January 2023 – Construction Prep – Preparing for Surety Bond Underwriter Queries


If you’ve been involved in a large construction project, you are familiar with surety bonds and all of the underwriter’s questions you need to answer. If you’re new to the game, it can be daunting.

Many small contractors pass on bidding for projects if they require a surety bond. But it doesn’t have to be that way as long as you are prepared and know what kind of questions the surety insurer’s underwriter will be asking.

Surety bonds protect project owners from loss if the contractor’s work is defective or of poor quality, or if the contractor fails to complete the work or follow the terms and conditions in the agreement.

For example, if the contractor fails to finish a project due to a shortage of workers or financial problems, the surety company has to step in and perform in the contractor’s place. Obviously, it’s in the carrier’s best interest to insure projects where they won’t be asked to perform. As a result, the questioning can feel like an inquisition, but it’s worth it to be prepared so that the insurer underwrites the bond and you can get to work.

Other areas of scrutiny

Besides the questions in the box, the insurer will also likely want to know:

  • If the start and completion dates in the contract are feasible.
  • The amount of the bid bond if there is one.
  • Any warranty terms and if they are sensible.
  • The payment terms and if they will allow the owner to manage expenses during the life of the project.
  • If there is any retainage, or the withholding of the final contract payment for a specific time period to ensure that the job has been properly completed.
  • If there are any damages that are set out in the contract in case of non-performance or shoddy workmanship.
  • If the contractor’s costs to complete other projects it is working on are sufficient to ensure that it can cover its general and administrative costs in the following year.

The above list is not exhaustive and some surety insurers may have different areas of interest.

The bottom line is you’ll want to make sure your finances are up to snuff and that you have a strong track record.


January 2023 – Top 10 California Laws, Regs for 2023


A slew of new laws and regulations that will affect California businesses are taking effect for 2023.

Last year was a busy one, with ground-breaking new laws on employee pay disclosures, a law prohibiting discrimination against cannabis-using employees and another expanding the circumstances when employees can take leave to care for a loved one. The following are the top 10 laws and regulations that employers in the Golden State need to stay on top of.

1.  Pay disclosure

This sweeping law in part requires more disclosure of pay information by employers. Under current law, employers are required to provide the pay scale for a position upon reasonable request by a job applicant. SB 1162 goes a step further by:

  • Requiring employers, upon request by a current employee, to provide the pay scale of the position they are employed in.
  • Requiring employers with 15 or more workers to include pay scale in any job postings for open positions.
  • Requiring employers to maintain records of job titles and wage rate history for each employee while employed for the company, as well as three years after their employment ceases.

Note: The law defines “pay scale” as the salary or hourly wage range that the employer “reasonably expects” to pay for the position. Penalties range from $100 to $10,000 per violation. This law took effect Jan. 1, 2023.

 

 2.  State of emergency and staff

This new law, SB 1044, bars an employer, in the event of a state of emergency or emergency condition, from taking or threatening adverse action against workers who refuse to report to, or leave, a workplace because they feel unsafe. “Emergency condition” is defined as:

  • Conditions of disaster or extreme peril to the safety of persons or property caused by natural forces or a criminal act.
  • An order to evacuate a workplace, worksite or worker’s home, or the school of a worker’s child due to a natural disaster or a criminal act.

SB 1044 also bars employers from preventing employees from using their mobile phones to seek emergency assistance, assess the safety of the situation or communicate with another person to confirm their safety. The law, which took effect Jan. 1, 2023, does not cover first responders and health care workers.

 

3. Cannabis use and discrimination

This law bars employers from discriminating in hiring, termination or other conditions of employment based on employees using cannabis while off duty. The bill’s author says the legislation is necessary because THC (tetrahydrocannabinol), the active ingredient in marijuana, can stay in a person’s system after they are no longer impaired. As a result, drug testing may detect THC in an employee’s system even if they used it weeks earlier and it is having no effect on their job performance. AB 2188 does not require employers to permit employees to be high while working. The bill would exempt construction trade employees and would not preempt state or federal laws that require employees to submit to drug testing. This law takes effect Jan. 1, 2024.

4.  Leaves of absence

The California Family Rights Act and the state’s paid sick leave law allow employees to take leave to care for a family member, defined as a spouse, registered domestic partner, child, parent, parent-in-law, grandparent, grandchild or sibling. The definition has been expanded to include “any individual related by blood or whose association with the employee is equivalent of a family relationship.”

5.  Contractor workers’ comp

Starting July 1, the following contractors must carry workers’ compensation coverage regardless of if they have employees or not:

  • Concrete (C-8 license)
  • Heating and air conditioning (C-20)
  • Asbestos abatement (C-22), and
  • Tree service (D-49).

Starting Jan. 1, 2026, all licensed contractors must have coverage.

6.  OSHA citation postings

Under current law, employers that receive citations and orders from OSHA are required to post them in or near the place the violation occurred, in order to warn employees about a potential hazard. Starting Jan. 1, 2023, they must post the notice not only in English, but also: Spanish, Chinese (Cantonese, Mandarin), Vietnamese, Tagalog, Korean, Armenian and Punjabi.

7.  Permanent COVID standard

Cal/OSHA has a permanent COVID-19 prevention standard that will sunset in 2024. The new standard, which replaces the temporary emergency standard the agency had implemented, should provide more certainty for prevention procedures and practices. Here are the main takeaways:

  • Employers are no longer required to pay employees while they are excluded from work due to COVID-19, or to screen employees daily.
  • Employers must still notify and provide paid testing to employees who had a close contact in the workplace.
  • Employers can now incorporate written COVID-19 procedures into their Injury and Illness Prevention Programs.

8.  CalSavers expanded

SB 1126 requires any person or entity with at least one employee to either provide them with access to a retirement program like a 401(k) plan or enroll them in the state-run CalSavers program. Prior to this new law only companies with five or more employees that do not offer a retirement plan are required to enroll their workers in CalSavers.

9.  Bereavement leave

Employers with five or more workers are required to provide up to five days of bereavement leave upon the death of a family member, under a new law starting in 2023. This leave may be unpaid, but the law allows workers to use existing paid leave available to them, such as accrued vacation days, paid time off or sick leave. Employers are authorized to require documentation to support the request for leave.

10.  PFL wage replacement

This law was passed last year but does not take effect until 2025. Existing California law allows employees to apply for Paid Family Leave and State Disability Insurance, both of which provide partial wage replacement benefits when employees take time off work for various reasons under the California Family Rights Act. Starting in 2025, low-wage earners (those who earn up to 70% of the state average quarterly wage) will be eligible for a higher percentage of their regular wages under the state’s PFL and SDI benefit programs.


October 2022 – Big Changes for Dual-Wage Class Codes


AS INFLATION drives up salaries in all sectors, the workers’ compensation wage thresholds for construction dual class codes have increased in California as of Sept. 1, 2022.
State Insurance Commissioner Ricardo Lara in July approved the recommendation by the Workers’ Compensation Insurance Rating Bureau to increase the wage thresholds for highwage workers.
The new rates apply to workers’ comp policies that incept on or after Sept. 1.
In these dual class codes, workers’ compensation rates are different for workers above and below the wage threshold.
Rates are lower for workers whose hourly pay is above the threshold as statistics have shown higher-paid workers in these fields have fewer workplace injuries than those who are paid less.
Often the difference in premium rate between the workers who fall above and below the threshold can be significant.
Opposite are the new thresholds for each class code, that are now in effect.


July 2022 – Construction – Spiking Materials Costs Imperil Building Projects


CONSTRUCTION FIRMS are reeling from snowballing costs of building materials due to spiking demand and supply chain snarls, which are resulting in massive budget cost overruns.
This is especially affecting construction businesses that are managing apartment or commercial projects. These cost overruns are imperiling profits – and risking red ink – on the projects after the contractors won carefully constructed bids.
Building materials and labor costs are going through the roof. According to the U.S. Census Bureau, construction costs spiked 17.5% year-over-year from 2020 to 2021, the largest increase in this data from year to year since 1970. And 2021’s costs were more than 23% higher than pre-COVID-19 pandemic 2019.
Many of the materials used in the construction of apartment and commercial buildings, including concrete, flat glass, and steel products are affected by volatile prices, with steel seeing a more than 123% increase in costs in the past year.

The fallout

With the prices of materials climbing rapidly, it’s easy for project costs to quickly exceed expectations and sink a project if those costs break the profit margin and force a loss. To avoid this fate, construction firms need to be proactive and put in place procedures for dealing with materials cost increases, supply chain disruptions, and a shortage of capable manpower. It could mean the difference between turning a modest profit or losing their shirt.
There are steps that contractors can take to avoid that fate. In an article on the website Construction Dive, Ripley Bickerstaff related what Hoar Construction, where he works as director of business development in Nashville, is doing to reduce the risks of price shocks and materials shortages so that builders can keep projects on track and in the black.

Don’t delay

Bickerstaff also recommends ordering items as early as possible, not just when needed. Due to supply chain issues, some items require a year lead time from order to delivery.
This way, you can lock in the price ahead of time. Even if it’s an item you’ll need for later in the project, considering the rapid pace of price increases, it’s best to order in advance so
you avoid being hit with higher prices later. This can protect your profit margin.
Additionally, the general contractor should work with architects and designers of the project to identify which materials they should order and which ones make sense in the current cost environment.
This can also give the builder time to shop around and find deals on similar or comparable items made of different materials to save money. Contractors that order materials early will have to arrange for storage as well. So securing warehouse space should be a priority.

Secure your workforce, subs early

With demand for construction workers and contractors exceeding supply, general contractors have to get in line and book them early.
For example, in some markets, electrical contractors are booking projects as far as a year out. Builders should secure subcontractors in advance to give them time to book their crews and order the materials they’ll need.
“Many builders are now shooting to lock in 70% of costs prior to construction documents, which should minimize the chances of double-digit material price hikes after a developer closes their
loan,” Bickerstaff writes.

The takeaway

Working on a large construction project now requires greater foresight and planning. You’ll need to price in factors you normally may not consider to ensure that you can meet your project budget and turn a profit.


April 2022 – Risk Management – Don’t Let a Subcontractor Derail Your Safety Efforts


ONE OF the biggest challenges construction businesses face is preventing subcontractors’ and suppliers’ poor or non-existent safety practices from denting their own safety program.
While you may consider a number of factors when vetting a new subcontractor or vendor, one area that is often overlooked is their workplace safety practices.
This mistake can cost you dearly if one of their workers causes an incident at your worksite. In addition to an injury to one of your own employees, you could get a visit from an Occupational Safety and Health Administration inspector.

The National Safety Council’s Campbell Institute recently conducted a study of organizations with excellent safety records to identify the best practices for subcontractor and vendor safety.

As part of the study it identified five steps during a contractor or vendor relationship when it’s incumbent on a hiring company to evaluate the workplace safety habits of their business partners.

Prequalification

The institute recommends looking at more than just a company’s experience modifi cation rate. It says safety-minded fi rms assess subcontractors in multiple areas, such as their total recordable incident rate, fatality rate, days away from work for injured workers, restricted or transferred rate, and other OSHA recordables for the last three years.

Many firms also ask for environmental reports, written safety programs, permits, licenses, and continuous improvement programs.

Pre-job task and risk assessment

Before a subcontractor begins work, institute members recommend having a method for evaluating the risk of the work that is to be performed. Doing this can help you understand the scope of the work and give you a chance to put into place a new written safety program if the risk is deemed high.
Most importantly, subcontractors should be required to adhere to the same safety standards as your company.

Training and orientation

You should require safety orientation and skills training for subcontractors before they step onto your jobsite. Also, if they are doing highly specifi c work, you should ensure they have any required permits or special training. Some of the jobs that fit into that category are confi ned-space entry, electrical work, hot work, energy control, forklifts, and elevated work.

Job monitoring

Many safety-minded companies monitor work with daily checklists, pre-shift tailgate or safety meetings and weekly walkthrough inspections. Some of the companies surveyed for the study also require contract employees to submit a certain amount of safety observations and utilize mobile applications to report non-compliance or unsafe conditions. Also, you need to keep up-to-date incident logs, as this is crucial to monitoring subcontractor safety during a project.

Post-job evaluation

Conduct a post-job evaluation. During this phase look at safety, customer service and the quality of the fi nished work, and use those factors in determining the subcontractor’s eligibility for future contracts.


Jan 2022 – COMMERCIAL PROPERTY – Factors that are pushing the insurance rates higher


COMMERCIAL PROPERTY insurance rates are continuing to climb, as the segment faces a number of headwinds that have pushed claims costs to new heights.
A number of factors are affecting rates, including the frequency and severity of extreme weather claims. the cost of rebuilding, rates for commercial properties not keeping pace with claims costs, and more.
The end result has been a steady increase in property rates across the board, but businesses with operations in areas that are more susceptible to natural disasters are seeing the highest
increases.
As a business owner with commercial property, you’ve probably already seen rates increase, and you should be prepared for further rate hikes in the coming year. Here are the main drivers of these increases.

 

Mounting natural catastrophes

The number of natural catastrophes hitting the U.S. continues increasing as does the cost of those disasters, which are affecting more properties around the country.
Depending on the part of the nation a property is located it can be exposed to hurricanes, wildfires, tornadoes, hail, flooding and more.
There has also been an increase in civil unrest, which often results in property damage to businesses.
Insured property losses in the U.S. hit $74.4 billion in 2020, the second-most expensive year on record.
Also, last year set the record for the most major natural catastrophe events to hit the U.S. in a single year (22 of them).
Five of the 10 most expensive catastrophe years for the insurance industry have occurred since 2011.

 

Reconstruction costs

Reconstruction costs have skyrocketed during the past five years, averaging 5% a year, according to the Associated Builders and Contractors analysis of Bureau of Labor Statistics data.
Lumber prices rose by 73% between April 2020 and July 2021, greatly increasing rebuilding costs. On top of that, iron and steel products jumped 15% in price during the same period, and steel mill products by nearly 7%.

 

Construction labor shortage

The construction industry faces a serious labor crunch. And many firms have backlogs that stretch out more than six months.
According to the U.S. Chamber of Commerce Commercial Construction Index, this shortage is leading to real-world setbacks for contractors:

• 68% of contractors say they are asking workers to do more work.
• 56% report a challenge in meeting project schedules.
• 50% of contractors are putting in higher bids.
• Over a third (35%) report turning down work due to skilled labor shortages.

 

Property rates are inadequate

Despite the fact that rates have been increasing for the last five years, insurers are still struggling to keep up with the rapidly rising cost of claims as well as the number of claims they are seeing.
Those factors have made it difficult for the industry to peg pricing at the right level, resulting in a string of losses in property insurance for most carriers.
As the industry struggles to get back to profitability, insurers will have to continue boosting rates.

 

Reinsurance rates

A portion of the property insurance rate gains can be attributed to insurance companies dealing with higher reinsurance costs.
Insurers buy reinsurance to pass on claims costs from catastrophic events, in order to reduce their overall risk.

 

The takeaway

There are some steps that businesses can take to try to affect their premiums.
If you have an older building, you can replace your mechanical, electrical and plumbing systems with newer, code-compliant variants.
Safeguard your building against location-specific hazards (for example, creating a defensible space and using fire-resistant roofing in wildfire areas and upgraded cladding in hurricane areas).
Also, electrical fires are the number-one cause of property damage, so you should consider installing fire-protection systems such as sprinklers and fire hose cabinets.


October 2021 – CONSTRUCTION INDUSTRY – Building Risks Evolve, Creating Unique Challenges


AS THE CONSTRUCTION industry booms, contractors face evolving risks that, left unchecked, can leave their operation exposed to new liabilities.
If you already operate a construction firm, you know that there is a labor shortage that has made it difficult to find experienced workers and that hiring entities are asking builders to take on more of the design function, as well.
Your liability picture has also likely changed with the increasing use of wrap-ups and, if you’re using technology in your operation, you now have rising cyber-security risks, too.

Lack of qualified workers

The bottom fell out of the construction industry in the U.S. during the first few months of the COVID-19 pandemic, and many worksites were idled. Now that the industry has found its footing, it’s been dealing with a severe labor shortage.
As construction firms struggle to find workers, the ones who are on the job are having to take on larger workloads, which can put them at risk of injury or making mistakes.
Also, many contractors are having to take on younger, less-seasoned laborers, who may lack the experience to identify and avoid hazards, which puts them and others at risk of injury. Those injuries in turn affect your workers’ comp
premiums.
A lack of workers coupled with inexperienced new ones on sites can also end up drawing out projects, forcing contractors to miss deadlines.

Professional liability risks

As more project owners want an all-in-one job with the lead contractor designing and building the project, contractors now face a new type of risk: professional liability.

But the typical contractor’s insurance policy doesn’t provide protection for any design work you take on.
Courts have ruled that:

  • Designers who perform “builder activities” lose limitation of liability typically enjoyed by design professionals.
  • Builders who perform “design activities” assume responsibility for design deficiencies.

Wrap-ups more prevalent

Many construction projects are now covered under one general liability policy to cover the work of the general contractor, as well as of all the subs. More lenders are requiring that liability is set up in one all-encompassing policy.
A properly assembled general liability wrap-up should provide coverage not only during the construction period, but also up to 10 years after the work is completed.  These policies often reduce the cost of coverage.

More cyber-security risks

Like all industries, the construction sector has grown increasingly reliant on technology to get the job done. That exposes contractors to a variety of cyber risks, including keeping project designs, client records and employee records confidential.
Many building contracts today include clauses requiring the contractor to be responsible for potential cyber breaches.
Given the increasing popularity of practices such as “building information modeling,” “integrated project delivery,” and file-sharing between participants in a construction project, contractors may be at increased risk of liability in the event of a data breach.


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