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2010 | 2009| 2008 | 2007 | 2006 | 2005 | Pdf Archive
For construction companies, crossing state lines for a project can boost the bottom line, but it can also mean dealing with new and complex tax issues. When determining a contractor’s tax eligibility, governments consider whether the company has “nexus” in their respective states, meaning that its presence there is significant enough to subject it to taxes. This article explains what activities trigger nexus, how states determine the amount of income tax owed, and what other taxes might be incurred. A sidebar discusses the usefulness of a nexus study to help answer such questions in advance.
For contractors who have either stopped offering bonuses to cut costs or no longer wish to hand out bonuses quite so freely, a performance-based bonus plan might be the answer. Such plans can motivate employees and align their efforts more closely with company goals — but they can be a challenge to set up. This article offers tips on tying bonuses to specific activities; how to pay for the program; and timing and quality issues.
If a construction company’s profitability is lagging or its surety seems a bit more hesitant than usual, there may be a number of things in need of doing. But one of the simplest is a reassessment of the business’s work-in-progress (WIP) report. The breadth of detail and accuracy of data in these critical documents can often suffer over time. This article shows how to make sure a WIP report is sufficiently comprehensive and includes all revenues and costs for each current and upcoming contract.
This issue’s “Construction Success Story” discusses the case of a contractor who asked his financial advisor for some advice on selecting the right subcontractors for a new, big job. Picking the wrong ones could lead to costly delays — or even termination of the sub in question — which could mean paying attorneys’ fees, scrambling to complete or redo the work, and damaging the contractor’s good standing with the project owner. This article looks at the specific tips the advisor offered to avoid such consequences.
Many current tax incentives are set to expire at the end of this year (though Congress might extend them), so now is a good time for contractors to start exploring ways to lock in those breaks and lower their 2011 tax bill. This article looks at some of these breaks, such as those applying to hiring workers from certain disadvantaged groups; constructing energy-efficient buildings; conducting research and development; and purchasing certain assets. A sidebar shows how cost segregation studies offer bigger tax savings than ever.
Contractors who juggle projects at multiple sites know it can be tricky to accurately track job data and employee activities. The good news is that there are now a wide variety of apps available for smartphones, tablet computers, laptops and construction vehicles that allow contractors to store and view data regarding labor hours, vehicle and equipment use, and daily job-site production. This article examines three of these: wireless time cards, geo-fencing technology, and global positioning systems.
It’s common for a project to start out strong, but then encounter delays and incidental added work and changes that hurt the bottom line. There’s a name for these situations: “profit fade.” There are also a variety of ways to stay focused in the fight against this continuing problem. As this article discusses, they include knowing the contract and budget; staying on top of changes; and making sure the assumptions used in estimating the projects are valid.
This issue’s “Construction Success Story” looks at the case of a midsize housing contractor who was barely scraping by, in spite of a relatively healthy roster of jobs. When she visited her financial advisor, she learned of better procedures for documenting extra work and change orders.
Performing an out-of-state job is more complicated than just crossing the border with a crane and crew in tow. Most states require contractors to obtain licenses — even if they hold licenses in their home states. Those who skirt the licensing process can get slapped with civil or criminal penalties, such as significant fines. This article shows the necessity of advance preparation and research, along with some of the specific steps involved in the application process. A sidebar explains why submitting a bid without a license can have serious consequences.
Giving away money in an economy that remains challenging for many contractors may seem a hard-to-swallow concept. But current estate and gift tax rules allow one to give a substantial amount without incurring taxes — and they lower the tax rate for gifts beyond that dollar limit. This article briefly describes the rules — which, in their existing form, expire at the end of 2012 — and suggests how they can affect construction businesses and contractors’ personal estates.
The surety market remains tight in most areas of the country, so strict standards remain the norm. But that doesn’t mean it’s impossible for contractors to navigate the situation and get the bonding they need. This article describes the business criteria that sureties are scrutinizing, and offers suggestions as to how contractors can meet them.
This issue’s “Construction Success Story” features a medical facilities contractor who suspected that high turnover was contributing to the company’s suddenly slumping profits. His financial advisor showed him a way to measure his turnover cost, and then address the root cause of the problem.
Thanks to a variety of industry quirks, construction companies are especially vulnerable to IRS audits. But this article offers four ways to avoid some common audit triggers: using the accrual method of accounting, correctly classifying workers as employees or independent contractors, timely paying taxes on long-term contracts, and operating as an S corporation. A sidebar discusses steps that those already contemplating an audit can take.
Although the financing market remains tight, it’s still possible to prevail in a search for credit. By building their case beforehand and knowing all of the available options, contractors will have a better shot at getting the dollars they need. This article shows how to choose the right lender and how to analyze projected balance sheets and projected future earnings in advance of visiting the lender. It also looks at alternatives for those shut out of traditional lending altogether.
Losses of small tools, whether to carelessness or outright theft, can slowly but surely nickel-and-dime a contractor into a disadvantageous financial position. Fortunately, technology offers a variety of tools for coping with this problem. This article explains how bar-code systems can not only track tools, but in the process improve management efficiency and lower liability risks. And integrating a tool-tracking system into the accounting system can boost the value of tool-related data and streamline procurement of these assets.
This issue’s “Construction Success Story” looks at a general contractor who was interested in taking on some state and federal projects. But he knew such jobs could be tricky and worried about his company’s lack of experience. His financial advisor showed him how multiple business entities could provide one way to safeguard his established company’s reputation while offering potential legal and tax benefits as well.
There are many places where a construction business could stumble during a long project, but one of the worst has to be at the very beginning — during bidding. This article describes four bidding mistakes to avoid and offers ways to ensure that contractors submit the best offer for both the job in question and their construction company.
This issue’s “Construction Success Story” describes a contractor who hadn’t worked on public projects before, and needed some advice on navigating the confusing prevailing wage laws. His advisor determined the amount of increased benefits the contractor would have to pay his workers, but also showed him the most tax-advantageous way to do so and recommended specific construction software that could help keep accurate records and avoid fines.
The Small Business Jobs Act (SBJA), enacted last year, contains a prime tax-saving opportunity for contractors. An SBJA provision includes an extended five-year “carryback” for general business tax credits to offset both regular tax liability and alternative minimum tax liability. The provision applies to sole proprietorships, partnerships and nonpublicly traded corporations that have $50 million or less in average annual gross receipts over the three preceding tax years. This article describes how the carryback works.
With states searching for extra revenue to plug their growing budget gaps, many are enforcing their sales and use tax rules more strictly than ever. So it’s critical for contractors who cross state lines to get and stay up-to-date on sales and use taxes to avoid getting tangled in the web so often spun by out-of-state jobs. This article reviews the basics of these taxes and how contractors can manage them. A sidebar lists three tips for easing the sales and use tax burden.
2010
This issue’s “Construction Success Story” discusses a midsize excavation specialist who, facing a request for proposal for a potentially lucrative project, wanted some input on where he should focus his attention to stay within his means but still be competitive. The first thing the advisor suggested was to look at the labor burden rate — a stat that measures the costs of labor beyond compensation. Putting a hard number to this concept could help the contractor determine his true costs and prepare a feasible bid.
The passage of the American Recovery and Reinvestment Act of 2009 allocated $787 billion for infrastructure (and other) projects. Winning bidders of federal jobs typically enjoy substantive contracts, steady work and assured compensation, making the arduous procurement process worthwhile. This article is designed to help contractors with no experience in this area determine whether federal construction opportunities would be attractive. It lists websites that are helpful in negotiating the process, while a sidebar offers three sources to make contact with organizations whose members have experienced government contracting.
For many years now, the IRS has been monitoring, in some cases challenging, employers’ handling of independent contractors. At issue: the agency’s contention that some companies are misclassifying employees as independent contractors. And construction companies are particularly in danger of running into classification troubles. This article explains how to distinguish between the two categories, and what to do if cases of misclassification are found.
Accidents and injuries lead not only to detrimental medical and morale consequences, but also to financial and, often, legal ones. Naturally, there are a variety of ways to encourage safety. But few of them are likely to be effective without one key ingredient: the participation of employees. This article discusses how to train and supervise employees and to make sure subcontractors are on board.
The staggered implementation and sheer size of the new health care reform law, the Patient Protection and Affordable Care Act (PPACA), paired with the fact that the details of some provisions aren’t hammered out yet, have many business owners scratching their heads. This article discusses a few key provisions of the act that could affect construction companies, including “carrots and sticks” to encourage employer coverage, an Early Retiree Reinsurance Program, and changes to tax-related filings. A sidebar discusses coverage of dependent children.
Tax law uncertainty has been making planning a challenge. This article looks at three developments that may require action before year end: Section 179 expensing, a retention credit offered under the Hiring Incentives to Restore Employment (HIRE) Act, and a potential individual income tax rate increase.
There are many ways contractors could lose hard-earned money, and employees — even trusted, long-term ones — may be more prone to committing fraud during these difficult economic times. This article looks at payroll and accounts receivable scams, shell companies and kickback schemes.
This issue’s “Construction Success Story” looks at the case of an excavation business owner who found himself constantly battling with his accounting system to get the information he needed. He visited his CPA to determine whether it was finally time to move to a construction-specific accounting application. The advisor discussed the benefits of available software programs, along with some disadvantages involved in implementing one.
Many construction business owners may see cash flow forecasting as either a distraction from day-to-day activities or as a daunting, implausible undertaking. But getting a clearer picture of where a company’s dollars are going isn’t as difficult as one might think. This article shows how to estimate earnings with front-loaded billing schedules, and then, with data from estimated billing schedules and projected general operating expenses, to forecast cash flow in the near future. A sidebar lists five cash flow killers that can be prevented.
Constant materials purchases on construction projects can not only cause a lot of confusion, but also cost valuable hours tracking down invoices, double-checking figures, and making phone calls to managers and subcontractors. But automated purchase order software can speed buying processes and take much of the guesswork out of who’s buying what, when. This article examines how purchase order applications can use purchase orders to set up work orders, create schedules, and update and e-mail or fax weekly schedules, and use the original work orders to create invoices and send payment to subcontractors and suppliers.
Construction materials prices are erratic and largely unpredictable, but price adjustment clauses in a contract are one way to prevent, or at least mitigate, such sticky situations. These clauses identify specific materials at risk for price increases and set an effective date from which to measure price changes that trigger an adjustment to the contract amount for materials. This article explains how they can help both contractors and owners save time, money and risk.
In this issue’s “Construction Success Story,” a general contractor was torn. He knew he could put together a stellar bid for a new condominium project, but the owner involved was highly dubious. This local property developer had been involved in some unflattering legal proceedings of late and its financial standing was uncertain to say the least. The contractor’s financial advisor, however, gave the contractor sound tips on how he could proceed while protecting his interests.
Long-term contracts (those exceeding a 12-month period) can be tempting for contractors, as they’re typically associated with lower levels of competition and higher revenue. But because these arrangements transfer the risks from owners to contractors, many sureties hesitate to bond them. Even if bonding is obtainable, escalating costs and unforeseen glitches are a special concern in these types of jobs. But there are steps that contractors can take to become more bondable. A sidebar discusses tax and accounting considerations of long-term projects.
In response to dire times, many construction company owners may look for quick fixes to tide them over until the economy recovers or at least until the next big project comes along. Yet this thought process can be extremely dangerous; amending and extending loan terms, for example, can become a vicious cycle in which interest rates increase and debts become insurmountable. Long-term thinking will include asking specific questions about the business to reassess overall strategy and implement system fixes.
Recently, bonding firms have been extra cautious because of the difficulties that so many construction companies have had in staying solvent. That’s why, now more than ever, it’s important for contractors to determine just how their business looks to their surety. Working capital and tangible net worth will likely sit near the top of any surety’s list of critical attributes, as will receivables and debt, performance consistency, and work in progress.
In this issue’s “Construction Success Story,” we look at a struggling general contractor who asked his financial advisor about the potential downside to layoffs. She pointed out reasons that layoffs might hurt him in the long term, and discussed ways the contractor could retain his best employees.
A soft economy, as well as the prospect of snagging a piece of the American Recovery and Reinvestment Act (ARRA) pie, prompted a small midwestern contractor with little experience in government jobs to consider expanding into the public sector. While the lure of ARRA dollars was strong, he met with his financial advisor to determine whether an investment in government bidding could yield an appropriate return. Together, they developed a targeted approach.
There’s no doubt that fleet management requires an investment of time and finances. But the long-term savings, decreased equipment downtime and better efficiency gleaned from the effort can be significant. One must begin by comparing savings and tax considerations in regard to buying equipment vs. renting it. Maintenance and antitheft issues must then be addressed. A contractor might also need to hire a dedicated fleet manager or outsource the duties to a fleet management company. A sidebar to this article shows how to prepare for the next tier of Environmental Protection Agency engine emissions regulations.
Building a good collection process begins with developing a realistic payment plan and then including it in the job contract. Contractors must employ prompt and frequent follow-up to avoid giving the impression their bills can be given lower priority. This is not just an issue for accounts receivable staff; collections should be a companywide concern. As a last resort, it may be necessary to resort to a collection agency. But this might mean burning a bridge one may need to cross in the future, so the pros and cons of this harsh measure must be weighed carefully.
In this tough economy, more and more contractors are turning to lead services to get the jump on competitors. There are three primary choices: a subscription-based service, a pay-per-lead service, or a database service. The first two are more economical. Yet those who are serious about using a lead service, and can afford to do so, might want to take a calculated risk and sign up for a database in order to quickly achieve more precise results. But due diligence is important.
For the owner of a general contracting business in a mostly urban rehab/high-rise market, times were tough. With the economy in gradual recovery mode, work was slowing down and competition was stiff. So, during a visit to his financial advisor, the owner asked for ideas on gaining an edge. She had one that he found quite surprising: supplementary certification. Contractors who seek certification beyond what’s required for licensure, she explained, are in a better position to compete for business and broaden their horizons in areas they wouldn’t normally explore. She mentioned several well-known organizations where he might go for continuing education and certification courses.
Project delays occur for a number of reasons, and can range from small misunderstandings to huge conflicts that may put the financial success of a project on the line. But there are five steps that will help a contractor get to the finish line quicker by getting off to a better start: checking the owner’s financing; having a specific, well-defined contract; collaborating with all parties on a plan of action; creating standardized information management systems and processes; and choosing suppliers wisely. A sidebar to this article lists key questions that a contractor should ask potential vendors when considering a shift to paperless operations.
This tax season, some construction companies may find welcome relief from an uncertain economy and challenging marketplace because of the recently extended net operating loss (NOL) carryback period. This provision is part of the Worker, Homeownership and Business Assistance Act of 2009, a bill passed last November that aims to create jobs and offer respite to struggling businesses and the unemployed. The newly renewed NOL rules allow most businesses to carry back their NOLs for up to five years, instead of the previously sanctioned two.
As the local market picks up or slows down, contractors need to know exactly where they stand financially to reasonably decide whether to move boldly forward or pull conservatively back. And when it comes to determining financial standing, the more accurate and precise one is, the better. That’s where certain key financial measures come into play. This article discusses such measures as return on assets and return on equity, along with a number of important ratios.
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2009
Preparing for battle
Strategic risk management for contractors
The construction business is replete with risks. Bumps in the supply chain can stall deliveries, weather can wreak havoc on project schedules and owners can go bankrupt. These realities, compounded by recent natural disasters, heavier pressure to finish projects faster and more efficiently, and a steep rise in global competition, have prompted contractors to turn to strategic risk management (SRM). Having an SRM plan can reduce the chances of unexpected risks destabilizing a business, and allow owners to gain a better perspective on what risks could actually be beneficial to their construction business. This article discusses how to set up an SRM plan, while a sidebar discusses the importance of insurance as one component.
Discover the secret to your success with bid-hit ratios
Some contractors equate success with the number of bids they win or perhaps simply with the number of jobs on which they’re bidding at any given time. But a more accurate and useful gauge lies in their bid-hit ratio — the rate at which they successfully bid on projects. A low bid-hit ratio can help contractors identify project types where they consistently fall short, and decide whether to allocate more resources to them or to bid more on other project types. But even the best bid ratio doesn’t guarantee profitability, so it’s important to track that measure as well.
Care to trade?
Trying your hand at a Sec. 1031 exchange
A “Section 1031 exchange,” or “like-kind exchange,” refers to the swapping of two properties, potentially resulting in a significant tax advantage — deferring gain until the replacement property is sold. But, under Sec. 1031 of the Internal Revenue Code (IRC), one may swap more than just real estate. This article looks at the basic rules of such an exchange and the timeframes involved, but also shows how non-like-kind property can be included.
Construction Success Story
Contractor rolls out new technology the right way
In the midst of a flush of stimulus-related public projects, a small subcontractor was finding his old accounting system too slow and cumbersome. So, with little time to spare, he headed to the software market and chose a new system. Upon introducing the technology to his managers, however, the contractor found that everyone had a gripe. Frustrated, the contractor mentioned the dilemma to his financial advisor, who suggested he return the product and begin again with a collaborative, team-based approach to choosing new software.
Add Muscle to Your Bottom Line With Benchmarking
To maintain a competitive edge, it’s critical for a contractor to know where he or she stands financially. One way to do so is by benchmarking. Under this process, a construction company owner selects metrics, or “benchmarks,” to measure his or her construction company’s performance against its own past performance or against other, similar construction businesses. This article explores the details and benefits of this helpful activity.
Contractor Shocked Into Action by Corporate Identity Theft
In this issue’s “Construction Success Story,” we meet an ambitious contractor who, through hard work and a considerable amount of foresight, kept his construction company’s head above water in a tough market during the past year. He was quite proud of this accomplishment and thought all was well until one day, while surfing the Internet, he came across a Web page with his company’s name and logo. Problem was, it wasn’t the Web site he’d set up — and it contained all the wrong contact information.
Turning prevailing wages into employee benefits
As contractors vie for new public works projects, the prevailing wage — the minimum wage contractors generally are required to pay employees working on projects initiated by public agencies — is getting more attention. For each job, the prevailing wage is divided into a minimum basic hourly rate and a fringe benefit amount. Although contractors are required to pay their employees the base rate in cash, the fringe benefit portion can be paid in cash or in the form of a “bona fide” benefit plan. To avoid the complexities, it may be a little easier for a business to pay the entire prevailing wage in cash, but it’s much more expensive. This article shows why, while a sidebar discusses the documentation needed in the event of a Department of Labor audit of a prevailing wage plan.
3 tax-related scams and mistakes to avoid
Earlier this year, the IRS issued its annual list of common tax scams, covering everything from identity theft traps to serious mistakes taxpayers can make that the IRS may deem to be frivolous tax claims. Three, in particular, involve phishing scams, misuse of trusts, and fraudulent fuel tax credit claims.
General contractor focus
Beware of the independent contractor vs. employee dilemma
The independent contractor vs. employee dilemma is a natural problem for general contractors, who deal with subcontractors and other specialists regularly. This article looks at a couple of examples where the line between independent contractor and employee isn’t clear, and explains the perspective that the IRS uses when determining employee classification.
Construction Success Story
Contractor improves customer service without a big payout
Faced with slowing business, a commercial general contractor decided to forgo the equipment and software upgrades he’d planned for. Yet he still felt helpless watching his backlog dwindle with few new prospects on the horizon. Reaching his wit’s end, he met with his financial advisor, seeking suggestions for ways to retain his current clients and gain an edge over his competition — all while saving money. The advisor offered a simple solution: a renewed focus on customer service. It’s inexpensive and one of the most effective ways to strengthen business in the short and long term.
Construction Success Story -
Contractor Goes Paperless with IWA System
This month's Construction Success Story tells of one contractor who had been pondering the idea of going paperless but hadn't found the right tool to help her do so. When she asked her CPA for ideas, he mentioned imaging and workflow automation (IWA) systems. He explained that many business owners, including contractors, have been using IWA systems to streamline their invoice and accounts payable processes.
Employee Benefits - Self-funded Health Insurance May be a Healthy Option
Because of rapidly rising health insurance premiums and shrinking budgets, some contractors are choosing to forgo offering health care benefits to their employees as a way to save money in a down economy. But a number of alternatives can reduce their financial burden while still giving their employees access to the health care services they need. One such route is the self-funded health insurance plan. This article discusses how it differs from commercial insurance, the risks and rewards, and the obligations involved. A sidebar discusses what to look for when choosing a third-party administrator for a plan.
On-the-Job Training Provides Lasting Returns
A contractor will benefit clients, employees and itself by providing on-the-job training at every level. Sure, it takes time and money, but not as much as one might think - and the results can mean a more efficient company and bigger profits. Knowledgeable employees work faster and better; in the end, they'll make the company more money. Plus, an employee who feels valued is more likely to stick around, helping to decrease turnover. But many managers get promoted to leadership positions because they are hard workers and great at their jobs, not because they're natural or skilled leaders. So it's important to ease the transition and the learning curve by creating opportunities for new managers to learn from experienced leaders within the company.
The Inside Scoop on the Manufacturers’ Deduction
Many contractors have been taking advantage of a useful break with a somewhat misleading name: the manufacturers' deduction, which provides a tax break for many businesses besides manufacturers - including contractors. Certain kinds of construction activities qualify for the deduction, which will be increasing in 2010.
The Massachusetts Legislature recently amended the sales and use tax laws increasing the tax rate on tangible personal property and telecommunications services from 5% to 6.25%. In general, this change is effective for taxable purchases on and after August 1, 2009, subject to certain transition rules
Contractor Learns Benefits of a Business Appraisal
In this issue’s “Construction Success Story,” we tell the tale of a contractor with a five-year-old commercial construction business who was faced with growing competition in his sector — and only a vague idea of his current competitive standing. After learning a fellow construction business owner had learned a lot about his company following an appraisal, the contractor asked his financial advisor about the benefits of the valuation process.
Same Equipment, Smaller Investment-Rental/Leasing Agreements Offer A Variety Of Potential Advantages
Investing in high-end machinery can be a big financial burden — especially in a down economy. That’s why more and more contractors are seeking to minimize costs by renting or leasing their equipment. This article explains that, beyond the obvious cost savings, equipment rental or leasing provides several important benefits worth considering.
3 Simple Steps To More Effective Scope Management
More than just a theory, scope management provides contractors with a plan for staying on-task and on-budget. And adopting a plan for scope management doesn’t require a major overhaul to a construction company owner’s current management style. This article describes three simple steps to improving a construction company’s scope management.
Do You Know Where Your Money Goes? -Job Costing Software Can Help
When it comes to the money spent and made on a project, what contractors don’t know can hurt them. Upgrading to job costing software could provide a construction company owner with the details needed to streamline spending and control costs. This article provides some buying tips for this highly practical technology tool.
Control Your Debt (So It Won’t Control You)
As fuel costs fluctuate and project income becomes less reliable, contractors are increasing their debt load in record numbers. In fact, most contractors have come to depend on debt as a source of liquidity to keep their operations running smoothly. Yet, in an unstable economy, having a plan for managing debt is vital — especially now that bankruptcy is more common than ever. This article offers some tips on putting together just such a plan.
Buy-Sell Agreements | Sleep Better With This Key Document in Place
Any construction company owner who still hasn’t considered how to handle the departure — expected or otherwise — of any of the company’s other owners could be putting the continuity of the business at risk. The good news is that a buy-sell agreement can help contractors sleep better at night. This article describes the basics of a sound agreement.
4 Profit Killers to Keep Away From Your Bottom Line
From unnecessary delays to insufficient communication, profit killers lurk throughout the construction business. They’re usually not hard to spot once one starts looking — and in today’s market, contractors really ought to be looking. This article warns of four profit killers that construction business owners need to keep away from their bottom lines.
Don’t Be Short-Sighted When It Comes To Job-Site Security
To many contractors, losses from theft and vandalism are just a cost of doing business. Yet that’s being short-sighted — not only because preventive measures can stop immediate monetary losses, but also because job-site theft often has greater implications. It can delay jobs, increase insurance premiums and cause work to grind to a halt. This article suggests some commonsense ways to ensure equipment, materials and tools stay put.
Reviewing EESA’s Energy Tax-Break Extensions
This past fall, in passing legislation to bail out the struggling banking industry, Congress also acted to encourage contractors and owners to continue their efforts in energy-efficient building. The Emergency Economic Stabilization Act of 2008 (EESA) extended many tax credits and deductions for energy efficiency. Although this is hardly news, it’s still a good idea to review EESA’s changes as you work your way into 2009. This article covers the law’s pertinent provisions.
E-Permitting Saves Contractor Time, Money and Mileage
This issue’s Construction Success Story tells the tale of a paving contractor who was juggling multiple projects and growing increasingly tired of having to drive to City Hall to obtain the required permits. His financial advisor suggested he try e-permitting, which allows local building departments to accept permit applications, review plans, schedule inspections, and calculate and collect fees electronically.
EVM: Taking the Mystery Out of Job Costing
Most contractors likely have a spending plan going into every job, and they probably track every dollar spent once work is underway. Yet, despite these efforts, measuring the true progress of the job may remain a mystery. This article looks at a solution to this particular whodunit: earned value management (EVM).
LEED Changes Increase Complexity of Going Green
In an effort to eliminate backlogs and comply with ISO standards, the U.S. Green Building Council (USGBC) has revised its Leadership in Energy and Environmental Design (LEED) certification program. As a result, contractors looking to “go green” with their projects will face a substantially larger number of reviewing organizations and a more complex point system to qualify for certification. This article covers some of the many specifics.
Are You Ready for 5D Modeling? High-tech Estimating Software Looks Promising
Margins are typically razor thin in the construction industry, and it’s important that estimators and project managers have every possible advantage. The newest generation of design technology, 5D, may be the advantage they need to keep jobs in the black. This article takes a closer look at this promising new kind of software.
Are You Giving Away Your Money? Why it May Be Time to Rethink Year End Bonuses
Year end bonuses are nice gestures, but they may do little to boost productivity or build loyalty. In fact, many holiday bonuses are nothing more than gifts. This article explains why it may be time for contractors to rethink their year end bonus plans and consider performance-based alternatives.
GPS Technology Can Lead to Cost Savings
Global positioning system (GPS) technology has come a long way since its military inception in the 1960s. It’s in most cell phones and many automobiles, and it drives the online mapping systems that enable you to navigate unfamiliar territory. This article discusses how GPS technology can help contractors find new operational efficiencies and cost savings.
Fine Tune Your Bidding Process to Win the Jobs You Really Want
There’s no question that bidding is one of the biggest challenges any construction company faces — particularly when competition is high and jobs are few. So why do more of it than necessary? This article offers some tips on how contractors can fine tune their bidding processes and win more of the jobs they really want.
General Contractor Focus | Separate the Good from the Bad with Subcontractor Prequalification
With the economy stuck in slow-mo, general contractors may find the list of subcontractors who want to bid on their projects is growing. The challenge is to separate the good subs from the bad before you put them on a job. This article discusses how a solid prequalification process can help general contractors ensure that they work only with financially sound, qualified subs who will perform as promised.
Construction Success Story | Cross-training Saves Contractor Money, Worry
In this issue’s “Construction Success Story,” we meet a contractor with a commercial construction business in a sizable metropolitan area who was concerned about the fact that many of his seasoned employees were baby boomers who would be ready to retire in a few years, and there weren’t enough younger workers entering the field to take their places. After discussing the situation with his financial advisor, the two recognized that perhaps the most cost-effective option was to cross-train existing “craft” employees (such as electrical or carpentry staff).
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2008
No Construction Company is Safe | Fraud Continues to Impede Projects, Threaten Profits
Compared to the risks construction companies face every day on their jobs, fraud may seem a relatively small danger. It isn’t. Construction companies that are victims of fraud experience a median loss of $330,000, according to the Association of Certified Fraud Examiners (ACFE). This article looks at some of the “hot” forms of fraud to watch out for and suggests some measures to prevent these crimes and others.
Going, Going, Gone … Catch Profit Fade Before it Lowers the Curtain on Your Bottom Line
Many construction projects fall prey to a very real, and potentially disabling, financial predicament called “profit fade.” It occurs when a job fails to go as planned, and the carefully estimated profit margin shrinks to nothing — or less. This article explores some ways to catch this dollar-deadly threat.
Don’t Let Aggressive Drivers Wreck Your Safety Record
If a contractor has more than one job site going at a time, chances are he or she has employees driving between them. And unless steps are taken to ensure those workers are driving safely, a construction company’s safety record may be living on borrowed time. This article suggests some ways to address aggressive driving from a risk management perspective.
New Technology Helps Contractors Manage Weather-related Risk
Let’s face it, construction companies are at the mercy of Mother Nature. Whether battling ice storms in New England, drought on the West Coast or thunderstorms in the Midwest, weather can wreak havoc on any contractor’s project schedule. This article examines “weather risk management solutions” — new software created specifically to help contractors mitigate the weather’s effects on their jobs.
Construction Success Story | Contractor Builds Web Site to Sell Spec Houses
In this issue’s “Construction Success Story,” we tell the tale of a residential contractor with several spec houses on the market who was concerned that her homes weren’t getting the attention they deserved, despite the number of unique and desirable features she had built in. She discussed the problem with her financial advisor, and the two agreed that a Web site might add visibility and help build profits.
Construction Success Story | Cost Segregation Study Gives One Contractor a Competitive Edge
A commercial contractor, whose company typically builds office buildings, wanted to expand his market base by bidding on a proposed medical clinic. He knew his team could do the job, but one of his competitors had more experience in the construction of health care facilities.
Nonqualified Deferred Compensation Plans | Reward, Retain Key Employees With These Arrangements
Do a few key employees play a critical role in your construction company’s success? Do you want to reward them for their hard work while increasing the likelihood that they won’t jump ship to the competition or strike out on their own? If so, a nonqualified deferred compensation (NQDC) plan may be just what you’re looking for.
PPE Should Be on Employers’ Dime, OSHA Says
It’s a decision the Occupational Safety and Health Administration (OSHA) says could prevent thousands of work-related injuries each year. That is, the agency now requires employers to provide employees with virtually all of their personal protective equipment (PPE), such as hard hats and nonprescription safety goggles. If you buy PPE, OSHA says, employees are more likely to have the right gear in good condition, and they’ll be more inclined to use it.
Worth a Look: Web-based Project Management Software
Many construction company owners have their own distinctive means of managing jobs, be it a simple spreadsheet or a more advanced tool. If you’re pleased with your approach to project management, great; but one upgrade that’s well worth looking into is Web-based project management software.
Do You Know How Much Worker Turnover is Costing You?
Every time an employee leaves your construction company, it costs you money in terms of lost knowledge and time and lower employee morale. And if many workers leave annually, you’re losing a lot of money. Plus, with the ongoing labor shortage in the construction industry, finding qualified replacements isn’t likely to be easy.
Construction Success Story | Family Business Squabbles Speak to Future Opportunities
Initially, the owner of a homebuilding and rehab company in a historically lucrative suburban area was glad when his son and daughter decided to join the family business. Yet his happiness turned to dismay when his two offspring almost immediately set to bickering.
When it Comes to Diversifying, Look Before you Leap
You’ve trimmed all the visible fat from your operations and improved efficiency as much as you can. Yet your bottom line still isn’t where you want it to be. So now you’re thinking about diversifying into a new market or service to improve your bottom line.
Generate, Authenticate, Substantiate | Winning the Change Order Game
It’s a rare, if nonexistent, construction project that goes exactly as planned. That’s why savvy contractors know how to play the change order game. What are the keys to victory? In short, you’ve got to generate, authenticate and substantiate.
4 Reasons to Engage in Some Midyear Tax Planning
Although you probably have plenty on your plate at the moment, don’t let that fact keep you from engaging in some midyear tax planning. For starters, you’ll be making your life easier come year end when you’ll really need to start thinking about taxes. Want some more specific reasons? Here are four.
Recent NLRB Rulings Settle Long-Standing Litigation
Five recent National Labor Relations Board (NLRB) rulings settle long-standing litigation. The decisions came about by close margins — many were decided by 3-2 votes. And, for the most part, they favor open-shop contractors.
Crackdown on Illegal Hiring Looms
U.S. Bureau of Labor Statistics and Census Bureau data show that foreign-born workers are critical to the construction industry. Problem is, contractors often can’t — or don’t — verify that their employees are eligible to work in the United States. And, as this article warns, Uncle Sam is starting to take more notice.
Don’t Count on Profitability: Cash Flow Management Often Matters More
More construction companies go out of business because they run out of cash than because they don’t show a profit, according to the Construction Financial Management Association. What this means is that cash flow management often matters more than profitability.
Get a Handle on Your Supply Chain with Materials Management Software
A supplier bills you for materials, but you don’t have them and nobody knows whether they were ever actually delivered. The crew couldn’t keep the job on schedule without the supplies, so somebody went out and bought what was needed, and now you have to spend valuable time investigating what happened to the lost shipment.This is a sad tale, and one heard all too often on construction sites everywhere. Fortunately, today’s materials management software can help you get a handle on your supply chain — and save money in the process.
5 Ways to Strengthen Your Surety Relationship
Call it a “necessary evil” or “the cost of doing business.” However you want to look at it, for most contractors, bonding is a fact of life. One way to keep your bonding capacity strong is to maintain a strong relationship with your surety. Here are five ways to do just that.
Psst — Wanna Buy My Construction Company? ESOPs Offer Another Retirement Option
As many contractors near retirement, they begin to wonder what to do with their businesses. In many cases, the answer is to sell to a third party, transfer ownership to family or key employees, or liquidate. There is, however, another option worth considering — the employee stock ownership plan (ESOP).
Construction Success Story | Contractor Creates a Total Communications Plan
The owner of a midsize construction company that specializes in commercial projects was growing increasingly concerned that many of her staff members felt left out of the communications loop. And she wanted to restore morale without blowing her budget on expensive technology. For guidance, she turned to her financial advisor and, together, they devised a cost-effective “total communications plan.”
Are "Non-Traditional" Dependents Creating Tax Liabilities for Your Employees?
As the concept of the "traditional family" continues to evolve under various state laws, certain definitional departures from federal tax law arise creating some potentially troublesome issues. This is certainly the case involving health care coverage for children and domestic partners of same-sex marriages who do not meet the definition of a dependent or spouse under federal tax law. In cases where a taxpayer's employer pays for health care coverage of a same-sex spouse or child who is no longer a dependent, such costs result in taxable income to the taxpayer/employee.
Construction Success Story | VoIP Helps Lower Expenses
While meeting with his financial advisor to discuss escalating expenses, a roofing and siding contractor in a growing suburban area mentioned that his telephone bills seemed to be growing exponentially each quarter. One potential solution that came to the advisor’s mind almost immediately was a Voice over Internet Protocol (VoIP) system — a technology that digitizes phone calls, allowing them to be transmitted via the Internet.
Tax Planning for 2008 and Beyond | Looking Forward By Looking Back
As a new calendar year begins, construction business owners may want to look back to last year for some strategic planning cues. For example, the Small Business and Work Opportunity Tax Act of 2007 (SBWOTA) included more than $4.8 billion in tax breaks for businesses. This article demonstrates how SBWOTA offers contractors some opportunities to plan strategically for this year and beyond.
Is Your Business Structure Still a Perfect Fit?
Most contractors wouldn’t dream of allowing a construction project to run unsupervised according to the original plans, because circumstances can change. The same is true of business structure: The ownership form that was once a perfect fit may eventually need to be adjusted. Beginning with the two most popular choices, this article provides a snapshot of each.
Stay in the Driver’s Seat With Sound Fleet Management
One of the many questions that cost-conscious contractors often struggle with is how to manage their company vehicles. How often should they be replaced? How should hours of use be accurately tracked? Are vehicles costing too much? This article explains how sound fleet management can help answer critical questions such as these and, ideally, save contractors money.
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2007
Because You Can Never Be Too Safe: Tips on Building a World-Class Safety Program
On any project, safety is everyone’s business. But, as the owner of your construction company, the buck stops at your desk. So, you must do all you can to develop a quality safety program that not only reduces job-site injuries and workers’ compensation claims, but also speeds project completion and enhances revenues. If your safety program has served you well, you may be tempted to think you’ve got things covered. But just as you can never have too much money in the bank, you can never be too safe on the job site. Here are some tips on building a world-class safety program.
Help Build Tomorrow's Workforce Today
In hopes of mitigating the labor shortage that has plagued the construction business for some time now, a variety of industry organizations have launched programs designed to draw new workers into careers in the construction industry. You can help spread the word — and build tomorrow’s workforce today — by getting involved on the local level.
When Scheduling Subs, Keep in Mind the Bottom Line
If there’s one thing guaranteed to erode the bottom line on a construction project, it’s subcontractors who throw things off schedule. Keeping in mind the bottom line when managing subs can put general contractors in a better position to roll with any other punches the project throws at them. This article offers some tips.
Construction Success Story | Reconsidering Associations and Trade Shows
This issue’s “Construction Success Story” concerns a homebuilder in a moderately growing market who is reconsidering joining a trade association or exhibiting at a regional trade show. His financial advisor, who has worked with many other construction business owners in the past, had some pointed advice regarding these opportunities.
Tighter Mortgage Standards Threaten Homebuilding Market
Not too long ago, lenders were handing out mortgages to most who applied — even those who couldn’t afford down payments or were unlikely to maintain their payments once early “teaser” interest rates went up. Those days appear to be over: Generally, housing prices have fallen over the past year and many potential buyers are no longer able to readily obtain financing. This article examines how tighter mortgage standards are affecting the construction business.
Expanded Section 179 Break Lives On
If you’ve discussed year end tax planning with your CPA, you may have heard about the Section 179 expensing deduction. It allows you to expense (rather than depreciate) the cost of depreciable assets (within certain limits) in the year you place them in service.
Financial Reporting Capabilities of Construction Accounting Software
Source: Construction Accounting and Taxation Journal. Volume 1, Number 4
Choosing the correct accounting software is critical to construction companies due to the significant amount of data collection, processing and interpretation required. Contractors, both large and small, need to regularly perform financial reporting on two levels in order to monitor and manage the overall performance of their company.
Weakened States: The Plague of Presenteeism
There's little doubt that absenteeism can take its toll on any construction company's productivity. But employees who come in to work when they aren't feeling well - a phenomenon known as "presenteeism" - may pose an even greater risk. This article discusses the "plague" of presenteeism and how contractors can take steps to minimize its ill effects.
Like-Kind Exchanges Off Big Savings (But Complex Rules)
When a contractor is ready to trade in a piece of heavy equipment for a newer model, he or she might consider using a like-kind exchange to defer gain without decreasing his or her basis for depreciation. Under Internal Revenue Code Section 1031, taxpayers can swap unwanted property of the same nature - and defer gain until they ultimately sell something outright. This article examines the rules.
Could Semantics be Costing Your Company?
As the state of Massachusetts increases the number of sales tax agents on its payroll the logical expectation is that sales tax audit activity will also be on the rise. Exposure to double taxation should be a concern for any construction, manufacturing, or distributing company that conducts business in Massachusetts and also purchases materials and products outside of the state.
Slim Down Project Hassles with Lean Construction
Many contractors are finding that lean manufacturing processes can help slim down project hassles. Of course, there are some fundamental differences between manufacturing and construction. But, properly applied, lean approaches certainly show promise for contractors. This article explains how.
Contractors Get Boost from Extended Energy Tax Breaks
The Tax Relief and Health Care Act of 2006, signed into law Dec. 20, extended deductions for energy-efficient commercial buildings and credits for energy-efficient new homes through 2008. That’s good news for contractors, who now have until Jan. 1, 2009, to build and sell energy-efficient buildings. This article breaks down the tax rules of doing so.
Repair or Replace? That Age-Old Equipment Quandary
Unlike typical manufacturers who have stationary factories and produce the same product year in and year out, a construction company sets up a new “factory site” with each job. As you well know, transportation and setup puts a lot of wear and tear on your equipment. And, of course, the actual work these assets perform is rarely gentle.
Construction Success Story: One Contractor's Efforts to Combat Job-Site Substance Abuse
This issue’s “Construction Success Story” concerns a successful demolitions contractor whose company suffered a costly job-site accident. The construction company owner later learned, much to his horror, that the employee responsible for the mishap had been under the influence of illegal narcotics. When he mentioned the incident to his financial advisor, the two immediately began brainstorming ways to combat any further substance abuse on his job sites.
Exceeding Your Expectations: How to Analyze and Streamline Your Indirect Costs
Whether you call them indirect, administrative, overhead or back office costs, you probably deal with them every day. They’re the expenses not directly related to your projects — and they can have a marked effect on your bottom line.
3 Hot Construction Trends to Keep an Eye On
Construction is an ever-changing industry. The trends change often, and contractors who want to succeed need to stay on top (or, better yet, ahead) of them. Here are three hot construction trends you should keep an eye on.
Customer Satisfaction Survey Makes a Good Company Great
A midsize general contractor was known for outstanding work. Its owner was happy with her construction company’s financial performance and excited about its growth potential. Over the previous year, the business had been flooded with new opportunities and, to accommodate a substantial influx of new customers, it had added several new subcontractors to its roster.
Alternative dispute resolution - or ADR as it's commonly called - has become a common term in the construction business. Still, not every contractor fully understands how to use it and how it can help them limit the hit to their bottom lines when one of those inevitable job conflicts comes to pass. This article discusses three common ADR methods: arbitration, mediation and partnering.
A good succession plan is a necessity for every construction company. And among the most important parts of any viable succession plan is precisely how to transfer ownership to both provide the departing owner with funds for retirement (or for another purpose) and ensure that the business continues to thrive. This article describes three common methods that contractors can consider.
This issue's "Construction Success Story" concerns a stucco contractor who was tired of suffering from the domino effect caused by other subcontractors' poor time management skills. After discussing the problem with his financial advisor, he devised a bold plan: Bundle additional services with his usual ones to gain more control over the construction process, improve the quality of his company's work and, ultimately, boost revenues.
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2006
Many construction companies have gone out of business not because of poor management, underpricing or lack of experience, but simply because they ran out of money. A contractor's ability to collect accounts receivable can determine the success or demise of the business. This article suggests some ways to take an early and proactive approach to collections.
The construction industry continues to flounder in the depths of a labor shortage. In fact, contractors will have to recruit 200,000 to 250,000 workers annually to mitigate staff departures and retirements, predicts the National Association of Home Builders. This article offers four ways to help stem the tide of employee turnover.
The construction business is inherently diverse. As a result, it's important that contractors tailor their insurance coverage to meet not only the bid requirements of a project, but also the specific needs of company owners and assets. This article looks at some important aspects of insurance such as endorsements, exclusions and policy adjustments.
The Treasury and IRS recently issued final regulations concerning Internal Revenue Code section 199, the deduction related to domestic production activities. Section 199 was enacted into law as part of the American Jobs Creation Act of 2004. When fully phased in for taxable years beginning in and years subsequent to 2010, the deduction is equal to 9 percent (3 percent in the case of taxable years beginning in 2005 or 2006, and 6 percent in the case of taxable years beginning in 2007, 2008 or 2009) of the lesser of the taxpayer's (A) qualified production activities income ("QPAI") or (B) taxable income. The deduction is further limited to 50 percent of the W-2 wages paid by the taxpayer during the calendar year that ends in the taxpayer's taxable year.
Many accountants point to a construction company's statement of cash flows as the most telling part of its financial documentation. Sure, profitability is important, but if the business isn't generating positive cash flow, trouble surely lies ahead. And, in today's economic environment, that's not a safe risk to take. This article offers some smart strategies contractors can use to keep their money moving in the right direction - toward their bottom line.
Tax planning is an ongoing process that contractors should monitor throughout the year. That said, year end is the perfect time for construction company owners to review their financial situations and see what can be done to lower their tax bills. This article presents five ideas to consider, including stepping up collections and sweetening purchases with Section 179.
Any construction company willing to turn vacant lots and abandoned buildings into new businesses or affordable housing could enjoy years of benefits. A contractor interested in trying his or her hand at developing such a property, or working with a developer to do so, should know that there are a variety of financing options available for would-be buyers. This article describes just a few of them.
Lien rights are an important consideration for all contractors, but they're especially essential for subcontractors. A mechanic's lien is among the only ways they can take action against an owner or general contractor who fails to pay up. This article offers a general overview of these liens as well as a step-by-step approach to preserving their efficacy.
Although few would admit it, there's a persistent myth in the construction industry that older employees make bad employees in the field. Yet the labor shortage contractors have all come to know and loathe isn't going anywhere. This article makes it clear that anyone holding on to stereotypes about older employees is passing up a rich pool of smart and dedicated workers.
For contractors, having an employee suffer a work-related injury is an all-too-common occurrence. In 2004, the nonfatal injuries and illnesses incidence rate in the construction business was 6.4 per 100 full-time workers compared to 4.8 in the rest of private industry, according to the U.S. Department of Labor. For this reason, construction company owners are always looking for ways to control their workers' compensation insurance costs. This article offers six to consider.
In many construction companies, internal controls are put in place and left to operate on their own. But one essential (and often overlooked) internal control is the continual review and revision of internal controls. This article explains why keeping these policies and procedures up to date will not only help prevent fraud, but also bring some shine to a contractor's bottom line.
2005
The Internal Revenue Service recently released the Construction Industry Federal Tax Curriculum. This is an 80-page guide that discusses federal income and payroll tax issues that commonly arise for construction companies.
Keeping track of job progress is vital to any contractor's success. That's why it's best to track projects with a work-in progress (WIP) schedule. Using a sample WIP schedule, this article details the key components of this critical job tracking tool.
On July 19, 2004, a change in the Massachusetts definition of "independent contractor" was enacted. This law change is part of "An Act Further Regulating Public Construction in the Commonwealth" that was signed by Governor Romney on that date.
Starting in 2005, a 3% deduction is allowed for the portion of income attributable to U.S. manufacturing, construction, engineering and architectural services.
You’ve spent years developing a successful family construction business. But now you want to cut back on the long hours and enjoy the fruits of your labor. Yet you can’t just stop showing up and expect the money to keep rolling in. You need to figure out how to transfer the company to provide yourself with a good retirement income with the least amount of tax pain.
Do you have a variable interest entity (VIE)? You may not know the answer to this question. But if your construction company’s financial statements are prepared according to generally accepted accounting principles (GAAP), and they probably are, you need to find out — fast.
Cash flow management is the process of planning, budgeting, measuring and controlling the money that flows into and out of a construction business. Among the most valuable tools in such a monumental effort is the annual cash flow projection. This article describes the critical elements of an effective projection.
This issue's Construction Success Story concerns a general contractor who needed a better way to determine employee bonuses. With her financial advisor's help, she developed a more equitable bonus program that rewarded workers based on their individual contributions to the company's bottom line.
Any individual or business that enters into an agreement with a Non-Massachusetts Contractor to perform construction services in Massachusetts has a potential liability for any unpaid sales/use tax on that project.
There are significant benefits to the employer hiring independent contractors. However, the classification has become more of an art. The cost in misclassifying an employee as an independent can be sever. As case in point involved Microsoft Corporation. In this much publicized case, the IRS reclassified a number of the software giant’s independent contractors as employees, costing Microsoft millions in penalties as well as back employment taxes and benefits. This case shed a chilling light on the once-seemingly harmless practice of hiring independent contractors to cut employment costs. Here’s a closer look at how to keep your company safe from the dangers of misclassifying workers.
Many construction companies suffer from a disabling condition called "profit fade." It occurs when a contract is complete or near complete, but the job continues to incur additional costs - often not factored into the estimate. This article offers three steps to fighting this malady.
Getting an attorney to review a construction contract is always advisable. Nonetheless, there are many potential contract dangers contractors can uncover themselves. This article offers a checklist of a few key points construction company owners should review to avoid getting burned on their next contract.
Making an effective bid in today's construction industry involves much more than just crunching a few obvious numbers. To win business, contractors must look at not only their direct costs, but also a variety of other elements. This article suggests four final bidding factors to consider: 1) each and every prospective job cost, 2) risky project particulars, 3) potentially detrimental or beneficial relationships, and 4) the number and quality of competitors.
Among the most complex issues construction companies face is their choice of accounting methods. Because no two projects are ever alike, and their earnings may fluctuate from year to year, it's important to know the options. This article examines the overall accounting methods contractors may choose from as well as approaches for long-term contracts.
For Connecticut sales and use tax purposes, a 1.5% surcharge is imposed on machinery rented within the state by a rental company to a lessee for a period of fewer than 31 days. The surcharge is imposed on the total amount the rental company charges for the machinery rental, it mirrors the existing 3% surcharge on car and truck rentals, and is in addition to any tax otherwise applicable to such a transaction.
On July 25 th, the Internal Revenue Service officials announced the launch of a study to assess the reporting compliance of S corporations. The study, carried out under the National Research Program (NRP), will examine 5,000 randomly selected S corporation returns from tax years 2003 and 2004.
Financial losses attributable to fraud have risen in the last few years. According to the Association of Fraud Examiners, companies lose an average of 6% of annual revenues to fraud, signifying tens of thousands of dollars lost each year. Most fraud occurs slowly and inconspicuously. There are three common categories of fraud that are found within companies, these include asset misappropriation, corruption and fraudulent financial statements.
Business plans serve many functions. But they must all have one thing in common: a practical structure. To that end, these documents typically comprise five parts which are detailed in this article.
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