only grown in 2009.
Rod Kloha – Vice-Chairman Circle “K” Services – Saginaw Valley Chapter David Sheffield – Secretary/Treasurer Onslow-Sheffield, Inc. – Southeastern MI Chapter Dan Kozakiewicz – Past Chairman Three Rivers Corp. – Saginaw Valley Chapter
With the economy driving the decisions and business operations of our industry, ABC remains committed to working with members around the state, as well as with policymakers, to reduce regulations, lower taxes and fight for a better business climate.
Bill Buyak Capital Steel – Central MI Chapter Jim Cripps Cripps Fontaine Exc. – Western MI Chapter Gary Hengesbach Westphalia Builders – Central MI Chapter Mike Laundra Alloy Construction – Saginaw Valley Chapter Dave Mollitor Consolidated Electrical – Western MI Chapter Bill Molnar Wm. Molnar Roofing Co. – Southeastern MI Chapter Eric Monroe Rockford Construction Co. – Western MI Chapter Michael Poggi Pinnacle Insurance Partners – Western MI Chapter Jim Struble RCI Electric – Southeastern MI Chapter Jack VandeGuchte Sobie Company – Western MI Chapter Daniel Welch Welch Tile & Marble – Western MI Chapter Michigan Merit Contributors Publisher: Christopher Fisher Managing Editor: Mary Boardway, CAE Publication management: Lezotte Miller Public Relations, Inc. Advertising: Arion Media Printing: Bradford Printing Michigan Merit (ISSN# 1938-9051) is the official publication of Associated Builders and Contractors Inc. of Michigan (ABC of Michigan) and is published quarterly at 120 N. Washington Sq, Suite 805, Lansing, MI 48933, (517) 853-2545. Please direct all inquiries to the previous address. Articles written by outside authors do not necessarily reflect the views of Associated Builders and Contractors Inc. of Michigan. ABC of Michigan reserves the right to reject or edit all material submitted for publication. The appearance of an advertisement in Michigan Merit does not constitute endorsement of the advertiser, its products or services, nor do Michigan Merit or Associated Builders and Contractors Inc. of Michigan guarantee or warrant any claims or offers made by the advertisers. Permission to reprint in whole or in part is hereby granted, provided the following credit line is used: “Reprinted by permission from Michigan Merit, a publication of Associated Builders and Contractors Inc. of Michigan.”
4 Fall 20 09
Recently on the legislative front, ABC renewed our call to eliminate job-killing prevailing wage mandates, Some believe that we fought anti-competitive project labor are seeing the smallest agreements, advocated for a reduction of business taxes, spoke out against hints of economic economically dangerous government recovery, while others health care mandates and kept fighting say we have some the ill-conceived tax increases that time to go before would result from so-called cap and trade legislation. things finally improve. No matter the issue, ABC is engaged so our members can focus on running their businesses and pursuing work without having to go to battle with politicians and special interests.
Whatever the case, the question remains: How long will recovery take, and when will the recession be just a lesson for the history books?
Some believe that we are seeing the smallest hints of economic recovery, while others say we have some time to go before things finally improve. Whatever the case, the question remains: How long will recovery take, and when will the recession be just a lesson for the history books?
This issue of Michigan Merit provides insight into the state of our economy and features contributions from expert economists and construction industry veterans. Rarely is such a group brought together to address the challenges of promoting a business-friendly environment for our state and Merit Shop firms everywhere. Yours for the Merit Shop,
Chris Fisher President Michigan Merit
Michigan’s economy shows glimmers of hope Contractors are venturing farther to find work, moving into new lines of business, operating on razor-thin margins and forging closer ties with bankers as they attempt to ride out the worst construction climate in Michigan in decades. Economists and other close observers of the industry are advising companies to continue finding ways to adapt, because things could get worse in the state before they get better. Still, there are glimmers of hope, both nationally and within Michigan. “The good news – and there is good news – is that the recession is about to end,” says Anirban Basu, chief economist Basu at the national level for Associated Builders and Contractors. For companies that outlast the “great recession,” as Basu calls it, opportunities await, industry consultants say. Strategies that contractors are using to cope – “triage” is how David Littmann, senior economist at the Midlandbased Mackinac Center for Public Policy, describes it – in current market conditions could put them in an ideal position to capitalize once the inevitable upturn arrives. “When things do turn around, they should be in position to hum along pretty well because they’ll be pretty lean,” says Doug Havera, www.abcmi.com
a partner in the Kalamazoo office of certified public accounting firm BDO Seidman who has many clients in the construction industry. Havera The recovery is likely to come later in Michigan than in most of the country, economists and other observers say, but there
are major construction projects on the horizon even here. For instance, Dow Kokam, a joint venture between Dow Chemical Co. and Townsend Kokam, plans to build a $600 million, 800,000-square-foot plant in Midland that will produce battery technology for hybrid and electric vehicles. Construction on the plant was scheduled to begin by late October, with battery production slated to get under way in early 2011.
Fall 20 09 5
State’s recovery likely to come Backlogs shrinking It will take more of such developments to replenish state contractors’ dwindling backlogs of unfinished contracts, industry observers say. Many firms were able to keep busy during the summer by working their way through their backlogs. Much of that work is now completed and there isn’t a lot more in the pipeline, meaning the economy will have to turn around quickly for 2010 to match 2009. “That’s our greatest fear – that the momentum goes right out of the market and it takes awhile to get going again,” says John Doherty, president and CEO Doherty
6 Fall 20 09
of ABC’s West Michigan Chapter. Shrinking backlogs are not an issue just for Michigan contractors, according to ABC national’s Construction Backlog Indicator (CBI), a newly created measurement reflecting the amount of work to be performed by contractors in the months ahead. The CBI in the nation’s nonresidential construction industry in May was 6.3 months, up from 6.2 months in April but still down by roughly 24 days since November 2008, when ABC began collecting data. Although federal spending is starting to prime the pump, a brisk and prolonged recovery in the national economy appears unlikely, economists say. Consumers are still laden with debt; lenders remain cautious; and – of most importance to the construction industry – vacancy rates remain high in retail and office complexes, they say. “We’re going to see a mixture of good news and bad news all the way into next spring,” says Jim Haugh, chief economist for Atlantabased Reed Construction Data. “We’re going to have a somewhat sluggish recovery.” Also, construction is a lagging indicator of economic activity, meaning it will take the
building industry longer than many other sectors to ramp up once the turnaround arrives, Haugh says. What’s more, Michigan, which has lost tens of thousands of jobs in recent years and has the nation’s highest unemployment rate, is certain to rebound more slowly than the rest of the country, industry observers Danville warn. “I just don’t see a lot of new construction coming to Michigan,” says Wendy Danville, a partner in Darnell & Meyering, a Taylor certified public accounting firm that has many construction companies as clients.
Opportunities slim for college grads Conditions are already the worst experienced by many involved with the industry. It’s even worse than the recession of the early 1980s, when the auto industry went through its first massive restructuring, Littmann says. “With the exception of the unemployment rate, the current situation is far worse than anything we’ve known,” he says. Adds Danville: “I’ve had one client for 25 years, and this is the first time I’ve seen them struggle. I haven’t seen anyone go out of business, but some of them are hanging on by a bare thread.” It’s also a difficult time for job seekers, says Edward Brayton, chairman of Ferris State University’s Construction Technology and Management Department. Only 50 percent of May graduates had job offers when they left school, he says. “I’ve been here for 30 years, and I have never seen it this bad,” he says. “Normally, we’ve had jobs.” Michigan Merit
later than rest of country’s Record keeping is key In general, companies that were operating efficiently, limiting owner distributions and managing their cash flow and debt well when business was booming are weathering the economic storm the best, says Andy Rose, a senior tax manager and chair of the construction industry group Rose at Rehmann, a Saginaw-based CPA firm. Of course, even the best-run companies are reining in costs. They’re cutting back on health care and dropping auto allowances, for instance. Company owners are sharing the pain, with many taking little or no salary, Danville says. The cost-cutting has been more drastic for companies that built up overhead and let expenses get out of whack when times were flush, Rose says. Now they’re slashing costs, including payrolls. “If you want to survive, sometimes you have to do things you don’t want to do,” Rose says. One thing companies do want to do is keep good financial records, such as cash-flow statements that they can share with their bankers, CPAs say. If they have any doubts about a company’s health, banks aren’t hesitating to shrink credit lines, refuse financing or – in extreme cases – call in loans and sever the relationship, CPAs say. Accurate record keeping has benefits beyond building bonds with a banker. It can also be the difference between profit and loss on a project. Contractors also would be wise to keep an eye on material costs and brace for possible price increases, Haugh says. Although contractors might think that the sluggishness in the U.S. economy would keep a lid www.abcmi.com
on price increases, materials with an international demand – cement and metal, for example – are likely to become costlier in the near future, he says. Littmann says now may be the time to stockpile materials or otherwise lock in prices. “There’s really nowhere for prices to go but up,” he says.
A buyer’s market Banks aren’t the only ones making demands of construction companies. Customers are also driving hard bargains on costs because the dearth of projects has created a buyer’s market, observers say. “A lot of contractors have core crews that they don’t want to get rid of, so they’ll bid on a job to break even or even at a loss,” Haugh says. Eventually, that trend could work in contractors’ favor, he says. Buyers with the financial wherewithal may decide now is the time to move on a project to take advantage of low prices, he says. That line of reasoning could particularly appeal to school districts and other stewards of public funds, Littmann says.
Hitting the road One public entity that is definitely looking to spend is the federal government. Although most
of the federal stimulus money is going toward road and other infrastructure projects, the government’s demand for office space is also likely to rise, Basu says. There’s little spending occurring at the state or local level in Michigan, but the construction markets in neighboring state capitals – Indianapolis and Columbus, Ohio – are among the best in the Midwest, Basu says. Indeed, many Michigan construction companies are venturing out of state or farther afield within Michigan to find work. Although it is occurring mainly out of necessity, the travel could allow companies to tap into long-term lucrative markets. “One of the plusses coming out of this experience is that many companies who have been successful in Michigan but haven’t
Fire Protection Systems Systems DESIGN, DESIGN, INSTALL, INSTALL, SERVICE SERVICE & & MAINTAIN MAINTAIN DESIGN, INSTALL, SERVICE & MAINTAIN
Jackson Jackson Associates, Associates, Inc. Inc. 1111 1111 West West Oakley Oakley Park Park Road Road 1111 West Lake, Oakley Road Walled MIPark 48390 Walled Lake, MI 48390 Walled Lake, MI 48390
248-669-5155
248-669-5155 www.jacksonassociatesinc.com www.jacksonassociatesinc.com www.jacksonassociatesinc.com Fall 20 09 7
Contractors diversify to survive competed nationally are going to come out of it pretty well,” Doherty says. “Companies are learning how to build a traveling work force.” But geographic diversity also carries potential pitfalls, CPAs warn. For one, projects are just naturally more difficult to manage the more far-flung they are. “If you have construction crews on staff, you have to worry about lodging and travel time,” Havera says. Michigan companies also must familiarize themselves with other states’ coding rules and tax policies. Otherwise, they could make a costly mistake, such as failing to factor in a state’s higher income tax when bidding on a job, Rose says.
New lines of work Beyond diversifying geographically, many companies are branching into other types of business. Danville says a client whose niche was building charter schools is now bidding on all types of projects. Segments worth targeting include health care, infrastructure and – because there is so little new construction – renovation work, industry advisers say. The renovation market, however, is easier for subcontractors such as plumbers and electricians to move into than for bigger, highly specialized general contractors, Basu says. Industry observers also point to alternative energy, such as wind
turbines, and green building in general as potential growth areas. Green building is more than a fad, Basu says. It’s become a virtual religion among certain policymakers, he says. “There’s an opportunity for builders of all types to be on the cutting edge,” he says. But Rose says companies that aren’t careful could squander valuable capital by expanding into a market segment in which they have little experience. Ideally, companies should specialize in one area and not spread themselves too thin, he says. “Try to find what you do well and just do that,” he advises. MM
We are focused on your success by providing solutions that meet your needs both today and tomorrow. Building Information Modeling Contractor Prequalification Contractor Evaluation Submittal Coordination Document Management Bid Management Training and Support
kal-blue Service and Technology is our Blueprint
800-522-0541 - www.kalblue.com Certified Support Center
8 Fall 20 09
Michigan Merit
“Companies do not thrive just by cutting.
Michigan needs to develop a competitive strategy.” – Phil Power
Experts weigh in on ‘fixing’ Michigan It’s no secret that Michigan’s economy is undergoing its most drastic metamorphosis in decades. It’s also no mystery – at least to keen observers asked to share ideas with Michigan Merit – what should be done to ensure that the state emerges from the change with an improved business climate. We posed this question to a handful of experts: From a public policy standpoint, what does Michigan need to do to improve its business climate and facilitate economic recovery? Asked to submit ideas were Patrick L. Anderson, Anderson Economic Group; David Littmann, Mackinac Center for Public Policy; Timothy G. Nash, Northwood University; Phil Power, The Center for Michigan; Keith A. Pretty, Northwood University; and Gary Wolfram, Hillsdale College; all with years of corporate, academic or governmental experience in Michigan. Although each participant offered unique and provocative ideas, two themes were nearly universal: Lower taxes and reduced governmental spending are the centerpieces of any recovery plans. Their detailed responses follow. www.abcmi.com
Patrick L. Anderson
Principal and chief executive officer of Anderson Economic Group in East Lansing
Michigan’s catastrophic jump in private sector unemployment has many causes, some of which are simply out of policymakers’ control – such as the international forces rocking the auto industry. In the fall of such change, state officials cannot leave the state’s fiscal policy on autopilot. Just as households and employers must adjust to declining income, so too must state and local government. To start, state government must get its budget under control. With tax revenues plunging, Michigan is no longer a rich state. Unfortunately, lawmakers continue to spend as if it were. For too long, state officials have shirked their fiscal responsibilities by failing to make tough budget choices. As I write this today, I do not know how the state government will begin its next fiscal year. This muddled approach makes it harder to recruit companies to Michigan. Employers desire stability when they risk their investment in plants, equipment and people. Job providers that could locate virtually anywhere in the country do not want to come to a state with such uncertainty.
Also, there is nothing about the state’s tax structure that would appeal to out-of-state employers. Michigan’s tax burden for employers is higher than the national average. Instead, we should aim to be among the 10 lowest-taxing states. Lower taxes would help attract new businesses and make it easier for ones already here to thrive. More important, adopting a success strategy with a tangible goal would change the impression others have of Michigan – and the impression we have of ourselves.
David Littmann Senior economist at the Mackinac Center for Public Policy
Michigan could differentiate itself from the rest of the country by taking two bold steps: adopting a right-to-work law and eliminating the state income tax. As it stands now, there’s little that positively sets Michigan’s business climate apart from other states. It has few tax advantages; the state’s three main taxes – on property, income and sales – are higher than in most parts of the country. Meanwhile, personal income has dropped in Michigan to 11 percent below the U.S. average, reflecting the continuing downward spiral of our economy; the state’s Fall 20 09 9
Right-to-work, tax changes would help unemployment rate is the highest in the nation; and Michigan has more outbound migration than any other state. Add it all up, and business conditions in Michigan pale in comparison to any other part of the country. Michigan could gain ground by joining 22 other states – mainly in the South – with right-to-work laws. Such a policy would give workers the right to decide for themselves whether or not to join or financially support a union. In addition, employers would gain the right to hire the workers they feel are best suited to do the job. We’ve seen the results of the “closed shop”: higher and higher unemployment. Eliminating the income tax for all businesses and individuals would be an even bolder step, because Michigan would join only nine other states without one. Of course, it’s also an absolute imperative that state government cuts back spending in all areas unrelated to the protection of life and property. The public sector is spending more than the private sector can generate, destroying any chance of economic recovery.
10 Fall 20 09
Dr. Timothy G. Nash Vice president for strategic and corporate alliances and holder of the David E. Fry Chair in Free Market Economics at Northwood University
Dr. Keith A. Pretty President of Northwood University
Michigan policymakers looking for ways to revive the state’s moribund economy would do well to study the presidencies of John F. Kennedy and Ronald W. Reagan. Both serve as strong cases for the effectiveness of tax cuts in stimulating economic growth during difficult times. Kennedy’s personal and corporate tax cuts were implemented after his death by President Lyndon Johnson in 1964. The economy responded with an average annual real growth rate of 4.65 percent in U.S. gross domestic product from 1963-1968, and unemployment dropped from 6.6 percent in 1961
to 3.7 percent in 1968. Reagan’s across-the-board tax cut of 25 percent was phased in from 1981 through 1983 and helped bring the U.S. out of the severe recession of 1981-82. Fast-forward to present-day Michigan, where the tax and regulatory structure is not friendly to business. According to the nonpartisan American Legislative Exchange Council, Michigan currently ranks dead last among the 50 states in economic performance. ALEC also ranks Michigan below average on many policy variables, such as its various tax burdens and right-to-work policy (Michigan, of course, is not a right-to-work state). Simply put, we must create an environment that attracts entrepreneurs to the state, and the way to do that is by cutting taxes and easing the regulatory burden. That was good enough for two of the most celebrated presidents of the past 50 years, and it should be good enough for modern-day Michigan policymakers.
Phil Power Founder and president of The Center for Michigan
Michigan needs to behave just like any wellmanaged company. It needs to get its financial house in order, which means cutting expenses. These cuts need to be radical and far-reaching enough to deal directly with the chronic structural deficit we have experienced for nearly a decade. House Speaker Andy Dillon’s Michigan Merit
Michigan recover
We build trust. We build trust.
program to pool health care for state employees is a good example. But companies do not thrive just by cutting. Michigan needs to develop a competitive strategy. To do that, we need to develop a shared vision for our state’s best future. Only with a shared vision can we identify what’s important and distinguish it from what’s less important. Right now, we’re taxing and spending piecemeal without any overarching strategic plan. Then we need to identify our durable, distinctive competitive assets. In my view, they consist of our great universities, our schools, the affordable quality of life that we can live in our communities and our environmental resources. We then need to launch a sustained program of investing in our competitive assets.
CONSTRUCTION LAW CONSTRUCTION LAW CONSTRUCTION LAW
www.SHRR.com www.SHRR.com www.SHRR.com 877.833.SHRR 877.833.SHRR 877.833.SHRR
Gary Wolfram, Ph.D.
Serving clients across Michigan. Serving clients across Michigan. Serving clients across Michigan.
William Simon professor of economics and public policy, Hillsdale College
Michigan’s well-documented economic decline is due in major part to governmental policy that has resulted in what economist Robert Higgs terms “regime uncertainty” and a cost of producing in Michigan that is greater than its competitor states. Michigan’s tax on business, the Michigan Business Tax (MBT), is prohibitively high and came about in a fashion that created great uncertainty as to how and by how much businesses would be taxed. From repeal of the Single Business Tax by initiated law, to the ill-fated services tax and its repeal, to the increase in the personal income tax, to imposition of a bastardized gross receipts/profit tax with a massive surcharge – anyone following the legislative and administrative stumbling would be very reluctant to invest capital in Michigan. One solution to our problem would be to eliminate the profits portion of the MBT and make the tax based upon a firm’s sales minus its purchases from other firms for which the MBT has already been paid. This would mimic the Business Activities Tax, which was in place from 1953-1967. The rate should be at 1 percent, which would be sufficient to fund a state government that only makes promises that it can keep. MM
www.abcmi.com
For decades, Smith For decades, Smith decades, Smith Haughey has represented Haughey has represented represented contractors, design profescontractors, design profesdesign professionals, and sub-contracsionals, and sub-contracsub-contractors, in every aspect of the tors, in every of every aspect aspect of the the construction process. construction process. process. Today, our ConstrucToday, Construcour Construction Lawour Team includes tion Law Team includes Team includes 15 attorneys who have 15 attorneys who who have have inspecific construction specific construction inconstruction in-you dustry experience, so dustry dustry experience, experience, so so you you can relyonon us to undercan can rely rely on us us to to underunderstand your business and stand stand your your business business and and related legal needs. related related legal legal needs. needs. Putyour your trust Put trust in our Put your trust in in ourour knowledge and expertise. knowledge and expertise. knowledge and expertise.
add it up Our deep knowledge, accurate answers, and broad experience in construction law save our clients significant time, money, and effort each year. Let us add value to your next project.
Construction Law Group Thomas L. Saxe Michael C. Walton Bruce A. Courtade David E. Bevins Michelle F. Kitch
Finding the way Rhoades McKee pC 161 Ottawa NW Suite 600 Grand Rapids, Michigan 49503 616.235.3500 RhoadesMcKee.com
Fall 20 09 11
Managing a banking relation By Jeffrey S. Ammon, J.D.
You already know that your construction company needs financing to survive, especially in this economy. But what should you do – and not do – when dealing with your lender? Read on for a checklist of subjects to consider, whether you are negotiating new loans or addressing defaults under your current loans.
12 Fall 20 09
‘Material Adverse Change’ Clauses (Or, ‘Don’t Make The Bank Nervous’) A company CFO called us recently because a bank threatened to call the company’s loan. Apparently, the CFO had offhandedly mentioned to the loan officer that the company was “suspending operations” at one of its plants. Poor choice of words. Like most loan agreements, the company’s loan agreement made any “material adverse change” in the company’s operations a default, even though the company was making all of its loan payments on time. “Suspending operations” sounded like a material adverse change to the loan officer. In fact, the opposite was true. Suspending operations at the plant was part of a careful plan to make the company more profitable by reducing unnecessary operating expenses. By suspending operations, the company would be better able to make its loan payments. You will face challenges in negotiating material adverse change clauses. Both the bank and your company have legitimate interests to protect. The bank does not want to be forced to sit by idly while a company’s business irrevocably deteriorates. Your company should not need to worry, however, that a loan officer will second-guess every one of your difficult business
decisions. Guidance from legal counsel experienced in constructionindustry borrowing can help negotiate such clauses and persuade your lender that your business decision is positive, not adverse.
Forbearance: Not necessarily the end of the world Today’s economy has forced many borrowers so far out of compliance with their loan covenants that those borrowers must renegotiate basic terms to survive. Recent tightening by bank regulators may induce banks to renegotiate by using a forbearance agreement rather than a renewal agreement. In a forbearance agreement, the lender agrees to postpone (forbear from) collection efforts under negotiated terms. Expect to see tighter financial covenants, higher interest rates, more reporting duties, and milestone and completion deadlines for construction financing. In a distressed situation, your bank may not recognize at first that it shares a common interest with your company. You will need help to combine the facts, law and knowledge of practical realities to make a professional and convincing presentation to your bank. The goal is to show how a forbearance agreement may yield a better result than the death spiral of default, foreclosure and bankruptcy.
Michigan Merit
Jeffrey S. Ammon is an attorney with Miller Johnson in Grand Rapids and serves as chair of the firm’s construction practice group. He can be contacted at ammonj@millerjohnson.com.
onship in troubled times Welcome to the owner’s lender: Assignments of your construction contract Experienced construction lenders require that the owner assign its rights under its construction contract. The lender will also require the general contractor’s consent to that assignment. But the lender will also want additional promises from the general contractor, such as: n Giving
the owner’s lender additional time to cure an owner’s default (beyond the time already given in the construction contract). n Agreeing to continue project construction even if the owner hasn’t paid for work already done (in effect, such an action waives the general contractor’s rights to suspend work or terminate the contract for nonpayment). n Making no change orders without the lender’s permission.
The general contractor has a dilemma. On the one hand, it receives nothing from the owner’s lender in exchange for the additional promises. But failure to grant the concessions means the owner gets no loan and the contractor never gets paid. Perhaps two can play this game. Contractors should not be shy about
asking the owner to concede other points in exchange for the contractor’s concessions to the lender. At the very least, the general contractor must understand how the rules for performance and payment will change under the assignment. Before agreeing to any “simple form” of assignment, careful contractors will get advice on what the assignment means and how seriously it impacts the contractor’s rights under the existing construction contract.
Personal guarantees
creditor attacks. So are real estate and securities held jointly with your spouse (“entireties property”). If a bank convinces your spouse to cosign the personal guarantee, however, assets held as entireties property are at risk. These examples illustrate only some of the critical strategic decisions you will need to make as you deal with your lender. During such challenging economic times, it is especially important to make sure all your financial documents are reviewed by legal counsel experienced in construction-industry borrowing. Contact your attorney or any member of Miller Johnson’s construction industry team to learn more about protecting your company’s future. MM
In the current banking environment, the business owner’s personal guarantee may be required if not already in place. You must understand the scope of the guarantee: Is it unlimited as to amount, or is it capped at a certain portion of the borrowing? At what point can it be eliminated? What assets of yours can be seized upon a default? Amounts SAMANTHA: in 401(k) or IRA retirement OUR INSPIRATION. accounts are exempt from
Building for Life.
PROJECT: Hudsonville Christian School Hudsonville, Michigan
Commercial Concrete
Perry Merlo Cell: 248-640-2145 Perry@MerloMi.com www.MerloConstructionMi.com www.abcmi.com
l
Excavation
l
Utilities
8505 Terra Bella Drive Northville, MI 48168 Ph: 248-486-3989 Fx: 248-486-8478
Dan Vos Construction Company, Inc.
www.danvosconstruction.com / Phone 616.676.9169 Fall 20 09 13
State business leaders demand reform Leaders of business organizations statewide call for action in Lansing
n Exempt
Leaders of multiple statewide business organizations came out in one voice in calling on Gov. Jennifer Granholm and state legislators to significantly structurally reform state government. “Michigan’s government is out of step with the real world,” said Chris Fisher, president of Associated Builders and Contractors of Michigan. “The state has run out of Band-Aids, and if things continue as they are, we may never stop the bleeding.” “Passing a budget that once again patches things together and kicks the can down the road another year or two would be considered a complete failure of state government,” said Jim Holcomb, vice president of business advocacy and associate general counsel of the Michigan Chamber of Commerce. “Michigan’s business leaders expect that Michigan’s elected leaders will go beyond their minimum constitutional duty and set Michigan on a path to reform and revitalization.” The major business and trade organizations joining the call for reform include Associated Builders and Contractors of Michigan, the Michigan Association of Realtors, the Small Business Association of Michigan, the National Federation of Independent Businesses, Detroit Renaissance, the Michigan Manufacturers Association, the Michigan Association of Home Builders, the Michigan Bankers Association, the Michigan Chamber of Commerce, the Detroit Regional Chamber, the Grand Rapids Area Chamber of Commerce, the Lansing Regional Chamber and the Kalamazoo Regional Chamber. The list of suggested reforms for consideration include:
n Pool
14 Fall 20 09
government construction from prevailing wage statutes. all health care plans for public employees.
n Establish
an Office of Medicaid Inspector General to investigate Medicaid fraud.
n Reform
Public Act 312 to change arbitration standards for police and fire.
n Reform
the Urban Cooperation Act and two other similar acts to eliminate the requirement that when a service merger occurs, the higher wage and benefits must be paid.
n Make
school employees pay 25 percent of health insurance costs (a tax savings of $650 million, according to the Mackinac Center for Public Policy).
n Reduce
state worker benefits to the national average ($269 million in savings – Public Sector Consultants, 2008).
n Cap
school superintendent pay ($6.1 million – The Center for Michigan).
n Require
program efficiency studies in all government programs to eliminate waste.
n Require
n Eliminate
n Move
In a letter to the governor and lawmakers, the group expressed that more than ever, Michigan’s business community is united in its call for serious, significant, structural reform of state government to pull Michigan out of its chronic fiscal crisis. Business organizations representing employers large and small across the state are speaking with one voice to demand that this moment of crisis be turned into an opportunity to reform and revitalize Michigan.
all new teachers hired by a certain date in the future to have defined contribution, rather than defined benefit, retirement plans. all administrative functions of local schools to intermediate school districts, leaving local school boards with only academic and athletic functions.
n Privatize
food service, mental health services and transportation in prisons.
n Increase
minimum retirement/years of service for all public employees to be eligible for retirement benefits.
n Increase
state employee and retiree health care premium co-pays.
n Eliminate
the road patrol function of the Michigan State Police and let county sheriff’s departments take over that function.
n Require
that school districts competitively bid all noncore functions, including transportation, food service and custodial work.
n Reduce
the number of school districts.
n Reduce
mandatory minimum sentences and increase parole rates for all crimes.
n Make
Michigan Promise scholarships a forgivable loan, rather than a scholarship, requiring participants to work in Michigan for two years following completion of their degree.
undocumented and potentially fraudulent child care payments ($231 million – Auditor General Report, 2008).
ABC-backed high school curriculum bill sails through state House Associated Builders and Contractors of Michigan hailed the state House’s passage of legislation to enhance the state-mandated high school curriculum as a major step toward helping all students prepare for the future job market. “The change will help prepare students for good, stable jobs in construction and other industries,” explains ABC President Chris Fisher, adding that demand for skilled construction workers is expected Michigan Merit
to grow in Michigan during the next decade. House Bill 4410, introduced by Rep. Joel Sheltrown, D-West Branch, would allow for a career technical education option that may be counted toward a high school diploma. It sailed through the House in a 97-10 vote in early September. The Michigan Merit Curriculum, adopted in 2006 for graduates beginning in 2011, is geared mainly toward students who plan to pursue a four-year college degree. The goal of Sheltrown’s legislation is to make the curriculum flexible enough to include technical and trade offerings as well.
Sheltrown
“Our member contractors are fearful of a shortage of qualified laborers,” says Fisher. “We need to be able to replace an aging work force. The bill offers an integrated curriculum toward a high school diploma that will enhance the Michigan Merit Curriculum with tougher and more relevant standards than Michigan has had throughout its history in order to help meet such needs.” ABC was the lead business group advocating passage of the legislation.
ABC defeats prevailing wage expansion Vote reinforces need for ABC members to donate to PAC
observed ABC President Chris Fisher. “Without the efforts of ABC and ABCMI PAC, the outcome would have turned out quite differently, to the detriment of Merit Shop firms statewide. This is the reason that ABC members need to be politically active by donating to the PAC.” Next year, 30 of 38 state Senate seats will be open because of term limits, meaning that the body’s political makeup could go either way. Politically, the stakes have never been higher than they will be in 2010, with not only the Senate critically close but with the governor’s race potentially even closer and more than half of the state House seats opening up as well. “Now more than ever, it’s time for ABC members in Michigan to ‘Get into politics or get out of business,’” Fisher stressed. MM
On Sept. 10, an ABC-opposed effort to expand the state Prevailing Wage Act failed to pass by a single vote in the state Senate. Had it passed, it would have for the first time expanded Michigan prevailing wage requirements to privately owned projects that receive grants through the Michigan Economic Growth Authority. Currently, the state Prevailing Wage Act extends only to public projects. “Extending prevailing wage mandates into the private sector is a significant departure from the intent of the law and would have hampered Michigan’s economic competitiveness,” says Chris Fisher, president of Associated More than Construction Builders and We specialize in: Contractors of • Design/Build Michigan. • Process Piping In a mostly • Butler Buildings party-line vote, • Maintenance Services the measure • Case Work failed 19-17. The • Plumbing only senator • HVAC crossing over • Structural Steel to vote in favor • Green Building of the measure (LEED Accredited was Randy Professionals) Richardville, R-Monroe. “The closeness of the vote reinforces the need to be politically active and ensure 989.631.9726 that allies of www.trccompany.com the Merit Shop Midland, Michigan are elected,”
Architecture/Engineering • General/Mechanical Contracting Construction Management
www.abcmi.com
Fall 20 09 15 11322 ABC Ad Revision Magazine.indd 1
2/26/09 9:52:44 AM
Gary Hengesbach helping to host the Hengesbach Memorial Golf Outing (left). Twins Haley and Hanna Hengesbach with boyfriends Brad Winans and Scott Spitzley (top, center). Cody and Todd Kesler (DL Kesler Construction), Kent Conley and Cecil Male (CB Male) (bottom, center). Tim and Rick Bashore (Bashore Masonry), John Parish (Parish Corp.) and Pat Hanes (Hanes & Associates) (top, right). Nephews Cole and Randy Hengesbach with friends Lee Weiber and Brian Heckman (bottom, right).
Central Michigan Chapter raises scholarship funds ABC Central Michigan Chapter members raised $5,000 for the Hengesbach Carpentry Scholarship during the Hengesbach Memorial Golf Outing, held Aug. 15 at Hawk Hollow Golf Course. The success of the event was due largely to a community that showed up with 35 teams and 23 sponsors and contributed time and resources in support of a family that lost four brothers – Albin, Paul, Charlie and Jimmy – all of whom were active in the Central Michigan Chapter.
Saginaw Valley Chapter hosts legislative event The Saginaw Valley Chapter recently asked its members the following question: “What if you could toss out the governor, lieutenant governor, almost the entire state Senate and over half of the state House and elect new leaders to replace them all. Would you do it?” SVC members answered with a resounding “YES” in word and in action. They realize that next year is an unprecedented year in Michigan history. All the offices listed above will be up for election in 2010. So the Saginaw Valley members turned out in force at the annual PAC Golf Outing 16 Fall 20 09
on Sept. 25 at Buck’s Run Golf Club in Mount Pleasant to work on raising the necessary resources to influence the direction of our state. In addition to the golf outing, the chapter hosted a PAC breakfast where attendees met with a number of state legislators whose support of ABC issues is critical. Because of the critical nature of the 2010 election, generous PAC donations were raised at the event. In the 2009-2010 Annual Directory, the listing for Evans Equipment Co. on pages 60 and 76 has an incorrect e-mail address. Please change those listings to reflect the correct e-mail of dave@evansrents.com.
Southeastern Chapter partners with Central for training
Southeastern Michigan’s Construction Education Trust (CET) beginning this fall. Three current Central Michigan instructors will become CET staff members. The merger will offer Central Michigan members morecomprehensive training opportunities. The Southeastern Michigan Chapter is playing a critical role in advancing the industry while helping to retrain displaced workers in Michigan. The SEMI CET will work with the state’s Department of Labor to teach an approved Construction Laborer program. The broad-based construction program is two years in length, and registration numbers for the first year will range anywhere from 100 to 400 students.
ABC Southeastern Michigan has reached an agreement with the ABC Central Michigan Chapter to begin training all of the Central Michigan students through Michigan Merit
Spring Lake Aquatic Center.
INDUSTRIAL ARCHITECTURAL INDUSTRIAL --COMMERCIAL COMMERCIAL -- ARCHITECTURAL licensed licensed -- bonded bonded -- insured insured
Warren, Michigan
OFFICE 86.978.0210 OFFICE5586.978.0210 FAX 5 6.795.3358 FAX 8586.795.3358
NIKITAS J. BALATZIS NIKITAS J. BALATZIS DIRECT 5 6.871.0210 DIRECT8586.871.0210
Commercial Honorable Mention Winner Dan Welch of Welch Tile & Marble along with NTCA staff (l. to r.) Bart Bettiga, John Cox and Lesley Goddin.
Western Michigan Chapter member wins national award Welch Tile & Marble recently won an Honorable Mention in the Commercial Division from the National Tile Contractors Association (NTCA) for its work on the Community Fitness and Aquatic Center at Spring Lake High School. The Aquatic Center features a leisure pool with a beachlike, zero-depth entrance for young children and a lazyriver current pool that pushes swimmers in a clockwise direction to provide a resistance workout for seniors. It’s also studded with features such as a 100-foot waterslide and a waterfall. In addition, a 300,000-gallon competition pool features eight lanes, diving well and deep-water area for water polo. With more than 30 competition pools installed over the last two decades, including the Spoelhof Fieldhouse and pool project at Calvin College, Welch is a leader in technically challenging tile projects. As a Five Star NTCA member, Welch is a western Michigan company setting national standards. MM
YOUR COMPLETE COATINGS CONTRACTOR EPOXY & QUARTZ FLOORS SHOT BLASTING MEDIA BLASTING INTERIOR & EXTERIOR PAINTING
Since 1972
www.greatlakesstripingandsealing.com
COMPLETE ASPHALT MAINTENANCE
Sealcoating Infared Repair Crack Filling Parking Lot Striping Parking Lot Sweeping l
l
P.O. Box 283 Traverse City, MI 49685 Ph: 231.946.8269
www.abcmi.com
l
l
Fax: 231.946.6044
Fall 20 09 17
GSI
Gulf States, Inc.
Gulf States, Inc. is one of America’s foremost contractors with a nationally recognized safety program. The following highlights our company and services available to you. Company Highlights:
Core Values:
Industrial services offered: n New Construction n Shutdowns/Turnarounds n Procurement n Pipe Fabrication/Welding n Electrical n General & Electrical Contracting n Steel/Rebar Erection/Structural Steel n Mechanical/Plumbing n Instrumentation/Automation n Concrete-Formwork
Powered by People Success is realized through people.
Industries served by GSI: n Industrial Construction & Maintenance n Petrochemical/Chemical n Power/Cogeneration/Geothermal n Food Processing n Oil and Gas Refining n Pulp and Paper n Offshore n Pharmaceutical n Manufacturing n Automotive n Mining and Minerals
Can-Do Attitude Aggressively pursue challenges with a sense of urgency, desire to succeed, and a commitment to hard work and having fun.
Operations Driven Focus on field operations providing the necessary support, appropriate responsibility, and authority to succeed. Be the Best Strive for excellence, continuous improvement and innovation in everything we do. Integrity Be fair and ethical in all we do.
Vision: “To be the contractor of choice through strategic alliances within the maintenance and general services market by assigning “Can-Do” teams focused on total customer satisfaction through value added services.” Gulf States, Inc. Corporate Office & Freeport Division 6711 Hwy. 332 East Freeport, Texas 77541 979-233-5555 800-231-9849 Gulf States, Inc. Michigan Operations Midland Office 3131 South Saginaw Road Midland, Michigan 48640 989-495-9082 Fax: 989-495-9084 Northern Business Leader Erick Forshee (989) 615-2754 - cell
General Insurance ❖ Surety Bonds General Insurance ❖ Surety Bonds General Insurance ❖ Surety Bonds
Advertisers Index
Capital Steel............................................................. 10 CT Electrical Services................................................. 7 37000 Grand River, Suite 150 Dan Vos Construction............................................... 13 Farmington Hills, MI 48335 248-828-3377 1175 West Long Lake Rd., 37000 Grand River, Suite 150 248 471-0970 Fax 248-828-4280 Bonding Forest Painting.......................................................... 17 1175 West Long Lake Rd., 1175 West Long lake Rd., Suite 200, Troy, MI 48098 248-828-3377 Suite 200, Troy, MI 48098 FAX 248 471-0641 248-828-3741 Insurance 37000 Grand River, Suite 150 Farmington Hills, MI 48335 General Insurance ❖ Surety Bonds www.gswins.com Genesee-Bay............................................................ 17 www.vtcins.com 248-828-3377 Suite 200, Troy, MI 48098 Fax 248-828-4280 Bonding 248-828-3741 Insurance Farmington Hills, MI 48335 248 471-0970 Fax 248-828-4280 Bonding VTC INSURANCE GROUP 248-828-3377 www.vtcins.com Great Lakes Striping................................................. 17 FAX 248 471-0641 248-828-3741 Insurance 248 471-0970 Fax 248-828-4280 Bonding General Insurance ❖ Surety Bonds Gulf States, Inc......................................................... 18 www.vtcins.com 248-828-3741 Insurancewww.gswins.com FAX 248 471-0641 Jackson Associates, Inc.............................................. 7 www.gswins.com www.vtcins.com VTC INSURANCE GROUP J.E. Johnson............................................................... 6 VTC INSURANCE GROUP General Insurance ❖ Surety Bonds Kal-Blue....................................................................... 8 1175 West Long Lake Rd., 37000 Grand River, Suite 150 Merlo........................................................................ 13 Suite 200, Troy, MI 48098 Long Lake Rd., Farmington Hills, MI 48335 P&K Steel Service, Inc.............................................. 19 37000 Grand37000 Grand River, Suite 150 River, Suite 150, Farmington Hills, MI 48335 248-828-3377 Troy, MI 48098 248 471-0970 Regency Group......................................................... 20 Fax 248-828-4280 Bonding Farmington Hills, MI 48335 1175 West Long Lake Rd., 248-471-0970 Fax 248-471-0641 37000 Grand River, Suite 150 828-3377 Suite 200, Troy, MI 48098 FAX 248 471-0641 248-828-3741 Insurance www.gswins.com Farmington Hills, MI 48335 Rhoades McKee PC...................................................11 248 471-0970 8-4280 Bonding 248-828-3377 www.gswins.com www.vtcins.com FAX 248 471-0641 248 471-0970 741 Insurance Fax 248-828-4280 Bonding Smith Haughey Rice & Roegge.................................11 FAX 248 471-0641 248-828-3741 Insurancewww.gswins.com vtcins.com www.gswins.com www.vtcins.com VTC INSURANCE GROUP Three Rivers Corp..................................................... 15 VTC INSURANCE GROUP VTC INSURANCE GROUP Titan Equipment......................................................... 2 Tradesmen International........................................... 16 Valenti, Trobec, Chandler Inc..................................... 19 Welch Tile & Marble.................................................... 8 1175 West Long Lake Rd., Suite 200, Troy, MI 48098
l
l
l
www.abcmi.com
Fall 20 09 19
PRESORTED STANDARD U.S. POSTAGE PAID LANSING, MI PERMIT NO. 193
Associated Builders & Contractors of Michigan 120 N. Washington Square, Suite 805 Lansing, Michigan 48933 1:56 PM Page 1 ABCFundAd7.5x10:ABCFundAd 3/11/09
ABCFundAd7.5x10:ABCFundAd
3/11/09
1:56 PM
Page 1
Take Control of Your Workers’ Take Compensation Control of Your Costs TakeCompensation Control of Your Workers’ Costs Workers’ Compensation Costs
ABCFundAd7.5x10:ABCFundAd
3/11/09
1:56 PM
Page 1
ABC of Michigan Self-Insured Workers’
ABC of Michigan Compensation Fund
Self-Insured Workers’ • $1,850,000 Distributed to Participants in 2009
ABC of Michigan Compensation Fund • Over $12.5 Million Returned Since 1995 Self-Insured Workers’ Members Average a 34% Return of Premium •• $1,850,000 Distributed to Participants in 2009 Fund •Compensation $12.5 MillionLoss Returned Since 1995 • Over Industry-specific Control & Safety Services ••• Members Average aHandling 34%toReturn of Premium Aggressive Claims $1,850,000 Distributed Participants in 2009 ••• Industry-specific Loss Control & Safety Services Competitive Up Front Pricing Over $12.5 Million Returned Since 1995 •• Aggressive Claims Handling Required with an ABC of • Membership Members Average a 34% Return of Premium • Competitive Up Front Pricing Chapter • Michigan Industry-specific Loss Control & Safety Services • Membership Required with an ABC of • Aggressive Claims Handling Michigan Chapter • Competitive Up Front Pricing • Membership Required with an ABC of Michigan Chapter
ADMINISTERED BY
ADMINISTERED BY
800.686.6640
ADMINISTERED BY
www.abcmifund.org
800.686.6640
www.abcmifund.org
800.686.6640
www.abcmifund.org