Taking shortcuts with your business and legal strategies can get you in trouble. If you are an out-of-state company doing business in Texas, you are a “foreign corporation” that must register with the State of Texas and acquire a certificate of authority under the Texas Business Corporation Act. While some companies may consider shortcutting this requirement, failure to register your foreign corporation will have costly consequences.

Any commercial GC or subcontractor of decent size has come across requests for, or has requested, additional insured status from another party. I am frequently surprised by the number of contractors who do not fully understand the implications and mechanics of this activity.

First, “Why”? Why does one entity ask to be named as an additional insured (AI) on the general liability policy of another? The short and concise answer is “To fund a hold harmless agreement entered into by the two parties”. For example, when a subcontractor agrees to defend, indemnify and hold harmless a GC there must be a means to pay for that defense if a claim should arise. Hold harmless agreements have been contained within the body of construction contracts for quite some time now but contracting parties are still unaware that this agreement generally needs to be insured. If not, the indemnifying party will fund the defense and indemnity out of company assets.

Now the tricky part of “How”. How do we set this up and what problems will we encounter? There are dozens of AI endorsements currently in use but we will limit this discussion to those most common to the construction industry. Those endorsements generally provide AI status on a blanket basis and “As required by contract”. It is critically important for the contractor to understand that simply getting a certificate of insurance showing them as an AI does not, in itself, confer any such status. If a contract does not require that you, the GC/owner, be named as an AI, the endorsement will not apply. This is a continuing problem especially when subcontractors enter into subcontracts with lower tiered subs. Frequently the sub will use “purchase orders” and request a certificate naming them as an AI. Since there is no contract, then by definition, AI status cannot be requested “by contract”. We help our clients solve this problem by the implementation of a “Master Subcontract”.

Finally, one last word of caution. The single most neglected area, even among insurance professionals who should know better, is the failure to secure completed operations coverage on the AI endorsement. When the subcontractor agrees to defend and indemnify the GC, that duty may not end just because the job has. Providing the subcontractor AI coverage limited to “ongoing operations”, (ie. Work in progress only) should be a last resort and only used when completed operation coverage is not available. For more information on this, feel free to contact me (210-602-2297).

A good relationship with your lender is very important in order to get and maintain the funding levels you require. During my years as CFO and COO the lenders I dealt with always relied on historical financial data. Quarterly P&L, inventory listing, accounts receivable listing, etc. were submitted on specific intervals and once a year a face to face meeting to discuss how the business was doing and what the expectations for the next year were. Amongst other things we would talk about the budget for the next year but I always wondered how confident they felt about us achieving the sales targets in that budget.

The old adage “time is money” is nowhere more true than in the tech industry, where it’s often more advantageous to buyout another company for its technology instead of investing time and money in an in-house development project. Due diligence is generally a process oriented around discovering information about a target company and its technology, but it’s also a delicate process that must be structured defensively to protect a prospective buyer from future litigation.

A prospective buyer takes on great risk in the due diligence process. The process provides the buyer with a wealth of knowledge about the target company’s trade secrets and other confidential information. Where the buyer decides against acquisition, the target company might sue for willful misappropriation if it believes that the prospective buyer later infringed upon intellectual property revealed in the due diligence process.

To guard against future lawsuits and to fortify available defenses, prospective buyers should design and implement multiple mechanisms of “defensive due diligence.” The first step in this process is to define the essential goals of the acquisition, specifically identifying the scope of the technology that the buyer wishes to obtain and the purpose that technology will serve for the buyer. Providing this limited focus for your due diligence team will prevent inadvertent discovery of extraneous confidential information that might later become the subject of a lawsuit.

The second step is for the prospective buyer to identify and document all of its own prior or current efforts to develop technology similar to the other company’s targeted technology. Thorough documentation of the buyer’s concurrent technology development will provide the front line of defense in a lawsuit alleging that the prospective buyer misappropriated the target company’s intellectual property.

A third and critical step is to plan the methods of holding, transferring, and communicating the acquired information among and between due diligence team members. This is imperative to protect the information from leaking outside of the due diligence team. Also, if the prospective buyer decides against acquisition, all confidential information must be destroyed – a daunting (and sometimes impossible) task if the document management and communication systems are not strictly structured and implemented.

As with any endeavor, a business seeking to obtain technology through merger or acquisition must “look before it leaps” to safeguard against future legal woes. While a large part of the due diligence process involves an “offensive” strategy of discovering a target company’s weak points, it’s also important to have a good “defensive” game, too. A comprehensive defensive due diligence strategy that includes the three steps outlined above can prevent many future lawsuits from emerging and can provide the elements of a strong defense when litigation rears its ugly head.

Large construction projects come loaded with latent risks that could lead to project failure or excessive cost due to the interdependent relationships of material suppliers, sub-contractors, general contractors, architects, and engineers. Some of these risks may be mitigated through no-cost contract and process controls, while other risk management methods will inevitably add expense to your project. The best strategy to protect your project against failure or runaway costs will likely include a combination of techniques, including some of the methods described below.

No ivory tower wanted here. Instead let's tell them like it is!