Contractors Center Point

How Surety Underwriters look at The Work In Progress Report (WIP)

There seems to be some mixed messages being communicated in the bonding world regarding surety credit.  On one hand the surety underwriters are getting nervous about their clients balance sheets, suggesting they look elsewhere for surety credit.  On the other hand there are surety companies with capacity willing to take on struggling companies because the company has stabilized, are well managed and possess a backlog of work to move forward.  

The upside for sureties willing to take on a more risky client is that they will have gained a client that would have never moved if things were booming.  However, a company’s Work in Process (WIP) report becomes a crucial determining factor during both boom and bust markets for a company to obtain surety credit. 

The WIP report is perhaps the most important report a contractor has to manage the profitability of the jobs it has in the backlog.  Surety underwriters, on a per job basis, want to see the original contract amount, revised contract amount (takes into account any approved change orders), original estimated cost on a given project, and the original estimated gross profit.  

Mediating Construction Disputes - Saving Contractors Money and Time

Today every construction project seems to include a dispute of some kind or another. In this highly competitive construction economy, the margin between a profitable job and a break even job (or worse) is usually thin. Contractors are often but one protracted dispute away from real financial jeopardy. Whether the dispute arises between a subcontractor and a prime contractor, a contractor and an owner, an owner and an architect, a supplier and a surety, or any combination of the above players, one thing is certain - the parties will have to find a way to resolve the dispute. Given the choice, most business owners would choose a dispute resolution process which is both efficient and cost effective. 

In some cases, the parties involved in the dispute have previously agreed by contract how they are to go about resolving any disputes. There are three generally recognized ways in which parties to construction disputes may resolve their disputes: litigation, arbitration or mediation (or a combination of the three). While all of these methods of dispute resolution have their positive attributes, mediation is by far the most cost effective manner of resolving construction disputes. 

Construction Unemployment Rate Improves In March

Construction's jobless rate continues to show a positive trend, improving to 20% in March from February's 21.8% rate. Though last month's mark remains worrisomely high, it was much better than March 2010's 24.9%.

March also was the sixth consecutive month in which construction's jobless rate improved over the year-earlier levels.

But the Bureau of Labor Statistics latest monthly employment report, released on April 1, also shows that construction lost 1,000 jobs last month.

All of construction jobs shed were in the residential specialty trade contractors segment, which posted 8,000 positions lost.

That offset gains in all other construction sectors, including pickups of 3,200 in buildings construction and 2,400 in heavy-civil.

Another encouraging note was that architectural and engineering services jobs continued to rise, though slightly, with a gain of 5,200 in March, bringing total A/E jobs to 1.29 million.

BLS does not adjust unemployment rates for construction and other industries for seasonal swings. Rates for the highly seasonal construction industry are thus at their worst in the winter and then tend to improve as projects gear up in the spring.

Despite the modestly positive March numbers, construction's 20% unemployment rate remains by far the highest among major industries.

The overall national unemployment rate also improved a little in March, declining to 8.8% from February's 8.9%.

For more information on the construction employment outlook, please contact the construction professionals of McKonly and Asbury, LLP.

 

The New Lease Accounting Part I – How Will My Financial Statements Look?

By now you should have heard that significant changes were being made to accounting for leases.  The most significant change in the guidance relates to operating leases, which will be the focus of this discussion.  The primary driver of the change is that regulators see operating leases as a form of off-balance sheet financing.  Many operating lease agreements were written to fit a calculation that would keep assets and related liabilities off of a company's balance sheet.  Regulators proposing the changes believe by keeping operating leases off of the balance sheet under current guidance, users of financial information have a more difficult time understanding the financial position of a company.

The proposed lease guidance is currently in draft form and is expected to become final during 2011, with an effective date of sometime during 2012.  When the new guidance becomes effective, an asset will be recorded for your "right to use" that asset.  What does that mean?  It means that you are not recording the asset itself, but rather a right to use that asset, along with an off-setting liability.  Instead of expensing an operating lease over the term of a lease, the right to use that asset will be amortized similar to a capital lease and you will record amortization and interest expense over the term of the lease.