C+S March 2020 Vol. 6 Issue 3

Ci Vi I

CELEBRATING THE DESIGNERS OF T 1

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CONTENTS

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THE COVER Urban Underground HNTB's Sanja Zlatanic: A Happy Mole – story on page 10 CHANNELS BUSINESS NEWS 13 2020 Insurance Marketplace: What to Expect 18 An Interview with Nikhil Choudhary and David Renard of Zenith Engineers Inc. 21 A Look Back: Catching Up with Paul Greenhagen, 2019 Jerry Allen Courage in Leadership Award Winner ENVIRONMENTAL + SUSTAINABILITY 22 Protecting Infrastructure Through Stream Restorations TRANSPORTATION 25 A New Connection: Comcast Pedestrian Tunnel 26 Intelligent Compaction is the Key WATER + STORMWATER 28 Machine Learning in Mineral Wells 33 5 Ways Utility Valuation Can Help Protect Municipalities GEOSPATIAL 34 Choosing the Right Antenna for GPR Investigations SOFTWARE + TECH 38 Wet-weather Infrastructure: Smart Analysis and TOTEX Planning Equal Savings and Resilience UNMANNED SYSTEMS 42 Ground Penetrating Radar: The Unlikely New Hero of Autonomous Vehicles LAND DEVELOPMENT 46 Construction Challenges of Rail in an Urban Environment 51 Innovative Stormwater System Provides Maximized Footprint for Charter School Expansion

PROJECT DELIVERY 55 Strong Connections

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departments 8 Events

57 Benchmarks 56 Reader Index Columns 5 From the Publisher: Underground Jamie Claire Kiser

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VOLUME 6 ISSUE 3 csengineermag.com

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Civil + Structural Engineer (ISSN 23726717) is published monthly by Zweig Group, 1200 North College Avenue, Fayetteville, AR 72703. Telephone: 800.466.6275. Copyright© 2019, Zweig Group. Articles not be reproduced in whole or in part without the written permission of the publisher. Opinions expressed in this publication are not necessarily those of Zweig Group. Unsolicited manuscripts will not be returned unless accompanied by a stamped, self-addressed envelope. Subscriptions: Annual digital subscription is free. To subscribe or update your subscription information, please visit our website www.csengineermag.com/ subscribe/; or mail subscription requests and changes to Circulation Dept, C + S Engineer, 1200 North College Avenue, Fayetteville, AR 72703; or call 800.466.6275.

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from the publisher

Underground – the theme of this month’s C+S issue – has two definitions, according to Merriam-Webster. The first is more appropriate on its face for our publication: “beneath the surface of the earth.” The second definition is “in concealment or secrecy; not openly,” and carries related words including radical, experimental, unconventional, and revolutionary. To merge these concepts is to better define the intention behind this month’s edition and to apply new approaches to the same design challenges that civil and structural engineers have always encountered. In mulling over the word “underground” over the last few weeks during my interactions with clients, colleagues, and the industry, I realize I’ve stumbled into this word or concept several times recently. The one specific example that has particularly resonated with me is something we learned at the kick-off meeting for Zweig Group’s inaugural ElevateHer cohort program. ElevateHer is a special task force comprised of individuals with a commitment to promote diversity as a means to combat recruiting and retention challenges in the AEC industry. This inaugural group will operate as a think tank, developing strategies to help solve the greatest challenge facing the industry, recruiting and retention of the work force. One might go so far as to categorize the launch of this program itself as both “experimental” and “unconventional,” but that’s not the “underground” example I’m referring to. Instead, it’s an excerpt from an email I received from a bright structural engineer who works as a project manager. To paraphrase: “I want the cohort to know that their initiatives don’t have to be earth-shattering for the industry to be earth-shattering for individuals. I’m constantly having clients look to the subordinate male on site visits with me, and I think a lot of the reason is that I look like a little kid when I can’t find a hardhat that fits my head. Why don’t they make them in women’s sizes? It’s not just about authority, it’s a safety issue. A hat that fits would make a huge impact for me and for women and all other small-headed people in terms of non-verbal authority cues.” It’s a simple request: a hat that fits. But it would empower a bright project manager in a leadership role to navigate more confidently when she is on site, leading a team and serving a client, which could change her entire career. What else is right in front of us – hidden in plain sight – buried just slightly underground enough to have slipped past the industry undetected with the power to transform and improve our industry?

Underground In every sense

JAMIE CLAIRE KISER is managing principal and director of advisory services at Zweig Group. Contact her at jkiser@zweiggroup.com.

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2020 Seminar Calendar

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The Principals Academy Washington, D.C. Leadership Skills for AEC Professionals Seattle, Washington Elevate Your Recruiting & Retention Strategy Denver, Colorado

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Project Management for AEC Professionals Minneapolis, Minnesota Elevate Your Recruiting & Retention Strategy Los Angeles, California

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march 2020 New York Build Expo 2020 March 3-4 – New york, ny

Group’s CEO Chad Clinehens, PE, moderates the program guiding group conversations, encouraging integration and networking, and ensuring attendees gain valuable insight, new ideas and tools – and a new network of colleagues – to foster effective leadership at their respective firms. https://shop.zweiggroup.com/collections/events/products/ceo-roundtab le?variant=30872177377315 During the next 10 years, over 50 percent of AEC firms are expected to increase their use of doer-sellers, yet many do not have the training or skills to succeed. In order to grow into a position of leadership, they need the skills and know-how to strategize, build and deepen relationships, and win more work. Zweig Group’s Elevating Doer-Sellers: Intensive 2 Day Workshop is designed specifically for technical professionals in AEC firms. https://shop.zweiggroup.com/collections/events/products/elevating- doer-sellers?variant=30892964577352 elevating doer-sellers april 15-16 – san francisco, ca

NewYork Build is the largest construction & design show in NewYork, is officially supported by the Governor of New York, and is FREE to attend. New York Build features: 20,000+ registered attendees, 250+ exhibitors, 230+ speakers,AIACES approved workshops, entertainment & business networking. https://www.newyorkbuildexpo.com/welcome?_ke= The Geosynthetics Case Study Conference is a must-attend event featuring geotechnical practitioners, designers, regulators, contractors, and installers coming together at this specialized edition of the highly respected Geosynthetics Conference. Start making plans now to attend this educational and trade show event to learn about the many unique uses of geosynthetics through a variety of case studies. https://www.ifai.com/event/geosynthetics-conference-2020-case- studies/ The Principals Academy is Zweig Group’s flagship training program encompassing all aspects of managing a professional AEC service firm. Elevate your ability to lead and grow your firm at this impactful two-day program designed to inspire and inform existing and emerging AEC firm leaders in key areas of firm management leadership, financial management, recruiting, marketing, business development, and project management. https://shop.zweiggroup.com/collections/events/products/the- principals-academy?variant=30871357259811 International Lidar Mapping Forum (ILMF) is a technical conference and exhibition showcasing the latest airborne, terrestrial, and underwater lidar as well as emerging remote-sensing and data collection tools and technologies. With a special emphasis on data acquisition, fusion, integration, processing, and visualization, ILMF is the must-attend event for professionals involved in utility asset management, transportation, urban modeling, coastal zone mapping, and more. https://www.lidarmap.org/ april 2020 Geosynthetics Conference March 8-10 – Charleston, SC The Principals Academy March 12-13 – dallas, tx International LiDAR Mapping Forum March 23-25 – Washington, D.C.

Design-Build for Water/Wastewater Conference april 20-22 – dallas, tx

The Design-Build for Water/Wastewater Conference brings professionals together for three days of dynamic speakers, networking events, and the latest on design-build trends in the water/wastewater sector. https://dbia.org/conferences/design-build-for-water-wastewater- conference/

S t r u c t u ra l E n g i n e e r s A x i o m # 7 Structural Engineers Axiom #7

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T H E P RO F E S S I O N A L ’ S C H O I C E S I N C E 1 9 2 3

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significance of the topics during the various stages of a wood construction project. Specifically, we will focus on load and material specifications, design methodologies, and implications of both design specifications and methodologies on the likely in-service performance of structural components and assemblies. http://www.cpe.vt.edu/woodcon/index.html Solid financial management is crucial to the success of any company, and firms in the AEC industry are no exception. This course provides an overview of business financial management – specifically tailored to our industry – to help firm leaders make informed decisions. Topics include: interpreting financial statements; key performance metrics; benchmarking and predictive cash flow management; and how strategic decisions drive the value of the firm. https://shop.zweiggroup.com/collections/events/products/financial- management-for-non-financial-managers?variant=15425604845603 june 2020 The Principals Academy is Zweig Group’s flagship training program encompassing all aspects of managing a professional AEC service firm. Elevate your ability to lead and grow your firm at this impactful two-day program designed to inspire and inform existing and emerging AEC firm leaders in key areas of firm management leadership, financial management, recruiting, marketing, business development, and project management. https://shop.zweiggroup.com/collections/events/products/the- principals-academy?variant=30871400841251 Learn The Language of Business: Financial Management may 27 – dallas, tx The Principals Academy june 11-12 – washington, D.C.

Design-Build for Transportation/Aviation Conference april 22-24 – dallas, tx Owners, industry and the best design-build exhibitors come together for an unparalleled opportunity to learn, network and have some fun, too. This event is created by design-builders for design-builders and focuses on real-world issues important to the transportation and aviation sectors. https://www.dbtranspo.com/index.cfm The premier educational and networking event for the structural steel industry, bringing together structural engineers, structural steel fabricators, erectors, detailers, and architects. Along with this year's specialty conferences, The Steel Conference offers nearly 250 sessions on topics ranging from "Lions, and Tigers, and Bearings, Oh My" to "The Stability Game Show - 2nd Edition" to "TheWorld's First Metal 3D Printed Bridge." https://www.aisc.org/nascc may 2020 AUVSI XPONENTIAL 2020 is the global stage for everything unmanned — from state-of-the-art propulsion technology, sensors, energy storage and UAS mitigation solutions to what’s coming over the horizon in AI, 5G, edge computing and more. As the largest, most significant event for the unmanned systems industry, you’ll find your edge as you explore the latest technology innovations, develop new perspectives as you hear from industry luminaries, and cultivate creativity at special networking events where you will meet some of the most influential leaders in the unmanned and autonomous space. https://www.xponential.org/xponential2020/public/enter.aspx nascc: the steel conference april 22-24 – atlanta, ga AUVSI Xponential may 4-7 – boston, ma

aia conference may 14-16 – Las Vegas, NV

With 650+ exhibitors, the expo is a product playground that showcases the newest high-tech materials and solutions to hit the market. There’s also live programming, courses, demos, galleries, happy hours, and workspaces. https://conferenceonarchitecture.com/

Project Management for AEC Professionals may 19 – tampa, fl

This one-day training course covers the critical focus areas every AEC Industry project manager should be familiar with and is presented in lecture, tutorial, and case study workshop sessions.Attendees will leave armed with a comprehensive understanding of the characteristics, skills, and techniques successful project managers must have to flourish in their role. https://shop.zweiggroup.com/collections/seminars/products/ excellence-in-project-management?variant=13725658939427 advanced design topics in wood construction engineering may 19-20 – blacksburg, va The selection of the twelve topics to be presented was based on the

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Urban Underground business news HNTB’s Sanja Zlatanic: a Happy Mole By Richard Massey

There’s no doubt about it. Sanja Zlatanic, Senior Vice President and Chair of the HNTB National Tunnel Practice, loves mega-projects. Confronting epic problems and managing the associated risk is what she does best. Existing constraints, the concerns of communities and stakeholders, multi-billion-dollar price tags, and meticulous team building are all part of the package when you’re boring tunnels under cities or bodies of water. NewYork, Baltimore, Los Angeles, San Fran- cisco, Seattle, and Istanbul – Zlatanic has made her name working on the industry’s premier tunneling projects over the last three decades. But if you want to get a true measure of her ability to handle whatever is in front of her, you might as well go back to the early years, when the University of Belgrade graduate was just starting out. She was in Iraq on a government contract in 1990 when Saddam Hussein invaded Kuwait. She and the team were not allowed to leave until their proj- ect was done, so they went into overdrive, closing out a four-month job in just 21 days. Zlatanic returned to Belgrade, but at that time the former Yugoslavia was disintegrating into war. She and her husband Jusuf fled, obtaining their visas in Budapest, Hungary before heading to the United States. Once in New York City, Zlatanic hunkered down in a small apartment for three months, consuming language tapes, books, and TV shows to learn enough English to get through a job interview. It worked. In 1992 she was hired by Parsons Brinkerhoff and was there for nearly 20 years, mastering the tunneling trade, before joining HNTB in 2011. With an office on the 58th floor of the Empire State Building, Zlatanic has a nice view of the Freedom Tower and the Statue of Liberty, fitting reminders that she’s living her American and engineering dreams. For dreams to come true, however, they must be chased, which is what Zlatanic did when, as the borders of her home- land closed, she made her great escape. “There is no event on the job that can stress me any more than that,” she said. “I was prepared later in life for anything.” A Conversation with Sanja Zlatanic Civil + Structural Engineer: Your resume speaks for itself. You have been associated with some of the biggest and most important tunneling projects in the United States for the last 30 years. What draws you to these mega-projects? Sanja Zlatanic: Primarily, it’s the ability to work with architects and planners to create a practical project configuration that can be material- ized and constructed within the constraints of actual subsurface condi- tions, often in a dense urban environment. It is a real thrill to conceptualize large and complex underground undertakings while working with existing project constraints; either

On the job site, Istanbul Strait Crossing, Asia portal. Photo: HNTB

overlying buildings and facilities that need to remain fully operational all the time, or adjacent rail or road operations that must be in full service at 5 a.m. every morning. Also, it can be a challenge finding ways to explain the project to impacted businesses and communities at every step, incrementally, demonstrating that safety would never be compromised at any point during construction and that impacts are measured, sensitive to everyday life of the communities, and of a temporary nature. A notable example of a “grand” underground concept is the East Side Access project that extends the Long Island Rail Road from its main line in Queens into a new station under Grand Central Terminal on Manhattan's East Side. In the beginning, the project was envisioned as a ‘shallow’ option directly connecting to the lower level of Metro North Railroad. We realized early on that such a concept would have significant impacts on several high-rise buildings along Park Avenue, some of those historical, and worked with the project owner to make it an underground project while reducing impacts. We envisioned the project in a form of two parallel ‘twin’ caverns housing four platforms each and a mezzanine in-between. Cross-passages and escalator-ways connecting these two large facilities were placed directly below the streets minimizing effects to the overlying buildings. I recall long ses- sions our team held with the lead architect to plan these gigantic un- derground spaces. They needed to meet operational, safety, and main-

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SZ: Tunneling and underground projects are among the riskiest en- gineering practice areas; solid engineering judgement and practical solutions that always have safety as a primary concern are paramount. Throughout the years, I have learned that the only way to successfully conquer great challenges is to rely on a team contribution, and having the courage to pursue one’s own vision and convictions. Often it is not easy, but while practicing perseverance, respect, and camaraderie that are very typical for the tunnel industry, it is possible. Courage is a big The Zlatanic File Sanja and husband Jusuf, a gastroenterologist in New York, have two sons, Viktor and Matthew. SELECT PROJECTS AMTRAK – Baltimore and Potomac (B&P) Tunnel in Baltimore, Maryland Preliminary engineering studies and environmental analyses of the B&P Tunnel to improve rail service, reliability and address a longstanding bottleneck alongAmtrak's busy Northeast Corridor (NEC). LA Metro – Crenshaw/LAX LRT Line, Los Angeles, CA Design of underground segment of this $2B design build program for HNTB as a lead designer of a DB team. MTA – Long Island Rail Road, East Side Access/ Grand Central Connection, New York, NY Design manager who led the design development of the Manhattan segment deep station alternative and was responsible for the delivery of the final documents that resulted in the selection of the deep station scheme for this $7.6 billion project. MTA Bridges and Tunnels (TBTA), Brooklyn Battery Tunnel Wall and Ceiling Rehabilitation, New York, NY Project engineer during the project’s construction stage, this project for MTA Bridges and Tunnels comprised tunnel ceiling rehabilitation, liner repair for damage caused by water leakage and roadway lighting improvements for the 9,717-foot-long (3,000-meter-long) Brooklyn Battery Tunnel – the second longest underwater crossing in the U.S. – connecting lower Manhattan and Brooklyn. Republic of Turkey Ministry of Transport, Istanbul Strait Road Crossing (Eurasia) Tunnel, Istanbul, Turkey Category 3 structures, systems and facilities for this $1.35B Istanbul Strait Road Tube Crossing project of 14.5 km in length that includes 5.4 km of road tunnels and 3.4km Bosphorus Strait Crossing double-deck bored highway tunnel 13.2m in diameter, and 2km Asian and European side tunnel approaches (roadways, toll plazas, ventilation and system buildings and facilities). San Francisco Municipal Transportation Agency, Central Subway Project – Underground Stations, San Francisco, CA Underground stations of San Francisco’s Central Subway project as part of a tri-venture on this project that consists of 1.8 miles of twin tunnels 20-feet in diameter and three underground stations at a cost of $1.58 billion. Washington State DOT – Alaskan Way Viaduct Replacement Panel and technical oversight lead for $2.4 Billion design build project of 2.1 miles bored tunnel that replaces the Alaskan Way Viaduct along the central Seattle waterfront.

tenance requirements, as well as midtown Manhattan’s environmental constrains during construction. It was like “building a ship in a bottle.” Most of the tunnel spoil removal was going through the Queens access shaft a few miles away. The project, clearly the largest undertaking in New York City in a long time, is expected to open in a few years so the opening day is not that far away. Another example of grand conceptual thinking is Santa Clara Valley Transportation Authority’s BART Silicon Valley Extension, Phase II, where we suggested a single bore concept to minimize construction impact through downtown San Jose. This is the first time this approach is being used in the United States. VTA as the owner and BART as an operator had demonstrated great stamina and willpower to work together to resolve technical challenges. They jointly conceived an operational scheme that responds to the needs of both users and op- erators. Working with savvy program managers on both sides is very helpful; they saw the value of the project from the beginning and worked tirelessly with the engineering team, side-by-side, to explore all challenges and potential paths to solve them. C+S: What’s your message to women who are thinking about entering the engineering profession in general, and tunneling in particular? SZ: Women play very important roles in the tunnel industry. I have no- ticed throughout my career that teams that have the benefits of diverse participation, especially when solving complex challenges and explor- ing innovations, are generally more productive. A few decades ago, there were a handful of us that had made this career choice; however, today many more young female professionals are interested in tun- nels and underground engineering. This has been very refreshing and encouraging. They will find this industry supportive and rewarding. I have never met a woman who expressed a regret about being in the tun- neling industry, so I guess this makes it a “happy” career choice as well. C+S: You’ve said New York turned out to be a great proving ground for you as many large tunnel projects took place there early in your career. Looking back at that time, what were the most important career lessons you learned? Celebrating the opening of the Istanbul Strait Tube Crossing with design build contractors and P3 concessionaire. Photo: HNTB

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component as well. One should speak his or her mind, especially when having an idea that may move a project forward. C+S: As you well know, tunnel projects are risky. How does the pres- ence of such great risk inform the decisions you make when working on a project? SZ: Dealing with risks is challenging in every profession, and this is especially true for the tunnel industry. Risks, if not well understood and managed, may lead to major events that could impact lives, material property, and even regional economies. Therefore, risk management is one of the most important subject matters on tunnel projects that needs to be addressed continuously, from the very onset of the project to its closure. Risk register is a living document that not only defines differ- ent areas and levels of risk, including technical, but recognizes parties that are best equipped to handle various risk elements throughout the life of the project. Those parties could be designers, owners, or con- tractors. Recognizing early technical and other risks and having a plan to address them is a must in our industry. The best way of dealing with risks is their avoidance, whenever possible. In this realm, establish- ing the right project configuration and understanding the subsurface conditions and environmental factors for practical construction often is a crucial step. Dealing with risks in construction that could have been avoided in design is the wrong way to manage the issue. C+S: The Alaska Way Viaduct Replacement was transformative for Seattle. The project also used “Bertha,” an extremely large boring machine. The tunnel opened to traffic last year. With the Seattle project in mind, what is the future of tunnels here in the United States and abroad, and how will they shape the urban landscape? SZ: Rapid urbanization and growing migrations from rural to urban areas have been worldwide issues for a few decades. It is expected that in less than three decades about two-thirds of the world population will live in cities. The cities would need to double in size to accommo- date such growth. This issue is much more pronounced in the United States since the nation’s urban population growth already outpaced the overall growth over a decade ago. In 2015, about 83 percent of the total population in the United States lived in urban areas. It is being projected that in 2050 this number will be over 87 percent. Therefore, there is a real urgency to make our own cities ready for such urban population increases. The issues of livability, quality of life, and ef- fectiveness of transportation networks are of special concern. Cities are finding their own unique ways in addressing those issues. Seattle is a notable example. The city adopted utilization of a large double deck tunnel beneath downtown Seattle to improve mobility. With the decision to demolish the old viaduct, they brought the shoreline closer to their people and communities. Bertha, at the time the largest bored tunnel machine in the world, completed her journey on a high note and with exceptional performance. Generally, recent advancements of tun- neling technologies permit better utilization of underground space and allow surfaces to be considered for more noble uses that bring signifi- cant improvements to quality of life in overcrowded urban dwellings. C+S: Tell us about your work with the Associated Research Centers for Urban Underground Space (ACUUS).

SZ: ACUUS was established in 1996 and was subsequently incorpo- rated. The organization has an important non-governmental function; it establishes a unique world “coalition” of experts that designs, plans, analyzes, and decides upon the sustainable use of urban underground space. It was designed to connect public and private sectors with academia’s latest research and related findings in terms of the use of underground space. Also, it created a platform for exchange and co- operation. As Secretary General, and a member of the ACUUS Board, I am active within this framework and able to learn and transfer my experiences, especially in the realm of integrated planning and design; sustainable approach to the environment; as well as safety and techni- cal innovations. Embracing disruptive technologies to help resolve the issues of urbanization and overcrowding, and finding ways to better plan and utilize urban underground space for a purpose of freeing surface resources (already very limited), is another realm ACUUS is ready to tackle. C+S: You grew up in the former Yugoslavia and fled the war there in 1991. These days, you have an office in the Empire State Building. That is a remarkable journey for a variety of reasons, and is symbolic of the American Dream. What role did engineering and tunneling play in this incredible life/career arc? SZ: Yes, you are right – my engineering dream had pretty much over- lapped with my American dream. I tend to associate my growth as a professional and as anAmerican primarily to the hard work, persistence, tremendous will power to continue working on self-improvement, trust in the professionals I am working with, and above all, with my fam- ily that has always supported me through this journey. Starting with a well-known tunneling company, learning tools of the trade and how, when and where to use them, as well as being able to work alongside the biggest names in the U.S. tunneling industry, played a big part in my career. C+S: What was the most challenging project you have ever worked on and why? SZ: Every project has its own challenges. Possibly the most challeng- ing one was, sadly, one that was cancelled – Access to Region’s Core, the tunnel project that is being revived in the form of the Gateway project. This project had all the great technical challenges one would look for in a tunneling project, as well as challenges of working with multiple agencies and stakeholders. All of it is to be revived in the new project the industry has been waiting for. Applying lessons learned and previous experiences, and working with tunnel industry veterans addressing similar challenges will be refreshing. I hope it gets to that point soon. C+S: Building great teams. What’s the secret? SZ: Trust, trust, trust. Also, technical competence, strong will to learn, and having open and cordial relationships with team members while understanding their issues and aspirations. As chair of HNTB’s National Tunnel Practice, I am leading an exem- plary group of national tunnel experts that practice technical excel-

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lence, demonstrate a high level of professional integrity, and serve as thought leaders and mentors for younger generations of tunnel profes- sionals. I am very proud of them all. C+S: Are you recognized in Belgrade, and do you return there for personal and/or professional reasons?

SZ: I recently started reviving old partnerships and making new con- nections through activities with ACUUS. That part of Europe has some of the world’s brightest and bravest minds and I certainly hope it will soon be more open to worldly exchanges.

RICHARD MASSEY is a freelance writer based in Northwest Arkansas. He can be reached at wordpower.richard@gmail.com.

2020 Insurance Marketplace: What to Expect By Jeff Cavignac, James P. Schabarum, Jase Hamilton, and Patrick Casinelli

Department of Labor and other governmental organizations • Money spent paying uncovered losses or funding deductibles • Your time and your employees’ time spent dealing with losses • Productivity costs due to time lost by injured workers and the cost of train- ing new workers • The cost of insurance (less than 50 percent of the Cost of Risk, in many cases) Our job as an insurance broker is to help our clients manage these costs. Insurance premiums are based on a number of factors, including the type of business, loss experience, and safety practices. Any busi- ness will have a number of different exposures and require a number of different policies to provide the appropriate protection. In addition to these factors, the amount a company pays for insurance is also im- pacted by the insurance marketplace. Insurance is a supply-driven business. While demand stays relatively consistent (it will ebb and flow with the general economy), surplus can go up and down. Loosely defined, surplus is how much liquid capital the industry has in their coffers and includes money that is set aside to pay future claims as well as any additional capital held by the insurance company. Specific ratios determine how much premium can safely be written given a certain amount of surplus. If the ratio of premium to surplus gets too high, the insurance company’s credit rating (as quantified by the A. M. Best Company and other rating agencies) could ultimately impair the insurance company’s ability to operate. If surplus goes down, insurance companies must write less insurance, which causes rates to go up. Similarly, if surplus goes up, rates tend to go down. The industry’s surplus has grown significantly since 2011 (See Table 1 ) and this has resulted in flat and, in some cases, decreasing rates over that same period. 2018 resulted in the first decrease in surplus (albeit modest) in some time and this concerns many in the industry.

Insurance is a unique product — the classic intangible. You have to have it for various reasons, and the right insurance can provide your business with critical protection while opening up opportunities that wouldn’t exist otherwise. Most people view insurance as a necessary evil. After all, you might pay hundreds of thousands of dollars for a product you hope you don’t need. If you use it, it will cost more when it renews, and if you use it a lot the additional cost can seriously affect a company’s profitability. Insurance is also complex. Most construction firm owners don’t want to be experts, but they need to understand insurance well enough to be able to effectively manage it for their company. Our own clients rely on us to evaluate their exposures to loss, develop risk management strategies to lower the frequency and severity of their claims, and to ne- gotiate appropriate coverage placed with the right insurance company at the lowest realistic cost. It is also important to put insurance in perspective. As we know it, our economy could not survive without it. The financial guarantee it provides (along with surety) is the safety net that allows money to be lent, contracts to be awarded, and assets and liabilities to be protected. Insurance can be expensive. For some businesses, it can be their high- est expense after compensation. This number could double or more if you factor in the other costs of risk, such as: • Your time spent analyzing risk • Money spent on Risk Control, including salaries for Human Resources, Safety and Claims Management • The cost of educating employees on safe practices • The cost of complying with all the various laws imposed by OSHA, the

Insurance Cycle Table

$ in Billions

Description

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Net Written Premium

$418.40 $423.80 $438.0

$456.90 $477.7

$487.6

$505.8

$523.5

$552.6 $594.07

Combined Ratio

101

102.4

108.1

103.2

96.1

97.0

97.8

100.7

103.7

99.2

Investment Income

$47.1

$47.6

$49.1

$48.0

$47.4

$46.2

47.2

46.3

49.0

55.3

Operating Income

$45.0

$38.2

$15.4

$33.3

$64.3

$55.6

57.3

42.6

20.3

56.6

Policyholder Surplus

$511.50 $556.90 $553.70

$586.8

$653.3

$674.7

$673.7

700.9

752.5

742.16

Return onAvg. Net Worth

5.0%

5.6%

3.0%

5.1%

10.3%

8.4%

6.2%

5.0%

8.0%

Source: Insurance Information Institute (iii.org)

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The other factor you have to look at is Return on Average Net Worth. The insurance industry needs to attract capital, and it competes with every other business to do so. If you look at Table 1, you will note that, over the last five years, returns have ranged from 5 to 8.4 percent and averaged 7.2 percent. These types of returns don’t excite investors and the industry would ideally like to see their return at 10 percent or higher. While the industry has been trying to increase rates for the past several years, the robust surplus numbers have kept the market com- petitive enough to basically keep rates in line. That is slowly changing. Rates are starting to trend up. So, if you are budgeting your insurance costs in 2020, what can you expect? Property Insurance - Property underwriters have experienced several poor years in a row due to a number of factors, with the main one being catastrophe-type claims. Because of this, the insurance compa- nies are carefully underwriting existing and new business. In general, preferred risks can expect rate increases of 5-10 percent in 2020. Any property that is even close to a brush area, however, can see dramatic rate increases. The 2018 California wildfires hammered property in- surers (over 30,000 homes destroyed) and this is affecting pricing for both personal and commercial lines. It is also driving rates up in the Builders Risk segment, especially for frame construction. General Liability Insurance - General Liability results have deterio- rated as well, and underwriters are looking carefully at the risks they insure. They are also seeking rate increases. While some businesses will see flat renewal pricing, most will see rate increases of 5 percent or more. Auto Insurance - Auto rates continue to increase. It is not uncom- mon to see prices go up 10-20 percent or more, and this is not the first year this has happened. This is driven by both an increase in frequency and severity of claims. Frequency is attributable to distracted driving. The number of rear-end accidents has doubled in the last five years. Severity is being adversely impacted by the cost to fix a modern ve- hicle (cameras and sensors are expensive) and the increased cost of medical bills for those injured in accidents. Five years ago, it was not uncommon to see average repair costs for a private passenger vehicle or pickup truck of about $1,000. Today, the average can be $1,800, $2,000 or higher. To obtain the most favorable rates, underwriters like to see a five-year loss ratio of 25 percent or less in addition to well- written Fleet Safety Programs that are being effectively implemented. Excess Liability - Excess Liability pricing is based on the premiums of the underlying policies over which it provides coverage. While the percentage rate of the primary cost is staying consistent, Excess Liabil- ity pricing has increased, just as auto premiums have. We should point out that anyone working for a gas and electric company in California should be forewarned. One such company is now requiring that any contractor who wants to work on its projects carry $50M in general liability limits. The excess market for this exposure has all but disap- peared, and arranging this coverage is outrageously expensive. Executive Risk including Directors & Officers, Employment Prac- tices and Fiduciary Liability - Experience in these lines has deterio-

rated and it is not uncommon to see increases of 5 percent to 15 percent or more. Underwriters are also looking to increase deductibles on Employment Practices Liability. It is getting more difficult to obtain defense coverage for Wage & Hour claims (indemnity damages have never been covered for Wage & Hour lawsuits). Cyber Insurance - Cyber Insurance covers both first- and third-party damages. Most policies have numerous coverage parts, and every Cyber policy is different. While the current cost is fairly modest, we have seen claims on the rise. Because the marketplace is still competi- tive, we only expect modest increases this year; but if the loss trends continue, prices will have to go up. Note that every business, no matter how small, needs Cyber Insurance nowadays. Professional Liability - We are seeing some of the opportunistic insur- ance companies that jumped into the Professional Liability marketplace starting to exit. Regardless, this line of coverage remains competitive and preferred design professionals, attorneys, accountants and other professionals can expect flat to modest rate increases. Recognize that every Professional Liability policy is different as are the companies that offer the coverage. Even more so than most commercial insur- ance lines of coverage, Professional Liability is not a commodity. It is critical that you understand the coverage you are buying, as well as the claims-handling abilities and risk control services that are offered by the insurance company and your broker. Workers Compensation - Rates across the country continue to trend down for Workers Compensation, especially in California. Table 2 in- dicates that the average rates charged in California have dropped over 30 percent in the last five years and a whopping 66 percent since 2003. It is anticipated that rates will continue to drop in 2020. Assuming a consistent Experience Modification, most of our clients can budget flat to minus 10 percent.

Table 2 - California Workers’ Compensation Industry Average Charged Rate per $100 of Payroll

$ Dollars

6.02

6.00

5.73

4.74

4.66

4.00

3.47

3.24

2.97 2.96

2.90

2.81

2.52

2.50

2.52 2.15 2.10 2.25 2.32

2.26

2.04

2.00

0.00

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

2019

Policy Year

We expect to see insurance prices in general increase 5-10 percent, with the exception of Workers Compensation. Insurance premiums, however, need to be kept in perspective. They are only one component in the cost of risk. As mentioned above and illustrated in the sidebar, insurance is often 50 percent or less of the total cost of risk. Surety Outlook 2020: Capitalizing on your Capacity As 2019 comes to a close, the overall economy remains positive and continues to grow. Though at a slower pace than experienced in 2018 and early 2019, 2020 should continue to show slow to moderate growth

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Direct Premium Written

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

as the forecasts of many economists shift gears to a more cautious outlook.

Default Insurance (SDI) in the market. SDI is an alternate product to bonding and, over the past 5-10 years, has experienced sizeable losses due to poor management of aggregate exposures. However, recent guideline changes and market conditions have given SDI new life, and this has attracted a number of new players to the SDI marketplace. Although margins are good and backlogs are increasing, contractors are still facing a wide range of challenges similar to that we’ve seen over the past few years, including labor shortages, rising material costs and the uncertainty of fiscal and government policy. Even with the small-to-large markets having such strong results in 2018, not all is smooth sailing, notably in the megaproject arena (greater than $250M) where the Surety industry has experienced sizable losses and we’ve seen some significant contractor failures. These large losses may be isolated but, once fully realized, could have a significant impact on the overall construction and Surety industries. This will eventually lead to a correction in these markets. This begs the question, “Are you prepared for the next downturn?” Be Prepared It’s easy for business owners to fall victim to the trap of maintaining the status quo, especially during times of prosperity. Most contractors simply lack the focus or do not see the value in assessing their opera- tional procedures and committing to improving on them until forced by a market shift or project failure. However, “Best in Class” business owners understand that now, dur- ing prosperous times, is the right time to perform an internal audit of their company’s capacities to capitalize on opportunities and guarantee both short- and long-term success. An operational audit should focus

Although continued optimism may be declining for some, the surety and construction industry remains very fruitful. The Surety industry is reporting another record year in direct premium written and overall capacity, and the availably of credit is at an all-time high. Contractors’ backlogs are strong and profit margins appear to show signs of not only stabilization, but also slight increases in some trades. In 2018, The Surety and Fidelity Association of America (SFAA) re- ported overall direct premium written of $6.6 billion, up from $6.2 billion in 2017. The SFAA anticipates similar growth results for 2019 and likely 2020, with relatively low losses across the board. Parallel with the Surety industry’s results, non-residential public con- struction spending remains up nearly 6.4 percent from this time a year ago. With an election year on the horizon, and increasing infrastructure needs, non-residential spending should continue to grow in 2020. The availability of credit is in abundance for both small (under $10 million), medium ($10 - $100 million) and large ($100 - $250 mil- lion) size contractors. Because of the appearance of an endless surplus of work, many contractors are pushing their aggregate programs and continuing to show healthy backlogs going into 2020. The excessive amount of credit in the small-to-large markets has led many surety companies to soften their underwriting guidelines in an effort to obtain additional market share. This has been great for the surety consumer but will likely have a detrimental long-term impact on inevitable future surety industry loss results. Another interesting trend in 2019 is resurgence of Subcontractor

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