Contractors Center Point

Federal Construction Reporting News

Subcontractors on Stimulus Projects Must Report Jobs Data

First-tier subcontractors working on new American Recovery and Reinvestment Act (stimulus) funded projects must now report job creation data to their prime contractors. An interim rule requires subcontractors working on stimulus projects with subcontracts valued at $25,000 or more and awarded on or after July 2, 2010, to report their physical address, performance address, and “a narrative description of the employment impact of work funded by the Recovery Act,” including a description of the types and number of jobs created or retained as a result of their work. Prime contractors must add subcontractors’ job creation figures to their quarterly reports, which are due 10 days after the start of the quarter to www.FederalReporting.gov.

New Rule Requires Federal Contractors to Report Subcontract Information for Most Projects

Federal contractors must report award data for first-tier subcontractors that win subcontracts valued at more than $25,000 for publication on a searchable public Web site. According to an interim rule issued on July 8, 2010, prime contractors must report subcontractors’ office and jobsite addresses; DUNS Numbers; NAICS codes; subcontract numbers; subcontract dates and amounts; description of the products or services being provided; and prime contract information. Federal contractors and first-tier subcontractors for which “80 percent or more of its annual gross revenues from federal contracts and $25 million or more in annual gross revenues from federal contracts” must also report compensation data for the five most highly compensated executives of the company. The reporting requirements take effect as follows:

• Until Sept. 30, 2010, any newly awarded subcontract is to be reported if the prime contract award amount was $20 million or more.
   

• From Oct. 1, 2010, until Feb. 28, 2011, any newly awarded subcontract is to be reported if the prime contract award amount was $550,000 or more.
   

• Starting March 1, 2011, any newly awarded subcontract is to be reported if the prime contract award amount was $25,000 or more.

Prime contractors must submit reports to the Federal Funding Accountability and Transparency Act Subaward Reporting System (www.fsrs.gov) by the end of the month following the month in which the prime contractor awards the subcontract.

For more information on both of these topics please contact American Subcontractors Assocation (ASA) at (703) 684-3450, Ext. 1333, or GovernmentRelations@asa-hq.com.

Construction Backlog Indicator Expands to 7 Months

Associated Builders and Contractors (ABC) reports that its latest Construction Backlog Indicator (CBI) increased to 7 months in May – a 27 percent increase from January of this year. CBI is a forward-looking indicator that measures the amount of construction work under contract to be completed in the future.

Regional Highlights

• Compared to a year ago, all regions but the South experienced a rise in backlog.
• As of May 2010, the Northeast reports the lengthiest backlog at roughly 7.5 months, the highest level for this region in the history of the survey.
• The Middle States report the shortest backlog at roughly 6.6 months. However, that represents a significant improvement over the 5.6 months in May 2009.

CBI Map of Regions, May 2009 v. May 2010

Industry Highlights

• Backlog in the commercial and institutional category stood at 7.2 months in April and 6.9 months in May. These figures represent some of the best performances since late-2008.
• Backlog related to the heavy industrial category is now at 7.86 months – the highest level in the history of the survey.
• Infrastructure continues to report the lengthiest backlog an 8.75 months; however, the May backlog reading for this category was at its lowest level in nearly a year.

Highlights by Company Size

• The firms with greater than $100 million annual revenue continue to enjoy the longest backlog at 9.4 months.
• Firms with revenue between $30 million and $50 million saw their backlog drop just one half month between April and May 2010.
• One year ago, firms with revenue less than $30 million reported a combined backlog of just 5 months. In May 2010, backlog in this category is up to 6.3 months.

For more information on the ABC Backlog Indicator please contact David Blain at dblain@macpas.comor visit the ABC website at www.abc.org.

 

Handle Multiple Entities With Care

It might be advantageous from a tax standpoint to run a business through multiple entities. For example, a construction company might form a separate company to own and lease its trucks and equipment back to its related entities. Or a corporation might transfer appreciated property to an affiliated corporation in order to limit risk in case it is sued.

However, the IRS may look twice at an operation if it includes multiple business entities - especially if recordkeeping and filing requirements aren't handled properly. One construction firm in Georgia

Under the tax code, a business is allowed to deduct all ordinary and necessary expenses. But the Tax Court noted: "As a general rule, payment by one taxpayer of the obligation of another taxpayer is not an ordinary and necessary expense" and is not deductible.

discovered that lesson the hard way when it took deductions that actually belonged to one of its corporate affiliates.

In the case, two married couples were shareholders of an S corporation. A.J. Concrete Services supplied concrete forming equipment and materials to various contractors. The shareholders transferred long-term construction contracts to four newly-formed C corporations affiliated with the original corporation.

The IRS disallowed more than $2 million in deductions because they were related to expenses incurred after the contracts were transferred. The fact that the balance due on the contracts was paid to the affiliates indicated that the transfers had occurred.

The reason for the transfer of the contracts: According to court documents, the S corporation wanted to get out of the concrete forming business and go into the business of providing management services to the C corporations in exchange for fees.

The Tax Court ruled the deductions benefited the C corps - rather than A.J. Concrete Services - so the shareholders could not write off expenses relating to the contracts that were paid after the transfer.

Furthermore, the Appeals Court ruled the corporation was not entitled to a deduction for Workers' Compensation premiums since it had no workers in the construction business at the time the payments were made. (Bone, CA-11, 3/21/03).

Splitting an operation into more than one entity is not right for everyone and the transaction must be handled with utmost care. Your accountant can help determine the best structure for your business (such as an S corp, C corp or LLC) and whether you should change your entity based on current conditions.

For more information on entity structures please contact David Blain, CPA/ABV, CVA at dblain@macpas.com.

 

Congratulations to the Honorees at the ABC Excellence In Construction Awards Dinner

The Contractors Center Point and McKonly & Asbury would like to take the opportunity to congratulate all of the honorees at the ABC Excellence in Construction Awards dinner on 7/13/2010.  Members of McKonly & Asbury’s Construction Industry Practice were proud to sit in the audience and witness many friends and clients of the Firm be awarded Excellence in Construction Safety Awards,  Merit Awards, and the “best in class” Excellence Award.  A special congrats to Wohlsen Construction on earning the highest total score across all categories for its Moravian Manor project, winning the 2010 Project of the Year.

We are proud to count ourselves as members of such an important organization as ABC, and were pleased to be among the sponsors for the Excellence in Construction Awards.  For more information on M&A’s construction practice or the benefits of joining ABC, please contact David Blain at dblain@macpas.com or Mike Hoffner at mhoffner@macpas.com.

World Market for Green Building Materials Expected to Reach $406 Billion by 2015

The world's market for green building materials is expected to reach $406 billion by 2015, according to a new report entitled "Green Building Materials: A Global Strategic Business Report."

In announcing the report's release, Global Industry Analysts Inc. (GIA) asserted that growth primarily will be driven by increased awareness of environmental concerns the world over, high energy costs, increasing awareness that green buildings enhance well-being and worker productivity, and decreasing costs of green building materials.

"Having originated with a few government constructions, the green building concept is set to become a global phenomenon, transforming from a niche arena to a mainstream concept," GIA stated. "Green buildings are transforming the construction industry landscape, including both residential and commercial sectors. Owing to increased awareness of environmental concerns the world over, government mandates and voluntary standards are driving the growth of green buildings, and in parallel the demand for green building materials."

GIA believes that Europe represents the largest market for green building materials. "The United States constitutes the second-largest market for green building materials. In comparison to developed markets, developing markets are poised to show faster growth. Asia-Pacific is forecasted to be the fastest growing market over the coming years. The growth in developing markets is attributed mainly to improving living standards. Costs, efficiency, and environmental safety would be the driving forces behind the surge in the use of such products."

Green floorings represent the largest and fastest growing green building materials in the U.S., followed by green concrete and green roofs, the report states. Green floor coverings are considered eco-friendly green building products that are made from materials such as cork, carpet, bamboo, linoleum, ceramic tile, and hardwood. "In addition, the practice of planted green roofs is gaining momentum in several cities in the U.S. In terms of end-use markets, the residential sector constitutes the largest market for green building materials while the non-residential sector represents the fastest-growing market."

Key players profiled in the report include American Standards Brands, Andersen Corp., Armstrong World Industries Inc., Bonded Logic Inc., Bridgestone Corp., Ecostar, Compagnie De Saint-Gobain, Georgia-Pacific Gypsum LLC, Johnson Controls Inc., Lafarge SA, Owens Corning, Paveloc Industries Inc., Siemens Building Technologies Ltd., Temple-Inland Inc., Universal Forest Products Inc., and USG Corp.

The report provides a strategic review of market trends, market drivers, an overview of different green building materials available, regional market overview, product launches, corporate initiatives, and profiles of major and niche players. The study analyzes market data and analytics in terms of value sales for various regions, including the U.S., Europe, Asia-Pacific, and the rest of the world. Analytics for the U.S. market are broken down by material type (green flooring, green concrete, green doors, green roofs, green windows, and others) and by end-use sectors (residential and non-residential).

 

For more information on this article please contact David B. Blain CPA/ABV, CVA at dblain@macpas.com.

The world's market for green building materials is expected to reach $406 billion by 2015, according to a new report entitled "Green Building Materials: A Global Strategic Business Report."

In announcing the report's release, Global Industry Analysts Inc. (GIA) asserted that growth primarily will be driven by increased awareness of environmental concerns the world over, high energy costs, increasing awareness that green buildings enhance well-being and worker productivity, and decreasing costs of green building materials.

"Having originated with a few government constructions, the green building concept is set to become a global phenomenon, transforming from a niche arena to a mainstream concept," GIA stated. "Green buildings are transforming the construction industry landscape, including both residential and commercial sectors. Owing to increased awareness of environmental concerns the world over, government mandates and voluntary standards are driving the growth of green buildings, and in parallel the demand for green building materials."

GIA believes that Europe represents the largest market for green building materials. "The United States constitutes the second-largest market for green building materials. In comparison to developed markets, developing markets are poised to show faster growth. Asia-Pacific is forecasted to be the fastest growing market over the coming years. The growth in developing markets is attributed mainly to improving living standards. Costs, efficiency, and environmental safety would be the driving forces behind the surge in the use of such products."

Green floorings represent the largest and fastest growing green building materials in the U.S., followed by green concrete and green roofs, the report states. Green floor coverings are considered eco-friendly green building products that are made from materials such as cork, carpet, bamboo, linoleum, ceramic tile, and hardwood. "In addition, the practice of planted green roofs is gaining momentum in several cities in the U.S. In terms of end-use markets, the residential sector constitutes the largest market for green building materials while the non-residential sector represents the fastest-growing market."

Key players profiled in the report include American Standards Brands, Andersen Corp., Armstrong World Industries Inc., Bonded Logic Inc., Bridgestone Corp., Ecostar, Compagnie De Saint-Gobain, Georgia-Pacific Gypsum LLC, Johnson Controls Inc., Lafarge SA, Owens Corning, Paveloc Industries Inc., Siemens Building Technologies Ltd., Temple-Inland Inc., Universal Forest Products Inc., and USG Corp.

The report provides a strategic review of market trends, market drivers, an overview of different green building materials available, regional market overview, product launches, corporate initiatives, and profiles of major and niche players. The study analyzes market data and analytics in terms of value sales for various regions, including the U.S., Europe, Asia-Pacific, and the rest of the world. Analytics for the U.S. market are broken down by material type (green flooring, green concrete, green doors, green roofs, green windows, and others) and by end-use sectors (residential and non-residential).

 

For more information on this article please contact David B. Blain CPA/ABV, CVA at dblain@macpas.com.

Gaining Efficiency Through Mobile Resource Management

Times continue to be tough in the construction industry. With fewer jobs to bid and the bidding environment fierce, being able to reduce cost in order to remain profitable is a priority of all contractors. One way to increase efficiency and ultimately reduce short term and long term cost is through the use of technology, more specifically Mobile Resource Management (MRM).

 

MRM enables construction companies to achieve business benefits without a large capital investment. MRM allows construction crews to gain and give information on a real time basis while allowing managers to more efficiently utilize crews, manage labor costs, reduce fuel waste and improve customer service.

 

Managing Labor Costs

 

Labor costs are one of the biggest expenses incurred by contractors. Failure to manage these costs could be the difference in profitability. Use of wireless timecards can allow management to closely monitor these costs to compare labor cost to the initial bid estimate. Also, the use of wireless time cards is real time reporting which eliminates the use of inefficient paper-based processes and reduces timecard rounding and time theft. Use of wireless timecards also increases worker accountability by comparing timecards to GPS data.

 

Estimating Better Bids

 

With detailed reports on actual labor costs, construction companies can ensure bids are not too low or too high. This benefit translates to significant profit increases. Many companies find that this benefit pays for the technology, providing high return on investment.

 

Improving Operations

 

By knowing the exact locations of work crews and status on projects, management can more effectively and efficiently dispatch workers to different job sites depending on the status of work. This increase in efficiency and productivity can lead to more jobs worked on per week for work crews and ultimately better utilization and job profit realization.

 

Improving Employee Accountability

 

Managers can maintain close tabs on crews by receiving alerts if employees are stopped when they should not be, if they enter or exit a pre-defined area, or if the MRM application is turned off during business hours. These alerts help reduce the need for managers to physically check on crews.

  

Conserving Fuel

 

Through real time data from job sites, extra trips to the office are reduced, as is driving time between jobs. At an average fuel price of $2.70 per gallon, just 15 out-or-route miles per day for a medium truck can cost a company more than $1,000 per year for each field employee. This cost will be higher for heavy duty trucks and equipment.

 

Enhancing Customer Service

 

With exact locations of crews, managers can provide customers with accurate arrival times. Also, with greater efficiency, construction crews often accomplish more in a day, which allows for the potential for completing jobs and assignments ahead of schedule.

 

The use of technology such as MRM can lead to many cost savings and efficiency improvements. For more information regarding MRM, please contact David B.Blain at dblain@macpas.com.

What is your MOD?

In computing workers compensation insurance premiums several inputs are used, including an Experience Modification Factor (MOD).  The MOD is used to measure how your company has performed against other similar companies over the past three full years in terms of accident frequency and severity.   The MOD will either increase or decrease your premiums.  Understanding your MOD is key in monitoring your workers compensation costs.  It is also a measure of how you compare to others in your industry.   

 

A MOD factor of less than 1.000 will reduce your premiums and a factor greater than 1.000 will increase your premiums.   A MOD factor greater than 1.000 indicates that your accident rate is above the industry norm and less than 1.000 indicates that you have a good safety record.  For example a factor of .90 results in a 10% savings to the risk and a 10% increase for a factor of 1.10.  Since the MOD typically  includes three years of information, a bad year will impact your premiums for at least the next three years.  

 

The MOD factor rewards companies that practice effective safety and claims management techniques.  You should receive an Experience Modification Rating Sheet each year prior to your policy renewal date.   You should assign someone to monitor the MOD factor on a regular basis as it has a direct correlation to your insurance premiums.

 
The comparison to other employers is primarily driven by payroll information and historical losses.  Payroll is classified into categories such as carpentry and masonry.  Properly classifying payroll will directly impact the MOD factor calculation.  Improperly classifying will have thr reverse effect and may significantly impact your MOD factor.  What you pay for workers compensation insurance depends upon total payroll and payroll per classification and you will pay a higher rate for higher risk jobs.  Therefore in monitoring the MOD factor it is important to understand you payroll classification process if you use multiple classification codes. 

 

In addition to monitoring payroll you should also be reviewing your loss history and reserves maintained by your insurance carriers.  The MOD factor is calculated based on data reported to your states rating bureau by your insurers.   Why is this important?  It’s important to note because the data is not coming from you, but the insurance carrier.  There is a potential that your loss history maintained by the insurance carrier contains inaccurate data or has not been revised to reflect the current status of claims.  Therefore, a critical component of your monitoring process should be understanding the data provided by your insurance carrier.  If data appears odd, ask questions of your carrier to make sure that your data is accurate. 

 

Most states use the National Council on Compensation insurance, Inc. (NCCI) for calculating MOD factors.  NCCI is a private corporation which was created and funded by member insurance companies.  However, a limited number of states, including Pennsylvania have their own separate ratings bureaus.

 

Several small claims will likely have a more significant impact on your MOD factor than one large claim.  Therefore, monitoring should not be limited to claims that are considered significant.   Companies should pay particular attention to open claims with outstanding reserves.  Working with your claims administrator to close open claims may reduce your reserves and ultimately have a positive impact on you MOD factor.

 

A MOD factor is something that all companies that pay workers compensation premiums should understand.  For companies that pay significant workers compensation premiums it is equally important that a monitoring process be implemented to review the MOD factor on a routine basis.  It is important that the monitoring process include a person that is knowledgeable of the inputs in the MOD factor calculation so that errors will be identified and corrected in a timely manner.  In addition to driving workers compensation premiums, MOD factors may be considered by potential clients and customers as it is a direct reflection of your company’s safety management.  

 

For more information on MOD factors please contact Daniel Sturm, CPA at dsturm@macpas.com.

How To Save on Workers’ Compensation Cost – Get Back to Basics.

Workers’ Compensation can be a source of frustration to a business owner because of its confusing language and many requirements. However, workers’ compensation can also be a tremendous savings opportunity for a construction company if you take the time to understand what a good program can provide. This article will outline some tips for general contractors and subcontractors on what to look for and how to take advantage of cost savings from a good workers’ compensation program.

 

Look For Financially Sound Providers

 

The insurance industry has suffered difficult investment conditions, declining stock values, and financial losses. Because of this, it is very important to ensure that your insurance provider is financially strong and able to pay claims. Review a provider’s financial statements. Ask about any regulatory actions impacting their financial stability. Ask for their insurance company rating from the various rating agencies that monitor the insurance industry. An “A” rating or better is usually considered very good. If an insurance provider has had a downgrade of its rating, inquire as to why and how it is impacting the provider.

 

Ensure the Provider Understands the Construction Industry

 

Partner with a provider that has industry expertise, understands the market, and has a track record of consistent success. A company that specializes in workers’ compensation in the construction industry has a better understanding of economic drivers and competitive factors, and the ability to develop comprehensive, cost-effective programs tailored to contractors’ unique needs. Also, a company that understands construction exposures can help a contractor achieve better claims outcomes.

 

Is the Provider Committed to Customer Service?

 

Review the workers’ compensation provider’s service standards. Ask for references for other clients within the construction industry to verify these service standards. Make sure the workers’ compensation provider is solution-driven and committed to prompt and personalized responses.

 

Will the Provider Help You Establish Cost Savings Programs?

 

Look for a carrier that will work with your organization to develop loss control programs to empower employees to prevent injuries before they occur. Ask for examples of programs that the provider has established with other contractors and ask for the cost savings results generated from these programs. This will give you the necessary data and information needed to review how these programs will impact your bottom line.

 

Understand How the Claims Management Process is Managed by the Provider

 

Understanding how managed care solutions are determined will help to ensure that the best claim outcome is reached while containing medical costs. A strategic medical bill review process is important because of the potential savings to an organization when a workplace accident occurs. The process should include reviewing pre-operative and post operative care, as well as ongoing therapy. A provider’s attention to appropriate procedures, as well as billing detail, contributes to a contractor’s savings, timely bill payment and overall satisfaction.

 

Understand Medical Network Dynamics

 

Focus on local network dynamics when evaluating the effectiveness of a medical provider network. Workers’ compensation claim costs are impacted by network quality, accountability, and penetration. A workers’ compensation provider that utilizes a multi-layered medical provider network, with knowledge of local area physicians and pharmacies, can address the specialized needs of injured workers more effectively. It also ensures injured workers can access the best quality health care and most responsible medical providers in their region. In addition, a focus on network optimization and penetration allows an organization to reduce medical and pharmaceutical costs.

 

Reviewing these tips before selecting a workers’ compensation provider will ensure better service from your provider while focusing on cost savings. For more information on this article, please feel free to contact David B. Blain CPA/ABV, CVA at dblain@macpas.com.

HIRE ACT Provides Payroll Tax Breaks for Contractors

The Hiring Incentives to Restore Employment Act (HIRE ACT)

only applies to wages paid after March 18 to employees who have been unemployed for at least 60 days. Employees hired after February 3, 2010 are eligible but the exclusion only applies to their post-March 18 compensation. The exclusion applies only to the 6.2% employer’s part of Social Security, which means that the employee’s share of payroll tax and the employer’s Medicare tax is not affected by the exemption.

The 6.2% exemption applies to the remainder of 2010, but one provision can extend the benefits past this year. If the employer keeps a qualified employee on the payroll for a continuous 52 weeks, the employer is eligible for a $1,000 bonus after that 52 week threshold is met. That credit will be taken on a 2011 return. The employee’s pay in the second 26 weeks of the 52 weeks has to be at least 80% of the pay in the first 26 weeks. And the bonus is the lesser of $1,000 or the 6.2% exemption, which means that the full credit is only available if the total compensation to the employee is at least $16,129 during the 52 weeks.

There is no minimum or maximum number of hours or dollars of pay, but the employment has to be continuous. There is no limit on the number of employees that an employer may claim the exemption or the $1,000 bonus, but there is no double benefit if the employee is eligible for the Work Opportunity Tax Credit – one or the other has to be chosen. Family members are not eligible employees and an employee who replaced another employee may not be eligible.

The new law also

continues the Section 179 expensing, for tax years starting in 2010, of up to $250,000 of machinery and equipment, with the same rules and limits that have been in effect for 2008 and 2009. Those rules require the phasing out of the $250,000 when the total equipment purchases exceed $800,000 for the year.

For more information on the HIRE ACT, contact David B. Blain CPA/ABV, CVA at dblain@macpas.com.

 

FMI Survey Concludes Surety Bonds Will Remain Difficult to Secure

FMI’s first annual survey of surety professionals reveals that bonding will likely remain difficult to secure in the recessionary construction industry. The survey, "Surety Firms Weigh in on Construction Markets and Contractors," provides insights into why sureties are qualifying fewer firms for bonds, and how to improve your chances of obtaining them. A large majority of respondents cited insufficient capital/excessive debt (89 percent), mismanagement (78 percent) and imprudent risk taking (67 percent) as critical weaknesses that keep contractors from qualifying for bonds. Contractors seeking increased surety bonding capacity will want to improve these areas of their businesses and consider how they will meet the sureties' increasingly stringent review process. With sureties scrutinizing contractors more closely, "Surety providers are attempting to assist their clients to improve their efficiencies and mitigate certain operational risks," the report says. If you're in the market for a performance bond, consider asking your surety bond producer and/or financial and legal advisors for tips on improving your bondability. FMI released the survey earlier this month. For more information or to view the report, visit the “Members Only” section of the Amercian Subcontractors Association Web Site or contact David B. Blain CPA/ABV, CVA at dblain@macpas.com.