Difficult Now? Wait Until Later

If the client is difficult during project onset and contract formation (when you are on good terms), it will only get worse on the back end if there is a problem.

When You Are Plan B

It is a red flag when you are asked to replace another consultant. While there are certainly legitimate reasons to replace a consultant, you want to make sure you are not walking into a minefield.

Underfunded and Tight Time Frames

When a project goes south and owners lose money, they look for others to share their pain. Often that finger is pointed squarely at the Design Professional!

RFI Hell

An inordinate amount of Requests for Information (RFIs) could mean the contractor is papering the file for a claim against you. This is especially prevalent on low bid public work.

Running Out of Money

OK, you accepted that underfunded project and now the owner is running out of money and cutting corners; alarms should go off in your head.  Meet with the owner to discuss any concerns and make sure you document everything.

Radio Silence

Your calls are not being returned, your relationship seems to have gone south and you are not being kept informed. Meet with the client and make sure your suspicions are not correct!

AR Over 90

There are only two reasons a client doesn’t pay you. They don’t have the money or they are not happy with your work. Neither is good. Figure out the reason, remind the client of the payment terms in your contract, but be proactive!

There is no downside to discussing potential problems with your insurance broker. If necessary the claim will be turned in, if not the discussion will be documented.  In either case your insurability is maintained.  It is critical to deal with problems earlier than later.

• Estimated economic damage is $30-$60 Billion
• 8.5 Million businesses and residences lost power
• 7,400 National Guard Members supported the storm response

While most of the damage from Sandy was caused by high winds and flooding, there are any number of things that can create a catastrophe for your business.  So in the event you lost your power or your office was destroyed, how prepared would you be?

How confident are you that your disaster plan would enable you to quickly resume your operations?  Would your employees know what to do and where to go?  Do you even have a disaster plan? And no, offsite backups and a list of cell phones is not a disaster plan.

The purpose of this brief commentary is not to provide the wherewithal to write a plan, but rather to create awareness.  Our agency has over 500 clients and I’m guessing less than 10% have an effective Disaster Recovery Program.  Yet it isn’t rocket science and it is a critical component of your risk management program.

I don’t mean to brag, but I can tell you that if our office is destroyed (assuming we are not in it) we will be back in business in 48 hours.  We will have office space, the right computers, communication capability and power.  My employees will know where to go and what to do.  The only way I can make this statement is because we have partnered with a company that provides Disaster Recovery Services.  They helped us write our plan and have made arrangements to provide us with the office space we will need, the specific computers required, cell or sat phone capabilities as well as the generators and the fuel to run our temporary office.  They also provided us with the template we used to create our own unique Disaster Recovery Program.

We work with Agility Recovery Solutions.  We recognize that there are a number of different companies that provide these services, but whether or not you write your own Disaster Plan or partner with a company to help you develop one, the key is to have one.  Many businesses never recover from a disaster…will your company survive?

1. Fall Protection– When required, standard addresses systems and procedures to protect employees from falls.

2. Hazard Communication– Addresses the hazards of chemicals used in the workplace and governs the communication of those hazards to employees.

3. Scaffolding– General safety requirements of design, construction and use in the workplace.

4. Respiratory Protection – When required, establishment and maintenance of a respiratory protection program including: program administration, procedures, training, medical evaluations, and respirator maintenance.

5. Ladders – General safety requirements of inspection, maintenance and use.

6. Machinery and Machine Guarding – Protection of operators and other employees from hazards created by point of operation, nip points, rotating parts and debris.

7. Powered Industrial Trucks (Forklifts and Motorized Hand Trucks) – Standards of design, maintenance, and operator training requirements.

8. Electrical – Wiring Methods – Addresses grounding of electrical equipment, wiring and insulation. Includes temporary wiring and splicing, flexible cords (extension cords) and cables.

9. Lockout/Tagout – Minimum performance requirements for the control of hazardous energy during servicing and maintenance of machines and equipment.

10. Electrical – General Requirements – General safety requirements for designing electrical systems.

Take a moment to consider this list and review the policies and programs applicable to your operations. If you need assistance in reviewing any of your programs or developing one, contact our Risk Control Advisor, Amy Leung at mailto:aleung@cavignac.com or 619-744-0589.

Indemnification is the premise on which insurance is based. To indemnify means to make whole; therefore, you are not legally able to profit from insurance. If your office burns down, and you have an insurance policy that covers the building and property inside, that policy should indemnify you for your loss. It will pay to reconstruct the office and replace business personal property (assuming you have adequate limits and policy provisions). The most basic types of coverage are property and casualty (liability).

A loss exposure is an insurance term for insurable risk. In order to purchase insurance, you must have a loss exposure. To have a loss exposure, three elements must be met: you must have an asset (property, personnel, net income, etc.), a peril (fire, theft, lawsuit, etc.) and a financial consequence of loss. Unlike credit default swaps, you cannot buy insurance on another’s property because you have no financial consequence if that property is lost or destroyed. There are four types of loss exposures: property, liability, net income and personnel. You can buy insurance for all four. A property policy consists of two major parts: a coverage form, and a cause of loss form. The coverage form tells you who and what is covered, and where and when it is covered. The cause of loss form tells you what that property is covered from (fire, wind, theft, riot, etc.). A general liability policy only consists of a coverage form, because the only cause of loss is a lawsuit or a claim.

Total cost of risk is a concept that is overlooked by many. Although society classifies us as Insurance Brokers, a more accurate title would be Risk Advisors. Often, insurance can be less than half of a company’s total cost of risk. Other costs include: time spent analyzing and managing risk, time dealing with losses, money spent on uncovered losses or deductibles, productivity costs from injured employees, cost of training new employees, cost of brand reputation, loss of market share while recovering from damages, etc. That is why it is important for your Risk Advisor to have services aimed at reducing the frequency and severity of your claims. Reducing the frequency and severity of your claims will not only support a safe work environment, it is the only way to save money in the long run.

In the end, the purpose of insurance is to indemnify you for losses created by loss exposures, which is a portion of your total cost of risk. Insurance is similar to medicine in the sense that they are both designed to help. Medicine was created to help people thrive, just like commercial insurance was created to help businesses thrive. To avoid using medicine, you take steps to remain healthy. To avoid using insurance, you take steps to lower the frequency and severity of claims. Unfortunately, there is not medicine for every type of ailment, just like there is not insurance for every type of risk. In both cases, it is important to understand what you are buying and how it is used because there will come a time when it is needed. When that time comes, it is important to know what to do so you can achieve the best possible outcome. 

This is true of any process and Risk Management is an excellent example. To effectively manage risk, one needs to:

1. Evaluate what can go wrong (what are the risks)

2. Develop strategies to reduce the frequency and severity of those risks

3. Determine what part of the risk you may want to transfer (often to an insurer). You then need to make certain you

4. Monitor the risk and make adjustments.

In order to do this correctly you develop individual procedures and policies. But how many times have you addressed an issue within your company, communicated it to your staff, then assumed it was being done correctly, only to find out later that it wasn’t?

A good example is Project Intake. An engineering firm we represent has an excellent Project Intake Process they use to determine whether or not a certain project is go/no go. It asks questions about the client, the financing, project type (is it desired and appropriate for the firm), budget, schedule, etc. Project Managers are supposed to review the forms and if there are enough negative check marks, it is ramped up to senior management. Work has been tough to get in the last 5 years, firms have been scrambling, and when this happens, discipline tends to deteriorate. When the lawsuit came in the managing principal immediately wanted to see the Project Intake Checklist. This was a mixed-use retail/residential project (one the firm didn’t have much experience with) being developed by a company that had a history of suing their design professionals. The project was thinly capitalized and the schedule was unrealistic. How did this get through the Client Intake filter? What went wrong?

If you are like me, first you wonder if it is your staff’s lack of discipline. Maybe it’s your managers inability to manage? After all, I built the process and taught them how it works, why isn’t it working? I suppose this is a natural response and possibly there could be poor employees or ineffective management but more often than not I need to look back to determine if I have put in place the right systems to monitor the processes that I set up to begin with.

The old adage of “That which gets measured, gets done” holds true. You can’t simply develop systems and processes and forget about them. You have to also build procedures to measure and monitor those systems and processes. If there is no monitoring system in place you may not see the problem until it’s too late. All of the time and energy that your organization spent to develop the original systems will have been for naught.

Just like an emergency room must have systems in place to make certain traumatic injuries are handled correctly, your risk management program must also have monitoring processes to prevent it from falling in to its natural state…Chaos! What systems does your company have in place that will prevent the Law of Entropy from taking its toll on the risk management efforts of your company?

Important requirements before 2014

• Summary of benefits and coverage – For any open enrollment periods beginning on or after Sep. 23, 2012, group health plans must provide employees with a new notification called a Summary of Benefits and Coverage (SBC). The SBC is similar to a Summary Plan Description but is intended to be a more concise document focusing on available coverages, cost-sharing provisions, benefit limitations, and similar issues. The SBC, however, is not a substitute for a Summary Plan Description. The group health plan must provide a SBC on an annual basis, typically during each open enrollment period. Failure to provide an SBC may result in a penalty of up to $1,000 per enrollee/participant.
• W-2 reporting requirements – Employers must report the value of employees’ health coverage on annual W-2 forms. This requirement is effective for the 2012 tax year, so W-2 forms issued in January 2013 should include this information. Employers that issue fewer than 250 W-2 forms are currently exempt.
• Changes to healthcare spending accounts – Effective on Jan. 1, 2013, the definition of “qualified medical expense” is narrowed, which will affect reimbursements and withdrawals under all types of healthcare accounts. Over-the- counter medications will no longer be a “qualified medical expense.” Additionally, the amount employees could contribute to healthcare flexible spending accounts will be capped at $2,500.
• Nondiscrimination requirements for fully insured plans – Group health plans that are fully insured will be subjected to annual testing to determine whether their benefits are disproportionately favorable to highly compensated employees. The effective date of these requirements has been delayed, and further guidance is expected before they become effective.

Important requirements beginning in 2014

• Penalty for no coverage offered – Employers with more than 50 employees that do not offer any group health coverage and have at least one full-time employee who receives a premium tax credit (toward coverage through an exchange) will be assessed a monthly penalty. The penalty is calculated as $166.67 per month (1/12 of $2,000 annual penalty) multiplied by the number of full-time employees in that month, excluding the first 30 employees.
• Other possible penalty – Employers with more than 50 employees that offer group health coverage, but still have at least one full-time employee receiving a premium tax credit (toward coverage through an exchange) will pay $3,000 for each employee receiving a premium credit, subject to certain overall limits. These provisions apply even to grandfathered health plans.
• Maximum waiting period – A group health plan may not impose a waiting period on new participants and their dependents in excess of 90 days. This requirement also applies to grandfathered health plans.
• Wellness program incentives – The maximum incentive, which may be offered in connection with an employer sponsored wellness program, is raised from 20 percent to 30 percent of the applicable premium.

Preparing to implement these new requirements over the next 18 months will be challenging and time-consuming.  It’s important to begin preparing and coordinating with your advisor (attorney/CPA/insurance broker) as soon as possible. Companies should be aware of how each provision will affect it and its employees.

• Access to Capital
• Economic / Political Climate
• Sureties’ Performance
• Finding “The Beef”

Construction is cyclical and contractors should prepare for the pent-up demand that will build during a recession.  While contractors must retrench during lean times, they also need to protect their core resources and be ready to bid work when the economy rebounds.  Contractors should be vigilant on:

• Conserving capital and staying liquid.  “Cash is King!”
• Aggressively billing and collecting and minimizing underbillings and retentions.
• Procuring materials and locking in prices whenever possible.
• Having the right size bank line of credit available to support the company’s business plan.  Have a backup bank lined up in the event the primary bank reduces or does not renew the credit line, or becomes financially unstable.
• Not “buying” a job to keep employees busy; rather, adjusting overhead and maintaining profit margins.  Bidding the job, not the competition.
• Bonding subcontractors.  Requiring bonds on subs is an effective way for contractors to manage risk.  Follow your subcontractor bonding policies, especially in today’s economic climate.  Subs should be bonded when they represent a key trade to the project, or a significant portion of the work, they are the sole source for anything, or when the contractor is unfamiliar with the subcontractor.
• Qualifying the sureties they receive subcontract bonds from.
• Doing what they do best. “Sticking to Your Knitting.”
• Understanding your contract and requiring effective and equitable terms.
• Reading the bond forms and watching for onerous language.
• Protecting their top talent who will manage projects well no matter what the market conditions are will be essential when the economy recovers.
• If choosing to team up on a project, selecting and structuring their partnerships carefully. It’s easy to get married and costly to get divorced!
• Working with a construction-oriented CPA, banker, and attorney.

The bottom line is that sureties want more than a contractor that can build a project.  They want a sound business partner that is rational, committed, honest, and knows how to run a successful construction company.  In other words, they want a company that will continue to grow and be profitable.

For the full article on Surety Outlook, click here.

• Loss of digital assets as a result of damage, alteration, corruption, theft, or misuse.  (Your Commercial Property Policy has a requirement for “Physical Damage” in order to trigger coverage).  
• Loss of revenue from downtime after a hack or virus that causes a temporary or long-term shutdown in your operations.
• Costs you incur complying with the state laws that pertain to a security breech.  These laws can include the obligation to notify all parties whose private information is compromised or believed to have been acquired by a person without authorization; as well as the duty to provide ongoing credit monitoring to all individuals whose data was affected by the breech.
• Media Liability and Public Relation costs for damages and expenses resulting from defamation, libel, slander, and invasion of an individual’s right of privacy; plagiarism, infringement of any copyright or trademark.
• Costs for liability claims of spreading a virus, malicious code, extortion, or a cyber-mistake, error, or omission, by your employees or subcontractors in the course of their duties for your company.
• Payment you are obligated to pay as a result of damages and expenses arising from a privacy breech involving employee information.
• Reimbursement for extortion expenses resulting from a threat.

When addressing your need for cyber liability, consider what type of sensitive information you store or exchange, and what type of security you have in place to protect this information from being compromised.  Names, dates of birth, social security number,s and medical information are just some of the data that hackers are looking to steal.

Traditional property and general liability policies do not adequately address cyber exposure.  We would recommend you obtain a quote for a Cyber Liability policy to know what the cost would be to transfer this risk to an insurance company, and then make the conscious decision to either purchase the policy or continue to self-insure the risk.

Using an employee handbook to provide information and guidelines for employees is a “best practice.” It will probably not shock you to hear though that the policies in the handbook are governed by numerous rules and regulations. If you get sued and your handbook is not compliant or misstates your policies, it will make a bad situation worse!

So how compliant is your Employee Handbook? When was the last time it was updated? When was the last time you looked at it?  When was the last time you had an employment attorney review it?

I’m lucky, I have Sandee. Sandee is our HR Director, and has been working as an HR professional for over 30 years. Sandee knows her stuff.

Once a year she updates the handbook to be compliant with any recent changes.  She consults with our employment attorney if she has any questions. She requests that I review it every year (which I actually do), and then Sandee and I introduce any changes in the handbook at a monthly staff meeting.  We also use that opportunity to discuss existing aspects of the handbook we feel our staff needs to be update on.

Our handbook is posted on our company intranet and we endeavor to keep it current.  It is always available to employees and can be printed out at any time.

Making certain your employee handbook is legally compliant and reflective of the policies you actually follow is not only good business it is a significant step in managing your risk for employment related claims.

Cavignac & Associates provides clients with assistance in this area and can:

• Provide resources that your HR professional can use to develop or update your current handbook
• Provide a review of your handbook with a summary of recommended edits
• Update your current handbook
• Develop a handbook for your company

Please contact Sandee Rugg at srugg@cavignac.com if you are interested in handbook assistance.