Contractors Center Point

Going GREEN without seeing RED

On Thursday October 22nd, I attended a seminar held by Murray Risk Management Associates titled "Going Green without Seeing Red." The seminar focused on GREEN building projects and what owners, developers and contractors need to know in regards to the many certifications, requirements and pitfalls of such projects.

The Seminar speakers featured Francie Cohen-Spahn of Saul Ewing, LLC, Adam Kerr of Cornerstone Design Architects and Ralph Simpson of Warfel Construction.

Ms. Spahn discussed the many legal aspects of GREEN building contracts and the number of different GREEN certifications that exist within the United States and globally. Much of Ms. Spahn's discussion centered on LEED. LEED stands for Leadership in Energy and Environmental Design. LEED has a number of certification levels that range from Silver, Gold and Platinum. Ms. Spahn explained that the certification levels are based upon a point system as defined by LEED. Ms. Spahn also discussed the other rating systems used globally such as BREEAM and Green Globe.

Ms Spahn also discussed the concerns and questions to raise by the Owner, Design Professional and Contractor when establishing a Green project.

Owner Concerns

1. Why construct a GREEN building?

2. Do the parties involved have the ability to achieve the same LEED rating the owner seeks?

3. Who is responsible to achieve sought after rating?

Managing in Tough Times - A Contractors Survival Guide

We all have heard of the saying "The more things change, the more things stay the same." I for one was  not a believer of this. I mean, come on, in this fast paced world we live in, in which technology and innovation are constantly changing, how can anything stay the same.

Well, as most of us have learned, there are some legacy truths in this world and the biggest one is "What goes up most come down." If you have not already figured out what I am talking about, I am talking about the economy and the economic collapse we saw as a nation and as a world in 2008 and through the current period of 2009. While we are beginning to see some signs of recovery, many economist believe that the recovery period will be a long cycle that could last in excess of two years. 

So why the quote at the start. I started off this article with that quote because there are some key concepts with managing a business in tough economic times that warrant consistent reminding for business leaders. As a business leader we have heard time and again about the importance of watching cash flow, managing expenses and mining for new opportunities. However, as a business advisor, I still see business continue to make these classic mistakes in a down economy. This article is a reminder and a refresher for businesses to operate when times are tough. 

McKonly and Asbury Host First Construction Conference

 On Friday, our firm McKonly & Asbury hosted our construction industry seminar.  We had several of the region's top construction companies in attendance and some of the top experts as presenters.  Based on a conversation with various industry leaders, we attempted to cover some of the pressing issues facing contractors. We also wanted to present some new ideas and strategies in an attempt to challenge assumptions.

One of the top issues facing contractors is sales and use tax.  An important state tax update was presented by Jason Skrinak, CPA, of McKonly & Asbury.  Jason did an excellent job presenting on such topics as: 

• Proposed Pennsylvania Budget update
• State trends in corporate taxation and differences among states
• Sales & Use Taxes - Construction Activities
• Recent Commonwealth court cases

Another topic that we continue to see opportunity for businesses to reduce costs is by using an Insurance Captive.  An excellent presentation was done by Norm Basso of E.K. McConkey.  Norm covered such topics as: 

• Methods for Risk Handling
• Risk Financing
• Captives - An insurance company that provides insurance to and is controlled by the owners or members
• Eligibility Guidelines
• Captive Structure
• Why are Captive Insurance Costs Lower?

Another key tax savings strategy is the proper selection of tax accounting methods. Lisa White, CPA, of McKonly & Asbury presented an update on this key area of construction accounting.  She covered such topics as:

Internal Revenue Code Section 460: Navigating the Intricacies – Part 3

As we highlighted in previous articles, Internal Revenue Code Section 460 is the regulatory authority associated with construction contracts and the application of the percentage-of-completion method of accounting. This is the third in a series of articles on tax applications associated with this tax law. We hope it makes the subject easier to understand and to use. 

Percentage-of-Completion: The Calculation

In the second article we considered contracts that do not have to comply with the tax accounting method prescribed by Code Section 460, namely small contractors and home jobs. Let us now look at the actual calculation for the POC method while noting that, under Section 460, contractors are required to use the cost-to-cost method to determine the POC percent. As such, in our example below, this is the only method we consider.

The calculation to determine the amount of gross profit recognized under the POC method is the estimated gross profit at 100% completion multiplied by the POC at year-end (as determined by the cost-to-cost method), less any portion of the estimated gross profit recognized in prior years. As with most things of a mathematical nature, there is a mathematical formulation associated with POC. The formula to determine current period gross profit under the POC method is 

• PCGP= {[TGP × (ACC/TCC)] − PYGP},

Internal Revenue Code Section 460: Navigating the Intricacies – Part 2

Internal Revenue Code Section 460 is the regulatory authority associated with construction contracts and the application of the percentage-of-completion method of accounting.  This is the second in a series of articles on tax applications associated with this tax law.  We hope it makes the subject easier to understand and to use. 

Exceptions to the Rule

Last time, we explored those lucky souls who are subject to the laws prescribed by IRC Section 460.  Continuing our exploration, the next logical place to visit is the not-so-mysterious area of exceptions.  We will continue our approach in the first article and only consider those exceptions applicable to long-term construction contracts.  There are two exemptions to the percentage-of-completion requirement for long-term contracts: home construction contracts and small construction contracts.  

According to Treasury Regulation 1.460-3, a home construction contract is one where at least 80% of the total estimated allocable contract costs can be reasonably applied to construction of the following:

• a building containing four or fewer dwelling units, and
• improvements to the real property directly related to (and located at the site of) such dwelling units.