City Manager Wayne Cauthen discusses the extensive construction work being engaged throughout Kansas City, MO. and the importance of the mechanisms that fund them. David Rezac of 360 Architecture and Greg Graves follow with interest.
Ernie Straub was pleased to hear this. “Every contractor is different,” he noted. “If you run a good shop, risk people should look at you differently.”
Simpson advised the owners and contractors that in partnering with insurance underwriters, they would do well to understand each other’s methods. Unless underwriters were on board long-term, today’s insurance policy might not provide tomorrow’s protection.
“Risk management has changed,” affirmed Clint Blew. He noted that new factors like environmental site assessment, and even terrorism insurance have impacted the process.
One possible way to diminish risk, and a growing problem area, as McGreevy noted, was that “everyone wants to get added on to somebody else’s policy.” As a consequence, costs were skyrocketing, not so much because of soaring claims but because of the extra sets of lawyers involved.
Dunn added some useful anecdotal verification. One of J.E.Dunn’s South Carolina subsidiaries, before it became part of the Dunn family, settled an issue in binding arbitration for which 200 interested parties showed up. Dunn was less than thrilled with the “cottage industry of attorneys,” especially the “class-action artists,” who look for “any imperfection” in a building and then go to work.
Dunn noted that the State of Missouri was addressing litigation requirements, and he hoped for some relief by the end of the year. Straub added that Kansas also has enacted some legislation that allows the developer to buy back a questionable property. As McGreevy cautioned, however, most new legislation is aimed at residential homeowner issues and probably won’t affect commercial or habitation claims.
Surety
Dunn asked colleagues to share what they knew about the shake-out in the surety business. Pribyl observed that the business is being consolidated dramatically, that the top players now control about 60 percent of the business, and that some of that business has moved offshore, particularly to Bermuda. Still, as he noted, “Any type capacity at this stage is welcome.” In the recent past, he lamented, “the industry as a whole hasn’t made money.”
Dunn also questioned whether contractors were getting tapped out on surety lines. “The mega contracts have had to shrink,” Pribyl ack-nowledged. “The surety world is wrestling with how to come up with that much capacity.” He suspects that this challenge will create opportunities for competing products or alternative delivery methods.
When Graves asked Pribyl if they were seeing more uninsured design work or less, Pribyl responded diplomatically, “Yes, absolutely.” He added that at least one high-level surety exec compared his reinsurance process to near-beer. “Clients think they have insurance on projects,” Graves added, “but they really just have that company behind it.”
Pursuing this thought, Graves asked the folks from Lockton their opinion on why a construction company would come to Burns & McDonnell seeking a partner for a joint venture: balance sheet or quality of work?
“Balance sheet,” said Simpson, “far and away.”
Dunn and Graves both worried out loud whether architects and other contractors had sufficient coverage on their projects. “It’s ridiculous to have a $2 million requirement on a $100 million project,” said Dunn. “The exposure on clients right now is unbelievable.”
City as “Owner”
Dunn noted that there has been a “change in dynamics in city government,” a highly positive change. “There has been a dramatic change in the way we do business,” confirm-ed McClure. “Wayne [Cauthen] has brought in private industry leadership.”
As Cauthen noted, with a $300-400 million backlog, it was critical to speed delivery of investment to the market. The city is also looking hard at the way tax-increment financing (TIF) is done. “From the city’s perspective we have to decide what’s enough,” said Cauthen. “There are other ways to provide economic incentives.”
“Everyone in the room appreciates what you’re doing,” Straub said to Cauthen. “I second that,” said Ruark. He commented that the consolidation of plan reviews and inspections has brought a “sigh of relief to our office.”
Cauthen advised his colleagues not to expect complete change over-night. “There has been a lot of pushback,” he noted. Still, change is definitely on the way.
Privitera-Biondo offered her help and suggested that everyone in the room would help as well. The one area where Cauthen would most appreciate help is support with the renewal of the 1 percent sales tax set to expire in December 2008.
“It’s all a question of timing,” said Cauthen, as indeed are most good things in life.