Rasmuson & Company, PCCertified Public Accounting Firm

2195 West 5400 South, Suite 200BSalt Lake City, UT 84129(801) 963-4036 Phone(801) 963-4038 Fax

ON SITECONSTRUCTION INDUSTRY PERSPECTIVES

MANAGE CHANGE ORDERS MORE EFFECTIVELYChange orders can be disruptive. They can turn a project from one that’s on track to earning a profit to one that may end up losing money. They also can cause delays, eat up valuable management time, and create additional work for estimators and other team members.

15SUMMER

Handling Fast-track Projects

Using Demographics To Grow Your Firm

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Are There Gaps in Your Insurance

Coverage?03

Developments in Tax and Business 04

Contractors can’t make change orders disappear, but they can limit their prevalence and minimize their financial impact. The key is to develop a process that identifies the causes of the change order, communicates the change to all involved parties, and factors in the cost of the labor, time, and materials of the required change.

IDENTIFY THE CAUSES

Change orders typically fall into three main categories:

Owner Changes. These are fairly clear-cut. They occur when the owner requests a change, an enhancement, or an addition that was not included in the original contract or in the project drawings.

Design/Specification Changes. Change orders also result from designer clarifications or changed specifications. Architects, engineers, or designers will sometimes recommend a change in the materials used in certain parts of the building or want to add an architectural feature that was not included in the original project blueprints.

Unforeseen Conditions. If soil conditions on the site are different than were originally outlined in the specifications and require significant remediation, then a change order would be necessary.

As a contractor, you can minimize the possibility of a change order negatively impacting profits by taking a few steps. First, go over the contract. Make sure terms and conditions for change orders

are clearly spelled out. Next, make sure supervisors are aware of what is and what is not included in the contract. If an owner requests changes in the middle of a project, your supervisors will be able to follow a series of prearranged steps to get the changes approved and ensure the changes are billed.

AUTOMATE THE PROCESS AND COMMUNICATE THE CHANGES

Once changes have been requested or identified, you need to contact the customer to confirm them. It can help if you automate the process. Doing so allows you to keep track of potential changes, change orders, and contract modifications so you can communicate these changes to supervisors, suppliers, designers, and subcontractors. Communicating with all involved parties as soon as possible is critical in order to halt work in the change area and limit additional costs to that change. In addi-tion, a good system allows you to update project information in real time and quan-tify and record all work as it is completed.

ENSURE ACCURATE PAYMENT

Do not process change orders until you and the customer have reviewed and approved billing rates for the extra work. If the contract does not offer pricing guidance for change orders, you have to be sure that you include both direct and indirect costs.

Don’t let change orders disrupt your business. Take steps now to manage change orders more effectively.

Unhappy with extended conventional schedules for their projects, an increasing number of owners want their projects fast tracked. Fast tracking compresses the project’s schedule by running some phases of design and construction simultaneously. It’s a process that has the potential for numerous problems, but the prospect of reducing costs makes it attractive to owners. If your firm is considering getting into this part of the business, you may wonder how you can meet compressed deadlines without squeezing profit margins or burning out team members. The following strategies may help your company handle fast-track projects more efficiently.

HANDLING FAST-TRACK PROJECTS

USING DEMOGRAPHICS TO GROW YOUR FIRM Demographic and economic data can be used to figure out where people will live, work, and shop in the future.

SCRUTINIZE THE CONTRACT

You want to ensure your financial interests will be protected whenever you participate in a fast-track project. The best way to achieve this goal is to review the contract carefully and negotiate to include or exclude items that are important to your bottom line. For example, the contract should clearly spell out the responsibilities, the scope, and the costs involved in every stage of the project. Moreover, the contract should specify how change orders, extras, and back charges are to be handled and who bears ultimate financial responsibility for these charges.

CAREFULLY REVIEW PLANS

A major, unexpected design change could stall the progress of the project and end up costing you dearly. That’s why it makes sense to study the project’s engineering specifications long before the project’s start date. By carefully reviewing the plans, you can identify imprecise or flawed design assumptions and insist on changes before they impact your schedule and your profits.

EMPHASIZE TECHNOLOGY

Technology is a key driver in the successful completion of fast-track projects. Utilizing accounting and proj-ect management software can help you meet the accelerated timelines of fast-track projects.

FOCUS ON EXPERIENCED PARTNERS

Since large, fast-track projects require numerous skilled trades working alongside each other, be sure you choose your partners carefully. You want

to work with highly experienced people who can work quickly and collaboratively with your employees and others involved in the project.

TALK TO US

We can help ensure that your accounting and project management tools are up to the task of handling any fast-track project your firm is considering. Please call.

THE REVIVAL OF URBAN LIVING

The massive migration to suburbia appears to be moderating some-what while America’s urban centers are witnessing a significant demographic shift. According to the U.S. Census Bureau, the urban population of the country increased 12.1% from 2000 to 2010, a far greater rate of growth than the overall 9.7% national rate.

Lifestyle preferences and access to employment opportunities are the primary drivers of this shift to urban living for younger, college-educated people. Importantly, this shift to urban living affects every region in the country and is resulting in a significant uptick in new apartment construction and the conversion of many older commercial buildings into apartments.

Empty nesters and retirees have also been moving in large numbers to urban areas over the past

decade, adding to the demand for apartments and condominiums. Access to world-class health care and greater cultural and entertain-ment opportunities are largely responsible for this demographic shift.

NONRESIDENTIAL CONSTRUCTION OPPORTUNITIES

This shift to urban areas has major implications for the mass transit, water/sewer, public safety, and educational segments of the construction industry. Dining, entertainment, and office construction are also areas of great potential growth.

It’s impossible to predict whether this shift in living preferences will continue or weaken over time. However, the decisions made by the members of Generation Y — who are marrying and having children later in life — will very likely determine whether the shift to urban living will continue.

Construction is by its very nature dangerous, unpredictable, and subject to a variety of industry-specific risks. That’s why it’s so important to have the proper insurance coverage. Insurance protects against the financial consequences of unanticipated events.

ARE THERE GAPS

IN YOUR INSURANCE COVERAGE?

Knowing what types of insurance are available and which ones your business may need is essential. Some owners and governmental entities will insist that your firm have certain insurance policies in place before they’ll consider a bid. The following insurance overview can help you determine whether there are any gaps in your coverage.

GENERAL LIABILITY INSURANCE

General liability insurance protects your business assets in case your business is sued for something it did (or did not do) that caused a personal injury or property damage. General liability insurance typically covers a variety of claims, including bodily injury, property damage, personal injury, and even damage from slander or false advertising.

PROFESSIONAL LIABILITY INSURANCE

Because of the rise in lawsuits, more businesses are buying professional liability insurance in addition to general liability insurance to protect them from claims that may be filed by clients or third parties. Typically, professional liability insurance covers claims of negligence, misrepresentation, violation of good faith and fair dealing, and inaccurate advice. A policy covers the cost of your legal defense against claims as well as the payments of judgments against you, including court costs, up to the limit of the policy. Professional liability insurance coverage typically does not extend to nonfinancial losses or losses caused by intentional or dishonest acts.

SURETY BONDING

A surety bond deals with the performance of some or all stages of a construction

project. In situations where your firm can’t successfully meet the terms of a contract, the surety assumes your financial responsibilities until the project is completed. You may find it impossible to obtain work on certain projects without first obtaining surety bonding.

KEY PERSON INSURANCE

Key person life insurance is designed to protect your business if you, a partner, or other key employee were to die. Consider buying life insurance to fund a buy-sell agreement if you operate your business with multiple partners. In addition, you should also consider buying disability insurance for you and your key people.

PROPERTY INSURANCE

Basic property insurance is intended to protect the physical assets of your business, such as buildings, trucks, machinery, inventory, and furniture.

UMBRELLA INSURANCE

Umbrella liability or excess liability adds another level of protection to any of several other policies you may have (e.g., general liability, employer’s liability, and auto liability policies).

WORKERS’ COMPENSATION INSURANCE

Workers’ compensation coverage protects you from worker lawsuits aris-ing from injury related to accidents on the job. In general, it provides benefits, including medical treatment and compensation for your injured employee’s lost income.

BUILDER’S RISK INSURANCE

Builder’s risk insurance protects owners and contractors against damage to

structures in the course of construction. It indemnifies for loss or damage to materials used in a project, such as plumbing, lighting fixtures, electrical equipment, or appli-ances, due to fire, lightning, wind, hail, or vandalism.

POLLUTION LIABILITY INSURANCE

Pollution liability insurance provides protection for contractors for a wide range of pollution risks, such as the accidental release of fuel oil, gases, or chemicals from ruptured pipelines and fuel tanks on a project. Policies may provide insurance for third-party claims for bodily injury and property damage as well as for remediation costs that stem from pollution incidents.

WRAP-UP INSURANCE

Wrap-up insurance plans consolidate insurance coverage for general contractors and subcontractors working on a single project. It’s purchased and managed by a single sponsor, either the owner or the general contractor. A wrap-up policy typically extends to workers’ compensation, general liability, excess liability, builder’s risk, and pollution liability insurance.

CALL US

Take the time to review your firm’s insurance coverage so you can identify any gaps that may exist. If we can help with your review, please contact us.

Today’s market conditions require a CPA firm that has the experience and knowledge to overcome the many obstacles facing the construction and real estate industries. We have earned a reputation for providing high quality services in this ever changing environment.

We have been providing services to numerous contractors and developers. We provide all aspects of accounting and tax services in these highly specialized industries. Some of the services we provide include, but are not limited to the following:

Rasmuson & Company, PCCertified Public Accounting Firm

2195 West 5400 South, Suite 200BSalt Lake City, UT 84129(801) 963-4036 Phone(801) 963-4038 Fax

Preparation of audited, reviewed or compiled financial statements Analysis of internal reporting system Analysis of job costing system Analysis of burden rate Preparation of work-in-process and completed contract schedules Evaluation of internal controlsBusiness entity selection

Reconciliation of book records to tax records Preparation of tax returns Tax planning at the corporate, partnership and shareholder level Preparation of personal financial statements Assistance in obtaining financing and bonding IRS representationCost component depreciationManagement advisory services

The general information provided in this publication is not intended to be nor should it be treated as tax, legal, investment, accounting, or other professional advice. Before making any decision or taking any action, you should consult a qualified professional advisor who has been provided with all pertinent facts relevant to your particular situation.

COPYRIGHT © 2015 CON

DEVELOPMENTSIN TAX AND BUSINESS

CAN WE SERVE YOU?Our firm provides a broadrange of accounting, auditing,tax, employee benefit, and management consultingservices to contractors.

NEW EXPANDED DEFINITION OF “FLOODPLAIN”

President Obama issued an executive order earlier this year that expands the definition of “floodplain.” All federal agencies must use — and construction companies must follow — this definition for all federally funded or approved projects. According to the new Federal Flood Risk Management Standard, federal agencies must update their flood risk reduction strategies and expand the flood elevation and hazard

areas used when making decisions concerning new development, redevel-opment, and construction.

A SNAPSHOT OF THE U.S. CONSTRUCTION INDUSTRY

According to the U.S. Census Bureau, the United States has 729,345 construction companies that employ 7,316,240 workers and generate $1.731 trillion in revenue. The top five states with the most construction companies are California, Florida, New York, Texas, and Illinois.