October 2017

As concerns grow about the potential effects of global warming and people pay more attention to reducing their carbon footprints, green construction is becoming a larger part of the solution. A McGraw Hill study found that in 2008 the value of green construction starts might have been as high as $49 billion, and it could reach $140 billion by 2013.

Building owners are attracted by energy cost savings, tax incentives, and the good publicity that comes from using an environmentally-friendly facility. Although green construction has become a lucrative business for contractors, it carries some risks that conventional construction methods do not have or have to a lesser extent.

Much of the difference between green construction and conventional methods is in areas of emphasis and materials. Green construction, because it is relatively new, uses new materials that might not have a proven long-term track record. The focus of a green building is energy conservation; objectives such as moisture control to prevent mold growth receive less attention.

Also, compared with conventional buildings, green buildings allow more air in from the outside, with potential impacts on building occupants’ health. Before construction begins, contractors must work with the project owner to identify the specific green objectives the owner wants to accomplish. With that knowledge, the contractor can determine how much additional risk the objectives present and create risk management plans to deal with it.

Price pressures can also be an issue. Green construction can be more expensive than conventional construction, yet project owners might be unwilling to pay a large premium for it. Contractors will be under pressure to hold costs down. This might cause them to take shortcuts that could increase the risk of creating defects in the building. The owner and contractor must work together to create a plan that balances cost savings with sound construction practices.

Green buildings carry a risk that their components might not perform as well over time as do those of conventional buildings. Because they stress innovative techniques and materials, green buildings use materials that have not undergone the years of testing that conventional materials have. Green construction favors using renewable resources and emphasizes insulation to reduce energy use.

Conventional buildings use materials with a history of good performance and emphasize keeping water and other elements out. To reduce performance risks, contractors should arrange for peer reviews that predict how materials will interact with other materials and building systems, predict how the building will hold up in actual use, and analyze waterproofing and humidity control capability.

Although green buildings are a relatively new concept, building owners expect them to perform at least as well as conventional buildings over the long term. Contractors who erect them might be vulnerable to lawsuits if a building fails to meet the U.S. Green Building Council standards. The USGBC offers its LEED certification to buildings that meet standards; the council can also revoke certification if it finds that a building is not performing as expected. Losing certification can harm a contractor’s reputation.

The peer reviews of materials and systems should help to reduce this risk. The green construction business is almost certain to grow rapidly during the next several years, and contractors will naturally want to take advantage of that. To reduce their risks, they should work with organizations such as the USGBC to get education and training on materials, construction techniques, and risk management. Together with peer review of materials and collaboration with project owners, these measures should help contractors complete quality and environmentally sound buildings.

Bidding on residential remodeling projects requires accuracy. With an accurate bid, you show your competence and make a viable living. Consider five//// tips that help you estimate an accurate remodel bid.

1. Become familiar with the client’s house.

Whether you’re bidding on your first or fiftieth remodel project, you must do a thorough walk-through of the home. You’re better equipped to give an accurate bid when you know exactly what the house looks like and what the job entails.

During your walk-through, look for details like the room dimensions, desired materials and job scope. You should also consider any complications like an older heating system or the possibility of mold.

2. Be clear about the homeowner’s expectations.

Talk to the homeowners to ensure you understand exactly what they want and expect. When you’re on the same page, you can create a bid that includes everything they want.

3. Calculate all costs related to the project.

It’s easy to forget important details when preparing a remodel estimate. Consider these often underestimated or overlooked expenses.

4. Ensure the bid is profitable for you.

Remodel jobs can include a profit margin of as much as 20 percent, but if your bid is too low, you could earn as little as three percent. Crunch the numbers at least twice to ensure you can stay in business and provide for your family.

5. Submit your bid personally.

Show that you’re dependable and hands-on when you submit your bid in person. This step also gives you a chance to discuss the bid with the homeowners. You can explain charges and answer any questions as you equip the homeowners to make an informed decision.

With these five steps, you submit bids for remodel projects that are accurate. You can then build a successful construction career.

An electrical contractor runs miles of wiring through what will be a three-story office building. Following completion, the contractor tests the wiring, finds it satisfactory and leaves the job. After other subcontractors hang and paint the walls and do other finishing work, the general contractor tests all systems.

This time, the electrical system fails. The GC summons the electrical contractor back; after more testing and diagnosis, the contractor concludes that there are faults in two segments of the system on different floors and adjacent sides of the structure. Fixing the problem will require tearing out the finished walls and a few appliances attached to them (a dishwasher in an office kitchen area, computer network equipment, etc.).

Tearing these things out, repairing the faulty wiring, and reinstalling the walls and finishing them so they look flawless will cost much more than simply fixing the electrical problem. The cost is far beyond what the contractor can afford to pay out of pocket. Will its Commercial General Liability insurance help? The answer depends on the state where the building is located.

The ISO CGL policy covers the insured contractor’s legal liability for physical damage: 

To tangible property, including all resulting loss of its use, or loss of use of tangible property that is not physically injured; and Caused by an occurrence, which is “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

In addition, the policy states that it does not cover the insured’s liability for property damage: 

To work or operations the insured performed or which a subcontractor performed on the insured’s behalf, if the damage arises out of any part of the work and it occurs after the work’s completion; and To other tangible property that is unusable or less useful to the owner because it includes the insured’s work that is known or thought to be defective, deficient, inadequate or dangerous, if fixing the insured’s work will restore the property to usefulness.

Some courts have ruled that the CGL policy covers the cost of tearing out and reinstalling undamaged property when that is necessary to fix the defective work. A 2002 federal appeals court ruling in a Washington state case said that the removal and destruction of other subcontractors’ work due to the insured’s defective work is property damage, as the CGL defines the term. The court also said that the insured’s performance of defective work met the policy’s definition of “occurrence.”

A 2010 decision from Washington state reached a similar conclusion — unintentionally providing defective products to an installer was an “occurrence,” and removal and replacement of other suppliers’ products and work was “property damage.” Courts in Alaska and Oklahoma have ruled that the policy provision that excludes coverage for unusable tangible property did not apply because of a second provision that gives coverage back for loss of use resulting from sudden or accidental injury to the insured’s work. The courts felt that installing defective components was done accidentally.

Conversely, courts in Arizona, Maryland and South Carolina have held that tearing out and replacing undamaged property is not physical damage caused by an “occurrence” because it is not an accident. Rather, the courts saw it as a cost associated with a project.

Since the courts differ so much from one state to another, it might be helpful for a contractor to know in advance what a particular state requires. The contractor’s insurance agent might also know which insurance companies have a history of paying for these types of claims. The contractor could find that it is worthwhile to buy coverage from these companies even if they charge higher premiums.

Your construction business depends on independent contractors who may perform a variety of tasks, including demolition, installation or painting. Because your business depends on quality work performed in a timely manner, use seven tips to ensure you hire reliable independent contractors.

1. Preview previous work.

Check out jobs the independent contractor has already completed. Do they match the scope of your project and meet your quality standards? If so, you can assume the independent contractor will successfully complete your job, too.

2. Do a background check.

Your reputation, business and future career could depend on the work your independent contractors perform, and you could be liable for their actions on the job site. For these reasons, perform background checks and assess the independent contractor’s work history and any recent criminal charges.

3. Check insurance paperwork.

As you must carry contractors insurance for your business, independent contractors must also carry insurance. Inspect their paperwork to ensure they’re adequately insured for construction site hazards.

4. Complete a W-9.

Independent contractors are not employees, and according to IRS rules, they must complete a W-9. This form includes their name, address and Social Security number (SSN) or Employer Identification Number (EIN) and indicates that they are exempt from tax withholding. Reliable independent contractors will readily agree to sign a W-9.

5. Discuss Form 1099-MISC.

The IRS mandates that you must file Form 1099-MISC for all independent contractors who make $600 or more per year. If the independent won’t give you a current address or asks you not to send this form, that’s a red flag that could indicate they are not operating their business according to federal laws, and you should find a different contractor.

6. Sign a contract.

A contract is an agreement between you and the independent contractors you hire. It contains details about the project such as the timeline for deliverables, payment schedule and work expectations. It also includes a statement about the independent contractor’s status, a nonsolicitation clause and a right to terminate the contract for term violations. Because a contract protects you and the independent contractors you hire, only work with contractors who will sign a unique contract for every project.

7. Pay via invoice only.

Independent contractors will submit invoices to you when the job is finished. Only pay those invoices, not other expenses that are the independent contractor’s responsibility. At the end of the year, make sure the invoices you’ve paid coordinate with Form 1099-MISC.

Hire reliable independent contractors for your construction business when you use these seven tips. For more assistance, talk to your insurance agent or business consultant.