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Background:
The construction industry is highly fragmented, composed of
many different types of companies, including commercial, real estate, and
several smaller niches. The industry constructs everything from office and retail
buildings, hospitals, hotels, schools, prisons, airport terminals, warehouses,
stadiums, and dwellings, to private homes, apartments, and condominiums. Heavy
construction includes roads, bridges, manufacturing plants, and dams.
Most companies specialize in only a few, or just one, type of building construction,
since the demonstrated ability to successfully complete a project is prime criteria
for winning a contract. Within a single project, some contractors may specialize in
"ground up" work (foundation, floors, walls, roof) or in more profitable "finish work"
(interior walls, electrical, painting, plumbing, HVAC.)
In this industry, inflation is measured by three special
indexes, which each company tracks individually by their own expense sheets.
The first one is the Construction Cost Index (CCI), made up of construction
costs and common labor and average wages. The second is the Building Cost Index
(BCI), made up of building costs, skilled labor costs, and average wages. The
last index is the Materials Cost Index (MCI), made up of construction
materials, such as cement, steel, and lumber costs.
Most projects are awarded through one of two types of
contracts: fixed price or cost plus fee. In some cases, a cost-plus-fee
arrangement may include a guaranteed maximum. The
guaranteed maximum cost contracts require the project owner to pay for costs,
materials, and other incidentals up to a maximum amount, after which the
contractor is responsible for additional costs. Under fixed price contracts the
contractor keeps any cost savings that result from the difference between the
total project cost and the projected amount. In the cost-plus-fee scenario, the
owner pays all costs, including the contractor’s fee. The more cost risk the
contractor is willing to assume, the greater the opportunity for profit.
Trends/Challenges and Threats/Opportunities
The contractor faces many exciting opportunities, such as:
Population growth Government spending Infrastructure projects Green construction Specialization Ease of entry New technologies Consolidation Remodeling market
Contractors face threats from the new economy, human
resource issues and others:
Cyclically Project and customer concentration Staffing sophistication and turnover Skilled labor shortages Dependence on seasonal labor Environmental regulations Insurance rates increase Excess supply Cash flow controls
Key Problems Associated
with Construction Businesses
Contractors face a number of problems for
which accounting and consulting services should be considered. Some of the more
significant problems are outlined in the grid below.
| Key
Problems |
Possible
Services Needed |
| Lack of a
skilled labor force Delivery system
challenges—some companies need to determine what they are good at and concentrate on
it
Controlling costs |
- Strategic planning
- Business plan development
- Budgeting
- Operational review
- Contract administration
- Cash flow projections
- Outsourcing accounting services
|
| Technology
consulting
Business continuity |
- Technology analysis and implementation
(review accounting/job costing/ estimating systems)
|
Additional accounting and
consulting services needed by construction contractor clients include:
- Individual and business tax returns
- Financial statements
- Various tax studies such as comparing the
cash vs. accrual method of accounting
- Retirement planning
- Estate planning
- Ratio and trend analysis
- Business valuation
- Cost segregation studies
PKF North America Construction NicheSupport
The firms that focus on the construction niche benefit from
the following PKF North America niche resources:
Availability of specialized training and certification, the
Construction Industry Technician (CIT) program designed by the NAWIC Education Foundation (NEF) and
Clemson University Strategic alliance with the Clemson University Dept. of
Construction Science and Management and access to industry research, industry
insights, and other practical information Annual construction niche program in conjunction with the
AICPA Construction Conference Niche conference calls focusing on significant topics within
the industry A quarterly client newsletter, Dimensions, focusing
on the needs of contractors E-mail distribution lists and threaded discussion forums targeted to
construction. Niche text that is appropriate for use promoting the
firm’s construction expertise in brochures, proposals, on the website, or in
other publications
Recommended Training for
PKF North America Members
To remain competitive in today's environment,
accounting firms need specialized training to provide the best service possible to their
construction clients. PKF North America member firms are dedicated to keeping ahead
of the curve by taking advantage of various training opportunities.
During the initial phase
of getting their construction niche off the ground, one firm invited individual contractors to
come in and talk with them. They learned what concerned the contractors in terms of their
business and the industry at large.
Another firm sends a number of staff to
Fails Management Institute, an industry leader in consulting to
contractors. They follow up with press releases promoting their attendance.
Other training attended by members
include the following:
- Local and national conferences sponsored by
the Association of General Contractors of America
AGC
33 John Carlyle St.
Suite 200
Alexandria, VA 22314
(703)548-3119
http://www.agc.org
- Local and national conferences sponsored by
the AICPA, & local chapter meetings
AICPA
1211 Avenue of the Americas
New York, NY 10036
(212)596-6200
http://www.aicpa.org
- Construction Financial Management
conferences
CFMA
28 Emmons Drive
Suite F-50
Princeton, NJ 08540
(609)452-8000
http://www.cfma.org
- Construction Industry Institute conferences
CII
3208 Red River Street, Suite 300
Austin, TX 78705
(512)471-4319
- Associated Builders & Contractors
ABC
4250 N. Fairfax Drive, 9th Floor
Arlington, VA 22203-1607
(703)812-2000
http://www.abc.org
Find a
PKF North America Member Firm who can meet the special needs of construction contractors.
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