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The ViewPoints Construction Services Blog is published by RubinBrown's Construction Services Group as a value-added approach keeping clients and contacts informed about current, relevant topics affecting the construction industry.


Increase Your Organization's Effectiveness Through The New ERP Or Accounting Software

Are you one of the many contractors thinking about a new ERP or accounting software? I am sure the thought of it makes your stomach turn. However, there are ways to work smarter through an enhanced ERP, rather than harder through an out-of-date system. A new ERP can increase your organization’s effectiveness by improving processes, sharing insights and accelerating data accessibility. 

Make the case for investing in the future, lay out the long-term benefits and detail the short-term costs. Here are some probing questions to get you started: 

  • Are you using multiple software solutions for different business processes and none of them talk to each other? 
  • How difficult is it to get the information you need to run your business? 
  • Is your IT department swamped trying to maintain several disparate software systems?
  • Are your current systems capable of handling all your business processes and important operations under one software system? 
  • Do you have one overarching system to manage project estimates, project costs, billing, inventory and other critical items that lead to profit? 
  • Do your current systems have built-in efficiency? Do you have tools that can seamlessly share data and insights with project managers and leadership?

Now that you have the basics down, think strategically. Envision an ERP dashboard that is like a pilot’s instrument panel. It should provide complete, timely and accurate reporting across your entire business. If you have decided to consider a new system, consider the following as action items: 

  1.  Do your homework and pour over case studies of successful and unsuccessful ERP implementations. 
  2.  Interview other contractors that just completed an implementation and pick their brains. 
  3.  Finally, make the case that an ERP system is the accelerator pedal for improving operations, higher customer satisfaction and profitability. This will help with internal support and a smoother transition. 

Choosing the right ERP for your company is all about the diligence process. There is no shortage of horror stories from companies who didn’t get it right the first time and wasted a lot of money in the process. Take your time, and implement it correctly the first time.  Your team will thank you!









Highlights from the 2021 CFMA Rocky Mountain Regional Conference

RubinBrown recently attended the 2021 Rocky Mountain Regional Conference. The following are some highlights from the event/sessions:

  • Anirban Basu, always engaging, provided the audience with lots of data and analytics about what the construction industry has experienced, specifically in the last 18 months since the onset of the pandemic. The trends seen in the industry differed by both niche and geography, especially in light of differing levels of pandemic-related restrictions to economies and changes in corporate and household behaviors. Overall, construction has fared better than a lot of industries. While some commercial construction has slowed, residential construction has soared during the pandemic. According to Mr. Basu, indicators from design firms and architects in the last 6 months show signs of strength down the road in commercial and industrial projects as well. Additionally, the overall confidence index in construction has been improving consistently over the past 6 months, nearly back to pre-pandemic levels of confidence. While the pandemic has been very challenging, Mr. Basu pointed out that the most significant issue continues to be the same as before the pandemic, labor.
  • The conference also presented options for leadership CPE including communication and team building at the executive level with Mike Butler (The Executive Guide). The session addressed different means in which businesses can build trust and perform at high levels.
  • The event included an M&A update by FMI which illustrated both recent transactions and stories focusing also on different strategies used by businesses considering transitions/exits including factoring in potential tax law changes and pending impacts from the pandemic.
  • The conference once again welcomed RubinBrown’s Tony Nitti to address the business tax landscape including a dive into the latest negotiations and speculation coming out of Washington DC. Takeaways from the presentation focused on potential changes to rates including capital gains, and other potential modifications to tax corporate and personal rates and strategies contractors should consider.
  • The conference also included an ethics presentation by former CFO of Enron, Andy Fastow. The audience was engaged in learning more about the failure of Enron many years ago. Fastow told many stories explaining how he and their team were wrong and how quickly an organization can head down the wrong path focusing on results and misleading stakeholders while believing they were actually following the rules. The presentation focused on principles versus rules and it was interesting to hear the former CFO’s perspective.
  • The event included a credit panel consisting of both surety and banking professionals. The panel addressed the changing environment and impacts to contractors. This interactive session brought questions from the audience on seeking strategies to work with sureties and bankers in both good times and tough times.
  • Finally, there were presentations dedicated to emerging technologies in construction. Innovation in the industry seems to be moving more quickly, and it is clear that companies not focused on improving their technology or improving how to apply it are at a competitive disadvantage.

We look forward to seeing you at this event next year! If you have any questions, please contact your RubinBrown advisor.






The Importance of Benchmarking in Construction

Benchmarking is a method used to evaluate or check performance by comparing to an industry standard or other data.

You may think your bid win rate is “really good,” but what defines really good? Should you be comparing against your competitors or your previous experience? To really see if the win rate is truly where you want it to be, you might consider doing both!

There are several reasons every construction company should be doing at least some basic benchmarking. It’s a clear way to set business goals that are measurable. You can monitor the results and hold your team accountable. Another bonus, it should help motivate your employees because they see a clear goal that is hopefully attainable, but also stretching their abilities. It’s an opportunity to take a step back from the daily grind and discover new ways of working, new ways to boost financial performance and just get the team thinking strategically. It can help you make strategic decisions for the future, improve productivity across employees and functions, and potentially help identify and reduce costs. It might also give you a quick insight into your company’s processes and areas where you could improve.

What benchmarks can you use?

First, you need to find benchmarks that are truly comparable to your construction company. Sometimes this is easier said than done, but there are resources out there where you can pick and choose relevant statistics. Don’t forget to use your company’s historic results, as well, to benchmark against.

Some benchmarks we find helpful and you might consider would be the following:

  • Backlog to working capital
  • Backlog to G&A – How many months of overhead expenses will be covered by your backlog?
  • Gross profit per FTE
  • Net over/underbillings to revenue
  • Net over/underbillings to equity
  • Stockholders’ equity to revenue
  • Gross profit on completed and in-progress jobs
  • Gain/fade analysis on jobs
  • Finally, don’t forget your more commonly used ratios (e.g. return on equity, return on assets, current ratio, etc.)

As always, reach out to your trusted RubinBrown advisors if you have any questions on benchmarking!






Highlights from the 2021 CFMA National Hybrid Conference

RubinBrown recently attended the 2021 CFMA National Hybrid Conference. The following are some highlights from the event/sessions:

  • CFMA once again welcomed Sage Policy’s head economist Anirban Basu. Mr. Basu, always engaging, provided the audience with lots of data and analytics about what the construction industry has experienced, specifically in the last 14-15 months since the onset of the pandemic. The trends seen in the industry differed by both niche and geography, especially in light of differing levels of pandemic-related restrictions to economies. Overall, construction has fared better than a lot of industries. While some commercial construction has slowed, residential construction has soared during the pandemic. According to Mr. Basu, indicators from design firms and architects in the last 3-4 months show signs of strength down the road in commercial and industrial projects as well.
  • The conference also presented options for leadership CPE including engagement of employees and building teams through the life cycle of employment. The topics addressed different means in which businesses can integrate practices during different phases of an employees’ experience to strengthen the engagement of the work force.
  • CFMA also included multiple sessions addressing different technology topics including “Top 10 Questions CFOs should ask about IT” and various construction technology forums focusing on different software platforms. These sessions addressed different strategies to utilize platforms and develop dashboards leveraging the capabilities of the different software solutions.
  • CFMA also provided an analysis of its 2021 Benchmarking Results, focusing on strategies to understand your business and how it performs next to its peers. The discussion centered around key ratios and how to utilize CFMA’s tools to strengthen your business.
  • As usual, the conference included a tax update which focused not only on taxes but different subtopics related to stimulus available to contractors and perspectives on the transition to a new administration from the prior one that effected the largest tax reform since the 1980s.
  •  The CFMA conference wrapped up with CFO roundtables for contractors at different size ranges as follows:
    • Over $100m
    • $25m - $100m
    • Less than $25m

The round tables provided opportunities for similar sized contractors to share information and discuss key topics and strategies related to diversity, labor/retention, materials shortages/costs, technology and other important issues.






Paycheck Protection Program Financial Reporting Considerations for Construction Companies

Since the inception of the Paycheck Protection Program (PPP), there has been no shortage of questions and need for additional authoritative guidance for recipients of PPP loans.

One of the aspects of accounting for these loans relates to financial reporting considerations. Should these amounts be reported as debt? Income? If income, should it be presented as gross or net of qualifying expenses?

PPP loans from the Small Business Administration (SBA) are forgivable based on meeting certain employment and expense metrics. Due to the unique circumstances of the program, and lack of one-size-fits-all accounting guidance, the financial reporting for these loans requires careful consideration. The loan forgiveness application plays a key role in this process as the timing of SBA approval could be a critical factor to consider.

Depending on the timing of the forgiveness application, the loan may be presented as debt, revenue, or as a government grant under a general heading such as “other income.” Some companies could even choose to net the proceeds against related expenditures, although we are not seeing this in practice in the construction industry very often, because it can quickly become an activity trap running a portion through job cost (which will impact revenue recognition) and overhead salaries. For more information on these presentation considerations, additional resources can be found within the COVID-19 webinars included at RubinBrown’s COVID-19 Resource Center here.

The most common approach we are seeing in the construction industry is to record the loan proceeds as “Other Income” on the income statement if the loan has been forgiven or if the company fully expects forgiveness. Some larger companies with loans greater than $2 million are choosing to leave the loan on the balance sheet as a liability until they receive approval from the SBA.

Regardless of the approach taken, construction companies need to be meeting with and talking to their lender, surety agent, and other users of their financial statements to identify which presentation method is best for them.






IRS Issues Final Regulations for Bonus Depreciation - Impact on the Construction Industry

Did you know building improvement expenditures may qualify for immediate write-off?

The Treasury Department recently issued final regulations implementing the 100% bonus depreciation rules. Updated with the passage of the CARES Act in March 2020, 100% bonus depreciation allows businesses, including construction companies and those related to construction, to write off the cost of depreciable assets in the year they are placed in service. The rules generally apply to business assets with a recovery period of 20 years or less.

Specifically as it relates to the construction industry, is the treatment of qualified improvement property (QIP), which qualifies as bonus depreciation. QIP is defined as any improvement made to a non-residential building as long as the improvement is placed in service after the building was first placed in service, are for the interior portion of the building, do not enlarge or expand the building, are not for elevators/escalators and are not part of the internal structural framework of the building.

The final regulations require that QIP expenditures must be incurred by the taxpayer in order for them to qualify for 100% bonus depreciation.

Contractors may be able to educate building owners on potential accelerated tax deductions derived from the construction project. This can help build a stronger relationship between owner and contractor.

Construction companies should take advantage of the bonus depreciation rules to help mitigate tax liability and maximize cash flow. Please consult your RubinBrown tax advisor to navigate these new rules.







Dirty Jobs – Somebody Has to Do Them

You may recall Dirty Jobs, a television show on the Discovery Channel featuring Mike Rowe performing messy and strange jobs. As entertaining as the show was, it brought to life the reality of a serious skills gap that exists with trade jobs.

The trade skills gap has been a challenge for years and continues to be a challenge for many construction companies. Some of the frequently discussed solutions to filling this gap include adopting new technologies to improve productivity, investing in recruitment and investing in ongoing training to improve retention.

One noted challenge has been the stigma of going into trade school instead of college. So many high schools focus on college as the next step after high school. This leaves out many students who might be better suited to a career in the trades. A recent report from Harbor Freight Tools for Schools and the National Opinion Research Center (NORC) at the University of Chicago found that over 80% of voters support increased government funding for skilled trades classes in high school, but the infrastructure and resources to grow those programs is lacking. A lot more work needs to be done at every level across the board to meet the skilled labor challenges.

Several major professional organizations for the construction industry have some great resources on this topic. These include Associated Builders and Contractors (, National Association of Home Builders ( and Associated General Contractors of America ( and their various state chapters (full map and list on AGC website). In addition, Mike Rowe has a website,, which focuses on all the issues related to the widening skills gap and includes resources for anyone looking to explore the trades.






Need More Cash? Own Your Underbillings!

Strong over/underbilling management is crucial for cash flow. Improper cash flow management can lead to sour subcontractor/vendor relationships, talent retention issues, and can even lead to missed growth opportunities.


In the current environment, this concept is even more important.


While there are many ways that a contractor can manage cash flow, one way is to avoid underbillings at all costs! Sounds simple, right? Because underbillings represent earned revenue, (which has not been billed) it represents revenue to the contractor without the benefit of the cash. This is bad for cash flow and likely generates a bad tax answer, as well. As such, it is vital to ensure that this balance remains as low as possible. Here are a few tips:

  1. Discuss a payment schedule at the inception of the contract. Make sure this schedule tracks with the amount of cost that will be incurred over time.
  2. Ensure your billing team, accounting team and project team are meeting frequently (at least monthly) to discuss billings. This will help with timely and appropriate billing.
  3.  Be INTENTIONAL about the billing process. Do not let billing become the accounting team’s process. The billing process should be owned by your executive team and include operations (project managers) and your accounting department.
  4. Prior to beginning any out of scope work on a contract, ensure that your team receives a signed change order (easier said than done, but do the best you can!) This will help prevent any surprises when it comes time to bill.

As it relates to overbillings, these are almost always good! However, if your overbillings are not sitting in accounts receivable or cash, you have another problem. If your overbillings are not in cash or A/R, you either have job borrow occurring or you’re using the cash on other non-job related expenses. Comparing overbillings to cash and A/R should be a financial metric your accounting team monitors on a monthly basis. By following these steps, a contractor should see significant increases in their contract cash flow.






What’s Hot?…The Home Building Industry!

The home building industry came into 2020 with promising backlogs. These were driven by better than expected 4th quarter sales fueled by a strong economy and low interest rates.

Just as the spring selling season was about to start, COVID-19 hit the country. In fact, a few states were forced to close down for periods at a time as the industry was not deemed essential in some places.

Despite the uncertainty with the economy, the home building market has surged back. Record low interest rates and demand from both baby boomers and millennials has driven the industry to unexpected highs.

According to information compiled by Builder Partnerships, home building experienced increases in sales of 19.4% in May and 13.8% in June. May permits increased 12% from April and another 11.8% in June. July is expected to be equally strong. Gross margins have also remained good through this time period.

For existing homes, pending sales in May increased at a record setting pace of 44.3%, and June sales registered a 20.7% increase from May sales.

Home builders have done a particularly good job of using technology to work remotely. Despite various labor shortages, builders have been able to work efficiently dealing with various COVID-19 restrictions. There is no reason to believe the remainder of 2020 sales will not remain as strong. The main challenge will be getting the houses built. Many builders are now selling non-inventory that will close in 2021.







Potential Refund Opportunity for Construction Company Owners

Litigation pending before the Supreme Court may repeal certain provisions of the Affordable Care Act (ACA).

The case Texas v. United States, is not docketed to be adjudicated until summer of 2021. The decision may retroactively repeal the .9% additional medicare tax and the 3.8% Net Investment Income Tax.

While the chances of the Supreme Court repealing the ACA may be low, depending on the amount of potential tax refunds at risk in 2016, the best course of action may be to file a protective claim for refund. A protective claim is an amended return requesting a refund based on the results of a pending judicial action. This claim may be filed to preserve the ability to claim refunds of additional medicare tax or the net investment income tax for 2016. Because the normal statute of limitations for refund claims is three years from the filing date of returns, it is important to act quickly to determine the need to file a protective claim of refund.







Financial Accounting Standards Board (FASB) Delays Implementation Date of Accounting Standards Codification (ASC) Topic 606, Revenue From Contracts With Customers.

On June 3, 2020, the FASB issued Accounting Standards Update 2020-05, which officially provides entities that have not yet issued financial statements reflecting the adoption of Topic 606, with the option to delay implementation by one year.

Prior guidance required adoption for private companies to implement Topic 606 for fiscal periods beginning after December 15, 2018 (2019 calendar years). Implementation now is required for private companies beginning with fiscal periods beginning after December 15, 2019 (2020 calendar years).

What are the implications to your business?

Due to the timing of the deferral of Topic 606, many contractors have already implemented the guidance. However, there are still many that have not and have elected to delay for a year. Being that the implementation of Topic 606 is not pervasive across the board, it is important to know that there may be variability when comparing with industry benchmarks. It is important to understand the pre and post-implementation changes related to certain areas unique to the construction industry, such as contract modifications, performance obligations embedded in contracts, variable consideration and the incremental costs of obtaining a contract.

Consideration of regulatory requirements, contractual reporting, and bank-related covenants will need to be taken into consideration as well. Regulators and banks may have already incorporated Topic 606 considerations into their regulations and covenants. Reconciling financial results with these entities may be tedious if an understanding of Topic 606 requirements is not present.

While the FASB has provided certain relief for Topic 606 transition, it is important to begin this process immediately to understand the implications of the contract revenue standard. This will help in implementation going forward and help in conversations with sureties, regulatory agencies, and financial institutions. 







Construction After the Shutdown

We are entering a point where everyone is thinking about getting back to work and leaving our work from home experience. That is a good thing to think about! But what is the most efficient and profitable way to do that while keeping your employees, customers and subcontractors safe? Here are a few tips to make that happen.


#1 Priority - Communicate

Many construction companies had crews working at project sites during the work-from-home mandates. However, your customers and suppliers may not have been fully staffed – particularly in the back office functions. It is extremely important to be in contact with everyone in your supply chain.

  • Your financial team should call (or Zoom) the financial staff of each owner or other contractors you have been working with to evaluate their current condition. You should determine if they have been processing pay apps, have they been in touch with the back office function of the owner, determine their financial state (if possible), etc. The most important determination is whether they are in a position to pay you and in what time frame.
  • Your financial team should also be calling your sub-contractors and suppliers. It is important for you to know if your subs have been paying their suppliers. Are your subs and suppliers in a financial position to continue doing business through the next 60 days (May and June)? If they are short on materials or supplies, how will that affect your particular jobs? You need to understand the extent of these risks as soon as possible.
  • Check in with your surety bond provider. If your surety has any plans for less flexibility with key financial metrics during these challenging times, its best to get an understanding of those liquidity requirements now so you are not surprised later while bidding a job.
  • Stay close to your bank. Many (if not all) of you were working closely with your bank during the PPP loan process. However, that was money guaranteed by the federal government. Loans guaranteed by the bank itself is a different story. It is important to let the bank know what your expected borrowing needs might be over the near term (May, then June, then July). As discussed below, it is important to have a short term outlook during the start-up period. Finally, you might want to consider establishing a secondary banking relationship to ensure access to cash.
  • Project timelines could continue to be affected by social distancing guidelines and recommendations (i.e., crew sizes, # of crews allowed to be on site, etc.) for the foreseeable future. This not only adds time but will likely have a dollar impact to each project as well. Communication between the subcontractors, General Contractor, Construction Manager, and Owner/Owner Rep are as imperative as ever.
  • Communication on design changes are also important during this time. A once “open concept” design may no longer be supported going forward which could cause significant re-design and engineering on multiple fronts requiring significant communication and negotiation.
  • Contractor and Owner management teams may have also seen changes in their management structure which could cause additional need for more coordination and communication. This may very well be an opportunity to strengthen relationships and develop new methods for collaboration between parties.

Some construction companies have not been able to continue working during the last couple months. It is even more important for these companies to contact each link in their supply chain right now. Don’t wait for the start up to begin!

#2 Priority – Manage Cash Flow

It is important to ensure cash and working capital is sufficient to start and/or continue operations. Some tips to manage your cash include:

  • As mentioned above, you should first consider your short term needs when managing cash flow. Once you have assured that you will continue to be liquid over the first 4 weeks of the start-up, you can then look further out.
  • Your financial team should be working with project managers to prepare monthly and quarterly cash flow reports by job. Knowing which jobs are generating cash and which jobs are using your cash is critical information needed to manage cash flow for your company.
  • Develop a cash flow forecast by week for the next 4 to 12 weeks. This can be done in excel if your accounting software is not capable and it should take in to consideration many of the issues discussed below. Of course, this will still be a forecast. For each assumption that goes into the forecast, you should also develop a degree of probability. For example, projects that are in backlog over the next 2 to 4 weeks could have a probability of 100% - you are certain they will occur. However, the probability that your customer will pay for the work is not 100% even if you have worked with this customer for the last 30 years. Times are different.


    The probability estimate applied to each assumption in your cash flow forecast will help you determine what the most likely outcome is for your business over the next 4 to 12 weeks (in this example). It will also help you understand if more actions are needed to realistically remain cash solvent. Additionally, it will show your bank that you understand your business and are realistically assessing the likelihood that future events will occur.


    In the end, a cash flow forecast will provide you a road map on what you need to operate your business. It will also provide peace of mind that you know where you are going and you will survive this economic catastrophe.
  • Talk to your bank about increasing your line of credit. Once you understand your short term cash needs, let your bank know how much working capital you expect to have over the next few months. You then will be able to discuss with the bank what the appropriate line of credit is to cover the potential pitfalls in your cash forecast.


    Similar to the cash flow forecast, a sufficient line of credit based on your best estimate of cash flows will provide peace of mind and allow you to run your business with a clear mind.
  • Know your inventory and material requirements inside and out. This is a period of time when you want to make sure you have sufficient materials on hand or access to the materials through your suppliers. Many construction companies will be ordering replacement inventory when the economy bounces back. The supply chain will be stretched thin….think toilet paper! Don’t assume the usual lead times apply. Don’t assume that your suppliers have their normal inventory levels and are paying their own bills (see Priority #1 – Communicate).
  • Bill promptly and completely. Bill as much as ethically possible in the front end of jobs. Again, communication with the owner or general contractor is extremely important.
  • Do not rely on Insurance policies to cover pandemic costs. In many cases there is specific exclusions for event similar to this. If you think that an insurance claim may be possible, ensure that you are aware of the notice and other key policy requirements.


Really the only priority over the next few months is staying financially strong to ensure your business survives. Communication with supply chain partners, banks, surety and customers is critical to understand the road ahead. Sound cash flow forecasting management will be necessary to survive the bumps ahead!







The Employee Retention Credit and the Construction Industry

Did you have a job site that was partially or fully closed by government order?

If so, your company may qualify for the Employee Retention Credit (ERC). The Employee Retention Credit allows a credit for certain wages paid to employees that are fully or partially not able to work. A closure of a single job site may qualify your company nationwide to claim this credit. The credit can be up to $5,000 per employee and can be refundable. Eligible employers that received a PPP loan cannot take the ERC. Contact us to help determine your eligibility for this valuable credit.

Read more on the Frequently Asked Questions section of the IRS website.

For more information on COVID-19 resources, visit RubinBrown's COVID-19 Resource Center.







How Coronavirus is Impacting the Construction Industry

COVID-19 (officially SARS-CoV-2 or also referred to as novel Coronavirus) is disrupting everyday business and life as we know it.

The United States Treasury Department announced that it would be pushing back the April 15 deadline to file tax returns and pay taxes owed on that date by 90 days, giving Americans three extra months to pay their 2019 income tax bills. This gives millions of individuals and C-Corporation businesses extra time needed to pay these out-of-pocket costs in light of COVID-19.

Treasury Secretary Steven Mnuchin explained that with this new regulation, the IRS, under President Trump’s national-emergency declaration, will also waive interest fees and penalties. Individuals and businesses should file their taxes as normal, if they can, and they will not incur interest or penalties on amounts due.

On Wednesday, March 18, IRS notice 2020-18 granting relief was released. The notice confirms the 90 day extension included in the Treasury Department announcement. The notice further clarified that the relief provided by the extension is available to be applied to first quarter 2020 estimated income tax payments in addition to Federal income tax owed for the taxpayer’s 2019 tax year. As a result, payments of this nature due by April 15 are subject to the relief covered by the IRS notice. All taxpayers are also granted an automatic 90 day extension of time to file until July 15, 2020.

The announcement did not provide guidance on payroll taxes and their respective due date. Uncertainty also remains around whether 2020 second quarter estimated taxes are expected to be paid by the normal June 15 deadline or if they will be deferred as well.

In a time surrounded by uncertainty, the extension will at least provide cash flow relief to both businesses and business-owners as many will qualify for the extension.

The construction industry faces additional challenges due to the on-site necessity of work performance and constraints on the extent of social distancing that can be practiced within the labor force on an active job site.

Furthermore, supplies are imported from a variety of international suppliers and disruption to the manufacturing industry both domestically and abroad will impact the availability of supplies necessary to complete projects, while also increasing the cost. It is critical for project management teams to analyze current supply chains to assess the exposure to disruption within those supply chains that ensues.

Labor and material challenges often lead to project delays and cost overruns presenting budgetary and profitability challenges to project management.

As many business interruption policies limit coverage to interruptions related to natural disasters with disease not included in coverage, companies are left wondering how they can mitigate risk exposure.

One possible form of relief for contractors is the force majeure clause that is included in certain contracts. The term itself may not be explicitly included; however, contract language that provides for a time extension in the event of delays caused by an act of God, act of government or other events beyond the reasonable control of the contractor. A practice encouraged for contracts currently undergoing negotiation is the inclusion of specific references to force majeure with respect to COVID-19, pandemic and disease specific to time extensions.

While the force majeure clause offers protection to contractors it also protects material suppliers in that contractors may be subjected to price increases or may limit the contractor’s ability to terminate the contract and seek alternative suppliers.

As a result of these challenges it is more important than ever for construction companies to be proactively communicating with project owners and project partners regarding these risks and how they will be handled through the course of a contract’s performance period.

As containment measures continue to intensify across the country, having a variety of communication channels available – teleconference and video conference as an alternative to face-to-face, for instance – as well as a high frequency of communication will be critical for ongoing projects to complete in a timely and cost effective fashion. Social distancing and other sanitary measures will also be key for job sites looking to avoid quarantine delays.








Roads, Bridges and Infrastructure: The Next Wave of Construction Projects

Over the past several years, commercial and residential construction has been booming. What could be next? According to the American Society of Civil Engineers (ASCE), it is estimated that the United States needs to spend nearly $4.5 trillion by 2025 to fix the country’s roads, bridges and other infrastructure. As recent as 2017, the ASCE gave the United States infrastructure a grade of a D+, which is the same grade it received in 2013. Additionally, a National Academy’s committee recently observed that many interstate highways are operating well beyond their design life, handling larger traffic volumes than anticipated and poorly positioned to accommodate even modest traffic growth.

While most Americans need to deal with the issues that come along with an aging infrastructure on a daily basis, other organizations will be posed to reap the benefits. Heavy highway, road and bridge, and specialty contractors that focus on infrastructure may lead the next wave of construction. Further, federal and state capital spending may be on the rise, which can be beneficial to contractors involved in federal and state construction projects.

Recently, the President has brought forward legislation to Congress that generates at least $1 trillion in infrastructure investment. Specifically, the 2020 budget is targeting the following infrastructure needs:

  • Approximately $2 billion for the Infrastructure For Rebuilding America (INFRA) grant program which focuses on large projects that relieve congestion and mitigate bottlenecks for interstates, freight rail and ports
  • Approximately, $1 billion for the Better Utilizing Investment to Leverage Development (BUILD) grant program. This program awards important surface transportation projects in urban and rural area.
  • Approximately $300 million for a competitive highway bridge program which incentivizes states to rehab or replace rural bridges in poor conditions.
  • Approximately $300 million for two water infrastructure investments which will facilitate more local control over authorized Army Corps of Engineers projects and promote financing partnerships with non-federal partners.

If this 2020 budget comes to fruition, significant opportunity will be available to contractors involved in the infrastructure space!






Update on Home Builders - News from Las Vegas

RubinBrown leaders recently attended the International Builders Show in Las Vegas. Attendance this year exceeded 70,000 with much optimism being displayed by many in the industry. The following are some highlights:

Economic Outlook

  • Housing starts hit a 12 year high in December 2019.
  • The HMI (Home Market Index) which measures how builders feel about sales and buyer traffic remains strong at 75.
  •  2019 starts were up 2% from 2018 activity. 2020 and 2021 are predicted to be up 3% and 1% respectively.

Learn more.







Potential Tax Implications of ASC Topic 606: Revenue From Contracts With Customers

New revenue recognition standards under FASB Accounting Standards Codification (ASC) Topic 606 require companies to adopt new methods to recognize revenue from contracts with customers for book purposes.

Construction Workers Young

The standards require a five-step analysis to be completed for all contracts to transfer goods and services. While many companies have started to complete this analysis for book purposes, few are aware of the potential tax implications.

Many of the changes required for book reporting purposes are either not acceptable accounting methods under the Internal Revenue Code and other guidance issued by the IRS, or will require new adjustments for tax reporting. Of the five-step analysis, tax adjustments will most likely occur due to changes in step 2: identifying performance obligations, step 4: allocating transaction price to performance obligations, and step 5: considering performance obligations satisfied. These changes may create additional tax adjustments and possibly tax accounting method changes requiring companies to file a Form 3115 with the IRS.

Changes in financial reporting for certain items including determining the transaction price, uninstalled materials, variable consideration, etc., have the potential to create differences in book and tax income. If it is determined during your internal contract review that any of these items are present or if you have any other questions about the tax implications of ASC Topic 606 please contact your RubinBrown advisor.


Incentives for Project Managers in Construction

Positive cash flow and operating efficiencies are directly related to the skills and motivation of project managers. In order to entice project managers to work toward the best possible outcome on every construction job, you might consider developing an incentive program to reward those with the best monthly positive cash flow by job. Positive cash flow could allow the company to fund expenses with customer funds, rather than paying out of its own pocket. Analyzing this on a monthly basis can quickly highlight project managers that are managing their jobs well and those that may need some improvement. Additionally, the company can see which contracts may have issues going forward, whether it be related to billing, performance, efficiencies, etc.

While there may be a very simple explanation for poor cash flow on a job, the exercise of monitoring this may identify issues to be escalated above the project manager level. This could allow the company to take more of a proactive approach to job results as opposed to a reactive approach at project completion. Depending on the size of the company, this can be tracked company-wide, regionally or even down to specific contract types.

In the end, providing an incentive gets the whole team working toward a common goal and can even allow for some friendly competition within the company.







Quarry Accounting – What Are The Main Differences?

Did you know, quarries have a special set of considerations to be applied in order to determine appropriate accounting for the industry?

Phases of the Industry

One of the special considerations relates to the stage of the operations:

1)    Exploration – search for resources suitable for commercial exploitation (discovery costs)

2)    Evaluation – determining the technical feasibility and commercial viability of the resource (proving costs)

3)    Development – establishing access to the reserves and preparations for commercial production

4)    Construction – establishing and commissioning facilities to extract, treat and transport production from the reserve

5)    Production – day to day activities of obtaining a saleable product from the reserve on a commercial scale

6)    Closure and rehabilitation – ceasing operations and restoration of the site

The accounting for each of these phases is nuanced and should be discussed with your accounting advisors in detail. In particular, during the development phase, costs are generally capitalized until the point in which production begins. Capitalized development costs are amortized using the units-of-production method as the resources are mined. Reserves during the development phase should be estimated to determine the proven and probable amount of reserves available.

The cutoff of the development and construction phases, in which costs are generally capitalized, and the point of production are critical points that should be established by the entity. During the production phase, costs are charged as operating expenses, rather than capitalized.

Inventory Accounting – Production Phase

During the production phase, inventory should be measured and valued at all costs of the purchase, costs of conversion and other costs to bring inventory to present location and condition. Generally Accepted Accounting Principles require inventory be held at the lower of cost or net realizable value. Costs of conversion include indirect labor, indirect materials, depreciation of the processing plant and equipment used, and all other costs of running the site including electricity, power, utilities and any other costs to run production. Other costs associated with inventory could include depreciation and amortization, ongoing or short-term development costs, royalties (if based on production) and freight costs.

Administrative overheads not associated with the site, storage costs (unless necessary in production process), selling costs and abnormal amounts of wasted materials, labor and production should be excluded from inventory costs.

Stripping is the removal of overburden or waste to access mineralized materials. Once production has commenced, stripping costs incurred in surface mining are accounted for as a cost of current production. Therefore, these are a component of the cost of inventory extracted from the site and held at period end.

Work in progress inventory should be measured when a reliable assessment of mineral content is possible and cost of production can be reliably determined. Stockpile inventory is based on physical measurements with grade determined through testing.

Environmental Obligations

Entities are required to recognize a liability for obligations associated with environmental remediation liabilities related to pollution arising from some past acts under ASC 410-30. An accrual is required if information is available before the financial statements are issued that indicates it is probable that a liability has been incurred as of the financial statement date and the amount of the loss can be reasonably estimated.

The estimate should consider the extent and type of hazardous substances, choice of technology, changing laws and regulations, number of potential responsible parties, and the financial conditions of the other parties. Additionally, companies should consider the cost of compensation and benefits for employees handling remediation, cost of feasibility studies, fees to engineers, consultants and contractors, governmental oversight costs, and costs of machinery.

This differs slightly from asset retirement obligations, which should be recognized in the period incurred when the entity has an existing legal obligation associated with the retirement of a tangible asset and the amount can be reasonably estimated. The present value of the obligation should be calculated and accrued as a liability then released with the passage of time and changes in estimates.

When in doubt about any accounting topics in a specialized industry, consult your advisors!






Succession Planning 101

Succession planning, like estate planning, is a very important yet often overlooked or delayed topic of discussion.

No business owner or executive wants to talk about this topic. To talk about your successor means you have to relinquish control, plan for a sale of a business that you have overseen and inherently trust another with one of your most valuable assets.

The two primary concerns with succession planning are shifting operational or managerial control and shifting legal control.

Key considerations for operational control:

  • Obtain commitment and involvement from the Board, executives and family members
  • Involve your professional advisors early and often in the process
  • Train successors for the key executive roles
  • Practice constant improvement and leadership development at all levels of the organization
  • Seek professional help when needed on the emotional, political or people side of the process

Key considerations for legal control:

  • How does the owner protect and pass on the value that has been developed in the business?
  • Will ownership remain in the family or key executives or both?
  • Plan for income and estate tax ramifications of the transaction
  • Are the documents and plan in place to successfully execute a planned or unplanned transition?

With all successful transactions, proper commitment of time and resources need to be dedicated to the process. Openly involve and communicate to the parties involved including bankers and bonding agents. Create and stick to a timeline with regular check-ins on progress. While separating from what can be your life’s work is a daunting task, there is help. Remember as Benjamin Franklin said, “If you fail to plan, you are planning to fail.”

Read more at Construction Executive.







Illinois Enacts New Retainage Law

Construction Workers

A new law (815 ILCS 603/20) recently signed in Illinois limits the amount of retainage withheld on a construction contract to 10% (5% after the contract is 50% complete).

With this law, Illinois becomes one of 20 states with similar regulations related to retainage in construction. This law is effective for all contracts signed after 08/20/19 and applies to all construction contracts and subcontracts for the “design, construction, alteration, improvement or repair” of real property.

This cap applies equally to owner-contractor agreements and to contractor-subcontractor agreements, as well as to owner-architect and design agreements. Also, because the terms “contractor” and “subcontractor” have the same broad meanings as in the Illinois Mechanics Lien Act, the limit applies to construction managers, design-builders, sub-subcontractors and material suppliers too.

This new law likely helps contractors obtain a larger payout earlier in the contract timeframe. The 10% - and subsequent 5% - cap on retainage should result in an infusion of funds to contractors, who have long argued that withholding 10% of payments until the end of a project negatively impacts cash flow. Because this law doesn’t apply to construction loans or the amount of retainage lenders may withhold from construction draws, project owners need to consider the impacts of this law on their cash flows.

For contractors using tax-favorable strategies related to retainages, the specific impact of this law should be considered during year-end planning.






General Contractor Cost Considerations

Payments to subcontractors typically makes up 65% to 85% of a general contractor’s (GC) total expense. While this percentage will fluctuate depending on the amount of work the GC self performs, it will always be a significant cost.

It is vital to allocate special attention and design specific controls to manage subcontractor expense. Four important controls to have in place are as follows:

1.    Pre-qualify your subcontractor’s financial stability and credit worthiness before they start any work.

  • Obtain their latest audited or reviewed financial statements
  • Ask for references and follow through with phone calls
  • Request a certificate of insurance
  • Request a surety capacity rating
  • Request a credit report

2.    If working with sub-contracts in excess of $250,000 or with unfamiliar subcontractors, the GC should give serious consideration to a surety bond requirement. A good subcontractor should have no problem furnishing a surety bond.

  • Examine the bond to ensure it is authentic
  • Complete some due diligence to ensure the bonding agent is reputable

3.    Design and implement an internal competitive bid policy for selecting a subcontractor. We recommend that this policy stipulate that at least three bids or quotes be obtained for each line of work where a subcontractor is needed. If the low bidder is not awarded the job or if three bids were not obtained, the reason should be documented in the job file and reviewed by management.

4.    Obtain a list of the subcontractor’s major material suppliers and request lien waivers. The GC should verify that the subcontractor is paying its vendors on a monthly basis while the job is in progress.

In summary, managing a GC’s most significant expense can have a direct impact on profitability. By implementing tight controls, a GC may be able to “move the needle” on profitability in a competitive market.


Women in Construction? Yes, There are Women in Construction.

Even with a lot of focus recently on diversity in the workplace, construction is still a male-dominated industry. According to recent surveys, women make up less than 10 percent of the construction workforce.

There is a higher percentage of women serving in Congress (currently 23.7 percent) and in the active duty military (14 percent). Women do in fact make up 47 percent of the total civilian workforce. So, as the construction industry looks for ways to hire and develop skilled labor, diversity has become more important than ever.

There are several challenges to increasing diversity, specifically among women in construction that need to be addressed. These include unwelcome worksites, sexual harassment issues, flexibility and the perception by others that women on the team are not as capable for projects that require manual labor. It’s not the women, it’s the environment and the culture.

So what can a construction company do to address these challenges? First, educate both the men and women in the company about diversity and company expectations regarding a safe work environment. Also, provide opportunities for networking and training. Finally, review your compensation structure to make sure that your company enforces a policy of equal pay for equal talent.

There are several resources available to help increase diversity at your company and support the women there already. The National Association of Women in Construction (NAWIC), Professional Women in Construction (PWC), as well as other local organizations have tools, education materials, conferences and other resources available.

Construction companies, as well as other organizations, are finding diversity is the key to success. Now is a good time to start the conversation or you may be left behind.








Changes to Rules on Personal Use of Company Autos May Simplify the Calculation for Construction Businesses

The free use of a company vehicle is a great perk an employee may receive as part of a compensation package. This type of perk is especially valuable in the construction industry as contractors and builders are constantly traveling from job to job.

However, this benefit isn’t completely free under current tax law – the personal use is treated as a taxable noncash fringe benefit, subject to income taxes.

The calculation of the amount to include in taxable income can be a very time-consuming endeavor. The annual lease value (ALV) of each vehicle must be determined, based on IRS tables using the fair market value (FMV) of the vehicle when it was first placed in service and the number years the vehicle has been in service. This value is then multiplied by the percentage of personal miles to total miles driven during the year.

For companies with 20 or more vehicles, the Fleet-Average Method can be used to simplify the taxable income calculation. The average FMV of all of the company owned vehicles is used to calculate the annual lease value of all of the vehicles in the fleet, instead of pulling the ALV for each vehicle individually.

Before the Tax Cuts and Jobs Act (TCJA) most companies could not use the Fleet-Average Method because the average FMV of vehicles in the fleet needed to be less than $21,100 (cars) or $23,300 (trucks and vans) for the company to qualify. To put that in perspective, a 2019 base model F150 currently costs about $29,000 without any kind of extended cab.

The TCJA, however, increased the average FMV limit to $50,000 for cars, trucks and vans in 2018. This limit is indexed for inflation annually. The limit for 2019 is $50,400 – high enough to include a mid-level ½-ton truck with a crew cab. If you aren’t currently using the Fleet-Average Method to calculate the amount of taxable income for personal use of company vehicles, it might be a good time to consider making the change.






Improving Profits, Operations and Liquidity in Construction Projects 

Recently, RubinBrown leaders attended the Construction Financial Management Association Annual Conference in Las Vegas. At the conference, some key insights were discussed by experts in the profession around improving profits, operations and liquidity.

When it comes to improving profits, you should always conduct a post job review to better plan for future projects. Also, consider contractor and contract size when evaluating if your company would be a good fit to take on a project. If you come across a cost-plus contract, make sure to evaluate what your actual return will be once all the work is said and done. Automation and integration are also key to improving profits as they should help streamline operations.

In terms of improving your operations function, understand where your bottlenecks exist to better allocate resources effectively and efficiently. When a job is complete, make sure you understand the rationale behind unrecovered costs and investigate ways to incorporate changes in the estimating process for future jobs. Review internal job costing and billing approval processes to ensure costs incurred are billed in a timely manner. And, it goes without saying, but resist the temptation to increase a project size too quickly without evaluating your workload, potential return and the effect on your day to day operations.

Finally, if your goal is to improve liquidity, consider selling your idle fixed assets. Re‐negotiate debt obligations to push out due dates of payments past one year. And, it sounds simple, but gain control of your overhead expenses. Overhead as a percentage of revenue for general contractors is usually in the 2% - 4% range, and overhead for subcontractors should be less than 10% annually.






Are you Giving the Internal Revenue Service an Interest-Free Loan?

The Tax Cuts and Jobs Act (TCJA) provided many tax benefits to individual owners of pass-through entities in the construction industry.

One benefit we have discussed in other blogs is the new section 199A qualified business income deduction, which replaced the old section 199 domestic production activities deduction. Section 199A provides qualified taxpayers a 20% deduction of qualified business income on their individual income tax return. The rules surrounding section 199A are complex but many contractors meet the definition of a qualified trade or business and have payroll and tangible property to meet the 50% wage limitation and 2.5% UBIA limitation (unadjusted basis immediately after acquisition of all qualified property) for certain taxpayers. 

With this new deduction and many other potential benefits, Construction Horizonwhen was the last time you analyzed your entity’s tax distribution policy? The top federal individual tax bracket is 37% which was effective January 1, 2018. This is down from the previous year’s top Federal tax bracket of 39.6%.  With an added 20% Section 199A benefit, the effective rate on your qualified business income could be 29.6%. This reduction could provide substantial tax savings and reduce your individual income tax liability. Why pay more in quarterly estimates during the year just to receive a substantial refund at year-end, thereby providing the IRS an interest-free loan?   

Now is a great time to revisit your tax distribution policy and amend as needed to be in-line with the TCJA. With added tax benefits and reduced tax rates, you may be able to revise your federal and state quarterly estimated tax payments or W-2 withholdings and retain more funds in your company’s and/or your own pocket!   




I Just Received a Tax Notice, Now What?!?

First off, don’t panic.  And don’t pay the notice right away.

tax_returnSend a copy of the notice to your RubinBrown tax professional.  Often tax notices are automatically generated by matching what was reported on your tax return to information that is provided by third parties to the IRS or state tax authorities.  Sometimes notices are generated because the IRS has detected suspicious or unusual activity on your account.  Sometimes the correspondence is a notification of examination.  Notice activity among states has been particularly active as state budgets continue to be strained.

Remember, notices won’t go away until you address the underlying issue.  Generally, depending on the matter and jurisdiction, notices come in three or four rounds about 30 to 45 days apart.  By the 3rd notice, you have the risk of seizure or levy of your assets.

Whether it is: writing a letter, asking for an extension of time to handle the issue, negotiating waiver of penalties, or representing you in front of the tax authority, we are here to help.  Give us a call.






Cybersecurity Tips for Construction Companies

Technology continues to evolve at a rapid rate allowing construction companies to reinvigorate their approach to every day work through innovation and newfound efficiencies. 

While it’s necessary to continue to invest and explore the latest in technological advances – including activities such as building information modeling, virtual reality, drones, robotics – it’s equally important to invest in cybersecurity resources to protect themselves.

Phishing scams are one of the most common ways that hackers attempt to infiltrate companies through the use of phony emails that appear to be from legitimate sources.  This can result in malicious activity that takes many shapes. 

A fraudster can compromise sensitive data by targeting company employees and luring them in to clicking on a malicious link that will infect the user’s computer with malware.  Certain types of malware can apply passwords and other restrictions to critical data allowing the fraudster to hold it hostage, demanding a “ransom” be paid before its release (commonly referred to as “ransomware”). 

Phishing scam perpetrators will also often imitate a company executive and instruct a CFO, controller or other employee with cash disbursement authority to wire an immediate payment to a specified bank account. 

It’s not uncommon for fraudsters to observe company emails in order to allow them to reference recent projects or pose as a vendor that is due to receive payment – lending more credibility and legitimacy to the fake email.  Many companies have fallen victim to this scheme and wired funds to criminals who deposit the funds into offshore accounts, which significantly reduces recovery.

Construction companies are exposed to cybersecurity risk due to the significant volume of sensitive, confidential data they are required to protect including but not limited to bid data, designs, materials pricing, profit/loss data, employee information, and banking records.

While dual factor authentication, web filters and other software and hardware protection measures are important, the most critical investment a company can make in protecting itself from attacks of this nature is to provide frequent trainings and prevention exercises to all employees at every level. 

It is critical for construction companies to ensure they are devoting adequate resources to IT budgets, staffing levels and support.  Since IT is an overhead center that does not generate revenue it can sometimes be undervalued and treated as a cost cutting area, however the risk exposure and cost of falling victim to one of these schemes will often far outweigh the savings.






Communicate Often To Ensure Your Jobs Stay On Budget

Given the significant growth in the construction and engineering industry over the past few years, construction companies in today’s environment have been more focused on managing the work in front of them (day-to-day operations) and sometimes fall short with communicating job status to the accounting team. 

BudgetWhile management’s focus on revenue drivers of their business (job site work, customer relations, etc.) is important, we can’t forget other “back office” aspects of the business (accounting, budgeting, financial planning, etc.).

Poor communication between operations and accounting can lead to surprises at the financial statement level and leave a company in a difficult position.

In order to prevent any “surprises” at the conclusion of a project, construction companies should consider the following best practice policies:

  • Hold meetings on a regular basis (monthly is suggested, but quarterly may be reasonable depending on the size of your projects) between the accounting team and the project management team. The accounting team should include the CFO and/or Controller while the project management team should include the project managers, project superintendents and estimators. During these meetings, the project management team should provide updates on the status of the project and provide any changes to total contract values and total estimated costs. This allows the company to update their estimates throughout the project rather than just at the end.

  • Ensure the project management team fully understand the financial components of construction accounting. For instance, many project managers view percent complete as the amount of billings to date relative to total allowed billings, when in reality they should be calculating percentage of completion as costs to date relative to the total estimated costs.

  • Promote transparency and honesty with your team. The saying, “bad news does not get better with time” applies here. Understanding that there may be a cost overrun when the project is at 50% allows the company to accurately adjust the profit on the job and not pay taxes on revenue that hasn’t truly been earned. Also, if this news is provided near the end of the project, those costs may have to be absorbed with no opportunity of recuperation.

While being proactive with your “back office” functions can take more time in the interim, integrating the accounting team with the project management team will provide for stronger project management and more predictable financial results.






Utilizing Drones in Construction

Many companies have taken to the sky to reduce costs and manage their job sites remotely. They can now check in on field operations in real time to view the progress at the job site and share the progress with their clients.

droneReduce costs and increase efficiency by utilizing drones for:

  • Land surveying:  Gives you great overview of the property and the surrounding areas that has decreased costs of surveying and helps contractors in estimating jobs. You can view and consider any challenges or savings your estimators can incorporate into the bid based on the information obtained.
  • Inspection costs: Efficiencies gained on inspections as the drone can reach hard-to-get-to areas quickly. This can save time for your workforce and result in cost savings.
  • Monitoring:  Assists in monitoring workers on job sites especially pertaining to safety protocol and how hard people are or are not working. Additionally, enables multi-job site monitoring in real time.
  • Savings on insurance:  Some insurance companies offer a discount if you utilize drones to monitor your job site.

Promote your business and keep existing clients informed by:

  • Adding photos and videos to your sales group.  Many people are visual and this can separate your company's proposal from the other bidders coming to the table.
  • Client updates and support for completion estimates.  This provides a visual look at the project during development and billing process.

You will need to take time to do the analysis to determine to use internal or external drone operators. Some items you will have consider are the upfront costs of the equipment (hardware and software), liability and control, in making a decision on best approach for your business. Either direction will provide an additional tool for your business to utilize with immediate benefits managing job sites.






Expectations of the Home Building Market in 2019

After a slow sales end to 2018, the home building market has gotten off to a solid start in 2019.  Declining mortgage rates, improved performance in the stock market, and solid job growth have helped improve home buyer confidence in the last couple of months.

new home2018 was a year of challenging supplier and subcontractor vendor cost increases that builders were not able to fully absorb.  As a result, gross margins declined in the industry by 1-3%.  2019 should allow home builders a chance to better manage their costs and improve gross and operating profits.

Finally, as a reminder, direct construction costs are the biggest cost a home builder occurs.  Even a small reduction in direct construction costs as a percentage of sales price can significantly increase a builder’s bottom line.  Any cost that can be removed from a house and multiplied with direct construction cost savings from other units can provide substantial income improvement.






AGC’s Economic Forecast For Contractors

Two_Engineers_at_a_Building_SiteRubinBrown leaders recently attended the Associated General Contractor’s Financial Issues Committee semi-annual meeting.  Ken Simonson, Chief Economist for AGC of America presented his economic outlook.  Below are the highlights of his outlook.  

  • The US economy is strong and growing:
    • 3.5% third quarter real GDP growth, rising employment and pay
    • Consumer, business confidence are generally high;  recession possibility is low
    • Home & auto sales are slowing; trade & fiscal policy concerns remain
  • Contractors remain busy and confident; construction employment at 10- year high, but several spending categories have slipped or stalled in past few months
  • Three concerns:
    • Impact of trade policies on materials costs and demand for construction
    • Widening labor shortage, worsened by hostile immigration policy
    • Rising interest rates may cut demand for income-producing projects, new homes

The AGC member expectations for 2019 are for dollar volume of projects to be higher in every construction category ranging from expected growth to be the lowest at 5% in multifamily residential to the highest at 17% in public building.






Research and Experimentation in the Construction Industry:  You May Qualify For a Tax Credit!

The Credit for Increasing Research Activities, also referred to as the “R&E”, “R&D”, or “Research” tax credit, incentivizes companies to invest in people and technology that can lead to growth in revenues and profitability, as well as promote job retention and expansion. 

The credit focuses on three types of qualifying expenditures: wages, supply costs, and contract research.

We’re contractors, we don’t have scientists in white lab coats, how can we qualify for a research credit? 

Simply defined, the R&E Tax Credit is a federal incentive that rewards taxpayers for the development and/or improvement of a product, process, formula, invention, technique, or software.  For a contractor, the first question is, are you at economic risk under the contract terms for the development or improvements to designs?

If you pass the risk hurdle, then some additional questions to ask are: 

  • Do you make improvements to designs in the field arising from value engineering opportunities, unanticipated site conditions, etc.? 
  • Are you a design/build contractor? 
  • Do you have a pre-fab shop? 
  • Are you utilizing CAD and/or BIM in the development of your designs? 
  • Does your company have a patent? 
  • Have designs or projects failed and needed to be reworked before or during construction? 

Many architects and engineers, electrical and mechanical contractors, and general contractors have qualified for the R&E Tax Credit.

If you have further questions regarding this valuable tax incentive, contact your RubinBrown Construction Services team member today.






Buy-Sell Agreements for Contractors:  What You Need To Know!

Construction firms spend time devising strategies around labor shortages, challenging projects, developing backlog, new tax rules, state of the economy and many other areas.

In addition to these, it is vitally important to ensure that you have a crisis plan in place if something catastrophic were to happen.
One area to consider is your company’s buy-sell agreements.  Some businesses either don’t have buy-sell agreements in place or don’t periodically review them.  

A buy-sell agreement governs the transfer of ownership of a company in certain circumstances.  If a buy-sell agreement is not in place or is not effective, the impacts of an event may result in consequences not desired by the business or family.  Generally, buy-sell terms become relevant upon defined events taking place.  Examples of such events include the following:


  • Death or disability
  • Retirement
  • Severed Employment
  • Succession

Upon an event, the buy-sell acts as a road map on how to transfer the ownership interests as defined.  Agreements generally dictate pricing terms/options, methods of transfer and the timing, among other things. We often recommend that certain discount features be included in the buy/sell agreements to ensure the stock redemption does not cripple your company or other shareholders financially.

It is important to routinely include reviewing these agreements in annual strategic planning sessions.  Ensure that your construction attorney and accountants and other key stakeholders have reviewed the documents.  An effective strategy will provide comfort that if something happens that is not planned, you have made good decisions to protect your family, teams and the investment in the business.






New Tax Deferral Strategy for Small Contractors

Tax Cuts and Jobs Act buttons
The new tax law provides a new and substantial tax benefit for small contractors.

Under the new law, a contractor is considered “small” if the average revenue of the prior three years is below $25 million. A small contractor is exempt from using the percentage of completion method for tax purposes. Thanks to the new tax reform, a small contractor may choose to use an exempt method such as completed contract or the cash method of accounting to account for its qualifying long term contracts.

Under the old rules, average gross receipts for the preceding three tax years of $10 million or less qualified for this exempt method. This is a new and significant tax deferral strategy if your company revenue falls between $10 million and $25 million. Most small contractors should consider the use of the completed contract method, which provides a deferral of gross profit to date on each long-term job. The new rule is effective for contracts entered into after January 1, 2018, so even fiscal year filers could benefit from this new law.

For example, assume a small contractor has a $5 million contract. Total expected cost is $4.5 million for ending gross profit of $500,000. If this job was entered into in 2018 and is 85% complete at year end, then gross profit of $425,000 would be required to be recognized under the percentage of completion method. Under the completed contract method, with the same contract facts, the gross profit recognized is zero. This is a significant tax deferral until the contract completes in the following year. This tax savings can help contractors better utilize cash flow.

While this deferral could be very beneficial, keep in mind that alternative minimum tax (AMT) will still follow percentage-of-completion, resulting in a potential increase to AMT income for individual owners. This applies in the case of S Corporations and Partnerships, but will not apply to C Corporations, as corporate AMT has been repealed under the new tax law.






The Evolving Challenge of Work-Life Balance

A company that is able to effectively manage the challenge of providing employees with a work-life balance will have stronger retention, higher productivity and will experience higher employee morale.

Construction Workers YoungAs modern technology steadily advances at a rapid rate and the wide use, availability and affordability of smartphones, tablets and smaller laptops continues to increase, employees are empowered to be more efficient in their daily tasks and can work just about anywhere at any time. While efficiency and flexibility are paramount to maximizing the utilization of today’s worker, this also presents the challenge of forming necessary boundaries between personal and professional life.

Behind us are the days of leaving the office along with the work that is physically stored there. Imaging and paperless initiatives have become the norm for many companies. Email, virtual private networks (VPNs) and file sharing have evolved in such a way that access to information and tools necessary for employees to perform their duties are available 24 hours a day, 7 days a week. With this drastic shift, how do employers set expectations in a manner that continues to provide their employees with these resources that allow for efficiency and flexibility while avoiding the risk of turnover due to fatigue and burnout?

Given the labor shortage in the construction industry, the strong global construction market experienced in recent years, the industry’s requirements for when an employee may have to physically be on a jobsite and the polarizing nature of this discussion, it is critical for employers in the industry to devote the proper attention and resources to enhance their employees’ experiences. Failing to do so can have a negative impact not only on the morale and quality of work, but it can also result in a higher rate of safety failures or incidents while limiting a company’s growth opportunities.

In order to address this challenge, it is important for employers to tap into the goals, key motivating factors and preferences of their employees. This can often be effectively achieved through small focus group discussions, company-wide surveys and creating internal initiatives or task forces to enhance the employee experience. None of that information grab will matter if it is not utilized to inform management of their employees’ preferences in an effort to ensure expectations placed on employees incorporate the ability to set healthy boundaries between work life and personal life.

A company that is able to effectively manage this challenge of work-life balance will have stronger retention, higher productivity and will experience higher employee morale. In achieving this, companies will give themselves a competitive advantage in a marketplace where work-life balance is a constant struggle.






New Revenue Recognition Guidance – Unique Considerations for Construction Companies

Construction companies must consider contract modifications, performance obligations, variable consideration, uninstalled materials and contract costs when accepting guidance on the new revenue recognition standard.


The new revenue recognition standard is effective for all private companies for their years beginning after December 15, 2018 and must be analyzed for the opening balances of the earliest year presented. With this, companies must analyze their revenue streams to determine any changes in accounting as well as internal control procedures that are required in connection with the implementation. This has many companies asking, “How does it affect me?” Construction service companies have some unique issues that must be addressed, including:

  • Contract modifications. A contract modification is a change in the scope or price (or both) of a contract that is approved by the parties of the contract. Generally, a change order and contract modifications are considered revisions to the existing contract. However, a change order could potentially be a separate contract if the increase results in a separate distinct good or service and the price increase represents a stand-alone selling price.
  • Performance obligations. A performance obligation is a promise to transfer a good or service that is distinct or a series of distinct goods or services. A good or service is considered distinct if the customer can benefit from the good or service on its own or with other readily available resources and if the promise is separately identifiable from other promises in the contract. Items should not be considered distinct if there is a significant service of integration with other goods or services; if goods or services are significantly modified or customized; or if the goods or services are highly interdependent or highly interrelated. Contracts with multiple services such as construction/maintenance elements or two distinct construction services (for instance, the combination of a construction service that a subcontractor could perform and general contractor services under one contract) could be separate performance obligations under the new revenue recognition guidance. In such a case, the contract price would be allocated as allowed within the guidance to the applicable performance obligations.
  • Variable consideration. Variable consideration includes any pricing elements in the contract that are not fixed including unpriced change orders, claims, liquidated damages, incentives, penalties, economic price adjustments, bill rate adjustments and other pricing changes. For construction service entities, these changes are commonplace in the industry. Controls and processes should be put in place so that variable consideration is included in the contract price at the time that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved.
  • Uninstalled materials. The construction services company should first consider whether the items qualify for recognition as inventory, which would primarily relate to standardized items that can be transferred and used on many job sites. Uninstalled materials accounting should be considered when the materials cost incurred is not proportionate to the entity’s progress in satisfying the performance obligation(s). In this case, the best depiction of the entity’s performance may be to adjust the input method by recognizing revenues only to the extent of the costs incurred if: the good is not distinct; the customer obtains control significantly before receiving the services related to the good; the cost to transfer the good is significant; the entity procures the good from a third party; and the entity is not significantly involved in designing and manufacturing the good. Depending on the nature and size of the materials, consideration should be made as to the timing of gross profit recognition on the uninstalled materials as or when the materials become installed. Additionally, it may be appropriate to remove the good from the revenue recognition calculation altogether depending on the relevant circumstances.
  • Contract costs. Incremental costs of obtaining a contract, such as sales commissions, should be charged to expense over the period during which goods or services are transferred to the customer. Costs to fulfill a contract should be capitalized if:  the costs relate directly to a contract or an anticipated contract that the entity can separately identify; costs generate or enhance resources that the entity will use in satisfying the future performance obligations; and the costs are expected to be recovered. Under this guidance, bond costs may require capitalization and amortization over the life of the contract, if significant.  Certain costs such as the following should be excluded from the revenue recognition process and instead be considered period costs: costs that would be incurred regardless of obtaining the contracts; general and administrative costs; wasted materials; significant inefficiencies; owner provided materials; and others.

The analysis of these issues among others within the new standard will help reduce divergence in practice under current, generally accepted accounting principles. However, because of the long-term nature of construction service entity contracts, the process for evaluation should be performed now in order to avoid surprises for sureties, bankers and owners.

Have you started the implementation process for the new revenue recognition standard?






Selecting Software – Tips for the Construction Industry

According to the “Construction Technology Trends 2018 Report,” approximately 81% of construction companies indicated that they planned to spend more on technology in the current year compared to last year. Some of that investment involves replacing outdated software or upgrading to more integrated, user-friendly software. But where to start? Below is a three-step guide for those in the construction industry:


Step 1: Evaluate Cost. Cost is a huge factor in new software and you must balance what you need versus what you want to spend. Items that can impact cost include:


  • Company size and number of users - for example, cloud-based solutions are usually priced based on the number of users and the modules or features you want to access.
  • Development of specialized reports – are they included or extra?
  • Upgrades - is there a monthly maintenance cost or do you pay for updates as you go?
  • Storage and backup – are there costs associated with additional storage or backup procedures?

Step 2: Evaluate ease of use and mobile capabilities. The software you select should:


  • Be user-friendly for both field staff and management.
  • Be easily accessible for both field staff and management. Can you access the software anytime, anywhere from a desktop or laptop computer as well as a mobile device (iPad, iPhone, etc.)?
  • Does it allow for VPN access, screen sharing and more?

Step 3: Evaluate your company’s unique needs. Some questions to ask include:


  • Will this software grow with your business?
  • Do you want an integrated system? (i.e., if you enter data in one module it automatically updates another).
  • Modules specific to your business outside of an accounting system such as:
  • Project management
  • Estimating & job costing
  • Building Information Modelling (BIM)
  • Service management
  • Document management

To build a list of potential software vendors, try reaching out to the industry associations affiliated with your company for recommendations – some may even offer member discounts!







M&A Activity High in the Construction Industry

An article titled “M&A Activity High in the Construction Industry,” written by Chris Daues, a Manager in RubinBrown’s Assurance Services Group, was recently published in CE This Week, Construction Executive’s weekly e-newsletter.


Daues discusses how the M&A and private equity space offer new avenues for construction firms to divest, diversify and grow; an excerpt appears below:

There is no doubt that construction activity in the mergers, acquisition and private equity space is more prevalent throughout most of the country than has been seen in many years. This prevalence is a positive trend for the industry as it increases opportunities for growth and offers more options with succession planning for construction business owners. As the result of a growing population in metropolitan areas and aging infrastructure, construction spending in the U.S. continues to rise.

Read the full article in Construction Executive.






Technology Trends in the Construction Industry

As technology continues to improve, construction companies must adapt in order to keep up with the trends in the industry.


Technology is transforming the industry and implementing new technologies requires strategic, long-term planning. Here are some trends to consider:

Building Information Modeling

Building Information Modeling (BIM) is a 3D model-based process that allows architects, engineers and contractors to collaborate on projects, giving each party better insight on how their work fits into the project. BIM connects these professionals so they can efficiently design, build and operate buildings and infrastructure. The realistic visualizations can also help to gain faster approvals and avoid surprises.

Virtual Reality

Virtual Reality (VR) can be used in conjunction with BIM. The main benefit of VR is the ability to provide virtual walkthroughs to clients or targets in order to give them a better idea of what their investment will look like before construction begins.


Drones can be used to quickly and effectively map a construction site, as well as analyze the progress of a project. Using drones, construction companies are able to get the job done faster and cheaper than with traditional methods.


As a shortage of skilled labor continues in the construction industry, robots may become more and more common. Although full automation of most tasks is not currently possible, as breakthroughs in robotics technology continue, the applications in the construction industry will grow as well. In short, robotics could help fill the skilled labor gap and complete projects more quickly, safely and cheaper than the alternative.

To stay up to date on other trends within the construction industry, subscribe to RubinBrown's ViewPoints Construction Services Blog.






New Pass-through Deduction for Fiscal Year Filers Provides Tax Benefit

Contractors, home builders, architects and engineers shouldn’t lose out on the potential tax benefits of the new pass-through deduction, even if they are a fiscal year filer.


Over the summer, the IRS issued various sets of regulations to assist with the interpretation and application of the new tax law, the Tax Cuts and Jobs Act, which was passed in December 2017.


One facet of the law that contractors, home builders, architects and engineers must pay close attention to is the pass-through deduction (also known as Section 199A, or the Qualified Business Income deduction). This new law allows pass-through entities, generally partnerships and S-Corporations, to exclude 20% of its qualified business income from its taxes.


Where the law gets tricky is the application of the deduction to a fiscal year filer. The law is effective for tax years beginning after December 31, 2017. However, because the deduction is claimed at the partner or shareholder level and nearly every individual taxpayer files on a calendar year end, even fiscal year entities could qualify for and pass out this deduction to its owners.


Let’s take imaginary company ABC Electric Co., an S-Corporation electrical contractor with a September 30, 2018 year end, as an example. The flow-through activities of the company will be reported on the owners’ 2018 individual income tax returns, allowing those owners to claim the new pass-through deduction benefit – a benefit they should certainly not miss out on.


If you have questions regarding the application of this new tax benefit to your company, contact your RubinBrown Construction Services tax professional.






New Revenue Recognition Standard is Effective Soon. Have You Started Your Implementation?

The new revenue recognition standard is effective for all private companies for their years beginning after December 15, 2018.


This means that companies need to review their revenue recognition process and analyze the effect of the new standard for all contracts that are in process at their upcoming year ends. The effect of any differences between your current revenue recognition methods and the new methods will be the adjustment required to your financial statements.


The new standard has five steps.

  1. Identify the contract with a customer
  2. Identify the performance obligations in the contract
  3. Determine the transaction price
  4. Allocate the transaction price to the performance obligations in the contract
  5. Recognize revenue when (or as) the entity satisfies a performance obligation


As you can see, the terminology is different from the percentage of completion method that most construction firms are using today.


Some of the significant differences you’ll see as you begin your implementation is the accounting for variable consideration and uninstalled materials. Variable consideration includes items such as early completion incentives and liquidated damages. You’ll need to consider the probability of receiving or paying these amounts when determining the initial contract price. Uninstalled materials under the new standard include all materials not installed versus only non-unique materials under the existing standard.


If you haven’t already started analyzing your operations to determine what, if any, changes will be needed, RubinBrown encourages you to start now.






Construction Spending On The Rise

Construction spending totaled $648.8 billion in the second half of 2017, which is a 12 percent increase from the first half of 2017 and a 2 percent increase from the second half of 2016.


Overall, since the first quarter of 2012 through 2017, construction spending has steadily increased.


The American Institute of Architects (AIA) is estimating 4% growth for non-residential construction spending in both 2018 and 2019.

The AIA’s forecast cited natural disasters, tax reform, infrastructure focused legislature, and business confidence levels as reasons for growth in the engineering and construction (E&C) arena.

Additionally, employment can be a strong indicator of industry health. Per the 2018 Associated General Contractors of America (AGC) 2018 Construction Outlook National Survey, 26% of construction firms surveyed expect to increase employee count by 11 to 25%.






Increased Number of M&A Activity Through 2018

More than 20% of all M&A activity in the engineering and construction industry in 2017 had a public company buyer, which is the highest level since 2011. The activity has continued into 2018 with Granite Construction and Layne Christensen Company announcing a $565 million M&A deal.

Given the world’s growing population and aging roads and bridges, the need for construction firms with a focus on infrastructure continues to grow. Reports indicate that, “the world will need to spend $94 trillion on infrastructure by 2040 to meet demand.” Based on this forecasted demand, M&A activity should continue to increase in the infrastructure niche.

GCs have not historically been attractive acquisition targets in the M&A environment. However, as GCs are looking to diversify their revenue streams and integrate business lines, the acquisition of a specialty contractor could make sense.

RubinBrown is seeing more of this throughout the country, which is helping GC’s increase margins by self-performing certain work while diversifying their revenue stream.






Recruiting And Talent Retention In The Construction Industry

With the experienced worker shortage alive and well in the construction industry, recruiting and talent retention feels more important than ever! RubinBrown has identified a few strategies that construction firms should consider when it comes to improving talent retention and team member development.


You may have heard the saying “think like an owner,” which is important, but to take it a little further, we’re suggesting that you build your team with team members that take ownership of work assigned to them.

Team members that take ownership of projects or jobs assigned to them and who stick with the project until completion are a joy to work with and good role models to have within your organization.


Surprises late in a project are rarely good, so your team members must communicate engagement status often to avoid surprises. Encourage your team to think at the end of every day, “What did I do today and who needs to know about it” and then send out status updates accordingly.  

Service Oriented

We’re all in the business of serving others. Someone that has a service-oriented mindset is much more likely to be a good representative of your firm and keep your clients happy!





The Importance of Mentoring

Construction-Mentoring-Image.jpgThe goal of mentoring is to transfer as much knowledge from your experienced team members to your new team members. Competition is alive and well in the construction industry, so this is easier said than done.

Oftentimes the experienced team members might be threatened by newer team members and not want to share tips or information that will help the younger team members be successful. This attitude is not healthy in your organization and must be addressed when encountered.

A mentoring program should be structured with experienced team members mentoring new team members. Informal mentoring meetings should occur as often as necessary, but a formal meeting should occur at least twice a year.

The formal meetings should be documented with mentoring notes or an evaluation summary. These mentoring notes can be used to follow up on areas identified for improvement.





Fraud In the Construction Industry

Here’s a statistic that will keep you up at night…a typical case of fraud within the construction industry has a median loss of $245,000.


The threat of fraud can never be wholly removed; however, companies should take steps to identify likely fraud schemes they might face. Below are a number of schemes frequently used to defraud construction companies.


Construction-Fraud-Image.jpgBilling Schemes

Reports indicate that billing schemes account for 35% of the fraudulent activity within construction companies.


The schemes can be payments to fictitious vendors, overpayment to vendors (often through collusion with an internal employee) and purchase of personal items with company funds.



The construction industry is particularly susceptible to theft of materials due to the location of jobs and the difficulty of tracking construction materials. Job sites can be in remote areas or some distance from the corporate headquarters and subject to less supervision.


Additionally, materials on job sites are hard to track and measure during the construction process. Items lying around a job site like lumber, concrete, copper pipe, wire and cable can create an opportunity for thieves if proper controls are not in place.


Misuse of Company Equipment

Similar to theft of materials, misuse of company equipment can also become an issue if there is a lack of controls present. For instance, an employee could operate a side business using a company’s idle equipment.


Bid Rigging & Corruption

Contractors are subject to the risk of bid rigging and other forms of corruption. In the ACFE study nearly 47% of the fraud cases examined in the construction industry had an element of corruption.


Whether it was bribery, kickbacks or quid pro quo situations, the bid process can be riddled with opportunity for this type of fraud.


Other Fraud

The construction industry is subject to the same fraudulent activities faced by every other industry. These include payroll fraud through fictitious employees, check tampering and fraudulent expense reports.






The Importance of Internal Controls

To help prevent fraud in your construction company, RubinBrown recommends that you design a control structure that will reduce the opportunity for fraud and increase the chances fraud will be detected. Although there are no guarantees related to fraud, the foundation to a strong internal control environment is proper segregation of duties.

Here are some other simple yet effective internal controls you can implement with relative ease:

  • Check all estimates for accuracy of calculations, labor rates and correspondence with drawings.
  • Compare job cost estimates with actual costs. Require approvals for cost adjustments or transfers of costs between jobs.
  • Require that materials estimates above a specified amount include quotes from two or more vendors.
  • Make purchases only with pre-numbered purchase orders, and match them to both receiving reports and invoices before payment is made.
  • Check vendor invoices against estimates to ensure proper discounts and pricing.
  • Always refer to specific job numbers, phase codes or work order numbers in onsite communications.
  • Obtain ink or electronic signatures on change orders before work begins, and revise contract values accordingly.
  • Allocate equipment usage to contracts weekly and record equipment maintenance expense in the ledger as they occur.
  • Review all billings for timeliness, accuracy, conformity with contract terms and correct customer information.
  • Reconcile contract billings with general ledgers monthly, and calculate underbillings and overbillings.
  • Prepare and review financial statements monthly and reconcile them to supporting ledgers, bank statements and loan schedules. Per the ACFE report, management’s review of financial data took place in 62% of the cases examined and caught the fraud 16% of the time. The average loss detected by management’s review was $125,000 and lasted 18 months.





Succession Planning: Part Two

Previously, RubinBrown's Construction Services shared the important steps a construction company should take to begin a succession plan for their company. After building value and communicating objectives to your fellow leaders, you are ready for the next steps in the process.


Groom A Successor
Once the goals have been discussed and agreed upon, choosing and grooming a successor follows.


This is an important piece of the succession plan because it is the successor who is able to utilize the owner’s intangible assets. The owner has knowledge, skills, and relationships that other employees may not possess.


When evaluating successors, it is essential to identify and quantify the right qualities for each position. Both hard and soft skills should be evaluated, as well as behavior.


A successor’s behavior, such as natural leadership and ability to work with others, plays an important role in selecting a successor. Another important quality is the successor’s desire.


Attaining ambition comes from giving them adequate training and development, necessary leadership experience and quality mentorship.


Transfer Ownership
The next and most complex step is to decide how to transfer ownership. Contributing to the complexity is the multitude of ways ownership can be transferred.


Gifting stock is an effective way of passing stock to successor individuals and in turn, reducing the estate of the original stock owner. And while gifting stock can seem self-explanatory, many considerations need to be taken into account. These considerations include the annual gift exclusion, future appreciation of the stock, and voting versus non-voting stock.

An alternative to gifting is a stock redemption. To qualify for a Section 303 stock redemption, the deceased must have corporate stock that makes up 35% or more of their adjusted gross estate.


Therefore, this is a good option for families where a corporation constitutes the majority of the family’s wealth. Under this code section, a corporation may redeem its stock from the estate on a tax-favored basis in an amount equal to the decedent’s estate taxes and administrative expenses. In many instances, the redemption may be part of a buy/sell agreement.


Buy/sell agreements are also an effective method to transfer ownership. With a buy/sell agreement, the price of the stock is based on a predetermined valuation.


An ESOP is another succession planning opportunity that requires annual valuations. An employee stock ownership plan, or ESOP, allows owners to sell up to 100% of their stock to a defined benefit plan that is owned by its own employees. Therefore, the employees of the business become shareholders in the company.


Another choice is stock recapitalization. Both common and preferred stock can be recapitalized, but the benefits of each vary. Common stock recapitalization enables a shift in voting power to successors that will operate the company.


Preferred stock recapitalization can shift future increases in corporate value to those who own common stock and freeze the value of the estate of a principal stockholder, so the subsequent increases in value go to the common stock held by their heirs. As you can see, this option provides a lot of flexibility for estate planning.


Estate Planning
Estate planning is the last step in the process. However, this step should be considered throughout the planning process. Make sure you can clearly answer the following questions:


  • What do I want to leave to my family?
  • Do I have the financial capacity to retire?
  • What are the tax consequences of my succession plan and beyond?





Succession Planning: Part One


People do not want to talk about their incapacitation, retirement, or death. To talk about your successor means you have to relinquish control, plan for a sale of a business that you have overseen, and inherently trust another with one of your most valuable assets.

Strong management succession will increase the business’ value, in addition to providing other benefits.

Building Value

Building value in your construction company is important. In most other areas of the business there are formal processes and plans that are followed to reduce cost and uncertainties and build value.

The first step of the process is to identify key decision-makers and succession planning goals and objectives. Gather information such as:

  • Who are the current owners?
  • What top management will be involved in the planning?
  • Who are the outside advisors that should be consulted?
  • What is the transition timeline?
  • What do you want your legacy and the company’s legacy to be?

Management may have expectations of future ownership or different roles within the company. Will continuity among advisors provide stability during the transition process or is it time to seek other counsel that aligns with the vision of the new ownership group? These questions are not easily answered. Nor is there a common right answer for these questions.

Every organization and succession plan just like every set of blueprints is different and should be handled accordingly.

Communicating Objectives

The next step of communicating the objectives with key members of the organization is vital.

  • Will management be on board with the goals of the succession plan?
  • Are the family members on board with changes of control among generations?

A misstep in communication could cause costly disruptions such as power struggles between key employees or family members and stress for external players, including suppliers, customers, lenders and advisors.

If the succession plan contemplates transfer to a third party buyer, how do you keep key stakeholders incentivized throughout the transition?