Synergy amongst the trades: How teamwork makes the dream work

Fast-track construction projects often can be ultra-fast paced and hectic. They require industry professionals across several different trades to blend together for a common goal – getting the project done correctly and on time for the client. 

How well – or not well – trade professionals synergize can directly affect the outcome of most any project. In many instances, the vision of cohesiveness and synchronicity among these different units becomes just that: a vision never to be realized; a goal that never reaches fruition, much to the chagrin of architects and designers.

In what ways can trade professionals come together to make sure the job gets done right, to have “the big picture” be realized to the satisfaction of all? According to Karl Parker, owner/president, All American Design & Construction, Albuquerque, N.M., an eagerness to learn is just as critical as the need to work together in order for professionals and projects to realize their true potential.

In New Mexico, Parker noted, there is a different feel and respect for when work among varying trades overlap. “Big steps have been taken with plumbers and inspectors working with tile installers on complex shower installations. Everyone is eager to learn about these products and excited about the overall outcome of install performance.”

As Lee Callewaert, owner, Dragonfly Tile & Stone Works, Grafton, Wis., espoused, nothing is more critical to multiple trades working together successfully than the relationships built while on the job. “We’re fortunate to work in a specific market that brings some of the best trades together,” he said. “We’ve had the opportunity to work with some of the same people on multiple projects. 

According to Jane Callewaert, this is an example of the kind of enhancements her husband, Lee, is able to add to projects because he works so closely with the other trades. “In this case, the cabinet maker was able to adjust his drawer fronts in advance so Lee could add custom marble insets.”

“When the relationships are built on mutual respect and the various trades are working together for the same goal (making the end result the very best it can be for the client),” Callewaert added, “all the trades involved develop a positive reputation in the market. 

“We have general contractors, architects, homeowners, etc., who hire us and some of the same other trades for all their projects because they know that this group of professionals will make their job so much easier,” Callewaert added. “We will rarely come to them with an issue as we work together and solve the problems ourselves.”

Parker agreed, and noted a specific instance in which an opportunity to join a trade association brought professionals together in the same room for a common cause. “One aspect I can speak about from the trade gap is, being invited to join the International Association of Plumbing and Mechanical Officials (IAPMO). The depth of this association runs from code (UPC) to reviewing our own products for listing and acceptance for sales.

“From my very first meeting, it was all about open arms and further invitations to run CEU programs for the union and plumbing officials,” Parker explained. “It seems as though the big gap in trade is with officials and actual plumbers.”

Callewaert echoed Parker’s sentiment, saying that when the trades work together, you are better able to achieve a positive outcome for the customer, which is the ultimate goal. “When working together as a team, everyone has that same goal in mind,” Callewaert said. “The projects that involve multiple trades with mutual respect are consistently of higher quality and result in much happier clients.”

Reiterating the relationship theme, Callewaert said both he and his wife/business partner, Jane, teach their staff to get to know the other trades on the job. “Build a relationship,” he said. “Demonstrate respect. Ask what they need from us to make their job easier.

“We’re never too busy for the other trades involved,” he explained. “If they need our help to execute their job well, they’ve got it. Maybe they need to gain access to the space we are working in so they can finish. It might not be convenient, but because it helps them finish, we will figure it out. Respect goes both ways. When we need something from them, they are quick to accommodate.”

As Parker concluded, “we are currently working on filling that [trade] gap and getting everyone on the same page with wet area tile installations. When we all come together for a common goal (industry standards or above), there is a greater understanding and appreciation of everyone’s job.”

Negotiate and draft “pass through” clauses you can live with

Owners, contractors, subcontractors and lower-tier contractors must have a sound understanding of the operational details and triggers of “pass-through” provisions as their terms can significantly impact the obligations and risks of performing for lower-tier contractors. 

What is a pass-through clause?

Pass-through clauses (a.k.a. flow-down or conduit clauses), typically incorporate by reference the terms of a prime contract between owner and general contractor into a subcontract, thereby binding subcontractors to the same duties and obligations – and to the same extent – as the general contractor has to the owner. Pass-through clauses may use general “substantially as follows” or “substantially the same as” language, but, importantly they are not uniformly worded and can have the effect of imposing obligations never negotiated or contemplated by the lower-tier contractor. However, when drafted and used correctly pass-through clauses can provide protections to all parties by unambiguously flowing down specific upstream obligations of general contractors to the subcontractors who are actually performing the majority of the work. 

How are pass-through clauses implemented? 

It is in the owner’s interest to bind the subcontractor to the same obligations as the general contractor. For the general contractor, pass-through clauses provide a way of ensuring that subcontractors, suppliers and other downstream parties are required to comply with certain prime contract requirements. 

However, subcontractors may attempt to reject responsibilities flowing down to them when the pass-through terms lack sufficient clarity as to the subcontractor’s specific contractual and compliance obligations. Subcontractors will want to limit or reject overly broad pass-through clauses which – for example – make them assume responsibilities meant for other parties or that incorrectly excuse a prime contractor for its mistakes while still flowing down the responsibility for the mistakes to subcontractors. 

Other pass-through clauses may require that subcontractors be paid by the general contractor when the general contractor is paid by the owner. In such a scenario, a savvy subcontractor will want to reduce the risk of non-payment by negotiating and re-drafting terms to avoid limiting the subcontractor’s rights or remedies in the event of a claim or payment dispute. 

Subcontractors and contractors should work collaboratively to negotiate, revise or remove pass-through clauses that are of concern or to re-balance the risks. 

There are many other scenarios to which pass-through clauses can apply and where their effectiveness depends upon how well all parties can agree on their interpretation, such as: 

  • Who has authority to approve a change order, claim or delay notification and in what form it should be submitted, detailed, and supported by documentation? 
  • Who will have the responsibility for prosecuting a claim against the owner and how the recovery and attorney’s fees will be allocated – whether arbitration or litigation – and which parties will be required or permitted to participate? 
  • What happens if there are pass-through claims of subcontractors (i.e., claims the owner is responsible for) and claims that are only between the general contractor and a subcontractor? 

Importance of properly drafted pass-through clauses

As the “pass-through” language in prime contracts and subcontracts tends to “flow-down” damages, limits of liability or indemnification downstream – from the owner and general contractor level to lower tiers of subcontractors and suppliers – pass-through clauses become no less important than any other terms in a construction contract. 

It is essential that drafters review the prime contract and the complete set of the upstream documents in order to craft effective pass-through provisions. Moreover, well-drafted pass-through provisions should only include terms that already exist in the prime contract; and should not flow down the entire prime contract because doing so introduces contradictions with other subcontract terms. 

To assist parties with drafting pass-through clauses, The American Institute of Architects (AIA), in its A201™–2017 provides subcontractual relations language, used in owner-general contractor agreements, by which contractors can require subcontractors to be bound to the contractors by the same prime contract terms and to assume toward the contractor all the obligations and responsibilities that the contractor assumed toward the owner. It also allows subcontractors the benefit of all rights and remedies against the contractor that the contractor – by the prime contract – has against the owner, and requires the contractor to identify to subcontractors any terms and conditions of the subcontract that may be at variance with the prime contract documents.

Similarly, the AIA’s language establishing the contractual relationship between contractor and subcontractor in the A401™–2017, which cross-references A201–2017, passes “the duties and responsibilities of the Contractor under the Prime Contract to the Subcontractor with respect to a portion of the work designated in the completed A401–2017 document.” 

The enforceability of pass-through clauses in complex construction agreements often hinges on the perceived clarity or ambiguity to both upstream and downstream parties. In order to avoid unintended legal or financial consequences the critical drafting process should be assisted by professionals experienced in commercial law and construction law and with accessibility to all of the upstream and downstream documents.

Pass-through interpretation and enforceability can vary by state

The location of the project plays a significant role in how pass-through language may be interpreted and enforced. Therefore it’s important to understand the nuances of applicable state laws when drafting and implementing pass-through clauses. 

For example, in New York, courts have held that general “incorporation clauses” in a subcontract can only bind a subcontractor to the “scope, quality and manner of the work to be performed by the subcontractor.” While many states take the New York approach, other states do allow a generalized “flow down” of obligations via “incorporation clauses.” And still other states construe all contract documents, including the prime contract, subcontract and all exhibits, together in an effort to harmonize and give effect to all of the provisions of the contract so that none will be rendered meaningless.

Pass-through best practices

Below are a few other examples of best practices that should be considered when reviewing or drafting pass-through provisions:

  • Negotiate pass-through terms at the pre-bid stage so that the costs/benefits of undertaking flowed-down obligations may be factored into bids. 
  • Parties should work collaboratively to address gaps in risk-shifting or risk-sharing and develop acceptable levels of risk. 
  • Limit the requests for pass-through revisions to a small group of terms or issues (and not to the prime terms) to increase acceptance. 
  • Avoid using general “incorporating by reference” language that can be misinterpreted to merely incorporate prime contract for a limited purpose. 

Creating a great culture could be your best retention strategy

Results from the People in Construction 2019 study


A recent survey asked several hundred construction professionals across all trades about leadership and culture in their firm. We didn’t ask, “Are you having trouble finding people?” We asked, “Are you happy at work? Do you feel trusted?”

In some ways, construction is just like any other industry. There are precious few exemplary companies, too many abysmal ones, and sadly, most are pretty darn average. But, average is not a retention strategy. Creating a great culture might be the best profit strategy. There is a direct correlation between great workplace culture and increased profitability.

Who responded in the People in Construction 2019 study.

Safety

Every contractor says “people are our most important asset” but talk is cheap. Even cheaper when it comes to safety. It is encouraging that 90% of all respondents reported safety as a top priority. 97% of office operations and 93% of field supervision did say safety was a top priority. The really bad news is in safety execution. Only 68% of field supervision could say they consistently work safely. That’s approximately one in three field supervisors admitting they don’t prioritize the safety of their employees. Things are slightly better in the office, with 78% reporting that they consistently work safely – but the gap between what is said and what is actually done is alarming. 

The field/office divide

This gap between field and office persists in other areas. Construction has always dealt with the field/office divide. This is the acknowledged challenge in geography and culture that creates distance and tension between project management in the office and field supervision on the jobsite. Research confirms the divide is now a chasm. The difference in perception between field supervisors and project managers is stark, and provides a major opportunity for dialogue, collaboration and unity. Any effort to bridge the chasm is worth it. 

In answering the question, “I am able to maintain a reasonable work-life balance,” only 50% of field leaders said yes while 83% of office operations said yes. Only 62% of field leaders agreed that leaders live by the core values of the organization but 83% of office personnel agreed. Research confirms that having a close friend at work increases loyalty and commitment. It is alarming then that only 50% of field leaders could say yes to this question, with the office at 83%. While the causes of the chasm may be debatable, it is undeniable that it is detrimental to profitable execution.

The office-field chasm in People in Construction 2019 study.

The difficulty of implementing change

Musician Sheryl Crow sang that “a change would do you good,” but the majority said attempts at change often fall short. On this question, the executives confessed to these failings at a level of 73%. If leadership is about change for better results, it is troubling, perhaps even depressing, that three-quarters of senior leadership (those who come up with the idea and whose job it is to spearhead the change) say their efforts fall short. This signifies a huge opportunity for those who can crack the code on implementing change. Here are the CliffsNotes: It takes longer than you think, and it requires a significant personal investment from leaders to sell the change. This “personal selling of change” is the fastest way to build trust, leverage relationships, and troubleshoot potential problems.

All is not lost; there are people who will step up. One-third of all respondents said they had more to give when asked if they were working at full capacity! These people are saying they could do more! They are not overworked; they are under-challenged. This leads to disengagement. This finding underscores the idea that, rather than blaming the employee for performance or discipline issues, perhaps the supervisor should be evaluated first. 

There is no single solution to improve culture. The number one reason people stay in a job is a good relationship with their immediate supervisor. People don’t work for an industry, they work for a supervisor. What any reader can do is look inside their own organization and ask these questions to see how they compare. Very few firms attain “Best in Class” distinction. Over 90% of employees must respond and say the culture is a great place to work to be confident it is true, but a firm need not be best in class today to be better tomorrow. 

Efforts and actions that build trust are essential. Leaders living up to commitments and sincerely talking with employees build trust. Helping people feel they are in on things and giving candid feedback build loyalty. All of these actions must be consistent and sustained. 

Excellence isn’t a program, it is a way of life. Creating a great culture is an all-hands effort that starts with key leaders across all levels of the organization working together to execute a coherent human capital strategy. 

 

How small is a small business? The answer could cost you money!

Are you a small business? That depends on whom you’re asking.

Lots of people I know define a small business in lots of different ways, with the most common being revenues and number of employees. For the most part, it’s really not that important. “Small” is in the eyes of the beholder.

However, if you’re one of those businesses looking to get government contracts or loan guarantees from the US Small Business Administration (SBA), the definition of “small” really is important. That is why a recent announcement by the SBA may have an effect on your livelihood.

This summer, the SBA announced a proposed rule to modify the method for calculating annual average revenues used to determine how big a small business is. Why the fuss? The calculation figures into whether a business is eligible to receive federal contracts and loan guarantees. Currently, the calculation uses a three-year revenue average. The proposed rule will up that to five years.

Congress may actually get something done – and give a boost to retirement plans 

The announcement comes on the heels of 2018’s Small Business Runway Extension Act, which requires service businesses to average five years of revenues. Now, all businesses will be subject to that requirement. This is the first step of the implementation.

So is this a good or bad thing? 

The federal government believes it’s a good thing, as do some experts. “In most instances, this will give small businesses more time to compete in small business set-aside procurements,” write Suzanne Sumner and Erin R. Davis of the law firm Taft Stettinius & Hollister LLP. “The new five-year calculation will also allow those small businesses with an outlier year of significant revenue more time to sustain the growth and prepare to compete in unrestricted competitions.”

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That position makes sense. But there are a few things about this that give me pause.

For starters, I don’t like using revenues as a basis for determining whether a business is “small.” I have a few clients, for example, that generate big revenues because they sell large machines or property but each has fewer than 10 employees. They’re small, but not in the eyes of the SBA. I would prefer the rule to include other factors, such as the number of people (and perhaps contractors) employed, to really determine the size of a business.

I’m also concerned that a growing small company might find itself excluded from federal work as a result of a couple of good years. Or that larger companies that have had a bad year or two might find themselves classified in the “small business” category, at the expense of small businesses already there and competing for work.

If there’s one thing I’ve learned from running a small business, it’s that you can’t apply a simple revenue formula to determine if a business is indeed small. Other factors should be considered. Sure, it might take a little more time or add more complexity. But we’re talking about the difference between a qualified company getting the help and opportunities it deserves from the government, or potentially failing.

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This article originally appeared on July 2, 2019 in The Guardian at https://bit.ly/2Lwsktf. A past columnist for The New York Times and The Washington Post, Marks now writes regularly for The Hill, The Philadelphia Inquirer, Forbes, Inc. Magazine, Entrepreneur Magazine and Fox Business.

Do you have to pay employees like superstars to keep them?

Last year, five-time NBA All-Star Kevin Love signed a contract to return to the Cleveland Cavaliers. His new deal will pay him $120M over four years, approximately $30 million per year.

These days, it’s not uncommon to see professional athletes sign enormous contracts punctuated with a staggering number of zeros.

What is uncommon about this particular story is where Love signed his new deal.

The 29-year-old power forward signed his contract extension in front of nearly 100 construction workers who were completing the $140 million renovation of the Cavs’ home stadium: Quicken Loans Arena in Cleveland.

Imagine for a moment that you are one of those construction workers making somewhere between $50-$80K per year.

You’re busy installing new seats in the upper deck of an arena when suddenly a voice comes over the intercom inviting you to take a short break and come down to the gymnasium floor for an exciting development.

Minutes later, the team’s general manager introduces a nicely dressed basketball player (currently relaxing during a four-month off-season) who, with the effortless flick of his pen, signs a contract that guarantees him 400 to 500 TIMES the amount that will appear on your year-end W-2.

But that’s not all…

In addition to those fat checks, the guy in front of you will be cheered and idolized by tens of thousands of adoring fans all while being treated like the King of Siam everywhere he goes. He’ll never wait in line for anything, nor will he have to hunt for a parking spot. And let’s not forget the beaucoup dollars that will pour in his coffers from corporate sponsorships and endorsements for playing a game you’d gladly play for free.

After a short speech, the star disappears into the locker room signaling that it’s time for you to climb back up to the nosebleed section and go back to installing another row of seats.

Let that scenario wash over you for a minute.

Now breathe as you chew on this:

Why did the construction workers cheer wildly for Love? Why didn’t they rise up, revolt, and shake their fists in outrage, demanding more money for the much harder work that they’re doing?

I think the answer lies in the employee’s perception of fair pay.

Construction workers don’t compare their paycheck to that of an NBA superstar; they compare what they’re making to other construction workers. They won’t revolt if a professional athlete – or a cardiologist – or a mortgage banker makes more than they do, even if it’s multiples of what they’re earning.

But if that guy next to him – or even the worker across town who’s doing the same job for a competitor – is getting noticeably more dollars more than they are, you can bet your hammer drill that there’s going to be some fireworks.

There is no single factor that’s more important to an employee than the compensation they receive for the work they do.

However, if an employee feels as if they are being paid fairly, which is to say equal to another similarly skilled and experienced individual doing the same work under the same conditions in the same vicinity, then they tend to base their level of engagement and their desire to remain with their employer on other cultural factors (i.e. atmosphere, growth opportunities, autonomy, recognition, etc.).

ON POINT – While it improves your attractiveness to job seekers, you don’t have to offer higher compensation than the other employers in your market to win the war for skilled workers. If you offer wages that are deemed competitive, you can dominate the labor market by focusing on continually improving the other six cultural pillars that make you a better place to work:

  • Alignment – meaningful work for an ethical company
  • Atmosphere – a safe, positive, enjoyable environment
  • Growth – an opportunity to learn and advance
  • Acknowledgement – feeling valued, appreciated and rewarded
  • Autonomy – encouraged to think and make decisions
  • Communication – kept informed and being listened to

 

The changing market for ceramic tile in the USA

Donato Grosser’s Coverings presentation looks at the sales patterns for independent distributors


Donato Grosser, principal of D. Grosser and Associates, Ltd.

As part of the conference program at Coverings 19, Donato Grosser, principal of D. Grosser and Associates, Ltd., in New York, offered an analysis of ceramic tile business in the U.S., based on interviews with distributors in Florida, Southern states (Tennessee, Georgia, Alabama, Arkansas, Mississippi, Louisiana, Carolinas), Texas, the Southwest (Arizona, Utah, Nevada, Colorado, New Mexico), California, the Northwest (Oregon, Washington), the Midwest (Ohio, Michigan, Illinois, Wisconsin, Minnesota), New England, New York, New Jersey, and the Middle Atlantic (Maryland, Pennsylvania, Virginia).

The overall findings, targeted to inform independent distributors, show that though there was a strong market increase from 2012 to 2017, a slowdown occurred in 2018. The strength of suppliers like MSI, Emser, Floor & Décor have negatively impacted independent distributor business. Other factors in sales slowdowns are the strengthening of luxury vinyl tile (LVT) and Chinese competition, as well as high cost of installation. The bright spots in Grosser’s report were that remodeling kept distributors in business during the recession, and areas with high birth rates and low taxes and immigration are the strongest economically.

Number of distributors shrinks; big companies get bigger

Grosser’s research shows that although there were 21,725 ceramic tile contractors and dealers in the U.S. in 2008, now that number has plummeted to only 16, 406 in 2018, with a slight swell expected to 16, 806 in 2019. 

These trends run inverse to U.S. ceramic tile consumption, which was at a high of 3,315 million of square feet (m. sq. ft) in 2006, and dropped to only 1,959 m. sq. ft. in 2009. It has slowly increased to an expected 3,170 m. sq. ft. in 2019. Consumption was nearly flat from 2017 at 3,046 m. sq. ft. to 3,107 m. sq. ft. in 2018. 

Overall, Grosser reported that the number of distribution outlets are declining, the number of ceramic tile distributors has fallen from a high of 1,376 in 2014 to a low of 1,241 today. The big are getting bigger and the small are getting smaller, with large distributors expanding and small distributors shrinking. In terms of ceramic tile sales, 2018 was nearly flat, and the growth of LVT as well as flat residential construction will keep sales low in 2019 as well, Grosser predicted. 

Total U.S. manufacturing capacity is now about 1,204 m. sq. ft., with usage of manufacturing capacity at about 80%:

  • Dal-Tile: ~613 m. sq. ft.
  • Italian plants (Stonepeak, Florim, Florida Tile, Del Conca, Landmark): ~430 m. sq. ft.
  • Other main manufacturers: 161 m. sq. ft.

Regional synopsis

Here’s a synopsis of distributor activity according to region. 

Florida – After lows in 2009, sales spiked 60% in 2012-2014, with a 2017 boom for some distributors due to residential and commercial construction. Currently, most sales are for remodeling and commercial construction. Some distributors are exporting to Caribbean islands. Hurricanes turned out to be a mixed bag: sales were lost for a month, but then sales to fix storm damage surged. Negatives include an oil spill in the Panhandle in 2010, Chinese competition, and flat sales from 2017 to 2018 due to competition by Floor & Décor, MSI and Emser.

Southern states – Sales have improved across the South since 2013. In Tennessee, some distributors report a boom; others complain of sales lost to LVT. Sales are up in Georgia, and booming sales in Alabama credit high-end residential and new commercial projects. Arkansas is enjoying a boom; healthy sales in Mississippi and Louisiana are up 10-15%, and sales in the Carolinas are flat to 15% up. 

Texas Though there was a slowdown at the end of 2018 – which some companies attributed to the mid-term elections – many companies have reported sales gains of 15-20% per year since 2014. Commercial construction, hospitality and remodeling are abundant; sales are surging in Houston due to remodeling after hurricanes. 

Southwest – New construction in residential, hospitality and restaurants is contributing to 20-30% boom conditions in parts of Arizona, especially in Phoenix. Utah is seeing sales rise 7-20% due to rise in multi-unit residential projects, mid-to-high-end residential and commercial construction. 2018 sales are up in Nevada 10-20% due to new construction and residential remodeling, though LVT is impacting tile sales as builders embrace LVT. Colorado is reporting sales increases across the board, especially in the Denver area and suburbs where high-end residential construction and new commercial construction are going strong. In New Mexico, one distributor reported 10% sales gains last year due to mid-to-high-end residential construction and new retail and hospitality construction; another distributor said he was impacted by loss of government money in the region. New construction is strong for healthcare projects.

California – The Golden State has enjoyed steady growth from 2010 to 2018, though the rate has slowed in the last six months. Bright spots are growing sales in tile slabs, large importers selling to tract housing developers and small and medium distributors supplying remodeling efforts. The interest in low-cost Chinese tile is being felt in this state. 

Midwest – After sales bottomed out in 2008-2009, Ohio distributors saw sales surge up to 20% 2013-2016, mostly for residential remodeling. Last year sales were up for commercial projects, retail, institutional and offices. Michigan saw similar growth over those years due to new hospitality and office construction, and high-and-mid-level residential, with 60% sales due to remodeling. 2018 saw a slight slowdown. Illinois saw 15-20% growth per year 2012-2018 in residential remodeling or multi-unit construction until a slowdown in 2018. Post-tornado sales in 2015 soared. Tiles are mainly used in bathrooms and some kitchens, fighting competition from wood flooring. Wisconsin is a mixed bag with some reports of booming 30% sales increases from 2017 due to high-end residential, remodeling and new commercial building; others saw sales are down due to competition from VCT and LVT. Minnesota distributors saw yearly increases of 10-20% from 2012-2016; in 2018, some reported 10% hikes, while others said installation costs are negatively impacting tile sales and one distributor said sales fell 20% due to customers switching to LVT. 

Northwest – Sales in Oregon last year spiked 5-15%, with residential construction doing well; some distributors reveal that remodeling makes up 50% of sales. In Washington, recovery began in 2013; between 2016-2018 new high-end residential and retail projects pumped up sales 10% each year. 

New England Sales were mostly flat for 2018, declining in the second half of the year. New high-end residential and commercial fueled sales, but some distributors say companies are leaving Connecticut due to high taxes and the recently-instituted $10,000 cap on state and local taxes (SALT) that taxpayers can claim on their federal income taxes. 

New York – Though sales surged in the wake of Hurricane Sandy, 2018 was mostly flat in the area, except in high-end Manhattan apartments and suburban areas with high birth rates that spurred residential remodeling. Big-box competition, internet sales, and exodus of people to the South and West are depressing sales in the region. 

New Jersey – 2018 was stellar for many companies, though sales fell after August and some companies are reporting flat sales, depressed by competition from Floor & Décor and similar stores and high installation costs that spurred a switch over to LVT products. Sales health was found in new commercial building and residential remodeling.

Mid-AtlanticSales were down or flat in Virginia and Pennsylvania (except for an increase from 2011 to 2018 in Pittsburgh); Maryland is expecting an increase in the first quarter with most companies reporting 5-15% increase due to healthy mid-to-high-end residential and commercial, except in areas where construction is down. 

NTCA Five-Star friendships lay groundwork for business partnership

There are many benefits to being a contractor member of NTCA. If you are wondering what they are, take a look at the May TileLetter Benefits Box to see them all in one fell swoop.

There are additional paybacks to being one of the elite contractor members known as NTCA Five-Star Contractors. This group has a rigorous set of requirements to join, but enjoys special perks such as manufacturer discounts, special regional training opportunities and attendance at the annual NTCA Five-Star Summer meeting. At the summer meeting they are privy to top-notch speakers, presentations and demos on technical and business aspects of their business, and ample chance to network with fellow Five-Stars to share best practices. 

Dan Welch, Welch Tile & Marble

Sometimes, partnerships grow out of membership in this network of high-caliber contractors. A joint venture between Welch Tile & Marble Co., in Kent City, Mich., and Kemna Tile in Dallas, Texas, is one such partnership that owes its beginnings to a Five-Star connection. 

Working together

Dan Welch of Welch Tile & Marble and Barry Kemna of Kemna Tile worked together before they became NTCA Five-Star Contractor members, spurred by the need to diversify in light of the 2008 downturn. In the tradition of NTCA members helping each other, Welch Tile – at the time a labor-only company – received a hand from full-service contractor Kemna Tile, both of whom were NTCA board members at the time, about 2010. 

Barry Kemna,
Kemna Tile

“The relationship blossomed since we were sharing labor,” Welch said. “We took a lot of risks together. Now we are team building.” Before Kemna developed its own terrazzo team, there was a lot of terrazzo work across the country with clients Kemna had relationships with, and Welch was able to joint-venture with an experienced crew.

Over the years, Welch grew into a full-service company and in 2017, “sold more work than we could do,” Welch said. Kemna came to Welch’s aid on the Klondike Cheese plant project in Monroe, Wis., and terrazzo projects Travers City East Elementary and Mercy Hospital in Muskegon, Mich. “Roles go back and forth, based on workload,” Welch said. 

Working on projects like the Duke Cancer Center in Durham, N.C., Portneuf Medical Center in Pocatello, Idaho, Seton Medical in Killeen, Texas, the Federal Building in Tuscaloosa, Ala., and the Faena Forum Event Center in Miami spawned a learning friendship, in which each company learned how each others’ team operates. 

“In Miami, the project scope expanded,” Welch explained. “Welch shipped a terrazzo grinder down. It helped him to not have to put out $30,000 for a grinder, and it helped us get the job. We pool our labor forces, equipment and people,” he added, shipping equipment to or from Texas and Michigan where needed.

Kemna remarked, “We are both working on projects out of town, having the confidence to know Dan will send folks if we get behind. That gives us confidence to bid; we have another resource to call on for labor.”

At times, the company has pulled in other NTCA Five-Star Contractors to assist; for instance, Neuse Tile Service in Youngsville, N.C., did all the tile work on the Duke Cancer Center, and Collins Tile and Stone in Ashburn, Va., partnered on a D.C. project. 

The arrangement offers tremendous flexibility, offering both companies opportunities to take jobs they wouldn’t be able to complete on their own. Plus, they are pooling their expertise to make better business decisions, touching base once or twice a week. “Between the two of us, 150 people are at stake,” Kemna said. 

The Duke Cancer Center in Durham, N.C., was one of the first projects that Welch Tile & Marble and Kemna Tile partnered on. Not shown here is tilework installed on this project by another NTCA Five-Star Contractor: Neuse Tile Service.

The NTCA Five-Star connection

Amber Fox, NTCA Five-Star Program Director

The NTCA and caliber of the NTCA Five-Star Contractor community laid the groundwork for this relationship to blossom. “We come together at meetings as part of a bigger group, and there’s an opportunity to have growth,” said Amber Fox, NTCA Five-Star Contractor Program Director. “The NTCA Five-Star Program is the catalyst of bringing people together and providing opportunities.”

“NTCA Five-Star is an opportunity to start relationships so things can happen in the future,” Welch said. “If you are going to take on that big a risk, you need someone you can trust. Without NTCA or NTCA Five-Star – or both – we would never have gotten to that level to take on that risk.” Plus, Welch added, “If you enjoy each other, it makes it easier to do.”

“NTCA Five-Star has allowed us to make our businesses stronger,” Kemna added. 

At the upcoming NTCA Five-Star Summer Meeting July 16-19 in Montreal, Fox will offer non-competing contractors who are interested in exploring joint venture possibilities the opportunity to process issues together to open the door for reciprocal communication and relationship building. Depending on feedback, follow-up opportunities will be planned. 

“Due to relationship with Dan, it’s given more opportunity,” Kemna said, pointing out that the synergy between the two companies has provided a buffer against competition. 

“We are NTCA Five-Star contractors that do tile, but businesses have grown and incorporate other things,” Kemna added. “Carpet contractors started taking work away from us by being able to do carpet and adding tile. Now I see because we are doing terrazzo, polished concrete, stone panels, thin panels and tile, we are the biggest piece to put under contract. If we ONLY did tile, it would be easy for carpet guys to take it over.”

Welch said that his partnership with Kemna helps manage schedules and the fluctuations of the economy. “You surround yourself with people who have strengths where you are weak,” he said. “Change is inevitable – managing it is everything.” 

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For more information on becoming a NTCA Five-Star Contractor, contact Amber Fox at 858-674-6908 or at [email protected].

New protection for Illinois contractors – the buck stops at contractual privity

Privity of contract: A concept in law providing that only parties to a contract can enforce their rights or claims against one another. 

In late 2018 the landmark Sienna Court Condominium Association v. Champion Aluminum Corporation case overturned three decades of Illinois precedent that had allowed owners a narrow exception to assert claims against contractors and suppliers with whom the owner did not have a direct contractual relationship. The Illinois Supreme Court’s decision in Sienna, while only applying Illinois law, is important for owners, contractors and suppliers nationwide to review and understand as it addresses the bigger question of when or whether an owner can sue a contractor with whom the owner has no privity for defects claims (or other types of claims). In answering that question, Sienna provides much-needed guidance and protections to contractors who are not in privity with an owner.

In 2018, recovery for defects in the construction of a new residential property against a contractor who was not in contractual privity with an Illinois owner was through the doctrine of implied warranty of habitability (“IWH”). The IWH is a warranty implied by the courts as a matter of public policy that essentially promises (or warrants) that a home will be suitable as a residence. Prior to Sienna, owners of homes with construction defects had a narrow right (under limited circumstances) to sue the contractor who built the home under the IWH where contractor did not have a direct contract with the owner. Now under Sienna, however, the purchaser of a newly constructed home cannot assert a claim for breach of the IWH against a contractor when that contractor had no direct contractual relationship with the purchaser even if the builder-developer is insolvent and the homeowner has no other recourse. 

Sienna brings much-needed clarity for owners, general contractors and subcontractors who previously had to face potentially conflicting approaches to IWH claims. In Sienna, the Court emphasized that the warranty was an implied contractual term and therefore reasoned that absent contractual privity the IWH could not be applied to the subcontractors. To put the Sienna decision briefly in context, although the doctrine of implied warranty of habitability was first recognized by the Illinois Supreme Court in 1979, Illinois still did not allow homeowners to pursue a claim for breach of an implied warranty of habitability against a contractor with whom it had not contracted. But subsequently in 1983 the Illinois Appellate Court for the First District in Minton v. The Richards Group of Chicago held that the IWH could be asserted against contractors (including downstream lower tier contractors) by homeowners who sustained a loss “due to the faulty and latent defect in their new home caused by the subcontractor” and when the builder-vendor was insolvent. Minton became the precedent followed in Illinois for three decades until it was overruled by Sienna in late 2018. 

The Moorman Doctrine reaffirmed 

In overruling Minton, the Sienna court also reaffirmed the economic loss rule, which is in effect in many states, including Illinois. The economic loss rule provides that claims for classic breach of contract cases must be asserted only between parties to that contract (and thus an owner cannot directly sue a subcontractor for IWH claims when the owner did not directly engage the subcontractor). The economic loss doctrine makes it very difficult for homeowners to successfully bring claims for economic losses for repairing defective work against contractors and suppliers who were not in privity with the owner. 

Exploring “vicarious” liability for lower-tier contractors

In light of Sienna, subcontractors are now largely protected from direct claims by owners, but what about general contractors who find themselves liable to the homeowner by contract? No doubt the general contractor will almost always seek a defense, indemnification or contribution from their lower-tier and downstream contractors who were responsible for the claimed defects pursuant to their subcontracts. If their contractual risk transfer and indemnification agreements require the lower-tier contractor to indemnify and hold harmless the upper-tier general contractor now facing legal liability and exposure, it would be logical to expect that IWH liability would be passed on to the lower-tier contractor (absent specific contractual language to the contrary). The upper-tier contractor may also be protected as an additional insured under the lower-tier contractor’s insurance policy for the actions or non-actions of the lower-tier contractor. But even under such risk-transfer scenarios, which may include a contractual responsibility to make whole an upper-tier contractor that sustains a loss or incurs a financial liability, it would seem logical to expect that if the upper-tier contractor cannot be held liable in the first place under the IWH as spelled out in Sienna (meaning that the general contractor did not contract directly with owner), that there can be no claim for the homeowner to pass through for recovery from the lower-tier contractor. 

However, there are also scenarios that potentially may create exceptions to the protections under Sienna such as when an express warranty is given by the subcontractor and is then assigned to the buyer. But it will remain to be seen whether the subcontractor and by extension the indemnifying lower tier contractor can avoid IWH liability in such a scenario. 

Even though Sienna would appear to protect lower-tier and downstream contractors from IWH liability when, like the subcontractors, they have no contractual privity with the purchaser, the absence of case law providing Sienna-like protections specifically to lower-tier contractors means that lower-tier contractors would be well-advised to carefully construct and negotiate the terms of their indemnification and hold harmless agreements and limit the scope of their liability to higher-tier contractors. Likewise, lower-tier contractors may want to review how they craft and enter into contracts conferring additional insured protection to higher-tier contractors with a view towards limiting potential coverage liability. 

Post-Sienna, unanswered questions remain as to scenarios that may still open the door to IWH liability for downstream contractors. Sienna, for example, did not address whether its ruling could extend to other implied construction warranties, such as the implied warranty of workmanship. Sienna does, however, reiterate for owners, contractors and subcontractors the importance of a carefully drafted construction contract that explicitly addresses warranties (or waivers thereof) and properly allocates risk to the parties that can best protect against potential economic loss.

How will you stand out in a crowd of tile installers?

When I was 17, I started working with tile. Almost daily, when our crew would walk into the local sandwich shop or taqueria, we would get asked, “What do you do for work?” When we replied “We install tile,” nine times out of 10 the person behind the counter would reply one of two things: “I’m a tile installer too!” or “My neighbor/brother/uncle/son/daughter is a tile installer!” We would always get a chuckle and look at each other and say, “Yep, everyone is a tile installer!”

Seventeen years later, things haven’t changed much, and every third person seems to claim that they’re God’s gift to tile; it doesn’t seem to matter that they are currently hanging drywall or pouring overpriced lattes to hipsters.

So how will you stand out among this massive crowd of “tile installers”?

See, you and I understand that you’re different. For one thing, you’re reading the April issue of TileLetter. You also know what the TCNA Handbook is and have EJ171 memorized. You dream about tile and spend your free time hanging out online discussing best practices and sharing photos of your favorite work. But unfortunately Mr. and Mrs. Jones don’t necessarily understand the difference between you – the professional who has devoted your life to tile – and the weekend “contractor.”

Market what sets you apart from the crowd

So on top of memorizing the TCNA Handbook and spending all your free time thinking and discussing tile, you also need to be focusing on your marketing and selling skills. In fact, it’s your duty as the professional to educate your potential customers and your community on the proper ways to install tile that can last a lifetime and add major value to their home.

Unfortunately, you can’t just claim to be the best and expect results. You also don’t typically get to show off your knowledge of codes and “geek out” on an unsuspecting homeowner.

So what helps people see the difference? What motivates people to choose the right contractor for the job?

In this modern world, people have less and less time. Instead of researching books and instruction manuals, they are researching photos and videos of tile on their smart phones.

The good news is we all have the capability to produce the type of content they are looking for. 

These days it’s very easy for consumers to collect all the pretty photos of tile work they love, and they do this during the weeks and months prior to picking up the phone and calling a contractor. When it’s finally time to call someone, who do you think they’re going to call first? 

That’s right, the contractor that they already like, know and trust from that social media app. 

I want to encourage all of you to embrace the latest social media trends and find out where your ideal customers are hanging out online. There are many social and photo sharing apps but for now let’s just focus on Instagram (IG).

Focus on Instagram

I’ve gotten dozens of jobs from my presence on IG. I’ve done this by being consistent, showing my personality, creating a buzz by introducing new ideas and products to my followers – and above all interacting.

Just yesterday I was out to dinner with my family and a group of strangers came up to me and said they loved my tile work on IG! 

What are other examples of great IG content?

Carl Leonard of Cutting Edge Tile in Florence, N.J., and his business partner Dani Ganix have been creating Hollywood-quality promotional videos for their YouTube and IG pages. These are the type of videos a potential customer would watch and find entertaining and educational. @cuttingedgetile

Jason McDaniel of Stoneman Construction, LLC in the Portland, Ore., area, has been using his IG account to showcase his scribes, letting potential customers know that if they want a custom design, they need to call the Stoneman! @stoneman1273

I could go on and on and wish I had the space to mention all the amazing tile work I see on IG daily. If you’re new to IG or social media and don’t know where to start, feel free to reach out to me, I’m happy to help in any way I can. 

Luke Miller recently hired Designer Drains to create this one-of-a-kind drain cover to resemble an iconic landmark in his city; this has created a small buzz on his Instagram account. (Original art of Morro Bay, Calif., by Forever Stoked)

Three technologies you need to integrate into your business

Get ahead of the curve by becoming familiar with three new technologies

One of the hardest things for a business to understand today is how, by how much, and why their customers have changed. There is no doubt that the changes that have taken place in the past 10 years have been more profound than any in the past thousand years as related to commerce. To ignore this reality and try to do business “the way we have always done it” is a fast track to irrelevancy and bankruptcy. I would like to explore here some of the major factors that are influencing your customer and more importantly, how you can use this information to keep them coming back to your business.

Humans change core beliefs and values very slowly but they do change what we often call “habits” relatively quickly and easily. Think of your own shopping patterns. Are you buying the same groceries you bought five years ago? You would most likely say “no” because your circumstances have changed in the past five years. You may be eating healthier (or the opposite!), you may have shipped a voracious eater off to college, or you may have added a new member to the family. Think about what you now have for dinner and lunch and how that likely differs from five years ago. Think where you are buying your food and even what food you are buying. Likely it is very different due to the reasons above and for even more reasons. 

But what is likely enduring is that you have standards for the quality of the food you consume as well as how you consume it. You have probably not stopped using a fork and knife and switched to just eating with your hands (or maybe you do if you have a burger now and then!). Our core behaviors, learned as children, are harder to change and remain more constant. The way we shop changes as we grow; where we shop also changes with our lifestyle and influences of our society. 

The mobile phone has been one of the greatest “disruptors” that we have ever seen in retail. Given the ability to instantly access not only information but also input from family and friends about every purchase has changed the way consumers view and interact with retailers. Long gone are the days of getting in your car to drive to different stores to compare prices; they are now available right in your hand. Gone also are the days of waiting to ask friends or family their opinion of a desired purchase or feedback after the purchase, such as “What do you think of my new kitchen floor?” Now the opinions and feedback occur in real time before, during, and after the purchase, making the path to purchase very different from what it used to be.

Technology beyond the phone is also having a profound impact. There are three technologies in particular that you need to not only pay attention to – but more importantly – have a strategy of integrating into your business. These three technologies are Augmented Reality (AR), Conversational Commerce and the Internet of Things (IoT). Each of these technologies is having an impact on your customer’s shopping journey and therefore needs to be part of your strategy today.

Augmented Reality

Augmented Reality is the ability of computers – and more often mobile phones – to insert objects into a real environment. The use of this technology is growing daily. Think of your customer taking a picture of their kitchen and then with a few swipes adding a new floor, cabinets, appliances and lighting, totally customizing the scene. And because this technology can also provide exact measurements, the customer can decide how much tile is required, the size of the cabinets that they can have, the size of the appliances, and get an accurate cost estimate for that makeover. This is not science fiction; it is being done today by many retailers for components of it, and it will not take long until all of this ability becomes integrated into one simple app. Remember, one of the things the new consumer has learned to love is DIFM (Do It For Me), and there are thousands of apps and companies doing just that.

Conversational Commerce

Conversational Commerce, (think Alexa and Google Voice) is just in its infancy and yet it is quickly moving from the home to the auto to the mobile phone and to every part of our lives. People love to talk to their devices even more than just typing or swiping. As these helpers get more sophisticated, consumers will rely more and more on them to assist them in day to day living. They will ask Google or Alexa to show them what a new bathroom would look like, give a price and schedule an installer to make it happen. Voice is becoming the next frontier for acquiring products and services. These artificial intelligence devices will become smarter and smarter and more integrated into our everyday lives and that means how we buy things.

The Internet of Things 

The Internet of Things (IoT) is simply adding smart technology to devices that can then be controlled or programmed to behave a certain way. Imagine your refrigerator with the ability to schedule a service visit when it knows that a part is failing, or a heated floor in the bathroom that turns on when you tell the shower to start and brings the floor to a preset temperature based on ambient temperature and the preference of the individual taking the shower. The shower will also be the desired temperature for the individual based on the family member’s preference. The IoT device is imbedded in the water lines and in the floor heat controls. There is no end to how the IoT will change the way we live and interact with our environment. Try telling a 16-year-old today that there was a time that you had to get up and twist a dial to turn on a TV, and that to change the channel you had to get out of your chair, walk to the TV and turn the dial. This behavior seems almost quaint today. Just think about most of what we now do that will also seem quaint in 10 years!

The three technologies that I described are here today; they are also integrating with each other and exponentially changing what is possible and what we will be experiencing in the VERY near future. As a business, you need to be aware of each of these technologies, hire people who are familiar with them, get your own Google Voice and/or Alexa, as well as download AR apps to your phone and play with them. 

Remember the words of Jack Welch (which, by the way, GE failed to listen to): “When the rate of change outside your business exceeds the rate of change inside your business, the end is near.”

For more information about James Dion and Chicago-based Dionco, Inc., retail, consulting and training company, please visit www.dionco.com. 

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