Construction Spending Declines, Proportions Shift

The US Census Bureau recently released figures on construction spending for July 2010. While construction spending overall has declined in the past year, public construction has become a larger share of the construction market.

In the past year, construction declined approximately 12%, a seasonally adjusted decrease from $901 billion to $805 billion. Spending on private construction declined 14%, from $577 billion to $506 billion, and it now makes up a slightly smaller percentage of total construction when compared to a year ago.

Public construction spending, however, declined only 8% in the past year, dropping from $324 billion to $299 billion and currently comprises a greater share of total construction spending. When looking at construction spending over the past five years, this trend is even more noticeable, as public construction made up only 20% of total construction in 2005 and now accounts for 37% of all construction.

In spite of the overall decline in construction spending, there are some areas which are actually growing. In particular, sewage and waste disposal, water supply, and conservation and development are all on the increase, collectively increasing 9% over last year and making up $48 billion in spending.

Retirement Funds – The Big Picture

One of the factors employers consider when choosing a retirement plan provider is the fees which are charged. Of course this is important – but it should never be the only consideration.

How beneficial is it for you and  your employees to pay low fees for funds which are poorly managed and don’t perform?  It’s kind of like buying a car because it has the lowest price – and then finding out it has many problems which end up costing you more in the long run.

It’s true that past fund performance is not a predictor of future returns. However, funds which have historically been well-managed are generally more likely to continue along that same path.  At The Contractors Plan we are proud to offer funds managed by an advisor with a proven track record during challenging market conditions as well as robust economic times.

Many financial analysts have referred to the past ten years as a “lost decade” for stocks.  A report recently released by Manning & Napier Advisors shows that Manning & Napier Pro-Mix Collective Investment Trust Funds far outperformed a representative benchma rk and yielded double-digit positive returns, as compared to a negative return for the ma rk et (as represented by  the S&P).  A study of cumulative returns from January 1, 2000 through December 31, 2009 demonstrates how  Manning & Napier’s active asset allocation approach benefits investors regardless of whether the markets are in bull or bear phase.

At The Contractors Plan, we work hard to offer our clients quality choices within their prevailing wage benefit plans.  When evaluating potential benefits plan providers, be sure to look at the big picture.

New York Contractor Arrested for Wage Violations

An article recently published in the Wall Street Journal reports that a New York contractor was arrested and charged with one count of Grand Larceny in the Second Degree for alleged wage violations. The article claims that the contractor failed to pay workers the prevailing wage on a publicly-funded contract, and falsified payroll records to cover this up, resulting in 66 workers being cheated out of $298,000. The entire article can be read here.

Study Predicts Worldwide Shortage of Skilled Trade Workers

A study recently released by Manpower, Inc. finds that skilled trades are the hardest positions to fill worldwide, and predicts that the shortage of skilled workers will only worsen.  This is yet another strong argument for offering benefits.  In order to attract and retain skilled, experienced workers, employers will need to offer hourly workers benefits such as medical insurance and retirement plans.

Included in the category of skilled trades are jobs which require specialized skills which have traditionally been learned through apprenticeship.. Examples of skilled trades jobs include butchers, electricians, carpenters,cabinet makers, masons/bricklayers, plumbers and welders.

According to Manpower’s 2010 Talent Shortage Survey, employers in six of the world’s 10 biggest economies ranked skilled trades among their top two hiring challenges.

The seasonality of construction work can present challenges for benefits providers who aren’t set up to accommodate rapid workforce changes.  Employers should carefully interview potential benefits providers to determine if they offer the flexibility the construction industry requires.

Considering Dual Shop? Proceed Carefully.

As construction work becomes more and more difficult to find, contractors are looking for strategies that will enable them to stretch into new geographic areas as well as different types of work.  This is one reason contractors set up dual operation shops.

These shops often have common owners.  However that’s where the sharing should end if the contractor wants to avoid the potential for labor issues and hefty fines. While contractors may start out with every intention of keeping the operations separate, the temptation to send an employee from the non-union company to work on a union project – or vice versa – “just this one time” during busy times or when there’s an employee shortage can be great.  But once this line has been crossed, it’s easy to cross it again and that violates the integrity of having a dual shop operation.

Contractors considering this strategy should consult their trade associations for advice, and would be well advised to seek counsel from an attorney who specializes in labor law.

Wage Determinations for ARRA-funded Weatherization Work

Recently we’ve been hearing from contractors bidding on ARRA-funded weatherization work that job classifications and wage determinations for these projects are confusing.

Prior to the passage of the ARRA, which included grant monies which were provided to states for use in weatherization of residential structures, projects performed as part of the Weatherization Assistance Program were not subject to provisions of the Davis Bacon Act.  However, all work done on projects funded in part or in whole with ARRA funds are covered by the Davis Bacon Act,  including residential weatherization.

As a result, the Department of Energy requested that the DOL provide job classifications and wage determinations for workers who commonly perform weatherization work.  A spreadsheet listing these job classifications and the correlating wage determinations for each state can be found here.

The Department of Energy has published an extensive FAQ to address questions arising from the application of the Davis-Bacon and Related Acts to ARRA-funded weatherization projects.  It can be found by clicking here and then selecting Davis Bacon Act from the drop-down menu.

Important Deadline Approaching

Contractors are all too familiar with deadlines.  But an important deadline is fast approaching that many contractors may not be aware of.  To discontinue using a SIMPLE plan in 2011, contractors must notify both the financial institution handling the plan and their employees of their intent to discontinue making contributions to SIMPLE plan by November 1, 2010.

Many contractors start out using SIMPLE plans because they’re relatively easy to set up.  But they usually discover fairly quickly that SIMPLE plans lack the flexibility prevailing wage contractors need to effectively accommodate their retirement plan needs.

We have a summary of the reasons SIMPLE plans don’t work for prevailing wage contractors on our website. If you intend to switch from a SIMPLE plan to a different type of retirement plan more appropriate for contractors doing prevailing wage work in 2011, it’s important to provide written notification to your employees and the financial institution handling your plan by November 1, 2010.  It is not required that you notify the IRS.

Onsite or Offsite?

When it comes to understanding what does and does not fall under the auspices of the Davis Bacon Act, the devil is often in the details.  Recently we heard from a contractor who mentioned that while the publicly-funded project he was working on was not covered, the roofing and site work was.

However, if the roof for that same building is constructed onsite, and exceeds the $2,000 project size threshold (or is funded in part or in whole by ARRA funds) then it meets the criteria for falling under the requirements of the Davis-Bacon act.

This is just one small example of how confusing it can be to comply with the Davis-Bacon and Related Acts.  Have a compliance question? Submit it here and we’ll answer it for you in a future blog.

Allocation of Fringe Benefit Dollars on Prevailing Wage Jobs

Recently we’ve met some contractors who believe that the fringe portion of the wage on Davis Bacon projects must be allocated in a specific way.  In other words, there are some misconceptions among government contractors that a certain amount must go to provide health insurance, a specific amount invested in a retirement plan, and so on.

While the state of California does break out the fringe amount by line item on the wage determination, even there employers can contribute the fringe however they see fit, provided the benefits meet the Davis Bacon Act criteria for being “bona fide”.

Employers who are interested in maximizing tax savings, both for the company as a whole and for themselves as individuals, may want to look at increasing the amounts contributed for their hourly workers into company retirement plans.  Of course annual retirement plan limits apply to the total amount that can be contributed each year for retirement.  But increasing contributions made on behalf of hourly workers can result in huge tax benefits for company owners and key employees.

“Sweep”Audits for Contractor Compliance

An issue garnering attention among government contractors is “sweep audits”.  Teams of 3 to 5 investigators are visiting worksites and examining everyone on the project.   Prime contractors need to understand that they are responsible for whether their subcontractors – and any subs their subcontractors are using – are in compliance with applicable laws such as the Davis-Bacon Act.

A fourth-tier subcontractor brought in to install cabinets, may not even be aware that they are covered by the Davis-Bacon Act while working on an ARRA-funded project. It’s imperative that prime contractors ensure that all subcontractors on an ARRA-funded project, or any project to which the Davis-Bacon Act applies, understand their obligations under the law.

The audits are random and unannounced, so government contractors must keep impeccable records at all times.  With the increased number of investigators on staff at the DOL, it’s almost a given than any contractor working on an ARRA-funded project will be audited.