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THE PROFESSIONAL

WINTER 2016

A Publication of the Associated Subcontractors of Massachusetts, Inc.

THE YEAR IN CONSTRUCTION :

LOOKING BACK AND LOOKING FORWARD


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THE PROFESSIONAL

A Publication of the Associated Subcontractors of Massachusetts, Inc.

cover story

features

16 Looking Back and Looking Forward 4 PRESIDENT’S VIEW Are You Ready?

14 WORKERS’ COMPENSATION Benefits of Occupational Health Clinics

5 EMPLOYMENT Tweaking Your Process to Find Top Talent

15 EMPLOYMENT Navigating the Construction Industry’s Talent Shortage

6 BUSINESS PLANNING The Importance of Planning for Uncertainty in Business 8 TECHNOLOGY Achieving Collaboration Excellence with Mobile Technology

20 SAFETY What Contractors Need to Know About the Crystalline Silica Rule 22 NEXT GENERATION – Q&A Getting to Know Premier Mechanical

10 MEMBER PROFILE JM Electrical Makes It Work

24 FINANCIAL PLANNING Keeping the Family Business in the Family

12 ACCOUNTING Burden Calculations: How to Allocate Your Indirect Costs

26 MEMBER NEWS

28 YEAR IN REVIEW

The Professional Contractor

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PRESIDENT’S VIEW

BY JOSEPH H. BODIO

ARE YOU READY?

I

recently met with financial planners when I was tasked with a question: What are my plans for retirement? I froze. Retirement? I was forced to admit that I hadn’t given it much thought. I have spent years, decades even, growing my business; I haven’t really planned for what happens after I finally step away. I replayed the question over in my mind and it forced me to take a step back. What are my plans for retirement? Have I been setting aside enough money to retire comfortably? Have I been investing in my future in the best ways possible? In all honesty, am I ready? These questions led to yet another alarming thought: Is my company ready to take on what the future may bring? The industry is growing and developing at an impressive rate, yet have I put enough thought into how we plan to keep up with the new standards that technology and education may have in store for the construction industry over the next five, 10 or even 20 years? I’m not the only one asking, “am I ready?” As Baby Boomers near the age of retirement, one would assume this generation is ahead of later generations in planning for their future. However, in a recent survey, the American Advisors Group (AAG) found that the Millennials plan to save more and retire earlier than their Baby Boomer counterparts. In fact, 40.5 percent of the younger generation plan to save more than $1 million compared to only 34.1 percent of Baby Boomers. Joseph H. Bodio is founder, president and CEO of LAN-TEL Communications in Norwood. He can be reached through ASM at 617-742-3412 or by email at president@associatedsubs.com.

In order to save that much money in a shorter time, Millennials are starting to plan for their retirement over 30 years in advance. Maybe this tech-savvy generation has the right idea. To guarantee that they meet their financial goals, Millennials are always preparing for the next step in their career, by investing in their education and developing the proper skill set needed for that dream job or promotion that will allow them to save for early retirement. (And to get the best talent today, you have to help them achieve their goals – read more on page 5). The same mindset can be applied to business. How can we prepare ourselves for what the industry may throw at us? Are we aware of the technological advances occurring in the industry and are we prepared to evolve with these changes? Do we have the resources to train our staff to use these new tools to improve our business and provide the best service to our clients? Time isn’t slowing down, and neither are industry developments. We need to properly educate ourselves about innovations coming down the pike so we can be up to speed and prepared when new technology surpasses our current systems. (Read more about planning for the unexpected, on page 6.) My colleagues in ASM agree with me – that’s we why we hold a technology showcase with construction tech experts to educate contractors on the latest trends, devices and apps. We should be looking 15 to 20 years ahead to where the industry is going, not just focusing on where we are now. By investing time in preparation for your company’s future, you won’t have to hesitate when asked, “Are you ready?” s

The Professional Contractor is published by The Associated Subcontractors of Massachusetts, Inc. 15 Court Sq., Suite 840 Boston MA 02108 tel 617-742-3412 | fax 857-453-4338 mail@associatedsubs.com | www.associatedsubs.com

ASM Officers

President: Joseph H. Bodio, LAN-TEL Communications, Inc. President-Elect: Susan M. Mailman, Coghlin Electrical Contractors, Inc. Treasurer: Russell J. Anderson, Southeastern Metal Fabricators, Inc. Vice President: Steven P. Kenney, N. B. Kenney Co., Inc. Vice President: Scott H. Packard, Chapman Waterproofing Company Past President: Richard R. Fisher, Red Wing Construction

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Winter 2016

ASM Directors

Steven T. Amanti | Nardine J. Bellew | Matthew A. Brown | Christopher M. Buell | R. Lindsay Drisko | Roger A. Fuller | Peter J. Gormley | Wayne J. Griffin | Robert B. Hutchison | Dana E. Johnston Jr.| William J. (Mac) Lynch | Jeffrey T. Marr Jr. | Erik S. Maseng | James B. Miller| Bernard K. Quinlan | Nancy H. Salter | Frank J. Smith | John M. Curran and David E. Wilson, Corwin & Corwin | Monica Lawton, CEO

The Warren Group Design / Production / Advertising www.thewarrengroup.com custompubs@thewarrengroup.com

©2016 The Warren Group, Inc. and Associated Subcontractors of Massachusetts, Inc All rights reserved. The Warren Group is a trademark of The Warren Group Inc. No part of this publication may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher.


EMPLOYMENT

BY KIMBERLY A. SMALL, CLU, CFP®, MST

TWEAKING YOUR PROCESS TO FIND TOP TALENT

E

mployees are the most valuable asset to any construction company that wants to grow and prosper. Good ones can mean the difference between a successful job, and one that is mired in problems, damaging the company’s reputation. Finding the right people is so critically important that companies spend significant time and money on their screening and recruitment process. Still, however, owners often complain that they can’t find good talent – when in fact, good talent is in ample supply. In our view, there are three reasons for trouble finding talent. One, firms haven’t clearly defined why a high-growth person would want to work for them, and they struggle with how to articulate this to candidates. Here are some questions you want to think about before the interview: •• What is your company known for? What are your core values? •• What do you look for in your employees? •• How do you contribute to your employees’ professional growth? •• What can an employee achieve by working for your company?

Successful construction companies are employeecentric and help their employees develop as professionals. Tell potential candidates what you will do for them, from their perspective, not yours – and stick to it. Two, many construction organizations are using the resume as a selection tool, instead of a rejection tool. The resume should be used only to filter out the unqualified candidates (i.e., as a rejection tool), and identify who is qualified to be interviewed. Then, current employees should be selected to conduct the interviews, without seeing the candidate’s resume, or knowing their qualifications. Why? This eliminates the bias the interviewer may have towards the potential candidate, and encourages probing questions that can reveal who the person really is – which may differ from what the resume suggests. Then, the interviewing process should replicate the actual work environment as much as possible. Potential candidates must be put under the same type of pressure they would experience in the position. The interviewers should not try to “sell” the job. They should simply ask questions to gain insight on how the candidate might react in stressful situations, and whether the person is a good fit for your company’s values and culture.

Three, the questions posed during the interviews do not get to the root of the candidate’s belief system and values, and how (s)he might respond in certain situations. All companies have problems – wouldn’t it be helpful to know if the person will take responsibility when things go wrong? It is critically important to get clarity on how trustworthy, honest and competent they are, and whether or not they will contribute to the success of your organization. Some of the questions/statements that can help with the interview process are: •• What interests you about this position? •• What are the characteristics that you look for in an employer? •• How do you believe you could strengthen our organization? •• What are your expectations of us? •• When relationships with your colleagues aren’t working, what is usually the cause? •• What is a typical complaint that your colleagues had about you? •• What involved most of your time in your current position? •• What worked well in the position? What didn’t? •• If you aren’t offered this position, what is your next step? •• Describe a time when you took responsibility for something that didn’t go well. What was the outcome? •• How would you handle problems that typically come up in this position? (For instance, the project is behind schedule and the client is upset. What would you do?) In summary, the best way to find top talent for your company doesn’t require a major overhaul of your recruiting process. By clearly defining the value your company brings to an employee, using the resume as a rejection tool, and slightly changing your interviewing process, your company can enjoy a low turnover rate, fewer problems on the job site and increased satisfaction with clients.  s Kimberly A. Small, CLU, CFP®, MST is the managing principal of 360 Klarity Financial. A registered Investment Advisor, her practice is solely dedicated to the Greater Boston construction industry, where she contributes to the overall success and financial well-being of individuals and owners of construction companies. She can be reached at (617) 733-4441 or kimberly@360klarityfinancial.com.

The Professional Contractor

5


BUSINESS PLANNING

BY JACK MALLEY, CPA

THE IMPORTANCE OF PLANNING FOR UNCERTAINTY IN BUSINESS Silent Film Icon Buster Keaton Shows Us How

M

y favorite comedian of all time is Buster Keaton. He is recognized as one of the top three silent film comedians, along with Charlie Chaplin and Harold Lloyd. Buster is also known as one of the greatest stuntmen ever. Buster took many risks in performing his stunts, most of which were anticipated and carefully planned out. For example, one of his iconic stunt scenes takes place in the final minutes of the 1928 film Steamboat Bill Jr. He is seen standing in the middle of a street during a cyclone when the facade of a house collapses over him. Amazingly, Buster happens to be standing where the facade’s open second story window falls and he emerges unharmed. This scene, judged as the riskiest stunt in silent film history, wasn’t a matter of guesswork or luck. Jack Malley is a partner in the Boston-area CPA and business advisory firm Rucci Bardaro & Falzone PC, where he leads the firm’s Outsourced Accounting Systems and Services (OASYS) practice, which provides CFO and controllership services to growing companies on an outsourced basis. He can be reached at 781-321-6065 or jackm@rbfpc.com.

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Buster and the film crew took extraordinary measures to minimize the risk of Buster being killed by the façade. The size of the window opening gave Buster all of 2 inches of clearance on either side of his body. A nail was placed at the exact spot where Buster needed to stand. The façade was a fully-formed, heavy-weight structure so that the movie’s manufactured hurricane-like winds would not blow the prop off its intended path. In business today, senior managers take many calculated risks. They occur during contract negotiations, determining what products to develop, evaluating which distribution channels and markets to pursue, and hiring the right employees. In a perfect world, these risks have been carefully considered and planned for within the context of a fully-formed business plan. One of the outcomes of a proper business plan is a financial forecast that, ideally, looks ahead three to five years. The plan should have a balance sheet, P&L and cash flow forecasts. We often get questions about how much effort to invest in projecting the various elements of the forecast, and how frequently the forecast should be updated.


In today’s environment, revising the forecast should be an ongoing effort. Generally, the greater the relevance of an item to the decision-making needs of management, the more frequent that item should be reviewed. Everything from the Four P’s (product, price, place, promotion) to general market conditions are relevant examples. Like Buster’s nail in the ground, you may need to know on a daily or weekly basis where revenues are headed. This calculation can impact everything from inventory needs to headcount requirements. Other items may require a far less frequent review. For instance, many companies will find that their facility costs tend to remain static over a long period of time; therefore, their costs may not be that material to the company’s bottom line. But sometimes, risks appear out of nowhere. They require managers to not only react swiftly, but also to work harder at anticipating unforeseen risks and their ramifications ahead of time.

In his 1924 film Sherlock Jr., Buster is seen running across the top of a moving train. As he runs out of train, he leaps and catches the chain of a railroad water tower. His weight causes the chain to be lowered and, with that, water comes pouring out of the spout and knocks Buster to the tracks. He then gets up and runs away. At the time, filming was suspended for two days because Buster was sore and experiencing headaches. About a decade later while examining x-rays during a physical exam, Buster’s physician asked him when he broke his neck.

At first Buster couldn’t recall, and then he remembered filming that Sherlock Jr. scene 10 years earlier. That was a risk that neither Buster nor the film crew anticipated. But today’s business leaders cannot ignore planning for an unexpected risk. Management needs to have a back-up plan prepared in advance for such things as natural disasters, security breaches, cyber-attacks, health epidemics and supply chain disruptions, to name just a few. How will you communicate with your employees, customers, vendors and those who have financed your business? Does your business plan have a worst-case scenario for dealing with a three- or six-month delay in funding? What if revenues are cut in half due to economic conditions beyond your control? These extraordinary events must be “forecasted” and made part of an implementation plan, reviewed often and updated periodically. Like Buster’s collapsing façade, the risks can be real – and the window for error can be small.s

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The Professional Contractor

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TECHNOLOGY

BY JEFF LAVERY

ACHIEVING COLLABORATION EXCELLENCE WITH MOBILE TECHNOLOGY

T

he construction industry looks significantly different than it did just ten years ago. From the strength of the economy to the diversity of projects, the industry as a whole has come back stronger than before. At the same time, technology has transformed consumer expectations and demands, which has a direct impact on how projects are managed and the tools that are employed to respond to client needs. This change represents both an opportunity and a potential hurdle, depending on a company’s willingness to adapt. There are a few reasons for this evolution in how contractors build projects and the corresponding shifts in expectations from the client side. Technology increasingly plays a role in everything we do, from buying household products to investing money to conducting business transactions. Just 10 years ago, expectations were much different for how technologically advanced a contractor was supposed to be. The playing field has shifted, and contractors are expected to perform at the same level as their clients when it comes to making technology investments and having a strong grasp on new project management tools. The types of projects contractors work on has evolved into more joint ventures and work that takes project teams further afield. In order to push projects forward, many public projects required the formation of a joint venture team, which typically include multiple stakeholders responsible for key aspects of a project. This, in turn, demands high levels of project collaboration, an aspect of project management that can be enhanced greatly with advanced project management technologies. Demands for real-time information sharing and high levels of measurement are making it necessary to rely more heavily on mobile devices for executing project management tasks. From tracking employee time against jobs and cost codes to monitoring the timely completion of service repair work, mobile Jeff Lavery is a media relations manager who writes about technology issues. For more information about mobile technology, contact Greg Kirshe, principal of Marlborough-based United Solutions Inc., an authorized reseller of Sage software solutions for the construction industry. He can be reached at greg.kirshe@u-s-i.com.

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devices are just as essential as work boots and hard hats. For companies not well versed in mobile applications, it’s increasingly difficult to compete for new projects. For today’s contractors to win new work and manage customer expectations, investing in technology platforms that enable more streamlined project management while facilitating greater collaboration between stakeholders is becoming more of a necessity than ever before for continued success.

Bringing the Team On Board As any contractor can attest, the challenge with technology adoption may not so much be a matter of resistance to change, as it is the difficulty of identifying the investments that will yield the greatest impact and value to the company. Contractors don’t necessarily need to purchase every technology solution on the market today, but instead should prioritize which investment makes the most sense for their business based on their current goals and long term technology objectives. In addition, steps must be taken to ensure that such a technology adoption does not meet resistance among project teams. Since one of the goals of technology deployments is to drive stronger collaboration among project teams, adequate thought must be given to ensuring employees understand the value of technology investments and their unique role in the process. Across construction organizations, there may be varying levels of support for technology integration. Some team members may be wholly on board with such enhancements, able to see clearly how these new solutions will enhance their ability to deliver better results for clients. Others may appreciate more traditional applications, like social media or app-based tools. But then there are also individuals who may resist technologies that would otherwise foster greater collaboration or lead to better accuracy or improved efficiency, relying only on the basic tools to communicate and perform work-related tasks. Regardless of level of engagement, almost every project team member utilizes a mobile device to conduct even the most basic of tasks, like email. With that mobile device in the hands of every work-


er, from the M/E/P coordinator to the superintendent, construction companies have the opportunity to transform their workforce regardless of how much or how little an employee aspires to engage with construction technology tools.

Game-Changing Project Management Today, new technologies enabled by mobile devices run the gamut from software as a service (SaaS) applications for field employees to communicate in real-time with the home office, to cloud-based project management tools that make it possible to access missioncritical documents from anywhere and at any time, reducing potential delays and errors in reporting. Companies like Sage are responding to the proliferation of mobile devices by developing software solutions like Sage Service Operations and Sage Construction Project Center to enhance communication and collaboration, regardless of whether a project team member is on the jobsite or in the accounting department. In addition to deploying via mobile devices, these applications pack features

like GPS integration that make it possible to track service vehicles for more accurate service appointment scheduling. Integration of takeoff options, like digitizing, electronic takeoff and BIM, allow project team members to achieve a higher level of collaboration regardless of location so changes can be tracked in real-time and decisions can be made across the miles as opposed to waiting for all parties to be in the same room at the same time. The best part is that this enhanced communication directly benefits the client, who can now keep its finger on the pulse of its project like never before by being an active par-

ticipant using tools that enable social collaboration. By placing an emphasis on tools that facilitate better information sharing, and the use of mobile devices to access these solutions, the increased mobility of construction teams is helping to break down silos between all of the project’s key players. No longer does the design team only interact with its constituents, or will subcontractors have to rely on the contractor to share necessary project information. With game-changing applications like the ones from Sage now readily available to the construction industry, there is no limit to how this enhanced mobility can change project management for the better. When it comes to utilizing new technology to harness the power of mobile devices, there is no time like the present for contractors to tap into the robust offerings from providers like Sage. To be successful in realizing the benefits of these solutions, however, project teams must be willing to embrace these new tools and take their use of mobile applications to the next level. s

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The Professional Contractor

9


MEMBER PROFILE

BY JOE KOURIEH

JM ELECTRICAL MAKES IT WORK

I

t comes as no surprise that hard work is and always has been at the core of JM Electrical’s (JME) suceess over the course of thirty years in business. The Lynnfield-based electrical contracting firm has been steadily growing since its inception in 1985, and has developed a company culture that is vibrant but simple, defined by unfaltering effort and solid relationships. Although “every day is difficult” for a firm specializing in highly complex building automation systems, according to founder and president Paul Guarracino, JME has become a leader in the industry, with its fingerprints on some of Boston’s most innovative, high-profile bio-pharma projects. In the early days of JME, even as Paul was playing a variety of roles in the newly established company, his experience as a Wentworth Institue of Technology graduate and then apprentice with Lord Electric – a major player in the commercial and industrial scene in the ‘70s – had given him the acumen necessary to get his hands around the burgeoning life sciences boom in Boston. This culminated in JME receving the contract for the Genzyme building along the Charles River in Allston, which required a large increase in field staff. “That particular project launched us into the pharmaceutical business, which is a large part of the work we do, even today,” Paul said, describing how in such a competitive industry as drug research and manufacturing, you need above-average electrical technicians. “You’re not dealing just with lighting and power, you’re dealing with airflow, fume controls, laboratory equipment – there’s a lot more aspects to it.” One of the firm’s most recent and proudest accomplishments was the simultaneous electrical installation for both towers of the new Vertex headquarters in Boston’s Seaport District. Paul described the project simply as a “tall order” – an understatement considering the buildings’ combined 1.1 million square feet of space, which, reminiscient of the Genzyme project, warranted significant staff augmentation. For the prominent student population on the city’s western side, JME is developing the electrical systems for the Boston University Center for Integrated Life Sciences & Engineering, weighing in at 170,000 square feet, and the 220,000-square-foot Interdisciplinary Science & Engineering Complex at Northeastern University. To the north, several 10

Winter 2016

JM Electrical installed the electrical systems in the 1.1 million-square-foot Vertex headquarters in Boston’s Seaport District.

thousand employees are going about their business using JME’s electrical systems at the new Somerville offices of Partners HealthCare, the most extensive health care network and largest private employer in the state. Projects of similar scale and prestige dot the Bay State’s landscape, adding up to a virtually unrivaled portfolio. Apart from hard work and sheer industry expertise, JME’s success is made up of long-term relationships, both inside the company and out – after all, a contractor isn’t a contractor without someone to do the work, and someone to do it for. For employees, Paul said, JME has “a culture of mentoring,” where new employees work side by side with veterans to develop their own skills, keeping everyone on the same page. As a result, the company experiences almost no turnover, often with whole careers unfolding under the JME banner and retirements complete with emotional sendoffs with a family feel. In fact, a host of Guarracinos are involved in the company, including Paul’s three sons and brother, enhancing the family-business values for all 150 employees. “We treat every employee as an individual,” Paul said, “and everybody’s played a role in the growth of the company, getting the work done and developing our reputation.” The construction industry has of course evolved significantly in the first three decades of JME’s operations, and JME has evolved along with it, embrac-


ing new means and methods includng LEED, Lean and Building Information Modeling. While BIM is currently outsourced, Paul said they plan eventually to hire designated staff to conduct this collaborative modeling, which requires input from different building trades to develop a 3D model before construction begins. Such collaboration is required in project planning and execution, but JME has also enjoyed camaraderie in the industry in more casual settings, such as the Associated Subcontractors of Massachusetts executive roundtables, where companies are able to swap industry knowledge. “It’s very valuable to be able to sit and hear what has worked over the years, and what hasn’t,” said Paul’s son Matthew P. Guarracino, JME’s business development manager. “Hearing those experiences brings new points of view to our own company,” which then trickles down to employees at every level. He added that even if it is a competitor sitting at the table, there is no feeling of conflict. “We focus on every relationship here as a long-term one,” he said. “We’ll be better served working with others in our industry as opposed to against them.” For Paul, the mentality of lasting, synergistic connections is the foundation of the company. “That was always the ultimate goal. We have some customers now that we’ve had for the length of the company’s existence,” he said. “That’s what’s made it work – all the partnerships we’ve made over the years. With those relationships comes the reputation that wins new customers, and you just keep building on it.” He added that as long as his team can keep up with the technological curve, JME will maintain its spot among the industry’s leaders. “You always have doubts,” he said of building a business in the fast-paced, highly competitive electrical contracting field. “But I suppose I was always too busy and too focused on going forward to look back. With some of the great young minds we have now, I don’t see any issues for JME – only a future that is looking better every day.  s Joe Kourieh is an associate editor with The Warren Group, publisher of The Professional Contractor.

The 220,000-square-foot Interdisciplinary Science & Engineering Complex at Northeastern University.

The recently topped off Pierce Boston luxury condominium complex in Boston.

JM Electrical founder and president Paul Guarracino.

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The Professional Contractor

11


ACCOUNTING

BY DAN STANHOPE, CPA

BURDEN CALCULATIONS: HOW TO ALLOCATE YOUR INDIRECT COSTS

I

ndirect costs are a necessary part of doing business and a factor that unavoidably affects your company’s profit margins. It is important for contractors to allocate indirect costs to specific jobs in order to truly understand your true cost structure and profitability. If indirect costs are not budgeted and allocated appropriately, contractors may have false expectations or present skewed results of job performance. Burden is a practical and meaningful method of allocating your indirect costs to specific jobs. Contractors allocate a cost pool by applying a burden rate or rates. Your burden rate(s) provide a truer picture of total costs than direct costs alone. Direct costs are generally easy to budget. Typically you will obtain specific bids for subcontractors and materials, and estimate direct labor based on experience. These direct costs are then attributed to a specific job, incurred if/ when you work on that project. Budgeting for indirect costs, on the other hand, can be somewhat less straightforward because these costs are often not readily apparent. Some examples of indirect costs include: • Indirect labor (downtime, vacation, sick, holiday) • Supervision • Tools and equipment • Supplies • Vehicle related expenses • Insurance • Repairs and maintenance • Depreciation • Rent While some of these costs may be fixed, such as rent and depreciation (if no fixed asset adDan Stanhope, CPA, is a manager at AAFCPAs based in Westboro, Boston and Wellesley. He has over 10 years of experience providing tax, assurance and business advisory solutions to the construction industry. Dan can be reached at 774-512-4134 and at dstanhope@aafcpa.com.

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ditions or disposals), most of these costs are variable and will fluctuate.

Establish a Burden Rate Your individual burden rate is a vital component to profitability, and your calculations should be reviewed every six months or so to account for changes in the components. In order to calculate your burden rate, common practice is to estimate the indirect cost pool and divide it by labor hours (to arrive at a rate) or by labor dollars (to arrive at a percentage). Additionally, if you have an equipment intensive company (i.e. excavation, site work), and your indirect cost pool consists of a significant amount of depreciation, repairs, maintenance, fuel, and excise tax, you should consider developing an equipment burden rate in addition to a labor burden rate. Similar to labor burden, you would identify the indirect cost pool and divide by equipment hours and allocate those costs into jobs using an hourly equipment burden rate. The examples below demonstrate the impact on the work-in-progress (WIP) schedule when burden is exact, under or over-applied. In Example A the entire indirect cost pool has been fully allocated to projects. This is nirvana, but let us be realistic: companies rarely spend the time and energy to go back and allocate all of their exact indirect costs. However, in this example you can see the gross profit on the income statement of $375,000 or 7.5 percent, ties directly into the WIP schedule (x). This provides an ideal financial picture of how jobs performed during a given reporting period. In Example B the indirect cost pool is under allocated. There is approximately $125,000 of indirect costs that were not allocated to projects. This resulted in the income statement still reflecting $375,000 or 7.5 percent of gross profit (this will not change), but the WIP schedule is reflecting $500,000 of profit or 10 percent (y). As you can see, this variance can be misleading to the users of the reports and show an inaccurate portrayal of the job’s performance.


In Example C none of the indirect costs have been allocated and it magnifies the issues described in example B. In this example, the income statement remains unaffected; however, the WIP schedule reflects $750,000 or 15 percent of gross profit (z) showing the jobs are more profitable.

The WIP schedule is one of the most critical reports and a fundamental dashboard used to provide strategic insight for informed decision making. For contractors, the WIP can look vastly different depending on how burden is applied. While allocating indirect costs will not change gross profit, it will

Example A: Burden Fully Allocated

change how jobs are reported and provide a more accurate reporting on factors affecting profitability. Burden is an important part of your cost structure, providing owners, estimators, project managers and accounting staff with more accurate financial metrics and benchmarks to guide pricing and profitability. s

Example B: Burden Underallocated

Example C: No Burden Allocated

5,000,000

100.00%

5,000,000

100.00%

5,000,000

100.00%

750,000

15.00%

750,000

15.00%

750,000

15.00%

Subcontractors

2,500,000

50.00%

2,500,000

50.00%

2,500,000

50.00%

Materials

1,000,000

20.00%

1,000,000

20.00%

1,000,000

20.00%

375,000

7.50%

250,000

5.00%

-

0.00%

4,625,000

92.50%

4,500,000

90.00%

4,250,000

85.00%

Indirect labor

100,000

2.00%

100,000

2.00%

100,000

2.00%

Depreciation

75,000

1.50%

75,000

1.50%

75,000

1.50%

125,000

2.50%

125,000

2.50%

125,000

2.50%

75,000

1.50%

75,000

1.50%

75,000

1.50%

(375,000)

-7.50%

(250,000)

-5.00%

-

0.00%

-

0.00%

125,000

2.50%

375,000

7.50%

4,625,000

92.50%

4,625,000

92.50%

4,625,000

92.50%

375,000

7.50%

375,000

7.50%

375,000

7.50%

Contract revenue Costs of contract revenue Direct costs Direct labor

Burden applied Subtotal Indirect costs

Rent Auto and related Burden applied (contra Subtotal Total costs of contract revenue Gross profit

Y

Z

Job 1

Revenue

Costs

Gross Profit GP %

Revenue

Costs

Gross Profit GP %

Revenue

Costs

Gross Profit GP %

Job 2

2,000,000

1,900,000

100,000

5.00%

2,000,000

1,849,000

151,000

7.55%

2,000,000

1,746,000

254,000

12.70%

1,500,000

1,350,000

150,000

10.00%

1,500,000

1,313,500

186,500

12.43%

1,500,000

1,240,000

260,000

17.33%

1,000,000

930,000

70,000

7.00%

1,000,000

953,500

46,500

4.65%

1,000,000

900,000

100,000

10.00%

300,000

275,000

25,000

8.33%

300,000

267,600

32,400

10.80%

300,000

253,000

47,000

15.67%

Job 5

200,000

170,000

30,000

15.00%

200,000

116,400

83,600

41.80%

200,000

111,000

89,000

44.50%

Total

5,000,000

4,625,000

375,000

7.50%

5,000,000

4,500,000

500,000

10.00%

5,000,000

4,250,000

750,000

15.00%

-

-

-

X

-

-

-

Y

-

-

-

Z

Job 3 Job 4

Actual burden rate %

50%

50%

50%

Actual burden rate $

$30

$30

$30

12,500

12,500

12,500

Direct labor rate

$60

$60

$60

Burden applied

50%

33%

0%

0%

17%

50%

Direct hours

Delta

X

The Professional Contractor

13


WORKERS’ COMPENSATION

BY JEFFREY ROBLIN

BENEFITS OF OCCUPATIONAL HEALTH CLINICS

I

t goes without saying that workers’ compensation mod factors (driven by claims experience and severity) impact subcontracting businesses in many ways. It is also widely accepted that workers’ compensation coverage is the line of insurance over which business owners can assert the most control, with regard to premium and other indirect costs. This article will focus on one approach to achieving greater control: having the right systems in place to get injured workers the right care and attention, so that they can return to work (and claims can close] as quickly as possible. Needless to say, the longer a worker is out, the more severe the impact on the mod factor (and other related indirect costs). One of the best ways to address medical treatment and costs at the same time is through the use of occupational health clinics. Occupational health clinics are typically independent medical providers which are set up to provide care and treatment with the interests of not only the patient, but also the employer in mind. Their goal is to provide effective treatment while also limiting the severity of claims by controlling cost, and minimizing time off work. The most impactful factor that allows occupational health facilities to work in the interests of both parties is good communication. Employers can expect to hear directly from the medical provider with information on diagnoses, treatment methods, medication, and most importantly, expected return to work date (even if it’s light duty). This is a much more effective and reliable source of information than asking employees directly! Another advantage of this model is the mindset and treatment philosophies of the doctors providing care. Occupational health clinics tend to rely less on prescription opioids, which can often prevent the body from healing, and lead to habitforming addictions. When this is unavoidable, and an alternative like high dosage Motrin isn’t viable, they’ll restrict usage to one to three weeks and reJeffrey Roblin is a senior account executive at Roblin Insurance, a fourth-generation company that is one of New England largest independent insurance agencies. He specializes in providing clients with sustainable and cost-effective commercial insurance solutions and strategies, and can be contacted at jeff@roblininsurance or 781-726-6361.

14

Winter 2016

evaluate with more frequency and stringency than you might find elsewhere. Employers also look to occupational health clinics for their employees’ needs because of the considerable difference in cost. To use an example, a procedure like stitches might cost $200 – $400 at a clinic, while the same procedure could cost as much as $2,500 at a hospital emergency room. Lastly, utilizing these types of facilities makes the filing of fraudulent claims much more challenging. There are many cases of occupational health practitioners informing a patient’s employer that an ailment is likely unrelated to work duty, exaggerated or entirely false. Remember, doctors working in these types of facilities work for both the patient AND the employer. Occupational health clinics are found throughout the New England area and are often associated with urgent care centers or other independent practitioners. Ask your broker whom they recommend to use and why. Of course, employers can’t solely rely on medical professionals to properly diagnose, treat, and facilitate a return to work as expeditiously as possible. It is imperative that subcontracting businesses, and particularly direct supervisors, stay engaged with an injured employee in a positive and encouraging manner. This means regular check-ins and sincere well wishes! Along these same lines, we recommend having a light work or return-to-work program in place so that your workers can return, in some capacity, quickly. This way, a claim’s impact on your mod factor can be minimized. In conclusion, having a treatment plan in place is a critical component of being more vigilant and proactive when it comes to managing the costs associated with workers’ compensation. Most importantly, make it a priority in your discussions with your broker to put a plan in place to keep your mod at a minimum, and get injured employees back to work as quickly and safely as possible. s


EMPLOYMENT

BY STEVE BUCCIGROSS, CPA

NAVIGATING THE CONSTRUCTION INDUSTRY’S TALENT SHORTAGE How can your company attract new talent and win bids?

W

hen the Great Recession hit a decade ago, it’s possible no profession was as negatively affected as the construction industry. With the economy tumbling, many property owners, municipalities, and state governments shied away from any new construction endeavors. According to a 2012 USA Today story, the construction industry lost more than 2.2 million jobs in five years. The reason was two-fold: 1) Workers in the middle or at the end of their careers decided to either retire or find work in a new industry, and 2) There were no available jobs for younger workers looking to gain experience in the industry. Over the past several years, as the economy has recovered from the effects of the recession, renewed business confidence has led to an increase in available construction projects. The only problem? There still aren’t enough workers. A 2014 survey by the Associated General Contractors of America reported more than 25 percent of construction companies were turning down work because they didn’t have enough people to complete the project on time and under budget. Another study, conducted in 2015 by the World Economic Forum, found more than 50 percent of general contractors are “concerned about finding experienced crafts workers for their workforce.” The construction industry hasn’t had time to recover from its exodus of talent, creating significant imbalance between the volume of available work and available workers. What can construction companies do to navigate the talent shortage while continuing to win bids and maintain profits?

Be selective in the bidding process During the recession, the skilled labor force faced the opposite challenge as it faces today. There were so few available projects that construction companies were forced to take just about any job that came their way just to make sure their employees were busy. This drove prices and profitability down dramatically. Today, the talent shortage, while a concern, actually presents an opportunity. Firms can be selective about the projects they choose to accept. The ability to selec

tively pick and choose projects gives construction firms the power to invest their resources in the highest-paying projects, and a thinner bidders’ market lets them come in with higher bids.

Attract new workers Attracting new workers in a highly competitive market is, of course, easier said than done. But there are several steps construction firms can take to make their company more attractive to young talent: •• Offer on-the-job training: Entering the construction industry can be a long (and expensive) process. To qualify for many projects, skilled laborers need to complete training and earn licenses for particular work. Construction firms that offer on-the-job training can acquire young workers and train them to be long-term members of the firm. •• Streamline the hiring process: Many available workers are eager to start earning paychecks. If your company has a long hiring process, you run the risk of losing your desired applicants to competitors. •• Flaunt your environmental conscience: “Green” construction strategy is on the rise. Construction firms can make themselves more attractive to younger workers by providing LEED certification to show the talent pool that they are environmentally responsible. •• Sell the profession: From good, competitive wages to an emphasis on quality-of-life, the construction industry has a lot to offer. It’s imperative that established organizations make that clear to the younger generation. The Associated General Contractors of America study predicts the construction industry will require 7.2 million workers by 2022. It’s clearly vital for construction companies to attract new, young talent to the industry.  s

Steven Buccigross is a principal at the regional accounting, tax and business consulting firm, BlumShapiro & Company, P.C., and has 14 years of public accounting experience specializing in audits of privately held businesses in the construction, manufacturing, technology and real estate industries as well as nonprofit organizations. He can be reached at 781-421-2087 or at sbuccigross@blumshapiro.com.

The Professional Contractor

15


THE YEAR IN CONSTRUCTION:

LOOKING BACK AND LOOKING FORWARD


SLOWDOWN? WHAT SLOWDOWN? BY JAY FITZGERALD

T

hough there’s been some reports in the media about the torrid pace of construction across the state possibly ebbing a bit, industry and business leaders say the pipeline of planned commercial construction projects is filling up fast, promising another strong year for contractors, subcontractors and trade workers in 2017. “Our backlog of projects is leaving us bullish,” said Kevin Sullivan, the vice president of the New England division of Shawmut Design and Construction. “Our backlog is actually bigger than at this time last year. The market is still there, definitely.” If there was any slowdown in construction in 2016, compared to 2015, most industry officials say it actually represented a shift of work within different subsectors of the industry and within different geographic areas of the state, not necessarily an overall decline in construction. In Boston, Brian Golden, director of the Boston Planning and Development Agency (previously known as the Boston Redevelopment Authority), said there may well have been an ebbing of the pace of luxury housing construction in Boston’s downtown in 2016, something readily noticeable to many observers. But what many people don’t realize is that commercial construction, particularly for mixed-used developments involving multifamily residential and groundfloor retail components, is shifting to other, less expensive areas of the city, such as in Allston-Brighton, East Boston, Dorchester and other outer neighborhoods, Golden said. As a result, the city of Boston has so far this year approved 14 million square feet of new development, as of late November, compared to 7.8 million square feet

of new development approved during the same period last year. The projects are simply more geographically diffuse today, Golden says, and not as concentrated in the downtown area as they have been in the recent past. “We’re in a very good position,” said Golden. “We remain in the biggest building boom in the city’s history.” That downtown-to-outer-neighborhoods trend is actually good news as well for surrounding cities and towns, where property is relatively more affordable and where the construction spillover is now being felt as far away as Route 128 and I-495. “The hotter Boston gets, the more people search for affordable land elsewhere,” said Roy Nascimento, president and CEO of the North Central Massachusetts Chamber of Commerce, which covers such communities as Fitchburg, Leominster, Clinton and other towns. “A lot of employers and residents are getting priced out of the Boston market – and that’s helping us.” To understand what’s in store for 2017, a closer look at this past year is important, industry officials say. One of the more recent encouraging developments has been the return of speculative building, often a sign that industry players are confident about the strength of the market moving forward. Brendan Carroll, president and director of intelligence at Encompass Real Estate Strategy LLP, a Boston real estate research firm, said a number of speculative office construction projects either got under way or came to completion in 2016. They include the 415,000-square-foot Skanska project at 121 Seaport in Boston, the 375,000-square-foot 140 North Avenue continued on page 18 The Professional Contractor

17


continued from page 17

project in Boston (a facility that’s now already partially leased out to Boston Consulting Group) and the 425,000-square-foot 888 Boylston Street project (Boston Properties has already leased 140,000 square feet of that space to Natixis). But projects that started out as speculative outside of Boston also include the 91,000-square-foot 114 Hartwell St. in Lexington and the 255,000-square-foot 89 A Street in Needham (now also partially leased out). In all, about 2.8 million square feet of office space was under construction in Greater Boston as of the third quarter of 2016. That’s down from 4.7 million square feet five quarters ago. But Carroll stressed the numbers are deceiving because there was a lot of “emptying out of the construction pipeline’” over the past year, as many projects, especially mixed-use projects like the massive Millennium Towers in Boston’s Downtown Crossing, started coming on line. Though one can never be sure about the direction of the overall U.S. and global economies, there are many encouraging signs that the market will “remain robust” next year, said Carroll, noting Akamai Technology’s recent agreement to lease Boston Properties’ planned 454,000-square-foot, build-to-suit complex in Cambridge’s Kendall Center and John Hancock Financial’s plan to construct a new building at 380 Stuart Street in Boston. Others note the imminent start of other projects, such as the massive mixed-used redevelopment of Boston’s Government City Garage by HYM.

18

Winter 2016

There are also longer-term plans for new towers at South Station, Winthrop Square, Don Chiofaro’s much-debated plan for a new tower near the New England Aquarium and the Abbey Group’s recent announcement of its plans to redevelop the Boston Flower Exchange in the city’s South End. Of course, there’s also the $2 billion Wynn Boston Harbor casino project now finally under way in Everett, a project being handled by Suffolk Construction and expected to employ thousands of workers over the next few years. Then there’s the ongoing work in Cambridge’s red-hot Kendall Square, where Alexandria Realty is still working on its Binney Street projects and where MIT recently was awarded the development rights of the Volpe Transportation Center by the federal government, in a move that could unlock hundreds of thousands of square feet of new life-science and office projects in coming years, officials note. “There’s continued great strength (and) great momentum in the market all around,” said David Begelfer, president and CEO of NAIOP of Massachusetts, the commercial real estate and development association. He noted that activity is now picking up in the Route 128 and I-495 areas. “People are scrambling to find (affordable) places to build,” he said. Hugh Kelleher, executive director of the Greater Boston Plumbing Contractors Association, said his contractor members have been so busy that trade unions are now scrambling to find and train apprentice plumbers, pipefitters and sprinkler-system workers to handle all the work. “It’s busier


than it’s ever been,” said Kelleher. “We now effectively have full employment.” Boston and Cambridge are obviously hot markets, but Somerville, Quincy and other nearby communities are also seeing a lot of activity, he said. In particular contractors are busy with hospital and school construction projects, he noted. Carroll said a “fascinating market” for construction has been industrial warehouses, such as the new 650,000-square-foot facility that was delivered earlier this year for use by Martignetti Liquors and the 1 million-square-foot distribution facility that was completed this year in Fall River for Amazon.com, the giant online retailer. He also noted a new 450,000-square-foot distribution facility in Littleton for Potpourri and a 250,000-squarefoot warehouse facility at 355 Maple Street in Bellingham. Nascimento said he’s seeing other industrial activity in his central Massachusetts area, such as the build-out of a new industrial park on 300 acres of land in Westminster by Stubblebine Cos. and the planned new Southgate Business Park in Leominster. In the Fitchburg area, developers, led by Steve Marsden, are eyeing a new sports complex just off Route 2 while Winn Development is now converting the old Fitchburg Yarn Building into 96 apartments near downtown Fitchburg, Nascimento said. And officials are convinced this year’s opening of a new commuter rail station in West Fitchburg will further unlock development. “It’s a huge plus for the area,” said Nascimento of the rail station. Further west, most of the talk centers on the historic construction of the new $1 billion MGM Springfield casino, in the heart

of the city, an ongoing project expected to produce thousands of construction jobs and more than 3,000 permanent jobs. Nancy Creed, president of the Springfield Regional Chamber of Commerce, said there’s a clear ripple-effect from the massive MGM project. “We are seeing an uptick in renovating older buildings and developing market rate housing,” she said. “And we are hearing of hotels that are seeking permitting to build around the project.” Besides the MGM and its spinoff projects, the city’s Union Station is currently undergoing a $93 million renovation, while a number of higher education institutions, including Western New England University and Springfield College, have launched multi-million construction projects, she said. “It is an exciting time to be part of the business community in the city,” said Creed. And speaking of education projects, Shawmut’s Sullivan said his firm is currently involved in a $30 million renovation and expansion project of a dining hall at Mount Holyoke College, while Shawmut is also involved in new high school projects in Greenfield and Lunenburg. The bottom line for many industry officials looking ahead: Unless the U.S. and global economies head south, there’s no reason why construction shouldn’t remain strong in Massachusetts, though there will be ups and downs and sector-to-sector shifts that could be disruptive. “I’m very bullish,” said Nascimento. “I’m very confident heading into the new year.”  s

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The Professional Contractor

19


SAFETY

BY DEAN AVERY

WHAT CONTRACTORS NEED TO KNOW ABOUT THE CRYSTALLINE SILICA RULE

J

une 23, 2017: That is the date that OSHA will begin enforcement of the new Crystalline Silica Rule: 1926.1153 Over the last several years, OSHA has been analyzing silica exposure in construction to get a feel for who and how many workers may be exposed to respirable crystalline silica. They have found that there is significant exposure in over 600,000 workplaces and potentially 840,000 workers are potentially exposed. Exposure to crystalline silica can cause silicosis, lung cancer, other respiratory diseases and lung cancer. The types of activities that are most subject to exposure are tasks such as masonry saw cutting, grinding, drilling, jack hammering, chipping, milling and crushing to name a few. It does not apply to tasks such as mixing mortar, pouring concrete footers, slab foundations and walls and removing forms. The standard requires that employers limit worker exposure to respirable silica and to take other measures to protect workers. Contractors are required to protect not only the worker performing the task but also the attendee and anyone in the vicinity. This could be another trade, project owners doing walk throughs or even the general public who are passing the project. There are several ways to meet the standard and OSHA has provided a guideline for contractors to follow. These options are laid out in Table 1 on OSHA’s website at https://www.osha.gov/ silica/SilicaConstructionRegText.pdf. The key provisions of the rule are as follows: • It reduces the permissible exposure limit (PEL) for respirable crystalline silica to 50 micrograms per cubic meter of air, averaged over an eight-hour shift. • It requires employers to: use engineering controls (such as water or ventilation) to limit worker exposure to the PEL; provide respirators when engineering controls cannot Dean Avery is the safety products specialist for Colony Hardware in Boston. He can be reached at 617-487-3392 or davery@ colonyhardware.com.

20

Winter 2016

adequately limit exposure; limit worker access to high exposure areas; develop a written exposure control plan; offer medical exams to highly exposed workers; and train workers on silica risks and how to limit exposures. • It requires employers to provide medical exams to monitor highly exposed workers and give them information about their lung health. • It provides flexibility to help employers – especially small businesses – protect workers from silica exposure. There are many differing opinions on how to comply with the standard. Engineering controls are always the first step. Collecting and containing the dust would minimize the exposure and eliminate the need for workers to be required to wear respirators. This would require the use of specific equipment that meets the requirement of the standard. Vacuum systems are readily available from top manufactures such as Dewalt, Bosch and Milwaukee, to name a few. The vacuums must be equipped with HEPA filters that are 99.97 percent efficient in removing particles of 0.3 micrometers in diameter. These vacuum systems must also be mechanically self-cleaning. However, there is no provision in the standard on how to dispose of the collected dust. If you merely dump the dust into the dumpster you are now creating a cloud of dust on the work site which defeats the purpose of the rule. Bagging is by far the best practice.


Additionally, air sampling is always a good idea so that there are no questions about what concentration levels are associated with a particular activity. This, however, is a bit of a challenge for many subcontractors due to the cost of hiring an industrial hygienist to do the sampling as well as the associated time loss and cost of having to send the samples to the lab for analysis. By the time the samples are sent in for analysis and returned to the contractor, the job could be completed. This sampling method gives you a baseline for that specific time and place with which to formulate an action plan. Several contractors that I’ve spoken with feel they can use this baseline method to create a “best practices” plan for future jobs that have the same or similar conditions. However, conditions are constantly changing – including wind, rain, snow and relative humidity. Only time will tell if that method will be accepted by OSHA once this law is being enforced. Even though the enforcement date is eight months away, some general contractors are already asking for a written exposure control plan, per 1926.1152(g) (1). This would be a very good time to start on your plan so you won’t be scrambling when the date draws near. Employee training is going to be a very important part of this standard as it is in every other OSHA standard. Since this is such a hot button topic, it is imperative that employees are well trained and informed on the health hazards that come with crystalline silica exposure. That would include identifying tasks that may expose them, and the measures they can take to protect themselves. One final point that will be extremely important for contractors dealing with the Rule is record keeping. 1926.1153(j) (i) states that “employers shall make and maintain an accurate record of all exposure measurements taken to assess employee exposure to respirable crystalline silica.” The record keeping requirements are clearly laid out in the Table 1 on OSHA’s website referenced above. If you need help with finding the right products to comply with the rule please feel free to reach out to me directly. s

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The Professional Contractor

21


NEXT GENERATION: Q&A

BY SCOTT SZYCHER

GETTING TO KNOW PREMIER MECHANICAL

B

rian Serafin and Joe McGrath are the principal owners of Premier Mechanical, a firm that opened its doors in December 2015, specializing in commercial HVAC construction projects. Still in their 30s, ASM interviewed them to gain more insight into their journey to business ownership. Q. What spurred your decision to start your own company? Joe McGrath: It’s always been a passion of mine to start my own business. The funny thing is that Brian and I are doing the mechanical contracting work we’ve been doing for years, but now we make our own decisions. Brian Serafin: Having been in the mechanical contracting business for 15 years, we already had a network of great contacts and customers, so that made the decision much easier. Q. What are your respective backgrounds? McGrath: I was a sheet metal worker in the field, having worked for Charles P. Blouin, Inc. and then for Limbach Company. My father is a local 17 sheet metal worker, so I grew up in a construction family. Serafin: I received a mechanical engineering degree from the Rochester Institute of Technology, then worked for MJ Flaherty prior to working for Limbach. Scott Szycher is the membership, marketing and communications director for ASM.

22

Winter 2016

Q. What are the advantages or challenges of being younger than your fellow business owners in the subcontracting industry? Serafin: Fortunately, we haven’t found our ages (Brian is 38, Joe is 30) to be a problem, probably because we have clients who trust us and know we’re good, from our work on previous projects. There’s a perception that because we’re young, we’re going to be able to use social media as a big asset. While we do use LinkedIn and Twitter, we haven’t found social media to be all that inclusive in our industry. McGrath: I think being young means having a fearless mentality, which is a positive. If we’ve run into any hesitation about our ages, it’s been from the older guys in the field, not from folks on the office side of our clients. Q. Are there certain types of projects Premier Mechanical is focused on? McGrath: We do private work, and make a point to follow our customers, not follow projects. For example, we have two clients that do a lot of restaurants and retail work, and we’ve been doing a lot of projects for those clients. Serafin: While we don’t want to pigeon-hole ourselves, restaurants are now 25 percent or more of our business. We also recently did work for a music classroom at MIT on a tight schedule. We don’t do high-rise projects; most of the work we take on is for projects $1 million and lower.


Q. What are the challenges of being a startup business? Serafin: The biggest challenge is not having help to do accounting and administrative work. Certainly, I’ve done requisitions, processed invoices, done job costing, and so on, but previously we were in environments where we had help with this work. Now it’s on us! McGrath: After we launched, there were many aspects to running the business that were new and stressful: IT, insurance, vehicles and more. It’s not that Brian and I can’t do these things, but it’s very different when you have to carve out time for those tasks, versus just doing project work, and having other people handle those back office functions. Q. What’s keeping you awake at night? Serafin: I think about the issue of brand recognition: what makes Premier Mechanical distinct to its customers? Our project management and expertise need to stand out to our customers through our brand, so every project issue has the capacity to keep us awake at night. McGrath: Now that we’ve got some systems in place for the back office work, the stresses are specific to project-site challenges, which is fine because project work is our strength. And because we had good client contacts when we launched, and because construction and development are doing so well around Boston right now, we’re actually getting calls to bid – so we’re not faced with the stress of not having enough work in our pipeline. Q. Is there anything you’d do differently? McGrath: Fortunately, the choices we’ve made, including launching when we did, and moving from shared space in Charlestown to our own 400-squarefoot office space in Boston’s North End, have all worked out so far. Q. Where you do see Premier Mechanical in five years? Serafin: Joe and I have talked about this a lot. The bottom line is: we’re growth-oriented. We are looking to hire office staff, and possibly even a project manager to assist us in the field, but that would depend on industry demand.

Q. What would you like readers to know about Premier Mechanical that you may not have mentioned yet? McGrath: We want them to know that when it comes to mechanical contracting, Brian and I are two of the best project managers in the business. We’re committed to every project; we feel like we own every project we take on. Q. As co-owners, what’s the dynamic like between the two of you? Serafin: We’re usually on the same page, but we have so much respect for

each other that we listen and are receptive to what the other is saying. McGrath: We have good chemistry; we probably wouldn’t have gone into business together if that weren’t the case. Personally, I’m stubborn but impressionable. It can be hard for me to be in the moment; I’m always looking ahead. Serafin: I think I speak for both of us when I say that there’s nothing we’d rather be doing. We work hard and have been very fortunate, and hope things continue.  s

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The Professional Contractor

23


FINANCIAL PLANNING

BY JOHN AYERS, CFP®, CIMA®

KEEPING THE FAMILY BUSINESS IN THE FAMILY

B

usiness succession planning is important for any enterprise, but it is especially challenging in a family-owned business as several more issues arise when you mix family and business. Some of these additional challenges include deciding on which child will be the leader, how to develop the leadership and management skills in that child, the quandary that the parents face by wanting to realize value from the business while the child may not have nearly the financial resources to pay fair market value, and finally, the parents attempting to be fair in the disposition of their assets to all of their children, not just the one(s) participating in the company. John Ayers, CFP®, CIMA® is a financial advisor and vice president, wealth management at Morgan Stanley, and a founding member of The Westminster Street Group at Morgan Stanley. For more than 20 years, he has been helping small and family-owned business owners with financial planning, investment management, succession planning and estate planning strategies. He can be reached at 401276-5935 or John.C.Ayers@morganstanley.com. Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Financial Advisors or Private Wealth Advisors do not provide tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters.

24

Winter 2016

However, if successful, this type of transition could result in significant advantages over many other types of transactions. In this article, I will share a recent experience that illustrates when a transition goes right.

The Scenario The owner of a small, but very profitable company in the trades, was ready to retire and spend more time with his wife at their Texas home. The founder had three grown children and for many years, the father offered opportunities to work in the business, but all three chose different paths. As the parents’ retirement goals became more realistic, the sale of the company appeared to be inevitable. However, the middle son reconsidered the opportunity and agreed to take a job at the bottom rung of the company ladder. He spent several years learning all aspects of the business and eventually took over the bulk of his father’s responsibilities. He proved to his father that he could successfully run the company and that he was a worthy successor. However, several hurdles remained: • Although the parents had grown their wealth outside of the business, the business


represented about 25 percent of their net worth and they wanted to receive value on their life’s work. • Their son and heir apparent had virtually no net worth. • Since the father founded the company, there were substantial imbedded capital gains. • A gift, even a portion, would have caused an estate/gift tax problem, not to mention animosity with the other two siblings.

The Strategy Through several meetings with the family, we developed a strategy to help address these and other concerns. The key parts of the plan included the following: • The son created a new company that purchased the assets of his father’s company at fair market value. Fair market value was arrived through a professional business valuation and eliminated the gift tax problem all-the-while reducing the risk of sibling jealousy.  • The sale is being financed by a 10-year installment note from the father. The 10 years not only allows for the son to use the company cash flow to pay down the debt, but also provides the father the ability to defer the capital gains over the same 10-year period. Since Texas does not have a capital gains tax, the father (now a Texas resident) avoids state capital gains taxes. • Finally, since the son’s company purchased the assets of his father’s company (as opposed to the stock), the

son is allowed to recognize substantial depreciation expense, thereby saving significant income tax.

Long Term Impact This transition happened less than two years ago. The parents are living happily in the south and occasionally visit New England. The company and profits have grown modestly and the son has been paying down debt while building his own savings account. Perhaps more rewarding than the successful transfer and the significant tax savings is that the family remains intact. The non-participating siblings realize that they were offered the same opportunity and the transaction was done through a sale, not a gift. The other reward is that the parents know that they are financially secure and a large portion of their long-term vision has been realized.

The Take-Home Message Every business is unique, and there is no one-size-fits-all approach to business succession planning. The planning process should take into account a plethora of dynamic variables that includes personal goals and expectations, health and financial circumstances, tax considerations, market conditions and the economic environment. Working with an experienced financial advisor who knows your family and understands your full financial picture can help you develop and implement a plan that integrates your overall objectives with the ongoing success of your business.  s

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MEMBER NEWS Glenn Kingsbury Inducted into Academy of Electrical Contracting

Glenn Kingsbury, executive manager of the National Electrical Contractors Association (NECA) Boston Chapter, was inducted into NECA’s Academy of Electrical Contracting at the General Session of the NECA Convention in Boston on Oct. 8. He joined nine Academy inductees from around the U.S. The Academy honors outstanding leaders in the electrical contracting field and utilizes their experience and knowledge to benefit the future of the construction industry. Fellows of the academy prepare special papers on aspects of electrical construction in which they have special knowledge. They also participate in long-range studies that help ascertain the future requirements and direction of the industry.

ASM & AGC Team Up to Benefit St. Mary’s Center

In another instance of industry partnering, the Young Professionals of ASM and the Associated General Contractors (AGC) of Massachusetts came together in September for a joint networking event at Gather Boston that also doubled as a fundraiser to benefit St. Mary’s Center for Women & Children. Based in Dorchester, St. Mary’s Center provides programs for women and children who have experienced trauma, and are living in poverty. This networking event also featured the sale of notecards featuring artwork from women and children living at St. Mary’s Center, the proceeds of which go directly to the charity’s programs and services. Recently, Salem Glass’ Jessica Blake joined Turner Construction’s Kelly Gillen to present St. Mary’s with a check for over $1,500 from the proceeds from this event. The two industry groups look forward to future opportunities to collaborate to benefit some of the state’s best charitable organizations!

J.C. Cannistraro Earns Prestigious Distinctions

P.J. Kennedy’s Paul Kennedy Receives Lifetime Achievement Award from GBPCA

At the recent Greater Boston Plumbing Contractors Association (GBPCA) Industry Appreciation Night, Paul K. Kennedy Sr., of P.J. Kennedy Inc., was presented with the inaugural Lifetime Achievement Award to acknowledge his contributions to GBPCA and to the region’s plumbing industry. Paul’s responsibilities as President of P.J. Kennedy, a family-run mechanical contracting business with a proud history extending back over 90 years, didn’t prevent him from serving as the head of the state’s plumbing board. We congratulate him on earning this tremendous distinction! Pictured with Paul are GBPCA President Joe Cannistraro, Quincy Mayor Tom Koch, and GBPCA Executive Director Hugh Kelleher. 26

Winter 2016

Mechanical contracting firm J.C. Cannistraro LLC is on quite a roll, as it was named one of the Boston Globe’s Top Places to Work! Additionally, the company recently took home the prestigious “Contractor of the Year” award from the national Plumbing-HeatingCooling Contractors (PHCC) Association. The family-owned company also recently announced the planned relocation and consolidation of its manufacturing and warehousing operations from three suburban locations to a rehabilitated 157,000-square-foot building in Boston’s Seaport District, which will assist the company’s efforts to apply green building technologies, Lean manufacturing principles and modular building methods on its future projects.


S

ubcontractors Work Hard.

You deserve a trade association that works equally as hard.

Benefit from all we offer to help build your business! 

Connect to best-in-class subcontractors and leading general contractors Have an influential voice on laws, regulations, and tax issues that directly affect your bottom line Learn from the best at our seminars, networking events, and safety roundtables Gain access to our Acadia Insurance program, which has returned over $4 million in dividends

Protect your success: Join ASM Today!! Learn more at www.associatedsubs.com or call 617-742-3412.

“In Massachusetts, there is no other organization like ASM when it comes to informing subcontractors, and protecting our rights. I can truly say it is the best organization for our company and has been a key to our success.” – David G. Cannistraro, JC Cannistraro, ASM Past President


YEAR IN REVIEW 1A Bent Electrical Contractors (Somerville) replaced 50 old incandescent lamps and installed new LED cove fixtures around the altar at the Fresco-Saint Catherine’s Church in Somerville. 1B Bent Electrical Contractors aided a space renovation for Bright Horizons in Boston’s Back Bay, including new lighting, power, tel/ data and an updated fire alarm system.

1B

2A 2B Central Ceilings (South Easton) performed drywall and roof deck carpentry work for Goodwin Procter’s new office in Boston’s Seaport District. 3 Front Line Inc. (Hopedale) used a slurry blaster to remove paint on a wall at Harvard University’s Gore Hall so that a moisture membrane could be installed.

1A

4A J&M Brown Co. (Jamaica Plain) completed a comprehensive electrical renovation of MIT’s Building NW 23, including the installation of new, stacked electrical closets; a new fire alarm system; and lighting and lighting control systems.

2A

3

2B

4A

4C

4B J&M Brown Co. renovated the electrical, fire alarm, tel/data and security systems at Wentworth Institute of Technology’s Schumann Library. 4C 4D J&M Brown Co.’s project work for Sonos’ headquarters fit-out in Downtown Crossing, Boston included specialty electrical installations for three massive sound chambers and one of the world’s largest living green walls. 5A 5B J.M. Electrical (Lynnfield) and EM Duggan (Canton) have completed control system project operations at Boston’s Hub 25 apartments on Morrissey Boulevard. EM Duggan installed the HVAC system, while JM Electrical installed the individualized HVAC controls for heating and cooling.

4B

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Winter 2016

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6A Marr Scaffolding Company (South Boston) provided access to Pier 15 to facilitate structural improvements on the Charles M. Braga Jr. Memorial Bridge in Fall River.

YEAR IN REVIEW

6B Marr Scaffolding Company’s Aerial Lift Division installed seven swings at Yotel, a new hotel in Boston’s Seaport District. 6C Marr Crane & Rigging’s Elevator Division installed twin Alimark cars at a tower on Block B in the Seaport District. 7A NB Kenney (Devens) installed the pump package, chill and hot water lines, steam and glycol systems within the Bristol Meyers Squibb manufacturing plant.

6A

7B Boston Mechanical Services (Stoughton), the service division of NB Kenney, replaced a rooftop unit at 20 Pickering St., Needham.

6B

7C 7D NB Kenney nears completion of the HVAC system installation at the Caleb Dustin Hunking Middle School in Haverhill. 7E NB Kenney completed the full HVAC system installation in the New England Conservatory’s new multi-use educational and residential facility. 7F NB Kenney completed a HVAC tenant fit-out, as well as a core and shell for Boston Global Investors.

6C

7A

7B

7C

8A 8B 8C 8D Pavilion Floors (Woburn) did flooring work on an Olympic-size swimming pool for the YMCA.

8B

7D 8C 7E

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Winter 2016

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9A At Fitchburg State University’s Antonucci Science Complex, R&R Window Contractors (Easthampton) installed 19,000 square feet of custom-colored, matching aluminum composite panels, and fabricated and installed the building’s new glass and glazing.

9A

9B R&R Window Contractors completed its aluminum composite panel, glass and glazing work for Framingham State University on an expedited summer schedule. 9C R&R Window Contractors assisted with Massachusetts Maritime Academy’s cadet housing with its aluminum panels, glass, and glazing work.

9B

9D 9E For UMass, R&R Window Contractors fabricated and installed 2,800 windows and the 14,000-square-foot curtainwall system for the university’s Commonwealth Honors College Residential Community; the company also installed aluminum panels, and completed glass and glazing work for UMass’ Integrative Learning Center.

10A 10B Spaceworks Architectural Interiors (Boston) installed two floors of aluminumframed glass office and conference fronts for Wells Fargo. 11A 11B Time Savers Services Corp. (Framingham) helped the ALDI grocery store chain open a new location in Plymouth, providing a variety of cleaning, pre-flooring and labor services. 12A Wayne J Griffin Electric Inc. (Holliston) installed the lighting, wireless lighting controls and power for the office/retail space and garage of the 500 Totten Pond Road at City Point project in Waltham. Photo by Joel Howe. 12B Wayne J. Griffin Electric Inc. was responsible for powering Martignetti Companies’ entire facility in Taunton with two 4,000-amp services, as well as interior and exterior lighting, a fire alarm system, and a 600 kilowatt gas-powered generator. Photo by Joel Howe.  s

9C

12A

12B

9D

Three Generations of People Protecting People 9E

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10A

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10B

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11A

11B

Jim Herlihy CIC, CRIS jimherlihy@herlihygroup.com Mark Herlihy CIC, CRIS mherlihy@herlihygroup.com

Member: Associated Subcontractors of MA | Builders Association of Central MA HIG.Contractor2012.F.indd 1

1/25/12 10:24 AM

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The Professional Contractor Winter 2016  

In this issue, an outlook on the coming year’s construction trends; reflections from one of the state’s top electrical contractors; and tips...