Category Archives: Global

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Workforce Reduction Checklist

An employer having to reduce its workforce must go about it properly, or it may very well face litigation expenses at one of the most inopportune times. Today’s employees frequently contest their layoffs both in our courts and before state and federal agencies.

Any reduction must be scrutinized for compliance with numerous laws. It is not the time to let go everyone who in the last few years filed for workers’ compensation or took Family and Medical Leave. Sound business criteria must be used to select those who must be separated from employment. Remember, a “layoff” connotes an expectancy of recall; therefore, most employers don’t want to label the reduction a layoff. After all, those going out the door are probably the least desirable employees, so why do you want to let them back in your door if things get better? The good workers who are separated can always re-apply.

Here are some things to think about when facing a reduction in force (RIF).

  • Review your company’s employment-related documents that may contain procedures and restrictions, e.g., engagement letters, employment contracts, employee handbooks, collective bargaining agreements, and layoff policies.
  • Determine and document the true reasons for the workforce reorganization: Cost cutting? Needed change in workforce mix because of new technologies or customers? New business plan?
  • Define the parameters of the workforce reduction. Identify departments or teams to be affected and involve your managers and department heads in projecting staffing needs and possible numbers for RIF. Are there part-time or temporary employees who can be let go first? Should outsourced operations be returned to in-house personnel? Establish a preliminary RIF plan with dates, procedures, and communications.
  • Analyze the workforce, both current and future. What are the skills, abilities, qualifications, performance ratings, attendance record, and attitude of each employee? Which employees are the least satisfactory based on all these factors? Do your employee evaluations verify these conclusions? Audit personnel files carefully to ensure they support your decisions. Identify the skill set needs of your surviving organization. Do any of the employees targeted for RIF have special protection because of their age, race, utilization of workers’ compensation, FMLA leave, etc.? Do any of them have disabilities?
  • Prepare a matrix of the employees intended for RIF, identifying name, classification, date of service, age, race, sex, previous filings with state and federal agencies, and other special circumstances.
  • Conduct an EEO audit with legal counsel or an objective third party savvy in human resources. Is there a statistical imbalance between the prior and new workforces? Is the motive for selecting an employee for RIF less than bona fide? Has a targeted employee filed any type of legal action against the company in the past or threatened it?
  • Communicate effectively. Consider giving general notice of impending RIF. Meet one-on-one with targeted employees, briefly explaining the reasons for the employee being separated and that the RIF affects others as well. Treat the employees with dignity and respect.
  • Communicate with remaining employees and control rumors. This will improve morale.
  • Give Worker Adjustment and Retraining Notification Act (WARN) notice to employees at least 60 days in advance if the employer has at least 100 employees (consult your employment counsel).
  • Consider severance benefits, such as pay-out of vacation, sick time, or other paid time off entitlements; COBRA insurance conversion; and unemployment compensation.
  • Develop a public relations plan. If the reduction is significant, consider a press release that places the company in the best possible light.
  • Devise a tentative re-employment plan, including who will be eligible for reinstatement and what procedures will be used if the workforce needs to be reinstated.
  • Consider using severance agreements. In return for money, an employee may release any possible claims and agree to non-competition and non-solicitation restrictions under certain circumstances.
  • Consider confidentiality and security issues, e.g., computer access, confidential documents, property theft or sabotage, locks, keys, and pass cards.
  • Avoid hiring new employees to the greatest extent possible shortly after the reduction.

Reductions in force are tricky and sticky. Make sure you don’t get stuck.

This article has been reprinted with the permission of Central States Insulation Association and the author.

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The Sandwich Manager

Over the past several years, the term “sandwich generation” has emerged to describe individuals who care for their elderly parents and their own children at the same time. A variation of this phenomenon is occurring at work, where “sandwich managers” supervise workers spanning a wide range of ages within one environment.

Since the range of ages in a workplace can run from a few years to as much as four generations, it has become incumbent upon managers to develop a rich appreciation for the differences in the values and expectations of others’ approaches to work. Much has been written about the influences of technology and convenience on young people. But for a sandwich manager, the reality of balancing the needs and desires of those aged 17 to 70 is much more complicated than in years past. Many managers have had the phenomenon thrust upon them as the workforce has evolved. What can these individuals do to juggle the myriad of ages and experiences with which they now work? Here are some suggestions:

Set Clear and Specific Expectations for All

This, of course, is always easier said than done. Ask random employees in any setting what they are supposed to do, and they will give you an interpretation of what the manager told them in their first few days on the job. Not only will the descriptions vary widely, but the ways the tasks are actually performed will vary as well. A task as rudimentary as cleaning a store’s stockroom can be the source of endless approaches. Managers are finding that using a general phrase like “clean up the stockroom” will not suffice. Providing specific steps works better: “Make sure all the box labels face out. Consolidate half-full boxes of the same item. Sweep the floor, and make sure you get the corners.”

Clear expectations level the field between the generations. When there is a discrepancy in performance, the sandwich manager can refer to the expectations for guidance. A classic example of this is the complaint from older employees that young people do not work as hard as necessary. A manager comparing outcome to expectations may find the output is the same. It is the approach that’s different.

Establish Credibility from the Beginning

A sandwich manager can be caught in the middle. On one side, there may be veteran workers who think the manager is too young to be in charge. While this may appear nonsense to an outsider, it can very much be the belief of those with a traditional reference of how a manager should look, act, and talk. On the other side, there may be workers 15 to 20 years the manager’s junior who perceive the manager as ancient from their frame of reference. “What can this geezer teach us?” they might think. “He’s a technological Neanderthal.” Walking the line between these two groups can, in itself, feel like a full-time job.

How does one establish the credibility necessary to effectively govern such a diverse group? For a manager new to the responsibility, the best course is to set the stage from the very beginning and demonstrate that he/she is flexible and approachable. That is not to say that the manager allows the employees to take charge. It is more about establishing a dialog from which to launch a managerial approach.

The manager might begin by gathering everyone in a room to introduce himself or herself, for example. Even a 30-minute, all-hands briefing can accomplish several objectives:

  1. It allows the manager to introduce himself/herself to everyone at the same time.
  2. It provides an opportunity for the manager to describe his/her background and philosophy of supervision.
  3. It provides the manager an opportunity to outline general expectations about performance.

After the all-hands meeting, it is important for the manager to meet individually with those who may have concerns about his/her ability to lead. Typically, this involves veteran employees who are used to a manager with a different approach and energy. If the manager’s predecessor was around for a long time, there also may be a feeling of loss if he or she was well liked. The new manager will need to reassure the veterans that he/she respects their experience and skills, letting them know that he/she intends to be more of a resource to them than a manager.

If the manager has been in a supervisory role for a while and is dealing with cross-generational conflicts, the approach will be considerably different. Cross-generation awareness training can lead to discussions about the differences in values and expectations within the team or department. The manager needs to remain aware of subtle comments made by co-workers. One young engineer complained that whenever he made a suggestion in a gathering of veteran engineers, one of them would say something like, “When you were negative two, we tried that idea and it didn’t really work.”

“It’s amusing the first few times,” he said. “Then it got irritating.”

Subtle put-downs are not limited to older employees. More than one young professional, for instance, has responded to a computer question with the phrase, “Okay, let me show you one more time.” Whether the comment is intended to be cute or demeaning, it is inappropriate. When an effective sandwich manager overhears such a comment, he or she pulls the person making the comment aside and diplomatically processes the situation.

>For those clearly stuck in an “us-versus-them” situation, a more formal method may be required. Take some time to consider how to approach those who are the source of the conflict. How can one open the dialog? What behavior needs to change? How might these individuals respond? Would it be better to meet individually or with the team as a whole? These interventions can be time consuming, but they are better than allowing cross-generational frustration to fester and harm productivity.

Continually Foster Relations across Generations

It is human nature to congregate with those who share familiar backgrounds and experiences. Fragmentation of the workplace because of age can lead to misunderstandings and rumors, just as it can with gender, race, and cultural differences. We all tend to see others through the filters of our own experiences. An effective sandwich manager works constantly to keep the lines of communication open and the perceptions of others informed.

The sandwich manager might begin by considering those with a knack for reaching across familiar lines to engage those in other groups. They exist in every workplace and can be found through simple observation. To whom does everyone turn for answers? Who seems to speak for the group when there is an issue? Who are the natural leaders in the organization? Who would one pick as aspiring managers because they seem to get along with everyone? These are the individuals who have the best chance of reaching across generational boundaries.

This is best cultivated gently, through subtle comments and suggestions. A good example is asking those from different generations to serve on a team or committee. An effective sandwich manager is both patient and persistent.

Deal with the Influence of Technology

No article on managing across generations would be complete without a discussion about the influence of today’s technology and how different age groups respond. While younger workers may excel in manipulating computers, many managers report that younger employees struggle in other aspects of critical thinking. Veteran workers may struggle with the nuances of computer use at times, but the critical thinking skills they developed prior to the computer age serve them well. These differences manifest themselves in complaints about younger workers lacking common sense and older workers lacking computer savvy.

What can a sandwich manager do to help each generation embrace the other’s approach to technology? Look for opportunities to create cross-generational teams. Assigning individuals of different ages to the same project or task places them in an environment where they have to work together to get the mission accomplished. Depending on the number one supervises and the work being done, this might be occurring already. Still, it is critical to observe the interaction between the groups. What do veteran workers share, and how do they choose to share it? What do younger workers suggest, and how is it received? Do younger workers take the initiative to assist veteran workers with the challenges of technology application?

Another effective strategy is cross-generational mentoring. Consider the veteran contributors on the team: What knowledge and skills do they possess that need to be shared with those rising within the organization? Then consider young contributors: Who would most welcome the opportunity to grow by learning new skills and insights? What skills and insights do these young contributors possess that the veterans might find helpful? What steps can you take to put these individuals together?

Rather than making this a formal match-making process, managers need to find informal opportunities to introduce these individuals. If they already know each other, they should be encouraged to take time occasionally to exchange ideas.

Re-Engage Veteran Workers

Most members of this generation possess a breadth of experience, coupled with a depth of wisdom about their industry, employer, and job. That said, many have become less than fully engaged over the years. It is paramount that sandwich managers keep these workplace veterans engaged in their work and with those around them.

A sandwich manager should begin by taking stock of those who have been with the organization for a considerable time. What skills and insights do they have that are not readily apparent in the everyday workplace? What special certifications and awards have they achieved? Where do they really shine? In what ways do they contribute to the field, perhaps through trade associations, research, or writing?

Consider introducing opportunities for mentoring. While some informal mentoring is sure to be going on already, it is helpful to encourage it officially. Of course, effective mentoring takes more effort and design than simply assigning one contributor to another. Each relationship takes time to evolve, and many of these relationships are not long term. Rather than forcing the process, most managers have found that simply soliciting interest from veteran contributors and letting everyone know who is open to these kinds of relationships is the most effective way to proceed.

Veteran contributors also can be used as a part of the recruiting process. Given the depth of knowledge and perspective they have about the industry and the organization, there is much they can share. These individuals are living examples of people who have thrived within the organization and industry, and can certainly answer questions their younger colleagues cannot.

Actively pursuing the kinds of opportunities described above accomplishes several goals:

  1. It re-engages veteran contributors in the workplace.
  2. It increases productivity within the team.
  3. It expands the creative horizons of younger contributors.
  4. It assists in the transfer of the knowledge base possessed by veteran contributors.
  5. It fosters more opportunities for communication between the generations in the workplace.

Help Veteran Contributors Cope with the Emotions of Topping Out

Increasingly, those in their 30s and 40s are assuming managerial roles that have been held by the older generations. For veteran contributors, this can be an emotionally challenging time. Finding themselves being supervised by someone significantly younger is usually a sign that they will not be advancing further within the organization. Some individuals adapt to this as a part of career evolution. Others find it troubling. Part of the sandwich manager?s job is understanding the dynamics of this and working to develop a trusting and productive relationship with each of the veteran contributors. The question, of course, is how.

It might be tempting to dismiss all this emotion. After all, people in their 50s knew that eventually the transition would come. But developing an understanding of the emotions is the first step in connecting with individuals in this situation who may not want anything to do with younger managers, even though they are in charge. Managers should research older workers’ contributions and take time to visit with them, asking about their impressions of the organization and their prescriptions for what needs to improve. Managers should ask them how they would like to contribute, and then listen. Chances are, they will pick up a wealth of nuance they can use in moving the organization forward.

Sandwich managers should offer themselves as a resource, rather than a manager. Many veteran workers bring skills and techniques to the table that represent the true work within the organization. Yes, younger managers are in charge, but those on the front line are the ones producing the output, whatever it is. Managers should dispel thoughts that every sentence the veteran workers utter is going to begin with the words, “I remember when.” Fair or not, the onus is on the manager to approach the workers and build productive relationships if they are to succeed.

Manage the Communication Gap and Protocol

One of the more common concerns voiced by sandwich managers is that traditional communication practices are being usurped by young workers. These include reducing language, courtesy, and protocol to a lowest common denominator because of technology.

The emphasis on doing more with less has exacerbated this phenomenon by implying that traditional ways of communicating are too time-consuming and inefficient. Why meet when you can call? Why call when you can e-mail? Why e-mail when you can text? “Time is money” is the familiar lament, but so is ineffective communication.

Sandwich managers should seek recommendations from those in all generations about the most effective ways to communicate. They might do this individually or by forming a multi-generational task force. Managers should ask for specific ideas and methodologies, not just general wisdom. Ask workers to research other organizations to locate strategies that work. Remind them that they will have to live with what they recommend on a day-to-day basis.

Finally, managers will need to enforce these protocols diplomatically but consistently. In the midst of their other commitments, this may seem like one more burden, but clear communication between all members of the team, customers, and vendors is essential. Chances are, most everyone will work toward making this happen because they understand the different approaches others bring to the job; but some additional training will be necessary with those who do not adapt well or do not have enough investment in doing the job well in the first place.

The era of the sandwich manager is just beginning. Emerging leaders will be facing these challenges for years to come. The most successful will embrace these differences from the beginning and develop strategies for engaging every individual contributor, regardless of age.

NIA Sites > Insulation Outlook Magazine > Global

Invest in Success: Train and Educate Your Employees

What kind of return would you expect if you invested $0 in a stock? None, of course, because you didn’t invest anything. This seems like common sense; however, there are too many contractors in our industry who believe they can still profit even if they don’t invest money in training their employees. This type of employer sets himself and his business up for failure, and then wonders why he doesn’t succeed.

When I started my business in 1990, I realized that I didn’t know enough about estimating, accounting, or insulation installation. I knew that to make the business work I would need help training myself and future employees. In other words, I realized that “I didn’t know what I didn’t know.” Over the next 20 years, however, I learned four valuable lessons about investing in success:

Lesson 1. Learn about the insulation industry

My first goal was to learn as much as I could about the insulation industry and to meet other successful industry leaders. To accomplish this, I joined two trade associations: the National Insulation Association (NIA) and the Midwest Insulation Contractors Association (MICA). When I researched these two organizations, I learned that they focus on teaching people how to succeed. Both groups offer seminars on leadership, how to manage employees, accounting principles, succession planning, safety programs, insulation material forums, estimating, etc. These groups can also lead you to industry leaders who are invaluable sources of industry knowledge. Now, if I have a problem in my business, I can discuss it with other members of these organizations to get ideas and feedback on how to succeed. This type of knowledge and experience is invaluable.

Lesson 2. Teach employees how to install insulation

One way to train a new employee is by putting him on the job with someone who has more experience. However, this method is unreliable because it depends on a teacher who—regardless of how much he knows about insulation—may have no experience in training others. The result is often unsatisfactory, resulting in high employee turnover.

The better approach is to have employees go through a certified training program. Currently there are two options: a union apprenticeship for union contractors and the Wheels of Learning apprenticeship curriculum for merit shop contractors. The union apprenticeship classes follow a structured curriculum and are taught by teaching professionals. Wheels of Learning is also a structured curriculum, but employers have to contact the National Center for Construction Education and Research (NCCER) for help in developing a Certified Instructor for their company or association.

In either case, it takes approximately 4 years of training, testing, and field application to cover the curriculum. Once an employee has completed either of these programs, he is a well-qualified insulation journeyman.

Lesson 3. Teach employees how to become estimators

NIA has printed materials on estimating as well as speakers at their meetings who discuss different aspects of insulation estimating. The MICA manual is full of estimating guides and formulas. There are also seminars on computerized estimating software, which is used throughout the industry. I found my estimating software through a MICA seminar I attended back in the mid 90s. There, I had the opportunity to talk with many of the MICA members and get their input on which software programs were best for our industry.

The best method for successfully training an employee to be an estimator is to send him to the company that designed the estimating software you will be using. Once estimators are trained in the software the company uses, they will be able to customize that software for your market in terms of material pricing, productivity rates, etc.

Lesson 4. Find future supervisors

First, identify journeymen who are leaders on your projects, and then start the education process again. Remember: no investment, no return. Enroll future supervisors in classes and seminars on communication and leadership, as well as construction-related classes, offered by your local vocational schools or through regional or national associations. You should also send your staff to events such as NIA’s Committee Days and Annual Convention where they can hear speakers and participate in safety roundtables and other events.

Through this whole process of training/educating, show your people you are interested in their education. Ask them about their classes and have them show you some of the skills they are learning. This helps motivate them and will result in more productive employees.

Since I started training and educating our employees, we have had tremendous success as a company. We have more than doubled our sales and increased our field workforce from 12 to 28. An important mark of our success is that while companies typically grow in size but decrease the rate of their margins, our profits have increased at the same pace as our sales. We have been able to give our employees significant increases in pay because of our company’s profitability, which increases our employee retention rate. In addition, our workers compensation experience modification rating (EMR) has been reduced from around 1.00 to .78.

I know this sounds too good to be true, but it can happen if you remember one thing: Your job is to make everyone who works for you successful. If you do everything in your power to make them successful, then success will follow you abundantly. This sounds easy, but it takes a conscious effort every day.

NIA Sites > Insulation Outlook Magazine > Global

Employment Issues: Important Changes to the ADA and FMLA

2008 brought about many changes that affect employers and employees in the areas of disability discrimination and unpaid leave entitlement. Specifically, amendments to the Americans with Disabilities Act of 1990 (ADA) and the Family and Medical Leave Act of 1993 (FMLA) became effective in early 2009. This article summarizes some of the significant changes to the ADA and the FMLA that are likely to impact employers.

The Americans with Disabilities Act

The goal of the ADA—to eliminate discrimination against individuals with disabilities—is undoubtedly laudable. The ADA was initially signed into law in 1990 by then President George H. Bush. Over the ensuing years, decisions by the United States Supreme Court interpreted the law in a manner deemed to be “pro employer” and limiting. On September 25, 2008, President George W. Bush signed the ADA Amendments Act of 2008, which went into effect on January 1, 2009. The Amendments Act overturns a number of the “proemployer” Supreme Court decisions, and some say it puts teeth back into the ADA. There are a number of precautions employers can take to avoid the bite.

Prior to the Amendments Act, courts had been interpreting the definition of “disability” in a very narrow manner. Many plaintiffs’ cases were dismissed because the plaintiffs were not deemed to be disabled and thus not covered by the ADA. The definition itself hasn’t changed: A “disability” is an impairment that substantially limits one or more major life activities, having a record of such an impairment, or being regarded as having such an impairment. However, the Amendments Act, on its face, changes the way that these terms will be interpreted.

The Amendments Act specifically states that the term “disability” is to be interpreted broadly and in favor of finding coverage under the ADA. Previously, the Supreme Court held that in order to be substantially limited, the individual had to be prevented or significantly restricted from engaging in a major life activity. That has now been overruled. While the Amendments Act doesn’t define “substantially limited,” it makes clear that the definition is intended to result in wide coverage under the law.

The ADA itself did not contain examples of specific major life activities, but now includes a non-exhaustive list of activities such as caring for oneself; performing manual tasks; seeing; hearing; eating; sleeping; walking; standing; lifting; bending; speaking; breathing; learning; reading; concentrating; thinking; communicating and working; functions of the immune system; normal cell growth; and digestive, bowel, bladder, neurological, brain, respiratory, circulatory, endocrine, and reproductive functions. While some of these activities already were deemed to be major life activities, many others have been added. This expansion may not have been as significant had the Amendments Act not gone on to address the issue of mitigating factors.

One of the major changes under the Amendments Act is that a person’s impairment must now be judged in its unmitigated state, i.e., without regard to the beneficial effects of any corrective measures (except for “ordinary eyeglasses or contact lenses”) that person uses. Prior to the Amendments Act, the Supreme Court had held that mitigating measures had to be considered in determining whether a person is substantially limited in a major life activity. For example, prior to the Amendments Act, a person whose diabetes was controlled by either diet or medication was not considered disabled under the ADA. Now, regardless of the level of control of the impairment, that person is considered disabled under the ADA.

Similarly, under the Supreme Court’s previous interpretation of the ADA, a person whose impairment was episodic or in remission was not deemed to be disabled. Under the Amendments Act, a person whose impairment is episodic or in remission will qualify as disabled if the condition would substantially limit a major life activity when active.

Another major change is that an individual qualifies as “regarded as” having a disability so long as the employer perceives that he or she has an impairment, not necessarily an impairment that substantially limits one or more major life activities. If the employer regards the employee as disabled and he or she is not, so long as the impairment is not “minor” or “transitory” (less than 6 months), it is now actionable under the ADA.

One requirement that has not changed under the Amendments Act is that an employer must provide a reasonable accommodation for individuals with known disabilities unless it would impose an undue hardship on the employer’s business. However, if a reasonable accommodation is required, then an employer must engage in an informal interactive process to “identify limitations resulting from the disability and potential reasonable accommodations that could overcome those limitations.”

A “reasonable accommodation” may include “making existing facilities used by employees readily accessible to and usable by individuals with disabilities; and . . . job restructuring, part-time or modified work schedules, reassignment to a vacant position, acquisition or modification of equipment or devices, appropriate adjustment or modifications of examinations, training materials or policies, the provision of qualified readers or interpreters, and other similar accommodations for individuals with disabilities.” A reasonable accommodation does not need to be the best accommodation possible or the accommodation preferred by the employee, as long as it is sufficient to meet the job-related needs of the individual being accommodated.

What Employers Can Do

With the Amendments Act, future litigation will likely no longer focus on whether the individual is disabled under the ADA. Instead, the issues will be whether an accommodation is reasonable and whether particular accommodations would constitute an undue hardship on the business. One of the first things employers can do to avoid ADA claims is to make certain that people in management positions are aware of the Amendments Act and how it affects the workplace and employers’ obligations to employees and job applicants. Employers should begin with the assumption that a limitation now may very well rise to the level of a disability. Because of this, employers need to be ready to respond in an appropriate manner when approached by an employee seeking an accommodation for a known limitation.

Given the changes in the ADA, one suggestion to better protect employers against claims is to consider formalizing the “interactive process” of identifying limitations imposed by a known disability and discussing potential reasonable accommodations, as well as formally documenting any and all requests for accommodations. What this means is to have a plan in place so that each supervisor knows what to do and what not to do when an employee requests an accommodation. Along these lines, centralization of the decision-making process will help ensure that decisions regarding limitations and reasonable accommodations are consistent.

The Family and Medical Leave Act

The amendments to the FMLA became effective on January 16, 2009. The amendments specifically provide new military family leave entitlements, as well as the first major updates to the regulations of the 15-year-old FMLA.

There are two new leave entitlements under the FMLA: Military Caregiver Leave and Qualifying Exigency Leave. Military Caregiver Leave (also known as Covered Servicemember Leave) requires that a covered employer grant an eligible employee who is a spouse, son, daughter, parent, or next of kin of a current member of the Armed Forces, including a member of the National Guard or Reserves, with a serious injury or illness up to a total of 26 work weeks of unpaid leave during a “single 12-month period” to care for the servicemember.

Qualifying Exigency Leave: In addition to granting an eligible employee up to a total of 12 work weeks of unpaid leave during any 12-month period: (i) for the birth and care of the newborn child of the employee; (ii) for placement with the employee of a son or daughter for adoption or foster care; (iii) to care for an immediate family member (spouse, child, or parent) with a serious health condition; or (iv) to take medical leave when the employee is unable to work because of a serious health condition, a covered employer must now grant the same leave to an eligible employee for qualifying exigencies arising out of the fact that the employee’s spouse, son, daughter, or parent is on active duty or call to active duty status as a member of the National Guard or Reserves in support of a contingency operation.

The amendments to the FMLA define “qualifying exigency” by referring to a number of broad categories for which employees can use FMLA leave: (1) Short-notice deployment; (2) Military event and related activities; (3) Childcare and school activities; (4) Financial and legal arrangements; (5) Counseling; (6) Rest and recuperation; (7) Post-deployment activities; and (8) Additional activities not encompassed by the other categories, but agreed to by the employer and employee.

Over the years, the bulk of litigation involving FMLA has been related to whether a condition was a serious health condition, whether the employer returned the employee to the same or an equivalent position, and whether proper notices were given. The new regulations provide a definition of a serious health condition and establish a procedural process for notice to employees. One of the other changes to the FMLA includes treating all forms of paid leave the same when an employee elects or an employer requires the substitution of paid leave. Another change is that an employer now has 5 business days (rather than 2) to provide the various notices required by the FMLA. Such notices include a general notice about the FMLA, an eligibility notice, a “rights and responsibilities” notice, and a designation notice.

What Employers Must Do

The FMLA amendments add important new leave entitlements as well as updates and clarifications to the regulations of which covered employers need to be aware. Accordingly, employers should update their general notice and posting about the FMLA and their rights and responsibilities notice to include these changes.

This Construction Law Briefing Paper was reprinted with permission from Fabyanske, Westra, Hart & Thomson P.A.

NIA Sites > Insulation Outlook Magazine > Global

Debate Continues on Employee Free Choice Act

Congress continues to debate the Employee Free Choice Act (EFCA), legislation that would amend the National Labor Relations Act by changing the way employees form, join, or assist labor organizations. Proponents consider EFCA the most important legislation for organized labor in the 111th Congress.

Sometimes called “card check,” the proposed law would permit a union to organize workers without first holding the secret ballot election required today. Instead, if a majority of employees signed cards authorizing union representation, EFCA would compel employers to recognize and negotiate with the union bargaining representative.

For approximately 75 years, the union organizing process required labor organizations to obtain signed authorization cards from at least 30 percent of employees in a bargaining unit before the National Labor Relations Board (NLRB) would conduct a secret ballot election. In that election, a majority of the employees would have to vote in favor of unionizing for the NLRB to certify the union as the exclusive representative of the employees for purposes of collective bargaining.

Under EFCA, labor organizations could still hold secret ballot elections, or they could take advantage of a new method of voting: Authorization cards would be circulated among employees, and if a majority signed the cards, the NLRB would install the union.

Not only does EFCA change the voting process, it also changes what happens if the union is installed by the NLRB. Currently, following installation of the union, labor and management are left to negotiate the collective bargaining agreement, with the economic strengths and weaknesses of the respective parties dictating the outcome. If the parties cannot reach an agreement, the employees are free to strike to exert pressure on the employer to agree to the union’s demands, and the employer is free to lock out the employees and hire replacement workers.

Under EFCA, labor and management would be given 90 days to reach an agreement encompassing all relevant wage rates, benefits, hours of work, and conditions of employment. If agreement could not be reached within 90 days, the parties would be compelled to use the Federal Mediation and Conciliation Service (FMCS) for 30 days to facilitate a settlement. (Currently, FMCS offers its services to parties in a labor dispute only if requested.) If mediation does not result in the parties reaching a settlement within 30 days, an arbitrator would unilaterally determine the terms and conditions of the first bargaining agreement. The agreement would be imposed for a 2-year term, after which the parties would be free to negotiate again.

The debate over EFCA encompasses several issues:

  • Proponents of EFCA claim that the current process—which lasts about 6 weeks from the time the union files for election until the secret ballot vote—gives management time to pressure union proponents into changing their votes. Opponents of EFCA counter that under the proposed legislation, undue pressure could be exerted on employees to sign their authorization cards publicly, making the process an inherently unreliable expression of the employees’ wishes.
  • Proponents of EFCA say the new process ensures that employees will have their wishes carried out by having a bargaining agreement in place within a relatively short time frame. Opponents say that having a third-party arbitrator impose wages, benefits, and working conditions will result in neither party getting what they want and that the process threatens the free enterprise system.
  • Proponents say EFCA is an important tool to level the playing field for workers by restricting management’s ability to discourage unionizing. Opponents say EFCA would make American employees less competitive in the global marketplace, especially given the perilous economy.

EFCA is one of approximately 10 pieces of proposed legislation that could significantly change current labor laws. For example, the Re-Empowerment of Skilled and Professional Employees and Construction Trade Workers Act would change the definition of “supervisor” under the National Labor Relations Act. Supervisors are excluded from voting and being in bargaining units. This legislation would result in fewer employees being classified as supervisors and thus being excluded from the bargaining process.

President Obama has stated that he is in favor of EFCA, while also acknowledging that the bill does not have enough votes to pass the U.S. Senate as written. Obama predicted that the Senate would have to modify some of the proposed provisions to get the 60 votes needed. These changes may include eliminating the mandatory arbitration provision, or elongating the period the parties negotiate on their own before imposed arbitration. In addition, penalties for unions that coerce employees into signing authorization cards may be increased.

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Recognizing Corrosion

Many of the readers of this magazine spend their careers covering stainless steels with insulating materials. It is valuable for these readers to have some basic knowledge of the different forms of corrosion of stainless steel they may encounter in the field. The mode of corrosion degradation and some practical guidelines for preventing corrosion are introduced in
this article.

Corrosion Types and Guidelines for Better Fabrication

Corrosion can be broadly defined as deterioration of a material by a chemical or electrochemical attack. Metallic corrosion under aqueous conditions can take place by many mechanisms with a varied impact on the integrity of the material. Some of the more frequently encountered corrosion mechanisms are:

General Corrosion. General corrosion is a uniform loss of material from the surface of the metal and is the most commonly encountered type of corrosion. The metal gradually becomes thinner and eventually loses structural integrity. In many corrosive environments the weld metal may be preferentially attacked because the cast structure of the weld can be quite different from the parent-wrought structure.

To minimize general corrosion the following methods should be considered:

  • The designer should deal with general corrosion by selecting optimum construction materials and then assigning a corrosion allowance to the equipment being designed.
  • To avoid preferential corrosion of the weld metal, an over matching filler metal may be selected.

Galvanic Corrosion. An electrochemical potential difference usually exists between two dissimilar metal or non-metal conductors when they are electrically connected in an electrolyte. An electrolyte generates an electric current between these two conductors. Consequently, the less noble conductor (the anode) will corrode faster, and the more noble conductor (the cathode) will corrode more slowly, as compared with the behavior of these conductors when they are not in contact.

To minimize galvanic corrosion the following methods should be considered:

  • Design is a major factor in preventing or minimizing galvanic corrosion.
  • If dissimilar metals must be used, insulators should be used to prevent electrical contact.
  • The area of the more active material should be larger in comparison to the noble material.

Localized Corrosion. Conditions may exist that cause corrosive attack in a very specific location or under a specific set of conditions. Such attack is normally referred to as localized. Pitting, crevice attack, and microbiologically influenced corrosion are all considered localized corrosion.

Pitting is a form of very localized attack that results in the formation of holes on the metal surface that can often propagate very quickly, leading to material perforation and failure in a very short period. The micro-environment within the pit itself can be autocatalytic, making this a particularly dangerous form of attack. The chloride ion is considered a particularly aggressive pitting agent for many alloy systems.

Crevice corrosion usually takes place in a very tight gap between two surfaces. Similar to pitting, the micro-environment within the crevice can greatly differ from the general bulk environment. Concentration cells can cause this type of corrosion to progress at a very rapid rate.

Microbiologically influenced corrosion is responsible for the deterioration of a metal surface through a crevice corrosion mechanism. Certain types of bacteria form dome-shaped colonies on the metallic surface. The inside of the structure is sealed from the outside. The life cycle of the bacteria produces a corrosive environment within the colony, which causes a crevice attack of the metal.

To minimize localized corrosion the following methods should be considered:

  • Use more alloyed corrosion-resistant alloys
  • Specify that crevices are welded shut
  • Specify double-butt or double-lap welded joints
  • Use consumable/removable inserts for critical single-butt joints
  • Prohibit skip welding for corrosive environments; weld all crevices
  • Seal weld all tubes to tube sheets
  • If crevices cannot be sealed or eliminated, open them up to allow circulation
  • Remove backing rings in pipe welds after welding
  • Remove embedded iron in stainless steel equipment
  • Avoid surface oxides from welding, including heat tints
  • Remove arc strikes, weld spatter, and slag particles.

Environmentally Assisted Cracking. Some types of corrosion degradation take place as a result of a synergistic effect of chemical environment and mechanical condition of the metal itself. Corrosion fatigue and stress corrosion cracking are the common forms of environmentally assisted cracking.

Stress Corrosion Cracking (SCC). This refers to the brittle fracture of a susceptible material under tensile stress in a specific environment over time. During this type of cracking, the metal surface is virtually unattacked over most of the surface, while fine cracks propagate through the cross section. Chloride stress cracking of stainless steel is an example of this type of attack. SCC is insidious because there is usually no manifestation of trouble before cracking appears. Failures of this type can be unexpected and hence hazardous and expensive. It is a major problem in the chemical and petrochemical industry.

Corrosion Fatigue. Corrosion fatigue may be defined as a combination of normal fatigue and corrosion that causes failure below the normal endurance limit of the metal involved. Thus it is normally encountered not as a visible degradation of the metal but as a premature failure of a component under cyclic conditions.

To minimize stress corrosion cracking and corrosion fatigue, the following methods should be considered:

  • Stress-relieve susceptible material after welding
  • Create compressive stresses by shot peening
  • Avoid stress raisers by blending welds to the base metal
  • Use butt welds instead of fillet welds
  • Blend grinding marks, rough edges, and rough machine marks
  • Avoid unnecessary cold work
  • Use high nickel-containing alloys.

Intergranular Corrosion. Intergranular corrosion is the selective attack of a metallic component at the grain boundaries by a corrosive medium. Several conditions can lead to a material being susceptible to intergranular corrosion. Because of thermal mechanical processing, metallic compounds may tend to precipitate and migrate to grain boundaries. If these are more reactive than the metallic matrix, they can be selectively attacked. A commonly encountered form of intergranular corrosion is the attack of non-stabilized austenitic stainless steels due to the formation of chromium carbide precipitates and the subsequent depletion of chromium.

To minimize intergranular corrosion the following methods should be considered:

  • Use stabilized or low-carbon welding materials
  • Do not stress relieve un-stabilized stainless steels in the carbide precipitation range; specify an annealing treatment instead. Specify low carbon or stabilized grades of stainless steel.
Figure 1

General corrosion of carbon steel pipeline caused by inadvertent exposure to dilute sulfuric acid.

Figure 2

Crevice corrosion of 316L in chloride-containing water under gasket location.

Figure 3

Network of external chloride-induced stress corrosion cracks in insulated 304L pipe.

Figure 4

Metallographic cross section through cracks shown in previous image, showing the typical transgranular chloride stress corrosion cracking.

Figure 5

Chloride-induced pitting corrosion of 316L stainless steel.

NIA Sites > Insulation Outlook Magazine > Global

LEED Looks Ahead with an Ambitious Overhaul

Since its launch in 1998, the Leadership in Energy and Environmental Design (LEED) program has become widely accepted as the standard measure of sustainability for buildings. To date, almost 21,000 projects, representing more than 5 billion square feet, have registered their intent to seek certification under the system. Another sign of the program’s success is the long list of municipalities, state governments, and federal agencies that have adopted LEED, incorporating it into construction guidelines, legislation, and requirements for incentive programs.

Along with this market acceptance have come the inevitable growing pains. Users complain about confusing documentation requirements and project review delays, while some critics say that the system, developed through a consensus process, is not backed by enough hard science. Although its creator, the U.S. Green Building Council (USGBC), has done much to respond to these criticisms as it developed and expanded LEED in recent years, it is now in the process of an extensive overhaul—one that it hopes will maintain the program’s rate of market uptake while advancing its technical rigor. “We were cognizant that LEED works now, but that it could work better,” says Brendan Owens, USGBC vice president of LEED technical development.

The revamp initiative, which the council refers to as LEED version 3.0, or LEED v3, has several components: revisions to the green building rating system, updates to the online tool that supports project certification, and changes to administration of the certification process. It also includes a new program for accrediting the professionals who work on LEED buildings.

LEED 2009 (the title given to the rating system component of the v3 effort) went live on April 27. And when long-time users register new projects, they may notice adjustments intended to more closely align the many rating systems that fall under the LEED rubric, including a version targeted at operations and maintenance, called LEED for Existing Buildings; one tailored to the design and construction of speculative buildings, known as LEED for Core & Shell, and the oldest and most widely used system, LEED for New Construction. This “harmonization” process includes revising similar credits in the various systems so that they cite the same standards and use the same language. This change should make LEED more user-friendly, especially for people who work on multiple projects of diverse types simultaneously. “A personal frustration has been the subtle differences between credits with the same title and the same intent,” says Joel McKellar, Assoc. AIA, a researcher at Charlotte, North Carolina–based LS3P and author of the blog reallifeleed.com.

As part of the effort to provide consistency, LEED 2009 moves to a 100-point scale, with regional and innovation credits providing an opportunity for projects to earn up to 110 points. Previously, the individual rating products each had their own point totals. For example, LEED for New Construction, LEED for Schools, and LEED for Commercial Interiors were based on 69-point, 79-point, and 57-point scales, respectively. LEED 2009 also introduces uniform certification thresholds across all the rating systems. Projects that earn 40 points will qualify for certification at the lowest level. A minimum of 50 points is required for Silver certification, 60 points for Gold, and 80 for Platinum, the highest level of certification.

The alignment of the individual rating systems, along with the new thresholds and the introduction of the 100-point scale, should simplify the documentation and certification process. In addition, they also help establish a framework that can accommodate more building types and market-specific requirements over time. However, the goals of the overhaul are more ambitious than streamlining and rationalizing the system. The larger aim was to provide incentives for project teams to deploy those strategies with the greatest potential for environmental or human-health-related benefit, with greenhouse-gas reduction at the top of the priority list. “LEED 2009 emphasizes the critical issues of energy, transportation, and water, and makes them the most important,” says Rand Ekman, AIA, director of sustainability at OWP/P, Chicago.

This prioritization is achieved by redistributing points among the various LEED credits to emphasize some over others. To formulate this reallocation, USGBC staff, committees, and consultants started with an inventory of 13 aftereffects of human activity created by the U.S. Environmental Protection Agency (EPA) and known as “TRACI.” Short for “Tool for the Reduction and Assessment of Chemical and Other Environmental Impacts,” TRACI includes categories such as fossil-fuel use, ozone depletion, and global warming.

Next in the reallocation process was prioritization of the TRACI categories. To assign a relative importance to each, the LEED 2009 team relied on a tool developed by the National Institute for Standards and Technology (NIST). Ultimately, the council created a matrix that established the relationship between existing LEED credits and the TRACI categories. The matrix served as the basis of a spreadsheet for calculating the number of points each credit is worth.

Energy and transportation credits came out as big point winners in this analysis, primarily because of the importance assigned to controlling carbon emissions. For example, strategies intended to increase energy efficiency and the reliance on renewable power generated on-site can earn projects up to 26 points, versus 13 when compared to the previous LEED for New Construction. A location close to public transportation, which also has the potential to reduce occupants’ energy use, counts for six points, up from only one in the old system.

Some credits with a less direct link to slowing global warming also have heavier emphasis in LEED 2009. For example, ambitious water conservation goals can help garner as many as 10 points, double the number previously available.

The reallocation process also involved some value judgments along with the weighting exercise. Partly because of gaps in the data, strict application of the TRACI-NIST tool would have made some credits worth almost nothing, especially for the categories of indoor air quality and human health. But it was important to the LEED 2009 development team to retain the existing credits, even those associated with relatively small environmental benefit. So all are assigned at least one point in the new system. The approach keeps the structure of the rating system intact and should make it seem familiar to users accustomed to the preceding versions of LEED. “It is an elegant solution,” says Scot Horst, the USGBC’s senior vice president of LEED. “The scorecard doesn’t look that different.”

However, review of the new rating system does reveal a few significant credit adjustments. For example, LEED previously awarded points for indoor water-use reduction beyond 20 percent when compared to a “baseline,” or code-compliant, building. But in the new system, this savings level becomes a prerequisite. Projects earn no points for satisfying this performance minimum, but those that do not comply will not be eligible for certification. To earn points for efficient indoor water use, projects must achieve at least a 30 percent reduction. These new water thresholds are achievable and appropriate, according to Anica Landreneau, Assoc. AIA. “It is possible to reach 40 to 50 percent savings with fixture selection alone,” adds Landreneau, sustainable-design-practice leader in HOK’s Washington, D.C., office.

Another notable change is the introduction of regional credits. For the first time, the rating system will take into account environmental issues important in projects’ specific locations. Working with its local chapters and affiliates, the USGBC has identified credits that address the priorities of given environmental zones. Projects will be able to earn a maximum of four bonus points on top of the base 100 for achieving these preselected credits. For example, projects in rural areas of Michigan can earn extra points for preserving agricultural land, reducing light pollution, and minimizing storm-water runoff into the Great Lakes.

The council considers this bonus-point approach as an interim step. It hopes to eventually incorporate the regional priorities into the body of the rating system. “But this is two or three versions down the road,” according to Owens.

One aspect of LEED 2009 should help the USGBC with a long-term goal of better understanding the relationship between credits and building performance. As part of project registration, teams will need to agree to report post-occupancy energy and water use. There will be a number of ways to fulfill this provision, including participation in the existing buildings program, which has a performance measurement requirement, or signing a waiver that would allow the USGBC to obtain the information directly from the utility company. The council hopes to use the data to perform studies like the somewhat controversial one it commissioned from the New Buildings Institute (NBI). Completed in March 2008, the NBI analysis determined that energy use in LEED buildings is 25 to 30 percent better than the national average. However, it also showed large variations among individual buildings. According to one of the study’s analyses, 25 percent of the participating projects had better than expected performance, while 21 percent showed performance that was below the code baseline.

The study also highlights a problem that is just as important as its findings: the difficulty of collecting performance data. NBI’s examination is based on 22 percent of the 552 buildings that had been certified under LEED for New Construction Version 2, through December 2006. Only these 121 projects were able to supply the full year of post-occupancy energy numbers required for participation in the study. Collecting the data for even this small pool of projects required “an extraordinary level of effort,” according to Owens. The hope for the new reporting requirement is that it will “automate the collection of data to inform the future development of the rating system,” he says.

The LEED v3 launch also includes an improved tool for managing the project registration and certification process electronically. The council, in collaboration with software companies Adobe and SAP, developed the application in response to complaints that the system’s predecessor is slow, buggy, and prone to frequent crashes. “The USGBC staff uses it on a daily basis, so we are aware of its shortcomings,” says Mike Opitz, USGBC vice president of LEED development. System designers also sought input from other frequent users, such as project administrators and reviewers, he says.
The new LEED Online, which will be available for use only in conjunction with LEED 2009 projects (those registered under previous versions of LEED will be required to continue to use the older online system), represents an investment of “several million dollars,” says Opitz. In addition to providing improved speed and reliability, the application is designed to facilitate communication between the reviewer and the project team, according to the council.

Along with the revamp of the rating system and the online application, LEED v3 includes an overhaul of the project certification process and the program for qualifying LEED Accredited Professionals (AP). In conjunction with the v3 launch, the USGBC officially moves administration of the certification and AP programs to the Green Building Certification Institute (GBCI), a nonprofit organization spun off from the USGBC in late 2007. The council will continue to manage the development of the rating system, the online tool, and related resources such as educational offerings.

For the certification piece, GBCI will manage 10 organizations, including Underwriters Laboratories and Lloyd’s Register Quality Assurance, which will in turn oversee the project review process. Under the old system, all LEED project submissions were reviewed by the USGBC with the support of independently contracted reviewers. According to USGBC and GBCI, the administrative restructuring should eliminate the review and certification delays that have long plagued the LEED program. In addition, the two organizations say the changes will bring the program in line with the protocols of the International Organization for Standardization (ISO) and the American National Standards Institute (ANSI). Certification will “become a real third-party process,” says Horst.

Also being closely watched by the green building community are the coming modifications to the AP program. The changes, which will be phased in over the coming year, include introduction of a three-tiered system of credentials. The lowest tier will be LEED Green Associate. It is intended for people who want to demonstrate a commitment to green building practices but may not be directly involved in LEED projects. GBCI expects that this title will appeal to non-technical professionals, such as marketing staff in design firms or lawyers involved in real estate development deals. The second tier will be roughly the equivalent of the current AP credential, but will include specialty tracks that correspond to the various LEED rating systems. Finally, LEED Fellow will designate an “elite” level of expertise.

The new credentialing is a response to concerns that passage of the current multiple-choice qualifying exam requires rote memorization rather than a true understanding of green building practices and principles. “The goal is to make sure that the credentials are targeted and meaningful,” says Peter Templeton, GBCI president.

Although GBCI is still developing the criteria for fellow status, it has already outlined the requirements for the first two tiers of accreditation. Earning the Green Associate credential will involve passing an exam that will cover core concepts and the key points of the LEED rating system. Qualification for the AP status will have two steps: Candidates will be required to take the first-tier exam as well as a test tailored to their chosen specialization. In addition, AP hopefuls will have to demonstrate LEED project experience. GBCI plans to institute continuing education requirements for both designations—15 hours for Associates and 30 hours for APs, biennially.

The more than 101,000 people who have passed the current exam, and the many more expected to successfully complete the test before GBCI discontinues it at the end of June, will be permitted to retain their AP designation. They will also have the option of enrolling in the new system. But in order to adopt one of the specialized credentials, they will need to complete the continuing education requirement.

GBCI hasn’t yet provided the details of what kind of courses will count, except for noting that 6 of the 30 hours will need to be “LEED specific.” However, many observers expect that satisfying the requirement will be relatively painless, at least for professionals who participate in continuing education in order to maintain their licenses. “For architects and engineers, there will be overlap,” predicts McKellar. “But from those [disciplines] that don’t already have to complete continuing education, there will be resistance,” he says.

With regard to changes to the LEED program as a whole, the reaction of seasoned LEED users has been mostly positive. Many design consultants say that the new system should not be a huge adjustment for project teams. “Obviously there will be a learning curve,” says Rob Bolin, a senior vice president with mechanical engineering firm Syska Hennessy in Chicago. “However, if people are completing LEED projects now, they will be able to continue to do so in the future,” he says.

Even the recession, sources predict, should not be that much of a factor in market uptake. “The economy will hamper total construction volume,” according to OWP/P’s Ekman. “But it shouldn’t change the percentage of projects that seek certification.”

Information Graphics: Encarnita Rivera; Data: USGBC, except as noted.

Originally published in the May 2009 issue of Architectural Record.

Figure 1

Credit weighting categories.

Figure 2

Comparison of new and old point systems.

Figure 3

Certification thresholds: LEED 2009 introduces uniform certification thresholds, based on multiples of 10 points, across all its rating systems. They replace the older versions’ seemingly arbritrary point requirements.

Figure 4

Reference guides: The revamping effort includes revising credits that resemble each other in the multiple LEED products so that they rely on the same language. A manifestation of the “harmonization” process are the reference guides, which provide supporting documentation to the rating systems. The new guides group similar LEED products, reducing nine systems to three volumes.

Figure 5

LEED 2009 for New Construction introduces a requirement that project teams report post-occupancy energy- and water-use data. The USGBC hopes that the provision will help it better understand the relationship between LEED and building performance, and will facilitate studies like the one it commissioned from the New Buildings Institute. Although the study found that LEED buildings perform 25 to 30 percent better than average, the analysis also showed large variations among individual buildings. A comparison of measured versus proposed savings (at right) showed that some projects used more energy than allowed by the code. Data: NBI

Figure 6

LEED timeline: Although the new LEED officially launched in late April, project teams have the option of registering buildings under the old system through June 26. Teams already using previous versions of the rating system can migrate projects for free through October 24. Rollout of a new program for credentialing the professionals who work on LEED projects is also under way as part of the revamp effort. Data: USGBC and GBC

NIA Sites > Insulation Outlook Magazine > Global

Does Insulation Cause Corrosion?

Original Article

The many aspects of corrosion under insulation (CUI) have been debated for years. Does mechanical insulation cause corrosion or help prevent corrosion, or is it just an innocent bystander in the debate? I am by no means a corrosion specialist or an insulation technical guru, but I do take a practical approach to addressing the primary question. This article will explore the practical aspects of the debate and, depending on your point of view, contribute to the debate. I am convinced the debate will not be resolved with this article, but I hope it will make you think about insulation differently when examining CUI.

Corrosion under insulation can be extremely bad because it is often hidden. When it becomes noticeable, the consequences are usually bad and potentially unexpected. When I hear someone indicate the problem was unexpected, I really don't understand their comment. It reminds me of the old saying: "out of sight, out of mind." It may not have been expected at that time, but it was going to happen sooner or later unless steps were taken to prevent or minimize the danger.

The damage created by CUI was being debated as early as the 1950s. The magnitude of the overall corrosion issue has been reported to cost industry billions of dollars annually. How much is directly attributable to CUI is part of the debate. The growth rate of the overall problem and CUI is also widely disputed. But with today's emphasis on short-term cost abatement or deferral, I would not be surprised if a spike appears.

Where Can CUI Occur and Why?

The short answer is everywhere. The two most commonly discussed substrates are carbon steel and austenitic stainless steel. The carbon steel corrodes or rusts, and the stainless steel cracks. They don't crack or corrode because they are insulated but because they have come in contact with moisture. Insulation does not cause corrosion.

For CUI to form on carbon steel type surfaces, they must be exposed to oxygen, moisture, and warm temperatures. For austenitic stainless steel type surfaces, chlorides or similar type halides must also be present at the substrate. The rate of corrosion or cracking will depend on any combination of these factors.

Insulation provides an annular space where moisture can be retained. Depending on the source of the moisture, it could contain other contaminants. Could that accelerate the rate of corrosion? Yes. Can some insulation in the presence of water contribute additional contaminants that could cause or accelerate corrosion? Yes. Could some insulation "wick" or absorb moisture faster or to a greater extent than others? Yes. The common denominator in all three scenarios is insulation in the presence of water.

CUI is not limited to pipe and equipment walls but can also affect instruments, tubing, valves, bolts, and many other areas that could interfere with facility operations. CUI left unattended can also foster and accelerate the failure of an insulation system through weakening the substrate, cracking the insulation system, and causing leaks.

Service Temperature versus CUI

From all I have read, carbon steel operating in the temperature range of 25°F to 300°F is at the greatest risk of CUI. Surfaces that operate below 25°F seem to be usually free of CUI, and those operating above 300°F usually have reduced rates of CUI. However, those temperature parameters are only rough guidelines. I have seen CUI at the point of moisture intrusion, at water/ice transition areas, and especially in cyclical service situations and when piping and equipment are idle. Cyclical service and start up from an idle mode can create many problems if moisture is in the insulation system.

Stress cracking of austenitic stainless steel occurs when chlorides in the environment or insulation material are transported by water to hot surfaces and concentrated by evaporation of the water. Insulation can provide the vehicle to transport those chlorides to the surface. Over time, the concentration of those contaminants can escalate the problem.

May 2019 Article Update: 10 Years Later

This article was originally published in June 2009. When asked if it could be reprinted in May 2019, my first reaction was that a lot has changed in 10 years. However, after reviewing the article, I found the message remains valid and the debate continues.

Insulation does not cause corrosion. The temperature range where corrosion can occur may vary depending upon who is asked, but it still takes three items to create CUI:

  • temperature,
  • prolonged exposure to moisture
  • water and containments (which can be from the atmosphere, water, or from the insulation in the presence of water).

Many believe that water or water vapor will eventually find its way into an insulation system. If that is the case, and if the water cannot find its way out and remains within the insulation at the substrate level, the risk of developing corrosion is high. Contaminated water reaching the substrate is not the problem, the retention of water or continual exposure to contaminated water at the substrate is the problem.

Inspection of mechanical insulation can play a vital role in helping to identify potential areas where CUI can occur and areas in need of repair of replacement before CUI becomes a major problem that could lead to significant financial loss, personal injury, or even loss of life.

Today, when you hear others talk about CUI and insulation materials you will hear phrases like water resistant, corrosion inhibitors, hydrophobic, and hygroscopic.

  • Water resistant means basically the material is able to resist the penetration of water to some degree, but not entirely unless it and the system is zero perm.
  • Corrosion inhibitors are combined with the material to reduce the rate at which corrosion on the outer surfaces of pipe and equipment may occur.
  • Hydrophobic means the material tends to repel or not to absorb water.
  • Hygroscopic refers to the material’s ability to absorb and hold water.

Virtually every material has limitations. As an example, some materials may lose their hydrophobic qualities at certain temperatures or upon other occurrences. They are currently no insulation “silver bullets” to prevent CUI. When it comes to minimizing CUI, a total system design approach, substrate preparation and coating, and all aspects of an insulation system, is required and a proactive inspection and maintenance program is needed.

Now you know a little bit about CUI, but I am sure the debate will continue.

What Are the Potential Sources of Moisture Intrusion in an Insulation System?

There are multiple sources, not in any particular order of importance or frequency of occurrence:

  • Rainwater
  • Wash down process
  • Water vapor penetrating the insulation system
  • Ice formation and potential freeze-thaw situations
  • Fire detection system activation
  • Equipment or piping leaks
  • Flooding

There are many kinds of opportunities for moisture to enter an insulation system. Many experts have indicated that moisture entering an insulation system is not a question of if, but when and how much. They may be correct, but I believe the risk of CUI can be managed by understanding the risks of allowing moisture intrusion and correcting damage in a timely manner.

Insulation System Design

Prevention of CUI begins with the facility design and extends through the design and installation of the mechanical insulation system. A poorly designed and installed insulation system that allows moisture intrusion is problematic for many reasons.

One of the most common areas of concern is penetrations. In many cases, the design of the mechanical system does not give adequate consideration to the complexity and difficulty of insulating or sealing and maintaining the integrity of that seal.

Another design flaw often occurs in the selection of a protective and/or vapor/moisture barrier for the insulation system. The characteristics of the core insulation material are important, but the selection of the vapor barrier and protective coating or jacket appropriate for the service temperature and environment is critical.

Take the time to thoroughly investigate the insulation system options and take a "real world" approach to actual field conditions and maintenance expectations. Seek advice; this is too important not to avail yourself of every opportunity to get it right. Attempts to prevent water from entering an insulation system over time have been less than successful for a variety of reasons. In addition, corrosion protective techniques in many cases have not been effective. Realize that moisture is the primary enemy and you have identified the real problem: controlling and/or eliminating moisture intrusion.

The Importance of a Proper Insulation Maintenance Program

One of the problems is that insulation systems are not being maintained in a timely and proper manner. This is why 10 to 30 percent of installed mechanical insulation systems are damaged or missing within a few years of initial installation. That is a recipe for CUI.

You should maintain an insulation system in a timely and correct manner for a number of reasons:

  • Safety
    • Corrosion of the substrate under the insulation (CUI) could result in product release.
    • The increased weight of wet insulation and/or ice, depending on the service and ambient conditions, could cause the piping or equipment to exceed the structural design of the support hangers or other support systems.
    • Continual dripping of water from insulation and/or melting of the ice that has formed on and in an insulation system could create a personnel safety concern.
  • Plant Environment and Regulations
    • Wet insulation and increased presence of water from the melting ice or dripping from insulation can contribute to the development of mold on and in the insulation system and in adjacent areas.
  • Energy Loss and Greenhouse Gas Emissions
    • While wet insulation and ice do have some minor insulation value, the additional heat gain from the failed insulation systems will result in increased energy consumption and greenhouse gas emissions.
  • Productivity
    • The reduced efficiency of the insulation system does not allow the process equipment to function as designed, resulting in decreased productivity and/or increased cost of production.
  • Cost of Operations/Return on Investment
    • A failed insulation system increases annual operating cost and life-cycle cost through:
      • Increased energy consumption and cost
      • Increased production cost and lower throughput
      • Decreased life of the substrate, which increases life cycle and annual maintenance cost in multiple areas
      • Deceased life of equipment due to operational demands and the effect on the surrounding work area
      • Unnecessary risk in areas including employee and community safety and regulatory concerns.

Another recipe for CUI is failure to immediately and properly repair an insulation system after non-destructive testing. Many non-destructive testing procedures should be described as "destructive." Any time an insulation system is penetrated, the integrity of the overall system is compromised. This is especially true on services below ambient temperatures. The problem is compounded when the area penetrated is not properly repaired in a timely manner.

Non-destructive testing is a double-edged sword. CUI can be hard to detect unless you inspect the substrate regularly, but if the inspection process has flaws, like not immediately repairing the insulation, it can cause or compound problems.

Inconsistent levels of effective and timely maintenance of insulation systems can only lead to increased CUI concerns and intensity of the problem. Would a consistent, proper, and aggressive insulation system maintenance program eliminate CUI? Total elimination of the problem is not a realistic assessment, but such a program would substantially reduce the extent and severity of the problem.

The Bottom Line

CUI costs industry billions of dollars annually, yet many companies do not address the real problem of proper design, installation, and maintenance of mechanical insulation systems. That is why I am surprised when I hear someone indicate the problem was unexpected. If you don't have the proper design, proper installation, and a timely and effective insulation maintenance program, why should you be surprised when CUI is finally recognized? With CUI, examining the long-term cost and benefits can save a great deal of money over time.

Spending time in the design of insulation system, ensuring it is properly installed by an experienced and proven insulation contractor, and implementing a timely, effective maintenance program are necessary to prevent CUI. The benefits of such a process will exceed your expectations. In today's economy, it has never been more important to think about insulation and corrosion under insulation differently.

NIA Sites > Insulation Outlook Magazine > Global

The State of the Industry: The Challenges of Change and Opportunity

Despite all the ramifications and complexities of 2008, the National Insulation Association (NIA) World is strong, and its future is filled with opportunities. The NIA World encompasses the commercial and industrial insulation market segment, including all facets of mechanical insulation; a significant portion of commercial building insulation; metal building insulation; and a part of the heating, ventilating, and air conditioning (HVAC) market. It does not include the majority of insulation-related activities in the HVAC, residential, original equipment manufacturer, automotive, appliance, aerospace, and other specialty markets.

Now is our time, but it will take approaching the future with vision and commitment to make a difference. Many people and companies spend an enormous amount of energy and resources in an effort to predict how bad things will be and to react accordingly. What if those resources were enthusiastically focused on and invested in accelerating recovery and exiting the struggling economy stronger than when we entered this unprecedented time of uncertainty?

What a difference a year makes. Who among us would have predicted the 2008 roller coaster ride, and especially the twists and turns of the last 6 months of 2008? Last year’s “The State of the Industry” quoted someone as saying, “My crystal ball is foggy.” Now, that same person would likely indicate that his crystal ball is broken.

The industry has never been good at forecasting growth rates. Certainly, 2008 was not an exception to that rule. Many industries probably missed the mark in 2008, and 2009 will probably challenge most industry veterans.

While the various components of the economy that affect the mechanical insulation industry were developing, producing ill effects for the United States and global economy, many companies in the NIA World were enjoying an extremely good year in 2008. However, there is no doubt the industry has begun to feel the effects of the economy and the challenges it presents. Still, the opportunities remain abundant. History can be a great reference: We have been here before, and we emerged stronger and better then. We will again. The frequency and severity of business cycles may vary, but they will eventually occur in all businesses, and the NIA World is not an exception. Without question, these cycles present challenges, but they also give birth to opportunities.

Both 2009 and 2010 will be prime examples of the varying forecasts within the NIA World. Depending on geographical service area, level and sustainability of a company’s backlog, mix of business among industry segments (industrial, commercial, etc.), product or service line diversity, domestic versus international business, and more, some will be forecasting “doom and gloom” while others will be cautiously optimistic. Putting aside individual company forecasts, the industry is not immune to the effects of the U.S. and global economies, which will eventually touch all participants. Business owners may have already had to make some tough decisions, and there may be more in the future, but the opportunities for the industry are there. There may not have been a more opportune time in the last 10 to 20 years than right now.

Yes, it will take an investment and commitment. But the result could support increased current and long-term earnings, accelerate recovery, sustain and create new jobs, help reduce our country’s long-term dependency on foreign energy sources, and improve the environment. What is wrong with that formula?

When it comes to investment, commitment is not easy. It has many complexities due to bottom-line earning pressures; capital availability; shareholder expectations; the ever-present focus on today’s earnings versus the future; and a host of other considerations. Each of these subjects is important and cannot be ignored. However, the NIA World offers its end customers a unique opportunity. The simple internal rates of return on mechanical investments normally range between 6 months and 2 years. Those same investments can increase current earnings while strengthening long-term earnings estimates; provide additional free cash flow; improve a company’s environmental footprint by reducing greenhouse gas emissions; reduce our dependency on foreign energy sources; improve life-cycle costs; and sustain and/or create new jobs. Is that not the type of investment companies are looking for in today’s economy? To use a popular phrase, insulation maintenance and upgrades are basically “shovel ready.”

A new year, a new administration, a new economy: change is inevitable. With change come opportunities, but they will require a different approach than employed in the past—it will take an investment and commitment to embrace the challenges of change and opportunity.

Competing with Energy Conservation Initiatives

When the cost of a barrel of oil was $147 in mid-2008 and gas prices were approaching, and in some places exceeding, $4 a gallon, all we heard about was the need to explore alternative energy sources, expand drilling operations, and conserve energy. With the cost of a barrel of oil at $50 (as of January) and gas in many places below $1.70, that seems a distant memory. But it would be a mistake to reduce the commitment to exploring and implementing all forms of increased energy production, efficiency, and conservation. While everyone is enjoying the current low cost of oil, history has proven that similar events have reduced the focus on the bigger problem. Many are forecasting the cost of a barrel of oil will return, for a variety of reasons, to $90 to $100 a barrel, or potentially higher. This scenario has played out before.

It has always been puzzling that the need for energy conservation and efficiency—especially within the industrial and commercial market segments—is not bigger news. Energy efficiency is not the sole solution to current or future energy demands. But aren’t conservation and efficiency the fastest means to deliver results now, providing time for the technologies of the future to develop?

There are hundreds of energy conservation initiatives being offered across all market segments. Some are beneficial, while others appear to contain smoke-and-mirror calculations. Where does mechanical insulation fit? The value of insulation for energy conservation and efficiency has been proven for decades, yet it is often passed over for the fancy initiatives containing shiny moving parts, even though they have a longer payback period. Why is that?

The NIA World, as a general rule, does not recognize that it is competing with other energy conservation initiatives. The insulation industry must understand that it has to compete for maintenance and capital dollars in the energy conservation arena. Story after story is written about the benefits of new lighting technology, the need for insulation and winterization in homes, and installing triple-pane windows, high-efficiency motors, and smart meters. When was the last time a story about the benefits of mechanical insulation appeared in the same context as those other initiatives? The NIA World has a phenomenal story to tell, with time-tested and proven results. It is time to tell the story and compare results to those of other leading initiatives.

Recently, a government official said, “Everyone maintains and upgrades their insulation—that’s a no-brainer.” The reality is that while it should be a no-brainer, insulation upgrades are few and far between, and the percentage of missing or damaged mechanical insulation certainly has not decreased. If anything, it may have increased due to reduced maintenance budgets and insulation not being a priority. A maintenance process that can pay for itself in months, not years, sounds like a winning plan. So why do so few people of influence in the decision chain recognize the potential? Maybe they don’t know about it or understand that proven, quantitative means to demonstrate the benefits are readily available. It is time to simply tell the story in the energy conservation, efficiency, and emission reduction arena. We need to continually tell—no, shout—it from the highest rooftops, in boardrooms, and in legislative chambers across the country.

There are many pieces to the mechanical insulation energy conservation and efficiency puzzle. How much have insulation thicknesses increased over the last 20 or even 10 years in comparison to the cost of energy? The simple answer to that question is very little. Is the potential of increased future energy costs taken into consideration in the design of new insulation applications or the upgrading of existing systems? Again, a simple answer is probably not. Why not? Maybe the people of influence in the decision chain do not have the knowledge or tools to consider the long-term consequences. Imagine the difference an extra 1/2 to 1 inch of insulation would make. The difference is huge, and the incremental cost is small. More impressive is that users can reap the benefits of a significant return on investment in both today’s and tomorrow’s dollars.

The recent decline in oil prices has eroded the sense of urgency for energy conservation and efficiency, and lulled many into falsely believing the crisis is over. The urgency is still very real.

Reducing Greenhouse Gas Emissions

Reducing greenhouse gas emissions can be accomplished in two ways:

  • Decreasing the consumption of fossil fuels
  • Installing technology to extract emissions before they enter the atmosphere

It seems simple enough, but in today’s world few things are as simple as they seem.

Energy conservation and efficiency are major components to protecting the environment. But as long as greenhouse gases and carbon dioxide can be emitted without penalty, harmful practices will probably continue. The debate continues about the need for or value of federal regulations that would implement a formal carbon credit program or impose a carbon tax. These methods are being explored, and in some cases implemented, by various state initiatives. History has proven that when U.S. businesses are given incentives or regulated to accomplish certain objectives, they move forward. The incentive route is a good one.

The United States can’t solve the climate change problem alone. We must work through all the appropriate international organizations to create and enforce global programs to effect change. At the same time, we must avoid putting our products in a non-competitive position.

Keeping an Eye on the Bottom Line

Mechanical insulation is a powerful technology that is often overlooked, underutilized, and undervalued as an energy conservation, greenhouse emission reduction, and/or sustainability initiative. Its multiple long-term benefits are often unrecognized or relegated to the bottom of the priority list in favor of more glamorous alternatives. The general knowledge base related to the design, maintenance, and benefit analysis for mechanical insulation has eroded substantially over the last 10 to 15 years, leading to increased energy consumption and greenhouse gas emissions across all commercial, industrial, and mechanical industry segments.

Mechanical insulation is normally examined on a project or individual opportunity basis, so the magnitude of this opportunity across the industry has not been adequately portrayed. The increased use of mechanical insulation can help solve numerous hot-button, nationwide issues simultaneously, including:

  • Conserving energy
  • Reducing overall energy demand and our dependence on foreign energy sources
  • Reducing greenhouse gas emissions
  • Improving commercial infrastructure in the public, educational, and health-care sectors, among others
  • Creating and preserving jobs in both the industrial and commercial markets

The return on investment with this technology is often between 6 months and 2 years.

Identification of the opportunities on a facility basis is relatively easy. The cost, contracts, schedules, and ultimate implementation can be finalized in weeks versus years, and the benefits are immediate. Industry (management, labor, and manufacturing) has developed a series of unbiased and widely accepted measurement tools and programs by which to qualify and quantify the value of this technology, including educational and awareness programs.

This is a simple concept. Why, then, is mechanical insulation not a priority initiative for energy conservation and efficiency, as well as the protection of the environment?

This may sound like an old cliche, but it’s all about money: money to provide effective awareness and educational initiatives in government and private business sectors; money to encourage businesses to invest in energy conservation and emission-reduction initiatives; money to encourage state and local governments to embrace and enforce changes; money to mandate and enforce changes in federal and private construction projects; and more.

Statistics, analysis, and good old-fashioned education about the value and benefits of increasing the use and maintenance of mechanical insulation systems are needed within the federal and state governments and the private business sectors. The mechanical insulation industry has changed. No one segment can rely on another to develop and create educational or growth opportunities. There has never been a more opportune time or as big an appetite for new ideas. The window of opportunity, however, is small. The industry needs to join in a concerted and continuous effort to:

  • compete with other energy-efficiency initiatives
  • change how mechanical insulation is viewed
  • promote governmental incentives
  • provide awareness and educational programs
  • preserve and create job opportunities
  • increase industry professionalism

All these steps can speed recovery from the current state of the economy and, ultimately, provide sustainable industry growth.

The industry needs to embrace change and new ideas. It is time to venture down new paths within federal and state government and business circles to secure the industry’s place among today’s many opportunities.

This means investment. In today’s economy, shareholder expectations can be a difficult discussion. Is it best to invest in the opportunity to create change and longer term prosperity or to just accept whatever comes? Should business owners rely solely on the commitment of others or should they participate and encourage others to join them? These fundamental questions are at the core of the investment question.

What makes this time and opportunity so unique is the potential that can be created with a relatively small investment. Working together allows each company to invest modest sums individually, but cumulatively it equates to dollars that can be used to take advantage of this unique point in the economy.

One of NIA’s marketing slogans asks people to “Think About Insulation Differently.” Maybe now is the time to think differently about the value of investing in the association, as well as industry growth and improvement initiatives. The return could easily exceed expectations.

Rounding Up the Usual Suspects

The following are occurring in the insulation industry today:

  • Industry consolidation continues, but at a slower pace
  • Labor shortage concerns have lessened
  • The influx of foreign products has slowed, but it remains a threat
  • Technology advances are continuing
  • Vertical integration has not gained momentum
  • Spiraling price increases have slowed, if not stopped, and some may be in reverse
  • Safety remains a primary focus in all companies
  • The problems created by less-experienced “feet on the street” have not changed—if anything, they may have gotten worse
  • Available capital and credit are a concern

All the normal topics have not gone away, but their importance seems to be overshadowed by the economy.

Looking Ahead

The NIA World is a good place to be. Despite all the challenges of the economy, the opportunities have never been greater. However, the industry needs to step forward with new and aggressive marketing and educational programs. Insulation is not a sexy subject; it lacks a “wow factor” to most users and most people of influence. They need help in understanding and quantifying the value of this simple and proven technology that, in essence, pays for itself.

It certainly seems that everyone’s initial reaction in a struggling economy is to reduce costs. Certainly conservatism and prudent spending are warranted. But is investing in initiatives to accelerate recovery and create long-term sustainable growth and earnings an expense or a smart investment? Potentially, no other time in our industry has presented more opportunities: to examine and increase minimum insulation standards; to increase awareness about the value of proper and timely maintenance; to make mechanical insulation recognized as a proven energy conservation and emission reduction alternative; to advocate for mechanical insulation upgrades in government and private sectors. Our time is now. Let’s not miss this opportunity.

Many industry veterans will feel this article has been preaching to the choir. But the opportunity for the industry to execute a new direction is unprecedented. A new strategy can grow the industry while supporting our nation in achieving energy independence, protecting the environment, and helping the economic recovery. We can make a difference. Not only is the NIA World a great place for industry veterans, but it is also a wonderful opportunity for the young generation looking for an industry in which to have a career. Let’s secure that opportunity for ourselves and the next generation.

Don’t fall prey to the same old sad stories about the economy and the daily newscasts about all the doom and gloom that exists. The NIA World remains a good place to be. This is an exciting time for our industry. Let’s make something happen.

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The Economic Recession: Trying to Find a Bottom

The old saying, “What goes up must always come down,” isn’t only about Newton’s law of gravity. In economics, this aphorism can be applied to the various equilibria that govern our economy. The housing bubble, the collapse of which sparked the financial crisis and subsequent world recession, originated in the early part of the decade. After the 9/11 attacks, U.S. interest rates fell to historic lows in an effort to prop up demand during the 2000?01 recession that affected mainly the manufacturing sector. These low interest rates effectively lowered the cost of purchasing real estate, generally considered among the safest investments. Home prices, already accelerating, took off as demand for housing grew. With relaxed lending standards and the proliferation of nontraditional mortgage instruments, hundreds of thousands of new homeowners and investors purchased residential real estate. Even borrowers with poor credit or no income verification could get loans through the subprime market. By 2006, nearly half of all mortgages were subprime. Growth in housing prices soon fell out of line with income growth. But with home prices up, consumers felt wealthier and many homeowners refinanced their mortgages during this time to withdraw some of the accrued home equity. This fueled consumer spending.

To make all this borrowing possible, U.S. mortgage markets had to attract capital from the rest of the world. Because economic growth in the rest of the world was booming, foreign investors poured money into high-yielding, U.S. mortgage-backed securities. By the beginning of 2007, the United States was spending $1.06 for each $1 of income it produced. The housing bubble was supported by the following three key assumptions:

  • Incomes would remain stable
  • Interest rates would not rise
  • Housing prices would continue to advance

However, interest rates did rise during 2007, suddenly making housing less affordable. Many borrowers with adjustable-rate mortgages found themselves unable to keep up with their payments as their loans reset to the higher rates, and they put their homes up for sale. The sudden shift from buying to selling caused home prices to drop, and the spiral that fueled the housing boom reversed. A large number of financial institutions had portfolios stuffed with seemingly safe, mortgage-backed securities, including many outside the United States. These banks quickly discovered that these investments were now worth a fraction of their previous value. The era of easy lending was over, as banks tightened lending standards and scrambled to assess the true extent of their losses as the value of their asset base fell.

In 2008, higher interest rates, tighter lending standards, and dwindling consumer confidence pulled the plug on consumer spending, and the U.S. economy slowed. Industries tied to housing (such as construction and mortgage finance) started to decline first. Soon suppliers and related businesses saw smaller order books themselves, and sales, employment, and production declined across much of the industrial sector. The National Bureau for Economic Research (NBER), the official arbiter of U.S. business cycles, announced last fall that the U.S. economy peaked in December 2007 and has been in recession ever since. The recession was mild initially, and for several months it seemed as if the bulk of the financial crisis could be contained in the financial sector. Then the collapse of Lehman Brothers in September triggered a full-blown crisis of confidence in the banking sector and, ultimately, the U.S. economy. The downturn that began the previous December accelerated. With job losses mounting, housing prices continuing to freefall, and credit still difficult to come by, consumer spending (which makes up more than two-thirds of the U.S. economy) fell sharply. The American consumer, who powered the economy through the previous recession, had left the building.

As consumer spending contracted, inventories built up along the supply chain. As a result, manufacturing production dropped and was off by double digits from that of a year ago. For automakers, 2008 was the worst year since 1982. Housing starts finished the year at 550,000 units, the lowest level since the 1940s and less than a quarter of the peak levels of 2006. By the end of 2008, home prices were down 25 percent from the peak. Since the recession began, the U.S. economy has lost around 4 million jobs, and with the flood of announced layoffs earlier in the year, the carnage is not yet over. The unemployment rate rose to the highest level since 1993 and is expected to continue to rise through 2010. Gross Domestic Product (GDP), which declined by a modest 0.5 percent in the third quarter, contracted by 4 percent in the fourth quarter. As demand dropped, so did the steep price pressures the economy faced during mid-2008. Concerns about inflation have been replaced by fears of a broad deflation.

Looking into 2009, economic growth is expected to contract during the first half of the year, with another steep decline in first-quarter GDP as the vicious circle continues. Should this recession extend past April, as many expect it will, it will be the longest recession since the Great Depression. The consensus among many economists is that the economy will bottom out sometime this summer, especially if the long-promised stimulus package goes to work. But since other world economies have followed the United States into recession or, in the case of many emerging markets, the worst downturn in a decade, global GDP is expected to decline for the first time since World War II. The International Monetary Fund projects that as many as 50 million jobs could be lost globally.

Energy

It is a well-known fact that most postwar recessions were preceded by a spike in oil prices. Oil prices peaked at $147 per barrel in July 2008 before crashing to below $31 per barrel at the end of December. The cause of the price spike has been hotly debated, but most analysts agree that while speculation may have played a part in the short-term volatility of oil prices, the fundamental upward trend (and subsequent collapse) was demand driven. As global demand has fallen sharply, so have the prices of oil and natural gas (which is tied to oil). Looking forward, however, when the world economy recovers and growth resumes, there will once again be pressure on oil supplies. According to the Energy Information Administration (EIA), the price of oil (West Texas Intermediate), which averaged $99.57 per barrel in 2008, is expected to fall by more than half in 2009, averaging $43.14 per barrel before rising to $54.50 in 2010. Demand for natural gas, a heavily used fuel in the industrial sector, also fell during 2008. The EIA expects its use by industry to fall by an average of nearly 1 billion cubic feet per day during 2009 before modestly increasing in 2010. As a result, the price of natural gas (Henry Hub), which averaged $9.13 per thousand cubic feet (mcf) in 2008, is projected to fall to $5.01 per mcf in 2009 before recovering to $5.93 per mcf in 2010.

In the United States, several proposals to limit emissions of energy-related carbon dioxide and other greenhouse gases are receiving serious attention in Congress. President Obama has made increasing energy efficiency a goal of his administration. This can only benefit the insulation industry.

Outlook for Key End-Use Markets for Insulation

The outlook for key insulation end-use markets is not especially encouraging. Following 3 years of double-digit growth in private, nonresidential construction, there is now an overhang in vacant office, commercial, and lodging buildings. In the manufacturing sector, steep declines in new orders and an uncertain business environment will curtail production expansions. As capacity utilization rates have tumbled and are likely to remain depressed, this will affect the sector’s profitability and, therefore, capital investment potential over the next several years.

The one bright spot for the insulation industry is continued attention on energy efficiency. Even as energy prices have subsided due to depressed demand globally, the drive to reduce energy consumption and carbon emissions remains a priority. As a result, the trend toward energy efficiency in new building and equipment design is likely to persist. In fact, a portion of the federal stimulus package is destined for energy efficiency projects.

Chemicals

Despite a softening of demand domestically, exports of chemicals were up sharply during the first half of 2008. As global demand collapsed and the decline in the U.S. manufacturing sector accelerated, chemicals output sank. In 2008, chemicals output fell by 4 percent. As demand remains weak during 2009, chemicals output is expected to fall farther by 5.4 percent before returning to modest growth in 2010.

Food Processing

Demand for food is relatively inelastic and, thus, food production is generally recession-proof. The composition of consumers’ dinner tables, however, does change in economic downturns. As unemployment rises, consumers will buy less expensive brands and spend less on ready-to-eat and convenience foods. Production of food, beverages, and tobacco slipped 0.3 percent during 2008 and will fall 0.5 percent during 2009 before resuming growth in 2010.

Refining

Gasoline demand fell sharply during 2008, due to the combined effects of record high gasoline prices and less demand for refined petroleum products from both consumers and industrial customers. Refining output slipped 0.2 percent in 2008 and will fall a further 2.1 percent before growing in 2010.

Pulp and Paper

Production of paper and paperboard also declined in 2008. Paper production fell 5.1 percent, and paperboard was off 3.6 percent for the year. Reducing paper consumption is one way businesses are cutting costs in this uncertain climate. In addition, the paper and paperboard used in packaging is down as trade sales remain depressed. Paper, paperboard, and pulp output declined 3.4 percent in 2008 and is expected to contract by 4.6 percent in 2009 before resuming growth during 2010.

Gas Processing

As discussed earlier, industrial consumption of natural gas has fallen sharply as the recession has knocked a substantial portion of the U.S. manufacturing sector offline. However, the supply of domestically produced natural gas has surged over the past 2 years, with the development of shale gas deposits and new production coming in from deepwater Gulf of Mexico. Because production of shale gas is relatively more difficult to dial back in times of weak demand, the EIA projects that U.S. natural gas production is expected to increase through 2009 before slowing in 2010.

Shipbuilding

Following the initial shock of the financial crisis unfolding, international trade came to a virtual standstill as the credit markets that facilitate international transactions seized up. World trade has dropped sharply as demand worldwide has contracted. New orders for ships and boats have fallen sharply in recent months. Shipbuilding production was off 11 percent in 2008, with overcapacity and declining trade volumes, and shipbuilding will continue to decline through 2010.

Conclusion

For all the comparisons to the 1930s, this downturn shares more in common with the deep 1973?1975 recession. Both came on the heels of record oil prices and featured a collapse in housing and a banking crisis. The economy made it through those dark years, and strong economic growth returned in the 1980s and 1990s. This time is no different. The economy will continue to contract during the first part of 2009 as the imbalances of the past several years are brought back into alignment, but the virtuous circle will take over and spending, employment, and growth will return.

Figure 1

Key Indicators