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Protect Your Construction Company from the Effects of High Supply Prices

Building supply manufacturers are doing their best to catch up with the high demand for their materials. Material prices overall are continuing to climb, making it difficult for contractors of all types and sizes to provide their services in the same manner they did before the pandemic as well as grow their businesses.

What can contractors do?

Communication is key for contractors and business owners right now. It is important for clients to know developments in supply chains and pricing. Much of the information that should be communicated can be included in contracts. Even though they cannot impact the supply chain and prices of materials, contractors can protect themselves from losing money and work through several means.

  • Expiration Dates

With prices and supply availability changing every day, contractors cannot guarantee a price for long. Since there is a chance that original quotes can change at a moment’s notice, contractors can explain that their quote is only viable until a certain date. 

  • Delay Clauses

Since there are typically damages contractors must claim when a job is not completed by the projected date, it is important for contractors to include delay clauses in their contracts. With the pandemic and the unknowns of the building materials supply chains, contractors cannot be held accountable for the delay in construction due to lack of materials.

Need more insight?

Our experts are consistently keeping tabs on industry changes. Contact one of our representatives today for consulting that will keep your business running smoothly and productively in the midst of unknowns.

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The Post-Covid Urban Revival: What’s Next For Big Cities?

Today, more than four out of five people in the United States live in cities and urban areas. Over the country’s long history of urbanization, cities like New York, San Francisco and Chicago swelled not only in population, but also in their prominence as American cultural icons. That cachet helped these metropolises thrive even when economic conditions were challenging elsewhere, providing landlords and other commercial real estate stakeholders with a level of stability and security smaller cities couldn’t match.

In recent years, though, these storied cities started falling victim to their own success. Unebbing demand for limited residential and commercial space led to skyrocketing costs, and near-constant expansions and enhancements to government services necessitated new fees and higher taxes. At the same time, the emergence of remote working meant that people didn’t have to move to these uber-expensive cities to work for the companies that called them home. New technology, combined with cost of living and quality of life concerns, chipped away at that old preeminence, and businesses and individuals started choosing Atlanta over New York, Denver over Chicago and Austin over San Francisco. A Brookings Institution study found that population growth in the country’s largest urban areas dropped by almost half through the 2010s.

Download the below article to find out how the COVID-19 pandemic amplified some of the disadvantages of living and working in densely populated cities and accelerated migration to smaller cities and more rural areas.

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Is a COVID-19 Baby Boom in the Cards for Real Estate?

The impact of blackouts, national emergencies, recessions and other singular or cyclical events on the U.S. birth rate has been a subject of study and interest since the Baby Boomer phenomenon displayed the far-reaching effects a population surge can have on everything from consumer spending to federal budget allocations. As such, there has been conjecture on what effect the pandemic may have on population growth and what the resulting impact on the real estate and construction industries may be.

The Baby Boomer generation, typically defined as those born between 1946 to 1964, was a boon to mid-century suburban development. Construction of homes soared as enticements to live in suburban communities, including tax breaks, home loans and mortgage subsidies, successfully generated demand. As families moved to the suburbs, there was a commensurate need to supply affordable housing and to build schools and amenities and the infrastructure to serve them.

Between the 1950s and 2010s, the suburban population grew from one-quarter to more than half of all Americans. The generation essentially created and defined many of the lifestyle values and habits that have arisen out of suburban life, which the majority of Americans now enjoy today.

As Boomers have aged, their changing preferences have continued to be felt on real estate and construction. Until recently, Boomers comprised a significant cohort of the urban and multifamily rental markets as they threw off the burdens of home ownership in favor of lighter living and to be closer to their children and grandchildren. A side effect of this is a boost to the self-storage facility market as downsizing into smaller living spaces requires external space to house decades of accumulated belongings.

Post-War Population Surge as Analogue

One of the reasons the baby boom happened, experts say, is because, after the conclusion of two world wars, Americans were optimistic that the economy would improve. The United States was positioned somewhat uniquely in that, apart from the bombing of Pearl Harbor, it escaped the kind of damage that had ravaged war-torn Europe. Infrastructure was intact and in place, for example. Amid the promise of post-war economic security, Boomers expanded their spending habits: U.S. gross national product doubled between 1940 and 1960.

Not just the reality of the economy’s performance, but people’s perception of economic performance and their future prospects likely will play a significant role in the decision to have children this time around. In the current economic climate, sentiments are far less rosy than they were post-WWII. U.S. population growth has been on the decline for the last ten years, notably beginning around the Great Recession. Polls have shown that among Millennials, the decision to delay having children or to have fewer children than desired arises from feelings of economic insecurity: the high expense of child care, student debt and concerns about the economy and financial stability. While the proclivities of Generation Zers remain to be seen, given the uncertainty of the current economic recovery, this may not change anytime soon.

COVID-19 Implications

Early indications point toward population growth in underdeveloped nations but population contraction in the United States and other developed nations. These early U.S. indicators make sense given the number of job losses and uncertainty about job growth and the ongoing uncertainty about an economic recovery. How will the U.S. real estate market adapt to a population contraction?

Today, Boomers own two out of five U.S. homes, and every day, 10,000 people turn 65 years old. Because some Boomers have migrated toward urban living and others are aging in place, the conditions may be ripe for significant residential vacancies when the pandemic-related population contraction meets the end of the Boomers’ actuarial life. Such oversupply would mean the dawn of a buyer’s market not only in the suburbs but also in urban environments. This will make residential buying decisions based on “location, location, location” even more important and will, in turn, ripple into other sectors of real estate, including commercial and industrial.

Leaders in the real estate and construction industries should pay close attention to the U.S. population and migration trends. This analysis will become more important as Boomers age and the population contraction impacts the market cycle. Real estate leaders should also consider further diversification of their holdings and activity if their portfolios show concentration in a market that may see vulnerabilities given potential trends.



Building the Future of Construction with Digital Transformation

By Ian Shapiro, Adam Rouse and Malcolm Cohron

The construction industry is due for a digital renovation. Faced with challenges around project efficiencies, ongoing safety concerns and flatlining labor productivity levels, the industry’s sluggish adoption of new technologies has reached an inflection point. Digital transformation requires changing processes and using new resources that harness the power of data to improve communication, efficiency, productivity and safety. This can position construction firms for profitable growth in a highly competitive industry, while also addressing workforce challenges.

The construction industry has a workforce that skews older, and as more baby boomers head toward retirement, the industry faces a labor shortage that’s poised to get worse.  According to the U.S. Bureau of Labor Statistics, there were about 300,000 construction job vacancies in June 2019, and the industry is expected to need 747,000 more workers by 2026. While the demand for skilled craftspeople has continually increased, fewer young people are entering the industry.

Potential recruits just don’t see construction as an attractive and viable career option, especially when other sectors are considered more tech-savvy and offer perks that appeal to millennial workers. To navigate these conditions and sharpen their competitive edge, construction companies need to adopt a bifurcated strategy: invest in new technologies to streamline operations and lower costs from blueprint to final product, and invest in the workforce through retraining initiatives and by bolstering the talent pipeline.

Addressing Old Challenges with New Technology

Transforming construction means more than introducing modern technologies to the industry: Technology correctly incorporated has the effect of rippling through and improving interrelated processes. This requires assessing the current state of a business, strategizing for the future state and then mapping a journey to that future.

Digital transformation goes far beyond digitizing analog functions; it enables a fundamental shift in how a business operates so that it can compete in a digital world. Three key areas of transformation are ultimately enabled by end-user adoption: Digital Business enables growth, Digital Process improves efficiency and profitability and Digital Backbone securely facilitates usability for business needs.

Identifying and adopting valuable digital tools, data-enabled hardware and field software can provide a solid foundation for sustained growth. For example, using drones or unmanned aerial vehicles (UAVs) for aerial photography can help expedite a land survey and assist planning through digital imaging techniques, precise topographic mapping software and data analytics that inform building strategy. Continued UAV surveillance can also help secure the site and inspect for safety hazards or structural issues. When applied in conjunction with 3-D printing, automated equipment tracking and progress reporting, these innovative building techniques reduce the time, effort and cost involved in more traditional construction approaches.

In an industry that has been challenged by disruptions to the price of materials—including tariffs of 25% on steel and 10% on aluminum imposed in 2018—increasing efficiencies and reducing controllable costs are more important than ever. Innovative software can identify and quantify work tasks, reducing or eliminating extraneous work to help maximize time and minimize effort. Supply chain information can even be tracked in the cloud, increasing transparency and accuracy by collecting that data within a single platform. Digital tools not only support the project budgets and timelines, but also promote worker safety and sentiment.

Navigating Workforce Woes

Workforce challenges in construction abound. The industry has been contending with a lack of organized site management, miscommunications between the field and regional office and a downward trend in employee morale.

The flow of information from job site to regional office to corporate can be fragmented, delayed and incomplete. The amount of time it can take to input information into the system leads to lack of real-time visibility into a project’s progress, which can ultimately have an impact on cashflow. Integrating data can streamline communication and deliver more accurate information more quickly. Work in Progress (WIP) tools track work in real-time, making sense of data that can then be used to inform subsequent project plans. They also allow for more accurately designed scheduling with the appropriate amount of margin and risk tolerance built into project plans. Similarly, Building Information Modeling (BIM) can synthesize all essential aspects of a project’s input into a single plan with 3-D modeling, wherein contributors can stay in timely communication.

Digital transformation can also help attract younger workers to the industry by creating more jobs that require tech skills. U.S. News & World Report noted in 2018 that less than 10% of construction workers are younger than 25, while the median age is above 42 years old. Modernizing processes through increased adoption of technology can both create new jobs and future-proof the industry.

Technology also enables construction managers to standardize approaches across a project (or multiple projects), facilitating additional clarity in delegating responsibility and even safety. The IDC predicts 279 million wearables will be in use by the end of 2023, a technology that can be applied to increase site safety and monitor for productivity. For instance, sensors attached to workers’ clothing or hard hats can track signs of fatigue to prevent an accident, monitor body temperature to avoid hypothermia or heat exhaustion, send an alert through noise or vibration to indicate a hazard and provide supervisors with real-time information about the number and location of employees on site.

For companies who can augment their capabilities now, successful digital adoption may reinforce their competitive capabilities and lay the foundation for a successful future. From project management tools that offer real-time communication, updates and project overviews, to cloud and mobile technology, advanced uses for GPS, robotics, drones and more, innovative applications of technology can fundamentally change the project design and development process. Digital transformation can be the means for the industry to navigate workforce issues, discover new efficiencies and build an integrated platform to reinvigorate growth for generations to come.

This article originally appeared in BDO USA, LLP’s Real Estate & Construction Insights. Copyright © 2019 BDO USA, LLP. All rights reserved.

Construction Financial News News Tax

100% Deduction for Certain M&E Expenses

100% Deduction for Certain M&E Expenses

Generally, businesses are limited to deducting 50% of allowable meal and entertainment (M&E) expenses. But certain expenses are 100% deductible, including expenses:

• For food and beverages furnished at the workplace primarily for employees,
• Treated as employee compensation,
• That are excludable from employees’ income as de minimis fringe benefits,
• For recreational or social activities for employees, such as holiday parties, or
• Paid or incurred under a reimbursement or similar arrangement in connection with the performance of services.

If your company has substantial M&E expenses, you can reduce your tax bill by separately accounting for and documenting expenses that are 100% deductible. If doing so would create an administrative burden, you may be able to use statistical sampling methods to estimate the portion of M&E expenses that are fully deductible.

For more information on how to take advantage of the 100% deduction, please contact us.

© 2015

Construction Helpful Articles

Protect Your Business with Corporate Minutes

Protect Your Business with Corporate Minutes

It’s not always necessary to document the every day business decisions you make as a contractor. However, if your construction business is a corporation, it’s important to understand state requirements regarding shareholders’ and directors’ meetings and maintaining corporate minutes.

Corporate minutes not only provide a written history of the decision-making process concerning important business strategies, they can also be important in protecting your limited liability status should your company become involved in legal proceedings or a dispute with the IRS.

What’s Included
Corporate minutes describe how board members arrived at decisions. Essentially, the minutes record:

  • The name of your company
  • The date, time, and location of the meeting
  • The name of the person who called the meeting to order
  • The names and corporate titles of attendees
  • Actions or motions
  • Descriptions of decisions made, votes taken, and any abstentions from voting
  • The time the meeting ended

Certain major business decisions should typically be documented in the corporate minutes. These include:

  • Stock: Note the issuance of shares to new or existing shareholders.
  • Salaries and Bonuses: The board’s reasoning and approval of salaries and bonuses paid out to key employees can be helpful if the IRS ever challenges the reasonableness of the compensation.
  • Purchases and Leases: Significant equipment or real estate purchases and leases should have the board’s approval.
  • Financing: Corporate minutes should document decisions made in relation to loans the company gives or receives. Corporate loans to owners should be approved by the board and be supported by promissory notes.

Observing the Formalities
In the face of a legal challenge, if you’re not following proper protocol, a court may decide your business isn’t being operated as a separate entity from the owner(s) — despite the existence of a corporation. That could lead to a legal decision to “pierce the corporate veil,” a term that means the personal assets of the owner(s) can be used to satisfy business debts and liabilities. Meeting state requirements regarding director and shareholder meetings is one way of keeping a corporation separate from its owner(s).

Corporate minutes can also help map out a plan for action items and help drive activities by executives and employees. You also can use them to review and measure your progress toward achieving certain goals.

As always, we are here to answer any questions you have.

Construction Financial News News Tax

Buying a business vehicle before year-end may reduce your 2014 taxes

Buying a business vehicle before year-end may reduce your 2014 taxes

If you’re looking to reduce your 2014 taxes, you may want to consider purchasing a business vehicle before year end. Business-related purchases of new or used vehicles may be eligible for Section 179 expensing, which allows you to expense, rather than depreciate over a period of years, some or all of the vehicle’s cost.

The normal Sec. 179 expensing limit generally applies to vehicles weighing more than 14,000 pounds. The limit for 2014 is $25,000, and the break begins to phase out dollar-for-dollar when total asset acquisitions for the tax year exceed $200,000. These amounts have dropped significantly from their 2013 levels. But Congress may still revive higher Sec. 179 amounts for 2014.

Even when the normal Sec. 179 expensing limit is higher, a $25,000 limit applies to SUVs weighing more than 6,000 pounds but no more than 14,000 pounds. Vehicles weighing 6,000 pounds or less are subject to the passenger automobile limits. For 2014, the depreciation limit is $3,160.

Many additional rules and limits apply to these breaks. So if you’re considering a business vehicle purchase, contact us to learn what tax benefits you might enjoy if you make the purchase by Dec. 31.

© 2014

Construction News Tax

Employee vs Independent Contractor

Employee vs Independent Contractor

An employer enjoys several advantages when it classifies a worker as an independent contractor rather than as an employee. For example, it isn’t required to pay payroll taxes, withhold taxes, pay benefits or comply with most wage and hour laws. However, there’s a potential downside: If the IRS determines that you’ve improperly classified employees as independent contractors, you can be subject to significant back taxes, interest and penalties.

To determine whether a worker is an employee or an independent contractor, the IRS considers three categories of factors related to the degree of control and independence:

1. Behavioral. Does the employer control, or have the right to control, what the worker does and how the worker does his or her job?

2. Financial. Does the employer control the business aspects of the worker’s job? Does the employer reimburse the worker’s expenses or provide the tools or supplies to do the job?

3. Type of relationship. Will the relationship continue after the work is finished? Is the work a key aspect of the employer’s business?

Determining the proper classification under these factors may not be easy. If you’re concerned you may have misclassified workers, please contact us. We’re more than happy to talk with you about it.

© 2014