June 16, 2022
Construction Input Prices Are Up 21% from a Year Ago, Says ABC
Diana Mota, editor in chief
The Fed’s policy of monetary tightening and raising interest rates to fight inflation will “quite likely drive the economy into recession either later this year or at some point in 2023,” according to the Associated Builders and Contractors (ABC) association.
The Federal Reserve raised interest rates by 75 basis points yesterday, the biggest rate hike since 1994. The Fed also hinted to more rate hikes in the future as it intensifies the fight against inflation. This is the third time the central bank has raised interest rates this year.
“Inflationary pressures show no signs of abating,” said ABC Chief Economist Anirban Basu. “For months, economists and others have been expecting inflation to peak and then subside. Instead, the Russia-Ukraine war has disturbed markets, driving energy prices higher. Those elevated energy prices are now circulating across the economy, affecting manufacturing and distribution, and there is little prospect for inflation to meaningfully subside during the weeks ahead.”
The Fed most directly affects demand for goods and services, not supply, Basu pointed out. The Fed’s approach will suppress demand over the rest of the year, and eventually suppliers will respond to diminished demand—ultimately leading to recession, he added.
“Based on the historical lag between the performance of the economy and nonresidential construction spending, more difficult times could be ahead for contractors in 2024 or 2025,” said Basu. “Looking at the most recent reading of ABC’s Construction Confidence Index, contractors are already seeing momentum slow. The likely exception is public contractors, who will continue to benefit from stepped-up infrastructure spending.”
Construction input prices rose 2.3% in May compared to the previous month, according to ABC’s analysis of U.S. Bureau of Labor Statistics Producer Price Index data released today. Nonresidential construction input prices also increased 2.3% for the month.
Construction input prices are up 21.4% from a year ago, while nonresidential construction input prices are 21.9% higher. Year on year, input prices rose in 10 of 11 subcategories in May. Softwood lumber was the only category in which prices decreased, falling 21.7%. The largest price increases were in natural gas (174%) and unprocessed energy materials (101.1%).
Using Contract Provisions to Protect Against Supply Chain Woes
Annacaroline Caruso, editorial associate
Businesses can no longer sit around and wait for supply chain disruptions to pass. It is more than likely these issues are here to stay, and credit professionals should start looking at ways to mitigate the damages caused by supply backlogs.
“If you think about today’s supply chain, it is so complex,” said Shaun Papperman, CCE, CCRA, CICP, director of order fulfillment at Baltimore Aircoil Company, Inc. (Jessup, MD), during Effectively Communicating Your Supply-Chain Status: Fulfillment, Pricing and Contract Modifications, and Other Related Issues at NACM’s 126th Credit Congress last week. “It is the result of decades of companies looking for ways to move to just-in-time inventory and reduce costs. Businesses were not prepared for the war in Ukraine or Covid lockdowns, so now the supply chain is in a position where it can no longer catch up.”
The good news is companies are slowly finding ways to cope with supply challenges. But some strategies are more effective and provide more protection than others as supply chain disruptions continue to evolve, Papperman added. “A lot of businesses have started thinking about substitution products or using different vendors. But now those vendors may not be accepting new customers so that they can ensure their original customers have enough product. So, it may not be as easy to switch vendors as you think.”
Instead, credit professionals can create language in contracts to help offset supply chain woes, said Samantha Riggen, senior associate with Gibbs Giden Locher Turner Senet & Wittbrodt LLP (Los Angeles, CA), during the same educational session at Credit Congress.
“The credit agreement is the earliest time to establish the rights, remedies and obligations,” she explained. “Make sure it is up to date and not conflicting with other documents, otherwise you are giving your customers a clear lane to dispute whatever supply chain issues you are trying to get around.”
The first step in using contracts as a buffer against supply disruptions is to take a look at how the documents currently stand. That way you can start to figure out what needs to be changed, Riggen said. “It is just as important to know what your contract is downstream with suppliers and vendors as it is upstream with your customers because if your supplier has the ability to pass along a price escalation to you, but you don’t have the same contract language with your own customers, you will be the one left holding the bag.”
Seemingly endless amounts of provisions can be added to contracts, but price escalation clauses and force majeure clauses are the two that can “protect you from both time and money issues caused by supply disruptions, so you should be insisting these be included in your contracts,” she said.
Price escalation clauses will shift the risk of additional costs and ensure customers are paying the current market value for a product, not what it cost three months ago before the material shipped. The language doesn’t need to be fancy in order to be effective. It can read as simple as the quote is valid for X number of days.
“But if you are concerned about when your customer will take possession of the goods or additional storage costs, then you can have provisions that are a little more in-depth,” Riggen said. “The best provisions cover all phases of the product lifecycle—from the quote, after quote, contract and finally delivery.”
Riggen recommends a price escalation clause include language such as:
Prices will remain firm for 90 days from the date of quote. All quotes or orders accepted after 90 days may be subject to price change and be requoted. Once a quote or order is accepted, the price is subject to customer taking possession of the materials within 180 days of acceptance. After 180 days, the price of the unshipped portion of an order will be the price in effect at the time of shipment.
Force majeure clauses are a bit more difficult to write; but if you get it right, it can make for a solid safety net, she added. A force majeure event will forgive any liability in an agreement, but “unless your contract specifically spells out supply chain disruptions or a pandemic,” the clause is useless. “You want to make sure your contracts are explicit about what exactly constitutes a force majeure.”
When writing a force majeure clause, don’t be generic. In order for it to work, you must include the specific event, prove that the event cannot be reasonably anticipated by either party and explain how that event would prevent the parties from fulfilling their contractual obligations. “The writer should tailor the clause according to the nature of the transaction and the overall agreement,” reads a Konsyse article. “For example, it should list and describe the events applicable to the transaction. A generic listing is impossible because the types or kinds of events are almost infinite.”
Pros and Cons About Working from Home as a Credit Professional
Annacaroline Caruso, editorial associate
It’s been more than two years since a major part of the global workforce shifted to remote work. Now, some companies are choosing to bring employees back into the office, while others have made some version of a work-from-home schedule permanent.
According to a recent eNews poll, a little less than half (44%) of credit professionals still work remotely either part or full time, and the rest (56%) are entirely back in the office. Of those still working from home, 33% say they struggle with maintaining connections and communication with colleagues.
“You forget how much time you spend in the office chatting with people, and so it has been challenging on a personal level to lose those connections,” said Amanda Buskill, account manager at Gexpro (Smyrna, GA), who has been working from home since March 2020.
Remote work comes with a lot of benefits, and roughly two-thirds of people prefer a mix of in-person and remote work, according to the World Economic Forum. “At least for the credit team, this is the status quo for now and it has been working for us,” Buskill explained. “As credit professionals, we’ve been very lucky to have a job that we can do remotely. We have some people who have moved out of the area, so being able to work remote and stay with the company has been great because we haven’t had to replace those people.”
But not being in the office comes with challenges as well, especially for a profession so dependent on the customer-creditor relationship, she added. “Because I no longer overhear my colleagues on a regular basis, I’m not as in tune with the customers and branches they deal with. So, when they are out and I need to cover for them, I’m not as familiar with their customer package as I would be if I sat next to them and overheard conversations with their customers.”
Without being in the office, it may be easy to allow some of those connections to deteriorate. Buskill encourages creditors to do everything possible not to let that happen. “Especially if you work with a team, find ways to connect with each other. Go the extra mile because it will make a difference in your jobs.”
Other ways to support remote workers, according to Forbes, include:
- Share wins at weekly meetings
- Promote various ways to connect and contribute
- Let individuals choose their level of engagement
- Provide clear expectations
- Empower the team with trust
However, other challenges encountered by remote credit professionals may take a bit more time to address. When all parties are working either fully or partly remote, it can sometimes impact customer payment. “We call the customers for payment and cannot reach anyone, or find that their voicemail is full,” said Darrell Horton, ICCE, director of revenue and credit at AGS LLC (Las Vegas, NV), and NACM National chairman. “We are given the excuse that because our customer is working remotely, they are having a hard time coordinating the payment. The other thing that we have heard a lot more of is the customer didn’t get the invoice because they are working remotely.”
When you run into a nonpayment situation with customers while everyone is remote, it may require getting creative and more assertive, Horton said. “I would say my best advice is to climb up the chain of command faster than you normally would. Get your sales team involved sooner rather than later because they may have a different contact with the company. All in all, just be more persistent than you were before Covid and working from home.”
Perception Is Reality: 8 Steps for Changing How Others See You
Joel Garfinkle, Garfinkle Executive Coaching
James is an up-and-coming sales manager for a Fortune 500 company. He sees himself as outgoing, friendly fast-moving—a real deal maker. Some of the people he works with, however—as well as some of his clients—see him as a fast-talking backslapper and a bit of a phony. Which perception is accurate? And why does it matter?
The perception is reality adage is most often applied to the way each of us sees our own environment. If we see the glass as half full, we will operate from that reality and the glass will always be at least half full. But what if we turn that adage inside out? What if the reality we’re experiencing is due in part to how others perceive us?
Carly Fiorina, former Chairman and CEO of Hewlett-Packard, stated: “Leadership is a performance. You have to be conscious about your behavior because everyone else is.”
Let’s revisit James for a moment. He sees himself as a deal-maker, but lately the deals have been drying up. He’s having trouble getting appointments, even getting clients to return his phone calls. And the people on his team are working around him, leaving him out of important conversations and meetings. James is in serious need of a perception correction.
So how do we create the “me” we want others to see? How do we change perceptions? There are a number of actions we could take but we need to begin with behavior.
- Observe how your behavior impacts others
Start by being honest with yourself. Notice how your behavior affects those around you. How do people react to you in meetings? In the coffee room or at lunch? If clients are not returning your calls, perhaps your behavior is making them feel pressured or uncomfortable.
- Ask for feedback
Ask others how they see you. It takes courage and you may get some feedback that is hard to hear, but it’s an important step in creating a new perception.
- Make behavioral changes immediately
Once you have some basic information, take small steps toward behavioral change. If you’re the type who usually dominates the conversation in meetings or groups, try keeping absolutely quiet and taking notes for a change. If you usually hang back and let others take the spotlight, write down some key points that are relevant to the topic being discussed and speak up. Perceptions will not change overnight, but you will begin to notice that others are reacting differently.
- Up your visibility
If you want high visibility, you have to do what it takes to become visible. Start by volunteering for high impact projects. Look for a tough job that nobody wants to tackle, or something that’s been languishing but that you know is important to your boss or the company as a whole. If you see the company putting a lot of time and energy into a new idea or venture, get involved.
- Seek out cross-functional opportunities
Identify opportunities with other departments that will increase your visibility. Such as a project or task force that will give you a chance to see and be seen by people you wouldn’t meet otherwise. Offer to make presentations or speak to groups, both inside and outside the company.
- Promote yourself
You might be the best employee in the world, but if your contributions go unnoticed, it won’t matter. You need people who will speak positively about you and your accomplishments. This can happen on many fronts, but it begins when you speak up for yourself. This does not mean uncontrolled bragging about everything you do. It does mean sharing wins openly, and sharing credit with coworkers and team members. Tell success stories and celebrate accomplishments.
- Seek out advocates
Identify advocates who will speak on your behalf. Ask your boss to publicize your work with his boss and on up the corporate food chain. Look for opportunities to expose your work to corporate leaders. If, like James, you work with clients or vendors outside your company, ask for their endorsement and referrals.
- Get branded
You are the CEO of You, Inc. You are responsible for creating your personal brand, for getting your name known, for being memorable. You do this in dozens of ways, large and small. Branding “You” can be anything from developing a unique signature line on your emails to becoming an expert who is quoted in industry publications and asked to speak at seminars and meetings.
The perception others have of you will not change overnight. And once a change is made, it won’t necessarily stay that way. Creating a positive perception takes your commitment as well as consistent action on your part to develop and refine the image you want the world to see.
Joel Garfinkle provides corporate training and webinars. He is recognized as one of the top 50 coaches in the U.S., and has conducted executive coaching to such companies as Oracle, Microsoft, Amazon, Deloitte, Google and Warner Bros.
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