Boom trucks, forklifts and cranes have greatly improved our ability to stock material into buildings. These wonderful machines strain their guts out doing what we need done and can be overloaded. Some of these machines have switches that limit or stop the machine from doing something the human operator thinks can be done.

Operating equipment can be dangerous, especially when an operator chooses to override the limiting switches. Why do operators often times try to override devices that were designed to protect them and their equipment?


Every industry uses some sort of limiting switch for the protection of the parties involved. Banks have limiting switches as part of their lending practices, which protect the bank as well as the customer. A banking limiting switch is to lend money based on a person's ability to repay a loan.

There are hundreds of limiting switches for our protection. Speed limits set parameters on how fast cars are driven. Drug prescriptions are designed to protect people from abusing. Motion pictures are rated for the protection of minors. The trucking industry has weight limits that protect drivers and the public. Food manufacturers are required to follow certain food handling and packaging requirements. Public companies, such as Enron, are required to adhere to certain accounting practices in order to protect investors.

The problem is that some people abuse prescription drugs, minors watch R-rated movies and big trucks exceed weight limits. As well, there are many cases of food contamination, not to mention companies that do not follow honest accounting practices.

The insurance industry has coverage limits but no limit on how much they can charge for insurance. It appears the insurance industry has raised insurance rates to the point that some contractors will not continue in business. This industry is punishing subcontractors and there appears to be no limit on how badly they will continue to punish them. They support their actions against contractors using data that indicates the construction industry is a "high-risk" industry. For that reason, they charge as much as the market will swallow.

At some point, small contractors will realize they can't afford these rates. When that happens, there will either be fewer contractors or contractors will continue their businesses without insurance coverage. The insurance industry charges contractors whatever the market will bear. And ever since, the industry made it a requirement that each subcontractor insure the owner, GC, the owner's dog, the GC's cat and the on-site portable toilet; subcontractors are providing this insurance for free.

In my opinion, outrageous insurance rates are not solely the result of subcontractor claims but the result of the insurance industry's constant manipulation of how best to insure owners and GCs. Since this has happened, contractors are lining up to get insurance at the highest possible rates. For the first time in history, small contractors are living with insurance and contractual uncertainties that may force them to close their doors.

The squeeze play

Contractual and insurance uncertainties are continuing to squeeze out small contractors. Most contracts require subcontractors to provide certain insurance coverages that benefit everyone but the subcontractor. Since the insurance industry came up with the idea that subcontractors must insure GCs as primary additionally insured and non-contributory, subcontractor insurance rates have skyrocketed. But subcontractors are not passing this cost on to their customers.

As in any business, if costs go up, that cost must be passed on to the consumer. Years ago, insurance costs were minimal, as was risk. Today, insurance has become a major cost and risk has gone from minimal to extremely high. One doesn't have to be Einstein to figure out that as costs and risk rise, so must price.

Business shrinkage is happening all around us. Small suppliers continue to be bought out by larger suppliers. Large manufacturers are buying up smaller drywall, steel stud and mud manufacturers. As a consumer and in the long run, I don't think I've saved money shopping at the big stores or buying drywall from the big suppliers. In fact, as the small guy is slowly ousted out of business the big guys' prices go up.

Why would the insurance industry like to see shrinkage in the contracting industry? Could it be they want to weed out high-risk contractors leaving only the premium high net worth contractors?

The important question to ask is whether or not it's financially feasible for the small contractor to continue in an industry where profit margins are decreasing while risk is increasing.

Hard work

When considering how hard a small contractor has to work to make a living, it's mind-boggling. The small contractor's staff consists of the owner and sometimes the owner's wife-both of whom are often times consumed by the business. The wife often does the bookkeeping while the husband bids work, hires, fires, stocks, cleans, fixes and collects the money. The wife not only takes care of the home, the kids and the family business, she has the added stress and strain of knowing how financially fragile the family is when things are tight.

Union workers in our area earn between $50,000 and $60,000 per year working for someone else while enjoying loads of benefits, little stress and a respectable retirement package. Not that these workers moonlight but side jobs could generate a substantial added income.

As well, if the small contractors average how much they've earned over a 20-year period, I think most would be surprised to see how good, moderate and poor years have averaged out to be just a little more than what they would have earned working for someone else, without the risk. At some point, a hard-working contractor must realize that much of the profits he is working for is being devoured by overhead. A CPA friend of mine explained that capitalism is designed to limit business owners to an average net income of about 10 percent over the long run. I was also told that new technology companies generate huge profit margins for a limited time period. Once that time period is up, the company's profit margins decrease and end up around the 10 percent long-term margin.

I'm told the huge decreases in profit margins are caused by a natural chain of events by other industries that want a piece of the profit action. The construction industry at one time was much more profitable than it is today. In our area, although costs have gone up, most contractors have accepted a lower profit margin while charging for added material and labor costs. In other words, contractors continue to reduce profit margins, while material, labor, insurance and other overhead items increase.

GCs-on the other hand-buy less material and perform less work than subcontractors. They have become more like brokers and less like builders. Today, GCs are insured by subcontractors, financed by subcontractors and derive their profit from subcontractors. It seems that owners and GCs created a new association called the Insured and Financed by Subcontractors Association. How long does one have to wait for change orders and retention? How much is one paying to insure owners and GCs?

What are the options for small contractors who come to realize that no matter how hard they work there just isn't enough profit?

• Raise profit margin.

• Decrease overhead cost.

• Buy harder.

• Replace marginal workers with excellent workers.

• Add insurance costs to overhead.

• Reduce contract risk.

• Sub out your work.

• Downstream risk.

• Quit and go to work for the other guy.

Do you have a limit? Will the limiting switch go off when it's time to raise prices or replace workers? Will the switch kick in before a contract is signed or a family vacation is cancelled?

Are you trying to carry a load that far exceeds your limits? Maybe you've carried the load so long that you don't know how to get it off your shoulders? Change is inevitable; you either make them ahead of the industry or make them later.

Remember: Teamwork begins with a fair contract.

Quality Control Policy
inspecting building envelope

• Monitor air temperature, as well as ventilation prior to beginning work.

• Continue to monitor water intrusion from any possible source.

• Look for signs of mold and mildew growth.

• Inspect thresholds for proper sealing and installation.

• Inspect copings for proper installation and size.

• Inspect those items attached to the building, such as canopies or other abutting products, which may result in water intrusion.

• Verify that all exterior products, including building structure, does not allow water to stand or pool. Low walls, windowsills or other protrusions must have proper slope to allow water to shed off to ground.

• Examine the exterior envelope to ensure against mold and mildew growth on improperly installed or flat surfaces, if any.

• Specifically examine rough window openings as well as windows and window flashings.

• Verify that control joints do not penetrate the building envelope and are properly installed and caulked.

• Inspect areas where there has been temporary attachment to the building structure, such as scaffold wires, to ensure that the building envelope is still in tact.

• Advise all employees to be alert to incoming moisture or water from any location, including condensation at windows and aluminum storefronts.

• Inspect plumbing, mechanical and electrical penetrations in building envelope to ensure they are properly installed and watertight.

If a deficiency is found or believed to exist, send a "deficiency notice" to the general contractor. Note the possible resulting damage this deficiency is causing or may cause in the future. If water intrusion is an issue always include that "mold and mildew" may be the result, as well as other potential risks, which must be noted.

If the deficiency affects company's sequence or schedule please note that on your form.

Do not proceed with work until the GC responds in writing with direction as to how company shall proceed. If the GC responds verbally to a minor issue, make note of his determination on your form.