All posts by Art Rouse

Reverse Auctions…. The Only Way to Win the Game is to Not Play

In 2013, the Department of the Interior and Army Corps of Engineers announced they were considering expanding the reverse auction method to eastern North Carolina for jobs that small businesses can perform. This is a method whereby the Owner posts a price online and registered bidders will bid the price down until time expires and a low bidder is declared.

I had some experience with reverse auctions about 20 years ago when Target Stores decided they were going to start using reverse auctions for their construction projects. Needless to say, we didn’t get much work with Target until they stopped the practice. We only got one in Lawton Oklahoma where we were the only bidder. A sophisticated company, even in the worst of times, will not price below the cost of labor and materials, plus taxes and overhead, and the cost of working capital. They may price at cost hoping to buy it down, but they will never knowingly go into a job at a loss. An unsophisticated company, hungry for work, can be tempted to take work too cheaply. Work they may not be able to afford the interest on for the duration of the project until they can collect final payment and retainage.

In other words, reverse auctions deprive contractors of a fair profit. I am in favor of reducing government waste, but not at the cost of unfair business practices.

Rep. Richard Hanna (R-NY), has introduced a bill, HR-2751, to ban these practices. The Associated General Contractors has testified before Congress in favor of this bill and recommends everyone ask their Congressman to co-sponsor or support this bill. It is scheduled for a committee vote in March, 2014. Subcontractors should support this bill as well.

The Case of the Hidden Owner

If you are a Contractor or Subcontractor, at some time or other you will be doing business with a tenant, or a Contractor working for a tenant. If something happens and you do not get paid, don’t think the NC Lien Laws are going to help you.

The idea of a mechanics lien is written into the Constitution of the State of North Carolina. The Constitution provides that state law provide adequate protection to suppliers of labor and materials. When Thomas Jefferson first envisioned the mechanics lien and wrote it into the Virginia Constitution, things were pretty simple. If a carpenter did work on a man’s house and did not get paid, he could claim a lien against the house to enforce payment. Things are more complicated now. Owners can be pretty nebulous. The owner may be a REIT or an insurance company or a pension fund. You may be dealing with an Agent or a Management Company and you may only know the Owner by an entity formed solely for a single project, something like ABC123, LP.

Under current NC Lien Law, as adjudicated in Pete Wall Plumbing Co. v Sandra Anderson Builders, Inc. (2011), the mechanics lien can only be enforced against the leasehold. Under the standard lease agreement used in North Carolina, if a tenant defaults on a lease or the owner terminates a lease for cause, all improvements and fixtures become the property of the owner. At that point, there is absolutely no value to the mechanics lien.

In his opinion in the Pete Wall case, judge Steelman wrote:  

“I am concerned that the present state of our law does not provide adequate protection to suppliers of labor and materials as envisioned by Article X, section 3 of the North Carolina Constitution. In addition, the increasingly complex real estate arrangements now being used make it virtually impossible for a supplier of labor or materials to protect themselves under our lien laws.”

The legislature re-wrote the statutes to protect the Title companies against “hidden liens.” Now is the time for the legislature to correct the problem that affects the very people lien laws are supposed to protect.

The North Carolina Subcontractors Alliance has produced a position paper that will be presented to the legislative study committee that will meet on March 3, 2014. Hopefully, the law can be corrected and brought into compliance with the NC Constitution. The position paper can be read or downloaded from the NCSA’s website,


Forecast for 2014… A Lot Like 2013 (Redux)

I first posted this article on my personal blog on September 1, 2013, before the NC Subcontractors Alliance had a website. This is even more relevant now and Martha-Ann’s forecast for a turnaround in the 4th quarter of 2014 is getting more tenuous. In reality, nothing has changed and current economic forecasts are for nothing to change until 2015. Things are slightly improving in North Carolina, but at the US government level, both sides are playing to their constituencies and nothing is changing……

Long-time members of ASAC-Charlotte, now NC Subcontractors Alliance, will remember a program in 2008 by Martha-Ann Marley, called “A Contractors Diet: How To Get Lean.” The program was a segment of her 2 hour seminar and based on an article she wrote for the CFMA magazine, “Building Profits,” January-February 2006 issue. Based on her 24 year experience as a surety underwriter with a major surety company, poring over thousands of financial statements, audits and economic data, she realized certain common attributes of companies that survived and thrived during down economies, versus those that failed. The main attributes being, maintaining liquid assets, cash flow and a plan for controlling costs during the downturn.

Based on her study of economic data, she predicted that the coming recession, now known as The Great Recession, would be deep and would not begin to show improvement until 2013. She gave a detailed list of things that contractor’s needed to do to survive and thrive during the recession. In her latest seminar based on her article “Stuck in Neutral?” “Building Profits”, May-June 2012 issue, Martha-Ann shows the data that indicates the bottom of the recession was reached in early 2013. But, there are not yet any indicators showing that the economy is pulling up off the bottom. She has now revised her prediction. Now, she predicts that the economy will not show improvement until late 2014.

There is still a lot of uncertainty in the economy. What is the Fed going to do with interest rates? What is going to be the cost to your business for Obamacare? What will be the impact of pending federal regulations from OSHA and EPA? Remember, the EPA director in speeches has promised to “regulate the coal industry into bankruptcy.” What will that do to energy prices?

If you can’t attend one of Martha-Ann Marley’s seminars, you owe it to yourself and your company to read her articles. She is now NC President of Gardner Insurance Group. These articles are available on her website, and can be downloaded in a pdf format by clicking on the pictures of the magazine covers.

Safety is a Team Sport


The annual joint meeting between the NC Subcontractors Alliance (formerly the ASAC-Charlotte Chapter) and the Charlotte Chapter of the National Association of Women in Construction (NAWIC) was held November 19th at the Carolinas Aviation Museum. The Air Museum is the final resting place of US Airways Flight 1549, the “Miracle on the Hudson.” This flight was the first time a commercial airliner was able to make a successful crash landing on water without the loss of a single life.

The keynote speaker at the meeting of 95 attendees was Cherie Berry, Commissioner of Labor for the State of North Carolina. Ms. Berry used Flight 1549 as an example of how teamwork and training on the job can save lives. It took the teamwork and training of the Captain and First Officer, the flight attendants, the passengers, the rescue boats, the tower and the NY Emergency Services to accomplish this amazing feat. It also took the designers, engineers and builders of the airplane to produce an airplane durable enough to survive the landing without breaking apart.

Ms. Berry likened this to safety in the workplace. It takes teamwork and training to provide a safe workplace. Businesses need to have a safety plan. The plan needs to be communicated to the workers and the workers must be trained to work safely and avoid hazards.

Ms. Berry also announced that the Injury rate in North Carolina for 2012 had dropped to 2.9 cases per 100 workers, down from 3.1 for the three previous years. She also announced that the fatalities in NC through October were 23. That is a historic low for the same period in prior years, but she stated that the only acceptable number is zero.DSCN0637

Another thing she urged is for businesses to partner with the NC Department of Labor to assure safe workplaces. She stated that the Department of Labor offers, in fact encourages, businesses to request courtesy safety inspections. There are no penalties assessed during a courtesy inspection. The only expectation is that all the hazards found need to be abated. She stated the department would rather the money that might have been spent on fines be spent on abating the hazards and providing a safe workplace. She is proud that North Carolina’s injury rates are well below the national average and partly attributes that to the teamwork between the Department of Labor and business owners.

Cherie Berry has been the NC Commissioner of Labor since 2000. Prior to that she served in the NC House of Representatives focusing on issues relating to small businesses. Before her public service career, she and her husband owned a small business that during its history produced over a million miles of spark plug wires. She has the second most recognizable name in the state. Her picture and signature are on the operating certificate of every elevator in the State of North Carolina.