Legal, Economic, Labor, Banking and Trucking News You Need. Hot Topics content contributed to United Contractors by Associate Committee members.
Economic Recovery to Continue in 2022, stronger in Q1 and Q2.
Economists predict that the overall economy will grow a zesty 4.3% in 2022. Raising the Federal Debt Ceiling and the Infrastructure Bill will significantly and positively impact economic growth and construction activity in 2022. Gains will continue to come from federal economic stimulus efforts and pent-up demand from consumers as employment finally reaches pre-pandemic levels. - Sean Xavier, CNA Surety
Construction Labor Shortage Remains.
Employment growth from recovery will put further pressure on skilled labor shortages in the construction sector for several years to come. Construction currently has over 300,000 unfilled positions in the industry. - Sean Xavier, CNA Surety
Staffing has increased 50-75% since the start of 2022. Candidates are applying for positions in several industries such as Accounting, Finance, Manufacturing, Technology, and Construction. Currently, an average of 5 candidates apply to each open position. Nearly half the workforce prefers remote places over onsite positions. - Marcus Tolibus, Dynamic Office & Accounting Solutions
Protecting Your Business Against Cost Overruns in Litigation
Cost overruns are trending upward in litigation. COVID impacts continue to hinder the performance of contractual obligations. From labor shortages to lack of material to increased costs, the industry continues to operate in an ocean of risk that is hard to control and arguably, hard to anticipate. Contractors should be mindful of the cost escalation, force majeure, and delay provisions within their contracts. Simply having a force majeure clause may not be sufficient. It is important to review the provisions closely, making sure pandemics and other events are specifically included. As COVID continues, it will get harder and harder to argue that its impacts were unforeseeable. This is where cost escalation and delay clauses can prove helpful.
- A percentage increase in labor and materials that allow for a contractor to seek a change order or have the option to cancel the contract.
- Delay provisions that allow for time (and money, if you can get it) when a contractor demonstrates it has been affected by labor shortages, hold-ups in the distribution chain, or a lack of available materials.
- Prioritize timekeeping and records. TIA analysis, critical path analysis, documenting and giving notice of every adverse impact encountered, knowing the notice requirements within your contract, and tracking your costs with all supporting documentation can be the difference between winning and losing a claim. - Karissa L. Fox, Smith, Currie & Hancock LLP
Accounting Rule on Leases to Impact Contractors
A change in accounting rules may impact contractor lending ratios. Starting in 2022, all leases (finance and operating leases) are recorded on the balance sheet as intangible assets, "Right-of-Use" (ROU), and lease liabilities. This is a change from previous rules allowing operating leases such as office, parking, or storage space rental agreements to be treated as rent expenses in the statement of income as payments were made. A potential impact from adopting lease accounting is being out of compliance with certain financial ratio covenants, which contractors may be required to meet under borrowing agreements. - Hiromi Young, Allen Group LLP
Preparing for Possible Tax Changes
While the Build Back Better bill may not pass, the bill did include various tax provisions that may gain traction again in the future. They include and are not limited to increased personal tax rates, 3.8% tax to active pass-through income, QBID limitations, and possible changes in capital gains rates. - Jason Herrera, BFBA.
Interest Rate Hikes Likely, Impact for Contractors
The Federal Reserve Bank ("The Fed”) will likely conduct between three and four rate increases for 2022. The first one could come as early as February. When the Fed raises rates, banks follow suit. Long-term rates, such as mortgage rates, have already inched upwards. This will have a ripple effect on medium-term and short-term rates. Contractors should refinance real estate now, and Line of Credit (LOC) renewal will have new minimum interest rates. - Clinton Pickering, Heritage Bank of Commerce
Materials and Supply Chain Woes with Lines of Credit
Contractors typically cannot invoice for materials until they arrive at the job site and/or are installed. If you purchased those materials with your Line of Credit and are delayed in the supply chain, those materials will become more expensive, cutting into your margin. Material intense jobs will have the most significant impact. - Clinton Pickering, Heritage Bank of Commerce
Improper Planning a Big Risk for Small and Medium Contractors
Among recently published "Top 6 Risk Challenges for Contractors," improper planning was cited as a big cause for significant delays affecting a contractor's bottom line. While not all contractors are architects or engineers, incorrect plans and design issues can cause delays that lead to damages, mounting legal bills, and claims. And with the current distribution delays, it can sometimes take weeks or months to resolve a dispute or error. For small and midsize contractors, who may not have the staff to get the project back on target, improper plans can even lead to termination and lost contracts. It's critical for construction companies of any size — but particularly smaller firms — to invest extra time and energy into ensuring the proper plans are in place to avoid future losses. - Matt Lockie, Liberty Mutual
Used Truck Values Stay High
Used truck values continue to be abnormally high due to a lack of new trucks. Supply is fairly constant in the auction industry for non-compliant and compliant trucks due to most smaller companies' lack of available drivers. They are selling rather than having them sit. We also see many thin-outs and retirements coming about, adding to the supply of used trucks. - Andy Betts, Ritchie Bros/IronPlanet