For DBEs Risk Management Caterpillar 2011 Build Your Future Conference February 15, 2011 Presented...

for DBEs

Risk ManagementCaterpillar 2011 Build Your Future Conference

February 15, 2011 

Presented by:

Boyd O. Roberts III

Hasselberg, Williams, Grebe, Snodgrass & Birdsall

124 SW Adams Street

Suite 360

Peoria, IL 61602

Phone: (309) 637-1400

Fax: (309) 637-1500

Email: broberts@hwgsb.com

for DBEsYOUR TEAM OF GOOD PEOPLE Commercial Banker Accountant Attorney

for DBEsCommercial Banker

Commercial Loans– Cash advance to repaid within a defined time

frame– Collateral is put up to secure the loan

• Facilities• Equipment• Other non-business assets (car, home, etc.)• Personal guaranty

– Interest rate – based on certain percentage above or below the prime rate

for DBEs

– Financial Statements • Balance sheet

– Snapshot of value of business (cost less depreciation)

– Includes cash, accounts receivable, equipment

– Offset by debts and liabilities • Profit and Loss statement (P&L)

– Financial story of business for a specific time frame

– Shows revenue, expenses and net profit or loss

• Cash Flow statement – shows how your business spends cash

for DBEs

Bank is trying to make money on the deal also Types of Loans

– Revolving line of credit– Traditional loan

Watch for covenants or restriction in loan terms

for DBEs Accountant

Bookkeeper Tax payments Employee withholdings Unemployment Insurance premiums Debt expenditures Payroll

– Consider a payroll service Want someone to regularly examine your business

and provide ideas/suggestions

for DBEs Attorney

Incorporation v. limited liability company v. sole proprietorship – Incorporation benefits

• Perpetual existence• Shareholders not liable for debts of corporation• Ownership easily transferred (shares)• Tax advantages

for DBEs

– Corporate formalities must be observed • By-laws• Annual meetings w/ minutes• Annual reports with Secretary of State• Articles of Incorporation• Capitalization• Board of Directors and officers

for DBEs

LLC (Limited Liability Corporations) – Taxed like partnership (each member taxed)– Same liability insulation enjoyed by corporations– Perpetual existence– Ownership easily transferred– Easier to manage then corporation

for DBEs

Sole proprietorship – No personal liability protection– No tax advantages

for DBEs

Partnership – Partnership agreement specifies management– Each general partner is liable for actions of another– Each partner is taxed individually

for DBEs

Employment issues Filing of mechanics liens or other claims Respond to claims filed against business All Corporations and LLCs must be represented by an

attorney in court under Illinois law.

for DBEsBidding a Job

Remember that you are bound by your bid numbers. Key is to adequately determine your break even point

and then add in profit. Adequately pricing the job is key

for DBEs

Labor Cost– Wage rate– Man hours to complete job

 Equipment Cost– Fuel– Insurance– Depreciation– Debt– Upkeep (maintenance, repair, storage)– Increased costs for materials

• Consider an escalation rider• Buy in volume while price is lower

for DBEs

Overhead– Utilities– Debt– Taxes– Insurance– Permits– Bonding

for DBEs

Meet with People Associated with Project– Owner– General Contractor– Architect

 Competitor’s Pricing– Don’t price yourself out of the job– Check other contractor’s web sites, advertising,

prior jobs.

for DBEs Insurance

Have your own personal, professional insurance agent who specializes in working with contractor’s.

Property Insurance– Similar to home insurance

– Protects your facilities from fire, theft, storms, etc.

for DBEs

Liability Insurance– Protects from lawsuits by third parties

• Personal injury due to your negligence• Property damage due to your negligence

 Consider a Business Owner’s Policy (BOP)– Includes all essential coverages in one policy– Also consider an umbrella policy for catastrophic

accidents

for DBEs

Auto Insurance– Vehicles used for personal and business use

should have a policy written in the name of the entity that holds title to the vehicle

– Policy should cover all vehicles used for company business, including employees vehicles.

– Equipment• Replacement cost coverage• Current fair market value coverage

for DBEs

Worker’s Compensation (Work Comp) – In Illinois, you must carry work comp insurance– State can order that you cease all work– Class 4 felony

for DBEs

Reducing Insurance Premiums– Properly secure equipment at job sites

– DON’T LET EMPLOYEES USE COMPANY VEHICLES FOR THEIR OWN PERSONAL USE

– Drug testing programs

– Experience in field

for DBEs Bonding

Three party instrument– Surety– Contractor

– Project owner

for DBEs

Cost of Bond– Contract price– Company’s financial strength– Risk on project

for DBEs

Types of Bonds– Bid Bond

• Guarantees that you will produce a payment and performance bond if bid is accepted

– Payment Bond• Insures that you will pay all your vendors and

suppliers– Performance Bond

• Guarantees that you will perform work on time and on budget

for DBEs

ALWAYS GET CONTRACT IN WRITING

Contract Clauses

(Read Everything!!!)

for DBEs

Residential or commercial project Scope of work

– Specifically described– Attached spec sheet(s) if necessary– Design build contract?

 Payment– Periodic installments– End of job

for DBEs

Insurance requirements– What kinds are required?– Additional Insurance– Minimum Policy Limits– Cancellation Clauses– Waiver of Subrogation rights

for DBEs

Risk Transference– Hold Harmless Agreements

• Broad Indemnity clauses• Intermediate Indemnity clauses• Limited Indemnity clause

Continuation of work– Job must be completed even if there is dispute

for DBEs

Change Orders – More problems in this area than any other

– In writing

– Before additional or changed work commences

– End of job

for DBEs

Mechanic’s Liens (Secret lien)– Contractors liens v. Subcontractors liens– Recording of lien with Recorder of deeds– Notice to owner– Statue of limitations

• within 4 months after completion of work• file suit within 2 years after completion date

for DBEs

Notice provision – Where to send notice of default– Right to cure default

for DBEs

Venue/choice of law– Watch for foreign state venue provision

– Mandatory Arbitration

for DBEs

Attorney’s Fees– Prevailing party language is typical– What’s good for the goose should be good for the

gander– Watch for distinction in commercial settings though

for DBEs

Signatures– Make sure you have an original signed copy by

both parties– Signed by officer of business authorized to execute

contracts