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YOUR QUARTERLY UPDATE FROM BOZZUTO CONSTRUCTION

THE NEWZZ | SUMMER 2017

FROM THE DESK OF OUR PRESIDENT


Recently, a large subcontractor in our market went out of business, reportedly costing contractors, owners, suppliers and their bonding company tens of millions of dollars—and this number only represents direct costs. As a result of this failure, many projects were stalled or significantly delayed; leaving people scrambling to find solutions.

How much did this failure cost Bozzuto Construction Company and our Partners? Nothing. That’s right—zero. How is it our company was able to avoid this potentially terrible situation?

Approximately two years ago, our team of internal underwriters identified warning signs regarding this particular subcontractor, notably their financial ratios, capacity and sub-par field performance on active projects. Armed with this information, we stopped awarding new projects to them. Further, the projects in which they were still active went into red alert. Our project teams closely monitored and scrutinized their work in place, their monthly pay applications, material procurement, crew sizes and outstanding payables to their vendors and tradespersons. All of these steps prevented any default costs associated with the subcontractor.

Our subcontractor underwriting and performance monitoring process includes the following key categories:

Subcontractor Pre-Qualification
Bozzuto Construction has a strict and thorough process for vetting and pre-qualifying our subcontractors. The process includes an online application that requires subcontractors to provide current backlogs, bonding capacity letters, most recent financial statements, insurance certifications, safety and OSHA information and trade and vendor references.

Subcontractor Default Insurance (SDI) Committee
Bozzuto’s SDI Committee—appointed by senior leadership and comprised of employees from the accounting, safety, estimating/preconstruction and operations departments—meets monthly and is responsible for the subcontractor pre-qualification process, monitoring ongoing subcontractor performance and work capacity and handling any subsequent subcontractor default claims under BCC’s subcontractor default insurance policy.

Selection of Subcontractors
Bozzuto Construction solicits bids from no less than three pre-qualified subcontractors per trade when bidding a project; and in most instances, closer to five or six. When reviewing subcontractor bids, our preconstruction team works closely with our SDI committee—confirming subcontractors’ current work capacity and work performance.

Monthly Project Review Meetings
Every month, our project teams have formal meetings with the project Team Leader and VP/Controller to present a comprehensive project update, including subcontractor contract awards and subsequent subcontractor project performance. All relevant subcontractor information is further shared with the SDI Committee.

Subcontractor Management
Each Bozzuto Construction subcontractor agreement includes an accurate and detailed schedule of values and clearly defined scope of work. Throughout the project, our Superintendents, Project Managers and Project Accountants monitor subcontractor work performance and supplier payments diligently. Additionally, our Quality Assurance & Quality Control process includes internal, and third-party inspections of subcontractor work that impacts a project’s critical path.

Close-Out Performance Review
At project completion, the project team completes a Subcontractor Post Review Form. The finalized form is saved in our central SDI database. Prior subcontractor performance is considered in the awarding of future subcontract agreements. Through these efforts, Bozzuto Construction reduces the possibility of subcontractor default and mitigates three major risks that contribute directly to the cost if they occur:
1. Rework and warranty costs
2. Potential overpayment and subsequent impact to “cost to complete” funds
3. Unpaid suppliers who provided materials and/or services to the project.

It pays to be diligent. By focusing attention on these areas of our business, we are able to save ourselves, and our partners, from these potentially stressful situations.

Mike Schlegel I President | Bozzuto Construction Company| mschlegel@bozzuto.com


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IN THE NEWS

Speaking Out

This spring, we were very fortunate to have members of our senior leadership participate in multiple panels covering a broad spectrum of topics. Below we have highlighted three of these events. Be sure to follow Bozzuto on social media or, search the #BozzutoConstruction, to keep up with our latest events and happenings!

1. Bozzuto Construction Senior Vice President, Mark Weisner, Participates in ULI Washington Panel
On May 9, SVP of Preconstruction for Bozzuto Construction Company, Mark Weisner, participated in a panel presented by ULI Washington entitled, “Succeeding in Late-Cycle Development—Tips for Navigating the Challenges of High Construction Costs, Rising Land Prices, and a Competitive Financial Landscape.” Alongside panelists from JBG, Gensler, rand* construction and JLL, the group discussed where they believe we are in the current cycle and what that means for development moving forward. “We are certainly anticipating a dip coming soon to the DMV,” said Weisner when asked about rising construction costs, “these costs cannot continue to outpace rent prices, land costs and interest rates; it’ just not sustainable.” Additionally, the panel discussed the importance of collaboration and getting all members of the project team on board early in the design process. “This is where the topic of increasing overall project value comes into play,” said Weisner, “by collaborating very early on, we can discuss the needs of the current building, while exploring its versatility to remain competitive five to 10 years from now.”

2. Bozzuto Construction President, Mike Schlegel, Moderates NMHC Spring Board Meeting Panel Discussion: “Disrupt the Blueprints”
Every year, The National Multifamily Housing Council (NMHC) hosts their Spring Board of Directors meeting bringing together executive-level leaders from the top multi-family firms in the nation. Here, these individuals have the opportunity to discuss the latest market trends, address recent news and converse about current hot topics in an open forum. This year, President Mike Schlegel moderated a panel covering many of the apartment industries’ most pertinent issues, including potential effects of the Trump administration on our products and labor, the recent incline of wood-framed construction fires and technology innovation.

3. Bozzuto Construction Senior Vice President, Kelly Cantley, Discusses Entrepreneurial Leadership
On Wednesday, May 17 SVP Kelly Cantley, and three other entrepreneurial-minded women, came together to discuss the opportunities and challenges they face on a daily basis within their respective positions. Hosted by Women in Insurance & Financial Services (WIFS) and the National Association of Women Business Owners (NAWBO), the panel shared their experiences on many topics ranging from mentorship and the importance of collaboration, to diversity and redefining company culture. Before the panel, speakers were asked to read a recent article from Harvard Business Review entitled, “Mentor People Who Aren’t Like You.” During discussions, Cantley shared how the article had really hit home with her; “I couldn’t agree more with the message of this article,” said Cantley, “By mentoring people that possess different strengths and weakness from me, I learn to be a better leader. It all comes back to developing an effective and successful team.”


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PROJECT SPOTLIGHT

Capper 769N Breaks Ground

In early May, Bozzuto Construction Company broke ground on the new Capper 796N community in the heart of Washington, D.C.’s Capitol Riverfront. Located adjacent to Canal Park at 1000 2nd Street, SE this building represents the sixth phase of the greater Capper/Carrollsburg redevelopment project. The new mixed-income community, developed as a joint venture between the D.C. Housing Authority, Urban Atlantic and Forest City, will feature 179 rental units—36 of which will be dedicated affordable. The 10-story, concrete high-rise will include below-grade parking, 4,000 square feet of retail space, bicycle storage, work pods, an outdoor dog park, a second-floor courtyard, rooftop amenity space with an outdoor kitchen and pool and a state-of-the-art fitness center.

“We are proud to continue our partnership with the District of Columbia Housing Authority and Forest City to redevelop the Capper/Carrollsburg community as we break ground on Capper 769N, a beautiful new apartment building that affordable and market-rate renters alike will call home. This building will offer resident’s brand new apartment units and amenities, spectacular views of Canal Park and incredible proximity to employment, retail, recreation and public transportation," said Vicki Davis, Principal of Urban Atlantic, as noted by the D.C. Housing Authority.

The Capper 769N community to slated to deliver in the spring of 2019.


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IN THE COMMUNITY

Bozzuto Construction Women Build

This spring, the Bozzuto Construction Company Women’s Group had the opportunity to participate in Habitat for Humanity’s Women Build for the second year in a row. Beginning in 1991, Women Build is a 15-day volunteer effort focused on women coming together to rehabilitate the homes of low-income, hardworking families in the local community. This year, the women of Bozzuto Construction spent the day painting and installing flooring in a new townhome, working alongside the future new owner, Kedir. “To have the opportunity to give back to our community like this is simply an amazing experience,” said Crystal Ansari, Support Services Associate for Bozzuto Construction, “I’m already looking forward to coming back again next year.” For more information about Women Build, or to learn how you can get involved with Habitat for Humanity in your local community, visit https://www.habitat.org/volunteer/near-you/women-build.


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