Contractors Center Point

Construction Spending Slump to Continue in 2010. Encouraging Signs for 2011.

Despite noting that “the long-awaited recovery seems to be under way,” the AIA's newly released Consensus Construction Forecast offers little reason for optimism in 2010. It does, however, provide hope for 2011.

The semi-annual report—compiled from data provided by McGraw-Hill Construction, Global Insight, Portland Cement Association, MoodysEconomy.com, and other sources—predicts that nonresidential construction activity will fall another 13.4 percent in inflation-adjusted dollars this year, which is notably better than the 20 percent drop-off in 2009. In the report, nonresidential construction refers to the commercial, industrial, and institutional sectors.

Commercial and industrial are projected to be weaker this year than in 2009, with declines of about 20 percent. Office construction spending will dip 18.6 percent, and hotel construction spending will plummet 23.5 percent, according to the study.

On a more encouraging note, the report anticipates advances in 2011. Nonresidential construction activity is expected to rise 1.8 percent, with the commercial sector to increase 8.9 percent, led by a 11.8 percent hike in office construction spending. However, industrial will still lag; after an anticipated drop of 24.3 percent this year, the industrial sector will fall another 7.8 percent in 2011, according to the report.

As might be expected, the institutional sector continues to be somewhat of a stalwart. Institutional spending is expected to drop only 2 percent this year and will increase 3 percent in 2011, due in large part to the American Recovery and Reinvestment Act.

How Can I Find Stimulus Projects in My Region? Here’s How.

As part of our ongoing program to help contractors, architects, engineers and those in the construction community prepare for and win stimulus funded work, we thought it would be appropriate to provide some key websites to visit to access and indentify these opportunities. The list of websites below are a few that we have identified that provide meaningful information on American Recovery and Reinvestment Act (ARRA) projects throughout the Mid-Atlantic Region and United States.

www.construction.com: An information hub intended for identifying regional federal stimulus opportunities.  This information is provided by McGraw Hill Construction. 

In the center of the homepage, chose your region within the U.S. map.  Once clicked, you will see a listing of all available opportunities sorted by the date posted.  On the right of the page, inside the box, are your regions “Shovel-Ready Projects”.

www.FedBusOpps.com:  A site, which provides the ability to search all federal business opportunities and includes a search filter based on all ARRA opportunities.

The link we provided takes you directly to the opportunities section of the FedBizOpps.gov webpage.   To find opportunities near you, click in the keyword search box, type in your state or a nearby city and the search results should provide you with some options.  For a more specific search, click on the “Advanced Search” tab and enter the requested information. Under the “Advanced Search” tab you have the option to search the opportunities only associated with the ARRA.

www.Recovery.pa.gov:  A website which identifies opportunities provided by the federal recovery plan.

From the home page, scroll down to ARCHIVES heading and click on the first link, Grant Opportunities Under the American Recovery and Reinvestment Act.  This link will lead you to a PDF stating the ARRA funding projects available in PA including a description of the opportunity, deadlines, funding available, who is eligible, and how to apply.

For more stimulus information, visit:

www.StimulusWatch.org:  A website, which provides citizens of the U.S. with up-to-date local knowledge about the stimulus projects in their proximity.

For more information regarding these websites, how to navigate those sites or other general questions regarding Stimulus funded projects, please contact David Blain at dblain@macpas.com or Josh Deitch jdeitch@macpas.com.

Construction Starts Slip in November, Holding Markets 28% Below a Year Ago

With statistics in for November, it looks pretty certain that construction markets will come in well below 2008’s level. The dollar value of construction starts through the first eleven months of this year was $381 billion, which was 28% below the same period a year ago, according to data from McGraw-Hill Construction (MHC). The annual declines were broad based, including 34% declines for both residential and non-residential buildings and a 12% drop for non-building construction. The non-residential building market was sapped by year-to-year declines of 39% for office buildings, 44% for stores, 63% for warehouses and 66% for hotels according to statistics from MHC.

For more information relating to this study, please contact David B. Blain at dblain@macpas.com.

 

 

When is a Construction Contract a Contract?

Like most states, Pennsylvania treats construction contractors as the ultimate consumer and as such, subjects the contractor to Pennsylvania's sales and use tax on all purchases of property and any taxable services purchased in providing construction activities. Pennsylvania's treatment of construction contractors appears to be simple enough to follow, but confusion often exists when determining if a transaction is truly a construction contract or whether the transaction is deemed to be a sale of tangible personal property. A taxpayer selling tangible personal property can purchase the property free of Pennsylvania's sales and use tax using a sale for resale exemption and then charge its customer sales tax when the property is sold. 

Pennsylvania's Regulation provides that tangible personal property that is attached or affixed to real estate and becomes a permanent part thereof is deemed to be a construction contract. A recent Pennsylvania court case has attempted to clear up the confusion and provide additional insight as to what is deemed permanently affixed to real estate so as to determine if the transaction is a construction activity or the sale of tangible personal property. In the case Northeastern Pennsylvania Imaging Center v. Commonwealth, No. 635 F.R. 2007, July 29, 2009, the court established that the rationale established in a Pennsylvania real estate assessment case could be applied for sales and use tax purposes to determine what is actually part of a real estate structure (See 657 A.2d 1011 (Pa. Cmwlth 1995)). The case stated that property could fall into three categories. The first category consists of property that is always deemed to be real estate such as the actual walls and roof of a building. The second category of property is that which will always be deemed to be tangible personal property, such as furniture inside a building. The last category of property can either be considered real estate or tangible personal property depending on the set of facts and circumstances.

After Some Encouraging Signs, Architecture Billings Index Drops Substantially

Following its highest mark since August 2008, the Architecture Billings Index (ABI) dropped more than three points in November. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the November ABI rating was 42.8, down from 46.1 in October. This score indicates a continued decline in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry score was 58.5, the same mark as in October.

Key November ABI highlights:

• Regional averages: South (46.4), Northeast (45.0), Midwest (43.7), West (41.1) 
• Sector index breakdown: institutional (47.0), multi-family residential (45.8), mixed practice (42.8), commercial / industrial (40.7)
• Project inquiries index: 58.5

The Architecture Billings Index is derived from a monthly “Work-on-the-Boards” survey and produced by the AIA Economics & Market Research Group. Based on a comparison of data compiled since the survey’s inception in 1995 with figures from the Department of Commerce on Construction Put in Place, the findings amount to a leading economic indicator that provides an approximately nine to twelve month glimpse into the future of nonresidential construction activity. The diffusion indexes contained in the full report are derived from a monthly survey sent to a panel of AIA member-owned firms. Participants are asked whether their billings increased, decreased, or stayed the same in the month that just ended. According to the proportion of respondents choosing each option, a score is generated, which represents an index value for each month. The regional and sector data is formulated using a three-month moving average.

For more information on this index and its results, please contact David B. Blain at dblain@macpas.com.