BizTips Member Question of the Week

BizTips Member Question of the Week
NSCA Executive Director, Chuck Wilson, answers real business questions from NSCA members each week. Do you have thoughts on these topics? Email Chuck at cwilson@nsca.org.

March 1, 2013: Are margins moving up?
Jim in Pennsylvania asks Chuck Wilson of NSCA if he is seeing the margins on projects improving? Chuck says that they haven't completely come back up but a good sign is the backlogs are moving in a positive direction.  He does caution that the bid market is still all over the map but there are ways to alter how you do business to begin moving in a positive direction.

February 15, 2013: Risk and Rewards of BYOD
Steve in New York asks why Chuck Wilson of NSCA is opposed to BYOD (Bring Your Own Device). Chuck states that he isn't necessarily against BYOD but wants to build awareness for members. He describes some of the risks and rewards that corporations are finding when moving towards this option.



February 8, 2013: Social Media as a Revenue Source
Jeff in Chicago asks Chuck Wilson, Executive Director at the National Systems Contractors Association (NSCA), this week about the possibility of system integrators making money via social media.

Chuck describes how integrators are having difficulty justifying their social media investments because it is difficult to successfully create a revenue stream from those avenues, but that manufacturers seem to be utilizing in a successful manner.

He gives specific examples of success stories as well as how much time and budget should be allocated for social media.

February 1, 2013: Are They Really Merging?
George in Maryland asks about the mergers between manufacturers. Chuck Wilson, Executive Director of NSCA, admits there are a lot of buyers out looking for acquisitions however he isn't sure those deals will go through. Buyers want a manufacturer offering the total solution, as well as great people and company culture. This can be the reason why some offers may begin but never come to fruition.

January 25, 2013: What Tasks Companies Should Outsource
Joe in Minnesota inquires about what tasks should be outsourced now that the new mandates are out. Chuck Wilson of NSCA talks about what tasks are risky to outsource for reasons of the IRS, company culture and reputation. He adds that it depends on what your company size is can be dependent on what you outsource as well.

January 18, 2013: Job Costs and 2013 Labor Installation Standard
Joseph from Florida asks Chuck Wilson of NSCA about inconsistent job costing reports and what are the steps to correct the inconsistencies? Chuck announces that NSCA has just launched the 2013 Labor Installation Standard report that will help you compare your numbers. He also gives you the next steps from there to make sure your entire team understands the process.

 
January 10, 2013: Video Training Capabilities in the Work Place
Charlie in Virginia asks Chuck Wilson of NSCA about the capabilities to watch video at work. Chuck discusses how unfortunate it that companies do block these channels because many are utilized for training purposes. This is an effective tool that is growing rapidly and companies are blocking because they have been burnt in the past.

October 5, 2012: Chuck's QOW: Sales Rep Quotas
Chuck Wilson, Executive Director of NSCA, revisits a previous question regarding sales compensation plan. Tom from Indiana wrote in to inquire more about what kind of sales quotas can be expected. Chuck describes what kind of numbers you should be seeing dependent on the level of experience as well as some of the struggles you might be encountering with those numbers.

September 14, 2012:  Cash Flow is a Pain Point 
He's back! This week Chuck addresses a common pain point for many members is cash flow. He discusses why this is becoming more of an issue with not only members but manufacturers and how to eliminate the problem as much as possible.

September 7, 2012: Avoid Paying Insurance for Individuals that have Never Been on Your Payroll
Q: We recently lost an unemployment insurance claim made by a 1099/independent contractor.  This person has never been on our payroll.  We had two appeals to the hearing and we still lost.  Have other NSCA members experienced anything similar?

A: I’ve heard of 3 similar instances of this lately.  Even doing the W-9 and making sure they pass the test as an independent contractor (having other customers) apparently doesn’t isolate us completely from an employment type claim. 

We’ve even had one recent report of a workers comp claim made on a member company where the individual wasn’t on their payroll but rather worked for a sub they hired that as it turned out had no insurance of any type.  While these claims may not cost much initially, the impact on your future rates is of major concern.  One of the member companies had to spend $10,000 in legal fees if they were to fight the claim and just decided not to fight it.           

This is all just crazy in my opinion.  My suspicion is that these incidents stem from the increased scrutiny of the DOL to properly classify employees.  The government is working harder than ever to find misclassified employees (exempt status) and independent contractors that should be on the payroll.  Let’s face it, most government agencies are looking for any additional revenue they can get right now.  

Here’s how far-reaching this is.  I had a call from a church that hires sound operators to run the A-V only on Sundays.  They hire people on a contract (1099) basis.  They now owe FICA for the last several years as the operators really weren’t in a business, they were just individuals working for a couple hours on Sunday to make a few extra bucks.  We are going to see more and more of this.  It actually could be good for our services business as the “side job” work may go back through an actual company.           

My best advice for our members is to carefully screen and do the DOL test for what constitutes an independent contractor and then make sure they are properly insured.  Do the same for your exempt and non-exempt employees.  Let us know if you need additional resources and keep reporting these problems so your fellow members avoid these costly situations.  CW

August 24, 2012: Company Cars Vs Mileage Reimbursement
Q: Do most of our members provide company- owned cars for sales people or do a mileage reimbursement?

A: The last time we surveyed the membership about 72% paid mileage and 21% provided company owned vehicles.  With sales managers it was 58% paid mileage and 37% in company owned vehicles.  The remaining 5%-7% had some form of compensation plan where any vehicle usage wasn’t reimbursed but had an offsetting higher commission rate.   (Information source: 2010 Compensation & Benefits Report)

I am starting to see a few more companies using fuel efficient cars and small SUV’s for their sales people with company logos and services mentioned on the car.  They have some very clever decals and signage that helps keep your name out there.  My guess would be that most sales reps driving company cars will likely be using something like this soon.  This is a marketing tool so the financial comparison gets skewed by the value provided there.   

I’ve always favored sales reps furnishing their own vehicle as long as they don’t drive a junker.  If you pay a sales rep 55 cents per mile and the sales vehicle gets 25/30 miles per gallon, they will do very well on that plan.  Most of the time they will spend $50 to fill up, they drive 350 miles and you reimburse them $192 for those miles.  Not bad.  They will take care of their personal car better, can drive it on weekends and you have one less expense and headache.  They cover insurance, maintenance, replacement costs, etc.  

Either way works as long as fuel efficiency and having the proper image is a priority. CW

August 10, 2012: How Much Financial Sharing Should Be Done?
Q: How much of the financial information should we share with our employees?

A: Many have argued this point both ways at our management conferences.  I personally believe you should share only the information they need to do their job, or to understand their compensation plan. Now, this of course depends on their position. Senior management and shareholders (if an ESOP or partnership) needs detailed financial reports, but beyond that, a summary of how the company is doing overall is generally best.

I’m also not a fan of sharing detailed financial information with those who don’t understand it.  In other words, unless the employee truly knows gross and net profit variables, where expenses should be on the P&L, what a balance sheet reflects, what accrual based accounting is, impact of WIP, depreciation, tax implications, etc. then spare them and yourself from the confusion it generally creates. 

Unfortunately I’ve seen more harm than good come from sharing too much information.  A recent example was a member company had one unusually good year and shared the information with the entire company as a way to celebrate.  That created a steady stream of requests for wage increases rather than the desired outcome.  The employees didn’t recall the two prior years when the owner had to invest personal funds to meet payroll on occasion.  Maybe I’ve just seen too many examples of sharing the details backfire, but that’s my opinion.  CW       

July 26, 2012: Avoid Signing a Bad Contract with Responsibility and Procedures
Q: We’ve had problems recently with managing responsibility over contracts and discovered we have signed some bad contracts.  How do most members set up a contract signing procedure?

A: Great question and a major source of trouble with everyone lately.  Even prior to the contract acceptance or execution stage, we take too many shortcuts in the proposal phase.  Your company should have a very clear policy on who has final authority over pricing and labor estimates.  That should be a function of management (sales and/or ops) and not the individual sales rep.  Once that happens, the proposal terms and conditions should be set and maintained.  Your terms and conditions (payment, deposit, cancellation fees, sales/usage tax, late fees, restocking, etc. etc.) should be included in every proposal.  What gets our people in trouble is they send the proposal via email with the price and deliverables, but gloss over the terms and conditions of the sale.  Typically the customer (end user, GC, or EC) will send back a purchase order referring to your quote/proposal sent via email.  So by the time this job gets to the contract phase where you sign and accept the project, many of your terms and conditions have been overlooked, leaving the buyers terms and conditions (as per the PO) to be assumed.

A better approach is to have only one or two (well-trained) people assigned and authorized to execute contracts.  They should also be responsible for creating a checklist for managing contract terms and developing the standard language for every salesperson to then be included in every proposal.  As a policy, make sure every quote goes out with those terms included.  Finally, when a sub-contract agreement, a purchase order, or an AIA type contract comes in, make sure your terms and conditions are accepted without exception.  It’s frequently found where the contract language very clearly overrides and negates any proposal terms and conditions.  Having just one or two people authorized to sign will allow you to become better at spotting these variations hidden in the fine print.

Now don’t panic when your terms don’t match the purchase order or their purchasing agent plays hardball with you.  It’s an opportunity to negotiate and build a relationship, not a crisis as the sales person may report.  Remember that after all the bullying and posturing is over at the end of the day good business people like doing business with other good business people.  Discussing terms before signing a bad contract illustrates you know more than just the technology…you know how to run a technology business.  NSCA has  standard proposal terms and conditions language in our NSCA Essentials of Systems Integration Online… CW

July 20, 2012: Outsourcing Submittals, O&M Manuals and Close-out Documentation
Q: Are any NSCA members successful in outsourcing their submittals, O&M manuals and close-out documentation?  We seem to be so inefficient at this and find ourselves scrambling at the end to produce them and rush to not delay final payment.

A: I’m not aware of anyone outsourcing this and I’m not really sure if I would recommend it… here’s why. 
 
• Each project (and design) is different and the time it would take to explain to an outside company the variations of each project would seem to be a duplication of effort and quite costly. 
• The discussion on farming out the CAD work, drawings, submittals and close-out materials has come up before, mostly driven by how frustrating this work is for the design and engineering folks who want to move on to the next project. 
• I’m hearing more complaints about this as the specs call for complete sets of operating and maintenance manuals on every component in the system and with them being printed in many languages, each can have up to 50 pages.  In some cases, a ridiculous amount of binders, drawings and owner’s manuals are required and never looked at again.  One government agency still  requires 12 sets of hard copy binders and D size drawings.    

Outsourcing would also seem to be extremely difficult as every job is unique and each specifying engineer, consultant or agency has their own  standards and procedures.
 
• We are seeing more acceptance of providing a digital or electronic version only of the information.  PDF files are the most widely accepted version at this time.  Once saved in a digital format, providing instructions for duplication can be more easily relayed to the support staff and take up less time in engineering. 
• Another approach would be to use construction engineering program students or interns that will be with you for long periods of time.  They can become a documentation specialist and learn a lot about the construction process. 
• To avoid paying overtime at the end of the project, make it a priority to use any idle time between projects to review and catch up on any needed project documentation. 

Our most successful members have a process and supporting culture of discipline ingrained within their company.  The process requires the project managers and lead technicians get started on the documentation at the beginning of the project and keep it updated as the job progresses.  They’ve found that by doing this they can improve accuracy and dramatically cut down on scrambling around at the end in order to meet the payment deadlines.  It seems counter to what an “as-built” is, but tracking the changes, segmenting systems, updating progress as you go makes a lot of sense.  Especially on jobs lasting over a few months, these incremental updates can be very effective.  Assigning specific tasks and timeframes for documentation to the project managers and their assistants can avoid that project that gets neglected until the very end.        

You hear a lot about “green initiatives” in the industry, but not enough yet about going green in the submittals, O&M manuals, drawings, etc.  As a long term approach, I recommend you sell this concept to your local design community and at the same time reduce the number of hardcopy binders you produce at the end of each project. CW 

July 5, 2012: How to Handle Trip Charges for Service Calls
Q: I’m going back and forth with our customers and accounting department over trip charges for service calls.  How do other NSCA members handle this?

A: There are several common methods and practices used.  Some work better in larger markets, others work better in a more rural setting.  Another factor to consider is that the customer may have limits on mileage charges.  Here’s a few examples of the most common methods used.

1. A fixed rate or flat fee for a trip charge within a radius of the service facility.  This option allows for more flexibility in running several calls, picking up materials, etc. without needing to track mileage and account for each client separately.  This is added on to the actual labor charge (time and materials used).
2. An actual mileage-based trip charge.  This requires you to calculate each service call as if it was a round trip from the shop.  Typically the contractors use the latest IRS reimbursement amount as the basis for the mileage charge (55 cents per mile in 2012).  You need to have you’re billing or payables clerk verify the mileage on each ticket to make sure you never exceed the actual distances.  This too is added on the labor and materials used.
3. A discounted labor charge.  Many of our members do a reduced rate for driving time, or charge just one way to keep their clients from paying for them sitting in traffic.  It’s also quite common to have a minimum fee to “roll the truck”.  Even on a “no-problem-found’ service call a minimum charge (2 hours is typical) plus a trip charge or mileage is fairly common.
   
   The complicated part of all this is when the customer dictates a different type of billing method, or they may have their own policy for reimbursing travel time or trip charges.  You will need to have a standard policy in place, but be prepared to be flexible when the client demands something different.  CW 

June 29, 2012: Difference Between a VAR and an Integrator

Q: What is the difference between a VAR and an Integrator.

A: The closer we get to the IT world the more we hear the term VAR or Value Added Reseller.  In my opinion that term was developed in order to distinguish the difference between a stocking distributor (IT supplier, warehouse) and the companies who provides services at the customer’s facility.  The IT industry has always used stocking distributors as the method of product delivery to the integrator and they needed to develop this term to more clearly identify the two distinctly different roles. 

Our industry chose “Systems Contractor” or “Systems Integrator” to describe the services provider.  The IT industry, coming from the computer world, chose the term VAR in a similar fashion.  I always joke that the real difference between a VAR and a Systems Integrator is about $75 per hour.  I’m kidding of course… right?  CW

June 6, 2012: Job Candidates and Simulated Work?

May 24, 2012:   Design Work for Owners and Engineers

Q: Does doing system design drawings to the specific system/product level put us at risk if there were ever any issue with the design? Have you ever seen a contractor provide any kind of disclaimer with their drawings? Should we provide one?

A: A few thoughts:

1. When providing conceptual proposal drawings directly to an owner, include a disclaimer that these drawings and their contents are the property of “Insert Your Company Name Here” and are intended only to clarify the associated proposal.  They may not be used for any purpose other than to assist the evaluation of our proposal.  (your drawings and designs are an intellectual property and should be treated as proprietary)
2. When providing conceptual drawings to an engineer, don’t do it unless you are assured they are for design-build purposes and you have the job locked up.  However, if the engineer stamps the drawing the “contractor” who created them has no risk (add your disclaimer again stating this).  At that point if an issue arises the engineers Errors &Omissions insurance takes over.
3. This is a tough call when working with a longtime allied business professional.  Remember you never need to apologize for making decisions in the best interest of your company and using your design to potentially benefit a competitor is a business decision you need to make.
4. When evaluating your corporate insurance policy, contractors should include Errors & Omissions in the policy if they initiate the design.  We normally think of this as something only architects, engineers and consultants need, but since you do the design it should be part of your insurance policy.
5. Always provide a copyright statement protecting your intellectual property on the drawings (and for that matter your entire proposal).
6. Use this disclaimer:  “The system design and information contained in this drawing set is proprietary and may not be reproduced or disclosed to a third party in any form without the written permission of Insert Company Name Inc.”

As you can tell, I have a fairly strong opinion about this, so yes in my opinion always use a disclaimer.  CW
 

May 16, 2012: New Rates on Workers Comp

Q: Our local insurance broker said to brace yourself for the new rates on workers comp insurance.  Is everyone seeing this?

A: I did some investigating and apparently so.  The experts we use said several things are occurring that have driven up the rates including:

• Rapidly increasing costs for healthcare, specifically the treatments
• Loss ratios (currently running at $1.14 (meaning for every dollar of premium the carriers are spending $1.14) for a second straight year)
• More non- workplace injuries and fraud causing legal battles
• Higher unemployment in certain occupation categories that have produced new premiums. 

All these factors when combined have gotten the increases started.

What I always suggest is doing a SOC/NAICS (formerly SIC) review to make certain you are paying a rate that best describes what you have your employees actually doing.  We've found dozens of companies overpaying simply because of misclassification.

I suggest you take time to review our web site and verify these codes that determine your rates.
 
Overall the rates increased about 7% in 2011.  If yours went up more than that let us know.  CW

May 4, 2012: Managing Receivables

Q: Our A/R is getting worse each day, yet we try harder than ever to manage this.  What is the average collection time and what can we be doing differently?

A: Receivables should be looked at in two parts.  One is your direct business relationships with end-users, the other - construction projects.  Your non-construction aged receivables should be no worse than 45 days.  The key with direct end-user contracts is asking for and getting a down payment.  Not only does it help collect less at the end, it improves cash flow tremendously.  What is vital to your success, especially in churches and schools, is to first get some money upfront and then managing your contract closeout process.  Use this message for your field crew… “take away all excuses by finishing the darn job”!!!  Not 95%, but 100%....and to be fair, bill complete at 100%, not 95%.   

Government agencies and schools have strict guidelines for payment and they generally follow the rules.  We do see many instances where we can improve our invoicing processes and be more aware of the payment cycles.  45 days is pretty typical in non-construction.    

Construction contracts are a very different story.  It’s getting worse each day.  90+ days is typical.  This is a sign of the weak construction economy and GC’s and CM’s looking to use other people’s money as long as they possibly can.  We support a “pay when paid” philosophy but unfortunately most other trades don’t.  The key is to establish a progress payment schedule right from the onset.  Effective project managers will set up a work schedule that includes weekly communications with the other construction managers and the General Contractor.  This schedule includes when progress billings and when stored/delivered materials arrived and will be billed.  It also includes the work in progress labor utilization report and when your billing will be sent out.  Know exactly when the payment cycles are, how the forms should be filled out, and the payables person by name... that will all help.  

A fellow NSCA member, on each project over $500k, will actually send his receivable clerk out to the GC or EC to meet their payables agent.  This face-to-face meeting is used to establish a relationship and to review in advance all the forms, processes, reports, documentation needed, etc.  This takes away the excuses and creates a sense of urgency and seriousness in how you handle finances on each project.  I’ve seen it work beautifully for them… it’s a great idea. 

You can’t beat them at this game as they have the checkbook, but if you know the rules of engagement you can at least understand the game and play it better.  This all results in turning that 90 day + receivables into 60 days.  It has to be a priority and an integral part of your project management plan.  CW
 

April 26, 2012: State Purchasing

Q: I have an annual contract from the VA that is a standing purchasing contract as product is needed.  They now say they found the devices cheaper and have sent us a termination notice.  They have also implied seeking a reimbursement for the difference.  Can they actually do this?

A:  Apparently so.  How they get around an ethics violation is to simply not order off the original contract issued to you (unless minimum quantities were specified).  They simply issue another purchase order and start ordering from a different supplier.  Check the contract or purchase order carefully for the terms related to quantity as you may be able to seek reimbursement for them not meeting the quantities you anticipated on your original proposal.  I doubt they have any grounds to seek reimbursements from you unless you agreed to supply products for Minimum Advertised Pricing (MAP).  Check your PO for that.  If so, then yes.
          
I heard a similar story yesterday at the state level.  It seems  that several state purchasing groups continue to shop for lower pricing even during the contract period.  The scenario from yesterday was even more troubling as the state agency upon delivery of the products from our integrator member contacted the manufacturer direct for the alternative pricing.  In my humble opinion the manufacturers have to say NO to any direct pricing requests.  Instead they felt pressured into giving direct pricing and unfortunately gave a lower number than our member had been supplying the product for. 

Two things went wrong in this situation.  One, the manufacturer will stumble as they do have some installation and onsite work.  Two, they just traded a very loyal integrator customer for a very price sensitive end user customer who may decide to switch product lines at any time down the road.  Managing channel conflict has become an enormous headache for manufacturers and they are under pressure from buying groups and agencies to sell direct.  I don’t envy their position.   CW 

April 12, 2012: The Nexus Rule

Q:  When does a company have to be registered in states they are doing business in?  What is the “Nexus” rule?

A:  This question is coming up quite often now as every state is looking to increase revenues from uncollected taxes.  “Nexus” is a term used to define your business presence in states where you are doing business.  What’s confusing is the subjective interpretation on how much business you do in each state and the definition of a presence.  One of my least favorite government terms is used by the IRS for their ruling on this.  They refer to it as ”indirect physical presence”… now what in the world does that mean?  In most states you need to have a physical presence to have to worry about nexus, however some states audit based upon how aggressively you pursue business in that state.  Where our members have gotten into trouble is that a common misperception is that if they have no physical office in a neighboring state, then there is no need to collect sales tax.  That’s not always the case anymore and it’s proven costly for many of our members during sales tax audits.   

A passive and indirect presence (selling product alone) generally doesn’t trigger the audit.  Doing installations, providing service and hiring sub-contractors to perform the work under your contract or purchase order does.  Most state tax departments now conveniently recognize your subs as “agents” doing work on your behalf.  When scrutinized, they look for sales tax collection and remittance in the state where the work is performed.  So they are watching to make sure contractors aren’t using the subs sales tax permit number as a way to avoid collecting/remitting taxes.  Dozens of companies actually do this and they are cracking down on it.

So, the short answer on the registration question is dependent upon your direct or indirect presence and if you are selling product only, or if you have a sales, installation or service presence.  A physical address used to be the determining factor, now it is based upon a presence.  It’s good to have your accounting firm provide an opinion on this issue periodically.  Now we have had some bad advice given to our members recently from reputable accounting firms.  The main reason was the integrators not mentioning that they had assigned sales territories in the neighboring state… sure enough perceived as an indirect physical presence. 

Another big problem stems from our members asking the manufacturers to drop ship equipment directly to the end user when they have nexus.  The idea there is for them to ship from out of state and you bill them without sales tax.  That too is being carefully watched.  In a future question of the week I’m going to speak directly to this drop shipping issue along with what is going on with our members facing MAP violations.  It’s always something… CW

April 5, 2012: MasterFormat and Master Spec

Q:  I’m looking for a specifications template using the latest master format or master spec.  I’m not sure which one to use or where to find it.  Any suggestions?
 
A: A lot of people get confused over MasterFormat and Master Spec.  The MasterFormat is a product from the Construction Specifications Institute that is the industry standard numbering sequence used to categorize building materials and work results used in a specifications manual.  Master Spec is a product of ARCOM which is a private company that uses the latest version of MasterFormat to create a series of model specifications that you can purchase.
 
ARCOM now allows you to purchase individual sections rather than having to buy the entire manual.  This makes ordering our typical division 27 and 28 specs much more affordable. 

Click here to find additional information or to purchase these products.

March 27, 2012: Managing Gen Y Workforce

Q: We are having a heck of a time managing our “mobile” technical staff. The younger techs seem to resent our efforts to supervise them and the admin manager thinks they are out screwing off when they don’t come in the office at the start and end of the day. Any suggestions?

A: You got to love the new Gen Y workforce. We just learned about this at the BLC where mobile connectivity is creating more work moments, rather than defined schedules and specific hours. Mobile tools have made the line between personal and professional almost non-existent. Younger workers favor bursts of hard work when motivated, the older folks generally favor a defined timeframe for work. My guess is that the admin/manager is old school on this thinking.

Let me stick up for the manager first. They have every reason to be concerned, not because of the work getting done, but because of labor laws. We have several situations in our membership where working flex time and weekends in lieu of normal working hours has come back to bite us. Non-exempt employees (no matter how tech savvy, hip or connected they are) still need to be held accountable for their time when they are actually working. We’ve had companies report their employees not wanting to be paid OT in lieu of time off. That sounds great until you get the letter from the wage and hour people. 

Let me defend the mobile Gen Y employee. They are most likely your companies future and you had better figure out how to deal with the conflict. Mobile as they are they can probably download an app that will document their billable hours and send that directly to the manager at the office. The old saying that you can’t trust the employees if you can’t see them, that has to be overcome sooner or later.

I suggest a written policy on remote employees, time reporting, use of flex time, etc. I suggest a meeting between the older managers and younger techs. Good luck with that. CW

March 23, 2012: DUNS and CCR

 Q: What are the benefits, if any, for a systems contractor to have a DUNS number and be registered with the CCR?

 A: Good question. DUNS (Data Universal Numbering System) is a number listing for Dun and Bradstreet. Companies who subscribe get a nine-digit number assigned to each business location in the D&B database that has a unique, separate, and distinct operation. The number is used by banks, insurance companies, contractors and end-users and is sort of the de-facto standard for checking out your credibility. It’s like a credit score and better business bureau endorsement all in one, but contains more in-depth financial information. D&B offers a small business starter package for $300 that gets the credit listing and DUNS number. I think that would be well worth the expense.

CCR is the federal contractor registration service. They offer a verified vendor status which was very popular a couple years ago when the American Recovery and Reinvestment Act was in full swing. I’m not sure with that program winding down if I would go through the time and expense of this registration. If I recall, it takes an estimated 20 hours of forms, documentation, etc. or you can pay a consultant about $600 and spend about half the time. I do know that the CCR registration has yielded several complaints as you get called on from consulting forms offering a fee-based matchmaking service to sort and identify contracts fitting your scope. Most of the listed contracts appear to be intended for more traditional construction trades. I don’t know if it has yielded any results for our members. 

In general if you are looking for these listings to get you additional business, that isn’t a good investment of time or money. If you are looking to gain credibility and add to your resume of distinctions and credentials to differentiate yourself from the competition, than yes these would be beneficial to have. I would first invest in the industry-based credentials and certifications along with key vendor certifications. I would also invest in project management, sales training and business optimization training as well. I may be a bit biased though. CW

March 16, 2012: Extended Liability Insurance

Q: Have you been seeing extended liability insurance requirements for new construction projects?

 A: Yes I have and some are very troubling.  Early this week a member sent me a great example of this.  It was a new state agency provision from a Midwestern state that adopted new contract language requiring each contractor to extend the insurance coverage for a period of ten years “for the benefit of the owner.”  That would require the owner (agency) to be listed as an additional insured party for that period and it requires notice of switching carriers, changing ownership, etc.  Beyond this the requirement added a waiver of subrogation in the favor of the owner.  This basically says that our members insurance carrier would agree that if they had to pay a claim related to the project, they would not go back against other parties involved to recoup losses or damages that arose from others involved on the project. So imagine extending your liability well beyond the warranty period, having to explain this anytime you shop for rates on general liability insurance, consider selling your business, etc.  It’s crazy in my opinion. 

 The bottom line is this:  make sure you know exactly what you are signing with these contracts and have someone in your office bring these troubling terms and conditions to your attention before  you sign anything.  Many times these items can be struck from your contract or at least negotiated down to a reasonable timeframe. --CW

March 8, 2012: How Much Vacation Time is Realistic

February 24, 2012: K-12 Marketplace

February 17, 2012: Billiable Hours and Productivity

Q: We have a problem with billable hours and productivity in our design and engineering department. What is the average productivity for design, CAD/drafting, technical support? Then we get swamped and have to pay OT? Do the other members pay OT, or treat as exempt?

A: Great question! I phoned some friends on this one… I reached out to some of the most successful NSCA members to seek advice for you. I got some great input.

Let’s start with the exempt/non-exempt. Almost without exception, the design, engineering, CAD and support staff should be paid OT. That is unless they manage or supervise the others. I’ve had dozens of members ask about these particular roles as it seems to be a gray area. Certainly flex/comp time is an option if that complies with your employee handbook and HR policy. The 40 hours per week (or 8 hours per day in CA) still applies for all non-exempt staff.

On productivity, very few members track anything other than the time allocated to a project. We are very good at assigning time for engineering, documentation, submittals, as-built drawings, etc. From my findings it seems that 75% +/- seems to be the target number. Remember that this position requires a lot of training and non-billable time for keeping up with new products. One of our most successful members organizes in advance webinars, vendor meeting and on-line training in advance for times when the projects aren’t stacked up.

An even bigger concern for this department is what they are spending their billable time doing. We need to always keep in mind that billable time and productive time are two different things. Many companies find that their design staff can only do things one way –their way. When a consultant-led job comes in they spend as much time reengineering the project as they do their own design-build work. Often they end up 20% high on bid day. On the other hand, these same companies when successful seldom require field modifications or change orders. You have to decide quickly if the job fits with your methodology and process.

One of the biggest changes I’ve seen of late is specialization within the sales support and design/engineering roles. That is an expensive proposition compared to the generalists we once had. The complexity and certification requirements have almost forced integrators to hire vertical market or system-specific technical support. Be mindful of taking that leap before you are ready and perhaps share resources with other members until you are. But keep in mind that the engineering department can be a huge asset to your business. Sure, they are viewed as a bottleneck at times when swamped with work or a drain on profitability when times are slow. Some of our best companies view them as the core element to their brand and reputation.

As another KPI (key performance indicator) on this one, watch your hours allocated per job vs. the hours spent. That might be even more important than the productivity. Is what they are doing really important on this project? Is it necessary and does the work support the company’s bottom line? Does your team work between different jobs effectively, or get myopic on one project at a time? Does the time overruns occur mostly in your own designs, or when bidding to another person spec? Thanks for the challenging question. CW


February 3, 2012: Low Margin Mentality



Q: We lost yet another bid this week by over 20%. Is there any way to succeed in the bid market? What am I missing??


A: Here’s my opinion on what’s driving the low margin mentality in the bid market. First off many of our members are entering the year with a backlog far lower than in prior years. This causes the mindset of needing to pick up a certain number of jobs to cover overhead. This “overhead recovery” pricing mindset is used to keep from having to reduce headcount. In some cases the contractors are bidding at cost to keep the vendors happy. Or, perhaps they were pricing the project with erroneous information from a sales person. Often we hear of low initial bids from firms who have hopes for substitutions during the submittal phase. Some companies use installation subcontractors when they can to get a lower cost of labor. The bottom line for most who submit what seems like a crazy low price is that they can’t stand the thought of letting a project slip away and get nothing from that lost job.



Everyone has a strata or range of project size they work best in. Some companies do the smaller projects well and so efficiently that the companies who are most efficient on larger jobs simply can’t compete on price. I urge you to find that sweet spot with your company and stick within the range where you are both competitive and profitable. The same is true for vertical market specialization and system type expertise. Most every company has a niche that they perform better than others and have learned to be profitable as long as they stick to that.



One other consideration that you may be overlooking. Many times when we analyze pricing models we find that the low bidder was actually using a factoring method. By this I mean they weren’t actually looking to make money on the initial equipment sale but rather building a profit model over a 3-5 year timeframe. Their mindset and business model is to discount off of the equipment cost, not add mark up to it. In some cases that can be as little as 50% of the cost of materials. This is common in a business where RMR is achievable such as security, life safety, fire, etc. That too is a difficult situation for a contractor/integrator who is simply looking to make money from the project itself. As you know, I’m not a fan of the bid market, so if at all possible look to move at least 50% of your revenues to a design-build model or only chase bid work where pre-qualifications and spec integrity can be assured. -- CW






January 27, 2012: Religious Market



Q: Are other members struggling in the religious market?


A: Yes they are. I was speaking to a couple companies about this recently who are both convinced that the level of giving (which is way down in most churches) directly impacts their worship market business. They believe that the reduction in home equity, retirement portfolios and less discretionary spending keeps this market stuck where it is. The good news is the pent-up demand is extremely strong as every facility wants something new or improved. High demand – low available funding.



I have a slightly different twist on this, but it ends up in the same place. As I review the level of construction put in place since 2006, the largest decline is in the religious sector. We’ve gone from a high of 50 million net square feet of new worship facility construction in 2006 down to 15 million in 2010 and 2011. It’s predicted to remain this way throughout 2012 as well. So, why do we see a new mega-church being built in every city we pass through? I can’t really explain that, but on the surface the market seems healthy, yet the construction numbers don’t lie. It could be that these churches are being built in more visible locations.



Don’t give up on the worship market. Be smart and strategic, and position your company for future business by offering superior service on what your customer can afford. This market should rebound nicely as we climb out of this economic slump. Capital campaigns will resurface, additions and renovations will happen quickly and then the new construction will follow. Remember the pent-up demand and keep in mind every church you pass by wants something new and improved. They just can’t afford it…yet. -- CW



January 20, 2012: Insurance on Design-Build Projects


Q: You have spoken in the past and mentioned that if you do design build projects that you should carry insurance for this type of work. Can you give me any details as to what is recommended?


A: Yes,what I referred to was errors & omission, and professional liability insurance. Most system contractors carry general liability and property and casualty insurance, but they don’t often carry errors and omission. That additional coverage will protect you on claims arising from a dispute over the performance of the system based upon owners’ expectations. An example I often use is this; if you purchase a new wood floor in your house and the floor later develops a problem caused by a design or installation flaw, and not attached to a manufacturer’s warranty claim, the policy would cover that. It’s often the misuse of a product for a particular application, or a flaw in the design or installation process that caused additional labor or materials to be used to satisfy the owner. Note: I try not to use actual industry examples, but I have plenty.



Your standard policy cover damages caused by your employees, but not necessarily mistakes they make that would be the cause of a performance or workmanship claim by the owner. When our members start doing design-build work they often become part of the design process. By contributing advice, recommendations, substitutions, alternative approaches, value engineering (and all the other buzz words) for deviating from an original system design, you become responsible for the performance of the system. It’s very different than a bid to spec job where the performance is the responsibility of the design consultant, engineer, or owner. Our Systems Plus insurance representatives can review your existing coverage and see how well that fits with your current business model. -- CW




January 13, 2012: Integrated Project Delivery



Q: You keep saying BIM and IPD in the same sentence. I understand BIM, but what is IPD?


A: IPD stands for Integrated Project Delivery. It’s basically a new modeling, communications and delivery method for construction projects that like BIM, involve specialty contractors at the early stages of a project. Progressive building owners and managers have already started using this on major jobs. In the basic sense, it allows a team concept (like design-build) and aligning everyone involved with a mutual set of goals, timeframes, commitments on pricing, etc. The success or failure is shared amongst the whole team, not just one company. We are seeing this especially in healthcare projects where the owners have embraced the whole concept of getting everyone to have a say in the design of the building and it’s furnishings.


IPD like BIM is taking many of our members outside their traditional comfort zone. On one hand the risk is shared. On the other hand you take on risk that may have nothing to do with your ability to deliver as promised. I look at it like a collaboration where the best thinking of our members can add a great deal of value as the project progress, yet with strong contractual language that binds everyone together. I do suggest our members get better educated about this by attending educational sessions on this at the BLC in March, or at the InfoComm show in June. -- CW



January 6, 2012: E-Specs



Q: I’m being asked to provide all submittal and documentation via e-specs. What does that even mean?



A: This is quite confusing. This question reminds me of a few years back when we were in the middle of the CSI MasterFormat expansion. We continue to confuse MasterFormat with MasterSpec. MasterFormat is an industry standard, and MasterSpec a product. E-Spec is no different. It’s a product provided by a company called InterSpec used to interface with BIM and IPD software. It’s similar to the confusion over Revit and AutoCad, both developed by AutoDesk.


In 2012 you will see a lot more coming out from NSCA and other organizations on transitioning to an electronic delivery system for construction documents. It’s here, and it’s here to stay. We need to inform our members about the timeframes, costs, methods and changes that will be occurring. I strongly recommend attending our upcomingBusiness and Leadership Conference if you have any concerns where this heading. We have a session, the Executive Power Hour, which will open everyone’s eyes on where we go from here with this. -- CW


December 16, 2011: Contract Employees

Q: We are being challenged on contract employees who do our marketing, web development and social media. How is this wrong?


A: The Wall Street Journal recently printed an article on the same subject. They are suggesting that marketing, and especially social media focused workers, is a new category that the IRS is cracking down on. The rules that govern the W-2 employee vs. the independent contractor are really how many hours per week they work directly for you, how much direction you provide and if they have other clients. My guess is that most of our members would have at least one employee misclassified just because the rules aren’t that clear.

This is actually a good time of year to go through your employee classifications and status reports, look at exempt vs. non-exempt status, workers compensation SOC codes and then review part-time and contract employment practices. Make sure these independent contractors mentioned are always labeled as “freelance” or “marketing consultants”. If they work just for you and no one else, get them on the payroll.




The IRS is looking for companies who are keeping their employee headcount artificially low by using contract employees. They realize that the cost-savings that this provides results in a reduction in payroll taxes. On the other hand many of our members find more efficiency in using outsourced service like marketing as they can manage the work results on a per project basis. -- CW



December 8, 2011: Year-End Progress Billing



Q: Do you have any year-end tips on project closeout incentives?


A: Yes, if you need to, pay the overtime in order to avoid penalty or cause delays that damage your reputation. This time of year I encourage our members to focus on project close out and progress billings. I call it the “relentless pursuit of substantial completion.”



The key word is relentless. Pay your field staff the OT to finish the job completely. Also, think about ways to encourage, or even give a small bonus to, the PM’s and exempt office staff to have every ongoing project caught up with progress billing on stored materials.


Like many others, you probably have several jobs sitting at 95% complete. Go heads down between now and December 31, to get the substantial completion forms signed and back well before the holiday break. Please note that some GC’s play the year-end game where they want your work completed so they can bill, yet the week before Christmas until after the New Year, the office is closed for document processing.




I’m not being a scrooge, I’m just saying that the next three weeks are a very important time to square-up all of your progress billings, collections, stored materials, WIP reports, inventory write downs, collect owed retainage, etc. It’s very easy to slip backwards in December when we really have so few productive days left in the month.




I would also add that we cause about ½ of our own problems on contract closeouts – primarily because we don’t follow the procedures outlined in the spec book. The system is done, works fine, all tested, etc., but the substantial completion forms, documentation, not so much. It’s that last 5% we can’t seem to get motivated to finish.





Keep every ongoing project in the billing cycle. When you deliver your gift basket to the EC’s and GC’s, remember to thank them for their business, hand them substantial completion forms, progress billing and wait there until they sign them… or something like that. -- CW





December 2, 2011: Surety


Q: We are having a terrible time with our surety company. Are others experiencing the same thing?


A: Indeed they are. What’s interesting is we are starting to see banks easing up on lending criteria, yet the bonding companies are being even more careful on proving surety bonds.



Here’s why NSCA members are feeling it. The surety underwriters are now paying particular attention to the subcontractor community and the negative potential it presents for default or underperformance on jobs. They are actually predicting that we will have more failures to complete projects on time due to the downsizing we’ve had. Ironically, if the construction market has an uptick, their predictions on performance will hold true.


Much like banks employed tougher lending criteria beginning in 2008, the surety companies have followed. And it’s worked well for them. From 2009-2011 the default rate has been less than half of historic numbers of the previous 50 years. Just the opposite of what you would think.




You will be judged on balance sheet strength, business acumen of the management team, history of profitable work and the experience in that specific type of work. Knowing that, go back and see what reducing margins, chasing bid work, downsizing management positions and reduced backlog must look like to a surety underwriter. And remember, it isn’t just you they are judging, it’s our entire industry segment that is in play.




Here’s my advice. The next time you talk to a surety provider be prepared to share with them how you are managing overhead to be sensible and consistent relative to your (hopefully realistic and conservative) revenue projections. Show them examples of how you are managing your cash flow wisely. Share with them your financials and understand exactly how you compare to others (benchmarking) in this industry. Prove to them you have not strayed from your core competencies.




It comes down to the 3 C’s of surety: available Capital, having Capacity and showingCharacter. -- CW





November 16, 2011: New Business Owner



Q: I've just bought out a small systems contracting firm. As a new business owner, what is theone thing I really need to know?


A: The hard part of this quesition is there are many things to know as you take the helm of any business. Thinking back myself, and hearing from other contractor friends, they all seem to attribute their success to the people who either worked for them, or who mentored them as they learned the business. Some even commented that they knew exactly whatnot to do having watched former bosses. So, certainly surrounding yourself with hard-working, knowledgeable and honest employees and having good outside advisors (legal, accounting, tax) is a big thing.



If I can add to this answer, I also think having a focused and strategic business plan combined with a personal drive for success makes a huge difference. I spoke recently to a member who only started his business because he lost his sales manager job with another integrator. He basically hates it. He can’t sleep at night, can’t stand the pressure of meeting payroll or being responsible for the livelihood of others.


You will have good days and bad days. Make sure that you always keep an eye on your own attitude and motivation as it directly links to your ability to lead others. If you aren’t a natural leader, let us help you learn to become one. Just deciding what to do the same way as the prior owner or what to do differently isn’t enough. Things change.




And one final thought... Many of our members that have failed over the last few years got caught in a cash flow and financing bind. Under-capitalization and managing receivables is a big challenge right now. As the new owner make sure you carefully monitor project size and scope, how billings and collections impact cash flow and borrowing. Carefully watch for any excessive spending on vehicles, buildings, tools, test equipment, etc. Don’t let your employees convince you they need something you can’t afford if they can’t prove the payback. I guess there truly isn’t just one thing -- CW


November 10, 2011: Service Calls


Q: Any advice on dealing with service and warranty calls that end up being operator error or a lack of training problem – and the owner doesn’t think they should pay?


A: Well, some things never change. An age old problem, yet it’s never really addressed properly in most companies. First, never apologize for your rates, but do show empathy if operator error occurred. If you do find yourself wanting to do a write down, always escalate the situation and tie any compromise to a future piece of business or relationship building plan.


I just got off the phone with an angry end user complaining that a member of ours who sent them a bill for $375 just to press a button. In reality the site was an hour drive each way, it took an hour of onsite time, the standard rate was $85 per hr and this was on a weekend. OT and mileage was added. $375 was expensive, but very legit. The explanation on the invoice was inflammatory to the person who simply forgot a procedure on a device. It made the operator sound like a complete fool. Make sure you are mindful of the explanation of services on the invoices for this reason.





Know what it costs to “roll a truck,” and never write down the service ticket below that number. Many people think that a write down on a disputed service call should be a percentage of the bill or rate, but it should be based on true cost. It might be okay to not make any money on a trouble call from time to time, but never lose money.





Warranty and training are two separate things. The key on warranty work is getting to substantial completion as soon as possible. Too many of our members let this slide for various reasons allowing the warranty period to extend. Be very diligent about this.





Open ended training time is a problem. People leave, people forget, different shifts, and so forth cause repetitive training concerns. Video can be very effective if done well. I find the best practice is to agree on a fixed number of hours included, not and endless level of training. The blame game is often played in training as it is very common to have this come back as your inadequacy in training, not the customer’s ability to learn. Keep good records for when you provided training, a training guideline and checklist and have qualified people doing the training. These tips will serve you well when properly implemented. -- CW






November 3, 2011: The Educated Customer: A Blessing or a Curse?



Q: I've heard from two customers this week commenting about very specific product information we haven’t even been informed of yet. What's going on?


A: This, my friend, is the blessing and curse of the educated customer. I had a member call yesterday telling me that a music minister at a church asked if the DSP box he was proposing was AVB compatible. He walked out knowing he would eventually lose that job to a low bidder, or they would order what they could online.



Here’s the deal, we have many manufacturers very, very committed to selling through the integrator channel, yet they market, and now even do product training for the end-users. The goal was simply to build brand awareness, but has morphed into webinars, installation videos and regional events that invite end-users to be trained alongside the integrator.




Now, I’m old school, so this drives me nuts. I really do understand the brand awareness aspect of this and how that helps the integrator; I appreciate the commitment to exclusively sell through the integrator channel we represent. I’m just not a fan of using training as a marketing tool. Specifically, it’s the in-depth product training that I find troublesome.




The upside is an educated customer will appreciate quality and enhanced features often resulting in a bigger sale and a better system. The downside is the temptation to piece out the purchase and attempt to do the install themselves.


Most manufacturers and their sales reps do an excellent job of informing the dealers first of new product launches. Some will throw it back on our members, if for example they choose not to attend an event or training session. I believe that, most of the time when these conflicts occur, it’s because the manufacturers are anxious to bring a new product to market and use lists from end-user publications to convey the information.




The internet has not been a friend to integrators when it comes to pricing. When an educated buyer is compelled to buy a product online they generally will find a way.




Proving value…that’s your new challenge and goal. Nowadays we have to prove value on every proposal. In doing so your “smarts” needs to take precedence over your parts because in reality the parts are becoming more readily available via the internet.


Finally, if you have an end-user telling you they can install that system themselves… you have them call me and I can share with them dozens of reasons why they shouldn’t. Or better yet, ask them if their workers comp will cover a teacher, preacher, IT guy, security guard, music director, intern, student, etc. getting hurt doing work outside their normal occupational classification. The value we as contractors and integrators provide even extends beyond our parts and smarts. -- CW


Click here to view Chuck's video response!




October 27, 2011: Make the Profit You Should be Making

Q: We are thankful to be very busy, but our company seems to constantly underbid projects and we can’t pinpoint where the mistakes are being made. Do you have any suggestions?



A: The good news is that you’re busy; the bad news is you’re not making the profits you could be making. Luckily, this is fixable.


Most often I see the biggest mistakes being made in underestimating the labor on projects. I highly recommend you start using the NSCA Labor and Installation Standardsreport rather than just relying on your own numbers. At least compare your labor breakdown to the NSCA standards to spot any glaring differences.




Next, I suggest that you thoroughly review your bid process. My suspicion is that you don’t get the project manager or lead technician to sign off on each project before submitting your price. Rather than just handing them the job, get them to buy into the success of the job by being involved with installation labor estimates, prep work and assembly time, contingency factors, documentation, etc. This always results in better teamwork.




I’d like you to network with other NSCA members who do understand the fixed and variable costs on each project type that you do. I encourage you to join and participate in discussion on our LinkedIn page. The group consists of only industry members who can offer a lot of great feedback and suggestions.




A lot of times we see companies that have prepared a bid that simply lacks enough margin to cover the overhead, design time, sales expenses, travel costs, etc. We have some excellent classes and expertise in this area.




But when you do pinpoint the problem, don’t shoot the messenger. Separate the people from the problem and work to fix the situation, not place blame. Many times it comes down to a lack of training, knowledge, or simply having old processes that didn’t identify hidden costs or inadequate labor estimates. Look forward and start making money. -- CW





October 20, 2011: Forecasting Revenue Models


Q: We are horrible at budgeting. Do you have any secret formula to forecast an accurate revenue model?



A: Great question and a big concern of many integrators… I don’t have a secret formula, but what the best of our members do is work off of backlog, your pipeline and new opportunities.



Backlog is the most predictable, of course, as the order has been placed. It can be challenging to determine when the actual billing can occur. That depends on the clients, their construction schedules and so forth. A trend we are seeing is quick turnaround time for work to be completed. This messes up using backlog as the primary predictability tool. Likewise, contracts are being issued later than ever which reduces the timeframe on backlog.



The pipeline is your outstanding sales proposals that would funnel into the sales column. Now, take what your sales people think and cut it in half. Then calculate your close ratio from that smaller number. The lesson we’ve all learned on quotes we send out is that half of the jobs will never be done by anyone.



New opportunities would be those things you don’t know about until next year. Keep in mind projects come up and are expected to be completed quicker than ever. I would consider you go back estimate how many projects this past year came up since the beginning of 2011, and use a similar number for 2012. Apply your average close ratio to those. Also, remember that our economic outlook doesn’t reflect a great deal of growth in any of our market sectors.



Here’s a different twist. I’ve spoken with some companies who are using our economic and construction forecasts to link to their own sales quotas and revenue predictions. This way they have an objective outside the company perspective on growth by industry segment. Past performance is the best indicator of future results.



One last thing, if you are introducing a new product line, system type, solution or doing a geographic expansion that you have extreme confidence in for next year, attach a separate revenue figure to that. It helps to boost enthusiasm along with improving the chances for success. -- CW





October 13, 2011: Effective Sales Goals



Q: Our sales strategy focused on results rather than time spent working. That decision has caused me nothing but grief as everyone else resents the sales people who have met their goal and are sandbagging for next year. Should I go back and require a minimum number of hours per week and a fixed amount of PTO for them?

A: This is a common source of contention between all exempt and non-exempt category of employee and it’s generally worse with 100% commissioned sales reps – every industry struggles with this same issue. Two things come to mind that might help you.



One is adding an additional stretch goal. That can be in the form of an incentive above and beyond the typical quota. We have some members who layer on top of the comp plan various bonuses or trips, once the stretch goal is obtained. One member requires that the bonus be applied towards use during a vacation period. It’s produced great results.



The second is creating a “culture of discipline” with your company and working towards that becomes the basis for measuring everyone’s work ethic, their productive hours and their commitment to support other employees. This will help drive consistent behavior year-round. Ironically, we have found that the senior sales staff work ethic most closely models that of the senior executives. It tends to be that if the President works long hours, the sales staff does as well.



The thing is, everyone has a different level of ambition, drive and motivation. We all have different priorities for family time, vacation time, income expectations and so forth. Because of that you will have people who coast once the goal is met, others who race right past the goal.



Results-based sales plans can drive non-exempt co-workers crazy as they know it can impact their income, year- end bonus, company profits, or even their job. Technical people quickly assume sales people don’t work as hard or as many hours as they do. That is often a false perception in our industry. Alignment of overall goals within your company is the key to keeping everyone on task.



I would be careful to make drastic changes in your current plan. Keep in mind a surefire way to drive away successful sales people is to change their comp plan, or reduce their territory to increase coverage. It’s one of the hardest things to accomplish when it’s time for expanding sales coverage. -- CW







October 7, 2011: Make Money on Consultant-Led Projects



Q: Can a design-build contractor compete with the bid-to-spec contractor on consultant-led projects? And, do the consultants resent that we often do our own designs and favor those who don’t?


A: Here’s the deal... Yes, you can be competitive, but you need to bid according to the consultants design, what their specs call for and what the drawings show – nothing more, nothing less. Now, what I see happening in design-build integration firms is a tendency to re-engineer a design project once it gets into estimating. That’s where your costs start to escalate and frustrations begin to surface. I’ve seen where dozens of emails with RFI’s going back and forth attempting to modify the spec. I’ve seen attempts to discredit the integrity of the design in hopes of substituting the product. I’ve seen all sorts of direct owner intervention. These attempts to outthink the consultant never end well.


The bottom line is that you can’t afford to run a consultant-designed project back through your own engineering process and expect to be competitive. It won’t happen. You need to accept that there is more than one way to design a system if you choose to bid consultant work.


I hear all the time that we lose consultant jobs to others bidding at cost. Yes; and here’s why... your costs include things theirs don’t. Here’s an example: I saw a schedule of values for a project reported to be sold at cost. The materials were within 5% and the project management and technical labor was about +/- 5% from the high to low bidder. The commissioning, acceptance testing, as-built drawings, documentation, etc. ranged from$2,200 to $24,000. The interpretation of on-site personnel required during the close out phase swung the job as the consulting firm was responsible for testing and commissioning. The design-build firm who was high insisted that their design team, field techs and service manager all be present during testing and training in order to be fully responsible for warranty. Look for clarity in this area.


On consultants favoring those who do only bid projects, no, I’ve never seen any preferences, which is good because about 75% of our members consider themselves to be design-build firms. Now I have seen companies quickly moved off the approved bid list for future projects in they continuously challenge the design, value-engineer, or make substitutions that cheapen the job rather than improve the final result. The consultants I know recommend and prefer integrators based upon work results, taking care of their clients and reputation. You should also be aware that in many cases the consultant isn’t necessarily the final decision maker on taking a low bid. In some cases they have very little to do with the award of the contract itself. But when they do, they are under pressure from their clients to accept what appears to be the lowest qualified bid.


And in the worst case scenario the owner brings in a contractor that contacted them directly which takes away all control from the consultant. These factors contribute to many good projects that have gone bad. -- CW



September 30, 2011: Bid Work



Q: We continue to get beat by 10-20% on projects using a minimal markup on product and bare bones labor. For every 10 jobs bid, we maybe get 1. What in the heck is going on?


A: From my vantage point I see companies in our industry taking enormous risks on jobs. One problem being reported in a flood of out-of-town bidders on jobs who choose to forego the pre-bid meetings. Fundamentally I have a huge problem with the CM firms allowing that. I’m also hearing about a wave of underestimated initial cost estimates causing integrators to get in under that budgeted price and/or all the bids rejected and rebid exposing all the numbers.




And it’s not always the margin on products that make you high. As we reported earlier in the year we are seeing huge discrepancies in the overhead costs as selling expenses from one company to the next. It’s important to measure your cost of doing business against others to find out where you might be misaligned with the realities of today’s competitive landscape. Remember that the traditional business model has changed.




The biggest risk I’m seeing is substitutions. Sad but true, some systems contractors play the game of submitting alternative product under the premise of being “or equal,” and betting on someone in authority stamping it “no exceptions taken.” That then opens the door for them but often leads to more legal woes than ever imagined. Here’s the situation; many A/E firms have so few staff no one has time for a comprehensive review of the submittals. On the other hand; some have so little work that they pour over submittals with relentless attention to detail. Contractors who are willing to play this game often get by, or can easily get burnt. The “no exemptions taken” type stamp isn’t necessarily a green light to install whatever you want; it simply moves it on to becoming somebody else’s problem.




My advice if you are trending at a 10% close rate is to be more selective. Only bid work when you know the consulting firm or design team. Bid work closer to home where you know the reputation of the other contractors and CM firm. Bid jobs that require prequalification and mandatory pre-bid meetings. Bid on jobs where you know the spec will stick through the submittal process. Bid on jobs where you know the rules on allowable “value engineering.” Be smart about bidding jobs that tie up your bonding capacity and credit line. Most importantly, don’t bid any job where you know that you will have to drop below your minimum mark to get it. -- CW



September 23, 2011: Sales Incentive Plans



Q: Our current sales numbers are running way below our typical year. Do you have any advice on a sales incentive program to stimulate more activity, generate more RFP’s, get more quotes generated? I’m getting desperate for new ideas.


A: You’re not alone. A number of members report weak sales. Even companies who felt that they weathered the 2009-2010 dip are now feeling the pinch. Don’t let this cause you to make bad decisions in your sales comp plans.




I’ve spoken with several business owners who are struggling to make payroll, yet at the same time crafting all sorts of hybrid interim sales incentives in order to keep their sales people from leaving. It’s not a simple answer, but my best advice is to, “encourage hard work, but only reward results.”




What that really means is your sales comp plans need to have a reasonable base salary that both you and your employee can live with. It also means that until somebody actually books new business, you don’t pay anything additional and they don’t earn additional income. The trap that many have fallen into in order to generate sales is to have an incentive program for a number of contacts, sales calls, quote or whatever. I wouldn’t go beyond a gift card, small stakes contest, or something fairly simple.




It reminds me of a sales management course we have titled “Nothing Happens Until Somebody Sells Something.” However, if you are paying anything above the base salary for good intentions, something is happening… you lose money. I know it sounds tempting and it seems like a way to generate income, but don’t do it. The right people paid the right base, is a much better approach.




I would encourage you to be more involved than ever in the sales process. Listen to what your sales manager and sales team are saying. Find ways to get out there with them, give them full support and share your experience with them. Give those customers sitting on the fence an incentive to buy, rather than giving your sales team an incentive to generate activity. In the end the sales team will work harder and earn more commissions again. But in this scenario, you actually sold something. -- CW



September 16, 2011: MasterFormat


Q: I’m specifying a digital signage system for a large public works facility. What MasterFormat numbering scheme should I be using?


A: You will find these listed under Division 27. The specific heading is, 27 42 00, for Electronic Digital Systems. If it’s a transportation facility, use 27 42 16, Transportation Information Display System. If it’s any other type of facility, use 27 42 19, Public Information System.


The new CSI MasterFormat 2011 has been published and is available. For our industry there have been very few changes from the major reconfiguration done in the 2004 version. Our members have been reporting that most design firms have now at least changed to the 2004 version. Some have yet to convert from the 1995 version but the vast majority of work is now being done in M/F 04. -- CW


September 9, 2011: Resources to Work Efficiently




Q: I’m in charge of managing our subcontractors. We do work nationwide and outsource labor for most installations. What tools, connections and services can NSCA provide us to make this process work most efficiently?


A: The first resource is helping you to manage these sub-contractors with a checklist of what they should provide you even before getting a number from them. They should be insured (accident, general liability, property and casualty) and carry workers comp insurance. Have them show proof of those items.



Then we have the actual contract templates. It’s best to use these rather than issuing a purchase order. These templates spell out the scope of work, payment terms, general conditions, quality of workmanship provisions, etc. Plus, they protect both parties fairly. These tools are on the Essential of Systems Integration web portal located atwww.nsca.org/essentials.






Next, we help you find legitimate companies via our Members on the Map resource. I get dozens of calls about finding qualified sub-contractors and in many of these cases the member is really searching for someone who is a very low cost independent technician. I caution you that many of these people simply “work for wages” and often have no actual business permit, tax permit, low-voltage license, insurance, etc. Remember the may be cheaper and you can be more competitively priced using them, but I also know of companies who have been thrown off jobs, sued, found non-compliant with state law, etc. for using non-qualified subcontractors.


We also have members who supply only out-sourced labor. They are a better choice than using an unlicensed independent technician. The Guide to State Licensing (also on our web site) helps you determine which credentials to ask for. Keep in mind many states, counties, even municipalities have license requirements you may not be familiar with. My advice is to avoid getting a price from an installation company until you first review the steps outlined above. -- CW


Click here to view Chuck's video version of this Question of the Week.






September 2, 2011: Retain Quality Sales People

Q: How can we hold on to good sales people when no one is buying anything?



A: By first having a really good sales structure and not just handing out sales quotas. The challenge with any sales plan is to have perfect alignment of the sales people’s compensation plan and the company’s best interests. The really good sales people, the kind you want to hold on to, understand that in order for them to succeed, the company must first succeed. The team must win before the individual. They understand that during slow times, a fierce competitive marketplace or a highly competitive bid project that they too will need to make sacrifices. The best comp plans having everyone sharing the upside and downside of this. The worst sales plans assign fixed quotas with no attachment to profitability.



Sales people relate best to volume, whereas the business owners relate best to profits. Often times a sales person feels pinched by the company’s minimum marks on margins. Some end up leaving for jobs where unit/box sales come with a fixed commission. Those sales people are better off there. The best sales people in our industry understand that the company has to make money first. If no one buys anything, then they are in trouble. But they are in trouble anyway, because especially in this economy, the company can’t afford anyone on the payroll who isn’t bringing in more than they cost the owner.





From a more cynical angle I have to question this question. Is it possible that they really aren’t good sales people? Who told you they were… past sales volume? Remember the good sales people adapted by scrapping and working harder than they have ever done. Or, is it that you’re the last remaining member not to have made concessions on margins? Maybe your sale people haven’t changed their strategies since the downturn in the economy. Our most successful members made pretty dramatic changes in how they have mobilized their sales force since 2008. I wonder if you should re-evaluate your sales structure and at the same time dig deep into finding out if it is truly your marketplace, or if it’s really your sales strategy within that marketplace. A good way to tell is to track the sales efforts and attention given to your signature product in your most primary market. If no one is buying that and you’ve given it your very best effort, then you’ve a much bigger problem. -- CW





August 26, 2011: Quality Assurance Guarantees


Q: I’ve seen an increase in quality assurance and extended guarantees on product defects that cover everything imaginable. Is there a way to provide a standard warranty statement that would be considered acceptable?


A: I’ve had several calls about this lately. As our work shifts to involve the IT department, their standard contracts and operating practices have become more common. Apparently that has now spilled over to AV and life safety systems. What troubles me on these extended warranty requests is that they ask the integrator to agree that if the manufacturer’s equipment has defects, requires upgrades, has compatibility issues or excessive failures, that software licensing will be available for up to 10 years. One read where this warranty shall be in effect regardless of any network or system upgrades done by the owner. Imagine a new firewall or LAN configuration. These contracts might state that this work shall be performed at times that won’t disrupt their business.



I read one contract for a member the other day that stated if the hardware or software provider goes out of business within the next five years they would be responsible for replacing the equipment regardless of its operating condition. I also suspect some of you will see more instances where an escrow account will be established to hold the software licenses and additional warranty funds. We all get it, the owner is trying to protect their investment and avoid product obsolescence. It’s just some of the language is pretty over the top for what we are actually providing.


To me this is just like any other contract; if you feel uncomfortable with the language, then don’t sign it. I think if you go back to the owner and show them how their boilerplate IT contractual language doesn’t apply to your system they may be willing to sign off on your standard warranty statement. Or, they may be willing to strike out certain words or sentences within their document that either don’t apply, or seem too risky for the type of system you are providing. The big thing is to make sure someone is really paying attention to this. Often we’ve found these onerous statements of warranty in bid specifications under division 1. Sometimes they are found in blanket statements within division 27 or 28. But, most often they emerge directly from the owners IT department. Call me if you see something like doesn’t look right… before you sign it. -- CW



August 19, 2011: Design-Build, Insurance Policies


Q: Does being a systems integrator imply that we do design-build work? If so, should we have different insurance?


A: I don’t think you necessarily have to do design-build work if you refer to yourself as an integrator. As I found out (about 100 times) from our blog followers last week, there are many definitions of an integrator floating around. I would suspect most integration companies do design-build projects, but they could just as easily focus on consultant-led projects. I’ve never directly attached the term integrator to design-build contractor. Your insurance agent might.


As for the insurance part of this… Without question, if you do design-build work (as described by having direct involvement in the concept, layout, product selection, performance criteria customer expectations, etc.), you should absolutely carry errors and omissions insurance. I can name dozens of cases where our members who design projects that have gone bad found themselves with a professional liability policy that will only insure them against the workmanship, property damages, injury, etc. Please read your policy carefully to make sure it properly covers your business for defective design considerations, disputes, oversights, etc. If you are uncertain about the coverage, give us a call at 800.446.6722. We have people at SystemsPlus Insurance who do this every day. -- CW


August 12, 2011: Extended Warranties


Q: We have been asked on a large project to provide an extended warranty for 5 years that covers the manufacturers software, includes upgrades/patches/defects, a product obsolescence guarantee and other items very specific to the manufacturers equipment. Is this becoming a trend? Is this something we should be concerned with?


A: Yes and Yes. What's happening is the end users (generally IT savvy ones) have started to use extended warranty, IP protection and technology guarantees that have migrated over from the IT department. That language can be very troublesome in that you as an integrator are providing a guarantee (and often a bond) that insures you will fix, upgrade or replace any hardware of software that may become obsolete. The major problem costing our members money is when the facility upgrades their systems often new firewalls, LAN segmentation, data recognition issues, etc. becomes your problem. Or at least you have to show up and defend why your systems has a new compatibility problem with the network upgrades that were made.


I suggest that when you are required to provide a technology performance bond or any binding form of extended warranty, have the primary manufacturer(s) of the products you are using become partners in this agreement. Don't allow the manufacturer to accept the contract direct, rather use a partnership format whereby you still maintain control of the account and the relationship. A recent blog I did on bonding explains the trends on all forms of bonds. This was included.


Important Note: Make sure the manufacturer agrees that this extended warranty will be binding even if your dealer agreement gets terminated. -- CW


August 5, 2011: How to Sell Managed Services


Q: I want to know exactly how to start selling managed services. You keep saying we have to build recurring revenue, but how do you get started?


A: The first step is to fully understand why this is so important. As pointed out on our webinar last week, the average NSCA member company derives 87% of its annual revenue from a one-time transaction. That’s right … a contracted project is a one-time transaction unless you do something either on the front end or near the end of the warranty period to turn that project into an account. A project is not a customer until an ongoing relationship is developed. That’s the first step in this. You need to evaluate what recurring monthly revenue (RMR) can mean for the worth and ROI in your business. Once that’s determined as a priority, you need to do research. Eventually, you will learn from the cost of providing warranty, training or whatever else the service entails how to price managed services.


Because of the Sherman act, anti-trust laws and restraint of trade issues, I’m unable to give out suggested pricing models. But, I can tell you that the biggest hurdle NSCA members face is learning how to price and sell these services. Fortunately, we offer programs and conferences covering this subject matter, the best of which is the annual Business & Leadership Conference. Mark your calendar for that, March 1-3, 2012, in Dallas, TX. --CW


July 29, 2011: Recurring Revenue


Q: My question is about recurring revenue. Can you tell me, based on a percentage of revenue, what the typical NSCA member earns in maintenance contracts, service agreements, etc. that they consider recurring?


A: Yes, we can. This number always disappoints me as it hasn’t grown even with sales revenues decreasing. Sadly, this tough economy has been rough on keeping service contracts intact. The numbers reported are 7.5% in service contracts, 3% in planned maintenance (basically the same thing) and 1.5% in monitoring fees (not including the companies that have central station monitoring). So, altogether, the average company would show about 12% of its annual revenue in fixed rate contracts. However, more and more I hear of block labor sales. I’m a huge fan of this as it’s the next best thing to a service contract. Let me know if you want more info on the sales strategy for this type of business. --CW


July 22, 2011: Per Square Foot Cost Estimate


Q: Is there any database for our technologies that we can give to GCs and CMs showing a per square foot cost estimate for planning purposes?


A: No, but I sure wish there was. We spent several years working with RS Means, a division of Reed Construction Data, on a product called “CostWorks.” As we attempted to come up with a per square foot pricing model for each system type and each building type, we quickly found that the variances between good, better and best were too dramatic to be viable for their model. For example, we had a standard corporate boardroom where good was $30k, better was $75k and best was more than $300k. Those ranges ended up meaningless when compared to things like carpet, lighting, wall coverings, etc.


If you are required to submit a “plug number” for the technology build out, contact NSCA and we will give you a formula to use based upon the research we have gathered over the years. It needs to be specific on a scope of work and type of project, such as a church A/V system including conduit, wiring, inputs/outputs, type of design, number of seats, etc. That’s a simple example. A more difficult request is something like an airport security system. The feature sets, code requirements, storage methods, biometrics, etc., have enormous cost differences. Whenever you need something like this, just contact us. --CW


July 15, 2011: Unified Communications


Q: I’m confused by the phrase “unified communications.” What exactly are people referring to?


A: I’ve been asked this a lot as the phrase is fairly undefined at this point. I thought, at first, it was a marketing slogan from a manufacturer. I’m now of the opinion that both the IT sector and video conferencing folks have begun to latch onto that phrase to describe the various applications, integration methods and different forms of media and technology on a common or virtual network. That’s how I would describe it.


Why I find this confusing is that every integrator and application developer has their own definition. For example, I recently came across this explanation: “Unified Communication is a relatively new term used to describe a suite of integrated communication media that harnesses the latest technology to drive presence awareness, enable mobility and provide the ability to quickly shift from one communication media to another.” Huh?


The problem is that some have created a definition that sounds like marketing hype while others are very specific about their applications and user interfaces. Compounding the confusion are add-on words like cloud computing and virtual hosting. So, just as we are scratching the surface of our industry’s role in network integration, we are faced with new applications driven by the IT world. We now find ourselves in need of direction on how this new network environment will interact with A/V and physical security applications that are migrating to the enterprise networks. It’s certainly something to pay close attention to. --CW




July 8, 2011: Billable Hours


Q: Can you explain what you mean by a billable hour and how this is tracked and factored into rates?


A: Lawyers must have coined this phrase and sometimes I feel like it’s their way of filling up available time. But, in our world, systems professionals have become extremely mindful of tracking, accounting for and then billing each and every hour (or increments of an hour) they spend working on a specific project or account. So, a billable hour is time that can be tracked to a specific client.


Generally, when I refer to billable hours, I’m speaking about the productivity of design and technical staff on a project, or in a service role. The goal is to meet or exceed the industry averages for how many hours you pay a person each day compared to the time you can bill a customer for the services you are providing. Companies that track billable hours use timesheets, job-costing software, handheld devices, or anything else they can find to help keep track of employees and assign their time to a job or service ticket.


Successful companies have figured out ways to do this with additional support staff for project inventory management, project meetings, documentation, submittals, CAD, etc. They also have scheduling programs that manage human resources allowing for productivity in excess of 90%. The industry average is closer to 78%. As you look at your own ratios, you will see that even getting to 80% is extremely challenging. Accounting for other activities like safety meetings, HR meetings, phone calls, call backs, research, calling the factory, drive time, training, etc. all become factors when setting goals and rates. When these things become unbillable time, you can quickly see why the percentage can’t be 100%.


Everyone calculates labor rates differently. Most have straight labor rates for service based on the technology type. Some factor in driving time, others don’t. Some charge 50% of the rate for drive time. However, the rates should at least take into account the average time spent preparing, getting to and from, waiting, client meetings, etc. Many companies set their service rates far higher than project billing rates because their productivity isn’t good. Others have figured out how to keep the service team more productive than the project team as there are less variables and unforeseen scheduling delays.


On the project work, it’s common to have four rates; installer, technician, lead technician and project manager. Each role carries its own rate and has its own productivity goals. Many of our members have achieved 90%+ productivity for the installers, but it goes down from there as the level of skills, training and responsibility goes up. The hourly rates may go up by $20 even if the wages are only $10 more; but, as we know, that is because the productivity ratios goes down. This is a hard concept for technicians to grasp.


My best advice for establishing rates and tracking billable hours is to compare your company's productivity to others. We track this annually for you if you participate in the financial analysis surveys. One last thing: it’s always important to track warranty work separate from project time. I can explain that another time. --CW


July 1, 2011: Social Media Policy


Q: Do other members have a social networking policy in their employee handbook? I’ve been burnt by employees giving references and by inappropriate photos attached to our company Facebook page.


A: I did some research and here’s what I’ve found. First, we do intend to include a social media new policy in the Essentials of Systems Integration™ web portal over the summer, so look for that in the coming weeks. The majority of our members I spoke with use the “Internet and Email Use Policy” in Essentials, but it makes no mention of social media.


Here’s the advice I’ve been given by other integrators on this subject: First, have a firm policy that your employees give no references in regards to any former employee without it first being approved by someone in an official HR capacity. If the reference even appears as a company endorsement of the individual, then a discussion of that process needs to be had with the employee. This is a gray area when social networks are primarily intended as social, not work-related.


Next, on general social media usage, many of our members simply block Facebook and Twitter on company computers, but allow LinkedIn. This is more related to productivity than company image. The linking of personal photos just sounds like a bad idea, unless professional photos and screening is conducted. Many of our folks still struggle on the real business value of having a Facebook page in the first place.


We have one member who lost a church project based upon the social networking research the church administrators did, which uncovered an “inconsistency of values between the church and [the contractor's] perceived image and practices.” That tells me it would just make sense not to allow linking photos or employee pages to your company site. To me, this is no different than what we tell our own children about the reputation and image their social pages can portray. Colleges, employers, customers and others can and do use this to determine the moral fiber and behavioral habits of the individual. Hope this helps. --CW


June 24, 2011: New Business Model


Q: Our company needs to find a new business model as we just can’t compete on price any longer. How and where do you start?


A: I suggest starting with a financial comparison between your company and others in a similar size and scope. I often find glaring differences with integration companies in areas that can be fixed as opposed to starting all over. For example, the fixed and variables costs associated with projects may be really an overhead problem. Or, you may have an underlying productivity issue that simply places too much burden on each project. Your installation team may be way out of the range for typical install times for devices. It could be a number of things.


I’ve never seen a company be successful as both a low-price supplier and a value-added integrator. That’s where the business model does need addressed. You will have to decide which path to follow and give up one of these strategies. The best place to start is to contact our office and have a membership rep walk you through the Market Intelligence Briefing research and Financial Analysis reports. It will take some time, but you will find out quickly if your business model is obsolete, if your productivity is in the right range, if your compensation plans are a problem, if your expenses are in line with others, etc. Don’t hesitate to call … it’s what we do. -- CW


June 3, 2011: Inventory as Percentage of Sales Revenues


Q: Our sales have dropped off pretty dramatically over the last two years but our inventory level hasn’t. What is a common level of inventory for NSCA contractors?


A: I find it best to track inventory as a percentage of sales revenues, and you are certainly not alone in expressing a concern about this. It’s a fairly easy thing to overlook as the number itself may not jump out because the dollar amount seems pretty normal. But, if your sales have declined as a percentage of total revenues, the number has risen dramatically. Likewise, when the balance sheet is looking a little rough, no one likes to face the reality of the actual (depreciated) value of that inventory.


The average/mid-sized company in our membership carries an inventory that is 4% of its total revenue ($378k inventory to $9.3 MM in sales) and has a turnover rate of 14.98 (cost of materials sold divided by the inventory). What has been happening to many of your fellow members is they see the $378k number, but don’t watch the ratios. I suggest you be proactive in managing this as you don’t want operating capital tied up in excess inventory. --CW


May 27, 2011: Design-Build vs. Chasing Bids


Q: I’m having a very difficult time getting our sales and design team to focus on design-build work vs. chasing bid projects. Is it practical to split these people into two separate groups? Have other members done this?


A: Yes and yes. It’s pretty common in larger NSCA integrator companies to see this method practiced. It generally works where you would separate the sales team into a new construction projects group and then have a negotiated/direct sales group. Now, this isn’t perfect, either, as conflicts do arise when the new construction teams forms relationships with an end-user or, in some cases, the negotiated team knows of a new addition being built. You need to clarify who handles these opportunities and perhaps offer a small stipend for sales directed to the other team. What keeps popping up is the challenge of when the compensation plans don’t match the companies goals. If it all pays the same, your sales people will likely chase low-margin bid work.


Related to this, I spoke to a member last week about his frustration when it takes them three weeks to deliver a design-build proposal because his staff spends all their time on takeoffs and estimating bid jobs. Due to low margins, they have several layers of authority and hand off between sales, estimating, design, project management and, finally, administration sign off. Even in this scenario, we need to have efficiencies where smaller projects can “bypass” the complete process that a $100,000+ project would have. Developing quick quotes from past projects, in many cases, allows you to qualify the customers quickly and get their commitment prior to engineering a complete system during the estimating phase. I know a lot of you will disagree with that, but I’m just being practical. Waiting three weeks on a proposal isn’t very practical. I would set a dollar figure on when to use the more expedient quick quote approach. We continue to see the cost of working up a bid on jobs you don’t get eating up valuable time and profits. Hope this helps. --CW


May 20, 2011: Blurring Lines


Q: I’m worried that the lines are blurring between manufactures and integrators. We are seeing our end-user clients contacting the manufacturers directly. Is it because of consolidations and mergers? Is it one more thing for us to be worried about, or do you see the manufacturers maintaining boundaries and loyalty?


A: Well, this question/answer will surely flood my inbox… No, in my perfect world, something like this would never happen. Now, in the real world, what seems to be a concern is the purchasing model and decision-making moving more toward an IT model. In the IT world, sometimes (not always) there is pressure from above to make significant technology purchases as close to the original developer or manufacturer as possible. What happens in this scenario is that the end-user -- say a hospital or hospital buying group -- needs accountability and assurances to guard against product obsolesce and to ensure bugs, upgrades, patches, etc. get immediate attention for years to come. I’m seeing requests for technology and long-term warranty bonds. I suggest integrators be very careful when requesting this type of bond as it may extend well beyond their contracted warranty period.


I don’t see any direct connection yet to this being driven by mergers or consolidation. I see the end-user motivation for doing this more as being able to hold the technology provider/manufacturer directly responsible without any finger-pointing or in case the integrator who originally installed the system lost that product line, had financial problems, left town, etc. The rub often comes when the manufacturer extends these five- and 10-year warranties when the integrators only provide labor for the one-year period as specified in the contract. If an end-user knows the product has an extend warranty period then, naturally, they want that passed through. Who covers the cost for your labor? What is the exposure to the integrator in that situation?


Will the manufacturers honor the traditional boundaries and our channel? I sure hope so. For that to happen, though, we need to provide value in each and every transaction and demonstrate to both the end-user and manufacturer that our role is absolutely necessary. If the integrator becomes more of an obstacle than a value-added resource, then we all should worry. The vast majority of NSCA members can prove their value beyond a shadow of a doubt. And, they can prove it even when their pricing differential becomes exposed. My job is to make sure we all stay ahead of this and keep proving that our channel is the very best choice to deliver systems technology to the end user. -- CW


May 13, 2011: Wrong SOC Code in Prevailing Wage


Q: What do we do about a prevailing wage if the SOC we typically use isn’t listed on the project?


A: I’m getting a lot of that lately. Simple answer – call NSCA and we can send you in the right direction, but check with your state's Deptartment of Labor to find out where your work might be classified. We’ve seen some states classify this work under Furniture & Fixture Equipment, for example. You might also request the DOL to do a wage survey in the area to properly classify the work. Typically, our work has fallen under 49.2022 (electrical – but also where electricians fall); 27-4011 (audio-video); and 49-2098 (security and fire alarm installers).


I’m also getting reports that certain states are erroneously listing our defined scope of work under the wrong SOC and it’s tied to licensure. For example, if the state only has a license for electricians, it’s under that SOC. Or, in California, we’ve seen low-voltage work classified under the C-10 (electrical license) prevailing wage rather than C-7 (our stuff). Not sure what that’s all about.


In regards to the wage surveys, when our SOC doesn’t correspond to the scope of work, it’s because the DOL hasn’t done a survey in your area recently. Or, if they have, it was ignored by the systems contractors/integrators. They need more than one company doing these or, I think, they get left off the reports. Texas just recently received notice that they would be conducting wage surveys; it is incredibly important to participate in these surveys.


This continues to be a major problem for integrators and, in many cases, creativity will help you out. NSCA is here to help you find solutions and establish contacts with the appropriate state and federal offices. Give us as much time as you can before the job is bid and give yourself enough time to send an RFI back to the contract management or procurement entity. -- CW


May 6, 2011: Is Prevailing Wage an Option?


Q: We are bidding on a school project and the GC has asked us to provide two separate bids: one in which we comply with prevailing wage (Davis-Bacon) and one where we don’t. Is that a legitimate request?


A: Oh, my! Well, my gut reaction tells me that this isn’t even legal. The Davis-Bacon Act isn’t an option; it’s a federal law on projects where federal funding is being used on a public works job. But, as I think this through, perhaps the owner (or school board) is contemplating whether to use a federal grant to help with the construction or remodeling costs. If the cost of abiding by the mandate is greater than the grant, perhaps they would turn down the federal funding. Maybe you can track this down by determining if any funding is provided by a federal grant.


Or, it could be that the city or county is weighing whether to implement a prevailing wage provision or PLA on their own and, for some reason, don’t want to make that decision until they have the pricing differential in hand. Another possibility is that some states imposed a prevailing wage on projects over a certain dollar amount. Maybe this job is bordering on the threshold of that amount and they don’t want to rebid if it goes over. Perhaps the funding is coming from a federal source with different stipulations attached.


In any case, I would be very cautious here. The DOL has been hiring part-time accountants whose sole purpose is to validate the certified payroll on these projects and they don’t mess around. Make darn sure you know exactly what you are getting into on any prevailing wage job. --CW


April 29, 2011: Incentives for On Time/Under Budget


Q: Do you have a great solution to providing an incentive to project managers/supervisors for finishing the project on time and under budgeted labor costs?


A: No I don’t. But, as some of you already know, this question was posted on our NSCA LinkedIn discussion group. I received many suggestions both individually and within the group. They ranged from, “If you hire the right people, you don’t need incentives” to some well-detailed plans that are based on the profitability of each job and the overall performance of the company. I generally think that “old school” owners and managers like me generally dislike the notion of bonuses as we hate to be obligated to them if the overall profits are down in the business. But, mostly, we dislike them as once you give them out they become expected.


This logic is opposed by the more progressive owners and managers who believe an incentive will motivate people to be more productive. They are willing to invest in the systems and resources necessary to manage these incentive plans. They believe the younger generation of workers are driven by financial rewards and that they need to be real and often. In structuring these plans, everyone subscribes to the notion that the company needs to win before the employee wins. That was a consistent comment. We also all agreed that, if you have the right people working for you, cutting corners to earn a bonus isn’t a problem. Integrity and honesty of the employee is key.


I strongly suggest that you join our LinkedIn group as we have had some fantastic discussions take place there. --CW


April 22, 2011: Sales Tax on Labor Assembly


Q: I was one of those who didn’t worry about a sales tax audit until right now. Here’s my question: is the labor to assemble a rack in our shop subject to sales, or does it need to be taxed separately on the invoice as if we were selling an entire assembly?


A: Join the club, my friend. You are now amongst the ranks of many very confused systems contractors and integrators who can’t get a straight answer on charging sales tax on fabrication labor. Sadly, you won’t get one from me, either.


Here’s the deal: we are all very confused over billing and remitting sales tax on labor. What makes it especially confusing is the difference between a finished good (something manufactured and sold) and what we do by assembling finished goods into a larger system. We purchase items for resale that are, in many cases, a finished product. The challenge is explaining to the tax auditor that you take finished products and then assemble them into what you consider a different finished product made of many individual items considered finished goods.


The question then becomes, "What is the finished assembly that you are selling?" And, "Should/can you assemble a rack full of finished goods and bill the sales tax on the completed?" Well, nine times out of 10, labor is tax-exempt, except in certain states. But, only about half the time is sales tax-exempt when the labor was used to complete a finished product. Some states now have neighboring state reciprocity; others have a simplified sales tax program. And, by simplified, they mean only slightly less confusing than states without that.


As you can see, none of this makes any sense. So, we strongly suggest your billing clerk/business manager/CPA contact a sales tax expert in your state and the states you work in to give you their opinion on this matter. --CW


April 15, 2011: The Best Contract


Q: Why do you keep recommending the AIA 201 contract in lieu of purchase orders or letters of acceptance of our proposals?


A: For a couple reasons. First, when AIA created the agreement, it was intentionally developed not to favor either the contractor or the owner. As an architectural association, they don’t represent either side in the contract, which makes this neutral and fair for both parties. The other reason is that the contract really addresses almost every issue regarding the transaction and the terms and conditions of the project. In a perfect world, the owner would simply sign your proposal along with a binding contract your attorney developed that protects you in every possible situation that could develop. But, that seldom happens. So, this document is the best alternative we’ve found and a is great way to prevent you from having to sign their contract. You can find these in NSCA's Essentials of Systems Integration™ Online. Likewise, just having an owner give you a purchase order to commence work can often lead to billing/payment disputes, unclear resolutions to problems, etc. --CW


April 8, 2011: Non-Smoker Requirements


Q: Can I post job openings that state we hire only non-smokers? We have a large healthcare client that requires all contract service employees to be non-smokers.



A: Oh, boy! I’m not sure if that would be considered discrimination or not. I know you can create a tobacco-free workplace and have a drug-free workplace with pre-employment drug testing and periodic drug testing. I also know from our insurance folks that you can make employees who smoke pay more toward their healthcare coverage. I would be concerned that this might differ from state to state. I can see places like California accepting this practice, whereas in Tennessee it might be illegal.


So, I asked our HR attorney and this is what he said:


The Federal Anti-Discrimination Laws do not classify smokers as a protected group. Likewise, smoking isn’t a disability under the Americans with Disabilities Act (unlike alcoholism). However, 29 states (and the District of Columbia) have laws that prevent discrimination against employees that use tobacco products. There are no statutes in the others that specifically forbid discrimination against tobacco users.


That sounds straight forward enough that you need to figure out if you are in one of those 29 states. But, wait … here comes the good part. He went on to say:


Nonetheless, it is conceivable that an individual could allege that discriminating against tobacco users is a proxy form of discrimination against a particular minority grouping. The United States Supreme Court has recognized a legal doctrine called “disparate impact.” Under that doctrine, if it can be shown that by refusing to hire smokers, an employer is indirectly discriminating against a particular minority grouping, it is possible the practice could be found to be discriminatory. In order to make such a showing, a would-be employee must demonstrate that members of the minority grouping at issue use tobacco at a statistically significant higher rate than nonmembers of that minority grouping.


And, sure enough, the last part casts a shadow of doubt over the part I understood. I bet your client is in a state that allows this; if they are in the same state as you, chances are you can. Check with your HR firm before doing anything. -- CW


April 1, 2011: Sub-Bond as a Percentage of the Project


Q: At what point should I walk away from a job where the GC is asking us to provide a sub-bond that would cover a percentage of the entire project rather than just our scope of work?


A: I recommend running rather than walking. If I understand this correctly, the GC is asking you to provide a bond not just for your portion of the work, but to help provide enough bonding capacity for the entire project. I have heard of this once before on a project where the entire design-build team each had to provide a surety bond of $1 million minimum and our member's portion of the work was only $750,000. The insurance requirement also had a unique collective umbrella policy provided by the same carrier as the GC that covered all contractors working on the project.

To me, this concept sounds very risky. It also sounds like a GC that either can’t meet the boding requirements on its own or wants to distribute more risk downstream to the other contractors. I would also point out that there are many disputes on projects caused by sub-contractors and sub-subcontractors abandoning projects due to business failures. The potential for a lawsuit caused by these types of defaults could potentially extend to your business if you were connected in some fashion to an overall project bond. I would seek further clarification on this one to see if they are merely asking about your bonding potential, or if they are truly asking you to bond something outside of your scope of work. If at all possible, stick to providing only a performance bond for your scope of work and your contacted amount. Has anybody else heard of this? --CW


March 18, 2011: Overhead Burden Ratio


Q: Has anyone been successful accurately allocating time and expenses for design, engineering, CAD drawings, documentation, project meetings and related non-job site specific hours to project estimates based upon the type of technology and project?


A: What you are asking for is an overhead burden ratio based on system type and market. Wow, I don’t think anyone I know has that level of granularity in their time allocations. I do know that integrators have struggled for years doing this on a percentage basis. What I mean by that is the size of job doesn’t always translate to the design and engineering time each project requires. For example, government projects have such a different requirement for submittals than a corporate project. A church might have 10 planning meetings to attend before the job is even started. Allocating by a percentage of the contact doesn’t work for me. I do like the idea on smaller jobs, say under $50k where you would do a “quick quote” on the labor and design time based on the closest project you’ve done with a similar scope and in the same market. If you allow for a variance, it would at least expedite your proposal and allow you to quickly determine if the customer is serious about the project.


I would love for other integrators to weigh in on this. Does anyone have a better answer or suggestion on how to be more accurate estimating design time? -- CW


March 11, 2011: Endpoints in Audio


Q: I have a question about endpoints in audio. Considering the rising cost of analog cabling for remote inputs and outputs, it would seem that pushing the endpoints of the networked audio system out further into the installation's public spaces has labor, termination and commissioning as well as in-use setup benefits and efficiencies. Although these widely vary, job to job, does anyone have any boiler-plate cost estimation models, for analog cabling installation?


A: Great question. Just a few years ago, I would make fun of the audio manufacturers for putting an RJ45 jack on the back of their devices when no one ever used them. When I asked why they did that, they said they had to in order to keep up with others and the consultants requested them. I would be curious to know if we have truly turned the corner on accepting digital audio as the new standard and networked audio installations as the preferred methodology? In other words, would the majority of our members lead with a networked audio solution, or would they lead with analog devices, wiring and connections? At what point does a systems designer flip from analog to digital? Is it the size, distances, switching/combining, flexibility, future-proofing, or what that triggers the need for digital? Or, is it a cost savings? Or, is it a comfort level in one technology vs. the other? It does provoke a bunch of follow-up questions.


The answer to your question is YES, we do have these labor standards available. In 2008, we updated the document to include data connections and networked audio installations. It’s available on our website in the research section. -- CW


March 4, 2011: Fuel Surcharge


Q: Do you think the other members will start charging a fuel surcharge again if gas keeps going up?


A: Yes. I bet some never dropped this from the last time we saw $3 gas. I’ve always been told not to sweat this as so many other service providers and transportation companies do the same thing. I would think that good business practices would drive you to use a predetermined price (say $3.25/gallon) as a benchmark. Then, if it’s greater than that amount, you add your surcharge; if goes back under, you take it off. The customers who actually see the bills might appreciate your honesty and integrity by doing that. -- CW


February 25, 2011: School Revenue


Q: I’m freaking out about our school business. It was a major revenue source and now we see nothing in the pipeline. Are others seeing the same?


A: Unfortunately, in K-12, yes. The problem is this: in the U.S., property taxes fund both new construction and improvement and renovations for schools. With so many mortgages in trouble and foreclosures, public school districts are scared to death to issue bonds or even ask for a vote on new spending. As I mentioned in a recent blog, enrollment is steady or rising in most cities and spending for new construction is roughly half of what is was in 2006. Now, what I would suggest is going back to existing customers and helping them with existing system upgrades or, better yet, helping them find money in security and life safety grants. For now, we need to be thankful and grateful for any work we get in schools. There is money out there; it’s just nothing like it was a few years ago. -- CW


February 18, 2011: Cable Installation


Q: We aren’t able to compete on structured cable installations anymore; what should we do?


A: That’s really pretty common for the last couple of years. The companies that have been so successful just doing category cable installs and terminations haven’t been as busy as they once were. Their rates have actually lowered in the last few years. Most of our members do the wiring as only a small part of their overall business and not as a stand-alone profit center. You might be better off hiring the company to which you keep losing this type of work as a sub-contractor on your future projects. In some locations, when a job involves large amounts of repetitious work -- devices, terminations, cabling, mounting fixtures, outlets, etc. -- sometimes, it just makes more sense to have an electrician or cabling installer do that.


Some of these very small companies price their work and have very high productivity that most systems integrators (with a very different overhead and business model) just can’t compete with on pricing alone. The other observation I have is that many of these cable installers have been downsized from larger companies and are out freelancing this work. Remember, they are “working for wages” and you can’t compete with that (on price alone). -- CW


February 11, 2011: Raising Labor Rates


Q: Have other members felt the need to raise their labor rates?


A: Not that I’m specifically aware of. I do know that their labor costs are climbing primarily due to increased benefit costs. Unfortunately, as a not-for-profit trade association, we can’t report on what the average labor rates are as it may imply that we are establishing a standard rate. What we can tell you, though, is your true cost of producing that unit of labor sold. And, we can assist in determining the productivity, efficiencies and utilization of each employee and how that compares to the rest of the membership.


Several companies have begun to establish service as a stand-alone profit center for the company. They do an excellent job tracking their true costs and constantly adjusting rates in accordance to the actual cost to produce each billable labor unit. Many of our members peg service and installation labor rates directly to fixed and variable labor costs and use a standard multiplier (I wish I could tell you) for their markup. They review this often and, in some cases, use policies like minimum billing time, drive time, fuel surcharges, etc. to help keep them at their established mark.


The bottom line is that the hourly rate for billable time isn’t the biggest problem. It’s figuring out how to reduce the 20-30% of unbillable time that erodes your profitability … that’s more important than calling a meeting to see if your clients can tolerate a $2 labor rate increase. First, try to fix that in accordance to our benchmark productivity standards, then set the rate. -- CW


February 4, 2011: Manufacturer Dealer Agreements


Q: Can a manufacturer terminate my dealer agreement as long as I continue to meet quota?


A: Yes, and this is what I’ve found usually drives this: Manufacturers, just like systems contractors, make business decisions every day. As an example, we are seeing a major trend in severing direct sales agreements and moving to a distribution model. That requires the manufacturer to terminate these agreements or, in many cases, simply not renew them. Most of the time, if you are making quota, the logic behind your termination is more of an overall strategic business decision and often has little to do with your company.


Many of our members sign these very important dealer/reseller agreements and then put them in a file cabinet somewhere, forgetting exactly the terms and conditions to which they have agreed. One of the more common performance measures is credit and payables. We get fixed on quotas and forget the requirements for payments within 30 days. There may be 10 or 12 similar conditions you have forgotten, but the manufacturers haven’t, as they are so important to their reputation and profitability.


There are situations, however, when the manufacturer simply wants to limit distribution to fewer and larger systems integration firms. If you find yourself feeling squeezed out in that situation, you should -- at a minimum -- explore your options to get the manufacturer to fulfill any orders on outstanding proposals. Then, try to negotiate with them on purchasing any service items, software, upgrades, etc. Most of the time, the manufacturer will still be there to support you after the agreement expires. -- CW


January 28, 2011: IRS 1099 Forms


Q: Are there any changes to be aware of regarding 1099s for 2011?


A: A provision in the healthcare reform law states that, beginning in 2012, anyone paying a service provider or corporation more than $600 will have to report it on the 1099 form. While efforts were made late last year to repeal this provision (Section 9006), it currently still stands. This new reporting requirement would cost small businesses both time and money associated with the additional paperwork. For example, currently you would provide a 1099 to a service provider who was not incorporated -- such as a freelance designer -- but you would not issue a 1099 to a local printing company for printing your catalog. However, unless this provision is repealed, companies will be required to issue a 1099 to all vendors beginning next year. This is why small business is having a heart attack about it. Can you imagine the volume of paperwork?


On January 25, President Obama acknowledged that this provision needs to be fixed in his State of the Union address, and several bills have already been introduced in both the House and Senate with bipartisan support. Some sort of repeal is expected; but, for the time being, businesses will be required to report payments made for goods and certain services to the IRS using tax form 1099 for anything more than $600 beginning in 2012. Be sure to discuss this change with your tax professional to ensure you are in complete compliance with the law.


Clear as mud? If so, here is a good article on the 1099 provision.


-- CW


January 21, 2011: Bonds vs. Insurance


Q: I’m confused over the all the different types of bonds and insurance. Can you explain bonds in layman’s terms?

A: Everyone gets confused over this, but I will try to explain in non-legal speak. There are three basic types of surety bonds. Insurance and bonds are two very different things, so I will tackle the bonds this week and insurance later.


1.) Bid Bonds

A bid bond guarantees the building owner that the principal of the bidding company will honor its bid and will sign all contract documents if awarded the contract. The owner is the holder of the bond and therefore could sue the principal and the surety company used to enforce the bond. Basically, if the principal refuses to honor its bid, the principal and surety are liable on the bond for any additional costs the owner incurs in re-bidding a portion of the project. This usually is the difference in dollar amount between the low bid and the second lowest bid. The amount pledged (penal sum) of a bid bond is typically 10 percent of the bid amount.


2.) Performance Bonds

A performance bond guarantees the owner that the company will complete the contract according to its terms, including price and timelines. Basically, if the company defaults, or is terminated for default by the owner, the owner may call upon the surety to complete the contract. Many performance bonds give the surety company three choices: completing the contract itself through a completion contractor (taking up the contract); selecting a new contractor to contract directly with the owner; or allowing the owner to complete the work with the surety paying the costs. The penal sum of the performance bond usually is the amount of the contract and may be increased when change orders are added. The surety bond is usually 1-2.5% of the contract value based on financial strength and history of the company.


3.) Payment Bonds

A payment bond guarantees the building owner that the subcontractors and suppliers will be paid what is due from the prime contractor. The owner is the bond holder but, in this case, the “beneficiaries” of the bond are the subcontractors and suppliers. Both the owner and the subs and vendors may sue on the bond. An owner benefits indirectly from a payment bond in that the subcontractors and suppliers are assured of payment and will continue performance. On a private project, the owner may also benefit by providing subcontractors and suppliers a substitute to a mechanics lien. If the contractor fails to pay the subs or suppliers, the owner may collect from the contractor to pay them directly. Payments under the bond will reduce as the progress payments are made. Generally, the penal sum in a payment bond is less than the total amount of the prime contract as long as partial payments have been made during the project.


-- CW


January 14, 2011: COBRA & FMLA Leave


Q: Can I require an employee on FMLA leave to utilize COBRA in order to continue health benefits while on leave?


A: No, an employer cannot require an employee who is on FMLA leave to use COBRA in order to continue their health coverage under the employer's group health insurance plan. As long as that employee is on a qualified FMLA leave (and has not indicated that he or she will not be returning to work), the employer must continue paying the employer’s portion of the coverage premium as if the employee were actively working.


When an employee elects to take FMLA leave, this is not considered a qualifying event for COBRA purposes. FMLA actually requires you to continue providing coverage under a group health insurance plan under the same conditions as when the employee was working. For example, if you are paying 80% of an active employee’s health insurance premium, you must continue to pay 80% of the health insurance premium of an employee while he or she is on FMLA leave. If the 12 weeks of FMLA leave expires and the employee is unable to return to work, it is considered a qualifying event and your requirement to continue providing coverage under the same terms and conditions ceases. In other words, if an employee fails to return from FMLA leave when it expires, the employer can provide the COBRA notice and require the employee to utilize COBRA in order to continue health coverage. -- CW


January 7, 2011: Tablet PCs/E-Signature Capture Pads


Q: Is anyone using tablet PCs or e-signature capture pads for their service techs and contracts?


A: Although several members have purchased tablet PCs and/or blackberry devices for their service techs, I don't know of any who are using the e-signature feature. There has been a lot of discussion and interest with contractors and integrators looking into this type of thing for years now, but I haven’t run across anyone actually doing the signature scanning like UPS or FedEx does. There are several integrated service department software modules and packages that support interactivity with accounting software, but most of our members have found them to be too costly. The cost is not in the initial purchase and set-up, but in the training and getting staff to utilize and complete the tasks necessary to make it cost-effective. Not only would you need electronic signature pads, but you also need remote printing capability so you can leave a “copy” with the client. It seems like an all-or-nothing type of implementation.


However, tablet PCs and/or blackberry devices simplify the service operation greatly with a much more familiar interface for technicians and clients. They send emails upon arrival and departure, enter their hours, mileage, drive time, etc. I can see further integration of these tools becoming more affordable and easier to use in the near future. It’s easy to see benefits that could speed up receivables, such as uploading electronic service tickets directly into the accounting software as they are completed or from home at night. Time stamping will synchronize invoiced billable times to actual billable time for the client to reduce conflicts. It's also beneficial to require a name and signature for verification and authority for having the work done. I’m guessing that, if these systems can be proven to be cost-effective for our members, we will see more of this technology deployed fairly soon. -- CW


December 17, 2010: EC Pulling Bids


Q: What happens on non-public works projects when the EC, who was the apparent low bidder using our number, pulls back their bid? Are we at any risk?


A: You are at risk of losing that job unless you went in with another EC or direct to a GC. However, I don’t see that you are at any risk of the owner, GC or CM coming back at you as long as you weren’t a prime bidder or had any part in starting the default (pulling back your bid as a sub). As long as you didn’t provide a bid bond or cause this chain reaction, you shouldn’t be held responsible for the EC not honoring its price. This is becoming pretty common, actually, in situations where ECs and GCs are bidding work only to find out later that this non-bonded project will push them over the comfort level of their surety company or bank on their LOC. Bonded jobs, in some cases, are safer because a good agent will help walk them through what each project does for their capacity. Sometimes, getting jobs back to back are the cause for these unexpected withdrawals. But, most the time, this is caused by big estimating mistakes being found after the prices are exposed. We aren’t the only ones with no margin for error anymore. -- CW


December 10, 2010: Tax Cuts


Q: What does the current debate in Washington on extending the Bush-era tax cuts mean for my year-end payroll withholding tax calculations?


A. Reports are coming out hourly about this, so it’s important to pay attention to the news. The biggest effect seems to be that if Congress does not pass a bill by the end of this week, there could be a delay in the timing of distributing W-2s for tax purposes for next spring. President Obama worked out a plan with Congressional Republicans to extend the tax cuts for all tax brackets for two years. The compromise means the Republicans are supporting a 13-month extension of unemployment insurance. If this compromise is not passed before the end of the year, the average taxpayer’s paycheck would shrink $1,400 - $3,000/year. As you know, this is a significant amount that could otherwise be used for healthcare deductibles, purchasing new products or software for your business, or even just paying your telephone bills. -- CW


December 3, 2010: Sales Territories


Q: Do you have any suggestions for dividing existing sales territories when adding a new sales position?


A: This is a common dilemma and one that generally causes conflict. Too often, there isn’t criteria previously established to determine how a sales territory is divvied up -- whether by geography, vertical market, technology or even named accounts. And, I have yet to meet a good sales person who believes he can’t handle his existing customer base. This dynamic leads to a tough decision for managers; sitting idle on new opportunities or responding too slowly to customers aren’t good options, so the manager is faced with a big decision.


One of NSCA’s most successful member companies does it this way. They have every vertical market defined by the number of venue-specific units per account rep. That includes hospital beds, classrooms, population, etc. They make it clear to the staff that, upon market conditions and management discretion, they will adjust those numbers annually. Their sales people know this and understand it as a condition of their employment. That firm adds and reduces staff according to strategic account penetration and proven benchmarks. Conversely, the companies that seem less structured in regards to their sales force seem to face the most problems. I’ve seen a very casual approach that generally seems discriminatory, by the seats of your pants, or that the manager was reacting to a sudden spike in sales. This approach will typically drive away good sales people. Limiting a good sales person’s ability to earn more while balancing the success of the company is no easy task and should be well thought through.


First and foremost, I suggest open communication with existing staff. I would set criteria for existing markets and new markets, existing accounts and new accounts, etc. Try to be as fair and equitable as possible. Look at it both from their perspective and the company’s perspective. This is one of the hardest decisions you will face as a manger of good sales people. -- CW


November 19, 2010: Holiday Schedules


Q: Do most of the other member companies stay open over the holidays?


A: Now that’s a different type of question … I know that most certainly keep one or two people in the office and any service or field staff needed to handle emergencies. However, the question I get asked more frequently is, "Do you pay them for time off if you choose to close?" For most exempt employees I would imagine our members do pay them as normal. When non-exempt employees are "given" time off, what’s the catch? Is this earned and paid time off? Is it an outright gift from the owner? Is time expected to be made up in return? You need to think about it. I contacted some of my friends in the business for input and -- with only one exception -- they are closing, giving everyone the last week of December off, everyone gets paid and no one but standby service techs are expected to work. It’s a holiday bonus … the gift of time. The one company that was the exception had a large project to finish and is staying open so the crew who is working doesn’t feel cheated. It’s just the timing of that project, which couldn’t be avoided. -- CW


November 12, 2010: Audio Intelligibility Testing


Q: I have a project requiring audio intelligibility testing for a fire/evac system. What do I need for that?


A: You need the proper test equipment and the training to perform the tests. There is a complete testing procedure for this. If you’ve never done one, I suggest calling NSCA and getting the contact name of a third-party verification firm. In some cases, the Authority Having Jurisdiction (AHJ) will require third-party verification anyway. Independent consulting firms and specialty companies are starting to emerge specifically for these performance verifications. You can also go to www.mnec.org to do more research on the testing protocol. This will become a very big deal in the next few years as the 2010 NEC (NFPA 72) code gets adopted across the country. My advice is to be aware of the changes and how they will affect your business. This new code is a “game-changer” for our members. -- CW


November 5, 2010: #1 Profit Killer


Q: What do other contractors see as the number one profit killer on a job?


A: I hear mostly about what we call “scope creep." This is the combination of many small tasks that are not necessarily intended to be completed by your company, yet somehow they turn into your responsibility and result in lost time and profits. Sometimes, poorly engineered jobs create this; but, most often, it stems from inexperienced or under-trained project managers. I’ve also found that scope creep occurs when the owner is constantly making requests that are not in the original proposal and the field technicians are too nice to say no. It’s tough because many good technicians are poor communicators. It requires a certain skill and tactful approach to ask a customer to pay more for moves, adds and changes. This is why good project management can make you more profitable. -- CW


October 22, 2010: Non-Compete Agreements for Programming and Design


Q: Can a business owner require employees who do programming and design work to sign a different non-compete than other employees?


A: Yes. It’s fairly common in systems integration companies to have an employee agreement that defines the work-for-hire provisions of their job. Basically, this means that while employees work for your company, they are required to turn over to the company any patents, software improvements, intellectual property, trade secrets or other work results they were involved in. This matter has been tested in many court cases and, in each case I know of, the employer has prevailed. Make sure you have these employment contracts in place in your business.


Need an agreement? NSCA corporate members can log in to our Essentials of Systems Integration™ Online to access customizable non-compete agreements. -- CW


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October 8, 2010: On-Call Overtime


Q: If we require our employees to be on call, do they need to be paid overtime if this extends their 40-hour work week?


A: No; that is, unless they are actually called out from their home. Being at home on call doesn’t require you to pay OT, but it would when they are called out, of course. If, for some reason, they are required to be at work (or a work location) on call, then yes, that would be OT for the time they spend waiting around. "Engaged to wait" versus "on call" are considered different situations. Most of our members will pay a flat fee to those who are on call during the week or over the weekend for making the sacrifice to be available for work. What has caused problems is when that fee relates to extra hours worked. If they mark down extra hours, that it is OT above their normal, 40-hour work week. An approach some use is to shorten the work week by the corresponding number of hours for those on call, which results in the compensation coming out the same. Employees would generally prefer OT for this. Another approach is a bonus for the number of times they were on call.


Below is a great website that covers pretty much all of the wage and hour requirements. Remember, some states have slightly different laws … and then there is California, of course. -- CW


More information: http://www.dol.gov/whd/flsa/index.htm


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September 24, 2010: Employee Health Care


Q: What percentage of NSCA members offer health care insurance to their employees and what is the average portion they cover?


A: The 2010 research shows that 95% of our members now offer their employees health insurance, which is up from 82% in 2007. The latest statistic we have on the employee contribution shows that the employer covers about 80% of the costs for the employee, leaving 20% for the employee portion. We didn't track family coverage; that is just the employee. -- CW


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September 17, 2010: Stocking Distributors


Q: Do you see more manufacturers moving products through stocking distributors? How do they know who has the proper training, certifications and authorizations from the manufacturer?


A: Yes, I describe that under the heading of “channel disruption.” I can't speak for all distribution companies, but the ones we partner with assure me that they have systems and processes in place to verify the authority that an integrator has to be a reseller of their products.


The goal is to maintain brand loyalty, but rely on a logistics company for inventory, shipping and payments. The ones I know can track all of the appropriate credentials and won't give pricing to anyone not listed as such.


I think what has driven a lot of this is product availability and payment terms. Due to the nature of contracting, it's not uncommon for the integrators to be paid 90 days from delivery and installation. The manufacturers simply don't or can't tolerate a contractor who waits until they are paid before paying them. Then, the whole credit hold thing begins and everyone is unhappy. The distribution model is one way to get the manufacturers out of being the bank.


The other driver is the cost of warehousing materials. Some manufacturers want to reduce their inventory at the factory and move that elsewhere. Contractors don't want any inventory if they had their way. That dynamic has spawned the movement toward a distribution model that's actually quite common in most technology markets. I think our industry was simply a late adopter of this fairly common model. -- CW


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September 10, 2010: Prevailing Wage


Q: Have you heard from other members of more prevailing wage requirements on jobs?



A: Absolutely. I don't remember a time when we had as many questions about this. I believe this is happening because the sagging construction economy has reduced the overall number of private projects which, in turn, is moving our members to work on more public works jobs like government buildings, schools, etc. Combine that with the political climate in some major markets where organized labor is strong and that results in more project labor agreements, so it stands to reason that this has been surfacing more. As a solution, please contact us about the rates prior to bidding on the project. Our members have lost thousands of dollars simply because they didn't understand what the rates were, what certified payroll procedures are, how to get a rate established, how to contest a rate dispute, etc. Again, call before there is a crisis situation.


For more information, check out the Davis-Bacon Wage Determination Reference Material. -- CW


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September 3, 2010: GPS and Geo Tracking


Q: Is it legal to do GPS and geo tracking on my employees cell phones?



A: While this practice is technically legal, there are many privacy issues related to GPS tracking. Most important is to make sure your employees understand the tracking application and its use. There are many benefits to using tracking programs, including the ability to expedite service calls, improve efficiencies, have a billing back up, track timesheets, and reimburse mileage. If you choose to use these applications, protect yourself and inform and educate your staff about the purpose and benefits of tracking employees who carry company-issued cell phones or drive company vehicles with tracking devices. Further protections are based on previous cases dealing with labor organizations and you should be open to negotiating the purposes and uses of tracking applications.


For more information, check out these links:




• Big boss is watching - CNET


• Using the GPS for Tracking People


• Judge: No Difference Between Cell Phone Tracking and GPS Vehicle Tracking


• Technology & Liberty


• Workplace Privacy and Employee Monitoring


• Can my location be tracked using my cell phone?



-- CW


Click here to email Chuck your response.


August 27, 2010: Advertising for Integrators


Q: Has anyone figured out the best return on investment in doing local/regional advertising for systems integrators?


A: This question hasn't been asked for years as most contractors and integrators have given up trying to figure it out. They know yellow pages don't seem to provide a measurable return as there are too many categories for most companies. Local business journals have worked wonders for some of our members who can get a technology-based story written about them. NSCA's own Members on the Map™ online member directory program has been effective in getting the architects/engineers to find you. I am also very intrigued by advertising via social media. I know of several very successful integrators focusing on social media now for their advertising investments. Driving traffic to their website is the goal. Some are using marketing interns and other entry-level employees to go as deep as they can into customer organizations and establish groups to stay in constant contact. Pushing out new solutions and applications via these new tools may be the next big thing in advertising. But, I caution you to keep your website updated if this is your strategy. -- CW


Click here to email Chuck your response.


August 20, 2010: Depreciation Schedule


Q: We are installing a pretty complex digital signage system and our customer is asking us how other corporate clients treat that type of system for tax and depreciation purposes. Is it a sign with a long deprecation schedule, or more like a computer system with a shorter schedule?


A: Many customer purchases are tied to capital improvements or operating budgets. Your method of selling and who you sell to may be different as could the transaction methods. The traditional sign business almost always sells the product as a capital improvement and, in most states, the owner would depreciate that over a 15-20 year lifecycle, whereas a computer and/or the network can be accelerated to depreciate in as low as three years as the lifecycle is shortened by product obsolescence. The test that the auditors would look for is the useful and expected lifecycle of the devices and displays and the argument would need to be made for which category that most closely fits. Charging and collecting sales or usage taxes could also vary depending on the nature of this transaction and the customer type. The customer may request a breakout of materials, labor and programming to allow for an exemption on the non-materials portion. It can be a complicated transaction, especially if multiple entities within a facility benefit from the information distributed via the signage system. -- CW


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August 13, 2010: Exempt vs. Non-Exempt Status


Q: Can you clarify the standard job roles in system integration, specifically around sales engineers/system designers, post-sales engineers/AutoCAD drafting, and field engineers/quality control, for either an exempt or non-exempt status? -- Tim from New York


A: These position descriptions are available in NSCA's Essentials of Systems Integration™ Online database. However, there is no standard answer on exempt or non-exempt until you evaluate their duties, management responsibilities and compensation plans. These resources will help: exempt vs. non-exempt status and Essentials. -- CW

Q: We are having a heck of a time managing our “mobile” technical staff.  The younger techs seem to resent our efforts to supervise them and the admin manager thinks they are out screwing off when they don’t come in the office at the start and end of the day.  Any suggestions?

A:You got to love the new Gen Y workforce.  We just learned about this at the BLC where mobile connectivity is creating more work moments, rather than defined schedules and specific hours.  Mobile tools have made the line between personal and professional almost non-existent.  Younger workers favor bursts of hard work when motivated, the older folks generally favor a defined timeframe for work.  My guess is that the admin/manager is old school on this thinking.

Let me stick up for the manager first.  They have every reason to be concerned, not because of the work getting done, but because of labor laws.  We have several situations in our membership where working flex time and weekends in lieu of normal working hours has come back to bite us.  Non-exempt employees (no matter how tech savvy, hip or connected they are) still need to be held accountable for their time when they are actually working.  We’ve had companies report their employees not wanting to be paid OT in lieu of time off.  That sounds great until you get the letter from the wage an hour people. 

Let me defend the mobile Gen Y employee.  They are most likely your companies future and you had better figure out how to deal with the conflict.  Mobile as they are they can probably download an app that will document their billable hours and send that directly to the manager at the office.  The old saying that you can’t trust the employees if you can’t see them, that has to be overcome sooner or later.

I suggest a written policy on remote employees, time reporting, use of flex time, etc.  I suggest a meeting between the older managers and younger techs.  Good luck with that.  CW