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Mechanical Insulation Basics: Time for a Review, Part 1

Every once in a while, it is productive to review thermal insulation basics. There are several reasons for doing this. As contractors competitively bid material and labor on insulation jobs, and distributors and manufacturers provide prices and schedules for deliveries and address performance questions, it is easy to lose track of why the customer is purchasing insulation in the first place. Insulation users can become so accustomed to seeing particular insulation and accessory materials used in certain applications that they never question whether other materials would do just as well. Users also can become so pressured to reduce cost and speed up the schedule on a project that they accept an alternate material that is unsuitable (because of an increased safety risk, for example).

This article is the first in a two-part series, and its purpose is to remind readers of why the proper installation and maintenance of mechanical insulation is important. A follow-up article in the December issue of Insulation Outlook will take a closer look at the installation and maintenance processes.

The National Insulation Association’s (NIA’s) National Insulation Training Program (NITP) is an excellent way to brush up on the basics of insulation. Most insulation users have specialized knowledge. For example, if they work for an industrial insulation contractor, they may not have much experience with insulating commercial building heating, ventilation, and air-conditioning (HVAC) systems. If they work for a manufacturer, they may know a great deal about the product that manufacturer makes but not much about other products that are used in totally different applications. Unless they work for a contractor, they may not know much about installation rates and the factors that affect installation rates and times. If they do work for a contractor, they may not know much about insulation systems’ design and the selection of insulation materials; they just bid what is specified. The NITP rounds out a user’s knowledge base, filling in the gaps.

Basic Insulation Science

The first module in the NITP introduces students to the technology of insulation. The following definition is given for “insulate.”

Insulate (verb): To prevent the passage of heat, electricity, or sound into or out of an area; accomplished by surrounding an area with a non-conducting material.

For thermal insulation, which prevents the passage of heat, a non-conducting material is one that does not conduct heat well. The definition says nothing about using reflective surfaces to prevent the passage of heat. By this definition, a reflective or low-emittance sheet does not insulate. It may effectively prevent the passage of solar heat or reduce the emittance of heat; however, that does not make it a thermal insulation material. This distinction is basic to understanding what it means to insulate—in this case, to thermally insulate.

The NITP defines “thermal energy” and the transfer of that energy. Further, it defines a British thermal unit (Btu) as approximately the amount of energy released by burning a single wooden match, which explains why Btu quantities are so large (for example, there are 1,023 Btus in a single cubic foot of natural gas, and a million Btus of natural gas cost about $10).

In the Basic Insulation Science module, the NITP also covers the three modes of heat transfer: conduction, convection, and radiation. All three modes take place simultaneously within a thermal insulation material.

If users limit only one of these modes, such as with radiation when using a radiant barrier, they are not really using thermal insulation. Thermal insulation limits all three modes of heat transfer to one extent or another. This is not to say that a radiant barrier cannot be effectively applied to reduce energy use in certain applications, but it is not a form of thermal insulation. Likewise, a shiny vapor retarder may reduce convection within fibrous insulation and simultaneously reduce radiation heat loss or heat gain from a surface. That is usually beneficial. However, this performance does not make a shiny vapor retarder a form of thermal insulation because it does nothing, by itself, to reduce conduction heat transfer. This is a key point for understanding how thermal insulation works and what distinguishes a thermal insulation material from other materials.

The NITP also defines “K-Value,” or thermal conductivity. For a thermal insulation material, the value is low in comparison to other solid materials like steel, concrete, ice, and wood. While there is no official maximum value for a thermal insulation material, generally a value of less than 0.5 Btu-in/hr-ft2-°F, at room temperature, is used to distinguish a thermal insulation material from a non-thermal insulation material. According to the NITP, 1 Btu-in/hr-ft2-°F is a good upper limit at room temperature (75°F mean) for a thermal insulation material.

The NITP also discusses “R-Value.” For a flat material, this is simply determined by taking the reciprocal of the K-Value (1/k-value) for a 1-inch thickness at some particular mean temperature. The R-Value for 2 inches would be about double that for 1 inch, the R-Value for 3 inches would be about triple that for 1 inch, etc.

The NITP also mentions “U-Value” but does not go into how to calculate it. This is because calculating the U-Value can be complicated, as it considers an insulation system, including any gaps, structural thermal bridges, and other details that may increase heat loss or heat gain. The lower the U-Value, the less the heat loss or heat gain. The higher the U-Value, the greater the heat loss or heat gain and the greater the energy use, everything else being equal. For example, for a metal building insulated with metal building insulation, the U-Value determination includes the effect of the fiberglass insulation blankets being full thickness in some areas but compressed at the purlins. It also includes the insulating effect of the air films below and above the roof. The sheet metal roof material does not measurably contribute to the U-Value since it has no effective insulating capability. If the metal roof has a shiny, low-emittance surface in one case and a black, high-emittance surface in another, this property will have a small effect on reducing the U-Value in the first case. It will not be a large impact, however, assuming the fiberglass insulation batt has a significant thickness (several inches). Again, the paint used on the surface of the metal building roof is not a thermal insulation material because it does not simultaneously restrict conduction, convection, and radiation heat transfer through itself.

The NITP also discusses temperature. There must be a temperature difference for thermal insulation to perform its function. If there is no temperature difference, then insulation will not insulate. If it blocks or reflects sunlight, that may reduce energy use in a particular application. However, reflecting sunlight does not make the material thermal insulation. Reducing heat loss or heat gain where there is a temperature difference is another basic principle to the function of thermal insulation.

The next NITP topics are relative humidity and water vapor pressure. Moisture condensation problems on a chilled duct or chilled water line are common—particularly in the southeastern United States, which has a semitropical climate much of the year. Reasons for condensation problems can include faulty design, poor choice or quality of materials, poor installation quality, poor insulation maintenance, or some combination of these factors.

Just as water always flows downhill unless restrained from doing so, water vapor always will migrate from zones of high vapor pressure to zones of low vapor pressure unless restrained from doing so. Warm, high relative humidity zones have a high vapor pressure, and those with cold surfaces have a low vapor pressure. Those cold surfaces are where vapor condensation and water problems occur. Understanding relative humidity and water vapor pressure, and preventing water vapor migration, is critical to insulation system performance on cold systems. This is true whether one is designing the insulation system, manufacturing and distributing the materials used in the insulation system, installing those materials, or maintaining the insulation system. The consequences of not adequately addressing vapor pressure differences can be excessive condensation that leads to water damage of equipment, corrosion of structural members, damage to building materials, and mold growth. The consequences of water condensation problems are expensive to repair.

With this introduction to how insulation and insulation systems work, the NITP addresses the following basic reasons for insulating:

To reduce energy costs
To enhance process performance
To reduce emissions
To protect personnel
To provide freeze protection
To prevent condensation on the insulation system surface
To reduce noise levels
To maximize return on investment (ROI)

Thermal insulation can accomplish much of this. The level of importance varies from project to project.

System Design and Materials

It is useful for material manufacturers, distributors, and contractors to understand how engineers design an insulation system and select the appropriate materials for a particular project. Designers should follow some basic principles. First, they consider what they are insulating (a pipe, tank, vessel, etc.). Then they look at the nature of the process (high temperature, low temperature, near-ambient temperature, etc.). They consider the primary reason for insulating. Of course, they need to know the design conditions (service temperature, ambient temperature, etc.) and the design criteria. The following questions need to be addressed before designing a system and specifying materials:

Is weather protection required (is it indoors or outdoors)?
Are there any codes that need to be met?
Is there a particular need to prevent the occurrence of corrosion under insulation (CUI)?
Is there a need to use non-combustible insulation?
Is personnel protection required?
Will the insulation material be subjected to physical abuse and/or vibration, requiring it to have a high compressive strength?
Does the system need to block the transmission of sound?
What ROI is required over time?
How long must the system last?

If there is an older specification available, the designer must review it in detail to ensure that it addresses all of the above issues. If not, it will need to be updated.

The primary types of thermal insulation are fibrous, granular, and cellular. There are also different materials within each type (fiberglass, mineral wool, calcium silicate, perlite, cellular glass, polystyrene, polyisocyanurate, etc.), and each material has different properties. One of the most valuable parts of the NITP is being able to see and handle samples of dozens of different insulation materials and insulation accessories.

The NITP also discusses the different temperature ranges: the cryogenic range (below -100°F); the thermal range (from -100° to 1,200°F); and the refractory range (above 1,200°F). These are important to understand because every material has upper and lower temperature limits, beyond which it is no longer suitable for use. It is also important to understand what causes those limits (linear shrinkage, melting, flaming, exotherming out of control, etc.). If contractors and distributors understand these limitations, they will no longer suggest that customers use insulation materials in unsuitable temperature ranges.

Different insulation materials are available in different forms. For example, some are only available as rigid boards or blocks and/or rigid preformed pipe shapes; others are only available as flexible, resilient blankets. The form has a significant impact on how materials are installed and what the installation productivity will be.

NIA’s Insulation Materials Specification Guide (see Figure 5) is a large table that summarizes insulation materials by American Society of Testing and Materials (ASTM) specification and properties (maximum temperature, minimum temperature, density, pH, compressive strength, and thermal conductivities). While this table is not a design tool, it serves as a quick reference to determine the properties of specific insulation materials, as well as which ASTM specification covers each material. (To download a PDF version of the guide, please visit www.insulation.org/techs/insulation-materials-specification-guide.cfm.)

The materials have many different mechanical and chemical properties. For example, some rigid materials have high compressive strength and can take more physical abuse and vibration than others. Some absorb water readily, requiring extra attention to keep them dry. Others, by contrast, have hydrophobe in their chemistry and can resist water absorption. Some have corrosion inhibitors added during their manufacture to reduce the probability of CUI (on carbon steel surfaces) or stress corrosion cracking (on stainless steel surfaces).

Some insulation materials and accessories are attacked by certain chemicals, such as strong acids, strong bases, or liquid hydrocarbons. Some burn readily and will support combustion, some will not support combustion but are still rated as combustible per the test for combustibility, and some will neither support combustion nor be rated as combustible. All of this should be understood well by those working with mechanical insulation.

There is a long list of considerations and possible requirements for jacketing and accessory materials, including the following:

Do they need to resist weather exposure?
Are there certain chemicals they must resist?
Should they be able to withstand fire?
Should they have a low emittance?
Should they be abuse resistant?

Insulation Thickness Determination

The 3E Plus® software program continues to serve the insulation industry, as well as purchasers and specifiers of mechanical insulation. The program is maintained by the North American Insulation Manufacturers Association (NAIMA) and is updated regularly.

While the program includes a data file of thermal curves for many different materials, per the appropriate ASTM material specification, students are encouraged to input manufacturers’ thermal conductivity data taken from product data sheets. The computer program can be extremely valuable in the hands of skilled users, allowing them to determine the required insulation thickness for a job (whether for energy savings, condensation control, process control, or personnel protection); estimate the reduction in air pollutants; and estimate the value of the energy savings in dollars.

To learn about NIA’s 3E Plus training program, please visit www.insulation.org/training/seminar. The NIA’s Insulation Energy Appraisal Program (IEAP) also covers 3E Plus. The software program is a useful and powerful tool for engineers, facility owners, material manufacturers, distributors, contractors, and government officials.

The Bottom Line

In the NITP, and in working with mechanical insulation in general, it is important to remember that thermal insulation has a synergistic effect on many areas of a facility, including the following:

Energy cost
Production quality
Worker comfort
Worker safety
Process stability
Facility emissions
Facility maintenance

While there is substantial overlap where different types of insulation materials are suitable, no two types are exactly the same. Each has its strengths and limitations. Still, each type of mechanical insulation has one thing in common: Correctly designed and installed as part of a system, it provides a cost-effective solution to excess heat loss or heat gain.

When the mechanical insulation basics are followed, an insulation system reduces energy use; provides process control, personnel protection (on hot systems), and condensation control (on cold systems); reduces emissions; and lasts 20 to 25 years. As with most things in life, it pays to do things right the first time and then take care of them over time.

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NIA Sites > Insulation Outlook Magazine > Global

Insulation Systems: Doomed from the Start?

Properly installed mechanical insulation works. Numerous articles cite its effectiveness. Insulation users have free access to the North American Insulation Manufacturers Association (NAIMA) 3E-Plus® insulation program, which allows them to determine the most cost-effective materials and thicknesses for the service required. So why do so many insulation projects fail?

The question of why so many insulation projects fail came up during a National Insulation Association (NIA) meeting last fall, and a few of the contractors in attendance decided to look into the problem. They found that many insulation projects—in both the industrial and commercial sectors—are doomed from the very beginning. The question is, Why?

Part of the problem is that insulation is the forgotten technology. It is an afterthought—at least until condensation begins and mold starts to show on ceilings and walls, or until the plant process does not function properly. At that point, then, insulation becomes extremely important.

There are several issues involved in an average mechanical insulation system for industrial and commercial projects. One problem for both types begins with the design/build or general contractor trying to get the initial construction cost reduced. Projects frequently run over budget. Insulation contractors are then asked to “value engineer” the insulation to help reduce the project install cost. In this context, value engineering typically involves reducing the insulation thickness, changing the type of insulation used to a cheaper material, or eliminating systems from being insulated.

The truth about mechanical insulation is that to really value engineer it, users should install more insulation on most systems, not less. Mechanical insulation will put money in the owner’s pocket from the first time the system is energized until the materials are removed or the system is shut off. By value engineering a thicker material on more systems, owners can reduce the energy used, greenhouse gas (GHG) emissions, and the overall cost of operating the facility. Unfortunately, insulation contractors are placed in a competitive situation; they know that if they do not get creative to value engineer the project, a competitor will.

Industrial Projects

On industrial projects, the insulation contractor is usually involved with the owner from the beginning and frequently works directly for the owner. The insulation contractor is at the table discussing the insulation needs and any problems that may come up during construction. Being this close to the owner is incredibly beneficial to the project. If contractors see a potential problem, they can take it to the top. Owners are likely to correct the problem because they want the plant to run properly after start-up.

The types of problems encountered on industrial projects run from improper materials specified for the service to pipe systems installed without adequate clearance and a lack of care in determining high abuse areas of the plant that require a different material. The materials and finishes are usually specified by a design engineering firm that tends to be more cognizant of the needs of the specific plant and system. The insulation contractor can offer assistance with regard to materials that will take more abuse, finishes that will hold up better under operating conditions, and installation problems regarding clearance for proper thicknesses to be installed.

Weather conditions can be important in the application of mechanical insulation. Proper protection of insulation materials is one of the most significant needs of the industrial system. If the weather is inclement during installation, the process is usually stopped. Proper installation of weatherproofing material ensures that water sheds away from the insulation. If conditions do not allow for proper water shed, the insulation contractor can go to the owner for an immediate solution.

Industrial projects have fewer problems because insulation is not usually forgotten. As noted earlier, the owner and the insulation contractor can discuss any potential problems directly, and the design team takes the time to specify proper insulation materials in proper thicknesses from the beginning. If this is not the case, any problems still can be rectified quickly because the owner and the contractor are working together. If problems are not addressed by the owner, however, the system may fail.

Commercial Projects

On commercial projects, the insulation contractor seldom even knows who the owner is.

The insulation contractor is a third-tier contractor who works for a mechanical contractor who works for a general contractor who works for the owner or an owner’s representative. This helps explain why mechanical insulation is a forgotten technology on commercial projects. Owners have no idea what kind of mechanical insulation service they are purchasing for their buildings. Insulation suddenly comes to light when there is a failure; when the owner receives the first energy bill; when mold begins to grow on the insulation, ceilings, or walls; or when there is not enough heating or cooling in a specific area of the building. Then, mechanical insulation starts to seem very important.

For example, a dormitory for a large university had mold growing on the walls after the building had been open for only a few months. The mechanical systems had multiple problems, including the following:

The pipes were too close together to allow for proper insulation thickness.
Insulation was installed prior to the exterior envelope being completed.
The control and shutoff valves were installed too close together to allow for proper insulation thickness.
Drain pans were clogged and overflowing.
The chilled water ran 4 degrees cooler than anticipated.
The air-handling units for the halls and common spaces were inadequate to remove enough moisture from the air.

While the building was under construction, the marching orders were to “just get it done.” If there was too little room for the proper insulation thickness, they were to “just put on what you can.” If rain and moisture came into the building, they were to “just get it done and the material will dry out.” The dormitory had to close for several months while the repairs were being completed.

Another example is a hospital fresh air intake system that had condensation forming on the outside of the blanket insulation, as well as between the sheet metal and the fiberglass insulation material. A 1½-inch-thick, ¾-pound-density fiberglass blanket material was specified for this portion of the system. The geographic area of the institution frequently experiences temperatures of -15° to -20°F outside air during the winter. Drawing this cold air into the warm building caused significant condensation problems. The only place this failure occurred was where the blanket was specified and installed. Portions of the system had 1½-inch-thick, 3-pound-density fiberglass board specified, and those portions worked very well.

The reason the board product worked and the blanket did not is that the “k-factor” of the blanket is .31 at 100 degrees and the k-factor for the board is .24 at 100 degrees. Simply put, the board is a better insulator than the blanket. In the areas where blanket was used, thousands of square feet of material—much of it behind walls—will have to be changed to rectify the problem.

In another example, a high-rise building has hundreds of stacked fan coil units. The units have a four-pipe system: two hot water and two chilled water pipes, and a drain. The risers purchased by the mechanical contractor were pre-insulated with 1/2-inch-thick elastomeric material. The mechanical contractor installed the riser pipe prior to the windows and roof being installed on the building. Rain and snow permeated the building from the unfinished floors above to all of the pre-insulated risers below. The insulation contractor was to complete the insulation at the tie-ins for each unit. The insulation on the risers held so much water that, when cut with a knife, water ran out like a faucet. The mechanical contractor insisted the products would dry out and instructed the insulation contractor to continue the work at the tie-ins and leave the pre-insulated system in place.

Another high-rise building has chilled and hot water risers supported by a steel plate welded to the risers on each side of a center floor of the high-rise. This left a cavity between the plates that had no insulation, not to mention that the cold from the chilled water system would travel along the steel plate and cause condensation. When the general and mechanical contractors were notified of the problem, the response was, “Do what you can with it.”

What Could Go Wrong?

The types of problems that regularly occur on commercial projects include the following:

Inadequate clearance between the pipes to allow for the specified thickness of the insulation material
Sheet-metal ducts installed near or touching the piping systems
Floor-to-floor cores for pipe and sheet-metal penetrations that are not large enough, when insulation is installed, for the systems passing through the openings
General or mechanical contractors requiring the insulation contractor to start the insulation process before the building is protected from the weather
Valves and circuit setters installed too close to the adjacent piping and equipment
Equipment designed with connections too close to allow for proper insulation
Chilled water pipe systems secured to trapeze hangers without proper separation from the hangers
Improper insulation specifications

Most of these problems are “solved” in the field by the insulation contractor. Many times, mechanical or general contractors do not want to hear about insulation problems—that is, until there is a failure. If insulation contractors complain about the pipes being too close together, they are complaining about their customer, the mechanical contractor. If they bring up the size of the core in the floor, they are complaining about the general contractor or, in some cases, the mechanical contractor again. In many cases, the insulation contractor is successful in getting creative and solving the problems. When insulation contractors are not successful, however, they are usually held responsible for the problems. This puts them in a difficult position.

Inadequate clearance between pipes is probably the most common problem in the commercial market. Besides the insulation contractors, no one pays much attention to how much insulation is required on the pipe system. If a 4-inch schedule 40 iron pipe requires 2 inches of insulation, the outside walls of the pipes must be a minimum of 41/2 inches apart. If that clearance drops below 4 inches, the insulation must be altered to make it fit. This problem can be solved with early involvement by the insulation contractor. Early job-site visits will alert the mechanical contractor that the pipes are being installed too close together. (See Figure 1.)

The largest mechanical service in most buildings is the ventilation service or the sheet-metal duct system. Sheet metal requires the most room and often is shown on drawings as a single line. When ventilation contractors start the installation, they often find that there is not enough room. Adjustments are made, and space configurations are compromised. Initially, there was enough room for the duct and the pipe, but the duct and the pipe have to be insulated. If adjustments are not made, the insulation system is likely to fail.

Hole cores for pipes and ducts penetrating floors and walls should be made large enough to accommodate the insulation system. If an 8-inch chilled water line that is going to be insulated with 2-inch-thick material goes through the floor, then the hole must be a minimum of 121/2 inches. If the hole is going to accommodate a number of pipes, then the opening must be large enough for all pipes with insulation to pass through it. If the opening is not large enough, the insulation contractor must compromise the integrity of the insulation systems. (See Figure 2.)

“Get the insulation done. I don’t care if there are no windows and no roof on the building. Just get it done.” Any insulation contractor who has ever worked on a high-rise with stacked fan coils has heard this argument. The rain, snow, and cold air will damage the insulation, but nobody is worried about that. Water can build up in the insulation and ruin the materials. Duct insulation becomes saturated, pipe insulation holds enormous amounts of water, and the owner has no idea there is going to be a problem. If the saturated materials are not removed and replaced, the system will fail. (See Figures 3, 4, and 5.)

Valves, elbows, circuit setters, balancing valves, victaulic couplings, and other pipe appurtenances are regularly installed too close to each other. As a result, they do not allow for proper insulation thickness or vapor barrier. Ball valves on pipe systems that require 2 inches of insulation are installed without the valve arm extension. The insulation must be cut away to allow for valve operation. The thickness of the material, as well as the vapor barrier, is compromised. These control devices are required for the operation of the fan coils and unit heaters. When they are installed too close together to allow for proper insulation thickness, the system will fail.

In many cases, the coil connections are designed with the in and out ports so close together that the proper thickness of insulation cannot be installed. This usually requires a decrease in thickness of material or a change of specified material. If the material has to be altered to “make it work,” the system may not work for long.

Chilled water systems that are mounted with clamps to unistrut-type trapeze hangers always will be a point of failure. The very thin material that separates the clamp from the pipe is not an insulator. It is designed to separate the clamp, usually made of galvanized metal, from the pipe, usually made of copper. Many devices are manufactured to allow for proper insulation of these clamps as they are mounted to the trapeze. If the general and/or mechanical contractor does not want to pay for such devices, however, the insulation contractor must try to adjust the system.

Getting It in Writing

Insulation specifications should be updated periodically to ensure that the documents are current with the materials and technology available. Higher fuel prices and new forms of insulation make it mandatory for architects and engineers to pay particular attention to their specifications and update them to reflect the current needs and available materials.

Improper insulation specifications occur too frequently. Architects and engineers should use the 3E Plus program when they have doubts about the insulation needs of their projects. The 3E Plus software program relates to fiber materials only, and engineers should be aware of the cellular glass and closed-cell materials that are available to help solve insulation problems. Keep in mind that the insulation contractor is generally far removed from the decision makers.

Insulation contractors should notify, in writing, the general contractor, mechanical contractor, engineer, architect, and building owner when problems arise on commercial buildings.

The attitude toward insulation problems hopefully will change as more awareness spreads. Engineers and architects can look for conditions that restrict the proper installation of insulation materials and take actions to correct them. Most insulation issues can be rectified when the parties involved are motivated to solve them.

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NIA Sites > Insulation Outlook Magazine > Global

Ask the Expert

This recurring Insulation Outlook column features Ronald L. “Ron” King, a past president of the National Insulation Association (NIA), the World Insulation and Acoustic Organization (WIACO), and the Southwest Insulation Contractors Association (SWICA). King is a 40-plus-year veteran of the commercial and industrial insulation industry and is currently a consultant and adviser to NIA on a variety of outreach and educational initiatives. Contact him at 757-229-7443 or ronkingRLK@aol.com.

Q: With the cost of a barrel of oil and many other energy sources at record-high levels, why isn’t insulation at the top of the list of energy conservation initiatives?

A: Mechanical insulation is a relatively simple energy conservation initiative that can provide an annual return on investment (ROI) of more than 100 percent (and, in some cases, more than 200 percent). However, the technology is still underutilized and under-valued. Why? There are two primary reasons: knowledge and competing initiatives.

The ultimate decision makers (facility managers, chief financial officers, budget directors, etc.) do not appreciate the ROI opportunities with upgrading and maintaining insulation. They take the initial installation for granted and assume it is being maintained within allocated budget dollars. Operational and maintenance personnel understand the opportunity, but the decision makers are continually cutting or deferring maintenance dollars and do not consider insulation an energy conservation initiative.

Combine the lack of knowledge with the hundreds of other energy conservation initiatives for which the industry is competing for capital and maintenance dollars, and you can visualize the problem.

The mechanical insulation industry is competing with lighting, steam traps, controls, motors, solar power, and many types of equipment, not to mention various engineering initiatives. Competition within the industry is minor in comparison to external competition, yet the industry is spending relatively few marketing dollars to combat those forces. Therefore, insulation is not obtaining its fair share of capital and maintenance dollars in the energy conservation field.

There is not a single answer to this question. But education, education, and more education is the best place to start.

Q: It has been reported that a substantial percentage of installed mechanical insulation is missing or damaged. Given the consequences of such damage, why is insulation maintenance not a priority?

A: It has been estimated that 10 to 30 percent of all mechanical insulation is missing or damaged. This is a realistic estimate for most U.S. facilities. The Department of Energy’s (DOE’s) Save Energy Now (SEN) program has also confirmed that the problem of missing or damaged insulation is more widespread than many would like to acknowledge.

Most facilities have annual maintenance budgets that cover a host of activities, including insulation. As discussed in the previous answer, insulation must compete for those dollars. Many look at it this way: The plant is producing a quality product at a profit, so the insulation must be performing as expected. They do not look at insulation as a means to reduce costs by conserving energy, reducing greenhouse gas emissions, improving productivity, improving employee safety, reducing potential corrosion under insulation, reducing condensation, and reducing the potential of mold development. They also fail to acknowledge how maintenance dollars can provide a substantial ROI. Insulation is taken for granted and not considered a priority. Again, knowledge and competing initiatives are at the core of this issue.

Q: What is the best resource for an engineer, architect, or facility manager to use to obtain information on mechanical insulation?

A: There are many excellent resource documents available from the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE), Masterspec, Midwest Insulation Contractors Association (MICA), Process Industry Practices (PIP), and the National Insulation Association (NIA). All of these documents make one general assumption—the reader has general knowledge of insulation materials and systems. However, this assumption is not always correct.

NIA has several great training programs that can provide knowledge and information about how to use the various industry resources.

Product manufacturers are also a great resource. Their story is normally biased to their products and/or systems; though stretched thin, they are a good resource. Insulation contractors, distributors, and fabricators are also an excellent resource, but are also
stretched thin because providing education and developing specifications are really not their roles.

Academia, engineering, and architectural courses are minimally addressing mechanical insulation in their curricula, at best. The bottom line is that the knowledge base of mechanical insulation at the engineering, architectural, and facility owner level has eroded, and those users are turning to multiple sources for information. Unfortunately, due to lack of knowledge they sometimes obtain insufficient information to make the correct decision.

In January 2008, the National Institute of Building Sciences (NIBS) is launching a Web-based vertical portal entitled the Mechanical Insulation Design Guide (MIDG). This will be a giant step forward in providing a single resource for the novice or the informed individual on the various mechanical insulation products and systems; insulation system design considerations; installation; and design data. It will also provide links to the various resources previously mentioned.

Readers are encouraged to submit their own insulation questions to industry experts by e-mailing asktheexpert@insulation.org. Questions can be on any insulation topic. Future topics will include building design trends, boilers, insulation maintenance, acoustics, bril, and refractory.

Disclaimer: Unless specifically noted in the beginning of the article, the content, calculations, and opinions expressed by the author, as in any article in Insulation Outlook, are those of the author, are based upon the limited information provided to the author in the question asked, and do not necessarily reflect the views of the National Insulation Association (NIA). The appearance of an article, advertisements, and/or product or service information in Insulation Outlook does not constitute an endorsement of such products or services by NIA.

NIA Sites > Insulation Outlook Magazine > Global

A Different Perspective: The Importance of Keeping Historical Data

The power industry is only as good as the historical data it keeps on all the components that make up a power facility. Without historical data, original equipment manufacturers and construction companies lose their ability to improve boiler design and labor productivity. More importantly, they lose the ability to establish accurate costs, budgets, and bids; and risk lowering their companies’ profitability.

With the increase in today’s new boiler construction, now is the time for those in the construction industry to increase their level of understanding of the components, the labor crafts, and the historical data that pull it all together. Good, up-to-date, historical data is needed on vital boiler components like brick, refractory, insulation, and lagging (bril) to keep these boilers thermally and energy efficient.

A modern day boiler is a box formed by membrane welded water wall tubes that uses the fire inside the furnace box area to heat the water inside the water wall tubes into steam. Covering these water wall tubes and sealing gaps and openings are the brick, refractory, insulation, and lagging materials (hereafter referred to as bril). These bril materials are all key components for every type of steam-generating boiler and are used for personnel protection, heat conservation, and to help maintain boiler efficiency.

Steam, steam-generating boilers, and bril materials have been around since 200 BC, when the Greek designer Hero designed his Aelopile, which used steam as its power source. The steam-generating industry can debate how and when the industry actually started—whether it began with the water tube boiler designed by Mr. Wilcox in 1856 or with Mr. Blakey’s boiler design in 1766. Both can be said to have led to the development of the brick-faced boiler design, which was the forerunner of boiler designs today. The brick-faced boiler had no water wall tubes but used brick walls (18 to 22 inches thick) to form the fire box, which encased tubes located inside these brick walls. The brick walls formed the fire box area and acted as a barrier to keep the fire inside the furnace box and prevent heat loss. Later boiler designs included the tube and tile boiler (boilers with wide-spaced water wall tubes enclosed with flat tile or brick and insulation), the flat studded boiler (closer spaced water wall tubes covered with refractory and insulation), the tangent tube boiler (water wall tubes on very close tube spacing covered with refractory and insulation), and finally the membrane tube boiler (smaller water wall tubes welded together and covered with insulation and lagging). Regardless of when the industry started, however, bril materials were required from the beginning, and so was the need to keep historical data.

As recently as 15 years ago, most boiler companies (power plants, engineering and manufacturing, and construction type) had a department, group, or resident expert bril person to support and monitor bril material requirements. These designated experts recorded and kept bril historical information, from the proposal stage to final contract completion. They understood that bril historical data begins with the calculation and compilation of quantitative bril material takeoffs that can then be used to generate labor and material cost estimates. Most companies’ policies were to have these takeoffs compiled along with the cost estimates regardless of whether the bril work was to be done using in-house labor craft or an outside contractor. The same takeoffs and cost estimates were used to help monitor material procurement, labor man-hours, labor productivity, labor inefficiencies (see Figure 1), and boiler design changes or flaws. Obviously, these companies knew the importance of bril materials and their impact on boiler designs, company profitability, and project scheduling.

Unfortunately, today’s boiler companies reflect today’s business trends. The trend now is for these companies to outsource bril material requirements, continue to cut back on human resources and expertise, and ignore the value of keeping historical data. The discontinued practice of keeping historical bril data also includes the calculation of quantitative takeoffs and establishing labor and material cost estimates, which are now all outsourced.

What Is the Danger in Not Keeping Historical Data?

Keeping historical data helps improve boiler design; correct design flaws; document labor variances by region or country; improve labor productivity; and establish better costs, budgets, and bids by building con-bed estimating data for use on future boiler projects.

The term “con-bed” means “construction base estimating data.” It is an estimating data system (sometimes called voodoo estimating) that uses historical data from actual contract material takeoff quantities, material costs, and labor man-hours as a tool for bidding new projects of similarly designed steam-generating boilers or air-pollution systems.

Most steam-generating boilers and air-pollution equipment—regardless of manufacturer—are designed to be similar to a previously designed and sold system. The difference may be the physical dimensions and boiler capacity (megawatts). This duplication of design helps reduce engineering costs and improve shop fabrication costs. The bril designs for each different boiler type will use the same material type and thickness, and will only vary in quantity required for that particular boiler’s size and capacity requirements.

To create a bril con-bed estimating database for a particular boiler design, one would complete the following steps:

Develop actual contract quantitative material takeoffs of the boiler proper (including boiler and furnace walls, penthouse walls and roof, wind box casing, vestibule casing, steam lines, soot blower piping, and boiler trim and drain piping).
Calculate material and labor cost estimates, labor man-hours, and expected productivity using the quantitative takeoffs developed in Step 1.
Establish a standard envelope or “E” number value that will be directly related to the physical dimensions of the boiler proper (see Step 1). For example, E = 2 x (width of boiler + depth of boiler) x (height of furnace).
Divide the cost estimates and labor man-hours established in Step 2 by the fixed-number values established in Step 3. This will establish the con-bed base estimating cost and man-hour values for each bril component.
Divide the material quantitative takeoff amounts (lineal footage, square feet, etc.) as established in Step 1 by the fixed-number values that were established in Step 3. This will establish the con-bed base quantitative takeoff values for each bril component.

This new con-bed estimating and takeoff database will allow the following:

Calculation of material and labor costs on future projects of similar or duplicate boiler types by calculating a new envelope or E value and multiplying that value by the con-bed estimating data established in Step 4. These estimates can be used for proposal bidding and as a purchasing tool for comparing outside pricing with internal cost estimates.
Calculation of material quantitative takeoff on future projects of similar or duplicate boiler types by calculating a new envelope or E value and multiplying the values by the con-bed takeoff established in Step 5. These quantities then can be used for soliciting outside pricing and estimating export shipping costs. They also can be used as a scope definition in proposals.

Unfortunately, once a company stops keeping historical data, the end user ultimately suffers.

Stiffener designs. Many boiler manufacturers design (and supply) their flues, ducts, and air-pollution equipment systems without taking into consideration the cost or impact their stiffener designs will have on the insulation and lagging that will be required later in the project. Historical data would have supported and confirmed that using large stiffeners greater than 7 inches high is detrimental to the longevity and integrity of the insulation and lagging systems being designed and installed today. This is why it is forecasted that the power industry will spend more than $40 million in the next 5 years reworking the insulation and lagging installed on these new systems.

Duct or flue? The terms “duct” and “flue” are exact opposites but are sometimes used interchangeably in the power industry. The term duct applies to a system that carries air, and the term flue applies to a system that carries gas. One way to differentiate between the two is to remember “flue gas” and “air duct.” There is obviously an important difference between the two, and the interchange of the two terms could result in a serious misunderstanding between the customer, project management, plant personnel, engineering, and labor craft. Historical data helps preserve the continuity of nomenclature and addresses the need for understanding the difference between the boiler’s components.

Labor adjustments and work schedules. The computation of labor and the differences in work schedules are common points of misunderstanding. Labor adjustments occur when the schedule of work affects the productivity of the labor force and the amount of time required to perform the required work. The calibration of labor costs is based on the adjustments of labor due to the number of hours worked and the number of days worked during a given week. The schedule of work dictates what adjustments must be made to the man-hours and the labor cost. See Figure 1 for some common work schedules.

Based on Figure 1, the length of the work schedule, the number of hours worked, and the number of shifts required will all seriously affect the total cost of a project and could affect the total construction work schedule. Historical data can be used to support the inefficiency and bonus factors listed above and/or show when those factors should or should not be used. For example, keeping historical data would show that labor inefficiency for installing bril materials does not take place until the duration of the work schedule extends longer than 7 consecutive workdays.

Shop installing insulation attachments. Every few years or so, the idea comes up of having insulation attachment pins installed on flues, ducts, membrane wall tubes, and equipment (such as selective catalytic reducers, air heaters, bag houses, and fans) in the manufacturing or fabrication shop to save money and reduce the construction schedule. Keeping historical data would show that installing insulation pins in the shops prior to shipping the pieces to the field actually has the reverse effect for the following reasons:

Additional pins often are required when standard size board, blanket, or block has to be cut at corners, wall openings, and other areas where a full insulation piece cannot be used. In most cases, the pins installed in the shop are not sufficient and require additional pins installed in the field. This becomes a back charge to the installation.
Installing insulation pins in the shop limits the use of different types of insulating applications.
When installing the insulation pins, shop labor most often does not take into account the lagging attachments that are also required. This can have a serious impact on the integrity of the insulation system. Lagging may be the last thing you install, but it must be the first thing you think about when designing insulation and lagging systems.

Conclusions

The power industry is going through a growth period not seen since the late 1970s and early 1980s. Power companies will be spending billions of dollars on new power plants over the next 5 years. As an industry, it is important to educate at all levels—from the plant level to the equipment manufacturers, installers, and suppliers—on the importance of keeping good historical data and properly training workers at steam-generating plants. Knowledge is everything: Historical data is the key for a successful, healthy, and vibrant power industry.

Figure 1

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Side Effects

Employers in every industry are deluged with information concerning on-the-job safety. Everyone knows that safety is the right thing to do and that it is the law, yet most employers do not take safety seriously. They talk a good game, but that is as far as it goes. Very few employers truly confront the potential for serious on-the-job injuries. Most will not accept the fact that with a serious injury, their world can collapse without warning like a house of cards.

The first thing employers must accept is that without a well-planned, well-drafted, well-implemented, and well-enforced safety plan, accidents will happen. The second is that even a minor accident can turn into a major headache.

What are some of the things an employer must consider when facing an on-the-job accident? First, there is the cost of the workers’ compensation claims. Depending on the state in which the employer is located, the type of insurance the employer carries, and the insurance company with which the employer must work, these costs can be extreme. If the employer has the misfortune to be located in a state that permits intentional tort lawsuits, the employer has to consider the potential impact of such litigation. With any on-the-job injury, there is the risk of an Occupational Safety and Health Administration (OSHA) inspection. The employer must face the indirect costs of the accident and possible third-party issues. In addition, various employment styled actions can confront the employer. These involve potential claims concerning OSHA discrimination and under the Americans with Disabilities Act (ADA) and the Family Medical Leave Act (FMLA).

This article gives an overview of each of these areas and their potential impact (clearly illustrating that it is best to provide a safe workplace for employees to minimize the potential for on-the-job injuries in the first place).

Workers’ Compensation

All 50 states require that an employer provide workers’ compensation coverage for their employees. Failure to carry this mandatory coverage can result in a company having to pay all the costs of an on-the-job injury as a self-insured employer, as well as possible penalties to the state for not carrying the required coverage. Six states (Nevada, North Dakota, Ohio, Washington, Wyoming, and West Virginia) in the United States are monopolistic states. In these states, private insurance is not permitted; the employer has the option of either being self-insured or participating in a state-operated insurance fund. In the remaining states, the employer is permitted to obtain private insurance or explore other options for providing workers’ compensation coverage.

Whether workers’ compensation coverage is obtained through private insurance or through a monopolistic state fund, a company’s claim history has a direct impact on its cost of coverage. Weekly disability benefit rates will vary from state to state, as will the types of other benefits available to an injured worker. Some states take into consideration whether a company was complying with safety requirements at the time of the injury. A company’s failure to comply with safety requirements can, in some instances, result in additional costs being awarded to the injured worker. An award to the injured worker—from medical benefits to penalties for failure to comply with safety regulations—will affect the company’s workers’ compensation experience and insurance premium.

The best way to avoid high workers’ compensation premiums is to avoid on-the-job injuries. An aggressively enforced safety program can significantly reduce a company’s on-the-job injury rate. When an injury does happen and costs are incurred, the way the company responds to the claim—both individually and in conjunction with its insurer—is critical. The approach taken to the claim and the issues that arise from it affects claims costs and subsequent adjustments in insurance premiums.

As many companies in the construction industry find, the company’s experience modification (“mod”) rate for workers’ compensation coverage can directly affect its ability to bid and get work. Some owners will not even consider a company with an experience mod over 1.

Intentional Torts

Intentional Torts Workers’ Compensation has always been intended to provide an exclusive remedy to employees for on-the-job injuries. Most state statutes contain language indicating that an employer who complies with the laws requiring workers’ compensation coverage is immune from any other legal action that may arise out of an employee’s injury. However, quite a few states have reexamined this concept over the last several years. Some states have determined that while an employee comes to work with the knowledge that accidents can happen, no employee comes to the job with the belief that his or her employer will intentionally try to harm employees. This philosophy has resulted in the concept of intentional torts.

Typically, intentional torts begin with situations where an employer blatantly disregards safety precautions for an employee and requires the employee to perform work in spite of the lack of safety protection. In this scenario, the employer knows that the employee is substantially certain to suffer an injury because of the work performed and the lack of safety protection. In many states, after this concept has been established through decisions in the courts, the legislature has attempted to codify the concept.

Because intentional torts are issues decided before a jury, various types of damages can be awarded, depending on either the case law or the statutory law in each state. Also depending on the law in each state, damages sought can be unlimited or may be controlled by statute. Employers should exercise caution when facing an intentional tort lawsuit. In some states, insurance against the intentional tort risk is available to employers. An employer should determine whether intentional torts are an available cause of action to injured workers in its state or a state in which it has employees working. If so, insurance coverage for such cause of action should be obtained, if available. Employers should read insurance policies carefully to understand the types and limits of the coverage in their policies.

OSHA Inspections

Following any industrial accident, an OSHA inspection is possible. Whether such an inspection occurs depends on many factors. If a catastrophic type of injury (one involving a fatality or the hospitalization of three or more employees) occurs, the employer must report the accident and injuries within 8 hours of the occurrence. In many cases where a serious accident occurs, media coverage can result in a follow-up OSHA inspection. If an accident is reported by radio, television, or the local newspaper, the company where it occurred has a relatively good chance of being visited by an OSHA compliance officer. In some locations, if an emergency squad is called to a facility or job site, that can generate an OSHA inspection. It is possible that the fire department or emergency medical services unit will call OSHA at the same time they send a unit to a location. An OSHA inspection also can be generated if the employee who was injured, his union representative, or even a fellow employee who feels aggrieved by the accident and resulting injuries calls OSHA.

A complaint can be made under almost any factual circumstances, but an employer is more likely to experience an inspection arising from such a complaint if the accident and/or injuries are serious. In such a situation, OSHA has probable cause to perform the inspection based on the accident report. In that case, the employer should limit the scope of the OSHA inspection to the area where the accident occurred and limit OSHA interviews to the employees who were working with the employee who was injured.

It is important for a company to address any OSHA citations it receives. This is another area where owners and principals may take a hard line with potential subcontractors. Some principals will not permit a sub with willful citations on their property. Remember, an OSHA record stays with an employer forever.

Discrimination

The injured worker sometimes—by virtue of his or her injury—obtains a status akin to super seniority. When an employee is injured on the job, the employer must look at various forms of discrimination that could be alleged against it if it becomes necessary to take job action with regard to that employee. Job action could include anything from denial of a pay raise or promotion to job reclassification, reassignment, or termination. Various forms of discriminatory activity can be alleged against an employer in these situations.

Some states have a concept known as workers’ compensation discrimination. In those states, any action taken against an employee who files or pursues benefits under an existing workers’ compensation claim can be deemed by a court to be discriminatory. In these situations, the damages available to the employee typically include reinstatement to the position the employee would have held but for the discriminatory action and payment of any back wages or lost income as a result of the discriminatory action.

Another area of potential discrimination that must be addressed is OSHA discrimination. Section 11(c) of the Occupational Safety and Health Act prohibits taking any adverse employment action against any employee who files an OSHA complaint, talks to a compliance officer during an inspection, or testifies in any enforcement proceeding. There are times when an employee who is injured, especially if the injury is serious, may make a complaint to OSHA with regard to an unsafe work environment. OSHA does not have to act on such a complaint; the mere fact that the employee made the complaint provides protection from disciplinary action by the employer.

Americans With Disabilities Act

The ADA applies to employers who have had 15 or more employees for each working day for 20 or more calendar weeks during the current or preceding calendar year. It applies to employees with impairments who, with or without reasonable accommodation, can perform the essential functions of their employment positions. A qualifying impairment is one that substantially limits a major life activity. These activities have been defined to include functions like caring for oneself, performing manual tasks, walking, seeing, hearing, breathing, learning, and working. The ADA applies to all forms of business and is not limited to construction. Some states have enacted laws that apply to all employers within that state, without any reliance on the number of employees.

This law may have broad application when working with employees who have on-the-job injuries. The existence of the law can affect everything from the employer’s wishes not to return the employee to employment, to returning the employee to a job with restrictions in an attempt to accommodate a work-related injury.

The ADA must be considered by an employer when trying to accommodate an employee’s restrictions. If the employer is accommodating temporary restrictions, the modified job should be identified as temporary for a defined period of time. When evaluating restrictions, the employer must determine whether the employee could be accommodated if the non-essential functions were eliminated from the job. Restrictions may not need to be accommodated if they will pose a direct safety threat to the employee or others.

Family Medical Leave Act

The FMLA is another federal law that can affect an employer with employees who have suffered on-the-job injuries. This particular statute applies to employers with 50 or more employees each working day during each of 20 weeks or more during the current or preceding calendar year. The 50 employees can work either at one location or at multiple locations within a 75-mile distance. The law applies to employees who have been employed at least 12 months and for at least 1,200 hours during the previous 12-month period. Among other situations not relevant to a discussion of on-the-job injuries, it applies to employees with serious health conditions, defined as conditions that require either in-patient care or continuing treatment by a health-care provider. Situations such as this can arise in workers’ compensation cases when a workers’ compensation claimant gets into a regimen of treatment with a chiropractor or physician on a regular basis, for example.

One of the key considerations under the FMLA is that if an employee chooses to take leave under the act, he or she must be returned to the same position of employment held when the leave period began. If an employee is injured and receives workers’ compensation benefits, but the employer does not run the FMLA leave concurrently with those benefits, then the employee may elect to stay off work longer under the FMLA. A qualified employee then becomes entitled to be returned to the former position of employment or an equivalent position of employment to the one held before the leave began. This can place the employer in an awkward position if the employee was on an extended workers’ compensation leave and his or her prior position has been filled by another employee.

Conclusion

On-the-job injuries can have a broad impact on a company, and employers should use every means available to limit their occurrence. When injuries do occur, employers must work aggressively to control the scope of the workers’ compensation claim. It is a good idea to keep a checklist of these various potential causes of action close at hand and to be sure that key personnel, such as human resources managers and loss control directors, fully understand the scope of the possible actions in their state.

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Maintaining the Asset That Matters Most
Rethinking worker retention in post—Baby Boom America.

Joe has been with the company for just a few months, but it is already obvious he is one of the good ones. He shows up on time, puts in an honest day’s work, and gets along well with his co-workers. He is new to the insulation business but learning fast, and it is easy to imagine him supervising his own crew in a few years.

Then one day, out of the blue, Joe puts in his 2 weeks’ notice. The new plant opening up down the road has offered him 75 cents more an hour. It doesn’t seem like much, he tells you—almost apologetically—but it adds up over time. Joe walks out of your office. You reach for the phone to call the paper and place yet another want ad.

Sound familiar? If so, you are not alone. This same scenario plays out dozens of times a day in plants and shops across the country. Worker retention is a problem—not just for the insulation industry, but for every business sector in the United States—and the problem is getting worse.

Why? The answer is easy, but it is also a bit scary for those responsible for finding enough workers to do the job.

The Baby Boom

Between 1946 and 1964, the United States experienced unprecedented population growth. The optimism following victory in World War II, the educational opportunities made affordable under the GI bill, the economic prosperity of America’s new “superpower” status, the development of suburban housing, and employment-based group health insurance have all been cited as factors in a “baby boom” that produced 76 million children in fewer than 20 years.

The first Baby Boomers—those born in 1946—turn 61 this year. Many of them are retired already, but many more are getting ready to retire. Over the next 20 years, the number of retirees each year will far exceed the number of people entering the work force. Beyond the sheer numbers of Baby Boomers leaving the work force, there is also a serious “brain drain” taking place. At the end of their careers, many Baby Boomers are the managers, supervisors, and team leaders of businesses. They take with them everything they have learned in the past 20 years about running a business and serving clients. In the industrial and mechanical insulation industry, these workers also take with them the specific insulation knowledge they have gained over the years.

The Baby Boomers were raised by the “gold watch generation”—people whose work ethic was indistinguishable from their loyalty to a single employer. The day after graduation, members of that generation went to the company in their town, got a job, and stayed for 20 years until they retired with a pension, a gold watch, and pride in a job well done.

Those days are gone.

Generation X

The Baby Boomers are the bridge between the gold watch generation and Generation X, the 44 million people born between 1965 and 1980. Generation X’s concept of employment differs from their grandparents’ in the following significant ways:

Loyalty: A job is a job. Most people in the work force today have few expectations that their employers will be loyal to them, so they feel less loyal to their employers.
Mobility: Go where you want to go. The post–Baby Boom work force is mobile. Workers go where the jobs are, where the weather is better, or where their friends go. The decision of where to live often is made before knowing—or even without considering—what to do once there.
Risk-taking: Who wants to be a millionaire? Because companies are no longer perceived as taking care of their workers, many in today’s work force are willing to take chances that would have been considered irresponsible in past generations. For example, knowing the odds against a start-up company succeeding, younger workers will take a chance if it means higher pay or a chance at profit sharing.
Stability: “Can’t keep a job” versus “can’t keep up.” It used to be that if someone had several jobs on his or her resume, the person looked flighty or—even worse—like a problem employee. Today, there is almost no such thing as too many jobs. The speed with which technology is evolving demands an equally fast evolution of skill. Ambitious workers who want the benefits that come from having in-demand skills constantly seek new opportunities for growth. This kind of thinking is at odds with that of employers who are focused on keeping skilled workers where they are, using the skills they already have, rather than encouraging their growth into different jobs.

Taking a New Approach

In the insulation industry, as in other construction trades, it is smart to focus substantial resources on training and retaining good employees. To keep the workers they want to keep, employers must change the way they think.

Employers should ask themselves, “What is the most valuable asset we’ve got?” If the answer is anything other than “our people,” it is time to think again. Regardless of what equipment is online, what orders are in the pipe, or what raw materials are sitting in the warehouse, the employees are a company’s most valuable asset. Without people to operate the machines, fill the orders, and transform raw materials into product, there would be no business.

Because the employees are a company’s most valuable asset, employers need a plan for managing that asset that goes beyond the “recruit, interview, hire, and fire” model. Fortunately, the insulation industry has a successful asset-management model on which this new approach can be based: maintenance.

Think about the most expensive piece of equipment in a company’s shop. There is, of course, a maintenance schedule for it. That piece of equipment represents a large investment for the company, and keeping it running at peak efficiency is crucial to the success of the business.

That maintenance schedule is likely to look much like Figure 1.

The original example in this article of Joe giving his notice might have ended differently with a good asset maintenance plan in place. The following is an example of how the equipment maintenance schedule could have been applied to that situation:

1. Monitor Conditions.

A. Subjective condition monitoring. Think about all the ways the condition of equipment is monitored. It begins with looking at it, listening to it, and checking the output. The same is true of monitoring employees. First, employers should look, asking themselves the following questions: 1) What does the job look like from Joe’s point of view? 2) Does he know he is valued as a good employee? 3) Does he know he has potential for advancement? 4) Does the job look like a dead end to him? Employers should take opportunities to listen to employees, whether it is in a meeting or over a cup of coffee in the break room. If they don’t ask, chances are they won’t find out what employees like and dislike about their jobs—until the day the employees quit. If employers find out what employees are thinking, however, they can use that information to create the kind of workplace where people want to stay.

B. Objective condition monitoring. Every personnel office has a great record-keeping system for tracking the workers hired, but how well do they track the workers who leave? Joe said he is leaving for a better paying job, but is that the whole story? There is an old saying that “people don’t leave companies, they leave bosses.” Could there be more to this than money? Tracking supervisors who are best at retaining workers can be very informative. The highest quality supervisors can share their knowledge on asset maintenance with other supervisors to improve employee retention throughout the company.

2. Perform Predictive Maintenance.

What about that plant opening up just down the road? Joe knew about it. Did his employer? Of course they did, but because the new plant is not a competitor’s (that is, it will not manufacture the same product they do), Joe’s employer did not think much about it. Of critical importance, Joe’s employer did not think the new plant would be competing for its most important asset. No doubt the hiring manager at the new plant did plenty of homework, figuring out how much employees at the first company were being paid and offering to pay more. What if the first employer had done some homework, too? They could have worked with the finance department to offer an immediate raise to key employees to retain them and let them know they are highly valued.

3. Perform Preventive Maintenance.

Suppose there was no new plant opening down the road, and Joe was not leaving. What would the schedule for preventive maintenance be? How often should an employer meet with workers? How often should the employer communicate with workers in other ways (newsletters, e-mail, etc.)? How often are employees asked what they think? How often are salaries reviewed? How often do employees have the opportunity to learn new skills?

4. Perform Corrective Maintenance.

No matter how good a supervisor is, sometimes a worker will quit. The key to being a great supervisor is to see this not as a defeat, but as an opportunity. When Joe turned in his notice, his employer could have told him how much he was valued and invited him to come back if the other job does not work out. Taking it a step further, the employer could have put a note on the calendar to call Joe in 3 months and ask how things are going at the new job. At the very least, the employer could keep Joe on the company mailing list and make sure he gets invited to apply the next time an opening becomes available.

The mobility of today’s work force means there always will be workers leaving a company, but it also means there will be workers leaving other companies, too. If employers do not burn bridges, and instead take every opportunity to strengthen those bridges, some workers inevitably will eventually come back across.

Last, But Definitely Not Least

If managing a Generation X work force seems challenging, just wait, because today’s entry-level workers are “Generation Y” (those born after 1980). Generation Y employees may not know anything about insulation, but they understand the law of supply and demand. During their entire lifetimes, demand for workers will far exceed supply. Generation Y is planning to write its own ticket, and modern companies will have to be ready to meet the challenges of an ever-changing work force.

Figure 1

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Leadership and the Emerging Generations

Frank is the 55-year-old director of a call center in suburban Wausau, Wisconsin. He has been with the organization for 15 years, having spent the prior 20 in another firm in the industry.

Adam, Frank’s assistant director, is 38 and on his eighth job and fourth industry since he graduated from college. Having just completed his MBA in finance, Adam is exploring his options. “After all,” he says, “I’ve learned everything I can here and have no desire to move up the ladder.”

Ask Frank why he chose this career, and he’ll relate a long tale of how he started out in the garment business and one thing led to another. Ask Adam why he chose this career and he’ll respond, “Who says this is a career, and why is that important?”

Employers throughout the United States are discovering that many of the traditional desires and expectations that Baby Boomers sought as they matured in the workplace have been turned on their heads by a younger generation for whom work does not seem to fit the same central role.

As Generation X evolves into senior leadership over the next decade, its members will have a profound impact on organizations throughout the country—an impact that will differ considerably from their parents’. The effect this will have on work style, execution, and organizational performance has yet to be defined.

It’s All About the Job

A comparison between job expectations of Baby Boomers and Generation Xers reveals some striking differences.

Loyalty. Being loyal to an organization has been a hallmark of the Baby Boomers. Even with layoffs, acquisitions, and job eliminations due to technology, countless individuals of that generation are celebrating 20 or more years with the same firm. Xers, on the other hand, came of age watching their parents deal with layoffs and the struggles involved with maintaining a career. From this, many surmised that demonstrating loyalty to one organization is not a benefit and is probably a detriment. For this reason, many will never allow themselves to become so emotionally or financially attached to one organization that it hinders their ability to move on in a timely fashion.

Socialization. Baby Boomers, like the generation before them, have used the workplace as a major source of social contacts. This is demonstrated through countless holiday gatherings, corporate barbeques, cocktail parties, and trips to the ballpark. Trade associations have benefited from this phenomenon as millions have made the monthly and annual treks to meetings and conventions.

The Xers have honed a far different strategy for developing and maintaining a social network. With the coming of the electronic age, these young professionals have taken to the Internet to connect with those they care about and to find new friends. Announce a company party and many Xers will only attend if they feel an obligation. They are careful about developing close relationships in an organization they may choose to leave tomorrow. Part of this extends from that purposeful sense of detachment that many maintain with their employers. They see a job as a job, not as a source for social contacts.

Personal job identification. Ask Baby Boomers about themselves and their job title is sure to come up in the first few sentences. This high level of occupational identification has influenced their behavior and decision making on and off the job for the past 3 decades. Without making too broad a generalization, Boomers have lived to work. Their evolution as the first generation of dual-career couples produced millions of “latch-key kids” who concluded that parents’ careers came first in many situations. As these young people came of age, many developed an attitude diametrically opposed to that of their parents: Xers work to live. This has been demonstrated amply in the attitudes they display about work ethic and loyalty. They are happy to work hard and contribute to a company, but not to the exclusion of a personal life. Over time, this difference in perception about job role will manifest itself in how these young people lead organizations. While many Baby Boom leaders have allowed themselves to be consumed by their corporate identity, those in the next generation will actively strive for a clear separation between family and work life. Many see work as simply a means to an end.

Work/life balance. The subject of establishing a work/life balance is possibly where Boomers and Xers differ in the most pronounced way. Most Xers grew up as the children of working parents, spending their preschool years in daycare and their afternoons in high school as latch-key kids. A generation of young adults now has little desire to “do to [their] kids” what they feel their parents did to them. Xers are unwilling to work the long hours that many present-day jobs expect. They rail against traditional, but inflexible, organizational practices that cost them time away from family. Since they do not see work as a place for socialization, they are annoyed by promotions and evaluations that seem in any way tied to massaging the egos of senior leadership at corporate parties. They are determined to perform well on the job, but they wonder why work has to be performed at the office when it could be done at home. As this generation assumes senior responsibilities over the next 10 years, the way in which work is completed—and where it is done—is sure to change significantly.

Conflict. Many Boomers are products of the era of peace and love, coming of age flashing peace signs, sticking daisies in gun barrels, and getting high to the sounds of Woodstock. In contrast, Xers maturing in the chaos of the 1970s and 1980s witnessed fuel shortages, rising inflation, and the fear of the Cold War. Many were in elementary school when they watched their parents divorce, lose their jobs, or deal with the inflation and recessions that ravaged the economy. This, along with the impact of Vietnam, Watergate, and a number of other political scandals left many with the conclusion that conflict is a part of life and something to be overcome.

Xers are comfortable challenging authority and questioning the traditions they were taught as children. After all, many of those traditions proved mythical, at least to them. As these individuals enter into leadership roles, they are bound to alter the way business conflicts are handled.

Workplace rights. Over the past 40 years, the Baby Boom generation embraced the ever-expanding diversity within American society. Legislation—mostly promulgated by Boomers—has recognized and expanded the rights of countless groups, forcing employers, large and small, to deal with thousands of federal, state, and local laws (and the ensuing bureaucracy around compliance). Xers have approached this phenomenon in two ways: 1) as an opportunity to work the system to their advantage; and 2) with a somewhat skeptical and detached eye, since much of this legislation has proven to be underfunded and unenforceable. This is not to say that Xers are unethical or cynical. Their background has simply led them to develop a different set of survival strategies.

Education and training. The past 20 years have seen a cultural shift from an emphasis on education in college to an emphasis on vocation. While Boomers chose liberal arts and science majors as undergraduates, Xers have chosen engineering, business, finance, and computer programming. Some of this shift can be attributed to the escalating costs of obtaining a degree. Those now in their 20s and 30s have emerged from college with loans in the tens of thousands of dollars, forcing them to seek well-paid employment as soon as possible. While no one should chide them for their choice of major, their ascendancy into senior leadership will be colored by a different sense of the value of education than their parents’. Fifteen years ago, the vast majority of senior leadership in large organizations possessed at least one degree in liberal arts and sciences, providing them with the perspectives of literature, philosophy, and the arts. This has been largely lost as many Xers chose majors that limited them to the study of more technical subjects.

There are tradeoffs, however. As this generation has emerged better educated, employers have raised their expectations as well. Employers now demand graduates with content-rich coursework under their belts, reasoning that this will make these young professionals productive in a shorter period of time and, obviously, reduce training.

At the same time, employers sometimes complain about a lack of critical thinking skills among these new leaders. Some of this may be attributed to a lack of practical experience. It also may result from the electronic environment in which the Xers have come of age. Whatever the genus, the impact of this issue on corporate decision making will be felt over the next 20 years. (See “Critical Thinking and Emerging Leaders.”)

Attitudes toward teamwork. Baby Boomers have embraced myriad teamwork concepts since their popularity began 30 years ago. In fact, Boomers have been responsible for the majority of books written on the subject. Xers, on the other hand, learned about these theories in school, only to observe abysmal execution in most organizations once they went to work. Introduce a new teamwork concept into today’s organizations and Xers will be polite while containing a strong urge to run for the exit. Experience has taught them to wait before embracing a new initiative for fear that its momentum will evaporate within the first few weeks of execution. For this reason, they are skeptical of most programs introduced by today’s management. As these emerging leaders assume senior roles, they are sure to focus less on concept and more on execution.

Factors and Impact of the Transition

This intergenerational evolution will affect all phases of leadership, from boardroom to front-line supervision. At the same time, organizations will be forced to address some additional factors.

The Baby Boomer transition. A great deal has been written about the impending retirement of this enormous generation. Some experts maintain that the Boomers will not retire at all, choosing to remain on the job as a source of socialization. Others believe that many cannot retire because of poor savings habits or financial losses. Still others maintain that Boomers will take the money they have, simplify their lives, and turn to public service or charity work.

But what if the Baby Boom chooses to delay retirement? With advances in health care, the life expectancy of the average Baby Boomer has increased significantly. The longer this generation remains on the job, the fewer opportunities will be open to the next group of leaders. Those looking to ascend in positions of senior responsibility will tell you that this is a source of serious concern.

The tremendous base of proprietary knowledge that will need to be transferred from one generation of leaders to the next is another concern. While some younger professionals may dismiss this knowledge as out of date, much of it involves the central operating procedures within organizations. Losing this knowledge with retiring workers potentially could devastate many businesses. Staffing directors in all sectors will be forced to consider the variety of ways this may play out. The most effective strategy will require development of several different scenarios to assist in dealing with the transition.

Technology. Advances in computers and automation have resulted in massive changes in the business models of most sectors in the past 20 years. In the 1970s, the optimal span of managerial control was considered to be 10 subordinates. With the exponential increases in automation, however, it is not uncommon for today’s managers to be supervising 30 or more direct reports. This has resulted in a decrease in the overall number of managers within many firms. It also has made the choice and development of future leaders more critical. The debate continues to rage about the wisdom of this kind of supervisory model, but at this point it has become conventional practice.

Responsibility levels. With the increase in span of control has come a decrease in the number of authority levels in most organizations. Thirty years ago it was not uncommon for large organizations to maintain positions like assistant to the vice president or executive assistant to the general manager. These jobs allowed those on a professional development track to observe and interact with senior leaders on a daily basis. Doing this enabled them to mentally and emotionally prepare to assume critical roles.

Today’s young leaders can find themselves being promoted from supervising 20 people to managing 100 or more overnight. What is missing in many of these cases is the development and mentoring necessary to help them assume the larger responsibilities with ease and perspective. Instead, they are forced to adapt in an environment where there is little room for error.

Another factor is time commitment. Suddenly, these young leaders find themselves working 70 hours a week simply to learn the job and build relationships. It is no wonder that a number choose to remove themselves from the rat race, even if it means leaving the organization. This action, however, leaves many Baby Boomers puzzled, because for them the promotion was the coveted reward for long hours and sacrifice. They do not relate to Generation X’s choice not to look at a job as all consuming.

Globalization. With globalization has come access to qualified leaders outside the
borders of the United States. While U.S. firms have been dominated by U.S. managers until now, this may change as organizations no longer limit their talent searches to those living in the United States. U.S. business schools continue to churn out thousands of graduates every year, but multinational firms are increasingly looking to indigenous employees to supervise their businesses overseas. As some of these individuals demonstrate their talents and abilities, they will migrate into positions of leadership in the United States. After all, America does not have a corner on developing good managers.

Leadership development and tenure. Will the Xers remain on the job long enough to ascend into leadership roles? Historically, the development of competent senior leaders has taken years of training, mentoring, job rotations, and relationship building; but this has been accomplished during an era of career-focused tenures lasting 20 or more years. The members of Generation X have made a practice of leaving employers in a much shorter period of time, even when they are enjoying development and opportunities to advance. Will some industries experience a case of “musical leaders” as young professionals grow impatient with their circumstances and move to another firm within a field simply for stimulation or a change in environment? In other words, might managers be training their competitors’ leaders of tomorrow and vice versa?

Training and development. The upshot of these shorter tenures will be a pressure to produce competent leaders in a shorter period of time. How will organizations respond when some of their top performers decide to move on, ignoring the traditional sense of obligation to the organization that Boomers felt? In the next decade, these firms will be faced with the challenge of identifying rising stars, developing their potential, and appointing them to positions of responsibility within a 7- to 10-year period, rather than the 10- to 20-year span that was common with previous generations.

Benefits. Over the past several years, many organizations have made a concerted effort to shift the burden of benefits and retirement back onto the shoulders of their employees. Older generations have felt a sense of betrayal over this practice. The members of Generation X, however, have taken a more proactive approach. Many Xers are troubled by what they perceive as inequitable treatment around this issue. Only 5 percent of this group, according to one poll, believe that they will ever receive the Social Security payments they would be entitled to upon retirement. Xers prefer to maintain control over their resources rather than trusting the institutions around them. They assume that all workers will eventually have responsibility for their own health care and retirement. At the same time, they realize that this arrangement affords them the flexibility to shift from one job to another without concern for eligibility periods and other possible exclusions. As this generation assumes leadership, they will support the shift in responsibility back to employees.

How Will Xers Differ as Leaders?

As this new generation of leaders begins to migrate into positions of senior responsibility, they will transform both the vision and practice of the businesses they lead in several different ways.

Emphasis on work/life balance. The focus of Xers on balancing work with the rest of their lives has been a source of dissonance between the generations. As they assume responsibility at senior levels, organizations will make a shift in the way that work is evaluated. For older workers, there will be less intrinsic recognition and reward for long hours and similar sacrifices. The overall emphasis will transition to a truly outcome-based measurement of performance. The exception to this will be those positions requiring hourly staffing, but automation and younger generations’ penchant for electronic customer service may alleviate much of that, too.

Less willingness to travel and relocate. Xers’ desire for work/life balance also will result in more judicious travel practices. America’s roads and skies are filled every day with businesspeople on their way to meetings, conventions, and sales calls. Many Baby Boomers have been conditioned to believe that so-called windshield time and regular air travel are a cost of doing business. While one should not discount the importance of traveling to important customers and company sites, technology is already eliminating a portion of these practices. As Generation X assumes responsibility, they are sure to take full advantage of this option. Over time, this will have a significant impact on the way customer service and organizational communication is conducted.

Shorter average leadership tenure. Those in Generation X already have demonstrated that they view jobs more as contracts than careers. While many will find themselves remaining with one organization for a long period of time, this general restlessness and desire for flexibility and versatility will undoubtedly reduce overall leadership tenure. Xers place a high value on the ability to position themselves for the next opportunity (not necessarily a promotion in the same organization). This, they feel, ensures economic security, intellectual stimulation, and an ability to maintain a healthy balance of life and work. Organizations throughout the United States will see the average tenure among leaders drop considerably. This behooves those presently in charge to reconsider their assumptions about succession planning, leadership development, incentives, recruitment strategies, and costs of turnover.

An international perspective. The members of Generation X are quite comfortable conducting business abroad. After all, they joined the U.S. work force at the beginning of globalization. As international business borders continue to dissolve, the Xers will embrace management practices they believe will augment the traditional approaches in the United States. This will not only have a lasting impact on leadership styles, but it also may serve to develop better relations with immigrant workers and other foreign nationals.

Embracing diversity. The United States has been called the melting pot of the world since the beginning of the last century, but it was only in the past 40 years that it has become truly diverse. Our emerging leaders will continue to encourage this phenomenon for both economic and philosophical reasons. Having come of age in the midst of this transmigration, Generation Xers accept today’s diversity. Their sense of pragmatism informs them that these workers are both valuable and needed.

Increased emphasis on technology. Generation X has grown up learning to trust the computer. It is only natural that the generation’s leaders will search for ways to use computers as a means for improving efficiency. Where older generations may be more inclined to seek consensus (or at least discussion) on all manner of decisions, Xers’ penchant for technology, coupled with a sense of detachment and a desire to maintain life balance, will lead them to seek electronic solutions whenever possible. The long-term impact of this practice remains to be felt, but it is sure to have a critical effect on certain types of organizational decision making going forward.

Reduced emphasis on protocol. Generation X grew up with Sesame Street and deduced that learning should be fun. Over time, they have extrapolated that if learning should be fun, then so should work. This is the attitude many have brought to work, much to the chagrin of older generations wired to believe that work and fun rarely exist in the same environment. While some still argue that the work ethic is lacking in the younger generation, the facts speak otherwise. Their ability to work hard and yet do so in an informal way bedevils some of their elders. As Xers assume senior-level responsibilities, they will continue to introduce an atmosphere of informality to the tasks and practices at hand. For some in older generations, this may mean the demise of what they perceive as civility. Xers, having not developed these expectations, will not miss them. The reality is that the generation to follow them is even more informal in their attitudes about work.

Communication style. Generation X also has come of age with e-mail and text messaging. Xers spend less time on the phone and more time conversing electronically. They also tend to communicate with a wider range of people during the day than members of earlier generations do. But these communications are generally brief, to the point, and tend not to have the emotion attached to them that one uses in a telephone conversation. It is not unusual, for instance, for Xers to maintain continual electronic conversations with a group of friends throughout an entire day.

Going forward, this emerging generation of leaders will foster a more detached style of communication. On one hand, the use of this new “menu-driven communication” will increase efficiency and directness. On the other, older generations may lament the loss of nuance in communication. Only time will tell about the evolution of the English language because of this. Certain degrees of empathy and diplomacy may fall victim to the move toward efficiency and detachment.

Preparing for the New Cadre of Leaders

Generation X will vastly alter the landscape of organizational leadership going forward. As the next decade evolves, this intergenerational transition will occupy a great deal of time and effort. The organizations to succeed in coping with these changes will be the ones that work to anticipate and address these challenges now. Here are some questions to consider:

How will an organization’s leadership practices evolve over the next few years as the members of Generation X assume senior-level responsibilities?
How might an organization’s operational model change based on these trends?
Where might the dissonance occur between present and future leaders within an organization?
What steps can be taken to anticipate and work to resolve this dissonance?
How will the evolution in leadership be perceived by the “rank and file” within an organization?
What dissonance might this create?
What steps might need to be taken to address these perceptions and resolve this dissonance?

NIA Sites > Insulation Outlook Magazine > Global

Knowledge Is Power

Freedom of Information Act requests can help contractors get valuable information.

Statutes commonly referred to as Freedom of Information Acts (FOIAs) or, less commonly, Data Practices Acts are powerful tools that contractors and subcontractors engaged in public construction should use. Generally, FOIAs require public bodies to disclose records either immediately or within a short time after a person submits a written request for access to the records.

Uses for the Tool

Scenarios where contractors and subcontractors may use FOIA requests to their advantage include the following:

A second low bidder for a public construction project may use FOIA requests to review the public body’s bid files and evaluate potential challenges to the responsiveness of the low bidder’s bid, the evaluation of the low bidder’s responsibility, or the ability of a public body to waive irregularities.
A contractor may use FOIA requests to review a public body’s internal correspondence or correspondence with the public body’s engineer to gather records supporting a claim for additional compensation.
A contractor or subcontractor may use FOIA requests to acquire all records in a public body’s possession relating to subsurface conditions at a construction site as part of the contractor’s or subcontractor’s prebid due diligence. Public bodies aggressively relying on prebid inspection clauses to deny differing site conditions claims might fault a contractor or subcontractor for not making an FOIA request to discover information that would have caused the contractor or subcontractor to bid differently.
Where arbitration or litigation with the public entity seems inevitable, FOIA requests can be used to obtain substantial discovery outside of the typical processes (although some states limit this).
A contractor faced with an uncommon issue may use FOIA requests to uncover records that may indicate how the public body addressed that issue in the past when other contractors encountered it.

FOIA requests can be used in any number of situations in addition to those listed above. The creativity of the requesting person(s) is the primary limiting factor. Generally, burdensome requests should be made with caution and restricted if the person making the request is fearful of stirring up trouble or unwarranted attention. On the other hand, public bodies are usually curious as to why an FOIA request was made and often provide important explanatory information regarding the written records produced.

Limits on FOIA Requests

Most FOIAs have a laundry list of exceptions that would entitle the public body to delay or refuse to provide the records. The significant and general rule is that public bodies will not be required to provide information protected by attorney-client privileges, the work product doctrine, information about the review of competitive bids before the government makes an award, employment records of employees of the public body, and similar sensitive data. Each jurisdiction’s statute is different, and persons considering making a request should review the exceptions to avoid making inappropriate requests. Further, most FOIAs will not require the public body to generate new records or compilations—they only need to produce records that already exist.

Fees for FOIAs

Public bodies have a right to charge for copying expenses and labor costs incurred to locate and produce the requested records. It is often less expensive for the requesting party simply to arrange for a time to inspect the documents in person and select for copying only those records that are actually needed.

The Power of the Request

Public bodies that refuse or fail to respond to FOIA requests do so at great risk. Persons requesting information are typically entitled to sue in court if a request is denied. If the courts agree that the request is appropriate, the public body will be required to comply, and those making the request will be entitled to reimbursement of their attorneys’ fees. Attorneys’ fees might not be recoverable, however, in cases where an FOIA request is made by a party with ongoing litigation with the public body and is using FOIA as an alternative discovery tool.

A public body looks bad when it does not respond to an FOIA request. One of the main purposes of FOIA is to provide open access to public records so that citizens can evaluate government at work, and formulate lobbying and voting strategies. Additional purposes are to promote transparency and reduce fraud in government. A public body’s failure or refusal to respond to FOIA requests raises suspicion of wrongdoing that elected or appointed officials should wish to avoid.

The Bottom Line

Sir Francis Bacon famously proclaimed, “Knowledge is power.” Contractors and subcontractors engaged in public construction work should use every tool available to them to gain knowledge and, accordingly, power. FOIA requests are one of a contractor’s or subcontractor’s best tools to obtain essential knowledge.

Disclaimer: This discussion is generalized in nature and should not be considered a substitute for professional advice. Readers are advised to contact counsel before embarking on any of the options discussed in this article.

NIA Sites > Insulation Outlook Magazine > Global

Forward Pass

When it comes to transferring wealth, the best defense is a good offense.

Successfully transferring wealth is all about strategy. Business owners must plan for this change and prepare everyone involved—including family, business partners, and a team of professionals like an accountant and attorney—to do their part and know exactly what to expect. Like any major business move, this one can be daunting. But with a solid game plan in place, transferring wealth can turn into a winning proposition.

A wealth transfer is the orderly transition of ownership of the assets one has accumulated in his or her name into the name of a third party, when and in the manner chosen by the first party. In other (simpler) words, it is when a person gives some or all of the control of his or her assets to someone else. This may mean giving control to a buyer of a business; to the trustee of a living trust; or to a spouse, children, or other heirs. One might share a portion of those assets with the federal or state government through income taxes, gift taxes, or succession taxes. The person may get something in return—as in a sale of assets or stock—or may be transferring the management of the business or the assets to a third party.

The answer to the questions “When should wealth be transferred?” and “How can it be accomplished successfully?” is “It all depends.” Before exploring these complex issues, however, the first question to discuss is, “Why should wealth be transferred at all?” The simple answer is because if one does not transfer the wealth, then somebody else will eventually have to do it. It often is said that you can’t take it with you, but people frequently struggle trying to decide how and when to transition the control of their property. If people do nothing during their lifetime, most state legislatures do it for them. Many states have statutes that set forth who will receive the property owned at the time of a person’s passing.

Assuming it is taken care of before one’s passing, the owner of a business or assets is the only person who can answer the question of when to transfer wealth. The timing of the transfer depends on how the owner wants to use the assets, if he or she wants to continue being involved in the business, and his or her need for income from the business or the transfer of assets. To effectively transfer wealth at a specified time, one needs a plan. Decisions about how to transfer property are entirely the business owner’s to make, but those decisions generally are made with the assistance of a wealth transfer team, which usually consists of an accountant or financial advisor and an attorney, at a minimum, as well as an insurance agent, a real estate agent, and a business broker, if desired. (To learn more about how to sell a business, please see For Sale by Owner.)

Teamwork Pays Off

Before making the decision of when to sell, business owners should seriously consider the formation of a wealth transfer team. They also need a plan that will allow them to sell the business in a way that affords the greatest tax-planning opportunities, and allows for a relatively quick and easy transfer of assets. In selling a business that is operating as a corporation, the owner may consider selling just the assets of the business or selling the stock in the corporation. If the business operates as a limited liability company or a partnership, the owner may sell the assets only, the membership interest in a limited liability company, or the partnership interest in a partnership. Each of these types of sales carries with it decisions that are best made with the advice of both an accountant and an attorney. An accountant can help with tax planning and any tax-related issues that arise. An attorney can help address transferability issues set out in the owner’s agreements with the other owners of the business, as well as both pre- and post-transfer liability issues. If a business owner is conducting business in a sole proprietorship, the transferability issues are reduced in number and complexity, and it is easier to coordinate the wealth transfer.

Early planning for the structure of a business enterprise under the respective state laws will yield a great return at the time of a wealth transfer. That return may be in the form of reduced legal or accounting fees because of the ease with which the transfer may be accomplished; reduced income or transfer tax because the owner managed the business appropriately for a long time; or simple peace of mind when the sale of the business goes smoothly, allowing the owner to move on to the next stage of life, next project, or next business enterprise without any lingering worries or liabilities.

If more than one person owns the interests in a business, one owner can arrange for a sale among the others. Many times shareholders of a corporation will enter into an agreement called a buy-sell agreement or a cross-purchase agreement. These agreements generally call for one or more of the shareholders of the corporation to buy out the interest of the person who wishes to leave the business enterprise. They are sometimes funded with life insurance and are sometimes funded by the future earnings of the business. The exact name or type of agreement is, in large part, dependent on the state’s laws, the various federal and state tax laws affecting the nature of the transfer, and the tax outcomes the owners wish to achieve. These agreements also may deal with topics like the transfer of ownership upon termination of employment, retirement, disability, or death. The owners may adopt similar forms of agreement or provisions in the formation or operating documents for limited liability companies or partnerships to address issues about when and how an owner must transfer these alternative types of business interests.

A Good Game Plan

Some business owners may wish to transfer wealth to members of their immediate or extended family to continue to operate the businesses they have worked so hard to establish. A careful structuring of the business enterprise around stock ownership, ownership of the membership units, or ownership of the partnership interests may permit an orderly transition of the wealth to other family members to perpetuate family ownership of the business enterprise. Likewise, through sound structuring, funding, and operating of family limited partnerships or limited liability corporations, significant tax savings may be achieved using properly allowable discounts in valuation of the business ownership interests being transferred by gift or for value. Depending on the nature of the structure chosen, business owners may achieve a reduced tax obligation either at the time of the wealth transfer or at the time of their passing.

Accountants and tax attorneys, as members of the wealth transfer team, can advise on the proper discounts that may be applied to value the business owner’s interests. A business broker can help with proper valuation of business interests and preparation of the supporting documentation. Together, the team can establish a reasonable and supportable plan for transferring business interests either during the owner’s lifetime or at the time of the owner’s passing.

Sometimes business owners who want to retire look to the business they have established as their “retirement fund.” If the wealth transfer is part of a retirement plan, care should be taken to determine the retiring owner’s long-term cash needs. The transaction then may be structured to create a lump-sum payment that may be invested in other assets, an income stream that may be received over the remaining life of the retiring owner, or a combination of the two. Again, the advice of an accountant and an attorney will help establish the payment methods and terms that will ensure that the proceeds will be there when the former business owner needs them.

Many times a small-business owner also owns the real estate where the business is located. If this real estate is essential for the ongoing operation of the business, it frequently will become one of the topics of discussion among the wealth transfer team. As part of a retirement plan, it may be prudent to sell either the business interests or the assets of the business while retaining ownership of the real estate to provide a future income stream for the owner’s retirement. A separately structured sale of the real estate may generate a lump-sum payment for an alternative investment or an income stream for the benefit of the owner.

Some business owners may decide to continue to own, operate, and control their businesses and wealth until they are no longer able to do so. If so, they must consider whether they will transfer their business interests and wealth when they can no longer manage them, or if they will keep them until they pass away. If an owner is not able to transfer the business interests during his or her lifetime because of physical or mental incapacity, someone else will have to do it. The question is, Who will that be?

In Ohio, for example, if one has not appointed someone to act for him or her, the probate court in the county of the owner’s residence appoints someone to do it. Most business owners would prefer to choose their successor or the person they wish to act for them. This successor in interest may be a relative, a bank, or a professional adviser. The successor in interest may be an attorney-in-fact under a financial power of attorney, a trustee of a living trust, or the executor of the owner’s estate. In any of these events, it is necessary to name the successor in interest in a formal, legal document. This legal document also may set out the powers the person wants the successor in interest to exercise, when those powers may be exercised, when the powers should cease, and what happens to the wealth when the successor in interest may no longer exercise any power over the assets. If a business owner does not plan for the transfer of wealth, someone else will do it sooner or later.

While it doesn’t take a village to transfer wealth, it does take a team. The business owner is the captain of that team, deciding when and how to transfer the accumulated wealth. The owner’s teammates work to ask questions, make suggestions, and implement decisions. The time to start assembling a team and establishing a plan is now.

NIA Sites > Insulation Outlook Magazine > Global

For Sale by Owner

This helpful Q&A offers great guidance for navigating the successful sale of a business.

When business owners get ready to sell, they sometimes underestimate the amount of time and energy the process can require. Putting a business on the market can be unfamiliar territory to even the most savvy business owners. This article is not only a good primer for preparing a business for the market, but it also offers personal accounts and tips that can speed the process along and help it go off without a hitch.

A Personal Story

As president and vice president of Prime Investments, the authors of this article have a great deal of firsthand experience with selling businesses. The following real-world scenario is a good example of a typical selling situation.

One of the first business sales we ever worked on was a $30-million-a-year lighting distributor. The lead came in from a cold call. The seller was very secretive—he wouldn’t give us any information over the phone because he wanted to meet us first. This was before the age of websites and instant online reports. As we drove to meet him, we thought it was probably a waste of our time, that the gentleman was probably selling light bulbs out of his trunk. But when we arrived at our destination, we were pleasantly surprised by the large, modern building with the gentleman’s name in 2-foot block letters over the front entrance.

The owner turned out to be a very sophisticated and savvy businessman. He was a hands-on owner, completely knowledgeable about his industry, international trade mechanisms, finance, and management. He wanted to sell his business and retire, but he had no clue as to how to proceed. He needed a business sales professional to educate him about the process, package his business for sale, locate the right buyer, put the deal together, and see the deal through to closing.

Almost 20 years later, the owner in this example is typical of most business owners today. No matter how sophisticated and successful, business owners often have little or no knowledge of how to go about selling their businesses. The following Q&A on the basic issues and process is a good starting place for business owners who want to sell.

Q: Why do people sell their businesses?

A: Retirement is the first answer that comes to mind when most people are asked this question. However, only a small percentage of business sellers are of traditional retirement age. Many successful owners sell while in their 40s or 50s. They want to turn the value of their business into cash while they are still young enough to enjoy their lives, spend more time with their families, travel, or even begin a new business venture.

Q: How long does it take to sell a business?

A: It typically takes 6 to 12 months to sell a business. Even if there is a buyer in hand today, the process—including letter of intent, due diligence, purchase contract negotiations, financing, and settlement—takes a minimum of 4 months (and that is if no problems arise).

Q: Is there a market for businesses?

A: Absolutely. Just as there is a market for the goods or services a company provides, there is a market for businesses for sale. Prices are defined by a competitive market.

Q: Do most buyers target a specific type of business?

A: No. Most buyers are interested in broad categories—such as service trades, construction trades, or distribution—and then limit the search by geographic and size considerations.

Q: What kinds of businesses do buyers avoid?

A: Buyers avoid businesses where there is a substantial risk that the company’s goodwill will not transfer. Goodwill might not transfer for one or more of the following reasons:

unstable customer concentration (one or two big customers whose loss would cripple the business);
the business is really a personal service business (where the knowledge and relationships necessary to conduct the business reside exclusively with the owner); or
external risk factors, such as increased competition, impending loss of a valuable location, or technological obsolescence.

Q: Why do people buy businesses?

A: People buy businesses: 1) to make money, 2) to make money, and 3) to make money. Whether buyers are individuals, equity funds, or other businesses, they buy businesses to make money. Of course, many also want the freedom to succeed or fail on their own merits, and business ownership offers that opportunity. In the end, however, buyers are paying for the right to step into the previous owner’s shoes and make even more profits.

Q: How are businesses valued?

A: Buyers buy businesses to make money, so it is not surprising to learn that businesses are valued based largely on how much money they make. Other factors that influence the valuation include the type of business, recent trends in the individual business and its industry, assets and/or liabilities included in or excluded from the transaction, geographic desirability, and the existence of risk factors like those that might affect goodwill transferability (listed in the answer to a previous question).

Q: Is the valuation based on taxable income?

A: Valuations typically use formulas that include the corporate taxable income and other benefits that the owner takes from the business, such as the owner’s salary; interest on debt that will not transfer; non-economic depreciation and amortization; one-time, non-recurring expenses; and pension contributions. These formulas also include the owner’s discretionary expenses paid for by the business that are not related to the actual operation of the company. This bundle of owner’s compensation items is called the owner’s discretionary cash flow or adjusted EBIDTA (earnings before interest, depreciation, taxes, and amortization).

Q: Should you use a broker to sell your business?

A: Yes. It is in the owner’s interest to use an intermediary. Intermediaries package the business and present it in the best light to obtain the highest possible price. They maintain confidentiality and field all inquiries away from the business premises. They also find the best possible buyer for a particular business and minimize the amount of time the owner spends on the sale. They resolve differences between the buyer and seller before they become personal. In addition, they help secure financing and keep the deal on track, moving forward to settlement.

Q: How does a business owner choose a broker?

A: Selling a business is a delicate and complicated matter that needs to be guided by a hands-on, experienced professional. The first rule is to choose a broker who is local. The broker needs to be there—in person—to guide the process, attend meetings, assess personalities, anticipate and solve problems, walk those involved through the process, negotiate, and sometimes cajole. Basically, the broker’s job is to do whatever is necessary to make the deal. A broker’s work simply cannot be phoned in.

Before deciding on a broker, it is best to meet the candidates in person. Business owners should determine if they comfortable with this person. They should ask themselves, Will this person represent the business in a professional manner? In this situation, one cannot ask too many questions of prospective brokers. Some important ones to start with include the following:

Does the broker understand what the owner is trying to accomplish by selling the business?
What is the broker’s plan for selling the business?
Can the owner see a sample prospectus?
How does the broker find potential buyers?
Does the broker charge a fee up front or get paid only when the sale is completed?

Owners also should ask for and check three to five references. These should be from recent sales of businesses that are similar in size and type to the one being sold. An owner does not want the broker to be learning on the job with this important transaction.

Q: What should the business prospectus (the offering package) contain?

A: A good prospectus should contain the following:

A history of the company for sale
An overview of the industry
An explanation of the company’s particular niche (including sources of revenue and types of customers)
An overview of how the business is organized
A review of operations (the nuts and bolts of how the company actually functions)
Information about the company’s competition
A summary of the historical financial results of the company
Information about the assets that will transfer to the buyer
A section devoted to the company’s growth potential

A good prospectus should not be a fill-in-the-blank “boilerplate,” but should be written specifically for the business it describes.

Q: Who should receive the prospectus?

A: Only prospective buyers qualified (financially and by ability) who have signed strict non-disclosure agreements prohibiting them from disclosing information to anyone except their lawyers and accountants should receive the prospectus.

Q: Should a business owner pay for the prospectus?

A: No. While some brokerage firms charge $30,000 to $50,000 to package a business for sale, other firms work exclusively on a “success fee” basis, earning their fee only when the business is actually sold. Firms that charge large up-front fees often secure their clients by making extravagant claims about the prices they can achieve. One of these companies was recently the defendant in a large class-action lawsuit. It was required by the court to return much of the up-front money it had collected from businesses it never sold. Instead of being taken in by wild promises, one should choose a broker that has the confidence to work on a success-fee basis, as well as a solid track record and local references that can be verified.

Q: What happens after the prospectus is prepared?

A: After the prospectus has been prepared and reviewed by prospective buyers, interested buyers may want to meet the owner, view the site, and get more information. To maintain confidentiality, meetings should occur away from the business premises. On-site tours should occur after employees have gone home.

Q: Should the fact that the owner is trying to sell be kept confidential?

A: Absolutely. While some owners understandably feel an obligation to their employees to let them know what is going on, no good can come of telling employees that the company is for sale before the sale is actually consummated. If employees find out the company is for sale, they might start looking for other jobs, fearing the new owners will replace them. If vendors find out a company is for sale, they might put it on cash on delivery (COD). If competitors find out, they might use that information against it in the competitive marketplace.

Employees should be told of the sale in a post-closing company meeting, where the new owners are introduced. At that meeting, the new owners typically reassure employees that their jobs are safe (buyers typically want to retain existing employees, without whom the business would have little value) and that they intend to grow the company, creating opportunities for everyone.

Q: What does an offer look like?

A: Offers typically come in the form of a letter of intent. A letter of intent is a short, non-binding document that spells out the basic terms of the proposed transaction. It usually proposes that closing be contingent on executing a formal purchase agreement, on the buyer obtaining the necessary financing, and on the buyer successfully completing its due diligence study.

Q: What is due diligence?

A: Due diligence is a short period of time in which a buyer who has a letter of intent that has been accepted by the seller, and who has placed a deposit with the broker, can examine the books and records of the seller to determine whether to proceed to a final, binding purchase agreement. During this time, the business is typically “off the market” for other buyers. Buyers sometimes ask for as long as 90 days to complete due diligence, but it is strongly recommended that it last no longer than 30 days. There simply is no reason to allow the business to be kept off the market for longer than that.

Q: What is a purchase agreement?

A: The purchase agreement is the binding, legal document that describes and controls the transaction. It usually has exhibits appended to it, such as the company’s financial statements and other documents, which become part of the contract and settlement package.

Q: Does a business owner who is selling need a lawyer and accountant?

A: A lawyer should be retained to review the purchase agreement. An accountant should be consulted to ensure that the sale is structured in the manner most beneficial to the company’s tax situation.

Q: When does the seller get the money?

A: At closing. The current lending environment is very favorable to business transactions. As long as a company is stable, profitable, and has good financial records, it should be able to be “cashed out” at closing.

Q: What happens after closing?

A: That depends on the needs of the parties involved. At a minimum, the seller stays with the company for a month or two after closing to familiarize the new owner with the company’s clients, business practices, and procedures. Sometimes, if both parties desire, arrangements are made whereby the seller stays with the company on a longer-term basis. For example, some sellers are happy to stay on in a sales or operational capacity so long as they have no administrative responsibilities.

Q: Is this a good time to sell?

A: The decision to sell a business is a personal one, often relating to quality of life issues for owners and their families. That said, it is an extraordinarily good time to sell a business. The economy is strong, interest rates are still low, and the lending climate is favorable. Also, capital gains tax rates (which most business sellers can take advantage of) are at an all-time low of 15 percent.

Selling a business is the end of one journey and often the beginning of a new one. The business being sold often represents the bulk of the seller’s estate and the monetary value of the seller’s life’s work. The sale should not be rushed, but should be handled in a deliberate manner with proper professional help. The business should be prepared and packaged to achieve the highest attainable price. The selling process should be managed in a way that maintains confidentiality and does not interfere with day-to-day business operations. The transition to new ownership should be structured to ensure the continued health and viability of the business for both the employees and the new owners.

When handled correctly, the sale of a business can give the seller the money needed to start the next phase of life, whether it leads to retirement, more time with family, the pursuit of other interests, or a new business venture. At closing, many sellers have mixed emotions about giving up their cherished “baby,” but after the sale, most sellers are soon exhilarated by their newfound freedom and prospects for life’s next adventure.

Workers’ Compensation

Intentional Torts

OSHA Inspections

Discrimination

Americans With Disabilities Act

Family Medical Leave Act

Conclusion

The Baby Boom

Generation X

Taking a New Approach

1. Monitor Conditions.

2. Perform Predictive Maintenance.

3. Perform Preventive Maintenance.

4. Perform Corrective Maintenance.

Last, But Definitely Not Least

It’s All About the Job

Factors and Impact of the Transition

How Will Xers Differ as Leaders?

Preparing for the New Cadre of Leaders

Uses for the Tool

Limits on FOIA Requests

Fees for FOIAs

The Power of the Request

The Bottom Line

Teamwork Pays Off

A Good Game Plan

A Personal Story

Q: Why do people sell their businesses?

Q: How long does it take to sell a business?

Q: Is there a market for businesses?

Q: Do most buyers target a specific type of business?

Q: What kinds of businesses do buyers avoid?

Q: Why do people buy businesses?

Q: How are businesses valued?

Q: Is the valuation based on taxable income?

Q: Should you use a broker to sell your business?

Q: How does a business owner choose a broker?

Q: What should the business prospectus (the offering package) contain?

Q: Who should receive the prospectus?

Q: Should a business owner pay for the prospectus?

Q: What happens after the prospectus is prepared?

Q: Should the fact that the owner is trying to sell be kept confidential?

Q: What does an offer look like?

Q: What is due diligence?

Q: What is a purchase agreement?

Q: Does a business owner who is selling need a lawyer and accountant?

Q: When does the seller get the money?

Q: What happens after closing?

Q: Is this a good time to sell?

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