NCSA aligns with National Subcontractors Alliance

In March, the NC Subcontractors Alliance sent me to the National Subcontractors Alliance 2014 Spring Leadership Conference in Denver to see if the NSA would be a good fit for us to ally with as a national organization. After my report to the April Board meeting, the Board voted unanimously to affiliate with the National Subcontractors Alliance (NSA).

The NSA is a confederation of independent subcontractor trade organizations. Its focus is on Advocacy, Education and Networking. They provide a network of organizations and attorneys for advice and representation across the country. They provide access to information and the lowest cost possible and the member organizations represent over 3,500 companies nationwide.

We realized the focus on Advocacy, Education and Networking were the same 3 items we identified as important when we first disaffiliated with the American Subcontractors Association in June, 2013. The NCSA has achieved success in all three areas:

Advocacy – The NCSA produced a position paper on proposed changes on the lien law. With the position paper and the representation the NCSA sent to Raleigh for the study committee meetings, we were successful in getting 4 of the 5 detrimental changes postponed until the 2015 session, when we will be back proposed alternative legislation for consideration.

Education – Through Lunch and Learn meetings, we have provided a quarterly platform for Subcontractors to have lunch and meet with the preconstruction and safety representatives with major General Contractors in the area. The GC’s who participated this year were Myers & Chapman, Rodgers Builders, Balfour Beatty and Edifice. They have been so successful that we now have to limit them to members only.

Networking – We have provided open events for Subcontractors, General Contractors and Suppliers with our two big networking events, Subtoberfest and Sub Paddy’s Day held at local craft breweries. We also held a joint meeting with NAWC in November at the Carolinas Aviation Museum under the wings of the “Miracle on the Hudson” airliner where 95 were in attendance to hear NC Secretary of Labor Cherie Berry speak. Our next networking event will be a golf outing for Subcontractors, General Contractors and Suppliers in May.

The National Subcontractors Alliance is a good fit for us because it is bottom up. Each member is an independent association and can relate to the issues at the state and local level better than a nationally focused one. The dues are paid locally and stay local where we can use the funds for the issues most important to the local members.

Leasehold Liens – A Coming Crisis to Subcontractors?

In North Carolina, in a tenant situation, common law limits the lien rights to the value of the leasehold, unless a connection to the landowner can be established. The NC Land Title Association (NCLTA) has proposed legislation in the current General Assembly short session to codify the common law. That, in itself, is not a bad thing. It’s the language in the changes that can cause the problem.

In effect, if you work for a tenant, you only have rights to lien the leasehold, that is the lease itself and the property of the tenant. In an ongoing business, there is value there. But, most commercial leases in NC have a clause that if the landlord cancels the lease for cause, such as non-payment of rent, all of the improvements become the property of the landlord. Some leases even contain a clause that a lien filed on the leasehold can trigger cancellation. In those cases there is no value remaining on the leasehold to collect against.

I attended a stakeholders meeting this past week at the Legislative Office Building in Raleigh. What I perceived is a lack of understanding as to the extent of leaseholds in commercial construction. The conversation would inevitably revert back to an extreme example of someone’s mother’s rental property where the tenant build a swimming pool and the contractor put a lien on his mother’s house. This is not the issue that subcontractors face. today.

When the facilitator posed the question, “How big a problem is this, really?” I spoke up and said that from the subcontractors’ point of view, this as a tremendous risk. I estimated that up to 90% of the work we do in commercial contracting involves a leasehold of some description. This can be as small as a retail tenant in a strip center to a multi-story office building being built by a developer for a single tenant. There are hidden owners like pension funds and real estate investment trusts that work through management companies. I argued for transparency up front so that the subcontractor can assess the risk before accepting the contract.

There were a couple of minor positives that came from the meeting. The study committee agreed to suggest to the legislative subcommittee that, in regards to leasehold liens, they add wording to separate commercial construction from single and two-family residential construction and to insert wording in the tenant code to make it against public policy and unenforceable for a landlord to cancel a lease because of a lien being filed.

Because a consensus of the stakeholders could not be reached, most of the NCLTA’s proposed changes were tabled until next year’s session to enable them to come up with a better way to explain the issue. I agree with the NCSA chapter attorney, Edward “Ned” McNaughton that we need to get ready and have our own legislative proposal prepared to present to next year’s session as an alternative to the NCLTA proposal.

There are even scarier things in the NCLTA’s proposed legislation, including the subcontractor’s right to a lien on real estate being subrogated (cut-off) by the general contractor’s lien waiver. As Ned has said on numerous occasions, “The title company gets paid to take risks, the subcontractor takes risks to get paid.” Much of what is contained in the proposed lien law revisions creates impediments to the subcontractors’ right to payment. It’s time for subcontractors to get involved.

Construction Trends – Green Globes and Net Zero

At a recent NC Subcontractors Alliance meet and greet, Bill Lorenzo, pre-construction manager with Balfour Beatty Construction’s Carolina Division, presented things that are trending in North Carolina. The most important is energy sustainability. He showed a chart showing that over the lifetime of a building, only 11% of the cost is related to construction and 85% is the cost of energy to power the building and its systems. It is becoming more accepted that an investment in sustainability saves money over the long run. More and more building owners and developers are requesting their new buildings be energy sustainable. But, they want to do it without all the rules and paperwork involved in the LEED program.

The big trend, now, is the movement away from LEED and toward a program called Green Globes. Green Globes is a web based program that began in Canada. The Green Building Initiative acquired the US rights to the program and administers it in the US. A building is awarded points for various attributes, the largest attribute being energy consumption. Upon verification by a third party, the building is awarded 1 to 4 globes. The use of Green Globes substantially reduces the administrative cost of obtaining a certified energy sustainable building

Lunch n Learn at Balfor Beatty

The next thing to come will be Net Zero Sustainable. This is becoming common in California and Balfour Beatty is working on designs for the first one in Charlotte. In Net Zero, the building must produce as much renewable energy over the course of a year as it consumes. The building is connected to the grid and sells surplus energy to the grid on sunny days and buys energy from the grid on cloudy days, with the goal of achieving a net zero energy consumption. This is more challenging on the east coast because there are more cloudy days in the Carolinas than in California. We will have to wait and see how that works out.

The bottom line is that subcontractors need to be more aware of sustainability. It is not just a government mandate now, it is a trend coming from building owners and developers.

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.

http://newsmanager.commpartners.com/agcleg/issues/2014-02-20.html#0

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, http://ncsubcontractors.com/wp-content/uploads/2014/02/NCSA-Position-Paper-Leasehold-Liens-2-19-14.pdf

 

Event: SubPatty’s Day Fest! March 18th 5:30 – 8:00 pm

Our Fall Subtoberfest networking event was such a success, NCSA decided to bring in the Spring with another open forum for food, fun and yes, microbrews.

Join us as we celebrate St. Patrick’s Day at Triple C Brewing Company 2900 Griffith St. Charlotte, NC 28203.  www.triplecbrewing.com

Eat, drink and be green with subcontractors, GCs and suppliers from the greater Charlotte area and beyond.

This event is open to members and non-members.  Member cost is $25, non-members $30.  Payment can be made at the event by cash, check or credit card (credit card purchases have an additional $2.50 fee).  Admittance includes two microbrews (or the non-alcoholic beverage of your choice) and Irish fare.

Please RSVP no later than March 14th to Margaret Drummond at ncsubcontractors@gmail.com.

 

November Meeting Photos – Joint Meeting with NAWIC & MMCA featuring Cherie Berry

Ned McNaughton presents the NCSA Business Information Exchange to guests
Ned McNaughton presents the NCSA Business Information Exchange to guests
Gene & Joy Fortenberry of Concrete Specialty Contractors dine with special guest Cherie Berry and Ascension Insurance's Debbie Gravely
Gene & Joy Fortenberry of Concrete Specialty Contractors dine with special guest Cherie Berry and Ascension Insurance’s Debbie Gravely
NCSA members joined with the National Association of Women in Construction and the Metrolina Minority Contractors Association
NCSA members joined with the National Association of Women in Construction and the Metrolina Minority Contractors Association
Celebrating diversity:  education, networking and legislation reform
Celebrating diversity: education, networking and legislation reform
The exhibit at the Carolinas Aviation Museum
The exhibit at the Carolinas Aviation Museum
Flight 1549 - Miracle on the Hudson
Flight 1549 – Miracle on the Hudson

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North Carolina Commissioner of Labor Cherie Berry
North Carolina Commissioner of Labor Cherie Berry
NCSA President Duff Regan presents Rick Handford of Myers & Chapman with the Golden Boot Award for excellence in supporting subcontractors
NCSA President Duff Regan presents Rick Handford of Myers & Chapman with the Golden Boot Award for excellence in supporting subcontractors
More than one hundred guests joined together at the Carolinas Aviation Museum
More than one hundred guests joined together at the Carolinas Aviation Museum