Contractors Center Point

November 2009 Construction Backlog Index Is In – Good and Bad News Overall

The Associated Builders and Contractors (ABC) Construction Backlog Indicator (CBI) is out for the twelve month period of November 2008 through November 2009 and the results are mixed. Despite evidence of a major impact from the stimulus package, the national average CBI declined 18 percent to 5.8 months in November 2009 compared to November 2008.

 

 

Overall, November 2009 backlog in all four regions remains below November 2008 levels:

 

Region	November 2009	November 2008
Northeast	5.50	6.64
South	6.52	8.73
Middle States	4.92	5.15
West	5.85	6.57

 

Regional Highlights

 

Overall backlog has expanded in the South and Middle States over the last few months while it has declined in the West and Northeast. This is consistent with broader economic data that indicates that expansion is occurring in more commodity intensive states like those located in the heartland and throughout the south. Average backlog in the South is highest among all regions at 6.5 months while the Middle States continue to hold the shortest backlog at 4.9 months.

   

This data is evidence that the worst of the non-residential construction decline is over from a broader economic view. However the concern is with stimulus monies and as they begin to run. How will that impact backlog?

 

  

Industry Highlights

 

Average backlog in the heavy industry category improved significantly to 7.53 months as companies continue to expand exports and increase overall inventory levels. This is the highest for this industry since January 2009. Average backlog in the infrastructure category bounced back toward 11 months after a weaker performance in September and October. Commercial and institutional category was the only segment that sustained a decline in backlog compared to November 2008. However, rising investment and backlog in the heavy and infrastructure industries should sign a possible turn for the good in the commercial and institutional categories.

 

  

Company Revenue Highlights

 

While backlogs for firms categorized as having less than $30 million, $50 million to $75 million and $100 million all saw expansion in backlog. Almost all were still below November 2008 results. Larger companies which are typically most closely associated with infrastructure and heavy industry saw the longest average backlog of 8.5 months. Smaller firms saw backlog closer to the 5 month range.

 

  

For more information on this economic report, please contact David B. Blain at dblain@macpas.com.

Put Your House in Order - Bouncing Back From Tough Times and Preparing for Recovery

On Tuesday January 26^th American Builders and Contractors (ABC) hosted an event presented by CARGAS on preparing for recovery in the construction industry. The event was led by Heidi Bianco, CEBS, and Consultant with CARGAS. Heidi is part of the CARGAS Human Resources team that supports various contractors, subcontractors and suppliers throughout the Central Pennsylvania region. 

 

The presentation focused on how the recession has caused many contractors and related entities to drastically change their business model. These changes have short term as well as long term impacts. Such changes could be pure expense reductions through layoffs or change in focus of operations from private work to public work to access federal stimulus dollars.

 

How do these changes affect a company and how do you ensure that these changes are positive for long term sustainability and growth. Some of the key concepts at this presentation discussed by Heidi Bianco of CARGAS were:

 

1. Culture - If tough times and tough decisions have affected your culture, Leaders will need to take positive, intentional action to rebuild and strengthen it. Some ways that leaders can do this is through:
   1. Evaluate your culture
   2. Plan activities to help (re)build your culture
   3. Start new traditions

Position Changes - As you plan for recovery, ensure that position changes are clearly updated and revised to reflect changes on how work gets done. This should be accomplished through updates to:

1. Organizational charts
2. Job Descriptions
3. FLSA Classifications

Orientation - As you begin to rehire, think about changes or adjustments to your Orientation plan to meet the new world of business. Improved orientation will get new employees up and running quicker making them more productive. Things to think about would be:

1. What you need to do to update, create or beef up your orientation program?
2. What steps need to be taken to get new managers ready to do orientation?

Training and Development - Help your supervisors and managers become good “performance coaches”. Provide coaching and training on how to handle their new responsibilities. Your new performance coaches need to gain both competence and confidence in:

1. Defining clear expectations for performance
2. Giving timely, specific feedback to employees
3. Monitoring and documenting performance
4. Providing coaching and using disciplinary action
5. Doing performance appraisals.

Recruitment – What can be done now to catch great new employees when you begin to hire again. Start by thinking about the positions that are most difficult to fill and follow these steps:

1. Develop contacts with trade associations, schools or other construction associations.
2. Write creative ads and posts that make your company unique. Also, where is the best place to post your ad – internet/newspaper/local newspapers and journals?
3. Do telephone screening of applicants
4. Use behavioral interviewing to assess traits and behavioral factors of an applicant to ensure it meets your newly established or revised culture.
5. Keep the candidate excited after the offer through constant communication and follow-up.  

These tips and steps will help contractors, subcontractors, suppliers and all those related to the construction community to better position themselves for future growth in the industry and their business. For more information regarding this seminar and how to prepare for bouncing back after the recession, please contact David Blain at dblain@macpas.com. 

New Cell Phone and Texting Regulations Impacting Commercial Drivers - Tell Your Employees

A number of new pieces of legislation have been recently instituted and are in effect immediately that impact commercial vehicle drivers. Make sure you inform your employees:

 

National

On Jan. 26, 2010, the U.S. Department of Transportation instituted a ban to “expressly prohibit texting by drivers of commercial vehicles” such as trucks and other vehicles used in construction. The ban, effective immediately, is part of a series of steps that DOT is taking to combat distracted drivers on the roads. According to a study conducted by Virginia Polytechnic Institute and State University, commercial vehicle drivers who send text messages on a cell phone are about 23 times more likely to get into some type of crash or near-miss than those drivers who remain focused on the road. Commercial drivers caught texting could be subject to criminal or civil penalties up to $2,750. “We want to make it crystal clear to operators and their employers that texting while driving is the type of unsafe activity that these regulations are intended to prohibit," said Federal Motor Carrier Safety Administration Administrator Anne Ferro. For more information, contact the Department of Transportation or read more at http://www.dot.gov/affairs/2010/lahood01262010.htm. 

 

Pennsylvania

The state House voted to outlaw the use of hand-held cell phones -- including texting -- while driving.  The bill now moves to the Senate for consideration.  The state bill applies only to moving vehicles and exempts people making emergency calls.

 

Harrisburg

Harrisburg City Council enacted an ordinance banning the use of cell phones while driving effective Monday, February 1st.

The city police will be issuing warnings during the month of February but beginning March 1st, first-time violators would be subject to a $100 fine.  Second and third offenses carry penalities of $250 and $500, respectively, while fourth and subsequent offenses would cost $1,000 each. Fines are doubled in school and construction zones, though they cannot exceed $1,000. Hands-free phones are permissible, and drivers won't be cited for using hand-held cell phones if they are calling 911.

For more information on these cell phone and texting regulations, please contact David B. Blain at dblain@macpas.com.

 

Save the Date! McKonly and Asbury, LLP Hosts Construction Seminar – April 23

The Construction Industry is a vital cog in the development and success of our region. Join us for a seminar focused on updates and matters affecting the Construction Industry on Friday, April 23rd from 8:00am – 1:00pm. This seminar will feature speakers from McKonly & Asbury, Murray Risk Management and Insurance, and Reager and Adler, PC who will be discussing key construction matters affecting contractros, subcontractors, suppliers and those involved with the construction industry.

You'll walk away knowing more about federal and state tax legislation updates, current accounting updates, legal and litigation updates, insurance, bonding and finance updates, and other related topics.

When: Friday, April 23rd from 8:00am – 1:00pm

Where: Sheraton Harrisburg-Hershey, 4650 Lindle Road, Harrisburg

There is no registration fee for this very informative event. CPE credits are available.

Be sure to save the date and look out for more information to follow on the Contractors Center Point blog at www.contractorscenterpoint.com.

Contractors Beware – Do You Have A Partial Plan Termination of Your Retirement Plan?

If the economic conditions for contractors and those in the construction industry have not been difficult enough, beware of unintended consequences to your retirement plan if you have reduced workforce through layoffs or other means of workforce reduction.

 

IRS Revenue Ruling 2007-43 (2007-43) outlines the triggering events that may cause a partial plan termination or constructive termination of an employee retirement plan. The consequences of such a determination could be additional cash outflow relating to the minimum vesting standards that this revenue ruling requires.

 

2007-43 states that a partial plan termination depends on the facts and circumstances, including the extent to which participating employees have had a severance from employment. If the turnover rate is at least 20 percent, there is a presumption that a partial termination of the plan has occurred. The turnover rate is determined by dividing the number of participating employees who had an employer-initiated severance from employment during the applicable period by the sum of all the participating employees at the start of the applicable period and the employees who became participants during the applicable period.

 

All participating employees are taken into account in calculating the turnover rate, including vested as well as nonvested participating employees. Employer-initiated severance from employment generally includes any severance from employment other than a severance that is on account of death, disability, or retirement on or after normal retirement age. An employee’s severance from employment is employer-initiated even if caused by an event outside of the employer’s control, such as severance due to depressed economic conditions.

 

So what does this all mean in dollars and cents. If a partial plan termination occurs on account of turnover during an applicable period, due to depressed economic conditions as stated above, all participating employees who had a severance from employment during the period must be fully vested in their accrued benefits, to the extent funded on that date, or in the amounts credited to their accounts. This is substantial as this will cause for the plan to have to record a liability for these vested amounts to be paid to these participants within a certain time period. This will have a negative impact on cash flow in already tough times.

 

It should be noted that the presumption of a partial plan termination, which arises in the case of a turnover rate of 20% or more is a rebuttable one. The “facts and circumstances” may indicate that a portion of the turnover was due to factors other than “employer-initiated severance” (e.g. terminations due to voluntary resignations, normal retirement, death or disability). If turnover, after adjusting for terminations that are not employer-initiated, is less than 20%, then the presumption of a partial termination disappears.

 

Whatever your companies current financial situation is, being aware of 2007-43 is important in order to try to avoid this potential liability due to its vesting requirements in the event that your Company is planning to downsize in order to manage cash flow. The impact of this little known rule to many contractors who offer retirement programs for their employees can have unintended circumstances that the Company may pay for years to come.

 

For more information on partial plan terminations relating to retirement programs, please contact David Blain at dblain@mapcas.com.