risk_analysis_score_3_29-08-2014 (1)

Construction Risk AnalysisReport August 29, 2014

  Contents I. Risk Assessment II. Risk Scoring III. High Risk Exposure IV. Risk Control Recommendations V. About This Report October 16, 2014 Page of 2 2003 - 2014 ALL RIGHTS RESERVED.

  I. Risk Assessment Risk Assessment Likelihood of a Decrease in Profitability Accounting Procedures High Medium Low NA 0.05 Inaccurate accounting High Medium Low NA 0.06 Inconsistent tracking of job cost 0.07 Lack of inventory control High Medium Low NA 0.08 Late payment to subs and suppliers 0.09 Late preparation of financial statements 0.10 Mismanagement of cash flow 0.11 Overspending on equipment 0.12 Poor costing of equipment 0.13 Presence of fraud 0.14 Sporadic collection of receivables 0.15 Unallocated indirect costs 0.16 Uncontrolled purchases 0.17 Unexpected insurance premiums 0.18 Unexpected tax consequences Bid Process 0.19 Failing to consider availability of resources 0.20 Inaccessibility to new job information 0.21 Inadequate budgeting of projects 0.22 Non-attentiveness to backlog 0.23 Poor pre-qualification of subcontractors 0.24 Random estimating procedures 0.25 Unavailability of historical job costs 0.26 Unsystematic buyout procedures Business Approach 0.27 Disorganized office layout 0.28 Failing to be watchful for economic change 0.29 Failing to plan for loss of key personnel 0.30 Failing to plan for succession 0.31 Failure to adopt change 0.32 Failure to maintain a risk diverse project portfolio October 16, 2014 Page of 3 2003 - 2014 ALL RIGHTS RESERVED.

  0.33 Frequent lawsuits0.34 Inattentiveness to political and judicial environment0.35 Investing resources in outside endeavors0.36 Lack of a risk control process0.37 Non-existent company policies0.38 Outgrowing available manpower and cash0.39 Performing projects much larger than the norm0.40 Performing work much more difficult than the norm0.41 Poor business planning0.42 Poorly defined positions and responsibilities0.43 Gross inefficiencies, unproductively, and disjointedproject performance causing losses0.44 Short term facility leases0.45 Transacting with related parties0.46 Undertaking a wide variety of work & conditions0.47 Unorganized business structureConstruction Management High Medium Low NA0.48 Blind execution of contracts0.49 Contract non-compliance0.50 Inability to close out construction projects0.51 Inaccurate work-in-progress reports0.52 Inattentiveness to construction cost information0.53 Loss of construction tools0.54 Mismanagement of project managers0.55 Passive handling of construction claims0.56 Poor management of subcontractorsCredit Status High Medium Low NA0.57 Incomplete reporting to sureties0.58 Loss of surety credit0.59 Misguidance by management or board of directors0.60 Non-compliance with lending agreements0.61 Non-compliance with regulatory requirements0.62 Overlooking the financial resources available to fundprojectsInformation Transfer High Medium Low NA0.63 Ignorance of technology0.64 Indifference to backing up computers0.65 Lack of communication0.66 Non-standard computer systems0.67 Poor record keeping and archivingOctober 16, 2014 Page of 4 2003 - 2014 ALL RIGHTS RESERVED.

  Insurance Coverage High Medium Low NA 0.68 Ignoring insurance needs 0.69 Overlooking insurance renewalsSafety Practices High Medium Low NA0.70 Disregard for pre-construction safety hazards0.71 Disregard for safety training0.72 Failure to perform job-site safety audits0.73 Ineffective tailgate meetings0.74 Non-compliance with OSHA standards0.75 Omitting new-hire safety orientation0.76 Poor implementation of safety programs0.77 Poorly handling insurance claimsSales Methodology High Medium Low NA0.78 Conducting business with doubtful payers0.79 Failing to maintain a quality corporate reputation andbrand0.80 Misrepresentation of the company's services0.81 Non-attentiveness to market changesOctober 16, 2014 Page of 5 2003 - 2014 ALL RIGHTS RESERVED.

   II. Risk Scoring DirectServ Rating: Blue. The DirectServ Score is 51 as of August 29, 2014. 5 1The higher the score, the better your comnpany manages its risk exposure; companieswith higher scores carry less failure risk than companies with lower scoresYour DirectServ Score of 51 breaks down as follows:Category Risk Relative Contribution of Risk to the Score Uncontrolled ControlledAccounting Procedures 10 % 11 %   Bid Process 6% 5%   Business Approach 10 % 17 %   Construction Management 7% 7%   Credit Status 8% 3%   Information Transfer 1% 2%   Insurance Coverage 1% 0%   Safety Practices 8% 2%   Sales Methodology 2% 2%   Total 53 % 49 % Uncontrolled   Controlled  October 16, 2014 Page of 6 2003 - 2014 ALL RIGHTS RESERVED.

  III. High Risk Exposure Accounting Procedures Consequence Risk Exposure Misstated financial results mislead management causing poor decision making Inaccurate accounting Disgruntled sub and suppliers holding back services and charging a premium Late payment to subs and suppliers Developing a debt burden that is difficult to meet and impossible to meet at lesser volume Overspending on equipment Bid Process Consequence Risk Exposure Allowing no means to neither manage a project from a cost standpoint nor develop Inadequate budgeting of projects historical costs Business Approach Consequence Risk Exposure Missed opportunities or un-preparedness for lower margins Failing to be watchful for Inability to enforce collection of monies or protect property economic change Losing money as a whole and threatening longevity of the company Inattentiveness to political and Inability to efficiently expand revenue to cover overhead while maintaining control judicial environment Inefficient function of employees and performance causing higher overhead costs Poor business planning Unorganized business structure Disorganized office layout Construction Management Consequence Risk Exposure Taking on liabilities that can cause either insured or uninsured losses Blind execution of contracts Credit Status There are no high risk exposures in this category.October 16, 2014 Page of 7 2003 - 2014 ALL RIGHTS RESERVED.

  Information TransferRisk Exposure ConsequenceIgnorance of technology Loss of competitive advantage over competition due to inefficiencies Insurance CoverageThere are no high risk exposures in this category. Safety PracticesThere are no high risk exposures in this category. Sales MethodologyThere are no high risk exposures in this category.October 16, 2014 Page of 8 2003 - 2014 ALL RIGHTS RESERVED.

  IV. Risk Control Recommendations The following recommendations address how to control the risk factors impacting your DirectServ Score. Recommendations are shown by category and listed in order of those having the largest potential impact on your score. In certain instances a lower impact recommendation may be listed prior to a higher impact recommendation if it is a prerequisite. Accounting Financial statements drive critical decision making. Strict Risk Level Procedures accounting procedures can ensure that job cost and other financial reports are accurate and reliable. Decisions based High on inaccurate financial data are a key cause of business failure. Medium Medium Internal Accounting Develop a written procedure for staff members to follow requiring a Controls monthly audit of general ledger accounts. Assign specific GL accounts to High each staff member to make them take ownership. Require each staff member to perform the monthly audit of the assigned accounts. Require each staff member to submit a month-end report to the accounting manager to verify that all accounts have been audited. Regularly perform spot audits of job-specific labor, material, and equipment cost coding to identify breakdowns in the cost coding system, from the field to financials. Cash Flow Regularly perform cash flow projections to avoid sudden cash shortages. Management Use a spreadsheet model for projecting cash flow or the appropriate accounting software, updated on a regular basis, to provide forewarning of potential cash shortages. Routinely conduct such projections at least three months forward to allow adequate time to obtain additional capital. [Work in Progress (WIP) Reporting Prerequisite] Receivables Implement a clear concise collection procedure. Exercise a continuous Collection collection effort. Identify the individual that is best suited for collection efforts and create a well-defined schedule for collection. Keep track of the time and date on which calls are made and the response to those calls. Make return calls according to a specific schedule, typically within one week for each call to each company owing money. Delinquent Payments Determine available cash, profitability and the speed at which payables are processed. To increase cash, collect receivables faster and obtain additional outside funding. If union or tax payments are delinquent, take immediate action and retain a consultant familiar with contractor turnarounds. [Fraud Prevention Prerequisite]October 16, 2014 Page of 9 2003 - 2014 ALL RIGHTS RESERVED.

  Equipment Debt Develop a payment schedule to monitor equipment debt and payment High Medium Burden durations. Perform a cash flow analysis for each proposed equipment Medium Medium purchase prior to the decision to buy. Give adequate consideration to down Medium Medium markets or availability of jobs that utilize the equipment proposed. Limit Medium purchases to equipment that can be fully utilized in many types of work with a swift payback, or equipment that can be readily sold if work is no longer available for it. Inventory Control Implement a procedure to properly cost inventoried materials having a repeat use to appropriate jobs. Charge the costs to the jobs based upon the total number of projected uses. Install a procedure to transfer excess materials between jobs for proper job cost accounting. Conduct a physical inventory on a routine basis, preferably every three months. [Internal Accounting Controls Prerequisite] Scheduled Review the accounting schedule to make certain that it includes specific Accounting tasks and cut-off dates for each position within the accounting department. Assign specific tasks and deadlines to each position within the department, culminating with a finalized financial statement. Follow a monthly closing procedure with no exception. [Indirect Cost Allocations Prerequisite] Equipment Costing Reinforce equipment accounting systems and procedures to capture all costs of repairs, both in the field and in the shop. Establish a means to account for maintenance costs, such as oil, filters, hose, etc., even if spread uniformly to the entire equipment fleet. Establish a means of tracking the costs to operate a shop, including mechanic's down time and apply those costs to the cost of equipment repair. Once accurate, use the equipment cost information for bidding, purchasing and disposal decisions. [Job Cost Tracking Prerequisite] Purchase Order Make certain that the necessary personnel are in place to meet purchasing Control demands from the field, and then reinforce the requirement to use the purchase order system. Establish a strict set of written rules for superintendents to follow to demand full utilization of the system. Firmly establish the lead time required by the purchasing agent to fulfil purchase orders, forcing the superintendent to think in advance about material needs. Eliminate last minute orders as they disrupt the work of the purchasing agent and delivery personnel. Insurance Audit Prepare a spreadsheet that calculates your audit premium liability in Process advance, taking into account OCIPs and CCIPs and the proper classification of employees. Provide the calculations to the auditor upon arrival. Stay with the auditor to explain how the numbers were calculated and to ensure that the numbers are used in preparation of the audit. Tax Estimates Make quarterly tax estimates based upon realistic projections of volume and profitability. Record the tax liability and tax expense within the financial statements accordingly. Use a cash management method for setting aside the expected cash. To prevent an unexpected negative impact to cash flow, consider using a separate interest bearing account that holds all committed burden related monies including monthly tax set asides. October 16, 2014 Page of 10 2003 - 2014 ALL RIGHTS RESERVED.

  Bid Process While it's true that money is made or lost in the field, there Risk Level must be enough money to start with. Utilizing consistent decision-making processes and techniques to win and launch new projects is a key to dependable job profitability. Backlog Scheduling Identify start dates and the overlapping demand for labor, material Medium purchases and equipment. Clearly identify peak volume and manpower needs to ensure that the necessary cash is on hand. Provide the reports to estimating to drive bidding strategy. Bidding Procedures Develop a standard bidding format or use industry specific estimating Medium software. Require all estimators to use the standard format to prepare bids so that they can be easily reviewed. Determine proper bid approach and pricing by conducting an upper management review of each bid at least one day prior to bid day. Budget Preparation Require the estimating department to prepare budgets on a routine basis High for every project bid. Prepare the budgets with the intent to (1) easily track labor costs in the field to monitor progress, and to (2) receive valuable cost feedback upon completion of the self-performed work. Require the estimating department to assemble the budget upon first notice of award of the contract and place a time limit on its preparation. Require that a copy of the budget be submitted to accounting, contract administration and project management. Direct the project's lead estimator to review the budget with the project manager at the turnover meeting. Resource Continue making bid adjustments for known labor, material and equipment Medium Requirements shortages and implement a procedure to consider potential shortages prior to every bid. Turnover Meetings Although information is being passed between the Estimators and Project Medium Managers, schedule a more formal turnover meeting for all projects of any appreciable size. Require the project manager, project assistant, superintendent, operations manager, and contract administrator to be present and follow a strict agenda. Structure the meeting to first pass information to those who do not need to be present during the entire meeting, leaving the more technical discussions to the operations people for the later part of the meeting. Subcontractor Pre- Do not use subcontractors on larger portions of work unless (1) a letter Medium qualification from the Surety is obtained indicating bonding capacity, (2) a bond for the scope of subcontracted work is submitted, or (3) financials and references are obtained and verified. Business Effective planning ensures an organization is headed in the Risk Level Approach right direction. Implementing sound business policies and practices drives company profitability and make its future more secure. October 16, 2014 Page of 11 2003 - 2014 ALL RIGHTS RESERVED.

  Economic Develop a means to monitor the economic climate in regions where work is High performed. Routinely obtain or create regular economic forecasts for these High Environment regions to identify potential economic changes.  Establish a contingency High plan to act upon forecasts that could be detrimental and an action plan to take advantage of potential economic opportunities. Medium MediumCountry Risk Implement procedures to assess potential exposures due to political instability and/or a weak judicial environment.  Determine which exposures Medium can be accepted or must be rejected.  If an exposure cannot be accepted, High determine whether operations should be scaled back in the country of concern to remove the exposure. Establish guidelines for reviewing country Medium risk when seeking future bidding opportunities.Business Planning Establish a business plan as a regular guide for initiatives and a measurement of success. Hold an outside consultant or senior manager responsible for preparation of the plan. Establish goals and objectives with input from leadership and key decision makers. Develop a financial model with input from the head of the accounting department. Once complete, promote implementation of the plan. Ensure that the plan is scheduled for a yearly review and that the financial model is adjusted to account for past performance and market conditions.Speed of Growth Slow further growth. Take time to identify the growth model and plan for the capital resources needed to achieve planned growth. If existing capital is insufficient, identify a source for capital and then obtain the capital needed. Once capital is sufficient, determine personnel needs. Allow time to obtain and train the personnel necessary to support growth as it takes place.Project Sizes Reassess targeted project sizes and the anticipated margins, but most importantly the overall impact that the mix has on financial performance. Examine past project sizes and historical gross profit margins for the previous several fiscal years. Analyze job sizes and margins to determine the most profitable job sizes. Determine the mix of job sizes that generates the greatest profit margin while avoiding large project sizes. Give consideration to available management, field forces, and bid opportunities when determining the mix.Hiring Practices Ensure that an effective pre-hire process is in place. Require each candidate under serious consideration to complete an employment application. Contact the provided references, check criminal background and obtain an MVR. Closely assess any irregularities and resist hiring those with questionable records.Organizational Separate the company into profit centers. Establish an organizational chartStructure that departmentalizes the company, by division if applicable. Give due consideration to the hierarchy within each department. Include both existing and potential positions to accommodate future expansion. Once complete, distribute the organizational chart to managers and discuss it for clarity. Regularly refer to the defined structure as the company grows and personnel are brought on board. Make continual updates as changes take place and then redistributed it to appropriate company personnel.Succession Plan Formalize the succession plan in writing and obtain approval from an expert.October 16, 2014 Page of 12 2003 - 2014 ALL RIGHTS RESERVED.

  Project Portfolio Risk Implement a structured process for reviewing overall project portfolio risk. Medium Medium Establish guidelines for the review of portfolio risk when considering Medium Medium projects to pursue. Medium Pending Lawsuits Immediately adopt an initiative within your company to mitigate potential disputes that can cause lawsuits. Train project managers in dispute Medium avoidance and resolution at the project level. Conduct training on a scheduled basis with professionals in this field. Medium High Responsibilities & Job Create a complete set of specific job descriptions and responsibilities that Descriptions are rigidly defined. Firmly establish each position with clear responsibilities and hold employees accountable for their performance. [Organizational Structure Prerequisite] Focus on Expertise Limit any attempt to perform a new type of construction work until assessing the availability of qualified labor and the materials necessary to perform the work, especially in different territories than normal. Gain a thorough understanding of the administrative requirements, inspection needs, bureaucratic environment, typical behavior of owners, likelihood of claims, construction techniques, and profit margins before taking on new types of work. After doing a thorough analysis, test the market by bidding and performing small amounts of work before contracting for larger projects. Key-Person Insurance Perform an analysis to determine the cost of losing key employees presently covered by a life insurance policy to determine if adequate coverage is in place. Estimate the time and cost to replace these individuals and the inefficiencies or lost profits that are likely to occur during their vacancy. Convert the assumptions into cost estimates to determine the level of insurance required for each key position to compensate for projected losses. Finally, compare the cost of loss to the projected cost of insurance over time to determine whether or not to pursue additional coverage. Type of Work Estimate the potential duration that weather can prevent or reduce production. Determine the amount of cash that should be in reserve for weather-related delays. Ensure that backup cash reserves or funds from a line of credit are available to bridge down time. Prior to bid, consider job difficulty and the potential impact on insurance costs in the event of loss. Avoid a concentration of projects with higher than normal degrees of difficulty. Related Party Perform a cash flow analysis of each firm to determine their working capital Transactions requirements. Pursue separate working capital lines to eliminate any inter- company loans or advances, or unusual payment cycles. Office Layout & Consider hiring an office planner. Analyze the flow of work in the office to Workflow determine where breakdowns in communication exist or where the workflow is difficult due to layout. Move the location of individuals and departments as necessary. Consider making physical changes of the office spaces and opening up walls that dissuade necessary communication. Change storage locations of documents and files to improve efficiency. Develop a plan for conversion to a paperless office. October 16, 2014 Page of 13 2003 - 2014 ALL RIGHTS RESERVED.

  Adoption of Change Fully adopt and implement planned changes. Assign a responsible Medium individual to develop a plan to implement the change and fully enact planned changes. Provide full management support of the responsible individual. Outside Interests Since outside interests are a distraction from the business, consider Medium removing the distraction and avoid future high dollar purchases on such distractions altogether. Company Policies Have an attorney review your policy manual and upon completion of the Medium review, prepare it for distribution. Become fully familiar with the policies set forth and call a company-wide meeting to inform employees of its adoption. Identify key components of the policy and have each employee sign for receipt of the manual. Property Control Pursue a plan for ownership of your facility if it meets growth needs over Medium the next five years. If the facility does not meet long term growth needs, or can not be purchased, conduct a search for a facility that will meet your needs at a cost of ownership meeting cash flow constraints. Factor any increased cost into current overhead projections to determine an acceptable burden. Construction Money is the lifeblood of an organization. Having strong Risk Level Management controls in place can greatly increase job profitability and decrease the cost of purchases thereby immediately improving cash flow. Contract Compliance File an immediate notice of potential claim as soon as issues arise for which Medium payment is in doubt. Get tags signed for extra work performed. Request change orders on a timely basis and resolve open issues. Work in Progress Install a routine disciplined system for project managers to follow for Medium (WIP) Reporting estimating the cost to complete ongoing work. To achieve the desired level of accuracy, require project managers to perform a jobsite walk and audit the completed quantities for each phase of a project. Ensure that project managers perform this audit and record the information at the end of each month for later calculation of the estimated cost to complete. [Scheduled Accounting Prerequisite] Project Management Fully document all existing project management procedures. Introduce all Medium Procedures new hires to the project management system and train them accordingly. Make project information widely accessible. [Responsibilities & Job Descriptions Prerequisite] Contract Take a more proactive approach to bring open claims to a close. Conduct a Medium Withholdings and monthly review of open claims with senior managers and project Claims management to determine the probable financial impact and the actions that can be taken toward resolution. Adjust accounts receivable accordingly. October 16, 2014 Page of 14 2003 - 2014 ALL RIGHTS RESERVED.

  Contract Review Immediately establish a company policy requiring review of all contracts. High Assign an individual within the company to conduct the reviews and provide the individual with adequate training. Train with an insurance professional to gain an understanding about contract insurance requirements. Train with a legal expert to gain an understanding of indemnity language. Establish a contract review checklist procedure that guides review of all contract language potentially exposing the company to risk giving close attention to insurance requirements and indemnity language. Seek the advice of a consultant or attorney whenever language is difficult to interpret. Make certain that scope, schedule, pricing, payment terms, liquidated damages, claims handling, and release of retention provisions are all reviewed in detail by the estimating department. Upon complete review of each, attempt to negotiate any language that places the company at unacceptable risk. Cost vs. Budget Provide regular job cost reports to project managers while jobs are in Medium Analysis progress, at least monthly. Make project managers accountable to routinely compare real-time actual labor production versus budgeted labor allowances to identify underperforming items of work. Improve productivity when necessary, or find alternate less expensive means of construction. [Budget Preparation Prerequisite] Subcontractor Hold construction management personnel accountable to strictly follow the Medium Management procedure requiring subcontracts to be executed and insurance coverage to be verified before a subcontractor begins work. During construction, require the personnel to strictly follow the procedures to maintain additional insured status and protect against liens and claims. Make use of checklists to ensure that construction personnel strictly follow procedures. Update the standard subcontract on a yearly basis to revise indemnification and insurance coverage language as case law unfolds and the insurance industry changes. Small Tools and Assign an individual to manage and monitor the storage and tracking Medium Equipment Control system, making sure that superintendents are held accountable for possession and return. Provide full management support to the individual responsible since he/she will hold limited authority over superintendents; and this level of authority must be made clear. Establish a method for routine repair. Credit Status Creditors and guarantors have a high expectation for Risk Level specific behavior to maintain positive relationships with them. Failing to meet expectations can cause irreparable harm to a company reliant upon outside parties for support.   Surety Credit Limits Meet with your Surety to discuss the potential for establishing a surety line Medium so that the company can better plan its workload. Provide regular work-on- hand schedules to indicate runoff and ease the Surety's concern about open guarantees. Consider making adjustments to operations or financial structure to accommodate Surety requirements. Corporate Regularly schedule corporate governance audits and ensure the findings Medium Governance and recommendations are considered in making adjustments to the board of directors or management. Consider an independent corporate governance audit if one has not been conducted. October 16, 2014 Page of 15 2003 - 2014 ALL RIGHTS RESERVED.

  Lending Agreements Review existing lending covenants. For the remaining term of the loan, Medium negotiate a waiver for all covenants that repeatedly fall out of compliance. In any future lending agreement, negotiate covenants that can consistently be met to ensure that lending agreements are in force. Information Intelligently applied technology enhances productivity and Risk Level Transfer efficiency. Having systems in place to leverage IT and secure data from potential destruction ensures the organization will have fast, consistent, and efficient access to information. Utilization of Examine all internal systems to determine the most cost effective methods High Technology for creating and sharing data. Conduct a cost/benefit analysis to determine where technological improvements can be made. Encourage all employees to watch for new hardware and software advancements that would improve the efficiency and productivity of the company. Computer Backup Assign an individual to control the backup process. Install a written Medium Procedures procedure that verifies the data is successfully backed up every day and ensures that it is valid and can be restored if necessary. Store the backup data offsite. Develop a plan for backing up each work station. Communication Fully standardize electronic verbal and written communication to increase Medium Means and Methods efficiency. Networking and Phase out old equipment and replace it with new equipment fitting a Medium Computerization standard. Adopt a standard suite of software for regular use. Consider hiring a technology consultant to expand the computer network, providing access to all personnel. Record Keeping and Clearly identify all plans, specifications, job records and financial Medium Archiving information that must be stored to protect the company from potential claims and lawsuits of all types. Once the materials are identified, establish a place that provides sufficient dry storage and clearly label all the information stored. Insurance Unanticipated events often lead to monetary loss when not Risk Level Coverage properly insured against. Following sound practices and procedures to secure the needed insurance coverage avoids potential liability and provides financial protection at least cost. It seems you did not complete your assessment. There are no recommendations for this category. Safety Practices Accidents lead to a poor safety record, higher insurance Risk Level costs, and lost bid opportunities. Effective safety plans, programs and practices are trademarks of an organization that cares about the well-being of both its personnel and others, and therein reaps the benefits.   October 16, 2014 Page of 16 2003 - 2014 ALL RIGHTS RESERVED.

  Safety Program Fully implement and maintain the safety plan with your assigned Safety Medium Implementation Officer. Track claim frequency and severity on a regular basis. Hold regular monthly safety meetings with managers and superintendents and share safety results. Implement an incentive plan to maintain enthusiasm and reward managers for top safety records. New Hire Safety Require the Safety Manager or a trained substitute to personally participate Medium Orientation in the new hire's training process. Ensure that he/she has the ability to perform the assigned tasks and comprehends the safety training materials by written testing. Assign the new hire to a trusted employee in the field for an evaluation of the employee's conduct and safe practices. Insurance Claims Formalize the claims management program in writing with clear procedures Medium Management to mitigate the cost of a claim. Place an emphasis on documenting and recording conditions, facts and circumstances of a loss with attention to digital photos and video. Review all claims on a regular basis and consider possible ways to mitigate each of them. Quickly return all injured employees to the workforce with modified duties whenever possible. Consider hiring separate legal representation to promote settlement of large third party claims which could potentially run out of control, particularly if insurance limits are threatened. [Delinquent Payments Prerequisite] Sales Using prudent sales strategies and techniques is the key to Risk Level Methodology developing beneficial customer relationships and a desirable reputation. Lacking either can lead to costly relationships and great difficulty achieving profitable work. Doubtful Accounts Change the informal approach to a routine and disciplined approach that Medium identifies potentially doubtful accounts. Conduct a weekly review of payment status for each project in the regular project manager meetings and identify cause for late payment. Require a financial manager to be present during discussions of doubtful accounts. Make certain that the financial statements reflect the amount determined uncollectible or in doubt. Reputation & Apply public relations efforts in a consistent manner. Routinely marketing Medium Branding to ensure a consistent message and untarnished reputation and brand image. Marketing Exposure When presenting marketing materials, make certain they are discussed so Medium the client has an understanding of their representation. Market Analysis Formalize the bid tracking process and incorporate the information into the Medium bidding strategy. October 16, 2014 Page of 17 2003 - 2014 ALL RIGHTS RESERVED.

  V. About this Report DirectServ System This computer generated report uses a scoring system based upon the standard entitled \"Statements on Standards for Risk Analysis Services (SSRAS),\" authored by David F. Druml. The Risk Analysis System provides a standardized means for assessing and analyzing forward-looking risk in a business enterprise. The derived Risk Score ranges from 0 to 100 having a median of 50. Viable construction enterprises usually score no less than 30. To simplify identification of risk within a construction company, the system uses the following color-coded ratings:    Red rating - Risk Analysis Score 0 to 39: Contractors in this range can expect to receive resistance from banks and sureties to extend credit. The companies may find it difficult to fund ongoing work and meet debt obligations. A complete restructuring may be in order and outside assistance is almost assuredly required to control risk.    Blue rating - Risk Analysis Score 40 to 69: Contractors in this range can expect to find it difficult, but not impossible, to convince banks and sureties to extend credit. Companies may encounter pressure to prepare business plans, produce routine financial information, establish a WIP process and institute job cost controls. Meeting these requirements may seem burdensome, however management must embrace these improvement measures to decrease risk and maximize profitability. The contractor will be expected to reduce reliance on a line of credit over time. Credit from vendors and suppliers will be limited and potentially cut off due to late payments.    Silver rating - Risk Analysis Score 70 to 89: Contractors in this range can expect to produce more accurate financial information and prevent Work in Progress reports from exhibiting profit fade. In general, banks and sureties will welcome business with such companies but expect performance results to align with expectations. Sales volume will likely be on the rise and the contractor will be expected to maintain controls in place as revenue increases. Performance of projects will be more closely scrutinized by those granting credit, particularly sureties. Vendor, supplier and subcontractor relationships will be healthy and well maintained.    Gold rating - Risk Analysis Score 90 to 100: Contractors in this range will be sought after by banks and sureties. They typically will be flush with cash, perform a large amount of volume, and have well-established controls. Jobs incurring a loss will be infrequent and generally unexpected. Banks and sureties will negotiate on rates and terms, possibly waiving personal guarantees. The companies will exhibit consistent profitability on jobs and obtain the most attractive discounts from vendors and suppliers. Subcontractors will seek to do business with the entity. Failure risk is low if the contractor does not deviate from specialties or resident geography. Report Certification The source data required to produce a Risk Analysis Report comes from a standardized risk assessment. The risk assessment can be performed either by a Professional Enterprise Risk Manager or by a construction company's own personnel. Although both approaches can produce accurate reports, company personnel could have inherent biases or lack a full understanding of all the risk factors.    Assessors should to fully knowledgeable about each risk factor to ensure the greatest accuracy and neutrality of the resulting risk analysis report. The accuracy of the Risk Analysis Report is directly related to the accuracy of the assessment, which can be performance at different levels as represented in SSRAS.October 16, 2014 Page of 18 2003 - 2014 ALL RIGHTS RESERVED.

  How Contractors, Creditors and Guarantors can benefit from a Risk Analysis Report A Risk Analysis Report is generated by examining over 75 risk factors representing controls that impact profit-making ability of an entity. The controls consist of existing systems, plans, procedures, methods, and safeguards present within an enterprise. The accurate assessment of these controls and subsequent analysis generates a report that is a strong indicaftor of a company's future financial performance and an excellent guide for needed improvements. Although a forward-looking risk analysis does not predict with total certainty whether a company will incur a business interruption or failure, when used in conjunction with rearward looking financial data, it provides the greatest possible risk awareness. At times, however, current and historical financial data and ratios, or special circumstances, may give reason to extend credit or guarantees even if a low Risk Score is reported, or to decline a request even if a high Risk Score is reported. Nonetheless, the report provides an excellent guide for recognizing and monitoring the changes a company must make to mitigate risk when providing it credit or guarantees. The accurate means used for measuring risk combined with the consistent scoring and rating provided by the DirectServ System make a Risk Analysis Report an excellent tool for determining forward-looking risk and an important component in any credit decision.October 16, 2014 Page of 19 2003 - 2014 ALL RIGHTS RESERVED.