How can an Industrial Development Bond (IDB) help construction companies expand?

Chief Commercial Officer, Equipment Finance
GE Capital, Corporate Finance

IDBs can provide construction companies with tax-advantaged financing—up to $10 million per deal—for projects intended to help drive local economic growth. IDBs work for companies looking to expand, improve, replace or relocate facilities. They can be used for the purchase of new equipment, the construction or acquisition of facilities, and other qualified projects.

For example, if a construction company is looking to expand to a new plant, the IDB would be issued through the supporting government county, which then acts as the conduit for the IDB financing. This is an ideal turnkey financing solution that allows a construction company to lock in a low, long-term rate under one bond issue.

Construction companies should consider leveraging IDBs for long-delayed capital projects in a rising rate environment. Their advantages are clear: tax-free financing, as well as the ability to package real estate and equipment financing into one bond issuance.

As jobsites become more intelligent, what are the most important areas to bring up to date for mobile and remote reporting?

CEO & Co-Founder
Dexter + Chaney

Today, three fundamental aspects of information management—mobility, computing and software—are transforming together. This transformation is helping contractors create more intelligent jobsites and more empowered field staff (i.e., putting information into the hands of the people closest to the action).

Mobile technology can solve the challenge of access, and cloud computing can provide a collaborative platform, but dropping traditional windows-based software into a mobile cloud environment does not work. Applications that anyone can access and use from any device are defining the next generation of construction software.

Contractors looking to reap the benefits of a smoother flow of information and better informed project teams should address all three dimensions of the new IT landscape. Employees in the field should have the ability to get online, access common applications and data sets, and use software that has been designed with mobile access and cloud-based collaboration in mind.

How can financial managers more closely connect with operations?

VP, Strategy and Customer Retention
Sage Construction and Real Estate

Construction financial managers are becoming more engaged with their operations counterparts. After all, money is made in the field. The general ledger is just the scorecard.

Cloud and mobile technologies are helping financial professionals make the connection between the office and the field. Reporting tools are available for mobile devices that make it easier to capture units in place, materials delivered and other onsite observations that give financial managers greater insight. By tapping into the growing use of smart devices on the jobsite, financial managers can provide more real-time reports to their field superintendents and project managers so they have the information they need to make the best decisions.

In addition, some construction financial managers put together introductory finance sessions for operations staff and conduct monthly reviews of the work-in-progress schedule with project managers to identify inefficiencies and contract overruns.

What is the potential financial downside for a contractor that fails to comply with electronically stored information (ESI) mandates?

Product Manager, Content Management
Viewpoint Construction Software

These days, being prepared means keeping an exceptional record of every electronic document, spreadsheet, image and email. A good strategy to ensure ESI compliance should include having a way to file and organize every document and all correspondence related to a project. Managing every project-related document—from beginning to archiving—is key to protecting your company in a lawsuit.

True enterprise content management (ECM) solutions are approved under federal rules of civil procedure. In the event of litigation, the ability to search large masses of content across the enterprise make legal preparation a much simpler and more cost-effective process, substantially reducing legal expenses.

Smart contractors look to technology as a proactive measure for records management. ECM software is designed to ensure content is being managed properly and meeting compliance goals, thereby reducing risk and discovery costs.

What is the potential financial ROI for contractors that automate collection of labor time and attendance information?

Foundation Software

Unlike equipment, measuring ROI on your investment in technology can be tricky. For example, I knew a man who worked with his son digging graves by shovel. The son eventually convinced his father to get a backhoe, and based on factors like time, labor and cost, it was easy to see the ROI on the equipment they purchased.

When it comes to investing in computer technology, the real ROI comes from the value of the data being tracked and being able to get this data back to the office in a timely manner. Using technology to automate the collection of labor time and attendance—plus other essential information like quantities complete and a breakdown by cost code or activities—gets better information to key decision-makers faster. Then, they can use this knowledge to make real-time decisions and changes during the life cycle of a job, as opposed to only seeing an issue once the job is completed. Ultimately, this saves the company money and helps contractors gain a better understanding of how future jobs may work.

How has more reliable and available connectivity changed the expectation of the work performed in the field?

Explorer Software

With better connectivity comes the expectation that employees can view and record data even when they are away from the office. Software must meet the needs of all users regardless of their physical location.

Browser-based software is an ideal method of providing remote users with an easy and familiar way to access data remotely. This technology features low overhead because all mobile devices already have a web browser. Software written to work with the most popular browsers provides users with a comfortable look and feel, shortening the perceived learning curve and enhancing acceptance by field personnel.

As laptops are replaced by smart devices in the field, the expectation is that data can be entered efficiently with or without an Internet connection. Software must allow for validation to reduce the possibility of data entry errors. If entries are made offline, the data should be routed for approval once a connection becomes available or sent directly to the home office.

How does the financial impact of moving to the cloud vary for small, medium and large contractors?

Product Manager, Cloud Computing
Viewpoint Construction Software

For smaller contractors, moving to the cloud can free up the need to hire an IT staff or an IT consultant and allow them to refocus their energies on growing their business.

Medium-sized contractors are offered the benefit of allowing their current IT staff to focus on strategic initiatives rather than the maintenance and installation of software. Many of these initiatives include examining the need for mobile technology, or exploring the advantages of a content management solution designed for electronic records management and retention.

Many large contractors have invested time and money into maintaining an onsite data center, or are housing their servers at a co-location. Moving to the cloud provides the freedom to transfer these efforts into building their business without the boundaries of a set amount of server space, and offers an infrastructure that can scale with workload fluctuations or the type of software that is chosen.

Foundation Software

While the cloud can work for contractors of all sizes, it should be approached differently for maximum financial impact. Some contractors are looking to move from an off-the-shelf accounting package to one built specifically for construction. On-premise construction accounting software can be expensive, but the same applications on the cloud allow contractors to access sophisticated software via the Internet without the high upfront cost of computer equipment and servers. Because the provider takes care of updates and backups automatically, the need for a dedicated IT staff is diminished.

Medium to large contractors will reap the most benefits from approaching the cloud more aggressively. These contractors should consider a strategic plan to move several, if not all, of their applications to the cloud. Moving only one or two won’t eliminate the need for equipment or an IT staff, so they’ll still have these overhead costs.

How is multi-functional software changing the construction accounting landscape?

Chief Marketing Officer
HIKUU Construction Cloud

Multi-functional software isn’t just changing how contractors access accounting software; it’s changing the software itself. The unique capabilities and aspects of the cloud are leading software vendors to create very different tools.

Many small-to-medium businesses are not experts in the field of accounting and they may or may not have the technical knowledge needed to implement and maintain complex software solutions. SaaS accounting solutions alleviate this pressure as vendors take on the responsibility of maintaining, upgrading and fixing any issues that may arise. SaaS solutions enable small-to-medium businesses to provide prompt, efficient and cost-effective services to clients, in turn helping them provide greater overall value.

Multi-functional software allows users to connect their field and back office operations—and all of this is automatically transferable. Everything is integrated, double entry is eliminated, and managers have greater efficiency and control over the business.

What do contractors need to know about the new accounting standard for revenue recognition?

Partner, Construction Industry Practice Leader
CohnReznick LLP

The new revenue is a unified, principle-based standard written to create consistent revenue recognition across multiple industries and transactions.

The new standard contains guidance on many revenue-related issues that will need to be evaluated in construction contracts, including accounting for pre-contract costs and costs to fulfill a contract, accounting for loss-making contracts, customer-furnished materials, claims, time value of money, and the accounting for warranties.

Overall, the fundamental accounting for long-term construction contracts will remain fairly consistent with current practice. However, much of the construction industry-specific guidance and terminology will be replaced. While the effective dates for public and non-public entities do not come into play until the annual reporting periods beginning in 2016 and 2017, respectively, construction firms should begin working with their trusted advisors now to get up to speed.

Audit Partner
Grassi & Co.

Contractors need to work closely with project owners to ensure wording in their existing contracts is sufficient to support the revised standards for revenue recognition. If a change or modification is required, the contractor should attempt to renogotiate. Contractors should look to their CPAs to guide them on what steps they need to take to be prepared for this change.

Contractors also need to understand that the changes do not only affect accounting. IT will be integral in assisting with the proper recording of revenue transactions and any related metrics. The new standards also directly affect credit procurement because the credit provider’s need for comparability of revenue recognition and trends analysis remains intact.

The guidance will utilize a five-step model to recognize revenue from contracts, highlighted by identifying separate performance obligations within each contract, allocating a price to these obligations and recognizing revenue when the contractor satisfies the performance obligations.

What steps can contractors take to mitigate their risks?

Travelers Construction

The financial strain from a long downturn can create additional risk as opportunities for more work become available. If your company is in the fortunate position of pursuing growth, it is important to address these risks as early as possible.  

Insurance and indemnity provisions should be evaluated for enforceability in each jurisdiction a contractor works. Limit profiles should be reviewed to ensure firms have the appropriate amount of coverage to keep pace with continuously rising severity trends. When relying on (or providing) additional insured protection, identify any potential gaps in the coverage and determine whether it creates direct financial exposure to a firm.

Although contractual indemnity provisions may provide additional protection, a firm’s inability to meet its obligations can create unexpected financial exposure to both parties. Maintaining coverage with highly rated carriers and ensuring policy terms are consistent with expectations can help mitigate these risks.