Contractors Center Point

Last Chance To Register for the Spring 2012 Construction Seminar - Friday, May 18th

2012-05-14T16:40:00-04:00

McKonly & Asbury, LLP along with Murray Risk Management and Insurance, Woolford Law and Fulton Bank, will be hosting the Spring 2012 Construction Seminar on Friday morning, May 18th at the Sheraton Harrisburg/Hershey at 4650 Lindle Road in Harrisburg. This morning program will feature timely subject matter impacting the construction community. Registration and breakfast will begin at 7:30 AM with the seminar running from 8:00 AM to 11:30 AM. CPE credits will be available. The cost of registration is $35.

The full agenda for the day, including speakers and topics, is as follows:

7:30am to 8:00am - Registration/Continental Breakfast

8:00am to 8:05am - Welcome

8:05am to 8:55am - Tim Woolford, Woolford Law – Top 10 Contract Provisions Most Likely to Affect Your Right to Payment in the Tight Economy

8:55am to 9:35am - Michael Hoffner, McKonly & Asbury – Revenue Recognition/Lease Accounting Changes for Contractors

9:35am to 9:55am - Break

9:55am to 10:40am - Lydia Mantle, Murray Risk Management and Insurance – Personal Surety: Is This the Right Choice for You?

10:40am to 11:25am - Bill Kepler and Jim Wagner, Fulton Bank – Current Banking Market for Construction and Contractors

11:25am to 11:30am - Evaluation Forms and Adjournment

To register for this event, please contact the events staff of McKonly & Asbury, LLP at events@macpas.com or by calling 717-972-5822.

Pennsylvania Sales/Use Tax Issues for Mining Site Preparation

2012-05-07T13:48:00-04:00

The Department of Revenue offers this sales and use tax guidance to taxpayers who clear land and prepare a site in anticipation of mining operations to be conducted at that site. This guidance is necessary because the Department’s mining regulation, 61 Pa. Code § 32.35, details the application of the sales and use tax law as applied to traditional and strip mining, but is not as specific concerning modified or enhanced mining processes, such as hydraulic fracturing used in unconventional oil and gas well development. Although much of the work done for mining site preparation does not qualify for the mining exclusion, the exclusion is available for certain site work.

Pennsylvania law excludes from sales and use tax machinery, equipment, parts and foundations therefore, and supplies that are predominantly used directly in mining operations. 72 P.S. § 7201(k)(8); 61 Pa. Code § 32.35(a). Even if property may be considered essential to the conduct of the business of mining because its use is required either by law or practical necessity, that does not necessarily mean that the property qualifies for the tax exclusion. 61 Pa. Code § 32.35(a)(1)(iii). For example, property used prior to the actual mining operation, such as property used to store raw materials prior to their use in the mining operation, is not considered to be directly used in mining and is subject to tax. 61 Pa. Code § 32.35(a)(3)(iii)(G). Also, “property used for waste handling and disposal of pollutants other than in the course of production operations” is taxable unless the equipment, machinery and supplies are designed and used to control, abate or prevent air, water or noise pollution generated in the mining operation. 61 Pa. Code §§ 32.35(a)(2)(ii) and (a)(3)(iii)(J).

The regulation specifically states that the mining exclusion does not apply to property or services used in the “construction, reconstruction, alteration, remodeling, servicing, repairing, maintenance or improvement of real estate.” 61 Pa. Code § 32.35(a)(3)(i). That clause further states that “property used to remove trees and clear ground preparatory to extraction activities is not deemed to be directly used” and therefore not covered by the mining exemption.

Generally, equipment and parts used in site preparation – including, but not limited to, removal of timber, building of access roads and removal of dirt and rocks from the land – are taxable as pre-mining activities. However, the foundation directly underneath the drilling rig is excluded from tax. Therefore, although equipment used to build rigging pads is taxable, any foundation material supporting the drilling rig, such as sand, stone or other similar material, would be excluded from tax as foundation material for exempt mining equipment. The construction of ponds or any other vessels for storage of fresh water or raw materials prior to their use in drilling or hydraulic fracturing is not a mining activity.

Therefore, equipment used to construct these ponds and the actual materials used in the ponds, such as liners, are taxable pre-mining property. Ponds to be used to control or abate pollution generated in the mining operation, however, are excluded from tax. Therefore, although equipment used to build such ponds is taxable, any materials used in that construction, such as liners, sand and gravel, would be excluded from tax.

Tp learn more aboiut sales and use tax related to mining activities, please contract the construction professionals of McKonly and Asbury, LLP.

Positive Conditions Persist for Architecture Billings Index

2012-04-30T13:59:00-04:00

The commercial sector continues to lead the Architecture Billings Index (ABI) which has remained in positive territory for the fifth consecutive month. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the March ABI score was 50.4, following a mark of 51.0 in February. This score reflects a slight increase in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 56.6, down from mark of 63.4 the previous month.

“We are starting to hear more about improving conditions in the marketplace, with a greater sense of optimism that there will be greater demand for design services,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “But that is not across the board and there are still a number of architecture firms struggling so progress is likely to be measured in inches rather than miles for the next few months.”

Key March ABI highlights:

Regional averages: Midwest (54.1), Northeast (53.9), South (50.1), West (46.6)
Sector index breakdown: commercial / industrial (56.0), multi-family residential (51.9), institutional (47.7), mixed practice (47.2)
Project inquiries index: 56.6

The regional and sector categories are calculated as a 3-month moving average, whereas the index and inquiries are monthly numbers.

To learn more about the ABI, please visit www.aia.org or contact the construction professionals of McKonly and Asbury, LLP.

Associated Builders and Contractors (ABC) Economic Outlook Presentation

2012-04-16T10:42:00-04:00

On February 15, 2012 Associated Builders and Contractors (ABC) hosted an economic forecast breakfast with their national economist Anirban Basu. Mr. Basu presented his view of the construction industry for 2012 and forward. The information provided by Mr. Basu was very informative and insightful. To view the presentation please click here.

To learn more about this economic outlook for the construction industry, please contact Associated Builders and Contractors at www.abc.org or the construction professionals of McKonly and Asbury, LLP.

McKonly & Asbury, LLP Construction Industry Professionals Receive CIT Designation

2012-04-09T15:41:00-04:00

McKonly & Asbury, LLP is pleased to announce that Construction Industry Professionals, Michael Hoffner, Partner and David Blain, Principal have received their Construction Industry Technician (CIT) designation from Clemson Universities Center For The Improvement of Construction Management and Processes, Department of Construction Science and Management.

This multiple day course study and test was developed by the National Association of Women in Construction (NAWIC) Education Foundation's Certified Construction Associate (CCA) program. The program, which was first made available to the public in 1982, is designed to be an advanced program of multiple course studies. These courses cover the construction-related skills and knowledge needed by any person interested in moving into positions of adminstration and management in the construction industry.

In its effort to continue to focus on the goal of providing the most up-to-date eductional opportunites, the NAWIC Education Foundation (NEF) has developed the Construction Industry Technician (CIT) program. This program provides the user a detailed overview and fundamental core principals about the construction industry and its processes. Receipt of the CIT certification acknowledges the receipient's accomplishment of attaining a high professional level in the construction industry.

To learn more about this designation, please contact the construction professionals of McKonly & Asbury, LLP.

Revenue Recognition Update and The Impact to the Construction Community

2012-04-02T10:48:00-04:00

Late in 2011, the Financial Accounting Standards Board (FASB) re-issued an exposure draft of their proposed changes on how revenue will be recognized for all businesses going forward. The following is a summary of these proposed changes and the impact to construction and construction related companies.

The implementation timeframe of proposed changes to revenue recognition is targeted for between Q4 2012 and Q1 2013.
FASB reiterated that once the new exposure draft becomes final, all previously existing industry guidance will be eliminated – including existing guidance for the construction industry. Therefore, industry-specific guidance around how to account for claims, unapproved change orders, and even the methods of calculating percentage of completion will be eliminated.
FASB indicates that they are not eliminating percentage of completion accounting, but with the industry guidance that is going to be eliminated (as mentioned above), the prescribed methods for calculating percentage of completion accounting will be eliminated. This will allow construction entities to have opportunities to use other methods for calculating percentage of completion. However, this may lead to greater diversity of practice over time.
FASB reiterated that specific guidance has been written with the construction industry in mind. More specifically, this guidance will allow for most typical construction projects to be accounted for as a single performance obligation. The specific guidance as currently written in the new exposure draft is:
- A good or service is distinct if either of the following criteria is met:
  - The entity regularly sells the good or service seperately
  - The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer. Readily available resources are goods or services that are sold separately (by the entity or by another entity) or resources that the customer already has obtained (from the entity or from other transactions or events).
- Notwithstanding the requirements above, a good or service in a bundle of promised goods or services is not distinct and, therefore, the entity shall account for the bundle as a single performance obligation if both of the following criteria are met:
  - The goods or services in the bundle are highly interrelated and transferring them to the customer requires that the entity also provide a significant service of integrating the goods or services into the combined item(s) for which the customer has contracted.
  - The bundle of goods or services is significantly modified or customized to fulfill the contract.

These proposed changes are sure to have a significant impact on all construction companies and construction related entities. The potential changes in percentage of completion accounting will not only have an impact on prepared audit, reviewed and compilation reports for bonding purposes but could have potential impacts on tax. Obtaining the advice of a seasoned construction accounting and tax professional in advance will help to eliminate any potential surprises that this new guidance may have on your construction business.

To learn more about this new guidance and to contact an accounting professional seasoned in the construction industry, please contact the construction professionals of McKonly & Asbury, LLP.

Contract Litigation Insurance - A Confidence Booster

2012-03-26T10:06:00-04:00

Litigation you might say holds no certainty but uncertainty. From the strategies of your opponent, to the ultimate outcome, the process of litigation is laden with events and decisions over which the participants may have little or no control, and as such it cannot be accurately predicted. Even the costs and amount of attorney fees to be expended cannot be estimated with certainty. This is the nature of litigation. In some cases, a litigant may even be on the hook for its opponent’s attorney fees if he loses. When a party is faced with the possibility of paying the attorney fees of the other side, the decision to commence litigation or to defend a lawsuit rather than settling is daunting, possibly to the point of total surrender. Because attorney fees could exceed the amount of the original claim itself, this possibility can be paralyzing.

Of course you don’t have to worry about any of this if your attorney has assessed your case as a “slam dunk” or a “guaranteed winner”. Unfortunately, like unicorns and the tooth fairy, such things do not exist in the real world. Business owners, along with the assistance of wise counsel, must make a realistic assessment of their litigation exposure and risk of loss: a sober, unvarnished review of the strengths, and yes, the weaknesses too. Studies support this prudent approach, as statistics developed by the Bureau of Justice Statistics have shown that 33% of plaintiffs and 66% of defendants end up on the losing end of their contract disputes at trial. Although Pennsylvania law generally requires that each party in ligation pay their own attorney fees, it is becoming increasingly common for parties to shift the risk of attorney fee costs to the other side by including an attorney fee provision in their contracts.

Now it is possible to insure against the possibility of paying one’s opponent’s attorney fees in breach of contract lawsuits by purchasing Contract Litigation insurance. This relatively new insurance product may provide just the leverage and confidence necessary to initiate litigation to pursue claims or to defend against dubious claims rather than capitulating under the risk of paying your opponent’s attorney fees in the event the court sides with your adversary.

To learn more about Contract Litigation Insurance and its benefits, please contact Tom Williams of Reager & Adler, PC. Tom can be contacted at twilliams@reageradlerpc.com. To learn more about other trends impacting the construction community contact your construction professionals at McKonly & Asbury, LLP.

Save The Date - Spring 2012 Construction Seminar - Friday, May 18th

2012-03-20T14:21:00-04:00

McKonly & Asbury, LLP along with Murray Risk Management and Insurance, Woolford Law and Fulton Bank will be hosting the Spring 2012 Construction Conference on Friday morning, May 18th at the Sheraton Harrisburg/Hershey. This morning program will feature timely subject matter impacting the construction community. Registration and and breakfast will begin at 7:30 AM with the seminar running from 8:00 AM to 11:30 AM. CPE credits will be available. The cost of registration is $35.

To register for this event, please contact the events staff of McKonly & Asbury, LLP at events@macpas.com or by calling 717-972-5822. More details regarding topics and speakers will be announced shortly on Contractors Center Point. Stop back to www.contractorscenterpoint for more details.

SBA Surety Bond Guarantee Program - Can It Benefit Your Construction Company

2012-03-19T09:35:00-04:00

The SBA (Small Business Administration) has a very efficient, little known program to helps small and emerging contractors get surety bonds up to $2,000,000. After gathering and signing some initial paperwork – the system is web based and the program is handled by your surety professional. In the paragraphs that follow is an outline of the program, eligibility requirements and the paperwork required.

At its core the SBA Surety Bond Guarantee Program is set up like reinsurance and participates with many insurance companies across the country. XYZ Excavating needs a bond and has trouble in the standard market do to a variety of reasons including lack of working capital to not enough net worth. They go to their local surety professional and he/she recommends them for the SBA program. The insurance company at that point can take more risk because the SBA will guarantee up to 90% of that bond in case there is a loss. In a $1,000,000 claim situation the surety is only $100,000 at risk. They and the SBA underwriters (less strict underwriting guidelines) approve the bond and the local insurance company issues the bond on THEIR paper. The owner or GC does not know that the SBA is guaranteeing the bond. It’s all behind the scenes. As stated earlier, the maximum bond amount at this point is $2,000,000.

For most general building contractors revenues that are less than $33,500,000 will qualify for the program and specialty trade contractors that are $14,000,000 and under are also eligible. If a bond of over $1,000,000 is requested a CPA reviewed statement is required. From $501,000 to $1,000,000 a CPA compilation will be needed and under $500,000.00, high quality internal statements will be needed.

At initial request the contractor will need the following:

Current WIP (Work In Progress) Schedule with start and end dates of each job
Personal Financial Statement
Bank Line of Credit Term Sheet
Contractors Questionnaire (provided by surety professional)
Most recent 3 years Financial Statements
Internal 6 month numbers (if applicable)
Copies of Tax returns on all affiliates/subsidiaries – first 4 pages will suffice

To learn more about this program, contact Greg Marco, Surety Bond Executive with McConkey Insurance and Benefits. Greg can be reached at gmarco@ekmcconkey.com or contact the construction professionals of McKonly & Asbury, LLP.

Stronger Existing Home Sales Confirm Housing Market Recovery Finally Underway

2012-03-12T12:15:00-04:00

According to the National Association of Realtors, sales of existing homes rose 4.3 percent from December, to 4.57 million at a seasonally-adjusted annualized rate, with gains in all four regions for the month. Sales have increased in three of the past four months. Sales for December 2011 were revised down substantially, to 4.38 million, from 4.61 million. On year-ago basis, sales were up 0.7 percent in January.

The median sale price for an existing home was $154,700, not seasonally-adjusted. This was down 2.0 percent from January 2011. This is actually a smaller decline than in recent months. Sales of existing homes are definitely moving higher as mortgage rates remain near record lows, the labor market recovery picks up steam, consumer confidence improves, and access to mortgage credit eases. Sales will gradually increase in 2012 with the combination of high affordability, an improving job market, and greater availability of credit. However, prices will continue to fall through the first half of 2012 due to the high share of distress sales—short sales and foreclosures accounted for more than one-third of sales in January. The recent agreement between the big mortgage servicers, state attorneys general and the Obama administration will also result in more homes going to foreclosure over the next few months, adding to downward pressure on prices.

But the housing market recovery is underway, although it will remain a long process. The National Association of Homebuilders housing market index is up sharply in recent months, and residential starts and permits are also improving. Housing activity has been very low over the past few years, and pent-up demand has developed. Households will release some of that pent-up demand this year, and more in 2013.

For more information on this report, contact the Economic Division at PNC Bank or the construction professionals of McKonly & Asbury, LLP.