The Anatomy of a Decision in Construction

Photo of Jeff Sample

Jeff Sample, Industry Evangelist, Join, Inc.

By Jeff Sample, Join, Inc.

The most critical factor in construction project delivery is effective decision-making. Critical decisions must be made throughout a project lifecycle, but they are often made with little more than a team’s collective gut feeling. Collaboration, communication, and the early establishment of leadership roles focused on critical decision-making and smart solutions are key factors of a project’s success.

Technology is deployed in all phases of a construction project, but it’s vital to leverage available data and software to improve decision-making for future builds. To do so, you’ll want to lean on digital platforms that allow you to tap into past project history, compare future decisions, view updates in real-time, and communicate with your entire team every step of the way.

In this post, we’ll look at the anatomy of a decision, how to structure teams around smart decision-making, and the available resources to simplify the entire process.

How Successful Construction Leaders Make Decisions

Construction is not a new industry. In fact, it’s arguably one of the oldest. But despite the centuries of knowledge, experience, and processes, too many projects lag behind client expectations. They’re completed late, over budget, and missing an array of aesthetic features that were promised at the start.

Realistically, some aspects of a build—supply chain issues, material shortages, changes in zoning laws, and more—fall outside your realm of control. And most construction managers know to expect changes to the project’s plan and design. But ultimately, the difference between a happy client and a disgruntled one is often a project team that anticipates irregularities and one who doesn’t.

To put it simply: you have to anticipate the worst so you can deliver the best.

Don’t miss Jeff’s webinar on Aug. 30 — The Anatomy of a Decision in Construction

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Smart decision-making in construction is rooted in customer values. It’s therefore critical that project managers take ample time to get to know their clients and what aspects of the project are most important to them. Doing so will provide you with a clear understanding of what aspects of the build to prioritize so you and your team can plan accordingly.

Though it might be easier said than done, communicating potential challenges to your client before they arise can help you and your customer work together to determine top-, mid-, and low-level priorities. Moreover, you’ll be able to run through different scenarios to understand how cost, timeline, and aesthetics all impact one another and when to prioritize each one.

How Technology Can Aid Your Decision-Making

Smart decision-making in the bidding and preconstruction phases is critical for establishing realistic expectations between you and your client. Thankfully, modern project design software has transformed the landscape of early construction. Where there were once massive Excel files and hours of number crunching, there are now user-friendly software options that allow you to weigh different design impacts, see possible outcomes, and set priorities accordingly.

User-friendly software has bridged the gap between construction professionals and their clients. With new cloud-based technology, you can sit with a customer and design a virtual model of your project together, all while leveraging historical data for the most accurate estimates. Additionally, all stakeholders can access the project from a smartphone, communicate within the chosen tech platform, and make changes to better suit their needs. Doing so saves valuable time and labor hours and creates more client-customer transparency which is crucial for a lasting relationship.

Collaborative Decision Making

Individuals and organizations will inevitably have different decision-making styles. Typically, small projects make it possible for construction managers to make all necessary decisions alongside the client with little outside influence. Larger projects, however, often require a group effort.

It’s not uncommon for teams to bring in consultants. This practice is particularly prevalent if you’re building in an area you aren’t familiar with and need someone with knowledge of zoning laws, material sourcing, and more. Additionally, when working with large teams, it can be helpful to tap into employees’ experience in their relevant specialties to better track progress and avoid major pitfalls along the way.

No matter the method, construction technology makes it possible to collaborate with all stakeholders and make the most informed decisions possible. Additionally, each team will gain insight into the other teams’ progress, allowing for a more streamlined execution of your anticipated timeline. By keeping everyone connected, you can avoid labor stoppages and adjust materials and design to remain on time and within budget.

Using Experiential Insights

Careful planning is critical for successful project delivery. But plans can—and do—go awry. To avoid recurring pitfalls and ensure you’re making informed choices, construction managers must tap into past project data to gain the experiential insight necessary for successful completion.

It’s easy to fall back on old systems, processes, and suppliers. However, your reliance on your comfort zone might be holding you back. Therefore, it’s essential to use construction planning software that utilizes your past project data so you can better understand where a project deviated from the anticipated budget and timeline. Doing so will help you make more informed decisions and better maintain client expectations.

Make Better Decisions, Win Bigger Bids

Successful project delivery is all about smart, informed choices. Become a member of ABC Wisconsin to stay updated on all relevant industry news and advancements so you can make better decisions to keep serving your clients best.

Jeff Sample is an Industry Evangelist for Join, Inc. He has devoted the past 20+ years optimizing companies throughout the construction industry by designing solutions, optimizing strategic advantages, and breaking down information silos. His passion for outdoor adventure and Ironman competitions garnered him the moniker “The Ironman of IT.” As Industry Evangelist for Join, Jeff promotes collaboration and the transformation of preconstruction to help project teams reach their potential.

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Wisconsin construction unemployment numbers lower than general state unemployment rate

WASHINGTON, Aug. 3, 2022 — Wisconsin’s estimated not seasonally adjusted (NSA) construction unemployment rate in June was 3,2%, down a half percentage point from May and down 3.1% from June 2021, according to an analysis of U.S. Bureau of Labor Statistics (BLS) data released by Associated Builders and Contractors (ABC). The 3.2% is actually lower than the 3.5% overall Wisconsin unemployment rate.

Wisconsin’s not seasonally-adjusted construction unemployment rate is 25th among the states. The national rate for June is 3.7%.

Nationally, the not seasonally adjusted national construction unemployment rate plunged 3.8% in June 2022 from June 2021, down from 7.5% to 3.7%. Meanwhile, all 50 states had lower unemployment rates over the same period, according to a state-by-state analysis of U.S. Bureau of Labor Statistics data released today by Associated Builders and Contractors. Ten states had an estimated construction unemployment rate under 2%; the highest unemployment rate was 6.5% in New Mexico.

NSA chart

In June, national NSA payroll construction employment was 301,000 higher than a year ago and was 46,000 higher than its pre-pandemic peak.

Residential construction employment has fully recovered while nonresidential construction employment remains below its pre-pandemic peak. June SA residential payroll construction employment was 112,000 above its pre-pandemic peak while nonresidential payroll construction employment was 66,000 below its pre-pandemic peak.

The national NSA construction unemployment rate of 3.7% was down 0.3% in June 2022 from its June 2019 reading. Over that same period, 32 states had lower construction unemployment rates and 18 states had higher rates.

“The industry is confronting rising interest rates, slowing national economic growth and the possibility of a recession in the future,” said Bernard Markstein, president and chief economist of Markstein Advisors, who conducted the analysis for ABC. “Further, supply chain disruptions due to the Russia-Ukraine war continue, resulting in more caution in both residential and nonresidential construction. On the plus side, infrastructure construction activity will ramp up over the next several years as funds flow from the federal government from implementation of the 2021 Infrastructure Investment and Jobs Act.”

Because these industry-specific rates are not seasonally adjusted, national and state-level unemployment rates are best evaluated on a year-over-year basis. However, due to the uncertainty caused by the pandemic, month-to-month comparisons are useful.

Find more relevant articles in the Wisconsin Contractor Blog.

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Stopping lawsuit abuse in Wisconsin

R.J. Pirlot, Executive Director, Wisconsin Civil Justice Council

The Wisconsin Civil Justice Council’s mission is to promote fairness and equity in Wisconsin’s court system, with the ultimate goal of making Wisconsin a better place to work and live. ABC of Wisconsin is a founding member of the WCJC and ABC of Wisconsin President John Mielke sits on our board of directors, playing an important role in setting our policy agenda. During the 2021-2022 legislative session, WCJC’s top priority was enacting COVID-19 liability protections for Wisconsin employers as the economy reopens. WCJC wanted to protect businesses and their employees from predatory lawsuits alleging a businessowner exposed a person to COVID-19. WCJC and key members, such as ABC of Wisconsin, worked with lawmakers to protect businesses who took reasonable steps to protect against COVID-19 exposures. Despite opposition from trial lawyers who fought enactment of these needed protections, we worked closely with legislative leaders to pass our legislation and successfully convinced Gov. Evers to sign our bill into law. Key input from ABC of Wisconsin ensured that these protections from liability for COVID-related lawsuits apply to contractors, too.

These COVID-19 liability protections, signed into law as 2021 Wisconsin Act 4, provide civil immunity from ordinary negligence claims related to COVID exposure for Wisconsin employers, governments, schools, and other entities as well as their employees, agents, and independent contractors. In short, we raised the threshold for successfully proving a businessowner is at fault if a person alleges he or she got sick due to the businessowner’s actions or inactions. This immunity does not apply if an act or omission involves reckless or wanton conduct or intentional misconduct, a high standard. Act 4 applies retroactively to March 1, 2020, except for actions filed prior to Act 4’s effective date of February 27, 2021. In addition, despite attempts by the trial lawyers, these protections do not sunset and, moreover, you will continue to be protected even as the COVID virus mutates because our language applies not just to the original, novel coronavirus but also to any viral strain originating from the SARS−CoV−2 virus. Tiger Joyce, president of the American Tort Reform Association, called Act 4 “some of the strongest protections I’ve seen enacted in the country.”

In addition to getting Act 4 signed into law, WCJC worked hard holding the line on efforts to create new civil causes of action which could be used to harass Wisconsin businesses. For example, this past session Gov. Evers proposed creating new civil causes of action for employment discrimination, unfair honesty or genetic testing, broadband service denial, and unnecessarily summoning a law enforcement officer. Gov. Evers also proposed re-creating opportunities for trial lawyers to bring claims in the name of the state, a law which had been repealed by legislative Republicans under Republican Gov. Walker.  WCJC worked with legislators to ensure that none of these concerning policies advanced.

Key input from ABC of Wisconsin ensured that these protections from liability for COVID-related lawsuits apply to contractors, too.

Over the last few decades, WCJC has worked with lawmakers to enact a host of liability reforms, designed to create a more fair tort system in Wisconsin and to protect businesses from predatory lawsuits. Other recent victories include:

  • Limiting the ability to use discovery to go on “fishing expeditions” on Wisconsin businesses.
  • Halting discovery if a motion to dismiss is pending before the court.
  • Updating the state’s class action procedures, including creating a right of either party to seek an appeal of class certification before the litigation may proceed.
  • Requiring mandatory disclosure if a third-party is financing or underwriting the litigation.
  • Limiting the liability of employers who hire ex-offenders who have earned a Wisconsin-issued certificate of qualification for employment.
  • Requiring proof of a “reasonable alternative design” in an alleged defective design of a product, moving Wisconsin away from what was a broad “consumer expectation” test.
  • Limiting testimony of experts and evidence to that which is based on sufficient facts or data and is the product of reliable principles and methods.
  • Establishing a cap on punitive damages at $200,000 or two times compensatory damages, whichever is greater.
  • Holding a party liable for costs and fees for bringing a lawsuit or claim that is done solely for the purpose of harassing or maliciously injuring another party.

Next legislative session, which will begin January 2023, a WCJC priority will be to create reasonable protections to protect Wisconsin consumers from predatory “lawsuit lending” companies. Consumer lawsuit lending is advancing money for a consumer to use for any purpose other than prosecuting the consumer’s dispute, with repayment of the money conditioned on and derived from the consumer’s proceeds of the dispute, regardless of whether these proceeds result from a judgment, settlement, or other source. In short, it is a form of lending provided to a consumer, such as a plaintiff in a lawsuit, with repayment coming from the plaintiff’s recovery, if any.

Consumer lawsuit lending can result in a plaintiff paying very high effective interest rates, leaving a winning plaintiff with little financial recovery at the end of a successful suit. Typically, a plaintiff who takes out such a loan borrows a few thousand dollars but, when the money is repaid, ends up repaying a multiple of what was borrowed. In a study by faculty at the Cardozo School of Law and the University of Texas School of Law, though the average amount provided via lawsuit lending to a consumer in a motor vehicle case was $5,227, the amount due for repayment was $13,515 (with a median amount provided of $2,000, the median amount due was $3,961).

Why does WCJC and other members of the Wisconsin business community care about lawsuit lending? The mere presence of a such a loan can make it harder to settle a case and can thereby needlessly prolong litigation, negatively affecting all parties to the litigation, as the plaintiff knows repayment is contingent on a judgment or settlement.

Our goal is to continue to allow such lending to continue to occur in Wisconsin, while placing modest limits on the practice, such as a cap on interest which may be charged and prohibiting the lender from making any decisions regarding the legal dispute, leaving any decisions regarding the litigation with the consumer and the consumer’s attorney.

None of our victories have been easy. Even with a Republican-controlled legislature – as Wisconsin has had since the 2010 elections – we always face stiff opposition from trial lawyers, who have been working hard to make in-roads with key members of the Wisconsin Legislature. Moreover, none of these victories would have been possible without the broad support WCJC receives from organizations such as ABC of Wisconsin, along with individual companies in Wisconsin.

R.J. Pirlot, a member of the Hamilton Consulting Group, in addition to representing ABC of Wisconsin, serves as the Wisconsin Civil Justice Council’s executive director. WCJC is a 16-member organization made up of Wisconsin’s leading business and professional associations.  For more information about the Wisconsin Civil Justice Council, including how to support its work here in Wisconsin, go to https://www.wisciviljusticecouncil.org/ or contact R.J. at 608-258-9506.

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Supply Chain Delay Claims: A Day Late and a $1,000 Short

By Saul C. Glazer, Axley Attorneys

COVID-19 has created many challenges for owners and contractors. Initially, the biggest fear was that a COVID-19 outbreak might shut down a construction site.[1] Next, material prices skyrocketed. Currently, one of the largest concerns is the unreliable supply chain. This article discusses supply chain delay claims and steps owners, contractors, and material suppliers can do to help mitigate the effects of supply chain troubles.

Ounce of Prevention

Steel deliveries have been a major supply chain issue. However, the supply chain has impacted numerous items including windows, cabinets, and appliances. Many home builders have been requiring new home buyers to order dishwashers before any ground has been broken on new home sites because of the long delays in the supply chain. To the extent possible, owners should work with their designers, engineers, and contractors to identify items that may be subject to supply chain problems as early as possible and order difficult to obtain materials early. Steel subcontractors should also order steel as early as possible, and consider ordering steel with multiple orders, when it is not possible to order all the steel at once because not all shop drawings have been approved. Early orders may also alleviate some risk in material price escalation costs.

Liquidated Damages

Both section 15.1.7 of the AIA A201 section 6.6 of ConsensusDocs 200 waive consequential damages against contractors. If these provisions are not struck or modified, contractors generally are not liable for consequential damages to owners for late completion if supply chain issues delay a project. Owners, however, typically protect themselves by imposing liquidated damages for delays which extend the substantial completion date. In Wisconsin, liquidated damages are generally permissible so long as they are not a penalty, and a reasonable approximation of the type of losses that might occur because of late completion.[2] It is important for owners to go through the exercise of documenting the basis for the amount of liquidated damages prior to entering into a construction contract, so there is a documented justification for the amount if a contractor subsequently argues that the amount is unreasonable or a penalty.

Contractors should consider requiring a limit on the amount of consequential damages to avoid a catastrophic loss in the event of late completion. Most construction contracts allow contractors to extend the substantial completion date for excusable delays if they properly follow the contract procedures to extend the contract time. Contractors and subcontractors should always carefully review claims and notice procedures before entering into a contract, and make sure they are reasonable and to understand how to comply with any agreed upon procedures.

Force Majeure

Contractors may find protection from delay clauses through a force majeure clause. Both section 8.3.1 of the AIA A201-2017 and section 6.3.1 of ConsensusDocs 200 contain force majeure clauses. The standard language for the AIA does not reference epidemics or pandemics but does allow for a contract extension for “other causes beyond the Contractor’s control.” The AIA standard language does not expressly allow for or exclude an equitable adjustment for the contract sum because of a force majeure. The standard language in the Consensus documents allows for an equitable extension of the contract time and price for contractors if the delay is beyond the control of the contractor and due to an epidemic. Some argue that if at the time of when a contract is made there is an existing force majeure, then the parties assume the risk of the existing force majeure. To avoid any dispute, contractors should modify the force majeure clause to specifically include COVID-19 as a force majeure, and expressly indicate that out of the control of the contractor includes when a subcontractor or material supplier has supply chain or labor issues. In addition, contractors should seriously consider demanding language similar to that of Consensus Doc 200.1, Amendment 1 Potentially Time and Price-Impacted Materials. This amendment addresses the problem of supply chain issues, and allows for price and time increases due to those supply chain items expressly identified at the time the contract is made.[3]

Subcontractors should be fully aware of what obligations they are undertaking as part of their contracts.

Subcontractor Concerns

Contractors should make sure that their subcontracts contain properly drafted flow down provisions, which allow contractors to impose any uncompensated loss or inexcusable delay on the appropriate subcontractor or material supplier. Contractors need to be careful to make sure that subcontracts exclude, where possible, any subcontractor or material supplier proposals that contain limitations on liability for delays or contain other clauses that may impose liability on the contractor that cannot be passed through to the owner. Where such limitations are industry standard, contractors should attempt to shift risk of delays back to owners.

Subcontractors should be fully aware of what obligations they are undertaking as part of their subcontracts. Many subcontracts contain no damages for delay clauses which are enforceable in Wisconsin.[4] Supply chain issues may cause longer durations for subcontractors even with respect to materials that are the responsibility of another subcontractor. A no damage for delay clause will likely bar the innocent subcontractor from receiving additional compensation.

Subcontractors may be required to accelerate work or re-sequence work.  Whether such costs are recoverable to the subcontractor will depend on the language of the

subcontract. Subcontractors should carefully review indemnity clauses as they may impose liability on subcontractors for delay claims from the contractor or other subcontractors.  Subcontractors generally do not have the ability to recover directly from another subcontractor for delays.[5]

Conclusion

Unfortunately, COVID-19 has dragged on much longer than anyone has anticipated. Thankfully, the construction industry has remained strong economically. However, supply chain issues have imposed substantial costs on owners, contractors, subcontractors, and material suppliers. There are no easy answers in terms of how to allocate the risks of supply chain issues. Parties should invest additional time in pre-contract to identify as many of the potential supply chain items as possible, and decide how to handle these problems and who will bear the cost and time if there are untimely deliveries of necessary materials.

Saul Glaser is a construction attorney with Axley Attorneys. He can be reached at 608.260.2473.

 

[1] An earlier blog post also generally addressed planning for the impacts of COVID-19 on the construction industry.  Construction & Public Contract Law Section Blog: Coronavirus in Construction: Plan Now for After the Outbreak: (wisbar.org).

[2] Wassenaar v. Panos, 111 Wis.2d 518, 525, 529-30, 331 N.W.2d 357 (1983) (liquidated damages clauses are generally enforceable in Wisconsin so long as clause is not a penalty, precise damages are difficult to estimate, and the amount is a reasonable approximation of the anticipated harm).

[3] On the issue of dealing with material price escalation, see also Construction & Public Contract Law Section Blog: Construction Material Price Increases: Options for Contractual Risk Shifting: (wisbar.org).

[4] See John E. Gregory & Son, Inc. v. A. Guenther & Sons Co., 147 Wis.2d 298, 304, 432 N.W.2d 584, 586 (1988)(“no damage for delay” clause is generally enforceable, except in such cases of intentional wrongdoing or gross negligence, on the part of the party seeking to be protected).

[5] For a more detailed analysis of why subcontractors generally cannot sue other subcontractors for delays, see Construction & Public Contract Law Section Blog: Court of Appeals: Subcontractors Cannot Sue Each Other for Negligence: (wisbar.org).

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ABC of Wisconsin representatives discuss State Commercial Building Permit Process

MADISON, July 19, 2022 – Associated Builders and Contractors (ABC) of Wisconsin representatives met with the Legislative Council Study Committee on the Commercial Building Permitting Process Tuesday at the State Capitol. The study committee is directed to review the current commercial building permitting process and may recommend legislation for specific changes to the process.

ABC representatives discussed four critical aspects of the Commercial Building Permitting Process, including code development, plan review, wetland permits and enforcement. ABC representatives included Andy Wanger, Commercial Plumbing & HVAC Director, Dave Jones, Inc.; Steve Klessig, Vice President of Architecture and Engineering, Keller, Inc.; and John Mielke, President of ABC of Wisconsin.

Photo of ABC representatives speaking to the committee.

ABC of Wisconsin’s John Mielke (left) speaks to the study committee. Steve Klessig is pictured center and Andy Wagner is pictured right. Photos courtesy of WisconsinEye.

Most contractors would agree that the plan review process at the state level still needs improvement. The Wisconsin Department of Safety and Professional Services (DSPS) has been under fire for several years for long wait times for the commercial building plan review. A number of reforms were put into place over the past couple of years, but contractors are still in need of an improved process, which the committee is hoping to address.

“There has to be a faster track that we come to some resolution at the state level to improve this process,” said Wagner. “We want to review the ability to make a date like we did a long time ago, ahead of time. That is impactful for not only a general contractor and architect but also a subcontractor because now we’re playing off of their delay in the timeline.”

Mielke told the committee that having a system in place is good to ensure construction is done right, but, as Wagner said, the timing needs work.

“When we talk to our members about the need for commercial plan review, they like it; they support the plan review and appreciate a second set of eyes on those plans,” John Mielke, president of ABC of Wisconsin said during the meeting. “Obviously, we want the system to work well and efficiently,” he said. “We appreciate the progress that the department has made on this issue, but I think there’s room for more progress to be made.”

“It’s a compounding factor when you keep delaying the process for when this building can actually happen,” Wagner said.

Mielke also stressed to the committee the importance of keeping the Statewide Commercial Building Code consistent across the state and mentioned the lawsuit ABC is involved in regarding a specific violation of the statewide code.

“You may be aware of a lawsuit currently with the city of Madison dealing with bird-safe glass and at the core of that is what is a zoning ordinance and what is a building code provision,” Mielke said.

Klessig, who along with Mielke was instrumental in developing the Statewide Commercial Building Code years ago, said it required many meetings and significant work and compromise. Klessig emphasized the need to keep the uniform building code consistent across the state.

“Rules like John just mentioned are trying to eat away at that compromise on the commercial uniform building code and we think that should be stopped,” Klessig added.

“We think it was established for the benefit of the state of Wisconsin,” Klessig said. “Is life safety more important in one of our cities versus another city? Should we reach a place where buildings meet a certain standard all across this state or should individuals in individual cities get to dictate everything?”

“So, that’s something I think the court will have to weigh in on but it’s a gray area,” Mielke said.

Klessig, who sits on the Legislative Council Study Committee addressing these issues, reminded his colleagues about the importance of improving the system.

“What business can’t handle is uncertainty. You make the rules, and we’ll abide by them, but the uncertainty of what the rules are is devastating to business.”

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Third-party solar arrangements remain in legal limbo

By Jeff Brown, State Bar of Wisconsin

The gas station isn’t the only place consumers are feeling inflation’s bite – they’re feeling it when they open their electric bills, too.

According to the U.S. Energy Information Association, retail electricity prices climbed faster in 2021 than in any year since 2008. The average per-kilowatt price in 2021 was $0.1372, up 4.3% from 2020 and the highest ever recorded by the association.

Homeowners can cut costs by using solar energy, which allows them to avoid paying their utility’s variable per-kilowatt hour charge for some of their energy. But installation costs put rooftop solar panels beyond the reach of many homeowners. That’s why companies offer financing for solar panel installation in 30 states. Wisconsin isn’t among those states.

Legal Stalemate

According to 2019 survey conducted by the North Carolina Clean Energy Technology Center, Wisconsin is one of 15 states yet to clarify the legal status of solar financing arrangements. Under a solar financing agreement, commonly called a power purchasing agreement (PPA), a company installs solar panels on a homeowner’s roof and then applies to the local utility to connect the panels to the utility’s grid. The company owns the panels and sells the homeowner the energy generated by the panels at an agreed-upon amount – either a fixed monthly amount or the amount of the energy the homeowner uses each month. The typical PPA has a term of between 20 and 25 years.

The status of solar financing arrangements remains unclear in Wisconsin because of a legal stalemate between Eagle Point Solar, an Iowa company, and Wisconsin Electric Power Company (also known as WeEnergies), one of Wisconsin’s 12 public investor-owned utilities.

Sticking Point

In 2019, the City of Milwaukee hired Eagle Point to install 1.1 megawatts of solar panels on the roofs of seven municipal buildings. The city estimated that the solar panels would save it $28,000 a year in energy costs. Under the terms of the $1.9 million deal between the city and Eagle Point, ownership of the solar panels would be split 80/20 between the company and the city, with the city retaining the option to purchase the company’s ownership interest over time. Eagle Point would receive the 30% solar installation federal tax credit, which would reduce the city’s cost. But when Eagle Point applied to WeEnergies to connect the panels to the WeEnergies grid in July 2019, the utility declined. WeEnergies noted that by selling power generated by the panels to the city, Eagle Point was acting as a public utility in WeEnergies’ exclusive territory, which is prohibited under state law.

‘Regulatory Compact’

Like many states, Wisconsin established a “regulatory compact” with public utilities by enacting legislation in the early 20th century. Under the compact, the state grants a public utility the exclusive right to provide power to customers in a given geographical area. In exchange, the utility agrees to provide service to any customer in the area who applies for it and to charge rates set by the state’s three-member Public Service Commission (PSC).

“You don’t have competition, on the theory that these are such capital-intensive and facility-intensive enterprises that you don’t want multiple entities trying to serve the same area,” said Brad Jackson, a partner at Quarles & Brady LLP who represents WeEnergies.

Utility or Not?

Whether Eagle Point is acting as a utility by installing and owning the solar panels on the roofs of the municipal buildings in Milwaukee depends on how one interprets Wis. Stat. section 196.01(5)(a). That section defines a “public utility” as an entity that “may own, operate, manage or control … all or any part of a plant or equipment, within the state, for the production, transmission, delivery or furnishing of heat, light, water or power either directly or indirectly to or for the public.”

After WeEnergies denied Eagle Point’s application to connect the Milwaukee solar panels, the company appealed the denial to ​the PSC. Eagle Point also asked the PSC to rule that its agreement with the city did not make it a public utility under section 196.01(5)(a). The company argued that it was not acting as a public utility because it was providing power only to the City of Milwaukee, not the public. The PSC agreed to review WeEnergies’ denial of the connection application but declined to determine whether Eagle Point’s agreement with the city made it a public utility.

In May 2019, Eagle Point sued WeEnergies and the PSC in Dane County Circuit Court and asked the court to declare that its agreement with the city didn’t make it a public utility. The court dismissed the lawsuit in November 2019, ruling that Eagle Point had failed to exhaust its administrative remedies – a ruling upheld by the Wisconsin Court of Appeals in July 2021.

In January 2022, the PSC deadlocked on a 1-1 vote on the question of whether WeEnergies’ denial was lawful. Commissioner Ellen Nowak, appointed by then-Republican Governor Scott Walker, agreed with WeEnergies that under the agreement with the City of Milwaukee, Eagle Point would be operating as a public utility. Commissioner Rebecca Valcq, appointed by the current governor, Democrat Gov. Tony Evers, said that WeEnergies had no basis for denying Eagle Point’s connection request. The other Evers ap​pointee, Commissioner Tyler Huebner, recused himself, citing the PSC’s recusal policy and his involvement with the case prior to his appointment to the PSC.

A Recurring Question

Eagle Point Solar is not the first company to ask the PSC to determine that a PPA didn’t make it a public utility. Sunrun, a California company, asked the PSC to do the same thing in 2018. In February 2019, the PSC voted 2-1 not to take up Sunrun’s request, with the two members appointed by Gov. Walker in the majority and the member appointed by Gov. Evers in the minority. One of the Walker-appointed commissioners, Michael Huebsch, said the laws regulating public utilities were not “keeping up.” Huebsch, a former legislator, said it was up to the legislature to change those laws. Bills that would have authorized PPAs in Wisconsin were introduced in both of the last two legislative sessions; none received a hearing.

Third-party Solar in Other States

Several states have legalized PPAs by enacting legislation. In Florida, for instance, statutes explicitly state that both PPAs and solar panel leases are legal. In other states, state supreme court decisions have legalized PPAs.

In 2014, the Iowa Supreme Court ruled that Eagle Point’s PPA with the City of Dubuque did not render it a public utility. The court based its holding on a multi-factor analysis: the agreement was an individually negotiated, arms-length transaction; Eagle Point would provide a customized service to a single customer; providing on-site solar energy is not an indispensable service that demanded public regulation; there was no evidence that Eagle Point was a monopoly. The court acknowledged that the spread of PPAs could reduce the demand for electricity provided by public utilities. But there was nothing in the record that quantified that threat or assessed the likelihood of its occurring, the court noted. Additionally, nothing in the record suggested that public utilities had been harmed by PPAs in states where solar providers were not considered public utilities. The court also pointed out that Eagle Point sought only to reduce demand for electricity supplied by a public utility, not replace the utility.

Ambiguity in the law regulating public utilities has stalled the advent of solar energy installations in Wisconsin

Case Law in Wisconsin

The single, directly on-point Wisconsin Supreme Court case interpreting the statute governing what constitutes a public utility is more than 100 years old. In Cawker v. Meyer, 147 Wis. 320, 133 N.W. 157 (1911), the supreme court considered whether a company that built a plant to provide power to tenants of a building it owned was operating as a public utility. The plant provided more power than the company’s tenants needed, so the company sold the excess power to three adjoining neighbors.

The supreme court held that the company was not acting as a public utility. The court concluded that in enacting the statute defining a public utility, the legislature sought to regulate the provision of power to the public – “whoever might want the same” – rather than to a few tenants or neighbors. The applicability of Cawker to the dispute between Eagle Point and WeEnergies is complicated by both the case’s vintage and the narrowness of its ruling.

“While we find it quite easy to ascertain the true spirit and intent of the law, yet we deem it inexpedient and unsafe to attempt to define in more specific terms than the statute what does and what does not constitute a public utility,” wrote Justice Aad Vinje for the supreme court in Cawker.

“Each case will depend upon its own peculiar facts and circumstances, and must be tested by the statute in the light of such facts and circumstances.”

In a later case, Ford Hydro-Electric Co. v. Town of Aurora, 206 Wis. 489, 240 N.W. 418 (1932), the supreme court approved the Cawker analysis but held that the term “public” can mean only a single person or customer.

Effect of Legalizing PPAs

Among those circumstances is the effect that widespread adoption of PPAs across Wisconsin would have on the state’s public utilities. In setting the rate that a public utility may charge, Jackson said the PSC calculates the utility’s fixed costs – including the cost of maintaining the power grid and related equipment, like the meters mounted to houses – in addition to the utility’s variable costs and a reasonable rate of return on the utility’s capital investment (minus depreciation). Jackson said that if customers buy less power from a public utility because they’re being served by a third party, it would upset the balance of cost allocation inherent in the rate allocation because the customers wouldn’t be paying the full fixed cost required to serve them.

“The rates are set such that the utility is recovering a fair amount of its fixed cost through the variable per-kilowatt rate,” Jackson said.

“So, to the extent the customer is either self-serving or buying power from somebody else, the utility is not recovering part of its fixed costs and that’s a problem until it gets its rates fixed, and then that becomes a problem for the utility’s remaining customers, who have to make up the difference.”​​​

The non-refundable federal tax credit for solar installations, which is now 26%, makes it more affordable for customers to pay up-front for installing solar panels.

But that’s not an option for non-profits and municipalities or individual taxpayers without enough income to offset the credit against, said John Clancy, a shareholder at Godfrey &​ Kahn S.C. who focuses on utility law.

“There’s a list of folks for whom financing is more important because they can’t get the tax credit,” Clancy said.

Renewable energy advocates argue that allowing utilities to decline connections to PPA-financed solar panels is putting a lid on the solar energy industry in Wisconsin, which according to the Environmental Law and Policy Center ranks 41st among states in solar generating capacity.

Future of Solar in Wisconsin?

How is the PPA issue likely to be resolved in Wisconsin? Legislative action appears unlikely, given that bills to legalize PPAs died without getting a hearing in the last two session. Jackson said the PPA issue is one that cuts across party lines, making it hard to predict the shape and substance of any bill that might pass.

“Even if the legislature did something, I’m not sure what the outcome would be,” Jackson said. “I’m really not.”

Jackson thinks it’s more likely that the Wisconsin Supreme Court will answer the question, by ruling on an appeal from a PSC decision. The Midwest Renewable Energy Association has handed the PSC a chance to make such a decision.

On May 26, the association filed a petition with the PSC asking the commission to declare that third-party financed distributed energy resources are not public utilities as defined by section 196.01(5)(a).

Jeff M. Brown is a legal writer for the State Bar of Wisconsin, Madison. He can be reached by email or by phone at (608) 250-6126. This article was originally published in Inside Track™, published by the State Bar of Wisconsin.

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Workforce Development Board distributing reimbursement funds for on-the-job learning

From Wisconsin Workforce Development Board

The Workforce Development Board of SouthCentral Wisconsin (WDBSCW) is collaborating with the Wisconsin Department of Workforce Development to help qualifying employers with On-the-Job Learning (OJL) reimbursement awards. Up to $2,500 is available for each qualifying registered apprentice whose contract was activated between July 1, 2020 and June 30, 2023. The grant offers Registered Apprenticeship (RA) employers a reimbursement for the costs of training an apprentice. The grants are being distributed through the WDBSCW for the entire state, not just Southcentral Wisconsin.

“The grant is important to thank those employer sponsors for participating in the apprenticeship program and training the future of the workforce,” said Jeff Kennedy, Apprenticeship Navigator at WDBSCW. “What better way to encourage apprenticeship as a pipeline, and employers as apprenticeship sponsors than funds to help them out?”

OJL Reimbursement awards are made possible through federal grant funding through the U.S. Department of Labor and are only available for a limited time.

Eligibility Requirements

An eligible applicant for the OJL reimbursement must be an active Wisconsin RA employer who hired an apprentice on or after July 1, 2019 and fits one of the following categories:

  1. Who hired a registered apprentice in the transportation and logistics, financial services, information technology, biotechnology, agriculture, or healthcare sectors; or
  2. Is in any industry and hired a graduate from a Certified Pre-Apprenticeship Program as a registered apprentice; or
  3. Who hired a graduate/completer of a Wisconsin Youth Apprenticeship in any industry sector as a registered apprentice.

Employers must provide documentation of employment and hours worked during the apprentice’s 90 days of employment and provide documentation of the employer’s lowest journey worker’s wage for each apprenticeship occupation.

Reach out to the Workforce Development Board of South Central Wisconsin for more information, at 608-249-9001 or contact Jeff Kennedy at jkennedy@wdbscw.org.

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Wisconsin Construction Wellness Community Established

From Wisconsin Construction Wellness Community (WCWC)

A new industry-focused organization has been established to support mental health for Wisconsin construction companies and their associates. 

The Wisconsin Construction Wellness Community (WCWC) is a non-profit organization with 501(c)(3) status designed to provide mental health education to individuals specifically in the construction industry. In recent years, mental health has become a much more important topic as over 15 suicides a day are reported for employees in this field, which is five times higher than any other industry. To make matters worse, 80 percent of workers with a mental health condition attribute their non-treatment to shame and stigma, areas that we believe we can impact with education and community outreach. Discussing these statistics and the impact of mental health on the construction industry is ultimately what led to the creation of WCWC. 

This group is focused on breaking the stigmas of mental health within the industry by providing in-person seminars and training, as well as support materials for the worksite. In order to fulfill its purposes, WCWC has created the following objectives to guide our processes and increase our visibility: 

  • To promote mental health in cooperation with local, regional, state, and national organizations that have similar objectives. 
  • To focus on providing mental health education to our members as a key component to reducing stigma and increasing participation. 
  • To grow membership in an effort to bring mental health, training, and education of employee practices to the local business community. 

We will begin communications with a kick-off meeting in October 2022, with a number of public events to follow. For additional information, please find us on LinkedIn or visit our website, www.wisconwel.com, to access videos, resources, and articles about mental health. You can also donate here to support continued education focused on serving those affected by mental health issues in the construction industry. 

About Wisconsin Construction Wellness Community (WCWC) 

The WCWC is a resource that helps individuals working in the construction industry find the right resources that allow them to talk about mental health issues. Learn more about us at www.wisconwel.com

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As the heat of summer continues, here’s what OSHA expects you to be doing for your crews

By Bethany C. McCurdy, Michael Best

The weather in the Midwest has reached into the low to mid-90s, lately, with heat indices even higher.  As usual, temperatures were even higher in southern areas of the country.  As we move into the hot days of summer, you should make sure you have measures in place to keep your employees cool.  OSHA has in place a new emphasis program that focuses on heat illness and injury in both indoor and outdoor settings.  Temperatures this high are in the Danger Zone on OSHA’s Heat Index app.  Your employees are likely not fully acclimatized/acclimated to the heat and under those circumstances, you should not only be sure your employees have access to water, shade, etc., but you may also want to consider reducing the time employees are exposed to the heat, increasing frequency of breaks, or perhaps starting earlier in the day.  If you have air conditioning, get that up and running as soon as possible, or bring in industrial fans to help keep the air moving (but watch those extension cords).

Also, as a reminder, the things OSHA looks for in a heat illness and injury program are:

  • Is there a written program?
  • How did the employer monitor ambient temperature(s) and levels of work exertion at the worksite?
  • Was there unlimited cool water that was easily accessible to the employees?
  • Did the employer require additional breaks for hydration?
  • Were there scheduled rest breaks?
  • Was there access to a shaded area?
  • Did the employer provide time for acclimatization of new and returning workers?
  • Was a “buddy” system in place on hot days?
  • Were administrative controls used (earlier start times, and employee/job rotation) to limit heat exposures?
  • Did the employer provide training on heat illness signs, how to report signs and symptoms, first aid, how to contact emergency personnel, prevention, and the importance of hydration?

They will also be on the lookout for:

  • Potential sources of heat-related illnesses (e.g., working in direct sunlight, a hot vehicle, or areas with hot air, near a gas engine, furnace, boiler, or steam lines),
  • The use of heavy or bulky clothing or equipment, including personal protective equipment,
  • Estimate workload exertions by observing the types of job tasks performed by employees and whether those activities can be categorized as moderate, heavy, or very heavy work, considering both average workload and peak workload,
  • Duration of exposure during which a worker is continuously or repeatedly performing moderate to strenuous activities.

This emphasis program allows OSHA to open up inspections on this issue alone.  As you know, once OSHA is on-site, anything in plain sight may be cited.  While this may seem a bit overwhelming, the main things to remember are Water, Rest, and Shade—that’s the mantra from OSHA.  So get those coolers out, water bottles chilled, and be ready for the heat.

Photo of Bethany McCurdyBethany C. McCurdy, Senior Counsel with Michael Best,
can be reached at bcmcurdy@michaelbest.com or 414.225.2753.
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The benefits of subcontractor default insurance in today’s construction economy

By John Wallen, HUB International

Wisconsin’s construction industry – like the industry globally – is operating in a good news/bad news environment. Balancing those forces has never been more challenging, and it requires contractors to make the best use of the right tools to come out ahead.

For larger general contractors and owners, now is the time to get up to speed on subcontractor default insurance, a good option to one of their most concerning risks.

On the plus side for construction, business is booming. In addition to a strong residential market, infrastructure projects like bridge, highway and transportation facilities have been boosted by the $1.2 trillion Infrastructure Investment and Jobs Act. Private sector investment, especially in warehouses, hospitals and other healthcare facilities, is also strong. Total construction starts are expected to advance 9% in 2022 from 2021 levels.

But the backdrop is not so rosy. Start with rising materials costs, up 23.5% during a recent 12- month period. Lumber prices alone tripled since the start of the year. Global supply chain pressures remain intense, but have been easing since December. And the shortage of qualified workers remains a pressing problem.

Circumstances are ripe for subcontractor default, as many may be stretched financially to rebound after their pandemic-driven belt-tightening. GCs need to monitor their subs closely, and make sure they can handle work before it’s awarded as their capacity may be diminished.

Understanding the options

For large contractors, the question is whether they themselves have the capacity to opt for subcontractor default insurance (SDI) over surety bonds, which are the tried-and-true protection.

Surety bonds are almost like pushing the “easy” button, as they transfer the risk of subcontractor default to the surety for risk funding and provide a recourse against related losses or non-payment. The surety guarantees performance and payment based on a comprehensive audit of subcontractors’ financial and operational standing.

They protect the GC for contract completion, and the subcontractor’s subs and suppliers for payment. If a default occurs, the surety arranges for completion up to the bond amount or, upon an independent investigation, may pay for losses. Cost of the bonds hinges on the contract value and credit quality of the risk.

Subcontractor default insurance is a viable alternative, with important provisos. It’s a far better fit with larger firms with, say at least $50 million in subcontractor volume. It takes size, management capabilities and financial wherewithal to build a sustainable SDI framework.

Subcontractor assessments and other SDI requirements

Probably the most onerous aspect of SDI that falls to the GC is the subcontractor assessment. It must be a comprehensive evaluation of the sub’s readiness for the work, from financial viability to resources necessary – money, workers, suppliers and their own subcontractors.. It takes sufficient infrastructure, culture and bandwidth for the GC to undertake and manage this process consistently.

It takes bench strength, and not just for the subcontractor evaluation. The resolution of claims is a more streamlined process with SDI than with surety bonds, but success is not a given. The GC’s own management team must have the knowledge and the collaborative skills to resolve subcontractor issues.

High deductibles – sometimes over $500,000 – and co-payment requirements – three to five times the deductible – are part and parcel of SDI. This makes the GC’s own financial strength and cash reserves essential.

Achieving financial resiliency

What contractors are aiming for these days is resiliency, or the wherewithal to pull all the necessary levers to manage successfully through challenging environments like today’s. SDI is one path to take to achieve it.

Take an electrical subcontractor that defaults on a $100,000 contract. The maximum payment via the surety bond would be the value of the contract – $100,000. With SDI, though, a loss limit is purchased. That $100,000 contract default could actually create a million dollar problem for the project as a whole. Depending on the loss limit, the bigger loss, going above and beyond the contract amount, would be covered by SDI. The GC’s management team and owners would also have better financial protection and control over the risk of default.

Success in construction today demands sufficient knowledge of the right tools to use and when – and that extends to financial and risk management tools. With the right brokers behind them, with knowledge of the options and the markets, contractors can use SDI to gain better control over defaults and build financial resiliency.

John Wallen

John Wallen is Vice President and Wisconsin Construction Practice Leader for global insurance brokerage Hub International, with more than 30 years of experience providing risk management consulting, effective insurance solutions and innovative risk and cost reduction strategies for the construction industry.

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