The 2024 Construction Financial Management Association Annual Conference joined together over 2,000 construction professionals from across the country. Taking place from May 18 through May 22 in Dallas, the conference provided valuable insights and networking opportunities to its nationwide member base. Following were our key takeaways from the conference:
Celebrating CFMA
The conference celebrated two significant milestones: Achieving a membership base of over 10,000 members and the 20th anniversary of the CCIFP designation. The CCIFP is the only designation for construction finance professionals and GBQ’s own Bob Biehl was part of the initial exam question writing campaign and is certificate holder #11. GBQ is happy to celebrate these milestones with additional CCIFP credentialed associates of Chris Mast and Tyler Roesch.
Wearing Your Hard Hat to Analyze Your WIP
Analyzing and understanding your company’s work-in-process schedule is crucial to having a successful company. The following are tools to monitor costs:
- Committed cost report: this report summarizes the agreed or signed project costs in advance but is pending to be incurred or paid. Traditionally used for:
- Subcontracts
- Purchase Orders
Your balance of committed cost must not be higher than your total estimated cost to complete
- Staffing plan: this report summarizes the necessary labor sources needed in hours and the amount to be paid during the entire duration of the project. Traditionally used for:
- Self-performing companies
- General Contractors for supervision and administrative personnel
The duration used for the staffing plan must be in line with the construction schedule
- Construction cost-loaded schedule: the baseline schedule is prepared with the necessary sequencing, logic, materials, and other resources needed to timely complete the project within the estimated costs. Traditionally used for:
- Revenue and cash flow projections
- Identify potential delays, liquidated damages and early completion bonuses
- Project site visits: wearing the respective hard hat and other safety equipment, walk the job site with the project team or a supervisor (let them know in advance), and perform the following tasks:
- Have a current committed cost report and look for the subcontractors’ personnel listed in the report and for delivered materials from vendors and manufacturers.
- Have the current staffing plan and talk to some of the workers listed in the plan about the company’s culture, training, or a casual conversation.
- When possible, talk to the customer’s representative or inspectors casually.
- Ask your team project how you and your team could better support the operations and completion of the project ON TIME and ON BUDGET.
- Review the latest construction schedule and confirm that the critical path aligns with onsite activities. Note that you might need help from the project team to perform this task.
- When possible, bring a team member with you and share findings.
- Search for possible safety issues, ask for near misses documentation, accident reports and understand how these could impact the job’s profit and company’s bottom line.
- Document your findings, including progress pictures, summary of conversations, pictures of stored material, action items, and possible risk or improvement of profit.
- These are key takes to analyze the WIP after our visit and when closing the months:
- Costs plus jobs are traditionally not underbilled; therefore, the contract assets for those jobs should be conditional retainage only.
- If you get paid upfront mobilization, apply the percentage of completion to the mobilization to get a more accurate under/overbilling status on the project.
- If your overbillings are leading to job borrowing, please make sure to review your overall cash flow projections to avoid a snowballing scenario.
By using the tools above to monitor your job costs, you will know where the job stands and be able to make better business decisions.
Tax Policy and Planning
Over the course of the next eighteen months, a significant amount of tax planning will need to take place as a result of two pieces of legislation: Tax Relief for American Families and Workers Act of 2024 and the sunsetting of Tax Cuts of Jobs Act of 2017. The following are the most significant planning items:
- In January 2024, the House passed the Tax Relief and American Families and Workers Act of 2024. Three key provisions were contained in the bill, including 1) Expanding 100% bonus depreciation for tax years 2023 through 2025, 2) Elimination of the capitalization requirement for Research and Development, and 3) Relaxation of interest expense limitations. In addition, the Employee Retention Tax Credit program would end on January 31, 2024. Currently stalled in the Senate, the consensus appears that if the bill is not passed by June 30, 2024, it will likely not be passed by the end of the year.
- Estate Planning: After 2025, the current lifetime exemption for estate tax will be reduced by approximately 50% from current levels. For anyone who is projecting to have a taxable estate based on proposed 2026 levels, action should be taken now to maximize lifetime exemptions through business transactions or gifting to future generations.
- Rising Tax Rates: Although the corporate rate is slated to remain unchanged, the top effective rate for individuals who own pass-through entities will rise from 29.6% to 39.6%. This is due to the combination of two items, which is the increase of the top individual marginal rate from 37% to 39.6% and the elimination of the “Qualified Business Income Deduction” or “Section 199A Deduction”. This special deduction equal to up to 20% of business income will be unavailable when the current law sunsets in 2025.
- Depreciation Deductions: For the past two years, bonus depreciation (a method of immediate expensing) has decreased from 100% of the cost of qualified property to 80% in 2023, 60% in 2024, and is scheduled to decrease to 40% in 2025 and 20% in 2026. Contractors should carefully plan capital expenditures due to the decrease in accelerated depreciation. Contractors should also be aware of Section 179 expensing, which can be used in lieu of a bonus but is subject to additional limitations.
- Revenue Recognition: Construction contractors have numerous options for their tax accounting methods if they have long-term contracts. Contractors should evaluate these accounting methods as they can provide income tax deferral. However, one should remain cognizant that deferral at this time may not be advisable as we are entering a rising rate environment; these should be evaluated now for implementation in 2026.
- From a tax policy perspective, there will likely be some level of tax increases in 2026. Even if the current law were to be extended past 2025, certain revenue raisers would need to be put in place, leading to the possibility of rising tax rates in some respect
Worker Welfare: Addressing Suicide Prevention and Substance Abuse Disorders
Construction has the second highest rate of suicide for any profession. Of those in the profession, 70% say the past year has been the most stressful year of their lives, and of that 70%, 78% of them say this is having a mental health impact. Companies should seek resources such as employee assistance programs and provide commitments to their employees to help with mental health to assist in addressing their concerns.
In addition, substance abuse has been an increasing factor in suicide rates and workplace incidents. Nationwide, substance abuse is at a 22-year high, with a recent and significant uptick in alcohol abuse. Specifically, in the construction industry, 10% of workplace deaths are attributed to overdoses on the job, and treatments for simple injuries such as strains and sprains are leading to opioid addiction. Contractors have successfully navigated the human element of this by providing “Next Chance Agreements” with employees who fail drug tests to provide a support system. Additionally, substance abuse disorders can have a quantifiable impact on a business. The National Safety Council provides a convenient calculator for estimating how much substance abuse may cost your organization.
Artificial Intelligence
From ChatGPT to Microsoft Co-pilot and other evolving Artificial Intelligence (AI) software, it certainly seems like AI is here to stay. Although these tools can provide a valuable benefit, there can be significant downsides for small—to mid-sized construction firms, including significant up-front investments and the reliability of AI data. Although the tools provide promising results, most small—and medium-sized contractors still seem hesitant to adapt in these early stages of AI.
At GBQ, we’re committed to you, your business and the construction industry, and that’s exactly why we’ve created a unique set of services that are built to empower growth. To learn more, click here.
