BE Radio July/August 1995 Contract Engineering Protecting yourself By William Fawcett In the last 20 years, a lot of contract engineers and their firms have come and gone. This has been partly due to the maturing of the industry, but most came from the basic business structure that these engineers built for themselves. When the FCC first deregulated broadcasting, many former full- time station employees became jack-leg engineers. Operating out of a van or a spare bedroom, they took on multiple clients, often subsisting on inflated retainer fees. More often than not, these folks went out of business, typically because they underpriced their services and could not survive on what they made. The rates seemed good compared to salaries, but they failed to take overhead into account. In case you're unfamiliar with the term, a jack-leg is a contractor who operates outside of normal business procedures. Business licenses, insurance, capital investment and company organization are not important to the jack-leg. Because of this, overhead is reduced, and rates are correspondingly lower, often equal to prevailing hourly wages for similar work as an employee. All of this seems attractive to the purchaser of the services -- until a problem occurs. Some contractors mistakenly think that because they are billing such low rates that they will treated the same as an employee if an accident occurs. However, the law makes a clear distinction between an employee and a contractor, and if the matter comes before a court of law, there is generally no question that the contractor will be personally liable for any damages that the client sustains. If the jack-leg takes on an assistant, the matter becomes more complicated: not only is the contracting firm liable for the proprietor's actions, but it may also be liable for injuries sustained on the job by the assistant. A jack-leg using another jack- leg as an "employee" is therefore the worst possible paradigm. The contractor is then exposed on two fronts -- both to clients and employees. The broadcast environment is full of potential problems: accidental damage to expensive equipment, construction-related injuries, electrocution (of either technical personnel or station employees) and environmental concerns like PCBs or RFR. Add to that the potential damages due to incorrect advice ("omissions and errors") and consequential damages such as lost air time. To avoid a nightmare for the rest of your life, you need some business tools that can be used to build a solid and substantial operating environment. Organization Numerous articles have listed the various corporate options available: sole proprietorship, partnership, limited partnership, professional corporation (P.C.) and corporation, to name a few. To be more straightforward, my advice is: incorporate. Unless you are a registered P.E., the P.C. option is probably not even available. The rest may leave too much of your personal wealth exposed if something major ever occurs. Incorporation provides a certain amount of isolation, and may have significant tax benefits as well. For my business, I chose a regular corporation over the subchapter S structure, but that was a tax decision. Incorporation also simplifies insurance issues as well, because there is no fuzzy area between business and personal vehicles. You'll also find that incorporation lends a certain amount of respectability to the firm, attracts business, and helps in obtaining dealer discounts and credit from vendors. It is not an expensive prospect. My state (VA) corporation fees run about $75 a year, and the initial legal fees were not prohibitive. Contracts Much has also been said about contracts in this column and elsewhere. This comes as no surprise, because the topic is contract engineers. Ironically, most of your work is not specified under a contract (like building a house), but instead is provided as time and materials work. The contract involved typically states what special terms and conditions will apply to the hiring agreement in general, including liability issues. Here are some pointers pertaining to those terms and conditions regarding liability: Contracts are very "state specific". Laws do vary, so always pay an attorney to review any proposed general or specific contract. Even the contract's typography may be codified. In Virginia, for instance, the words "NO WARRANTY AS TO FITNESS OR MERCHANTABILITY IS GIVEN" are required to be capitalized. Many of these provisions are right out of the Uniform Commercial Code (UCC). If you ignore the UCC you will probably lose in court. Spell out your basic warranty for service of customer supplied equipment (mine reads "NO WARRANTY WHATSOEVER...") and also your warranty for any equipment that you manufacture or provide. Certifications Be cautious when making tower inspections, RFR certifications for renewal or quarterly PCB inspections. Any documents should plainly state that the certification is simply a report of what was actually noted, and no guarantee against the existence of problems. Avoid rendering opinions. That is the work of a registered professional engineer, which usually comes at quite a high price. After all, you shouldn't take on several million dollars worth of liability for simply stating that you saw no leaks on any capacitors -- at least not for the paltry sum that you're probably paid for that 15 minute task. Retainers A good operating principle is to charge fair rates for services actually rendered. Others use retainers and offer reduced hourly rates. This could cause some problems, though, such as the following: What do you do if two or three of your stations are all down at the same time? What if you're injured, or a family member needs to go to the hospital? Can you offer 100% assurance that you will be readily available at all times? No, you can't, but a retainer often says just that. You can make plenty of money off a normal rate schedule, and you don't need the legal hassles that accompany a retainer. For similar reasons, consider avoidance of contracting as a Chief Operator. Otherwise, you will likely have to hire a replacement when you're unavailable. Let the station GM be Chief Operator and delegate technical tasks to you. Now this doesn't mean that you shouldn't offer an assurance of being "on-call." Tell your clients that you will provide the best coverage humanly possible and invite them to check your references. As an entrepreneur you should know that if you don't offer very swift service, someone else will. Back-up employees help, but sooner-or- later you will be taxed to the limit. Your actions will speak louder than any words. Avoid retainers. Registration and licensing Again, laws vary from state to state, but following established business convention always strengthens your position in court. Corporations need to be registered. A sales tax license is often required (which will also help you buy goods wholesale). Some localities require a general business license. Lastly, trade licensure (contractor registration) is often overlooked but nonetheless important. There usually is a certain dollar amount on a contract that you cannot exceed without registration. Broadcast engineering services are usually subject to these rules, especially if the work goes beyond adjustments and repairs. If you provide any construction-type activity or major installation of equipment, you probably need to be registered, as well. For example, my firm is registered as an electrical, an electronic and a general contractor. Insurance Insurance regulations are also very state-specific, but if you have any employees beyond the owner or principal officers, a Worker's Compensation (WC) policy is a must. This policy frequently will provide protection for employer's liability as well. Even if you are the only employee, a policy offers great benefit, and is required by many larger clients and state agencies as a condition of contract. If you have employees and you cannot provide evidence of coverage, your clients will likely be billed an additional amount by their insurance providers to cover you on their policies. These additional charges are usually based on the client's total billing with the carrier, not just their payroll, so it is of significant advantage to the client if you are covered. WC is usually based on a fixed fee plus a percentage of payroll. The amount of coverage required is usually set by state labor regulations. A small firm with one full-time employee and a few part- timers might typically pay $800 to $1000 a year for this coverage. Rates are based on your job descriptions. The assessment for clerical help is much lower than field-service engineers. One problem you may have is that most lists of applicable job categories will not list a broadcast field-service engineer. Unless you do a lot of heavy tower rigging, don't pick the tower rigger category -- the rates are very expensive. Look for job categories whose potential for injury are similar. Telephone and computer-wiring installer, and TV repairman/home-antenna installer are two categories that seem to meet the need. Be forthcoming with your agent, and make sure he or she understands exactly what you do. You don't want a claim rejected because you were doing work that did not match the information supplied. Another important insurance policy is a commercial general liability policy. Again, this may (and should) be required by many clients. A typical coverage amount is $500,000, typically costing a small firm about $800 per year. This may include a small property insurance policy that is often bundled with the overall coverage. Typically, rates are based on a fixed fee plus a percentage of payroll, or in some cases, on gross income. The general liability policy is your protection against accidental damage to your clients equipment or property, such as a transmitter fire that burns the whole plant down, or your van backing into a guy anchor. The policy should also include omissions and errors coverage, which protects you if you make a mistake when rendering an opinion to the client. For example, you tell your client that a 2-bay antenna, which will barely fit on the tower you specified, will allow the client to achieve the required ERP with the new transmitter you specified operating at 100% power. Later you find out that you used the gain figure from a 3-bay antenna -- oops! General liability coverage also affords protection if you have an accident that injures or kills someone outside your firm. Of course, you need to take safeguards and follow good work-site practices. No policy can replace common sense. Nevertheless, tools do get dropped from towers, and paraphrasing the bumper sticker, accidents happen. Once you have these insurance policies in effect, your agent will be able to supply certificates of insurance to clients who make such a request. This service is free, and can often be done within hours via fax. These practices can greatly enhance your firm's reputation. More importantly, they minimize the risk of personal financial devastation that could follow a major accident. If you have employees, it's also the right thing to do. So how does this affect your competitive position? First, it gives you a leg up on the competition. Sure, you have to charge a little bit more, but you become a reputable business, not a fly-by- night outfit. The practices noted above could increase your overhead by $3,000 annually. Assuming 300 working days per year, you can cover this by increasing your rates $10 per day. Or better yet, increase them by $30 per day, and pocket the rest. The clients that complain the most are the ones with the least resources should a lawsuit ever occur, and that makes you a target. The better clients (those who pay their bills on time) will usually favor a firm that operates according to standard business conventions. There once was an article about professionalism in contract engineering that started out by suggesting that you wear a tie. Professionalism in this business is not about ties. copyright 1995 Intertec Publsihing Corporation