Construction Industry News

Every week, the media focuses on an ever-fluctuating builders market. From new home sales plummeting to lowered interest rates, bricks and mortar news never seems to wane. The articles below offer the most up-to-date headlines from around the industry.

• How to Limit COVID-19 Related Legal Claims
  

  By Joshua Lindsay, Crowell & Moring and Meagan Bachman, Crowell & Moring

  We are 10 months into the global pandemic. Given the magnitude of additional costs and upended expectations and risk-allocation, we foresee a wave of disputes coming soon. Whether it is large or small depends heavily on how well project team members handle the COVID-19 project impacts now.

  While there are still many unknowns, the knowns have also come into sharper focus over the last several months. What we have learned points to sustained challenges and cost and time impacts, but also opportunities to mitigate the deleterious effects of COVID-19 and reduce the possibility of large-scale disputes down the road.

  At the beginning of the pandemic, governments around the world instituted both full and partial travel bans, border closures and, in some jurisdictions, stay-at-home orders and work site shutdowns to combat the virus spread. Initially, we saw a raft of force majeure notices raised in response to these measures.

  In short order, however, many contractors pivoted to submitting notices of claims under change in law and other provisions, particularly when they realized that most traditional force majeure regimes provide only time relief and not compensation for the additional costs incurred due to interruptions in supply chains, workforce unavailability and delays to work due to government requirements. Owners likewise grappled with how best to respond to COVID-related disruptions, including through re-sequencing and suspensions.

  Today, despite the first vaccines being available, we know that there will continue to be closures and changes—many implemented on short notice—that affect the availability of materials, labor and work sites around the world until the virus is under control. Additionally, safe work on construction sites now includes new environmental, health and safety requirements, including additional personal protective equipment, cleaning, maintenance and social distancing.

  As a result of the continuing pandemic, project teams must increasingly plan for COVID-related disruptions and be prepared to implement mitigation measures to minimize their effects.

  We also know that many project participants are strained. For some, especially public-private partnership (P3) projects involving public transportation, the financials have changed radically. Where several months ago the parties and team members on such a project might have been able to accommodate certain disruptions, some may no longer have the financial ability to do so.

  What can be done? Collaborate and plan for the impacts of government safety measures. On many projects, we have recommended that task forces be formed consisting of owners, contractors and project and construction management teams to identify and address COVID-19 impacts going forward. With the experience of nine months in dealing with effects of government measures on their supply chains and work performance, it may be easier to agree about what to do.

  Next, be diligent in making initial claim notices and updates. These are vital to giving the parties the information necessary to better mitigate the project impacts while also assuring that, if a dispute becomes inevitable, the parties are well-positioned to resolve it in a cost-effective and ultimately successful way.

  Also, carefully and thoroughly document extra costs, delays and disruptions. In most scenarios, whether by agreement or ultimately via judgment or arbitral award, the only costs that can be recovered are proven costs. It is much easier to identify, capture and ultimately recover costs if they are contemporaneously tracked.

  Now for the hardest part: Project members should evaluate whether existing contract mechanisms are suited to the current situation; some existing contracts are up to the task, but others are not.

  We have, for example, drafted new contract provisions to define when COVID-19 events impacting performance do and do not give rise to entitlement for time and compensation, thus taking them out of force majeure and change in law regimes that did not adequately address the risk allocations the parties preferred. Similarly, there may be times when separate, fast-track claims notice and resolution processes may be appropriate to assure that relief for meritorious claims for impacts comes quickly to support mitigation and performance.

  Ultimately, we urge everyone, as much as possible, to stay creative and flexible.

  These remain extraordinary times. Effective claims management and disputes avoidance will require a high level of constructive engagement with other project team members, and where possible, creativity and flexibility from all stakeholders, especially given the changes in the financial calculus for some project participants. No options should be taken off the table, including one-off agreements or wholesale renegotiations to assist project teams in navigating the continuing challenges COVID-19 has brought.

  Meagan T. Bachman and Joshua M. Lindsay are, respectively, partner and counsel at Crowell & Moring, the law practice based in Washington, D.C. They can be reached at mbachman@crowell.com and joshlindsay@crowell.com.

  Source: ENR, January 5, 2021 (https://www.enr.com/articles/50951-commentary-how-to-limit-covid-19-related-legal-claims)

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• An Increasing Dependency on Technology Demands Better Asset Protection
  

  By Ken Smerz, CEO of ZELUS

  The construction industry is joining other sectors on the road to digital transformation, and with that cyber risks naturally increase. The COVID-19 pandemic is exacerbating those risks, as would-be fraudsters take advantage of the disruption. Fortunately, mitigation tools, em-ployee education and cyber insurance can minimize those risks.

  HOW THE PANDEMIC IS EXACERBATING CYBER RISKS

  Now that many administrative employees are now working remotely from their homes and jobsites have been modified to abide by COVID guidelines and restrictions, the necessary modifications have led to a greater interest in technology within the industry, says Ken Wengert, second vice president and regional director of construction, energy and marine risk control at The Travelers Cos., a member of multiple AGC chapters.

  “However, as more contractors invest in technologies that can help them improve operations and safety on the jobsite, and enable some to work from home, the opportunity grows for cybercriminals who may be looking to do harm,” says Wengert, who is based in Albany, New York.

  One potential cyber risk: Employees accessing the construction company’s systems from home on their personal devices might unwittingly open the door for allowing fraudsters to listen in on conversations after hacking into the devices, says Nikki Ingram, cyber security risk engineer at Zurich North America, based in Schaumburg, Illinois.

  “Companies can install a virtual private network — be aware, however, that sometimes the bandwidth gets very sensitive and loses connec-tion,” Ingram says. “While some vendors just tell companies to reduce the security in order to increase bandwidth, we do not recommend that — that move opens up businesses to increase risk of cyber attack.”

  In addition to its own risk mitigation efforts, Zurich, a member of multiple AGC chapters, offers access to pre-vetted cybersecurity vendors that have the resources to help protect customer data when their employees work from home, including training to spot social engineering attempts.

  The pandemic has also necessitated specialized business continuity plans to handle unexpected things like office shutdowns and staff work-ing remotely from home, Ingram says. Contractors need to plan for how these employees will share information remotely to staff at project jobsites that might still be ongoing, or to project partners including owners, subcontractors and suppliers — and how that information can re-main secure.

  “For the backend of the pandemic, contractors need to plan for how they will safely transition back to their offices, whether that be in a stepped hybrid process where some staff return to office and others remain remote,” she says. “It is important that policies are established for these transitions, such as if employees plan to use a USB memory stick to download and transfer data from their personal devices to office computers, they should buy a fresh USB so that it’s clean and not corrupted by any malware or ransomware.”

  COVID-RELATED SOCIAL ENGINEERING

  One social engineering phishing scam related to the pandemic looks like an informational email from an official agency, such as the Centers for Disease Control, about the COVID-19 virus and the workplace, says Robert Douglas, president of PlanetMagpie, an IT consulting and services firm headquartered in Fremont, California.

  The email asks the contractor to sign up to receive ongoing information using their work email address and password, says Douglas, who is based in the company’s Dallas office. However, in reality, the fraudster is using the contractor’s credentials to obtain access to the contractor’s email account to get to the company’s contact list — phone numbers and email addresses of all of the people the firm does business with.

  “Next, the cybercriminal emails those contacts, posing as you, the contractor,” Douglas says. “If the target is an accounts payable person at another company, the fraudster might demand they pay a late invoice — which is totally fake. If the target is an administrative assistant, the cybercriminal might pose as the company’s owner and tell them, ‘Hey, I’ve got this big deal — I need this much wired to close the deal.’ Or, if it’s holiday season, they might tell the assistant, ‘Please order 50 $100 gift cards and send them to this address.’”

  Fraudsters often target contractors because their workforce tends to be somewhat decentralized, spread across offices and trailers, and less apt to have formal cybersecurity training, he says. Many contractors also see IT purely as an expense, which means they may skimp on security measures like firewalls, email filtering and cloud backups.

  Contractors need to train their employees on how to spot and reject social engineering attempts, most commonly sent via email, Douglas says. Most of PlanetMagpie’s customers in the financial, biotech and manufacturing industries provide their employees with cybersecurity training on a yearly basis at a minimum. However, not many in the construction industry conduct such training.

  “IT can only do so much, even with the best security measures,” he says. “All it takes is a single click on a malicious link in an email — and malware can encrypt your workstations and network devices, causing permanent loss of your company data. Employees must receive training on how to look at an email and figure out whether it’s fake or not.”

  During training, PlanetMagpie walks employees through all the different ways their network and their computer can be infected or attacked, and how to determine if an email is malicious. If they are ever unsure, they should always contact IT support.

  “It’s important to train employees ASAP,” Douglas says. “Ransomware attacks have gone up 150 to 200 percent since the start of COVID lock-downs, taking advantage of employees working from home, increasing the available ‘area’ cybercriminals can attack.”

  ADDITIONAL CYBER RISKS

  The two most common challenges that contractors face are with ransomware and business email compromise attacks, says Dan Zastava, director of corporate underwriting and product development at Sentry Insurance based in Stevens Point, Wisconsin.

  Ransomware is a malicious software that restricts access to files on an infected machine — usually by encrypting them — and then demands ransom payment in exchange to restore access to the files, Zastava says. Common attack methods include file downloads or malicious links through email, remote attacks on servers and malicious email attachments.

  “In contrast, business email compromise is a form of cyber crime that leverages email methods to trick victims into transferring money or other goods to a perpetrator instead of the intended recipient,” he says.

  One of the main motivations for targeting a construction site is the theft of intellectual property, such as blueprints that could provide intel-ligence a criminal would need to defeat the physical security in the future, says Corey Nachreiner, chief technology officer at WatchGuard Technologies in Seattle. Another could simply be compromising the supply chain to divert payments or extortion via ransomware.

  “Most cybercriminals just want to make money, and ransomware is very effective at getting companies to pay extortion by locking up digital assets that are required to do business,” Nachreiner says. “If you use IT technology for things like blueprints, and you don’t have hard copy backups, ransomware could significantly disrupt your ability to work at a site.”

  To protect against this, construction companies should invest in employee education — teach all managers, employees and contractors to identify phishing attempts, flag suspicious emails, calls, or wire transfer requests, and not click on every link they receive, he says. Contractors should combine this education with technical security controls like advanced malware protection products that can identify even the newest ransomware, and domain and URL filtering solutions, which will prevent users from reaching bad sites even when they accidentally click the link.

  Contractors are also more vulnerable due to the increased use of ruggedized tablets and smartphones in the field, Nachreiner says. Regularly update these devices, change their stock passwords and assess them for potential compromises. “Ultimately, the more digital technology you use on the jobsite, the more cyberattack surface there is for malicious actors to target; especially if those technologies are connected wireless-ly,” he says.

  For more traditional devices, like ruggedized laptops or tablets, contractors should make sure to install a full endpoint protection suite that protects the device directly, no matter where it is in the world, Nachreiner says. If they are using computers, printers and other computing devices on a jobsite, contractors need to secure them the same way they do at your office by deploying a firewall, leveraging other network security services, installing endpoint anti-malware protection, patching software and backing up data.

  “But also be sure to train workers on the importance of physical security at a jobsite,” he says. “Even if the site you are working on is cur-rently unoccupied, physical access to it could allow attackers to plant devices and equipment that make it easier for them to launch a cyberat-tack on the building’s future tenant.”

  Follow a number of risk mitigation steps, including some that “don’t cost a thing,” says Tim Francis, enterprise cyber lead at The Travelers Cos. Ins. headquartered in New York City.

  “Creating strong computer passwords and updating them on a regular basis is an easy place to start, although only 60 percent of Travelers Risk Index survey participants from the construction industry admitted to doing so,” says Francis, who is based in Hartford, Connecticut. “Visiting a cyber prevention website to learn how best to protect your business is another suggestion that doesn’t take many resources and can make a meaningful difference.”

  Other smart steps companies can take include installing firewall/virus protection; implementing data backup processes and hacker intrusion detection software; completing cyber risk assessments on the business and vendors; conducting internal IT audits; training staff; and simulating a cyber breach to identify areas of system vulnerability.

  The 2020 Travelers Risk Index found a majority (53 percent) of construction decision makers are reliant on their computer systems for their businesses to run properly, but 81 percent have not conducted a simulated cyber breach to identify areas of system vulnerability. A simulation can improve a company’s chances of avoiding cyber events from ever happening.

  “Dealing with the unknown is always an unsettling proposition, especially when it involves the financial health and stability of a business,” Francis says. “By simulating a cyber breach, exposures and vulnerabilities can be identified. More importantly, they can be addressed through actions taken that can safeguard the company against suffering a similar type of cyber event.”

  As more contractors embark on digital transformation, cyber insurance coverage “is more important now than ever,” says Dan Zastava, director of corporate underwriting and product development at Sentry Insurance in Stevens Point, Wisconsin.

  “Cyberattacks can impact project designs, bid data and security systems involved in architectural proposals,” Zastava says. “These attacks can also result in lost data, theft of personal identifiable information and in some cases, a business shutdown.”

  While the coverage offerings may vary from one insurance carrier to the next — some providing broader coverage than others, cyber insurance can assist the policyholder in responding to a covered incident by providing some or all of the following:

  • The cost of a cyber forensic analyst to determine how the hacker got into the system and what data was accessed.
  • The services of an attorney to identify state-by-state notification requirements pertaining to the personally identifiable information of customers living in each state.
  • Public relations firm utilization.
  • Liability coverage if the insured is sued as the result of a covered breach event.
  • Business interruption.
  • The physical loss of sensitive information on HR paper files, cyber extortion, social engineering and fraudulent impersonation.

  “The insurance carrier may also have tools and resources to assist with reducing cyber risks, such as incident response plan templates, webinars, training modules and federal or state-specific information,” Zastava says. “Carriers that provide cyber insurance coverage also can provide preventative solutions to help businesses plan ahead to mitigate the impacts of an attack.”

  Preventative measures include drafting an incident response plan; knowing the initial steps to take after an incident occurs; conducting regular training with employees to spread awareness and to identify phishing attempts; and regularly backing up data and key software programs to offline storage devices.

  Another growing cyber risk for contractors: additional vulnerabilities within the cloud, says Corey Nachreiner, chief technology officer at WatchGuard Technologies in Seattle.

  “Like many industries, construction organizations leverage digital services like software-as-a-service apps or network-based services specific to the industry,” Nachreiner says. “These often web-based services can suffer from certain risks if not implemented securely.”

  One of the most common and simple issues is credential-based fraud — “hackers don’t break in, they log in,” he says.

  “There’s little need for hackers to figure out very complex technical tricks to compromise your digital services if they can just hijack a valid user credential,” Nachreiner says. “Unfortunately, stealing credentials is often very easy using phishing attacks, or even finding re-used credentials from other breaches.”

  A cybercriminal doesn’t need to evade any defenses if they can impersonate a trusted user, he says. To protect against this, contractors should implement multi-factor authentication on all their online services so that hackers can’t log in just because they have a stolen password.

  Moreover, many of the digital services presented today are web-based solutions, and a badly coded web application can expose many technical vulnerabilities hackers might exploit to gain control of a company’s system or its data, he says.

  “Web application vulnerabilities are a complex discussion for non-technical folks, but the easiest advice we can give is to refer the web developers of any system you create to the Open Web Application Security Project at OWASP.org,” Nachreiner says. “There, coders can learn the right way to create online web services without exposing different vulnerabilities. We also recommend you get a third-party security auditor to penetration test your digital services at least once a year.”

  Source: Constructor Magazine, February 1, 2021 (https://www.constructormagazine.com/site-security/ )

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• The 2 Types of Leaders & How To Determine Which One You Are
  

  By George Hedley

  High-performing leaders generally succeed because they view their position as a privilege to serve others in the pursuit of achieving results. These leaders attack and confront problems head on, rather than avoiding challenging situations or difficult tasks.

  Low-performing leaders typically see their position as a right earned as a reward for the position they have reached. And as a result, they aren’t fully committed to doing what is required to succeed. They go through the motions of leadership and management. Low-performing leaders constantly complain. And they only reluctantly get involved when big issues or situations arise.

  Which Type of Leader Are You?

  Are you energized by working hard to achieve results, improve your company, watch your people grow and improve, and take on more responsibility? Do you think it’s an honor to serve your customers? Are you grateful to have the responsibility to lead and mentor your employees? Do you enjoy being the leader of a successful construction business? Are you a high-performing, effective leader?

  Or do you continuously complain about the economy, your competition, people, customers, cash flow, and other small things that continue to happen daily? Do you feel you shouldn’t have to do the little things you consider to be beneath your position and pay grade? Do you often wonder why your people aren’t as accountable or responsible as you? Do you avoid conflicts? Do you dislike attending regular meetings?

  Do you have trouble holding people accountable? Do you wish your people wouldn’t ask for so much assistance making decisions? Do you withhold financial results from your people? Do you often avoid making tough decisions you don’t really want to deal with in a timely manner? Effective leadership is often determined by a manager’s responsive and decisive attitude.

  2 Types of Leaders

  Responsible-for-Results Leaders

  These effective leaders believe it is their responsibility to achieve results. They are responsible, accountable and focused on doing whatever is required to achieve the company or project goals. They feel their leadership is a privilege by serving others in the pursuit of achieving results. They are responsible to help their company and people grow, exceed expectations, achieve the best results possible, and move their people and company to a higher level of success.

  These leaders enjoy improving their strategy, workplace, systems, processes, capacity, communication, teamwork, profits, customers, sales, profits and results. In other words, high-performing leaders serve others in the pursuit of achieving results.

  Self-Rewards-Focused Leaders

  These ineffective leaders believe their position or role is a reward or entitlement for having reached their position. This type of leader acts entitled and thinks they should be allowed to work on whatever they want to versus what is necessary since they are the boss. They also think their role should almost always be pleasant, convenient and enjoyable. They won’t do tasks they don’t want or like to do or that they feel are beneath their position.

  These leaders avoid hard work or difficult activities, uncomfortable conversations, tough decisions, or confronting managers, employees, customers and subcontractors. They often don’t to trust people to make decisions, and therefore complain about almost everything. They don’t have a strong management team to protect their power and kingdom. In other words, this type of ineffective leader seeks personal rewards, power and attention.

  They are always focused on themselves and their personal achievements, rather than serving others and going after great results for their company and team. The type of leader you or your managers are determines the overall success of your company. Are you and your managers effective, high-performing leaders? I have listened to many company owners complain about an underperforming manager for weeks on end, hoping it gets better without doing anything about it.

  Ineffective leaders tend to tolerate poor performers rather than address problems or do what they know they should do. They avoid the pain of dealing with issues, underperforming employees, poor results or recurring problems. Which type of leader do you want in your company?

  The High-Performing Leadership Test

  Part 1

  T or F I accept responsibility for upholding and achieving our company vision, core values, culture, teamwork, goals, growth, profits and talent development.

  T or F As the leader, I am privileged to serve others, help my team grow and help them achieve the best results possible.

  T or F My role is to improve our business, build capacity, innovate and move toward a higher level of success.

  T or F I am responsible to develop, recruit and retain a winning team with the ability to handle the current and future workload.

  T or F I regularly review and monitor our company and project financials—as well as results and scorecards—and share them with my management team.

  T or F I spend more time coaching, mentoring and managing my people than doing the work.

  T or F I regularly review and communicate our company vision, core values, strategy and goals with the team.

  T or F I involve others and let them help develop and implement our project systems and action plans.

  T or F I regularly take time to motivate and appreciate my direct reports and team.

  T or F I delegate most important tasks and decisions to others.

  T of F I don’t micromanage.

  Part 2

  T or F My leadership role is a reward for my years of hard work, dedication and success.

  T or F My role should be pleasant, convenient and enjoyable.

  T or F I shouldn’t have to sacrifice my interests or priorities for employees or customers.

  T or F I don’t have to do tasks I don’t want to do or that are menial, unpleasant or difficult.

  T or F I tend to delegate or avoid things I don’t like to handle.

  T or F I show special treatment to some employees and allow them to sidestep our processes, miss deadlines and make excuses.

  T or F I should not have to manage or hold good employees accountable or meet with them often to make sure they are performing their required duties.

  T or F I don’t have time to set and attend regular meetings with managers or employees.

  T or F My management team is not held responsible for achieving our overall company initiatives, targets and goals.

  T or F I don’t like to share much of the financial results with others.

  T or F I have been known to complain about managers, employees, customers, competition, results and recurring problems.

  Test Results

  Compile the total number of true answers for each part and compare.

  1. Part 1—More true answers on this part indicate you are a responsible-for-results focused leader.
  2. Part 2—More true answers on this part indicate you are a self-rewards-focused leader.

  Source: Construction Business Owner, December 4, 2020 (https://www.constructionbusinessowner.com/management/are-you-high-performing-leader)

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• In Adaptive Reuse, BIM Creates a Strategic Advantage
  

  By Ken Smerz, CEO of ZELUS

  Adaptive reuse has long been an attractive alternative to new construction in gridlocked regions, as a way to bring life back into a defunct area or to optimize the operational and commercial performance of a built asset. And now, as businesses across nearly every sector reevaluate the physical space they occupy, owners and managers are having to adapt to meet changing needs - and turning to adaptive reuse to restore or optimize building performance.

  In certain regions and industries, vacancy rates have shot to new highs, and in others where occupancy remains steady, health and safety protocols are necessitating reimagined spaces. In either scenario, the right technology like building information modeling (BIM) is proving an important asset in informing space utilization decisions, accelerating construction schedules, and mitigating unforeseen, potentially costly problems.

  In certain regions and industries, vacancy rates have shot to new highs, and in others where occupancy remains steady, health and safety protocols are necessitating reimagined spaces. In either scenario, the use of building information modeling (BIM)--the act of creating a highly accurate computer 3D model--provides a significant improvement in understanding the building structure. BIM assists in overall space management and tenant coordination. And when the structure needs to be modified, it helps in reducing rework, compressing schedule to mitigate downtime, and overall re-design planning.

  Restoring building performance

  In 2017, the team at Deloitte predicted that nearly 90% of real estate development would involve adaptive reuse within the next decade. This is primarily because, in most scenarios, adaptive reuse alleviates the high costs and lengthy schedules associated with greenfield construction and new builds, not to mention it’s often a more sustainable approach.

  Now, the trend towards adaptive reuse appears to be accelerating as global economic and societal changes continue to contribute to the high inventory of abandoned space, and as health and safety protocols command changes in work and public environments. But not all adaptive reuse projects deliver the returns they promise.

  Naturally, when you’re able to preserve most of the existing building’s structure, you’ll save on design, material, and construction costs. But if that building is not a structurally adaptable fit for the reimagined final use - requiring steel reinforcements or connections - costs will rise significantly. Issues within MEP (mechanical, electrical, and plumbing) systems can also become extremely costly and add to the construction timeline.

  For adaptive reuse to be lucrative and to truly transform an existing building into a high-performing structure, owners, designers, and contractors need a 360-degree view of what they’re working with - and this includes what’s hidden behind the walls. Being able to fully assess the condition of a building, including plumbing, electrical, ventilation, and overall structural integrity, using BIM instead of traditional 2D models will help determine what is possible within an existing space.

  Clash detection, an important component of the BIM process, also identifies potential conflicts or clashes, whether structural or MEP, before they become costly issues. In fact, in projects where BIM was used, it increased the speed of completion by at least 5% and contributed to a 25% improvement in labor productivity over the course of the project. Today, rework accounts for approximately 13% of a construction project and more than 50% of that is due to poor project data and miscommunication.

  The visibility and transparency BIM provides to all stakeholders is mission critical in today’s high-stakes environment where misquotes on budget estimates, rework, and schedule delays can make or break a project.

  Improving space planning and utilization

  As property owners, designers, and contractors work together to reimagine the utilization of abandoned and occupied spaces, they’ll simultaneously have to consider shifting trends as well as the potential for changes to building codes. For instance, within commercial office space, the trend toward densification and open-plan layouts is likely to reverse sharply, with the possibility that public health officials may amend building codes or protocols to limit the risk of future pandemics. This could impact standards for HVAC, square footage per person, and the amount of enclosed space - some of which we’ve already seen.

  Using BIM, many owners are creating digital twins of their built assets to better understand what can be done and visualize the environment, allowing owners and tenants to fully maximize space and efficiency. We’ve seen this in the case of restaurants, for example, in which owners are using 3D modeling to reconfigure and visualize seating and walkways to accommodate new public health standards. And again, visibility into the MEP system, the building’s central nervous system, provides contractors the data they need to maximize efficiency by assessing pump sizes and water heater sizes, the heating and cooling system, lighting needs, etc.

  Data from these 3D digital twins can also be transferred to systems that track, manage, and control building assets, providing the framework for future operation and maintenance plans — leading to long-term cost reductions.

  Ultimately, access to better data translates to more accurate designs and the ability to identify what is logistically feasible for the space while maximizing ROI. It’s a win for all stakeholders involved.

  Empowering virtual communication among distributed teams

  The AEC industry is a hands-on industry. There are simply certain tasks that have to be done on site. But the pandemic has spurred many to look at new ways of doing things - and doing it virtually to keep operations moving forward. The beauty is, this has allowed many teams to continue to work collaboratively no matter where they are in the world. Now, an architect in Florida can complete a project in Alaska. BIM and other cloud-based technologies have removed the location barrier.

  Now, more so than ever, AEC teams are turning to cloud-based construction and modeling platforms to ensure everyone, regardless of location or team, is working from the same, highly accurate plans. For instance, platforms like BIM360 are enabling cloud-based file sharing at every step in the AEC process to maintain organization, cohesion, and collaboration.

  Additionally, using technology like 3D visualizations and HD video capture to assess buildings helps limit interactions and on-site visits, while allowing most project teams to view and analyze the space from anywhere, anytime.

  Adaptive reuse projects will only continue to expand as owners and managers look to restore the vitality of their once high-performing assets. And the need to support these projects virtually and with a great deal of accuracy will become table stakes. This is where BIM will prove a tremendous asset to all involved. It’s time to embrace it.

  Ken Smerz is the CEO of ZELUS, a digital as-built service provider. The company delivers Virtual Design Construction (Building Information Modeling) services as well as 2d/3d digital documentation using the most advanced, latest technology.

  Source: Contractor MAG, December 8, 2020 (https://www.contractormag.com/technology/article/21149833/in-adaptive-reuse-bim-creates-a-strategic-advantage)

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• Tax Changes on the Horizon: What contractors need to know
  

  By Kim Slowey

  As the end of 2020 approaches, even as many construction businesses are still struggling with the fallout from the COVID-19 pandemic, it’s time to close out the year financially. That means it’s time for tax planning and the consideration of other financial issues, both of which will hopefully put contractors in the best position to take on 2021.

  While the smart move is to consult tax and accounting experts in order to properly address the situations that are unique to every business, there are some basic talking points that can help business owners and managers kickstart that conversation. Here are some of the most pertinent:

  Changes in accounting methods

  The construction industry is unique in that contractors are expected to use different methods of accounting in order to pay the least amount of taxes possible and, at the same time, to present a robust financial picture to lenders and other stakeholders, said James Lundy Jr., construction services tax leader in accounting firm Marcum LLP’s Nashville, Tennessee, office.

  “The tax code is designed to allow construction contractors to record one set of dollars to the bank and another set of dollars to the IRS,” Lundy said during a recent Marcum webinar. “It has us keeping two sets of books, and it’s totally legal.”

  All contractors, he said, must use the percentage-of-completion method of accounting for financial reporting, but for tax purposes there are several types of accounting methods that can be used on each tax return with as many as four routinely used at once. Overall tax methods include:

  • Cash
  • Accrual
  • Accrual, excluding retainage

  Accounting methods for long-term contracts, which are defined as starting in one year and ending in another, include:

  • Completed contract
  • Percentage of completion
  • Tax percentage of completion
  • Percentage of completion-capitalized cost method

  The reason that it’s important to consider what method a contractor will use for tax purposes as part of 2020 planning is that some changes from one method to another require that a request be filed with the IRS before the end of the tax year. Choosing the correct method or methods, Lundy said, should allow the contractor to save on and/or defer as much of its tax burden as possible.

  Presidential and congressional changes

  In a typical year, many contractors maximize their deferred taxes by holding off on collecting receivables, pushing that deposited income into the next year, said Michael Ceschini, managing member at Ceschini CPAs Tax & Advisory in New York. Businesses can also accelerate or add to total expenses for the year by making major purchases, paying out bonuses and paying invoices by Dec. 31, further decreasing tax liability.

  However, 2020 is no typical year. Right now, contractors have to decide, with their financial advisers, how they want to factor in the effects of a President-elect Joe Biden tax plan into their end-of-year strategy.

  Among other changes to the tax code, Biden is expected to increase the corporate income tax rate from 21% to 28%, said Frank Scala, partner of Marcum’s Assurance Services Group in New York City, and to raise individual tax rates for those making more than $400,000 per year. The latter would impact company shareholders who report business earnings on their personal returns via ownership in pass-through entities like Sub Chapter S corporations.

  The likelihood that Biden will be able to make tax-related changes greatly hinges on the outcome of the Jan. 5 Senate runoff in Georgia, which will determine whether the Republicans lose or maintain their majority, said Raymond Haller, tax partner at Grassi in New York.

  “Unfortunately, we have to do everything by Dec. 31, not knowing what the results are going to be five days later,” he said.

  There is a case to be made for some contractors to accelerate income and increase their tax liability for 2020 if they believe that tax rates will rise in 2021 under a Biden administration, Haller said. If that’s the strategy, then they should also postpone big purchases until next year as a way to offset those potentially higher tax rates. The idea is to pay more in 2020 taxes but at a lower rate than is expected to go into effect for the 2021 tax year.

  CARES Act and PPP ramifications

  The Coronavirus Aid, Relief and Economic Security Act, which Congress passed in March of 2020 in order to alleviate some of the burdens caused by the pandemic, also created some tax benefits. According to Warren Hennagin, Marcum’s California construction services leader, they include:

  • More opportunities to carry net operating losses back to previous tax years.
  • The ability to deduct more business interest.
  • Qualified improvement property eligible for 100% bonus depreciation retroactive to 2017.
  • Employer portion of Social Security deferrable to 2021 and 2022.
  • A refundable payroll tax credit equal to 50% of qualified wages.

  The CARES Act also established Payroll Protection Program loans through the Small Business Administration. If businesses spent the loan proceeds on qualified expenses — i.e. payroll, rent and utilities — then the PPP loans are forgivable. Portions of the loan money spent on other expenses must be paid back at s 1% interest rate.

  However, the IRS has issued guidance that expenses paid with the forgiven proceeds are not deductible, which will potentially create bigger tax bills for some contractors.

  Accounting professionals, said Ceschini, assumed those expenses would be a write-off. The new guidance “is not in the spirit of how the accounting profession understood it.”

  In order to change that and potentially make those expenses deductible, said Barry Fischman, Marcum’s New England construction services leader, Congress would have to pass legislation addressing the issue, but that hasn’t happened yet.

  Research and development credit

  More construction companies are becoming eligible for the federal research and development tax credit, Fischman said, as they develop their own innovative processes and products. This credit is advantageous because it is dollar-for-dollar.

  “Payroll typically drives the credit, and contractors should be inquiring whether or not they have eligible expenses to generate those credits,” he said.

  As a general business credit of between 6% and 12% of qualifying expenditures, the R&D credit can provide cash savings to enable reinvestment and growth, according to Cole Marr, research and development director at California accounting firm Sensiba San Filippo.

  Unfortunately, many construction companies are performing R&D that qualifies for a credit in the eyes of the IRS but don’t realize it, due a lack of awareness and common misconceptions, Marr said. Possible activities in the construction industry that can be considered include:

  • Development of new, improved or more reliable products, processes or techniques.
  • Design improvements for LEED or energy-efficient projects.
  • Development of a unique assembly or construction methods and processes.
  • Experimentation with new building materials.
  • Developing or improving construction equipment.
  • Any project that requires an extra level of testing or certification upon completion.

  Cash is king

  The ultimate decider, however, of what tax rules contractors should take advantage of is their cash position, Ceschini said. For example, if a contractor needs money to make payroll before the end of the year, it doesn’t make sense for it to defer the collection of invoices into 2021.

  Ceschini said his clients have done well despite the challenges presented by COVID-19. On the other hand, the backlog for some is shrinking, and many haven’t had as much luck winning new projects as they have in the past.

  The construction industry also tends to lag other sectors when it comes to economic downturns, so that only adds to the layers of uncertainty as businesses move into 2021, which makes cash preservation even more important.

  “You run a company with cash,” he said.

  Source: Construction DIVE, December 14, 2020 (https://www.constructiondive.com/news/tax-changes-on-the-horizon-what-contractors-need-to-know/591950/)

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• 7 Ways To Prepare For Potential Covid-19 Construction Shutdowns
  

  By Joe Bousquin

  With COVID-19 surging out of control across the country, and daily death tolls approaching the highest numbers since the spring, many contractors are bracing for more government-mandated work stoppages on construction sites, similar to those ordered in the initial weeks of the pandemic.

  Given that reality, construction pros say they’re doing what they can now to prepare, while making sure their projects can be buttoned up in an orderly fashion to ensure they can come back on the other side, ready to get back to work. Here are some steps that contractors and other experts say are important to consider now:

  Accelerate current work

  For some construction firms, preparing for a shutdown may include fast-tracking schedules now, while they still can.

  “With the specter of another lockdown always a possibility, most jobs have done the math, and are keeping it updated, on the overtime cost of accelerating the project,” said Geoff Ross, a New York-based architect and construction consultant. “It can be costly to finish a job ahead of schedule, but if it beats a looming lockdown, it can be money well spent.”

  Document progress

  For others, the lessons learned in the shutdowns early in the pandemic are serving as guideposts to prepare for the months ahead.

  “A lot of those early shutdown orders came as quite a surprise,” said Philip Casto, senior vice president for risk services at Chicago-based business insurance brokerage HUB International. “It was on the news on Friday that on Monday we were going to be shutting everything down.”

  For that reason, Casto and HUB have been telling clients to be prepared for whatever the later stages of the pandemic may hold in store, and document exactly where they are in their projects today.

  “You want to make sure you have a checklist to run through,” Casto said. “Take photographs of your project, the current percent completed, and any materials or equipment that are going to be left onsite.”

  Winterize sites

  Winter weather in many parts of the country could also be an issue on any jobsites that go dark.

  “You’ve got to make sure you secure all of your assets are secure as we enter the colder months,” Casto said. “There are going to be ice issues, there are going to be building envelope issues. I worry about having to leave a project, and not having it buttoned up.”

  For Eran Polack, CEO of HAP Construction in New York City, prepping for previous shutdowns included boarding up entrances to the property, and then leaving a skeleton crew of two or three people onsite for security purposes.

  For a large, vertical construction project, buttoning it up completely could mean decisions about rented equipment, including large cranes.

  “If you’re not going to be back for three months, when does that crane have to get taken down and pulled offsite?” Casto said. “Because just shutting it down creates some liability in the way the cranes are parked, if there’s a significant storm event.”

  Keep workers engaged

  One concern voiced by multiple sources was the possibility of workers not coming back after a longer shutdowns, especially if they find other opportunities, as they did during the Great Recession.

  “For instance, if construction is deemed not to be an essential industry, but Amazon can continue to operate, one could expect a lot of construction workers to try to find work in fulfillment centers,” said Associated Builders and Contractors chief economist Anirban Basu. “There’s no guarantee they will come back to the construction trades."

  To combat that possibility, Polack said he learned during previous shutdowns to keep his trade partners involved in the project during the interim, even if physical work is halted.

  “So although a plumber or an electrician can’t do anything from home, we still include them in the weekly meeting,” Polack said. “We’re looking at the schedule, and things that can be done from home, and keep the communication open, so that when things do start again, you’re not coming back from a six or eight week stoppage. There is some continuity.”

  Ask owners to keep the team together

  Linda Foggie, senior vice president and head of the New York office for professional services firm Turner & Townsend, advocates talking to owners about considering shouldering the carrying costs of any in-place teams. Doing so during a prolonged work stoppage helps preserve the institutional project knowledge that’s been developed on a job.

  “Are they willing to pay the monthly burn rate to hold things together so that when things reopen, you can bring back your team,” Foggie said. “Many clients have said yes to that. So I would encourage contractors to ask the question.”

  Do what you can do during downtime

  Contractors can also use the knowledge of potential shutdowns to look ahead and secure materials they’ll need on the other side, especially because shutdowns would undoubtedly affect manufacturing, too.

  “Because Georgia isn’t shut down but it looks like they’re heading that way, you could buy that carpet now (in Georgia), even though you’re still in steel and not ready for it,” said Foggie. “Maybe you rent a warehouse in New Jersey and hold the carpet there until you’re ready for it, because at least then you have it.”

  Others encourage contractors to use any downtime as an opportunity to improve outstanding issues on a project and see it as a rare chance to get a “do over” on aspects that didn’t go as planned.

  “As much as everybody wants to get things started as soon as possible, take this time to re-asses the project, and see if it can get improved in any way,” said Eli Meltzer, principal of New York-based Meltzer/Mandl Architects. “Every building has pieces that we wish we could have done differently, and sometimes the construction clock moves things forward too fast to adjust. But you may have an opportunity to optimize it now, and end up with an even more special product.”

  Prepare for the coming boom

  The good news is, whatever happens this winter, onlookers expect construction to come roaring back, once a vaccine is in place. One reason why is that this downturn is different from the Great Recession, in that it hasn’t been caused by large sums of debt. That means when the pandemic is brought under control, both consumers and companies will have plans — and cash — they’ll want to put in motion.

  “There will likely be a crescendo of work sometime next year,” said Basu. “The presumption is that with so many projects being postponed, that at some point a significant volume of projects will restart.”

  Indeed, that possibility has led to another concern: how to manage the influx of projects, and get enough workers to complete them, if all those jobs come on the market at once.

  “One of our concerns is with a big surge of projects restarting, what trade partner and material availability is going to look like,” said Stuart Meurer, president of Beverly, Massachusetts-based Windover Construction. “We are watching it closely, and believe the impacts will start to be felt in Q2 of 2021.”

  But in order to get there, of course, contractors will need to survive the coming winter first.

  “You’re not delivering construction services under a federal government lockdown scenario, so you better not be generating costs,” Basu said. “Then you come up with a strategy so that on April 15th or May 1st or whenever this thing comes back to life, you’re ready.”

  Source: Construction DIVE, November 30, 2020 (https://www.constructiondive.com/news/7-ways-to-prepare-for-potential-covid-19-construction-shutdowns/589776/)

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