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.

According to AGC (The Associated General Contractors of America), “Emerging changes in construction activity indicate 2011 may be the year of the specialty contractor more than the general. While overall construction spending remains flat, several niches look promising.”

The article by AGC Chief Economist Ken Simonson goes on to explain:

• The revival of manufacturing employment, shipments, orders and inventories should encourage more contractors to develop specializations to serve manufacturing.
• The tapping of huge natural gas reserves is good news for specialty contractors that can build, expand and overhaul petrochemical plants.
• Companies with expertise in building and equipping data centers are in growing demand, as more firms turn to “cloud” computing.
• Alternative energy and power markets will continue to offer opportunities and there should also be continuing demand for energy conservation retrofits to existing residential and nonresidential buildings.

 To read the article in full, please visit http://news.agc.org/2011/06/15/which-niches-will-offer-riches-in-2011-and-beyond/

Are you tapping into new markets and services to ride the economy wave? How have emerging changes impacted the type of work you do?

The Associated General Contractors of America (AGC) released a plan recently detailing measures to stimulate demand for construction in the private and public sectors. AGC explains the plan is necessary to reverse construction employment declines that have taken place in 317 out of 337 metro areas since January 2007, according to new data.

In a press release issued by AGC, Stephen E. Sandherr, the association’s chief executive officer, states: “Our goal is to rebuild a devastated construction market that has left millions jobless, littered cities with incomplete projects and sapped much needed revenue, commerce and customers out of our economy. Considering the scope and impact of construction job losses, the last thing any of us can afford is a repeat of the past four years.”

The plan, called “Building a Stronger Future, A New Blueprint for Economic Growth,” outlines measures to help boost private sector demand for construction, help tackle a growing infrastructure maintenance backlog and reduce needless red tape and regulations.

For additional information or to download the plan, visit http://news.agc.org/2011/03/15/agc-releases-plan-to-revive-construction-industry/.

What do you think it will take to revive the construction industry and rebound employment?

At this time of year, most businesses are taking a critical eye to financials and bookkeeping. In construction, equipment is often the largest expense for a construction project and effectively managing equipment can determine if the business makes a profit or takes a financial loss. It comes down to decisions (rent vs. own), reliability, and controlling costs.

To that first point, John Leisner recently authored an article for Construction Business Owner magazine that offers guidelines to help contractors decide whether to buy or rent construction equipment, and explains the tax incentives/capital expenditures that construction companies may want to consider.

He writes: “Rental expenses can be billed back to the customer or deducted annually as a business expense. Buying a piece of equipment, however, is a capital expense that must be treated as such at tax time. You can’t deduct the purchased equipment’s entire expense during the year in which it was purchased. The capital costs are then amortized or depreciated over the useful life of the piece of equipment.”

Regarding legislative issues surrounding depreciation, the article advises to look to:

• The Economic Stimulus Act, which includes a provision that allows business owners to deduct 50% of the cost of a new piece of equipment the year it was put into service. 
• The Hiring Incentives to Restore Employment Act (HIRE Act of 2010) also allows businesses a Section 179 write-off up to $250,000 of qualified equipment during the 2010 tax year. This benefit also includes equipment that is leased or financed. According to Section179.org, “The obvious advantage to leasing or financing equipment and then taking the Section 179 deduction is that you can deduct the full amount of the equipment, without paying the full amount this year. The amount you save in taxes can actually exceed the payments, making this a bottom-line friendly deduction.”

You can read the full article in Construction Business Owner magazine, here.

You can also read this article published by Modern Contractor Solutions that explains how construction business management software can help equipment managers and business owners ensure that each piece of equipment is achieving the highest productivity possible and at the lowest possible cost by maximizing utilization, minimizing downtime, and recovering costs.