Construction Biz Wiz

According to an article recently published in AGC’s Constructor magazine: “Contractors are taking more extensive measures to protect themselves from the risk of subcontractor and supplier defaults. As the construction industry continues to falter in a poor economy, an increasing number of subcontractors and suppliers are merging, defaulting or simply going under. Consequently, contractors are paying much closer attention to—and spending more money on—managing subcontractors.”

As the article explains, in many cases, the subcontractors are not to blame as they face scarce work available and slim profit margins, which cause overly eager subs to accept work that turns out to cost them money. And that’s a slippery slope toward default.

One expert reveals that in the case of subcontractor defaults and failures, the “ripple effect is typically 2.5 times the bond price” and emphasizes how important it is for contractors to have a plan in the case, explaining that “if the general contractor has to come in due to sub failure, there are expenses for things like materials, job scheduling and delays [that can’t be replaced] for as-is cost.”

Concerned general contractors use subcontractor default insurance and are enforcing stringent subcontractor prequalification criteria and a detailed review process, which may include audited financial statements for several years and strong balance sheets. More GCs are also scrutinizing subcontractors’ past performance and financial capacity for job completion. This due diligence often demands more time and overhead expense, but the article shares opinions of some construction executives who feel it’s surely worth the effort. 

Value of Software

Of course, many contractors are also investing in software to help ease the burden of managing subcontracts and minimize risk throughout the process. At Maxwell Systems we see contractors using the capabilities in our complete, all-in-one solution to streamline document workflow and more easily ensure subcontractors have liability, workers compensation, and correct bonding in force during jobs, as well as have an easy way to track and hold retainage.

And because the solution can be used to manage the entire project lifecycle, the benefits are experienced by the whole team. For example, the controller is able to ensure that invoices are applied to correct cost codes, that a contractor does not overbill, and that subcontractors are not paid if insurance, license, or bonding information is not up-to-date. Plus the project manager can easily know which subcontractors are assigned to which work, understand what the committed cost is on a phase of work, and efficiently track original contract versus revised scope of work for each subcontractor.

Download our free article, “All for One and One for All” and read more about how a complete software solution can help with managing subcontractors and minimize risk.

To read the Constructor magazine article, authored by Angelle Bergeron, in its entirety at AGC’s web site, click here.

Another year is drawing to a close. Before 2010 is a wrap, have you taken advantage of the Section 179 Deduction as a tax benefit for your business?

Provisions of Internal Revenue Code Section 179 allow businesses to fully expense tangible property in the year it is purchased subject to certain limitations.

As the IRS explains:

A qualifying taxpayer can choose to treat the cost of certain property as an expense and deduct it in the year the property is placed in service instead of depreciating it over several years. This property is frequently referred to as section 179 property.

The Small Business Jobs Act (SBJA) of 2010 increases the section 179 limitations on expensing of depreciable business assets and expands the definition of qualified property to include certain real property for the 2010 and 2011 tax years.

Under SBJA, qualifying businesses can now expense up to $500,000 of section 179 property for tax years beginning in 2010 and 2011. (Without SBJA, the expensing limit for section 179 property would have been $250,000 for 2010 and $25,000 for 2011.)

Follow this link to the IRS web site to learn more about the Depreciation and Section 179 Expense and how you may benefit: http://www.irs.gov/formspubs/article/0,,id=177054,00.html. Please be aware that you should always check with your accountant or tax advisor about how Section 179 may be applicable to your business.

Since we’re on the topic of construction rebound (see previous post) … check out a new item, “Recovery in Building is Forecast for 2011,” published in today’s Wall Street Journal:

The nation’s construction industry will begin a slow recovery next year, as per the McGraw-Hill Construction forecast to be released Friday.

According to the forecast:

• The value of new projects that start construction is expected to climb to $445.5 billion, an 8% rise from this year
• New development of single-family houses, apartment buildings, and commercial properties is expected to increase
• There will be less building of new highways, bridges, and other public works (as federal stimulus money is depleted)

McGraw-Hill expects the U.S. economy will grow 2.5% in 2011. Among specific sectors, single-family housing should see the strongest rebound in 2011, with $126.7 billion in construction starts, a 27% boost, according to the forecast. Commercial buildings—which includes offices, stores, hotels and warehouses—will improve with a 16% gain to $44.9 billion.

You can read the full article here.

Are you confident in a recovery? What positive signs have you seen in your region, line of work, etc.?

A recent article authored by Scott Allen and posted at OPEN Forum, an online resource for business owners hosted by American Express, posed the question: Is your business well-positioned for growth?

It may feel strange to be thinking about growth during an economic downturn. Perhaps more at the forefront of your mind are ways you can reduce expenses and cut costs. But having a “wait and hold” mentality now can hold you back when consumer demand picks back up … and it inevitably does. When the economy rebounds, those companies that are well-positioned for growth are the ones able to capitalize, grow sales, and increase market share.

Additional related questions to consider on this topic: 

• What does it mean to be well-positioned for growth?
• How does a company ensure they’ll be ready when the economy recovers?
• More importantly, how can a company anticipate the recovery and remain one step ahead of their competition?

 The article goes on to address points such as:

• Every recession is followed by a growth period
• Why some companies aren’t able to capitalize when the economy turns

As the author explains: “Companies must be vigilant about spending and investment, but also be able to anticipate potential opportunities before they occur. They must be ready and be proactive instead of reactive. While this might seem like a tall order, it’s actually not as difficult as it sounds. It requires some discipline on behalf of management and employees, and a couple of simple and straightforward approaches to stay one step ahead of the game. The key lies in looking for the signs of a market rebound.”

He then explains the signs and where they come from:

• Market information from customers and competitors
• Information from complimentary markets

The full article is available online at: http://www.openforum.com/idea-hub/topics/money/article/is-your-business-well-positioned-for-growth-scott-allen

What are your strategies and proactive methods of being poised for growth when the market rebounds?