Doug Houser:
From Rea & Associates studio, this is unsuitable, a management financial services podcast for entrepreneurs, tenured business leaders, and others, who are ready to look beyond the suit and tie culture for meaningful, measurable results. I'm Doug Houser. On this weekly podcast, thought leaders and business professionals break down complicated and mundane topics and give you the tips and insight you actually need to grow as a leader while helping your organization to grow and thrive.
If you haven't already, hit the subscribe button so you don't miss future episodes. And if you want access to even more information, show notes, and exclusive content, visit our website at www.reacpa.com/podcast and sign up for updates. As new trends emerge in today's society, it's important that industries follow suit. Today, Don Gregory, Director and chair of construction law at Kegler Brown Hill & Ritter, and Mike Madigan, Director at Kegler Brown, are here to share top trends and issues in the legal industry and what they foresee for 2021.
So welcome to unsuitable again, Don and Mike, glad to have you on board. I wish, however, we could be in person. Unfortunately, we're doing this remotely, so cheers to both of you.
Don Gregory:
Good to be back again, Doug.
Doug:
Thank you. Love it. Love it.
Mike Madigan:
Thanks for having me. First time here.
Doug:
Yeah, I'm glad we could get you on as a duo. This is exciting. So very pleased to have you on to talk about what's going on in the legal world and what you foresee. Don, let's start with you anything in recent months, from a construction law perspective, that folks ought to be paying attention to, that certainly could have an impact going forward?
Don:
Well, like everything in the COVID era, everything's changed. Everything's become more difficult. That's common all across the board, regardless of the industry. The construction industry has done pretty well for itself, all things considered, as it was an essential industry and worked through most of the outbreak. To this point, has done pretty well avoiding COVID out in the field and guys are making money. But the future looks a little scary. The legal environments, a little scarier and uncertain, and certainly moving slower. So we're just sorting it out like everybody else.
Doug:
Yeah. It brings up a good point. So Mike, have you seen ... Obviously, construction has continued to fair certainly better than many industries, and I recall back to, obviously, the '08, '09, '10 timeframe. Are we starting to see more disputes arise during these past six to eight months or so? What are your thoughts there?
Mike:
Not yet. We're not seeing an uptake in collections. There's always going to be some collections, but right now, I think it's still going as it was before. Now, as you get into 2021, that remains to be seen. I think a lot of folks got the PPP and that helped, but I think that's come and gone and it'll be interesting to see what happens in 2021. I think for us, the idea of going down to the courthouse is going to take even longer now. So, we look at arbitration or for contracts that are coming out of the gate, the idea of arbitration is private. You don't have the long line, but that's for contracts that are in the works today, not that we're dealing with pre-COVID.
Doug:
Right. Right. Absolutely. And to that point, Don, have you seen a significant change in what's involved in putting contracts together? Have we seen the adoption of a lot of different things related to COVID in terms of protection? Obviously, force majeure became a big thing that those of us in the non-legal world had to look back up and say, "Wait, what is this clause that's always been in there? We've never really dealt with?" That kind of stuff.
Don:
When you start talking about Latin terms like force majeure, you know you're in trouble. You know you're in a very strange territory and that's kind of where we've been in the COVID world. So we had to figure out what those clauses, the act of God-type, force majeure clauses meant. Do you get time if you're impacted? Do you get the money? Do you get both? Those types of things are still getting sorted out. Most of them got worked out by agreement out in the field.
And again, the fact that all work did not come to a halt in this state helped. In other states, not so much. But now people are starting to draft some provisions to deal with COVID-type issues or material cost escalations or shortage of supplies, that type of thing. Not radical changes in contracts, but some around the fringes. And as Mike mentioned, the future looks a little tenuous, and if someone thinks they're going to go down to the courthouse in this environment and suddenly have themselves a judge or a jury at their leisure, and ready to take action on their civil case, I think they're going to be sadly disappointed.
So we're starting to push arbitration more, as a clause in those contracts for example, because at least then you will have your day in court, so to speak, at some point in the reasonable future. Down at the courthouse, maybe not so much.
Doug:
Yeah, that's a great point. So Mike, maybe talk to us a little bit about that arbitration process. I'm familiar with the term, obviously, and you see it in some legal circles, but in terms of, say, construction law and construction projects, how does that work?
Mike:
Right. Well, the parties have to affirmatively select arbitration, and typically that's done at the beginning when they execute the contract. A decision has to be made upfront, how are we going to resolve the dispute? If arbitration is selected, then a lot of times, they'll use the American Arbitration Association to facilitate that. So basically if you have a dispute, you engage the American Arbitration Association and they help facilitate it. They'll help you pick a panel.
There'll be in charge of picking a panel or an arbitrator. And that arbitrator panel is really devoted to your case. So the idea is that you get more attention. The downside is that you got to pay for it. So if you have a three-party panel, you're paying for ... Both sides would likely have to share that cost. So the cost for arbitration, to have that panel is an add. But it moves faster.
Doug:
Yes. It's more efficient, obviously, than as Don alluded to than going to court, correct? And taking all that time?
Mike:
I equate it to Bud Light and Budweiser, it's kind of like the Bud Light. It's still can be pretty expensive by the time people start doing discovery and things like that. It's supposed to be limited, but don't be full that it's much less expensive. It's less expensive, but not much.
Doug:
Yeah. But at least you get through it more quickly, through the process. We don't want to use the Bud Light and Bud reference, do we, Don? We want to go with a couple of North High, different brews there. What do you got for us today?
Don:
We'd like to keep it local, North High brewing is my favorite. I'm just sipping a honey wheat lager today.
Doug:
Nice.
Don:
You may recall, before COVID struck, I brought you out a little bit of the good stuff, the double IPA, the startup.
Doug:
Yes.
Don:
But I found that after one of those, I was telling some stories that perhaps got me in a little bit of trouble or something. I thought I'd go a little lighter on that this time around and maybe be more appropriate for unsuitable.
Doug:
That's good. We appreciate that. Yeah, we don't want to violate any attorney/client privilege here on this, although we do have the ability to edit. So we're all good. Don, talk a little bit about maybe, now that we're pseudo here post-election, from a macro scale, is there anything that, that folks should be on the lookout for as we move into '21, in terms of some macro trends on the legal side of things? Be it, it doesn't matter if it's related to contract law or perhaps labor or anything else that might be on the docket?
Don:
Of course, we're traveling from a period of heated growth in the construction industry, labor shortages and the like, time demands, and so forth, which has pretty much been our life. We've had the impact of the coronavirus and the additional costs and the impact on productivity, that kind of thing, and the uncertainty about the future. And of course, elections are never good for certainty until they're resolved and behind us. Hopefully, we're making progress in that regard. Although when you listen to the news, you can never be quite sure these days.
But generally, the economic climate will enjoy some certainty. And hopefully, we'll have that at some point here sooner rather than later. But there are a lot of flashing yellow lights of warning Will Rogers for '21. We have declining architectural billings. We've got declining optimism. We have disrupted supply chains. We've got some material costs going up. Lumber went up like crazy, for example. We've got a lot of things that threaten to reduce profitability. We got a declining backlog. We may have some panicky bidding early in '21, just guys wanting to fill their plate and folks doing it too cheap, perhaps. So these are some of the trends we're looking at.
Now, some would have thought that we could talk optimistically about some sort of infrastructure-type bill in '21, although it's way too early to tell whether the government's going to get its act together enough to do that. Hopefully, it will. There's also uncertainty about what kind of COVID relief will come next. Will it be state and local money pushed out that will go to provide relief to stay local, so they can get shovel-ready projects going and out? Or will they be starved of cash, as they will absent that kind of infusion of capital, and therefore have to really cut back on their building programs and so forth? So there's a lot we don't know. But we're going to live with that uncertainty, I think, for a little while longer as we headed into '21.
Doug:
Yeah, I agree. I think, overall certainly, we're fortunate to be here in central Ohio where we're still experiencing fairly strong growth relative to many other areas. I'm a big believer in demographics and just because of the population influx that we're likely to continue to see over the next 10, 15 years, you've got to believe that we're going to continue to build the infrastructure that we need to support that. But remains to be seen, as you suggested.
So, Mike, what about you? What are you trying to focus on as we move to '21? Any other macro issues that come to mind here?
Mike:
I just look back at what we went through during the great recession and you did have your uptake in collection cases. And looking back at those cases, they hinged on contractual terms like the pay if paid provision, and people making sure that they had their lien rights preserved. So that's what I'm talking to people about, is at least try to be proactive in that and make sure you do the simple things to reduce the risk that you get caught up in one of those situations.
Doug:
Yeah, no, absolutely. That's a good point. One of the things ... Don, maybe you can speak to this a little bit, but one of the things that have surprised me going back to the great recession is how many contractors that I thought were in really serious trouble, how many survived. The ability to survive through that, frankly, really shocked me, given what I saw in terms of a lack of liquidity and working capital through that period.
What are your expectations this time, overall, as far as that goes? I know we've come a long way in terms of vetting of subcontractors and vetting those that you work with. Anything, any predictions that you might have along those lines?
Don:
Well, certainly, it would be good to continue to pre-qualify subcontractors and not be in a hurry to cut costs and perhaps cut corners on that sort of thing as we head into an uncertain period. But I share your views of 10 years ago and the great recession, there were more people who survived than I thought. But remember, sometimes people run into problems not at the lowest point, but when you start trying to come out of the lowest point.
So that's still a long way off with respect to this anticipated downturn. I view everything right now as we're on the shot clock and an NBA game or something in that COVID has caused this disruption, has caused this V in the economy. It's been mitigated some in the construction industry. The construction industry goes into it down term last, comes out last, traditionally. But will there be, through turning around the virus through the pharmaceutical solutions and some Washington solutions with money, [inaudible 00:15:50] to the economy?
Will, there be a relief to bring us out quickly, so we won't suffer a typical long downturn, like the great recession? Or will there be continuing health problems, continuing economic and governance problems that ultimately stall this out, so we will have a much slower upturn for the industry? And really, I think the jury's still out on all that. And it's very tough to predict which way is going to go. Will the cavalry arrive in time to save the construction industry from a deep downturn or not? Who knows?
Doug:
Yeah, it'll be interesting to see. And as you suggested earlier, I think state and local tax revenues, obviously, they don't really reconcile that stuff for 2020 until they're into the early part of 2021. So it remains to be seen how their budgets are going to look, as you indicated, related to public projects and all of those things unless they get assistance. So we shall see on that front. It will be very interesting.
Mike, what do you see in terms of locally here in central Ohio? Obviously, we've seen delays with some major projects, but some others have continued to go. Have you started to see much concern there with further projects that may be may be delayed? Or what are you hearing along those lines?
Mike:
I think anything that was in the ground or was, you know, getting ready to start, it's still going. I think you alluded to this earlier, that the economics of Columbus and it just growing, I think developers that are doing apartment projects and things like that, you're still getting the sense that those are still going. So I still think it's fairly strong now. You do hear about Ohio state cutting back. That's the one notable, but I think there are still pockets that are fairly strong. And like I said, we were probably at capacity before COVID, so I'm still optimistic that there's still a lot of firepowers left.
Doug:
Yeah. It certainly, if nothing else, maybe accelerated some trends that were probably already underway. And you look at, as you suggested, certain segments, obviously we're seeing industrial and warehousing and data centers and all these things become, if anything, more and more attractive. And yet, obviously, other segments: retail, hospitality, the slow down and starts there has been even more dramatic. So it will be interesting to see if those trends continue or if they do reverse as we hopefully come out on the backside of this thing, with a vaccine of some kind.
But I know one thing that has shocked me, and I'd love to hear both your comments on this. We'll start with you, Don. But I've continued to see strong M&A activity in the construction space, amongst either still private equity coming in and trying to acquire construction companies as part of some roll-up strategy, or whether it's two companies combining in some way, or straight-up purchase, or internal transfers, ESOP related, things like that.
If anything, it seems to me, those have continued to accelerate, and I don't know if that's just because construction has fared better than others, or maybe it's just a continuation of stuff that was happening before. What are you seeing on that front? What are your thoughts there?
Don:
Well, maybe they're interested in doing those deals because they're interested in the way the financial statements currently look or have looked, as opposed to how they might look in the future. I don't know. The industry has been very bullish, I think in part because it has been immune to a lot of the hardship that others have sustained. It's almost considered itself its own separate Island through all this. And yet, if you look at the backlogs, if you look at pricing, if you look at architectural billings, if you look at things that are precursors to the future, it's a little scarier.
So I don't know how optimistic I would feel to make an aggressive deal right now in the corporate space. But it's a new world. If you're building data centers and if you're building distribution, and if you're doing that kind of stuff, then maybe it's rock and roll time. If you're going to do stuff for higher education or healthcare, or God forbid, you've been doing offices, office space along the outer belt, or something, these are going to be challenging times.
And I think even when the virus recedes in some fashion, our work style has changed. It's changed forever, and everyone's not going back into their office chair exactly as they did before. So there'll be certain segments that benefit, certain segments that suffer horribly as a result. And who are you serving? Where are your clients based and what kind of work are you going to do?
Doug:
Yeah, that's a great point. Unlike the great recession where we all sank together, as it were. It's very disparate this time in terms of, depending on who you are and what you do, what type of work you do, is as you suggest. That's the hard part for me to get my arms around as well. But Michael, obviously, your offices are downtown. Are you fully back in the office? Are you doing a hybrid type of model? What have you guys been doing?
Mike:
Yeah, it's really voluntary. If people want to come in, they can come in. I've elected to come in, Don's elected to come in. I think it's probably just your personal preference. Overall, I'd probably say, it's maybe 20, 30% of what you typically have. I think that's the case for most of downtown. The upside is, it's easy to get back down here for a meeting and you've got plenty of parking. The plywood's coming down, but winter's coming.
Doug:
Yeah. There you go. Yeah, it's been strange. We've got 13 offices around Ohio, each one's been a little different in terms of people coming and going. But I think everybody's getting more used to the work from home type of thing, but it's difficult for teamwork and team building and just a lot of that comradery. We're having to work hard at that. The interesting thing I've seen, and I've been out now for, as I'm sure you guys have, probably four or five months, seeing clients and prospective clients, even in the construction space, most all have been back in their offices. But even how they treat it when you're there and visit them in their office is very different from company to company. Is that been your experience too? Or have you guys been doing more remote stuff?
Don:
I've been doing more remote stuff, but there's a lot of construction folks who'd be glad to have you in their offices today and treat you like they would have nine months ago. Now, I think that's the exception rather than the rule, but some are just continuing to roll on that fashion. But I was supposed to make a very big presentation to a very big contractor's team on one of the largest, if not the largest, project in central Ohio. I was supposed to do that next week. It's called off now because of a COVID outbreak. Even though we were going to have it in a big conference room and so forth.
So, we're still dodging that kind of stuff. It's hard to know what the right balance is in how much face-to-face you have. Obviously, you're socially distancing, but should you do it remotely or not? I've done a lot of things remotely, whether it's mediations or arbitrations or other things, and it's not as good, but it's better than doing nothing at all. So these are the constant tradeoffs we're dealing with as we go through our risk management matrix every day, in our daily lives.
Doug:
Yeah. That's a good way to put it, the risk management matrix. I guess in some sense, we all do that informally. But yeah, it's been a big change and we're all trying to adapt to it as best as we can. It will be interesting to see on the other side, what sticks and what reverts. I'll be curious about that. So Mike, as we wrap up here, any last thoughts, any sage wisdom as we move forward into the end of the year and into '21? I know we're all glad to see '20 put in the rearview mirror, for sure.
Mike:
Nah. I just think, looking at collections, doing the simple things, making sure your liens are updated, and going into new contracts with people that you know, and you don't have to get all the jobs. I think now, quality is better than quantity. Other than that, stay positive and test negative.
Doug:
There you go. I like that. Yes, the fundamentals. It always comes back to the fundamentals. Yeah. This time, especially. So Don, what about you as we close out here? Any thoughts that you want to leave the audience with?
Don:
Well, sometimes the best job is the one you never get. So hopefully people keep the powder dry where appropriate and that don't panic and stay true to their fundamentals as we go into this scary period ahead, I think. And then the other thing I'd like to say is, I want to congratulate Mike on his virtual honor that he will receive tonight from the Builders Exchange. They're honoring him with the president’s award. It will be virtual rather than before a thousand or 2,000 people in the normal fashion at the annual meeting, but it was well-earned in any event. So he'll have virtual recognition today, which is just another example of how things have changed in 2020.
Doug:
Yes. Congratulations, definitely, on that, Mike. I'll be a part of that event too, and it'll be so strange having that virtually. It's always such a big to do. It's bizarre, but congratulations none the less.
Mike:
Thank you.
Doug:
We'll look forward to ... Hopefully, before too long, we can get together at North High brewing and celebrate together.
Mike:
There you go.
Don:
Amen.
Doug:
Great. All right, well, thank you, gentlemen. Thanks for joining us today. And certainly, thank you for listening to this week's show as we wrap up here today. Be sure to subscribe to unsuitable on Apple podcasts, Google podcasts, or wherever you're listening to us right now, including YouTube. I'm Doug Houser and join us next week for another unsuitable interview from an industry professional.
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