Single Insurance Policies that Insure All Parties on a Specific Construction Project Offer Benefits and Risks

With the use of wrap-up insurance policies on the rise for commercial construction projects, many contractors and subcontractors have questions about how these policies work and what unique concerns and questions they present.

Generally, wrap-up insurance refers to single insurance policies written to insure all parties involved in a specific construction project—providing coverage for the job-site risks of the owner, construction manager, general contractor, contractors, subcontractors and design firms—instead of the individual parties each purchasing and carrying their own insurance policies. Wrap-up insurance policies are most commonly used on very large commercial or public projects. Many project owners and general contractors have found that using these policies is an effective risk-management technique for handling loss exposures related to single and multiple-site construction activities.

With wrap-up insurance, the cost and extent of coverage are generally within the owner’s control.

With wrap-up insurance, the cost and extent of coverage are generally within the owner’s control.

Benefits

There are two primary types of wrap-up insurance policies: Owner Controlled Insurance Policies (OCIPs), in which the project owner is the primary sponsor, and Contractor Controlled Insurance Policies (CCIPs), which are controlled by the general contractor. Additionally, owners and general contractors can cover multiple projects under a single program in Rolling Controlled Insurance Policies (RCIPs). Typically, wrap-up insurance policies include general liability, workers’ compensation/employer liability, excess liability and builder’s risk as standard coverages, but many owners also add coverage for project environmental liability and project design team errors and omissions.

The benefits of using wrap-up insurance are numerous, especially for the owners or contractors who sponsor them. A successful wrap-up insurance program can significantly reduce risk for owners or contractors, giving them more control over insurance coverage for all the parties and avoiding unpleasant surprises about the extent of coverage parties have. Under the traditional model, owners or general contractors establish minimum insurance requirements for subcontractors and require them to furnish a certificate of insurance specifying coverage areas and limits. However, because all insurance policy terms differ slightly, there is no guarantee that a given subcontractor’s insurance will be adequate, or still in force, at the time of a loss. Furthermore, contractors and subcontractors normally have to build their insurance costs into their contract costs, and this increases bid amounts.

With wrap-up insurance, the cost and extent of coverage are generally within the owner’s control. When sub-contractors no longer have to increase their bids to factor in insurance costs, owners claim they can utilize the cost savings to fund the costs of the wrap-up insurance. And the potentially more streamlined process for handling claims can make prospective litigation less time-consuming and costly.

Risks

OCIPs and CCIPs, of course, come with their own set of risks and drawbacks for owners, contractors and subcontractors, and the parties who are asked to enroll in these policies do not always look upon them favorably. Some subcontractors and contractors have found that enrolling in wrap-up insurance policies is administratively burdensome and that the resulting decrease in volume of insurance purchases for their companies can increase the costs of other insurance they must purchase. Additionally, subcontractors should make an effort to understand the limits of coverage; it may differ from the coverage in the policies they have been accustomed to using. This should be done at the procurement stage, before a project begins, and not later, after project contracts have been signed.

Those investigating the level and limits of coverage will want to determine how responsibility for any injuries, losses or damage will be addressed and confirm that the responsibility is outlined in the building contract or the written wrap-up policy. One potential source of misunderstanding is builder’s risk coverage. Often, builder’s risk insurance is carried by the builder. With wrap-up policies, owners and general contractors may be particularly concerned with the scope of the builder’s risk coverage. For example, if a wrap-up policy excludes property damage occurring during construction but the builder’s risk policy excludes faulty workmanship, a potential gap in coverage would exist. The wrap-up insurer might take the position that it won’t pay for what is essentially a builder’s risk claim. To prevent such an outcome, owners may find they need to add coverage to the builder’s risk policy to cover faulty work or at least repairs.

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The Roofing Industry Alliance for Progress Secures the Future Excellence of the Roofing Industry

Maya Angelou once said, “To make a difference is not a matter of accident, a matter of casual occurrence of the tides. People choose to make a difference.” Since its inception, The Roofing Industry Alliance for Progress, Rosemont, Ill., has not only made a difference within the roofing community, it has funded a number of critical industry initiatives, core programs and projects, and meaningful research that have contributed to securing the future excellence of the roofing industry.

At 144 members strong, the Alliance is a diverse and dedicated forum of roofing contractors, manufacturers, suppliers and industry professionals who have united to help preserve and enhance the performance of the U.S. roofing industry to support three primary objectives:

  • Supporting high-quality education programs.
  • Ensuring timely and forward-thinking industry responses to major economic and technological issues.
  • Enhancing the long-term viability and attractiveness of the roofing industry to current and future workers.

More than 105 members of the Alliance are professional roofing contractors and, with the help of more than 35 manufacturers and suppliers, the Alliance members have raised more than $11.5 million for a unique industry endowment fund in support of programs and research in four key areas: education and training, technology, sustainability and philanthropy.

During the past year alone, The Roofing Industry Alliance for Progress developed partnerships with three of the leading schools of construction management; embarked on an innovative workforce program to create cultural and leadership training programs to educate Latino workers; and continued work on important roofing industry research projects, including RoofPoint, the Washington, D.C.-based Center for Environmental Innovation in Roofing’s comprehensive roof rating system for the assessment and selection of sustainable roof systems, and air retarder testing.

MEET THE ALLIANCE

The The Roofing Industry Alliance for Progress was established in 1996 by the National Roofing Contractors Association, Rosemont, under the operations of the National Roofing Foundation, a 501(c)3 charitable organization. A 16-member board of trustees manages the Alliance, overseeing existing projects and considering funding for projects addressing critical industry issues. The Alliance holds two member meetings each year, including its annual meeting, which will be held April 16-19 in San Francisco, and another held during NRCA’s Fall Committee Meetings.

Robert McNamara, president of F.J.A. Christiansen Roofing Co. Inc., a Tecta America company, Milwaukee, is the Alliance’s 2014-15 president; Ken Farrish, president of Atlas Roofing Corp., Atlanta, is vice president; and Jim Barr, president of Barr Roofing, Abilene, Texas, is secretary/treasurer.

Since June, the Alliance has welcomed eight new members: AAA Roofing Co. Inc., Indianapolis; Anderson and Shah Roofing Inc., Joliet, Ill.; Adler Roofing & Sheet Metal Inc., Joliet; Blue’s Roofing Co., Milpitas, Calif.; Bone Dry Roofing Co., Bogart, Ga.; EagleView Technologies, Bothell, Wash.; Polyglass U.S.A. Inc., Deerfield Beach, Fla.; and Roofing Solutions LLC, Prairieville, La. View a list of all Alliance members on the Alliance’s website.

The Roofing Industry Alliance for Progress offers different levels of membership to encourage small-, medium- and large-sized firms to join and have a voice in determining the roofing industry’s future. Commitments to the Alliance can be pledged for three- to five-year periods. Public recognition is given in accordance with donors’ wishes and levels of commitment and include national public acknowledgement during NRCA’s annual convention and other special events and programs. Alliance members also are invited to participate in the project task forces established to guide the Alliance’s agenda and are invited to the semiannual meetings of the full Alliance.

“We decided to join the Alliance this year to support the industry at a higher level,” states Chad Collins, president of Bone Dry Roofing Co. “We have never measured the value of membership in dollars, so the financial commitment to support the Alliance was not perceived as an obstacle but rather as an opportunity. The enhanced avenues to further develop relationships and be a part of the advancements in this great industry moving forward are exciting.”

EDUCATIONAL PARTNERSHIPS

In 2014, The Roofing Industry Alliance for Progress formed educational partnerships with the Department of Construction Management at Colorado State University, Fort Collins; McWhorter School of Building Science at Auburn University, Auburn, Ala.; and M.E. Rinker Sr. School of Building Construction at the University of Florida, Gainesville. The partnerships enhance college students’ experiences by exposing them academically and experientially to roofing as a career choice.

Through the partnerships, the universities have agreed to a three-pronged approach that includes incorporating more roofing-specific information and case studies into existing curricula; providing scholarships for construction management students and faculty; and developing industry internship programs with roofing contracting companies, manufacturers and distributors.

Three faculty members received scholarships of $5,000 each and were asked to collaborate as they developed their recommendations; the outcomes will serve as a model that can be used in other construction management schools throughout the U.S. Ultimately, the plan is to have roofing-specific materials incorporated in the construction management departments beginning in the fall of 2015.

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Built-in Gutters Should Be Carefully Inspected, Restored and Maintained

Sheet-metal gutter linings, whether made of copper, lead or both, are relatively involved and require the services of a highly skilled artisan craftsman.

Sheet-metal gutter linings, whether made of copper, lead or both, are relatively involved and require the services of a highly skilled artisan craftsman.

Built-in gutters may be the most complicated system in the building envelope, yet they are also the most elusive when you start searching for information about them. Sometimes called Yankee gutters, box gutters or even Philadelphia gutters, it’s no wonder they remain a mystery to many. Built-in gutter systems are actually built into the cornice structure and drain through internal or external leaders. They are not readily visible from the ground, further lending to the mystery of their design and function. Because they are integrated into the structure, built-in gutter linings that fail will cause extensive damage to the cornice and sometimes also the interior of the structure.

In “Traditional Rainwater Conductor Systems of the 18th and 19th Centuries,” Karen Dodge of the U.S. National Park Service, Washington, D.C., states built-in gutters were first adopted in North America during the 18th century in high-style Georgian and Federal-style buildings, usually institutional or commercial, where refined architectural qualities were desired. Although built-in gutters are highly functional, they also serve an aesthetic purpose. As structures were erected in the classical order with elaborate cornices and entablature, it became necessary to collect and channel rainwater without detracting from the architectural character of the building. Built-in gutters served this function well, hidden from sight and shedding water to the exterior.

Built-in gutters, today, are typically constructed in the same manner as they have been since the 18th century. They are wooden boxes with bottoms sloped toward the outlets where water is drained to leaders, or conductor pipes, that channel the water away from the building. The first gutters in this style were actually troughs or box gutters, carved out of wood and rubbed with linseed oil or painted to protect the wood. Corners and seams were bonded with lead wedges. Needless to say, maintenance was critical to their success or failure. Later, the advent of sheet lead allowed for broader gutters, as linings covered the wooden troughs. By the end of the century, copper became available in the U.S. and a popular choice for gutter linings because of its durability and the functional nature of the material in a sheet-metal application.

INSPECTION AND MAINTENANCE

The most common sign of water penetration is peeling paint and decay in the wood soffit under the gutter. Other signs are dark stains and mildew or deterioration of masonry. Water infiltration may be visible in attic spaces or areas beneath the gutters where plaster and other interior finishes evidence water damage. The sooner a leak or area vulnerable to failure is addressed, the smaller the scope and cost of repairs. Cleaning out leaves and debris from gutters as often as necessary is essential for durability and proper performance.

Careful inspection by a competent roofer is critical to the longevity and success of the system. He or she will look for defects, such as localized damage caused by fallen limbs or other debris, cracks from expansion and contraction at joints or folds, or pinholes from corrosion. Roofing tar and other bituminous compounds should never be used to patch, repair or coat gutter linings. It makes the condition of the gutter indeterminable, corrodes metal linings, will crack and fail quickly, and cannot be removed without destroying the lining. Ice damming is not uncommon in the winter but should not be removed with sharp tools for obvious reasons.

When tin or terne-coated steel gutter linings fail, water intrusion will occur and cause wood rot. Eventually, architectural details will be lost and replacement will be necessary.

When tin or terne-coated steel gutter linings fail, water intrusion will occur and cause wood rot. Eventually, architectural details will be lost and replacement will be necessary.

RESTORATION

Restoration of long-neglected built-in gutter systems that leak and have caused decay in the cornice and roof structure is often complicated and can be costly. But once the work is completed, a regularly maintained, well-detailed system can last 60 to 100 years or more, depending on the life of the metal lining. A preservation architect or consultant should inspect the building, propose treatment options, develop working drawings and specifications, and supervise bidding and construction. Temporary protection and permanent repairs should be performed by a roofer experienced in this specialty on historic buildings.

“We encourage restoration of historic built-in gutter systems,” says Michael Devonshire, a building conservator and principal at Jan Hird Pokorny Associates, New York. “The use of modern building materials as an adjunct to traditional materials boosts longevity.” Devonshire states the typical steps involved with a built-in gutter restoration involve:

  • Removing the gutter lining and 2 feet of the roof covering above the curbing of the gutter.
  • Repairs to rotted or otherwise deteriorated frame work. Where rafter ends or lookouts are rotted, install sisters (new rafter ends adjacent to old ones) or scarf in new wood and sisters.
  • Replacing the old wooden gutter bottom with a sustainable wood material, such as cedar or kilndried- after-treatment (KDAT) plywood. KDAT is treated for resistance to decay, minimal expansion and contraction, and increased longevity.
  • Installing the gutter lining: an elastomeric ice-and-water shield on the bottom (not always required); building felt; a slip-sheet of rosin paper; and copper on top (16 or 20 ounce, depending on the dimensions of the gutter).
  • Installing the roof covering on the roof deck above the gutter. This includes 2 feet of elastomeric ice-and-water shield (or copper flashing) beneath.
  • Repairing or replacing cornice mouldings, brackets and other architectural woodwork.

PHOTOS: WARD HAMILTON

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Hiring Our Heroes Helps Veterans Find Employment in Roofing and Other Industries

When Grant Smith returned from active duty as a U.S. Infantryman in the Marine Corps, he was concerned about finding a job. He had been in the military since the age of 18 and, having been a rifleman, he did not believe he had any marketable skills that would lead him to a job with a future. Smith’s sergeant told him about a trade fair in Columbus, Ohio, in which potential employers would be available to interview veterans for a variety of jobs in the area. At the trade fair, Smith met Chad Muth, president of Muth & Co. Roofing, Westerville, Ohio, and was hired as an installer in the spring of 2013.

Fast-forward two years and Smith is now a field supervisor.

It was a win-win for Smith and Muth, and it was all thanks to the Hiring Our Heroes program.

HELPING VETERANS

Grant Smith (middle), a former U.S. Infantryman in the Marine Corps, was hired as an installer by Muth & Co. Roofing, Westerville, Ohio, through Hiring Our Heroes. Just two years later, he is a field supervisor.

Grant Smith (middle), a former U.S. Infantryman in the Marine Corps, was hired as an installer by Muth & Co. Roofing, Westerville, Ohio, through Hiring Our Heroes. Just two
years later, he is a field supervisor.


Hiring Our Heroes is a national initiative administered by the U.S. Chamber of Commerce Foundation, Washington, D.C. Its mission is to help veterans, active service members and their spouses transition back into the workforce through a series of hiring fairs held throughout the country, as well as through an online process. To date, more than 850 fairs have been held with 35,000 employers participating, including businesses of all sizes, as well as government and nonprofits. The program also offers employment workshops, résumé reviews and career coaching.

The initiative began four years ago as a response to the gap between businesses looking for skilled workers and those returning from the military with no idea where to look for employment. Job seekers and potential employers may attend hiring fairs at no charge.

“That is one thing that makes the program stand out and makes it so successful—small- and medium-sized businesses can come. A lot don’t have recruiters or HR, but they want to hire a vet, a quality worker,” says Kim Morton, communications manager for Hiring Our Heroes.

Though the numbers are not updated daily, Morton says her team has been able to track 25,000 hires made through the hiring fairs, and those are only from employers reporting back to the program.

The draw for employers is multifold. “Most employers are there because they know they’re going to get a quality employee,” Morton notes. “[Veterans] have had years of discipline and dedication. They know how to stay until the job is done and know how to problem solve; that is the No. 1 skill employers are looking for.”

In addition, Morton adds, veterans know how to work in flexible and uncertain conditions and can be resourceful to get the job done. “Once [a company] hires a vet, they want more, so we see employers coming time and time again,” she says.

Although the fairs are open to veterans of any era, Morton says the majority who attend are post-9/11 vets because their unemployment rate consistently has been higher than the national unemployment average. “For veterans under age 25, those numbers are closer to 20 percent. Those are the ones we see come to events the most,” Morton states.

In addition to in-person fairs, employers and veterans can find each other via online tools, such as a jobs portal and an employer best practices site, within the Hiring Our Heroes website. “Our goal is to ensure veterans, transitioning service members and military spouses are able to utilize our resources to connect with employers no matter where they are in the world,” Morton remarks.

PHOTO: MUTH & CO. ROOFING

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Deft Planning and Skillful Moves Play Out on the Reroof of the World’s Largest Water Filtration Plant

Reroofing the 10.3-acre surface of Chicago’s highly sensitive James W. Jardine Water Filtration Plant posed logistical challenges on par with the building’s magnitude. Phasing to ensure the plant continued to supply fresh water to its 5 million customers in the city of Chicago and its suburbs, the need for complete containment areas, roof-load restrictions, unique stainless-steel expansion joints and the Department of Homeland Security’s onsite presence all made for intricate operations. But John Cronin, president of Chicago-based Trinity Roofing Service, says Mother Nature was his toughest challenge.

The James W. Jardine Water Filtration Plant arguably was the largest and most complex roofing project in Chicago during the past decade.

The James W. Jardine Water
Filtration Plant arguably was the largest and most complex roofing project in Chicago during the past
decade.

“Conducting construction on the Lake Michigan waterfront during Chicago’s harshest winter in 30 years [2013-14] was by far the hardest part of this job. Driving rain, wind, black ice and snow—it was unmerciful,” asserts Cronin. “Constant communication had to be our priority, because we could go to the site in the morning and discover that weather made impossible the sequence of work we had planned. Senior Project Manager J.J. Matthews, Job Superintendent Rob Reno and I had to be incredibly flexible to keep the job moving.”

Water Protection

The water-treatment plant’s 50-year-old coal-tar roof and concrete roof deck had been leaking, which created potential health concerns. The plant supplies approximately 1 billion gallons of clean water a day, which meant many concrete filter beds had to remain operational and free of contamination during construction. Filter beds beneath the phased work area were drained. To protect the drained beds, Trinity cut a hole in the roof and erected a specialized watertight “shoe box” work zone, extending 6-feet down. These shoebox areas consisted of a plywood scaffolding platform blanketed by a 60-mil membrane. Inside the box, existing structural steel had to be sand blasted free of lead paint, inspected and replaced in some spots. At any given time, the team had two 56,000-square-foot scaffolding platforms in place.

Winter winds blew snow across the flat roof and down into these protection zones carrying multiple forms of contamination. Rooftop bird droppings were one source. Asbestos from the original 1960s roof was another. The team had to bring in heat torpedoes (portable forced-air or convection heaters) to melt the snow and divert it through custom-made gutters into cisterns to be hauled offsite so workers could access the steel.

Protecting materials from the elements was also paramount. More than 1,000 rolls of fleece-backed membrane had to remain completely dry. In addition, cellular glass roof insulation (specified from Belgium for its proven 50-year track record on the facility) had an eight-week timeframe for production and overseas delivery, making critical that each square of insulation stayed in pristine condition. Chicago rain can fall in isolated pockets, so every load had to be fully secured with tarp, even on seemingly sunny days.

The harsh Chicago winter of 2013- 14 didn’t stop Trinity Roofing Service from completing the twoyear project on schedule. Seven miles of backer rod are being laid between seams of concrete roof channels despite snow and ice.

The harsh Chicago winter of 2013-14 didn’t stop Trinity Roofing Service from completing the two-year project on schedule. Seven miles of backer rod are being laid
between seams of concrete roof channels despite snow and ice.

“It was an ongoing job to impress the importance of covering all the materials that came to the site, especially at the slightest hint of rain,” Cronin says. “It worked, though. We fully inspected every material load that came to the job site. Out of more than 712,000 board feet of new insulation, none of it was rejected thanks to our strictly enforced quality-control program.”

Despite the snow and ice accumulation on staging areas, no salt was allowed on the property for fear of water contamination, which meant Trinity also dealt with slippery walking and driving surfaces.

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Wind-damaged Roof Systems

Wind damage to roof systems is often catastrophic, placing the building users at a life-safety risk, resulting in interior and furnishing damage and suspension of interior operations, loss of revenues, legal ramifications and great costs to repair. Because of my 30 years of experience in the design of roof systems and forensic investigation, I’m often called upon as an expert witness after wind events. In this article, I’ll review a couple wind-event roof failures, the causes of the failures and how they could have been prevented. I’ll also provide recommendations for failure prevention in the design process for new roof systems, as well as for existing roof systems.

1. The concrete roof deck panels deflected more than 3/4 inch, which the design architect should have accounted for if a thorough field investigation was undertaken.

1. The concrete roof deck panels deflected more than 3/4 inch, which the design architect should have accounted for if a thorough field investigation
was undertaken.

The Perfect Storm

How can it be that when roof systems are to be designed for code-required wind-uplift resistance that so many fail in winds well below the design parameters and/or warranty coverage? The answer could be design-related, material or installation; typically, it involves all three.

Architects and some roof system designers are often not as knowledgeable about roof systems as they should be, have little empirical evidence in how all the components work together as a system, and move beyond their abilities (a violation of their standard of care) when designing roofs where specific detailing is required. In addition, manufacturers are all too often
bringing new products to the marketplace that have not been properly vetted in the field and their long-term performance is truly unknown. Unfortunately, the roofing contractor cannot escape any of this. The lack of proper specification and contract document review; failure to review product data, including installation guidelines for new products; poor project oversight and management; and pressure from general contractors often result in installations that are subpar. The result is a “perfect storm” of design, materials and installation that fail under stress.

Consider the following case studies that I have been involved in as a forensic or “expert” witness when litigation was involved.

Coastal Facility

A large aged warehouse along the eastern seaboard was in need of a new roof system. Because the interior was not conditioned, thermal insulation was not required. The existing roof was an asphalt built-up with aggregate surfacing on high-density fiberboard on precast concrete panels 24-inches wide on a steel structure. The northern portion of the building had overhead doors that were seldom closed. On the interior, an aedicule structure (a building within a building) was constructed approximately 65-feet south of the overhead door, which had a ceiling level 5-feet below the roof deck.

2. The thin, flexible 1/2-inchthick high-density board was found to have little, if any, contact with the full-coverage spray-foam adhesive, making uplift extremely easy.

2. The thin, flexible 1/2-inch-thick high-density board was found to have little, if any, contact with the full-coverage spray-foam adhesive, making uplift extremely easy.

The architect who designed the replacement roof system called for the existing BUR roof to be removed down to the precast concrete roof panels. Then a new 1/2-inch 4- by 8-foot high-density wood fiberboard was set in full-coverage spray polyurethane foam adhesive with a 60-mil EPDM membrane fully adhered to the high-density wood fiberboard.

Additionally, the architectural drawings called for rooftop relief vents to be removed and capped over.

Around June 2008, a Nor’easter (an intense rainstorm), coming in from the east off the ocean, swept into the city. This resulted in the new roof system being lifted off the roof deck. Mode of failure was the fiberboard detaching from the precast concrete roof deck.

Investigation revealed several acts and conditions that contributed to the wind damage.

PHOTOS: Hutchinson Design Group Ltd.

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Emerging Trends in New LLC Acts

Although the Limited Liability Company (LLC) is still a relatively new form of unincorporated business structure, LLCs are now outpacing newly formed corporate filings in most states and are quickly becoming the predominate form of new business entities across the country. The appeal of the LLC is obvious; it combines the corporate- style limited-liability benefits to its owners with the pass-through taxation benefits of partnerships. With these benefits, it is no surprise that contractors across the country are now choosing LLCs in lieu of corporations or partnerships when selecting their business structure.

Every state has now adopted an LLC act, but these acts vary significantly from state to state. Despite the growing popularity of the LLC structure, many states are still operating under old acts implemented more than 20 years ago, and many of these acts have not been significantly revised. Instead, they have been amended on an as-needed basis in an attempt to keep up with emerging LLC developments and case law. This has created piecemeal and disorganized acts governing LLCs.

To solve these problems, states across the country have been extensively revising their LLC acts or implementing completely new acts. Currently, 11 states and the District of Columbia have formally enacted new LLC acts based on the Revised Uniform Limited Liability Company Act (RULLCA). These states include Alabama, California, Florida, Idaho, Iowa, Minnesota, Nebraska, New Jersey, South Dakota, Utah and Wyoming. In addition, South Carolina has been considering adopting the RULLCA. Other states, like North Carolina, which hasn’t officially adopted the RULLCA, have enacted new LLC acts and looked to states that had already adopted the RULLCA for guidance.

These new LLC acts are reshaping the LLC landscape. Contractors of existing LLCs and those wanting to form LLCs should be aware of the potential impact changes to their state’s LLC act can have on their company. Contractors need to be aware that the LLC act they initially filed under—and have been operating under—may now be significantly different or may no longer even be applicable. Failing to review newly revised or implemented acts may lead to unintended or adverse consequences, especially in states that are already operating under a new LLC act.

While a state-by-state analysis of new LLC acts is beyond the scope of this article, there are several trends emerging from states that have already enacted new LLC acts. These trends may soon be universally applicable and it is beneficial for the contractor operating or considering an LLC to be aware of them.

The Operating Agreement

Arguably, one of the most significant and widespread trends emerging from the new LLC acts is that many of the acts are eliminating the requirement that the operating agreement be in writing. Under many of the old LLC acts, an operating agreement was commonly defined as a written agreement between its members. Under many of the new acts, however, an operating agreement can now be a written, oral or implied agreement between its members. This is a broader definition of what qualifies as an operating agreement and essentially allows any type of agreement between members to become part of the operating agreement governing the LLC.

Although this change provides greater flexibility within the business because companies no longer need to adhere to a strict operating-agreement structure requirement, it also opens the door for increased internal litigation. Under these new LLC acts, internal disputes among members are likely to increase when operating-agreement terms are ambiguous or when members claim there was an oral or implied operating agreement.

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To Lease or Buy Equipment

As the economy continues to improve, more construction businesses are making capital investments to fuel their growth. When business owners and managers consider acquiring equipment, they often think of their payment option as a “lease versus buy” decision. In any economic environment, when preserving owner or shareholder capital is an important goal, financing equipment through a lease or loan will enable your business to preserve its cash.

Whether you finance equipment through a lease or loan, each has its advantages. In evaluating your options, it is important to look at each alternative to determine which will best balance usage, cash flow and your financial objectives. To help determine the most appropriate option, consider the following questions:

1. How long will the equipment be required?

Generally speaking, if the length of time the equipment is expected to be used is short term (36 months or less), leasing is likely the preferable option. Equipment expected to be used for longer than three years could be a candidate for a lease or a loan.

2. What is the monthly budget for the equipment?

As with any ongoing business expense, consider the monthly cost for a piece of equipment and how it fits into your budget. In general, leasing will provide lower monthly payments.

3. Will the equipment become obsolete while it is still needed for the operation?

Protection against obsolescence is one of the many benefits of equipment leasing because the risk of obsolescence is assumed by the lessor. Certain lease financing programs allow for technology upgrades and/or replacement within the term of the lease contract.

4. Is the equipment going to be used for a specific contract or can it be used for other projects?

Often, the business objective of equipment is for it to be revenue-producing. If a piece of equipment has limited use within a specific contract and won’t be used for other projects, it’s not ideal for it to be idle while you continue to make payments on it. It makes sense to stop the equipment expense when the income from it ceases, which you can do with a lease.

5. How much cash would be required upfront for a lease and for a loan?

Leasing can often provide 100 percent financing of the cost of the equipment, as well as the costs for transportation, delivery, installation set-up, testing and training, and other deferred costs (sales tax). Loans usually require a down payment and don’t include the other cost benefits. Ask how much of a down payment is needed and assess the availability and desirability of allocating company capital for that down payment.

6. Can the company use the depreciation or would the company get a greater benefit from expensing the lease payments?

The tax treatment of the financing arrangement is an important consideration in choosing between a lease and a loan. A loan provides you with the depreciation tax benefit; with a lease, the lessor owns the equipment and realizes the tax benefit, which is usually reflected in a lower monthly rent payment for your business, as well as the ability to expense the payment.

In many instances, if your business cannot use the tax benefit, it makes more sense to lease than to purchase through a loan because you can trade the depreciation to the lessor in exchange for better cash flow.

7. How will a working capital facility be impacted?

Many businesses have an aggregate line of credit through a bank that they can use for inventory purchases, improvements and other capital expenditures.

Depending on the lending covenants, it is often possible, as well as preferable, to preserve your bank working capital by leasing equipment through an equipment finance provider.

8. How flexible does your business want the financing terms to be?

A lease can provide greater flexibility because it can be structured for a variety of contingencies, whereas, with a loan, flexibility is subject to the lender’s rules.

If your business has continuing use for the equipment at lease termination, extended rentals, purchase options, trade-ups and return options are available. The lease term allows your business to match all expenses to the term of the equipment’s use, including income-tax expense, book expense and cash expense. Most importantly, as mentioned previously, the expense stops when the equipment is no longer required.

With the current low-interest-rate environment, now is a good time to finance equipment, in general, through a lease or loan. Again, the benefits of the type of financing is dependent on a number of variables and not necessarily the economics alone.

9. Do you anticipate the need for additional equipment under your financing agreement?

If your business is planning for growth, you can enter into a master lease that will allow you to acquire multiple pieces of equipment under multiple schedules with the same basic terms and conditions. This provides greater convenience and flexibility than a conditional loan contract, which must be renegotiated for additional equipment acquisitions.

10. Who can help me evaluate what’s best for my business?

Whether you finance equipment through a lease or loan, each has its advantages. When making the decision between a lease and a loan, it is highly recommended you consult with your accounting professional, as well as draw on the resources of your equipment financing provider, to enable you to secure the best possible terms for your lease and/or loan.

These are some of the key considerations that should go into the lease versus loan decision-making process. Find a lease/loan comparison and online tools.

An EPA Proposal to Reduce Ground-level Ozone Will Affect the Roofing Industry

On Nov. 26, 2014, the Washington, D.C.-based U.S. Environmental Protection Agency announced a proposal to reduce the National Ambient Air Quality Standard (NAAQS) for ground-level ozone. The existing National Ozone Standard, last strengthened in 2008, sets the acceptable level of ozone at 75 parts per billion (ppb); the proposal calls for lowering that level to 65-70ppb, or even as low as 60ppb. The National Association of Manufacturers, Washington, has called the new proposed standard the “the most expensive regulation in history,” and its passage could result in widespread effects felt across the nation and a wide array of industries, including roofing.

Ozone NAAQS and Nonattainment

Tropospheric (ground-level) ozone is one of six “criteria” pollutants regulated by the EPA, pursuant to the 1990 Clean Air Act, because it has negative human-health impacts and can be damaging to vegetative growth. Ozone is formed when volatile organic compounds (VOCs) and nitrogen oxides (NOx) combine with sunlight. Significant anthropogenic (manmade) sources of VOC and NOx emissions include industrial and manufacturing facilities, vehicle exhaust, gasoline vapors, and solvents used in consumer and commercial coatings and paints.

The ozone NAAQS sets permissible ozone levels; those states and regions that do not meet those thresholds are designated as “nonattainment” areas. A nonattainment designation requires that the state develop and submit a State Implementation Plan (SIP) to the EPA, which outlines the steps that will be taken to reach and maintain compliance, or “attainment”. The steps that a state may take to work toward ozone attainment are varied but often include control measures over manufacturing and industrial processes; regulations aimed to reduce VOC emissions from paints, coatings, and manufacturing processes; or voluntary measures, such as programs that encourage the use of mass transit to reduce vehicle usage.

Additionally, the nonattainment designation comes with specific mandates from the EPA. These include tougher permitting requirements for new or expanding facilities, potential loss of federal highway and transit funding, EPA oversight in permitting, and requirements to “offset” any new emissions sources by reducing emissions in existing operations or by purchasing emissions credits from others.

Many states and regions, including California and the majority of the Northeast’s I-95 corridor, are still working to comply with the 2008 ozone standard’s 75ppb level. The proposal to lower the existing ozone standard to within the range of 65-70ppb will result in a significant increase in nonattainment areas across the country, which will in turn result in growth of stationary source restrictions and state-level regulations as states develop SIPs for achieving lower ozone levels.

The effects of a stricter ozone standard will be felt across the nation and in a wide variety of industries. “Background ozone”, or the ozone levels that would exist regardless of the presence of industry, is 30ppb or higher in most areas. For such regions, lowering the standard from 75ppb to 65ppb would represent a mandate to reduce anthropogenic ozone by more than 20 percent. Additional reductions may prove difficult to achieve and costly, especially for those areas of the country that have already implemented control measures to achieve attainment with the 2008 Standard.

Effects on the Roofing Industry

One area of particular significance to the roofing industry will be VOC regulations for architectural and industrial maintenance (AIM) coatings, as well as for industrial adhesives and sealants, which are used in the application of certain roof systems and for continued maintenance and protection of many roofs. The VOC content for a variety of AIM coatings is regulated on the national level by the EPA. Additionally, there are more stringent VOC regulations in place today across the majority of the Northeast, in several Great Lakes states, and in California’s 35 air districts for AIM coatings and adhesives and sealants as part of those states’ and regions’ SIPs for reaching attainment on existing ozone standards.

While there are regulatory bodies, such as the California Air Resources Board, Ozone Transport Commission and the Lake Michigan Air Directors Consortium that provide guidance on ozone attainment, it is ultimately left up to the states (and in the case of California, individual air districts) to develop and implement VOC regulations. As such, VOC regulations vary from state to state and region to region with rules that contain disparate VOC content limits, compliance dates, and record-keeping and reporting requirements, which can make compliance highly challenging.

Purpose of VOCs in Roof Coatings

VOCs are included in a wide array of coatings for several reasons. Solvent-based coatings can be used as an alternative to waterborne technologies, especially where freeze/thaw resistance and product application and storage in cooler climates or in winter months is required. VOCs are used to dissolve solids to keep coatings in a liquid phase, allowing for them to be applied prior to the solvent flashing out and the product curing to form a solid layer. Furthermore, coatings may be formulated with VOCs because of the solvents’ ability to soften the substrate that the coating is being applied to, improving the application and ultimate performance of the coating.

As new, stricter VOC regulations are introduced and VOC content limits are lowered in different roof coating, adhesive and sealant product categories, several negative consequences may occur. First, it may become more difficult to apply the product or to apply the product at an appropriately thin layer. Additionally, the performance of the product may be negatively impacted, which could result in the need for additional product application throughout the lifetime of the roof or, in extreme cases, a reduced life-span of the roof. Although there are many excellent waterborne technologies available, the use of water-based coatings may not be an acceptable alternative in all situations or in all roof systems.

The Path Forward

The ozone NAAQS’s publication in the Federal Register begins a 90-day comment period, which will be supplemented by several public hearings in the early months of 2015. Should the rulemaking continue forward and a lower ozone standard be approved, the EPA will begin designating attainment and nonattainment areas, which will start the process for the development of SIPs containing a host of new regulations across the country.

For manufacturers, specifiers and contractors alike, an influx of VOC regulations will prove challenging. Formulators will be forced to create high-performing products using lower-solvent content or through the use of exempt solvents; applicators will need to be aware of the rules in place to ensure they are applying compliant products; end-users will need to learn that products they have had in the past may no longer be available. Even under today’s ozone standard, keeping apace of the multitudinous and constantly changing VOC regulations is a large task. EPA’s final determination of a new ozone standard could prove to have significant and long-term ramifications that will be felt for many decades to come.

Insulation Types, Application Methods and Physical Characteristics Must Be Reviewed, Understood and Selected to Ensure Roof System Performance

Designing and constructing roof systems (see my previous articles about roof decks, substrate boards and vapor barriers) continues with the thermal insulation layer. The governing building codes will dictate the minimum R-value required and, based on the R-value of the selected insulation, the thickness of required insulation can be determined. This plays into the design of the roof edge, which will be the subject of future articles. For now, let’s focus on insulation.

Photo 1: Polyisocyanurate (ISO) with organic facers

Photo 1: Polyisocyanurate
(ISO) with organic facers

Thermal insulation has multiple purposes, including to:

    ▪▪ Provide an appropriate surface on which the roof cover can be placed.
    ▪▪ Assist in providing interior user comfort.
    ▪▪ Assist in uplift performance of the roof system.
    ▪▪ Provide support for rooftop activities.
    ▪▪ Keep the cool air in during the summer and out during the winter, resulting in energy savings.

INSULATION OPTIONS

For the designer, there are numerous insulation material choices, each with its own positive and negative characteristics. Today’s insulation options are:

    ▪▪ Polyisocyanurate (ISO)

  • »» Varying densities
  • »» Organic facers (see photos 1 and 2)
  • »» Double-coated fiberglass facers (see photo 3)
  • ▪▪ Expanded polystyrene (XPS) (see photo 4)

  • »» Varying densities
  • ▪▪ Extruded polystyrene (EPS) (see photo 5)

  • »» Varying densities
  • ▪▪ Mineral wool (see photo 6)

  • »» Varying densities
  • ▪▪ Perlite
    ▪▪ High-density wood fiber

With today’s codes, the use of perlite and high-density wood fiber as primary roof insulation is very limited. The R-value per inch and overall cost is prohibitive.

Some attributes of the more commonly used insulation types are:
POLYISOCYANURATE

Photo 2: Polyisocyanurate (ISO) with organic facers

Photo 2: Polyisocyanurate
(ISO) with organic facers

    ▪▪ Predominate roof insulation in the market
    ▪▪ Organic and double-coated fiberglass facers (mold-resistant)
    ▪▪ Varying densities available: 18 to 25 psi, nominal and minimum, as well as 80 to 125 psi high-density cover boards
    ▪▪ Has an allowable dimensional change, per the ASTM standard, that needs to be understood and designed for
    ▪▪ Can be secured via mechanical fasteners or installed in hot asphalt and/or polyurethane foam adhesive: bead and full-coverage spray foam
    ▪▪ Has an R-value just under 6.0 per inch but has some downward drifting over time

EXPANDED POLYSTYRENE (EPS)

    ▪▪ Has good moisture resistance but can accumulate moisture
    ▪▪ Direct application to steel decks is often a concern with fire resistance
    ▪▪ Has varying densities: 1.0 to 3.0 pound per cubic foot
    ▪▪ Very difficult to install in hot asphalt; basically not appropriate
    ▪▪ Certain products can be secured with mechanical fasteners or lowrise foam adhesive
    ▪▪ Has stable R-values: 3.1 to 4.3 per inch based upon classification type

EXTRUDED POLYSTYRENE (XPS)

    ▪▪ Has good moisture resistance and is often used in protected roof membrane systems and plaza deck applications
    ▪▪ Direct application to steel decks is often a concern with fire resistance
    ▪▪ Has varying compressive strengths: 20 to 100 psi
    ▪▪ Not appropriate to be installed in hot asphalt
    ▪▪ Has stable R-values: 3.9 to 5 per inch based on classification type

MINERAL WOOL

    ▪▪ Outstanding fire resistance
    ▪▪ Stable thermal R-value: 4.0 per inch
    ▪▪ No dimensional change in thickness or width over time
    ▪▪ Available in differing densities
    ▪▪ May absorb and release moisture
    ▪▪ Can be installed in hot asphalt or mechanically attached

PHOTOS: HUTCHINSON DESIGN GROUP LTD.

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