Headlines such as “US set for recession next year, economists predict,” from the June 12 edition of the Financial Times, are a reminder insolvency risks are real and should be top of mind when moving forward with new construction projects. But there are ways to mitigate the risks.

Performance bonds, as their name implies, hold a surety jointly and severally liable to the owner for the contractor’s performance of the work. Depending on the bond’s form, if the contractor becomes insolvent and is put into default, the surety can either perform the work itself or indemnify the owner for costs incurred hiring a replacement contractor. Convincing a surety to take over a contract following a contractor’s default is not easy. When sureties do agree, the contractor is often insolvent. Generally, if the surety takes over under a bond, it steps into the defaulting contractor’s shoes.

A payment bond is different. Under this type of bond, the surety is jointly and severally liable to, and/or will indemnify, the owner against claims and liens by subcontractors retained under the prime contractor.  The surety’s obligation to act under the bond may be contingent upon the owner paying the prime contractor in accordance with the contract. When a subcontractor lien is filed, the owner will notify the surety, and in theory, the surety will cause removal of the lien through a lien release bond or otherwise.

In deciding whether to issue either form of bond, a surety will typically scrutinize a contractor’s financials and require the contractor to indemnify and hold harmless the surety against any losses it incurs under the bond.  This is one of the major differences between bonds and insurance policies: insurers cannot seek reimbursement from their insureds for amounts paid out under the policy, whereas sureties can require reimbursement from the obligor (contractor) for any losses incurred by the surety under the bond. Also, insurance policies can be modified only through boilerplate endorsements, and the language is often take-it-or-leave-it.  In contrast, owners have input into how bonds are drafted and should negotiate for favorable language.

The surety may also require personal guarantees from the contractor’s ownership team. Whether a contractor is bondable or not is a “stress test” that can provide a sense of the contractor’s financial health.  If the contractor is not bondable, or has relatively low bonding capacity (i.e., the surety will issue bonds covering only a small dollar value), that could signal a failing grade.

As further protection, owners can consider structuring payments, not based on the contractor’s costs incurred, but based on the contractor hitting milestones throughout the project, so that payments are conditioned on progress. Depending on state law, the owner may elect instead, or in addition, to withhold retainage from each contractor draw. One problem with retainage is that it includes amounts earmarked for subcontractors, and withholding amounts due subcontractors because of prime contractor defaults will likely result in subcontractor liens. For retainage to protect against prime contractor default, it should be withheld from the contractor’s general conditions and/or fee.

Contractors also have tools to guard against solvency risks.  In the standard AIA agreements, the contractor can request proof of financial arrangements for the project from the owner, both before the project begins and at certain times during the project, including when the contractor identifies in writing a reasonable concern regarding the owner’s ability to make payment when due. Sections 2.2.1 & 2.2.2, General Conditions of the Contract for Construction, A201 – 2017 (General Conditions). The owner’s financial arrangements should not materially vary without notice to the contractor. And should the owner fail to provide the information, the contractor can terminate for default. Section 14.1.1.4, General Conditions.

To guard against subcontractor insolvency, more and more prime contractors are acquiring subcontractor default insurance (SDI), which, when triggered, reimburses the contactor against certain costs incurred as a result of an enrolled subcontractor defaulting.  Because subcontractors often work with the prime contractor on multiple projects, if a subcontractor fails, this can have a domino effect, ending in financial distress for the prime contractor. SDI can pass some or most of that risk onto the insurer, for a premium. Some contractors will in turn pass through the cost of the SDI premium and deductible to the owner as a cost of the work. Owners, however, typically have no rights under the insurance, unless both the contractor and subcontractor are insolvent, and therefore many do not agree to pay for this cost and/or markup on the cost. Owners often view the benefits of SDI as duplicative of payment and performance bonds and refuse to pay for SDI on this basis when the project is already bonded.

Contractors typically have mechanic’s lien rights arising from state law, which can provide some security for unpaid invoices, depending on the amount of equity in the project and whether the contractor has priority over the security interests of the project’s lender. However, an often-overlooked tool is what is referred to as a “stop notice” or “notice to lender.” Under some states’ laws, a contractor can issue a notice to the lender of non-payment and, if the lender fails to take certain actions, namely withhold payment to the owner, future payments issued by the lender to the owner become subordinated to any lien recorded by the claimant who issued the notice. Gaining priority ahead of the lender can be the difference between getting paid or not. This tool is not without risk. For wrongfully issuing a notice to the lender, claimants may face exposure for attorney’s fees and costs incurred by the owner and lender, as is the case in Washington.

A year ago, this author wrote about the early impacts of price escalation, which we have seen bleed into 2022. Hopefully, we’ll avoid the recession that some economists are predicting, and my next article will be on a more upbeat topic.

Colm Nelson is a partner and member of the Construction and Design Group of Stoel Rives LLP. He can be reached at (206) 386-7525 or colm.nelson@stoel.com

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the authors and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither of the authors nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

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By Iris K. Tilley & Gabrielle A. Hansen

There is no denying that time has moved particularly fast over the past year and a half. In the world of employee benefits, the law has changed, adapted and updated in a multitude of ways to move with the needs of plan participants and sponsors. Below we discuss some of these changes so that employers can prepare for the changes ahead.

Health Plans

COBRA

The specific measures affecting COBRA include extension of COBRA deadlines until 60 days after the end of COVID-19 National Emergency (the Outbreak Period) and a 100 percent COBRA Subsidy in the American Rescue Plan Act (ARPA).

The COBRA deadline extensions tolled major COBRA deadlines, including the election of COBRA. After their implementation in 2020, these extensions were extended again in February. This February extension revised the application of the previously extended deadlines to extend them for the lesser of one year from the original deadline or the end of the Outbreak Period. The Outbreak Period is still ongoing as of July 15, 2021, but each individual COBRA beneficiary is limited to one year of Outbreak Period relief.

The ARPA introduced the other major change related to COBRA in the past year: subsidized COBRA coverage. The subsidy took effect on April 1 and will last until Sept. 30. It is available to anyone, including dependents, who lost employer-provided group health coverage because they experienced a reduction in hours or an involuntary termination.

The subsidy has altered the way employers administer COBRA in several ways. First, under ARPA rules, employers were required to provide notices to those individuals who experienced a qualifying event prior to the start of the subsidy, but who could enroll in subsidized coverage starting April 1. Second, it includes a second notice requirement regarding the end of subsidized coverage. Finally, and most relevant to employers’ day-to-day operations, it calls for changes to the COBRA forms that employers use when an individual experiences a loss of coverage.

Optional Provisions for Section 125 Plans and Dependent Care Plans

Among the notable optional changes, for plan years ending in 2020 or 2021, employers may lengthen the grace period or increase the carryover limit to allow employees to utilize otherwise unused 125 Plan funds. And for plan years beginning after December 31, 2020, and before January 1, 2022, employers may amend their 125 Plan to increase the limit of the amount that an employee can exclude from their income for dependent care assistance from $5,000 to $10,500 and from $2,500 to $5,250 for taxpayers who are married filing separately.

Self-Insured Health Plan Mandates

While sponsors of self-insured health plans have often been able to stay out of the regulatory fray, recent federal legislation has put the compliance spotlight on these plans. In particular, new mental health parity testing requirements rolled out this spring, and transparency and “no surprises” mandates will take effect in 2022.

Payroll Considerations

Both Washington and Oregon introduced new payroll considerations for employer withholding in the last year.

WA Cares

In Washington, the WA Cares long-term care benefit requires employers to start withholding the mandatory employee-side payroll tax January 1, 2022.

WA Cares is a long-term care benefit designed to provide payment for benefits necessary for daily living. The program is funded by an employee-side only payroll tax. Benefits are scheduled to be available starting in 2025 for employees who have met the contribution requirements and who are otherwise eligible.

There is a one-time opt-out available to individuals who do not wish to participate in the program. Individuals wishing to opt out must obtain alternative long-term care insurance and opt out between Oct. 1, 2021 and Dec. 31, 2022.

Preschool For All

In Oregon, the Multnomah County Preschool for All Tax took effect on Jan. 1, 2021. This tax is a personal income tax measure that affects individuals earning over $125,000 individually or $200,000 jointly who work or live in Multnomah County.

Employer withholding is required starting Jan. 1, 2022. This tax may come as a surprise to the employees to whom it applies, so employers should be prepared to explain the withholding.

Conclusion

As the Biden administration continues, it is apparent that we will continue to see developments regarding employer sponsored health and welfare plans. Further, although deadlines for plan sponsor action related to some of the changes that have already occurred may have recently seemed far off, they are now approaching.

To learn more about the topics discussed herein and more, register for Barran Liebman’s upcoming webinar presented by Iris Tilley: “Preparing for 2022: Your Benefits & Compensation Planning Guide,” by emailing jpeterson@barran.com.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

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Utility bills can bring unwelcome surprises: a water bill that reminds you of the extra irrigation costs incurred during a heat wave, an electric bill that makes you realize how much extra power is used when working from home or gaming nonstop, an embarrassing cable bill documenting how many shows you binge-watched last month. But consumption of utilities is generally within the control of the consumer, and getting the bill is really no different than the check appearing on your table at the end of a meal out.

One exception is when the bill actually does not go to the consumer, but rather is sent to and paid by the consumer’s landlord, who then passes those costs through to the consumers as tenants. The potential for overcharging the user/tenant (whether nefarious or accidental) is real, even if seldom occurring. Oregon’s Legislature has addressed this potential in the Residential Landlord-Tenant Act (specifically, ORS 90.315) by requiring residential landlords to be transparent in their pass-through of utility charges to their tenants. However, the law, as written, unfairly and harshly punishes landlords for noncompliance with the technical requirements of the rule, even if the failure was inadvertent — and the noncompliance is punishable even if the charges passed through were completely accurate.

The Residential Landlord-Tenant Act seeks to promote transparency through technicality by requiring landlords to include underlying provider utility charge information for utility costs passed through to tenants. ORS 90.315(4) applies to utility charges and requires, among other things, that landlords:

1. Include in the bill to the tenant a copy of the provider’s bill; or
2. State that the tenant may inspect the provider’s bill at a reasonable time and place and that the tenant may obtain a copy of the provider’s bill by making a request to the landlord during the inspection (with payment to the landlord for the reasonable cost of making copies).

The requirement to include the provider’s bill, or statement of its availability, seems innocuous at first glance; however, it applies to every pass-through utility charge for each tenant. Compliance requires that a landlord either attach the underlying provider’s bill, with updates, for each utility every time the tenant is charged, or create and indefinitely resend a form statement describing the availability of underlying provider bills. This creates an administrative burden and associated cost that the landlord will inevitably offset through increased rent.

The reality is that a technical requirement to include additional documentation with every utility charge passed through to tenants does not increase transparency, as it is unlikely that people crosscheck calculations from a multi-page provider’s bill or read a form statement and request copies every month. It is likely that most would forego the included provider’s bill or statement in lieu of lower rent costs and simply reach out to the landlord when a utility charge is unusually high.

A landlord’s failure to comply with the technical requirements of ORS 90.315 can be punished harshly. ORS 90.315(f) provides that “the tenant may recover from the landlord an amount equal to one month’s periodic rent or twice ‎the amount wrongfully charged to the tenant, whichever is greater.‎” In instances where the violation is technical (i.e., no overcharge occurs), the damages recoverable are one month’s periodic rent.

Oregon courts have not yet resolved whether the damages can be “stacked.” Stacking damages would allow a tenant to recover one month’s rent for every month the technical requirements are violated, rather than being limited to one month’s rent in total even if the violation was repeated.

The stacking theory of damages leads to an absurd result for a failure to comply with technical requirements. Assume for example that a landlord is unaware of the requirement to include a copy of the provider’s utility bill, or a statement of its availability, in the bill sent to the tenant. The tenant, who pays $1,500 per month in rent, finds out one year later that there was supposed to be an extra document or statement attached to their utility bill and sues the landlord. The landlord never overcharged the tenant for the utility but did violate the statute by failing to include the provider’s bill or a statement of its availability. Under the stacking theory of damages, the landlord’s potential liability is the amount of monthly rent multiplied by each month landlord was in violation, or $18,000.

The above hypothetical is limited to one tenant and one utility bill. A more realistic situation involves multiple tenants with multiple utility bills, and the amount doubles for each tenant or utility bill added. Running the same hypothetical for a landlord with 30 tenants who each pay two utility bills per month for a year, the potential liability increases to $1,080,000. Over $1 million in liability for a technical violation, all despite the fact the actual amount overcharged is zero. The extreme penalty creates a trap for unwary landlords and, once again, leads to increased rent in order for landlords to account for the risk.

The administrative burden and associated cost, along with the potential for extreme penalties, create a need for the technical requirements of ORS 90.315(4) to be amended. One approach could require landlords to provide underlying provider utility bills only when a tenant makes the request. Another approach could provide for a penalty-free warning for first-time offenders. Either amendment would ease the administrative burden of including additional paperwork with every utility bill passed through to tenants and substantially reduce the risk of landlords incurring an extreme penalty despite not overcharging for utilities. The need for additional expense and risk to be absorbed by landlords and passed down to tenants through an increase in cost of rent is similarly reduced. The amendment would preserve transparency by still allowing tenants to review underlying provider bills as often as they would like by simply making a request to the landlord or their representative. As currently written, ORS 90.315(4) is an overly punitive technical requirement — the same policy goal can be achieved without the unnecessarily harsh outcome for unwitting property owners.

This article summarizes aspects of the law; it does not constitute legal advice. For legal advice for your situation, you should contact an attorney.

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The pandemic has created extraordinary challenges for Pacific Northwest businesses, and the construction industry is no exception. With project closures, the addition of rigorous safety requirements, and supply chain disruptions, construction projects may be facing more uncertainty in the near future.

In particular, the costs associated with reduced workforce availability, scheduling limitations and changes in material pricing and accessibility are forcing owners to put projects on hold, or worse, terminate them. Owners of projects that are able to move forward are having to seek out increased funding to offset the unexpected costs driven by a paralyzed national economy. Subcontractors and suppliers are particularly at risk: without direct contracts with owners, those further down the supply chain are most impacted by reduced or delayed payments. Subcontractors and suppliers are in a vulnerable position because they must wait the longest to get paid and are often afforded few contractual protections. Fortunately, both subcontractors and suppliers can mitigate their financial risk by reviewing their contracts with the following provisions in mind:

“Pay-when-Paid” vs. “Pay-if-Paid” Clauses

Two of the most important contract provisions for subcontractors and suppliers to scrutinize are “pay-when-paid” and “pay-if-paid” clauses. These provisions are critical because they determine when and if payments to the subcontractor or supplier become due.

A pay-when-paid clause ties payment from the general contractor to the subcontractor to when the general contractor receives payment from the owner. An example of a pay-when-paid clause is, “Subcontractor will be paid within 10 days after General Contractor receives payment from Owner.” Most state courts have determined, however, that contractors cannot indefinitely withhold payment from subcontractors based upon a “pay-when-paid” clause. Rather, courts in Oregon and elsewhere interpret a “pay-when-paid” clause to require a general contractor to pay its subcontractors within a “reasonable time” of the completion of satisfactory work, even in circumstances where the general contractor has not yet received payment from the owner.

Pay-if-paid clauses, by contrast, make payment by the owner to the general contractor a prerequisite to the general contractor’s obligation to pay the subcontractor or supplier. An example of pay-if-paid clause is, “Subcontractor will be paid within 10 days after General Contractor receives payment from Owner and General Contractor’s receipt of payment by Owner is a condition precedent to General Contractor’s payment to Subcontractor.” This type of provision is less common but is particularly perilous because it means that the lower tiered project entity could potentially never get paid. While Oregon courts generally disfavor “pay-if-paid” clauses, they will be enforceable if the language is “definite and unambiguous.” In other words, to create a “pay-if-paid” clause, the contract must clearly state that payment to the subcontractor or supplier by the general contractor is contingent upon receipt of payment by the owner.

Takeaway: Subcontractors and suppliers should always check to see if their contracts contain a “pay-when-paid” or “pay-if-paid” clause. While the former is construed to mean that payment will be made in a reasonable time, the latter should be avoided to reduce the chance of deferred payments.

Joint Check Agreement

Another helpful contract provision that can help streamline payment and lower risk of non-payment to lower tiered parties – particularly material suppliers – is to negotiate a “joint check agreement.” A joint check agreement is usually entered into between a general contractor, a subcontractor, and a material supplier. In that situation, all three parties agree that any payments made by the general contractor for work involving the supplier’s materials will be written jointly to the subcontractor and the material supplier. Since there is no statutory basis for a joint check agreement, it only comes into play by contractual agreement.

A joint check agreement has many benefits. First and foremost, the material supplier is protected against the risk of the subcontractor not paying them. In turn, the general contractor is safeguarded from the risk of the supplier not getting paid and subsequently filing a construction lien on the project. It also gives the general contractor more control over the payment flow by enabling it to issue checks directly to lower tier parties instead of having to follow the more time-consuming protocol of paying the subcontractor and then relying on that subcontractor to pay people down the line. This process can ultimately prevent – or at least reduce – delays caused by non-payment and ensures that payment is streamlined.

Despite the benefits, general contractors might not always agree to a joint check agreement because it will impose additional obligations on the general contractor, such as: (1) having to keep track of which lower tiered parties have joint check agreements and which do not; (2) taking on the administrative task of parsing out payments to each lower tier party based on their portion of the work performed; and (3) creating the possibility of payment errors that can require additional efforts to fix. Nevertheless, the practical values of the joint check agreement are worth negotiating if the opportunity arises.

Subcontractors and suppliers should be thinking ahead during contract negotiations to reduce the chances of being negatively impacted by payments that are delayed or reduced. While financial disagreements are unavoidable in the construction business, these disputes can be minimized if the parties carefully examine the payment terms at the outset and ensure that they are clearly stated in the contracts.

Vanessa Triplett Kuchulis is an attorney with Miller Nash Graham & Dunn. Her practice focuses on complex construction management and defect claims, commercial property disputes, and construction contract drafting. Vanessa can be reached by phone at 503-205-2328 or by email at vanessa.kuchulis@millernash.com.

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We toilers and spinners at the Daily Journal of Commerce scurry about every workday with our fellow denizens of the Pittock Block, passing by ornate metal mail chutes on every floor.

Am I the only one who thinks about James Goold Cutler? I hope not. This was a man whose death inspired a eulogy by President William Howard Taft. I would hate to think he is remembered now by only a handful of history geeks, including one especially geeky newspaper reporter in Portland.

Cutler deserves better. Think of him when you enter an old building and see one of those metal mail chutes. It was a work of particular genius in 1883. High-rise office buildings were just beginning to sprout in American cities.

Back then, if you were a success, the last thing you wanted was the corner office on the top floor.

Those were the nosebleed seats. You wanted the ground floor. Let lesser men climb the stairs.

That changed with the advent of the elevator. “Lifts” were becoming more and more common in the 1880s, especially in 1887 when Alexander Miles of Duluth, Minn., perfected an elevator with automatic doors to close off the elevator shaft.

Miles enabled the Pittock Block, built in 1913, to be the largest office building in Portland. (It has since slipped to No. 14.)

However, even if you scaled the Olympian heights to the eighth floor, you still wanted a convenient way to send and receive office mail (the stuff we used to get before email) without wearing out your shoe leather or expending your human resources (or “toadies”).

Enter James Goold Cutler of Rochester, N.Y. He was an architect by trade when he came up with the mail chute he patented in 1884. Patent No. 284,951 was cool in the days before the corporate “mail room.”

The patent states that the mail chute must “be of metal, distinctly marked ‘U.S. Letter Box.’ ” In addition, the “door must open on hinges on one side, with the bottom of the door not less than 2 feet, 6 inches above the floor.” If the building was more than two stories, the collection box was to be outfitted with a cushion (often a web of rubber bands) to prevent the mail from being damaged.

The mail chute also had to be accessible along its entire length so that any mail that got stuck could be dislodged.

Cutler’s first mail chute was installed in New York City’s Elwood Building. The Cutler Mail Box Co. eventually produced more than 1,600 chutes in buildings over the next 20 years. Cutler was a rich man. The New York Times reported his company was worth a whopping $2 million. He got even richer when federal postal officials allowed Cutler mail chutes to be placed in hotels taller than five stories and public apartment buildings with more than 50 units.

The system was not flawless. Legend has it that 40,000 pieces of mail got stuck in the 50-story McGraw-Hill Building in New York.

Cutler’s mail rival was the Automatic Mail Delivery Company of New York City. However, that rivalry ended when the two companies merged. It was as if Cutler owned the entire color block – Atlantic and Ventnor avenues as well as Marvin Gardens.

“This merges practically all the mail chute companies in the market,” The New York Times reported in 1909. Of course, cornering mail chute business would prove as profitable as cornering the house-and-buggy industry.

Mail chutes inevitably gave way to mail rooms and mail rooms to the Internet.

In 1997, the National Fire Protection Association banned mail chutes in new construction. Nonetheless, Cutler mail chutes are still actively used in some 900 buildings in Manhattan – including the Empire State Building.

As for Cutler himself, he was a Republican presidential elector for New York state in 1896 and served as mayor of Rochester from 1904 to 1907. He died in 1927. His company’s products soon become little more than ghosts in the hallway.

Still, they are lovely ghosts.

Look sometime at the detailing on the old metal chutes. They reflect an era when aesthetics were important, even on something as utilitarian as a place to drop mail. The act of dropping a letter down a metal mail chute seems charming, even romantic, these days.

Then again, so does sending a piece of paper through the mail.

“Building Curiosity,”which runs on the first and third Wednesday of each month, investigates intriguing, historical and obscure tidbits of the built environment. Tom Henderson is a reporter for the Daily Journal of Commerce. Contact him at 503-802-7226 or tom.henderson@djcOregon.com.

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Dear Mr. Berko: I bought 500 shares of Yahoo! Inc. in June 2008 at $24.40, because I thought Microsoft would come back and make a higher bid than its offer of $31 a share. I was wrong, but I held the stock, because I thought either earnings would increase or another suitor would make an offer. Again, I was wrong.

Now the stock is $16. I could buy another 500 shares and reduce my cost basis to $20 if you think this is the right thing to do. What do you think about Yahoo, and would you recommend the stock? – L.G., Bloomsburg, Pa.

Dear L.G.: Yahoo’s chairman, Roy Bostock, is a true-blue yahoo, and since he’s been on the board, this stock has taken a swan dive – from $50 in January 2004 to $11. What would you expect from a professional schnook who was on the board of Northwest Airlines (which went belly-up), Delta (which should have, but didn’t), Duke Health System (where costs have exploded), Partnership for a Drug Free America (while drug use has zoomed) and Morgan Stanley (which needed billions of dollars in TARP money)?

Roy also is chairman of Sealedge Investments, a mysterious firm that some say is importantly involved with pinnipeds – those cute, little fin-footed mammals. Additionally, Roy is a board member at Novo Group, the search firm that hired Carol “Big Mama” Bartz away from her family’s root beer stand to run Yahoo.

Yahoo (YHOO-$12.84) managed to beat Wall Street’s expectations in its first-quarter earnings report – which wasn’t even a push, because the Street’s expectations were so low. But would you believe that earnings for Yahoo’s first quarter were up an impressive 30 percent from 15 cents to 19 cents?

Yahoo’s earnings also increased in its second quarter, but these increases were because of cost reductions, product line closures and divestment of nonproductive businesses, rather than revenue growth. In fact, revenues are expected to decline 15 percent from last year.

So Roy (who voted against a Microsoft purchase at $31 a share in 2008) waxed eloquently about Novo’s wisdom in hiring “Big Mama,” who probably couldn’t manage a two-car funeral. Earnings growth is important. But any stupid can cut costs. Yahoo’s goal is to generate advertising revenue from its various proprietary and third-party content and its search and navigation services.

But “Big Mama” can’t sell dollars for quarters. Since she took over, Yahoo’s revenues have sink-holed, from $6.6 billion in 2009 to an expected $5.2 billion in 2011. And Roy is so pleased with this performance that he (and, incredibly, the board too) wants to extend “Big Mama’s” contract.

Meanwhile, Yahoo’s engineers are basically a bunch of yahoos as well. Often, when these yahoos take more than 45 minutes for lunch, they need to be retrained upon their return. Over the last two years, Yahoo’s tech yahoos have been redesigning systems and codes, which should increase the number of users and improve ad revenues. But persistent issues (slow email, sporadic downtime, navigation problems between sites, data losses, etc.) have hurt the transition and diminished click volume – and revenues.

Neither I nor others who follow the stock have any confidence in Yahoo. And even according to investment research firm Value Line, Yahoo, which it rates at $10 a share, is a poor bet.

Your only salvation is a merger, a buyout at a higher price by a consortium of fools, or a prayer for an industrial-strength corporate enema.

Address your financial questions to Malcolm Berko, c/o The Daily Journal of Commerce, P.O. Box 8303, Largo, FL 33775, or e-mail him at mjberko@yahoo.com.

© 2011 Creators.com

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Dear Mr. Berko: After working on a legal case for six years and settling it to my client’s satisfaction, I received a check for $1.4 million after taxes. Could you please recommend a dozen no-load mutuals or 30 or 40 stocks with good potential for revenue and earnings growth that I can buy as long-term investments for my family and myself? I have a modest law practice. I intend to work about another 15 to 20 years, and this $1.4 million will be my retirement fund. I’m also going to pick some stocks to add to your recommendations, and I would really appreciate your advice. I’ve been reading your columns for over 10 years, and I’m impressed with your wisdom and knowledge. – B.R., Cleveland, Ohio

Dear B.R.: Over the last 18 months, I’ve reached an uncomfortable conclusion that the concept of a long-term investment – holding a stock for three to seven years – is no longer valid. I’ve also concluded that our stock market, along with the world markets, has become a consortium of big craps tables rather than a tribunal of rational investment opinions. And I’ve recognized that there are privileged players who are permitted (wink) to roll their own dice.

And what frightens me is that I’m right. A very close of acquaintance of 32 years who runs a multibillion-dollar mutual fund (most investors would recognize the name) agrees with me. He speaks of an influential cabal of high-powered, like-minded mandarins who control the supply and demand for equities and commodities.

So while Greece may falter, while Portugal may fall and while Italy treads water; while oil may exceed $100 a barrel; while U.S. unemployment aims at 10 percent and higher; while the housing market founders and commercial real estate flounders; while our national debt explodes; while riots take place in the Middle East; while the Dow Jones moves by hundreds of points in a day; while the U.S. experiences near-record bankruptcies … these mandarins are colluding to push commodity prices to record highs and covertly commanding equity prices to soar.

So, today, when things go lickety split from here to there and back again in the blink of an eye or the snap of a finger, keep in mind last year’s flash crash and others of less significance. You have to be industrial-strength dumb to think long term. Real revenue growth, real earnings growth and real dividend growth don’t mean diddly-squat any more. Value investing has become old-fashioned and disdainful, because its rewards are too slow and its gains are limited to single and low double digits.

You may be able to manage and compose a portfolio with that $1.4 million. And if you can, then you are a uniquely and uncommonly skilled investor. However, I can tell you that managing money in this milieu is like trying to walk backward underwater in a hurry. This is not a market where common sense, logic and patience prevail. This is a market where mandarins employ the mathematics of game theory, keep behavioral psychologists on their payrolls and use supercomputers to find anomalies that create momentum.

You need a wise and knowledgeable money manager to care for your portfolio. You need an experienced professional able to navigate land mines and who is also a mechanic able to make repairs and who is an investigator able to read the clues.

And you should understand that I can’t give you a list of investments without knowing your risk tolerances, your goals, your personal obligations, your current income statement, your balance sheet and more. What would your response be if a stranger were to write you for legal advice on how he could defend himself against criminal charges?

Ask your colleagues to recommend some money managers. Interview their favorites, and then email me with your thoughts. I’ll try to help you select the professional who may be best for you.

Address your financial questions to Malcolm Berko, c/o The Daily Journal of Commerce, P.O. Box 8303, Largo, FL 33775, or e-mail him at mjberko@yahoo.com.

© 2011 Creators.com

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Recently many of us got a chance to see the first – and possibly only – gubernatorial debate of the fall election.

Both John Kitzhaber and Chris Dudley faced a litany of questions from the debate moderators and undecided voters in the audience. From government spending to merit pay for teachers to humanity’s role in global warming, the two candidates spent an hour making their case to Oregon voters.

One particular question from the debate stood out to me. Jeff Mapes of the Oregonian asked Dudley to name a development project over the past few years that should not have been built.

“I can’t think of one specific example off the top of my head of something that shouldn’t have been built,” Dudley noted.

Some political pundits have criticized Dudley for not having an answer. The fact of the matter is that many of us in the construction and development would have trouble answering the same question.

Why?

Because there haven’t been many development projects built in the past few years. Even more to the point, what would unemployment in Oregon have looked like without the projects that did take place?

The list of projects that have been put on hold and or canceled is considerably longer than the list of completed projects. The fact of the matter is that there aren’t many projects.

Our next governor is going to have to do plenty to get our state working again.

If the candidates were to debate again, or if any of us were to run into both candidates on the street, I think the follow-up questions should be: “What are you going to do to get projects on the shelf moving again, and how are you going to initiate new projects in Oregon?”

In 2003, Gov. Ted Kulongoski promoted the idea of “shovel ready” industrial sites. Today, we have plenty of “shovel ready” sites across the state. Now we need to talk about how to make them construction ready and job ready.

Ultimately, my favorite line of the debate came from Dudley when he said, “Taxes do matter.”

Until Oregon reverses course and addresses what have become some of the highest income and capital gains taxes in the nation, people are going to have trouble citing major development projects that shouldn’t have happened. Higher taxes influence behavior directly and indirectly.

We are all paying close attention this election cycle. As we all do our research on candidates, I encourage you to ask them how they will help get Oregon building again and what changes they see necessary to make that happen.

John Killin is president of the Associated Builders and Contractors Pacific Northwest Chapter and executive director of the Independent Electrical Contractors of Oregon.

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In Oregon, all contractors must be licensed with the Construction Contractors Board. As part of the licensing requirement, a contractor must post a surety bond with the CCB. If a subcontractor or material supplier (collectively, the “claimant”) is not paid by the contractor, then the claimant may file a claim against the contractor’s bond with the CCB.

While the CCB process is generally user friendly, historically there were several “downsides” to asserting a CCB claim; most involved the limited remedy available to the claimant. First, for a residential project, a homeowner’s claim against the contractor’s bond had first priority and reached the entire the amount of the bond. Second, for commercial and residential projects, a claimant’s recovery was limited to a maximum of $3,000.

Moreover, the $3,000 cap applied to all subcontractor or material supplier claims made within a 90-day window. Thus, if multiple claims were made against the contractor’s bond, the $3,000 was split pro-rata between all of the claimants. As a result, in most instances, it was not economically worthwhile to file a CCB claim.

However, in July 2010, the remedy available to a claimant changed significantly, at least for commercial projects. Now, for a claim based on work performed on, or materials supplied to, a “commercial structure,” a claimant may reach the full amount of the contractor’s bond. In other words, the claimant’s recovery is no longer capped at $3,000. Under the new rules, labor claims have priority over a claim for materials up to the full amount of the bond.

Also of importance is the fact that the amount of bond the contractor is required to post with the CCB has increased significantly. A contractor with a commercial endorsement must now post a bond between $20,000 and $75,000. The amount of the bond depends on the “level” of the contractor’s endorsement and whether the contractor is a general or specialty contractor.

The different types of contractors and structures are defined in Oregon Revised Statute 701.005.  Fortunately, the definition of a “commercial structure” is rather broad. A “commercial structure” may be “small” or “large.”

A “small” commercial structure is defined as:

• A nonresidential structure with a ground area of 10,000 square feet or less, including exterior walls, and a height of not more than 20 feet from the top surface of the lowest flooring to the highest interior overhead finish of the structure;
• A nonresidential leasehold, rental unit or other unit that is part of a larger structure, if the unit has a ground area of 12,000 square feet or less, excluding exterior walls, and a height of not more than 20 feet from the top surface of the lowest flooring to the highest interior overhead finish of the unit; or
• A nonresidential structure of any size for which the contract price of all construction contractor work to be performed on the structure as part of a construction project does not total more than $250,000.

A “large” commercial structure is defined as “a structure that is not a residential structure or a small commercial structure.” The statutory definition of a residential structure is not axiomatic and warrants a careful reading. Among other things, it includes “a structure that contains one or more dwelling units and is four stories or less above grade.”

The rules have not changed for a CCB claim involving a residential structure. Claims against a contractor with only a “residential” endorsement must be filed with the CCB, regardless of the type of structure involved, and recovery against the bond is still limited to $3,000.

The new rules regarding filing a claim involving a commercial structure are somewhat convoluted. Claims against a contractor with a “commercial” and “residential” endorsement working on a “small commercial structure” may, at the election of the claimant, be asserted directly with the CCB. The CCB claim may be asserted only against the entity or person that holds the CCB license.

The claimant also may file a CCB claim, but elect to prosecute the substance of the claim via a lawsuit against the contractor. A claimant would choose this option if it wanted to concurrently assert a claim against an entity or individual other than the licensee, such as a guarantor. Upon completion of the lawsuit, the claimant may satisfy the judgment obtained against the contractor from the contractor’s CCB surety bond. For work performed on a “large commercial structure” or for claims against a contractor with only a “commercial” endorsement (regardless of the type of structure), the claimant is required to prosecute the substance of its CCB claim via a lawsuit against the contractor.

Unfortunately, the viability of a CCB claim involving a residential structure has not changed. Because of the limited remedy, in many instances it is not worth filing such a claim. However, this is no longer the case for commercial projects. The significant increase in the amount of the surety bonds and the ability of the claimant to reach the full amount of the bond gives a CCB claim on a commercial project some serious teeth. An unpaid subcontractor or material supplier involved with a commercial project should give serious consideration to filing a CCB claim.

William Fig is a partner in Sussman Shank LLP’s business litigation and construction practice groups. Contact him at 503-227-1111 or billf@sussmanshank.com

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Dear Mr. Berko: I continue to read in the local paper and on TV that revenues and profits for many companies are increasing by 10 percent or more, and then the stock market jumps 200 points or more. A 10 percent increase is a good number, so why are we still in a recession, why is unemployment still 9.5 percent and why are friends of ours, who own their own businesses, complaining that their sales and income are still weak? – S.K., Columbus, Ohio

Dear S.K.: I’m going to give you an answer that is so simple a high school graduate might understand it.

Assume that in 2009, you were selling an average of 100 Oxycontin tablets a week to kids, friends and neighbors in the hood. In 2009, you retailed them for $20 each and made $10 on every pill. (Frankly, this is a darn good job – the income is tax free, there’s no bookkeeping and you work only the hours that suit you.)

Because the economy softens, you’re soon only selling 50 Oxies a week, which is a 50 percent decline in sales. And because you have to lower your selling price, your profits fall from $10 a pop to $5 a pop, which is also a 50 percent decline in earnings.

I know that the recreational drug business is impervious to recession, but humor me just for illustrative purposes. If you happen to sell 55 Oxies at $10 each this week your sales will have increased by five pills, or 10 percent. Got it? Because your sales increased by five pills, your profits also increased by 10 percent. You may have to think this one through, but trust me, the math is correct.

Now, 10 percent is a very attractive number, so the administration and the media fall over this 10 percent number as if the Lord declared a miracle. Newspaper headlines proclaim “the recession is over;” radio stations blare “happy times are coming back;” and evening TV news teams compete for coverage excitedly shouting every half-hour that the recovery is on track. So the stock market rallies. And the administration laps it up because it proves its policies are working.

While the 10 percent numbers are gospel, many Americans don’t understand that sales and profits are still down 45 percent from 2009. Sadly, many Americans are so dumb and can’t compute that if sales and earnings fall 50 percent, they must rise by 100 percent to equal last year’s numbers.

The reason revenues grew by 10 percent is that the stimulus package dropped more money into the economy. And American consumers (half of whom are below average intelligence), thinking this is free money, rush to spend it.

The other reason profits increased is that American corporations have figured out how to make more money with fewer employees. There are fewer cashiers at CVS and Walmart these days. There are fewer salespeople at Best Buy and Macy’s. And it takes longer to connect with a customer service rep at Verizon or United Airlines. And of course, more corporations are using computers rather than human beings because computers don’t demand pension plans, health insurance or belong to unions that constantly agitate for higher pay and more benefits.

Frankly, the stimulus package was poorly conceived. That money should have been used to stimulate growth in investments that will yield more than their costs, rather than just increasing our national debt.

Now the 40- to 45-year-old worker who made $30 to $40 per hour is being replaced by a younger, educated worker who will make $15 to $20 per hour.

Business will recover, but it will be long and slow and without the excesses jeweled by the biotech, high-tech and housing bubbles.

Address your financial questions to Malcolm Berko, c/o The Daily Journal of Commerce, P.O. Box 8303, Largo, FL 33775, or e-mail him at mjberko@yahoo.com.

© 2010 Creators.com

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