October 2019 Newsletter
Optimize October! Tricks and treats for Subs
- Yes, you need to read contracts! Procore Jobsite advice on how to reduce risks + increase profits
- From eSub Construction Software: “Adapt + control rising construction materials”
- Webinar for subs: Connect the field and office with Sage + eSub
- Ruth S. educates you on new learning and training resources
- Sage Intacct says, “Set Your Cloud Straight”
- Are you a Sage 100 CON user? Join LAI at the TUG Fall Workshop in Denver
- Awesome ‘Tips + Tricks’ for Accounting | Sage 300 CRE | Sage 100 CON | Sage Estimating
Stop Signing Away Your Subcontractor Profits
Reprinted with permission from Procore’s Jobsite – original post HERE.
Few people enjoy reading contracts. Their never-ending sentences cause your eyes to glaze over and your mind to go numb. Performance bond and insurance language are equally boring. But, by not taking the time to carefully review and understand these documents, subcontractors are taking on more risk than they can handle. And in the process, they’re giving away profits to pay legal fees.
The Pitfalls of Indemnification
Indemnification, or hold harmless clauses, are a standard way of apportioning risk, so the parties that cause damages are the ones who pay. Owners continue to push more risk down the chain, but it’s not done equitably because of language appearing within these indemnification clauses, according to Timothy J. Woolford of Woolford Law, P.C.
Watch out for these phrases:
- Arising out of the work – you could be liable for more than your fair share
- Injury or damage caused solely by the indemnity’s negligence – you will pay for things that aren’t your fault
- Contractor agrees to defend, indemnify and hold harmless – you will pay regardless of how much you are at fault
Subcontractors will incorrectly assume that when their contract doesn’t contain an indemnification clause, they don’t have any obligations. Watch for “flow down” and “incorporation by reference” clauses, and language assigning to you “all obligations and responsibilities” of others. Woolford recommends negotiating changes to these troublesome clauses to bring them in line with standard American Institute of Architects contract language. You should also be wary of relying on your commercial general liability policy to cover you when one of these contract clauses is triggered.
Contractual Liability Sinkholes
General liability policies include contractual liability insurance. This insurance covers you for liabilities arising from the actions of others, and it comes into play when there are indemnity or hold harmless claims. But, because legislators are currently hostile to indemnity clauses, and certain endorsements to insurance policies remove coverage for indemnity clauses, owners are using the ‘additional insured’ clause so they are added to the general liability policy of the general contractor, and the policies of all subcontractors.
You need to know how you can satisfy the insurance requirements of a project contract long before you take the time to bid on it.
Insurers writing policies for subcontractors take heavy hits when defending cases involving ‘additional insureds,’ according to John H. Podesta, attorney specializing in insurance coverage. In these cases, they also have little control over how the owners and general contractors are defended. That has caused underwriters to work harder at lowering their risks in these claims with proprietary endorsements (endorsements not written by the Insurance Services Office). Exclusions added to endorsements can make you out of compliance with insurance requirements.
In some case, you might not be able to get the required insurance. Before bidding on a project, review the contract documents in the bid package with your legal counsel to make sure there are no issues with hold harmless and additional insured.
Troublesome Bond Issues
There are some clauses placed in your subcontract with the general contractor that can raise red flags for a surety company considering issuing your bond. These widely used clauses intend to pass risk to you, and while standard in many contracts, that doesn’t mean they are mandatory. Depending on all other factors, you could successfully negotiate changes or deletions of these.
“Flow down” and “pass thru” clauses can obligate you to the same conditions as negotiated between the general contractor and the owner. These conditions could include personal indemnity which requires you to place personal assets at risk.
The “no notice required” clause can allow the general contractor to remove and replace you without giving notice. This removes protections that surety issuers want, while also shutting down your ability to remedy the problem.
There are also job conditions that can trigger an unfavorable surety response in a request for a bond.The “pay if paid” clause makes it difficult for a subcontractor to get paid when the owner hasn’t first paid the general contractor. Bonding companies view this negatively because of the uncertainty it places in the payment process. When the “indemnity clauses” are broad form and covering the owner against its own mistakes, subcontractors might be responsible for covering those expenses.
One example is when a sub has a role that comes in the late stages of a project. When that happens, the bond has a long carrying time without any performance on the contract. The bond issuer might feel more exposed to changes in the subcontractor’s business.
Bonds are Not Insurance
Many people incorrectly assume that subcontractor default insurance provides the same protections as bonds.
“Bonds and insurance have one fundamental difference between them,” Christopher G. Hill, construction lawyer, wrote in his blog. “When your construction company buys insurance, that insurance is meant to protect your company. When your company provides a payment and/or performance bond, that bond is there not to protect your company, but to protect everyone else on the job and the project itself.”
If the general contractor is asking you to provide bond, but the general contractor is not providing bond, you might have problems with two contract clauses. If “pay if paid” or “flow down” clauses are in the contract, then you are improving the general contractor’s and owner’s positions, while not improving your own position. And, you’re paying to do it.
Your bonding capacity is limited based on company history, finances, and other factors.
A final note on bonds has to do with bonding capacity. Your bonding capacity is limited based on company history, finances, and other factors. If you take on a project requiring a bond, and that bond amount is almost as high as your capacity, then you can’t take on any new work requiring a bond because you don’t have enough capacity remaining. Plan your project portfolio with your bond capacity in mind.
Rising construction material cost is an unavoidable part of the construction industry, especially in summer. With more temperate weather and longer daylight hours comes an increase in demand for both materials and labor, driving up the price for both. The construction industry is facing an increase in construction costs year after year, making profit margins slimmer than ever. In this article, we will discuss methods for companies to adapt and control rising construction costs by increasing efficiency, using smarter technology, and minimizing wasted time and materials.
Construction Material Cost
Construction material costs are facing a year-round pricing increase, rising nearly 5% during the 2018 calendar year. Also, tariffs and rising fuel prices are helping drive costs upwards, and a shortage of skilled workers results in higher rates charged for their labor. According to chief economist Ken Simonson, “The new construction materials cost data likely under-reports actual price increases, since federal officials collected most of their data in the first half of the month, before new tariffs affecting many construction materials started. Contractors are paying more for the materials they use and workers they employ but aren’t able to pass most of those new costs on to their clients.”
Although construction material cost is out of our control, controlling rising costs can be achieved by finding smarter ways to manage materials. By minimizing the margin on construction waste and inefficiencies, construction project managers can better manage the budget to reduce unnecessary spending. A popular method for controlling costs is using prefabricated materials. Prefabrication eliminates the need for traditionally sourced construction materials which are assembled on-site, resulting in less waste. As the raw materials are assembled offsite and shipped partially assembled, prefabrication reduces the cost of labor, further offsetting the rising cost of materials.
Modular building, in particular, is gaining popularity in the construction industry. There is a modular hotel currently being assembled by Marriott in New York, set to stand 26 stories high and significantly reducing the cost of labor and materials for the company. By using prefab components, Marriott can minimize waste and labor costs, as the building is set to complete in just 90 days. The building is set to cost around $70 million to construct, compared to the $100 million it would typically cost to construct a comparable building in New York City.
Another popular method of controlling construction cost is using building information modeling, or BIM, to visualize the construction project at each stage in its life cycle from conception to finishing logistics. BIM combines technology and construction to help contractors and companies visualize and make real-time changes to the scope of a project. It can also reflect the cost and material differences that each shift in the scope would cause. This level of integration can help streamline the construction process and therefore reduce the wasted materials and time that results from making changes to the scope of a project. Additionally, BIM can integrate with prefab modular construction to further reduce construction material cost and wasted labor hours.
Construction Management Software
Construction field management software is also an effective way to control rising construction material cost. It’s common knowledge that technology is hugely shaping the construction industry. Particularly, field management software is gaining popularity for its ability to streamline communication and minimize inefficiencies. Using construction management software helps project managers manage in real-time and eliminates communication errors between workers on the job site.
Additionally, cloud-based storage allows all workers to secure access to necessary documents from their mobile devices, helping eliminate time-wasting activities. There is a high ROI on-field management software due to its ability to reduce waste, ease communication, and minimize the time spent doing tedious paperwork. It also helps reduce reworking, which can be both costly and time consuming for a project and can be a massive source of wasted materials and labor.
The construction industry is facing a labor shortage that is resulting in firms paying higher salaries to attract workers. Nearly 80% of respondents to a survey in August 2017 report that firms are having difficulty filling hourly craft worker positions. With the shortage of labor and rising demand for materials, the construction industry faces an unavoidable increase in construction costs. However, firms can minimize the impact of these rising costs and maximize their profit margins by streamlining their construction processes. Using methods such as modular building, BIM, and construction management software, firms can minimize inefficiencies and wasted labor hours, therefore helping them control rising construction costs.
Subcontractors: Connect your field and office teams with eSUB + Sage
Free webinar, October 24, 11:00 am, MST
In your construction company, many people across departments need to work together to ensure that projects run smoothly. How can you drive better collaboration to ensure everyone is more productive? Mobility!
Learn more about Sage 300 CRE + eSUB, the leading field data collection and project management platform purpose-built for trade contractors.
You will learn how to:
- Capture jobsite activity from a mobile device to keep the office team up-to-date in real-time
- Integrate operations and financial systems to reduce manual data entry and increase accuracy
- Establish best practices to standardize operations and improve efficiency
Help outside of the (Sub) box
by Ruth Stockdale, LAI Director of PSG
In the construction industry, GC’s and subcontractors share most of the same concerns. Finding labor resources, expediting billing and payment, managing job information, and integrating information from various data systems are constant concerns.
For the subcontractor, integrating information is even more complex. They may be expected to enter their invoices and work order information directly into various systems designated by GCs. At Ledgerwood Associates, we love to answer best practices questions and help support solutions we integrate with.
Furthermore, LAI may also assist you with a few business issues you may have not considered.
Process evaluation + optimization
- LAI can help you operate your own Sage software as efficiently as possible, making sure that unnecessary time is not spent on basic operations.
- The application you are using for GC input may allow downloading of data—or even uploading of data. It may be also possible to export and import into your core Sage modules as well.
- If integration is not possible, there may still be a way to adapt the workflow, or sequence of entries, to streamline the process. We can help configure Sage software processes and may be able to offer recommendations about the other systems.
Using a variety of data systems, whether they are all your own or required by a third party, is a trend that will not change. It is wise to have a strategy in place to accommodate them; let us know if we can help.
Let us know if we can help! It’s No Big Deal.
Set Your Cloud Straight
Reprinted with permission from Sage Intacct
| FEBRUARY 7, 2017 | Original article link here
It seems like lately there has been a host of new terminology around the cloud and ways in which to describe it. A lot of times, this is just a way for vendors of inferior solutions to muddy the water and confuse buyers. I thought it might be useful to help quickly clear up some of the confusion.
Follow LAI on Social Media for current construction and technology news!
Missed our last webinar? No worries, view the hh2 recording: “Document Flow – AP routing and approval in the cloud”
Join us at the TUG Fall Workshop!
TUG Fall Workship October 14 -15, 2019
Join TUG and LAI Consultants in the Mile High City! Two days filled with hands-on labs and sessions (many taught by LAI Consultant, Pam Schulz)! They will be covering: Sage 300 CRE Basics, Sage 300 CRE Project Management, Sage 300 CRE Advanced, Sage 100 Contractor, Sage Estimating (Sage 300 CRE) and Crystal Reports.
Find all the sessions HERE.
Lunch Box Talks for Sage 100 CON and Sage 300 CON
New and FREE! Get ready for Year End with these live events hosted by LAI Consultants
Cozy up to your computer, break out the PB + J sammy, and learn how the Consultants close the year in Sage 100 Construction. Classes will be held ONLINE, Thursdays at 11 AZ time.
Is a ‘Simplified Employee Plan’ right for you?
Submitted by Bryan Eto, CPA BeachFleischman
If you want a retirement plan for your small company or self-employed business — but you don’t want to be buried in paperwork — consider a simplified employee pension plan or SEP.
Among the appealing advantages:
- SEPs are set up by simply filling out a brief form.
- Annual reports aren’t required to be filed with the IRS, although you must provide a copy of the SEP form to each covered employee. (Most retirement plans require detailed reports to be filed with the IRS and the Department of Labor.)
- Contributions can go from zero to the maximum each year, so if your company has a bad year you can skip the contribution.
- SEPs allow for “look-back” contributions. As an example, you can make a SEP contribution, up until the date you file your tax return (including extensions), and deduct that contribution on that tax return.
- Employees make their own investment decisions. All SEP contributions are fully vested and portable. In fact, SEPs are sometimes referred to as SEP-IRAs. The maximum contributions are 25% of compensation for employees, or 20% of self-employment income for sole proprietors, partners and LLC members. The absolute maximum amount that can be contributed to an account and deducted is $56,000 for 2019 (up from $55,000 in 2018).
All in all, if you are a small corporation or self-employed, the ease of a SEP may simplify your life and help fund your retirement. Consult with your tax advisor for more information.
Despite the advantages, there are a few downsides:
All of the SEP funding comes from you. And you may have to contribute on behalf of employees that you’d like to exclude.
If you have a large, relatively high-paid workforce, sponsoring a SEP can be expensive.
There is 100% vesting right away so you have little or no control over what each employee does with the money. If a staff member wants to take out their funds prematurely and pay the taxes and penalties right away, you can’t prevent it.
Speak with your advisor to see what is best for you.
Beach Fleischman 2201 E. Camelback Rd. Phoenix, AZ 85016 | 602.265.7011 | http://beachfleischman.com | twitter: @BeachFleischman
Update Subcontractor Management with new features
by Pam Schulz, Sage Certified Consultant
Are you getting the most from your Sage 100 Contractor? Recently added features can make your management easier.
Job Specific Certificate Management
Did you know your Vendor certificate tracking can now be done by JOB? You can use this for items beyond Insurance Certificates; anything needed on a Job Specific level from Subcontractors is now easier to track (and get the related popup warnings on).
To use JOB specific Certificate tracking, open the Vendor Certificate window and simply select a Job in the column as shown as part of the “certificate” entry:
New ‘User Created Fields’ give the screen more functionality
The Subcontract screen (option 6-7-1) can now store even more information using the new system-wide User Created Fields feature:
- An unlimited number of new fields can be created
- Character fields can contain up to 250 characters
- Many other formats are available, dates, checkboxes, etc.
This could be useful for inclusions and exclusions, or special terms that could then be included in Report Writer and Form Design to generate Subcontract documents. Prior field and space limitations have been now been eliminated. Or, use the newly created fields for approval process signoffs, or fields that could trigger alerts and scheduled reports. The possibilities are now truly endless.
New User Created Fields are initiated with the icon shown below and defined in a setup window like the one shown. The exact options will vary depending on the field type. (As a side note — this feature exists on MANY screens; wherever the icon is shown.)
The “PO/Subcontract” warnings are now expanded to include the choices shown below. Previously this applied only to Purchase Orders. Set the warning (or even prevent posting) by choosing from this list in the Vendor (menu option 4-4) screen:
Adding these new features to your routine gives you even greater control over your Subcontract Management. Combining these and the existing screen options can truly allow management and visibility of the entire Subcontract information in one handy screen.
Combine all of this with a few Alerts and Scheduled Reports and your control has become so much easier!
Need help from a certified Sage 100 Contractor Consultant? Just click, and we’ll contact you in a jiffy! It’s ‘No Big Deal, right?
by Kyle Zeigler, Sage Senior Certified Consultant
Depending on the nature of the work you perform for your customers, subcontractors and suppliers may be a big part of getting that work completed. When subcontractors and suppliers are involved in your construction projects, the type of project and its location may require that you obtain specific documents from them throughout their involvement on the job. These documents may include:
- Lien waivers
- Certified payroll reports
- Certificates of insurance
- Other documents such as a Form W-9, a signed copy of their subcontract agreement, punch lists, etc.
Tracking all of these documents and whether or not you have received them is vital to ensuring that you have proper documentation prior to paying your vendors. Sage has made compliance tracking easy with Sage 300 CRE’s Subcontractor Compliance Management features! With all of your compliance records in one location, as well as with Sage’s myriad of compliance reports, the power to manage subcontractor and supplier compliance is at your fingertips.
The Subcontractor Compliance Management task can be accessed from both Accounts Payable and Project Management, but some initial setup is required in your Sage 300 CRE software:
- Accounts Payable > AP Settings – default settings for generating lien waiver records and system warnings when vendors are out of compliance.
- Accounts Payable > Setup > Vendors > Insurance/Compliance – settings for tracking insurances at the vendor level and to generate lien waiver and miscellaneous compliance records for specific vendors if you choose not to enable this for all vendors in AP Settings.
- Job Cost > Setup > Jobs > Job Compliance – job-specific settings for generating lien waivers and certified payroll report records, as well as requiring final compliance approval in order to issue final payment to the vendor. These settings are required to track compliance items in your Sage 300 CRE software!
- Job Cost > Tasks > Commitments or Project Management > Contract Control > Commitments – commitment-specific setting for generating certified payroll reports, as well as access to entering secondary vendors and pre lien records. For certified payroll report records, the Sage Certified Report Generator service must also be enabled on the Sage host server.
Once properly set up, “records of expectation” are automatically generated by your Sage 300 CRE software (i.e., you issued AP checks and expect to receive signed lien waivers from your vendors, or another payroll week has passed and you expect to receive certified payroll reports from your subcontractors). Lien waiver documents can be printed right from your Sage software, including conditional and unconditional progress and final, using the information produced by your compliance settings. When documents are received from your vendors, the Subcontractor Compliance Management task provides a single point of access for data entry to mark documents as received. The date received and user ID is added to the record!
Detailed instructions for setting up Subcontractor Compliance Management can be found in the Sage knowledgebase article 34404, “Where can I find the Subcontractor Compliance Management Training Supplement document?” At the bottom of the article is a link to download the document “AP_Compliance_Supplement.pdf.”
If you would like assistance with setting up the Subcontractor Compliance Management features in your Sage 300 CRE software or would like to schedule training for your users, please contact Ledgerwood Associates.
Need help from a certified Sage 300 CRE Consultant? Just click, and we’ll contact you in a jiff! It’s no big deal, right?
Totals Page (SQL Estimating): Adjust the Job Total
Reprinted with permission from TUG — Power to the User | Written by: Jon Banse, Select Construction Concepts, Inc.
You can adjust the job total and then spread the amount back to the estimate. For example, if your typical price for a warehouse is $1,500,000 and your estimate totals $1,417,000, adjust the entire estimate up to $1,500,000 (just type over the estimate total) and distribute the amount back to the estimate.
You can distribute amounts proportionally over the entire estimate or to specific portions of the estimate (right-click on the Adjusted total or Variance or click on the Spread Variance button to get to the “Spread Variance” feature). This is especially useful when an owner has an idea of what the project should cost.
Note: the adjustment can be positive or negative.
Find more of TUG’s Tips and Tricks HERE.