C.J. Smith: Putting the Contract in Contractor– Insights as Legal Counsel at C.D. Smith

Introduction

Adam: Episode number 40 of the WiLLCast was with C.J. Smith of C.D. Smith.

Becca: Yes, he's legal counsel for
C.D. Smith, which — for anyone who doesn't know or isn't from the Fond du Lac
area — they are a large general contractor. Very large.

Adam: They also do a lot of work in
the Milwaukee area. We've seen a lot of cool projects down that way. I think
the world's largest — or tallest — timber structure, which is down in downtown
Milwaukee towards the lakefront. We talked about some of the fundamentals of
the contracting process. What puts the “contract” in contractor. How you go
from contract to blueprints to all of the skilled trades people on the ground,
filling in all the gaps. And also, even aside from the contract, why
relationships are important in that business.

Becca: That was a cool perspective to
hear from him. As a lawyer, you think he'd be so dead set on the contract being
dialed in that much, but it was interesting because he does come from a
construction family. He really appreciates the importance of the relationships
with the different parties involved in a project and also just so much respect
for the boots on the ground — the laborers, the skilled workforce. A lot of
appreciation for everybody involved, the suppliers.

Adam: I think this is a really good
one for people that are in the construction business as a supplier but maybe
aren't always interacting with contractors — just to understand the framework
of the industry. Public sector customer versus a private sector customer, the
different types of contracts, really how projects start, who are
subcontractors, the different types of delivery methods. It really had
something for everybody if you're in the construction business.

Becca: This episode is brought to you
by WiLL Sport, which is Wisconsin Lighting Lab's indoor and outdoor sports
lighting brand. We do baseball fields, football fields, tennis courts,
pickleball courts — pretty much anything indoor and outdoor sports. They're fun
and exciting applications. We have control systems, color-changing systems. If
you're interested in connecting with us for your project, go to
www.WiLLBrands.com. Made in America products, manufactured right here in Fond
du Lac. Made in Wisconsin.

How C.J. Got Into Law

Adam: So how'd you get interested in
law? How far back does that go?

C.J.: That goes back probably just to
college. I went to Madison, and I'm studying political science and history
because I really enjoy reading. So I'm studying the Constitution, the Founding
Fathers, the Federalist Papers — all of these things. And then on the
national/international side, it's like, okay, why is England the way it is? Why
is Japan the way it is? And it all comes down to — for me at least — the way
that their society is organized around a set of laws. We call it the
Constitution; it's called a number of different things elsewhere. But then I'm
thinking, okay, so the people are kind of making this agreement with their
government as to how they are going to act, in this really strange,
long-tentacled way.

C.J.: Then I was working for a
lobbyist — this was still as an undergrad with a poli-sci major. We would be
reading Wisconsin state statutes, and thinking about how just these simple
little changes could make a big difference across the state that people might
not know about unless you're really into it. I thought that was really cool. So
I'm thinking to myself, all right, I can either keep going down this path and
be a lobbyist, which I thought was fun but a little too queasy for me.

Adam: There's a negative connotation.
Lobbyists do have an important role in representing their constituency, but in
recent years there's a negative taste.

C.J.: I was lucky because the people
that I worked for were representing the grocers in Wisconsin. Pretty salt of
the earth, pretty easy to get behind that. You're not going to be upset at
people for wanting to sell cheaper groceries. But on the other side, if you get
too deep into that, there's a whole other series of doors that you can open,
and all of a sudden you're working for people maybe who you don't want to work
for.

The Word “Contract” in Contractor

Adam: You understood the framework of
how states and countries are set up, how politics is structured. It's
interesting because from my view, we're in the construction business but we're
relatively far removed from the actual building of the buildings. We're supplying
components to electrical contractors who are supplying components to companies
like C.D. Smith. Even though we're only a few layers removed, in terms of
understanding the structure of how construction works — from the contract side
of it to the different types of delivery methods, what's a general contractor,
what's a subcontractor, and just the term “contract” in contractor — what was
it like to understand that process?

C.J.: I like to say that the word
“contract” and “contractor” — it's the most important part. It's in the name.
You have to take that bigger structure of how the state and federal government
works and boil it down. That's on a really grand scale, but the same principles
apply as you get down lower. I really enjoy finding out, as a company, what can
we agree to with someone else and define our relationship that way? We can
start a whole new relationship and get it all in writing. Think of the
possibilities.

C.J.: Getting to that point was my
favorite thing as a law student, as a young lawyer, as now an experienced
lawyer. Understanding the entire gamut of a project — you probably have 5,
maybe 10, entities doing some sort of designing or engineering. You have one,
maybe two general contractors, ideally just one. And then 30, 40, 50 other
entities performing work on the job site in small, specialized trades. That's
before even getting to the supply chain — before you have your material man,
before you have the suppliers to those material men, before you have the
professional services who come in and inspect those things.

C.J.: You have to find a way to take
all of these different entities and mold them into one deliverable contract to
the owner, where you say, to build something that has never existed before.
Buildings are always one-of-one.

Adam: Manufacturing is repeatability,
whereas a building — the stuff you guys work on typically is one of one.

C.J.: It is. I've always had great
admiration for people who could look at a series of lines and numbers on a
piece of paper and take that and build it into something that's coming out of
the ground. I was really lucky in the construction sense that my dad was a
superintendent, and I got to watch him occasionally on site. I would hear
stories about what he's doing on different sites, and I always thought that was
just the greatest thing ever. So you're telling me there's this roll of paper,
and you spread it out over a desk, and 18 months later it's a wastewater
treatment plant — and it's operating, benefiting an entire community. And you
were the one who said, drive that stake here, build that wall there.

C.J.: I look at the guys and girls who
work in the field, and now they're not even looking at the paper. They have
their iPads or their tablets, and it's showing a 3D rendering of the building.
They can still look at that and envision some of it in their mind, and look at
the space that's empty and know where things are going to go based on what
you're seeing on the screen or on a paper. I think that's just incredible work
to do. Way more important than reading a contract, I guess, if we're really
going to get into it.

How Projects Start: Public vs. Negotiated

Adam: If you think about a small,
medium-sized, or large project that you guys work on, how does that usually
start? When do you guys get involved? What is the discovery process like with
the owner?

C.J.: There are two ways that starts.
The first way is a public, openly bid, live-bid job. The second way is a
negotiated job, which can take two main forms. One would be a design-bid-build,
where the owner has a design, they send it to an architect, and then the
general contractor works with the architect to do the owner's program. The
second would be a design-build, where the architect is actually under the
contractor, and the owner really talks to the contractor, gives us all of their
requirements, specifications, hopes, and wishes, and we work with that
architect to deliver that whole project.

C.J.: On the public side, the contract
is a really simple process because you don't have a choice. You get the
documents from the municipality, from the agency, whoever it is. You review it,
you think, okay, we could probably do this. There's some risk in this language,
but we can't change it, so we've got to factor that into our numbers a little
bit. Then we send that overall document down to the subcontractors who were
hoping to bid on the job. We take their numbers, put them all into one
aggregate bid, send it into that municipality along with four or five other
people who have done the same thing. Low bidder wins, so long as it's
responsible. A week or so later, you get the contract in the mail — sign here,
don't change anything. You sign it, send it back, and two weeks after that you
get a notice to proceed, and you start working.

Engineers, Municipalities & the State

Adam: The folks putting the
requirements together on behalf of the end user's vision, in this case a public
entity — do they work for the public entity, or are they working on behalf of
them?

C.J.: A lot of times they're working
on behalf. If I'm thinking of a wastewater treatment facility — we have one
right now in Sheboygan, a really cool job where some of the piping is going out
two miles into Lake Michigan. So think about how specialized of a subcontractor
you have to be to put piping out two miles. But for this type of project,
they'll have a separate engineering company take the process from the start,
years before we ever get involved. The engineer will work with that
municipality, who probably builds one project like that every 20 years, so
there's really no need for them to specialize in it. Most of our interaction is
with the engineer. The contract is with the municipality because they're
ultimately going to pay for it, but the engineer is really running the show.

C.J.: On the other hand, if you're
working for the state of Wisconsin — take a Sellery Hall project, UW–Madison,
big dorm down on the southeast side. The state of Wisconsin had just built
Witte Hall, which we were lucky enough to be on. They do tons of college campus
facilities year after year. They have a whole in-house department — the
Division of Facilities Development. They do buildings, and they'll hire an
architect, but the specialization and the direction is really coming from the
state on that point because they do enough volume work where they can
specialize.

Specialty Subcontractors

Adam: Does C.D. Smith have a Rolodex
of super-specialized subcontractors for unique situations?

C.J.: It's more of an online database.
I think it's called the Plan Room, where we are able to solicit bids from those
specialty contractors, and they'll sign up and make themselves available to
receive those bids. For instance, on that Sheboygan job, the contractor doing
the piping — I think they're in Michigan, on the other side of the lake.

C.J.: We had a job in Milwaukee doing
the Milwaukee Symphony Orchestra renovation — big job, historic rehab, such a
cool job. One of the things we had to do — because the job relied on historic
tax credits to get some funding — was move one of the walls of the existing
theater, I want to say 100 feet back. It's a multi-ton wall. There's not many
people who do that. I think the subcontractor came out of Oklahoma or somewhere
like that. And the wall has art deco masonry on it — you can't let it crumble,
or all of these historic tax credits are gone. We had this one specialty
contractor, and this is what they do. They had all this steel rigging that they
pressed against the wall so that it was stable, and they would just kind of
scoot it back across these big giant I-beams. We had some really cool
time-lapse video of it. They backed this wall up so that there was more room on
the stage, then you build back into that wall. It turned out great. We did it
in half the time that we thought it was going to take, which is always a plus.

Contract Negotiation & Relationships

Adam: What does the contract process
look like?

C.J.: If we're on a negotiated
project, we'll start off with an AIA contract typically — AIA is the American
Institute of Architects. They have a form contract that's basically the
industry standard for general contractors working with an architect and an owner.
It's about 80 pages long when all is said and done. We'll take that — it's a
standard form. I have the modifications that I put in all the time for every
job just to give ourselves some baseline protection. As you can imagine, it's
an AIA document, so it's really good for the architects. It's not especially
great for the contractors. So we go back and kind of switch some of the things
around.

C.J.: Early on in the project, if
we're dealing with a sophisticated enough owner, they'll have legal
representation because they're also doing lending, real estate purchasing,
structuring their entity the way they want it. Then they say, send us the
contract. We'll send it to their legal team. Depending on how much of a fuss
they want to make, we could spend a month going back and forth. Luckily, I've
been in my position long enough where now I have fairly decent relationships
with a lot of the lawyers that these people hire, especially out of Milwaukee
or Madison. We can brush through most of it pretty quickly.

C.J.: If over time you develop trust
with an owner, then you can do that, because it's a repeat customer. The
relationship is the contract. Whatever you have in writing isn't really going
to matter as much as, hey, we want to keep working with you. We've done 10
projects together; let's make it 15. We don't want to ruin this over some line
that some lawyer put in the contract. Let's find the root of the problem and
solve it.

C.J.: You have to make a judgment
call. Is that the type of owner you're dealing with now, or are you dealing
with someone you've never met before? It's a new area for them, you're not
quite sure how they're going to react to certain situations — maybe keep the
protection in. There's always this give and take. If all goes well, you take
the contract, finalize it, and you always say you put it in a drawer and we're
not going to see it again ever. That's the ideal situation.

Specifications & Supply Chain

Adam: Do you think contracts are
getting the point where fewer and fewer people can actually understand the
spirit of the contract, as things get more complicated?

C.J.: Part of it is the contract, and
part of it is just the level of detail that goes into the specifications of a
project. The contract is 80 pages, but then the real meat of it is these really
hyper-detailed specifications that the architect or the engineer will put
together. When you're the contractor in the field, you have to go through and
look at — okay, I have this wall, it's load-bearing, I need steel studs rated
to ANSI standard, how many screws do I need. That's where the real detail comes
in. As the buildings become more sophisticated, I think that's where the big
detail is going to come in. But luckily, we have a lot of very experienced
people running our jobs, to where it's second nature to them.

Adam: Oftentimes what we see as a
lighting and controls manufacturer/supplier is, we get pulled in so far after
the specifications are created. All this upfront work happens with the
architect, the engineers, the contractors, the project managers. And only 25%
of the lighting and controls requirements are even possible to build. Yesterday
I was working on a military project — the requirements document was 120 pages
long. We get forwarded an email thread from a sales rep or a distributor and
they say, “Quote us,” and it's like, okay, where do we dive in? 99.9% of the
requirements aren't even related to the lighting — but they are indirectly
related. What we oftentimes do is, put us in touch with the engineer or the
architect. You don't necessarily start over, but you try to get the spirit of
the requirement and recalibrate with them, because ideally we would have been
pulled in 12 to 18 months earlier. But that doesn't always happen.

C.J.: What further complicates it is
all the supply chain issues right now. Everybody through the supply chain is
having to substitute and alternate parts. One of the contract sections we talk
about a lot is, what are we allowed to do for substitutions? If there's a
supply chain issue, what steps do we have to take to give notice to the owner,
to give notice to the engineer, to give ourselves the contractual right to
change an item out?

C.J.: A specified part on the critical
path of a job — you bid it out in March, the subcontractor says they can get
it. By the time the owner finalizes the contract and allows us to issue a
subcontract, it's June. And you get the response: no, that's not available
anymore. Why? They just don't make it. We've had these goofy things come up.
The supplier will say, well, you remember that ice storm in Texas from October
of 2020? That's where all of this product was made, and the chemical was stored
in this one building that lost power. Now there's no more chemical available,
and all of these products are just off the table.

C.J.: Then you either have a really
good owner who says, okay, I recognize that, let's find an alternate. Or you
have an owner that says, I don't care, you've got to supply it. Then you get
into — contractually, how do we give ourselves more time to finish this?

Supply Chain: Small Companies vs. Big Bidders

Adam: There's a lot of press with Ford
and some of the larger manufacturers switching to EVs, or just the
electrification of more systems in their vehicles. There are 57
microcontrollers in the F-150. If one microcontroller has supply chain issues,
you have to shut down a whole assembly line. On construction projects across
the entire U.S. or the world, there are probably tens of thousands of
microcontrollers in some of these buildings. It's mind-boggling that it
actually works, even during good supply times.

C.J.: We've had issues where — it was
an electrical switchgear component. All of a sudden, we were notified we
couldn't get it for like a year because it's all hung up in China. Our question
for the supplier was, okay, what if we give you $50,000 to get it on the next
container ship over? Air-freight it. And the supplier said, you could try, but
Ford needs these same components, and Ford is going to pay a billion dollars to
get it on the next container.

Adam: That's one of the unintended
consequences of everything that's happened the last two years. When there's a
supply or manufacturing crunch, the biggest bidders and the biggest companies
get all the parts. We've seen it in our industry, where some of the small
suppliers, the mom-and-pop fab shops, people that did very unique things —
similar to a specialty contractor — they had to rely on the supply chain to do
its job to stay in business. You can't design the part, run the machine, manage
all the supply chain, do everything, and all of a sudden everything changes
every hour. I think there have been a lot of smaller companies that
unfortunately are really struggling because of that exact situation.

Self-Performing & Vertical Integration

Adam: One of the things Tesla has been
doing is becoming more vertically integrated, where the trend over the last few
decades was to outsource. They've been able to weather a lot of supply chain
issues because they're so vertically integrated. Do you see in contracting or
building any trends towards that — contractors trying to do more design,
self-performing some of the work, even getting into manufacturing?

C.J.: That's tough because there's
such a wide variety of materials and supplies that come in. But we're a company
that's always prided ourselves on self-performing a lot of work. From our
earliest days, labor-intensive work — we've had a lot of really good workers
who take pride in that. That's one of the reasons we support union work, one of
the reasons we support apprentices as soon as you can find a trade. We
self-perform our masonry, our steel, our concrete, we do a lot of carpentry.
That allows us to have a competitive edge over other GCs who would have to sub
that — they're managing almost all of the labor, whereas we're doing a lot more
of that in-house.

C.J.: From a contractual side, it
makes it easier for us, because instead of having five different subcontracts
for these small areas, we can just do it ourselves. And you don't have to go
through the hassle of, well, now our masonry subcontractor is telling us
they're delayed. For us, it's our masonry superintendent saying he doesn't have
enough guys — let's pull from this other job, and we'll just get it done
ourselves. That's a tremendous advantage.

C.J.: Some of the things we've
invested in — automation of certain tasks, machinery that makes it easier to
get supplies like mortar directly to where a mason needs it, so instead of
having mortar on the ground and hauling it up, you can pump it right to the delivery
of the block. We were one of the early investors in concrete pumping trucks.
That was a huge innovation. Before that, it was pour the concrete into a
bucket, swing that bucket by a crane over the building, pull a lever, the
bucket dumps in, and you've got to puddle it out and repeat the process over
and over. We're always looking for the next big thing. If you're not
innovating, you're dying. We're looking constantly toward how we can become
more efficient in our work. If you're more efficient, you can lower your
prices, you can get more work.

Trades, College & the Workforce

Adam: Is there anything else you want
to touch on?

C.J.: C.D. Smith is a company here in
town. We have a CDS Gives Back program. We do a lot to support the community.
We have a walleye weekend — there's a new Building Block Zone that's going up.
We've sponsored it for young kids. We work a lot with the ACE Academy here in
town to try to get more kids into the trades. Not just because it's good for
us, but because it's good for the community. College certainly is not for
everyone.

Adam: That's a common theme on the
podcast — it isn't for everybody. There are a lot of people that were pressured
to do it over the last few decades, and it's a great option for people, but to
go to the trades, or go to tech school, or go right from high school into a
work program with a local contracting company — there are a lot of options.

C.J.: I think there's a direct
correlation between this giant push we've had in 20 years to go to college and
these insane college tuition rates and the insane student debt, which is awful.

Adam: And also the connection to — for
every five people getting out of the trades, there's only a couple people
replacing them. That's also a direct connection to the four-year push. I think
we were at the Envision dinner — the stat was like one out of every three high
school seniors doesn't have a plan. When you're promoting the local trades, it
sounds like you're keeping a workforce in Fond du Lac. Kids that maybe would go
out and move to Oshkosh, Milwaukee, Madison — you're trying to keep them local.

C.J.: And they're good-paying jobs.
Great-paying jobs. Especially as there has been a labor shortage. Labor has a
lot of power right now, as opposed to 20 years ago when management had
basically the whole say. It's totally flipped.

Adam: One of the messages we're giving
kids is, if you find something that you're able to do, you can get paid for it
anywhere. People are willing to pay for talent, for content.

Remote Work & Fond du Lac

C.J.: With COVID, the ability to work
remotely and not have to go into an office once a week, or ever, is great.
These kids are talking about moving and going different places. It's like, no,
you don't have to. You can stay right here and work for a company in New York,
and they will pay you as if you're working in New York. If we're plugging Fond
du Lac — it's a community that I dearly, dearly love. I left, I was gone, came
back. All roads lead back to Fond du Lac. But the fact that you could be a
tax-paying citizen in the city of Fond du Lac and not be working for a Fond du
Lac company — to me, that's still just wild.

C.J.: But on the other hand, if you're
interested in the trades, you can be based out of Fond du Lac, and if you're
working for a company like us, we can put you in housing if we have a job in La
Crosse. So now you're not even paying for rent. You can still be headquartered
in Fond du Lac, living in La Crosse, working at La Crosse, earning not only
your wages but a per diem. And if you're 22, 23 — even younger than that —
that's your whole income. That's on the pathway to your boat, to your up-north
cabin, to your fancy big truck by the time you're 25.

C.J.: That's something we've done — I
remember going to Beloit and Algoma, and my dad would be in a house there with
his whole crew working on a wastewater plant. That's just one of the nice
things, working for a company like C.D. Smith that's headquartered very
strongly in Fond du Lac. We're pretty central. We can get people there. If
you're not afraid of work, you can have a very steady job, rise in a company,
get to a leadership position if you want it. You can be a leader in your field,
an expert in your field, a very valued member of our workforce. You can do it
without student debt. You can do it on an apprentice program where you're
getting paid to learn your trade. That option is incredible.

C.J.: We try to get that in front of
students at all the schools we work with — youth apprentice programs, the ACE
Academy here in Fond du Lac, which has an incredible building. That's a message
we'd love to give.

Adam: That's great perspective. I
appreciate you sharing that. It sounds like that stuff you guys kind of had
rolling for a number of years and then it's probably been accelerated —
2008–2009, during the first great recession, contractors had to go to wider geographies
to find work. And now with the pandemic, it's accelerated even further.

C.J.: There were lean times. But what
happened for us is we kept the really good guys and found ways to keep them
employed. If it meant we had three, four, five superintendents on a job, it
would have to happen because we don't want to lose those guys. Now we have this
really strong group — we call them our core employees — who are incredible at
what they do, and they're now teaching others how to do the same thing.

Adam: Well, man, that's great
perspective. You guys are a great company here in Fond du Lac and in Wisconsin.
Thanks for all you do and thanks for coming on.

C.J.: Thanks for having me. Let's talk
sometime.