3 Key Steps for Shifting to Public Works Projects

With the burst housing bubble and tighter private financing guidelines, more and more contractors are considering public works projects as a new source of revenue. On the surface, this seems like a great idea. Talks of a possible federal stimulus package aimed at public works and infrastructure development means there could soon be more government work to go around. But making the shift to prevailing wage jobs takes preparation. Without proper planning, contractors run the risk of underbidding jobs-and, subsequently, losing money-or getting slapped with steep penalties for improper recording keeping. Establishing protocols for certified payroll and AIA progress billings and having solid audit trails for each transaction are vital if you want to succeed in the government-financed construction market.

There are many things you can do to prepare your company for a shift to government work. Following, three key steps are outlined to prepare your company for prevailing wage work. By following these initial first steps, and building on them as you grow your public works portfolio, you will position your company to not only survive the current economic downturn, but thrive when the market conditions improve.

Step No. 1: Get Educated

The first thing you should do is get educated about prevailing wage law. Find out what payroll, accounting and reporting requirements are necessary to meet state and federal regulations. Most states have some information posted on their website, which is a great place to start. But taking a class or workshop from your local industry association or CPA may provide more detailed how-to information.

Don’t be hesitate to hire a consultant to show you the ropes. An up-front consulting investment will often deliver a high return on investment by shortening the learning curve and saving you money down the road. A financial services firm with construction experience, for instance, can assist you in establishing things like a bona-fide fringe benefits program that lowers your taxable employee wages. This can help you control cash flow, lower your bid rate and increase your profit margin.

Your accounting software vendor can also provide a wealth of knowledge and experience around meeting your prevailing wage requirements and should be an integral part of your public works transition team. If the products (or support professionals) can’t address your questions, it’s probably time to upgrade to a more complete, construction-specific solution.

Step No. 2: Automate Your Accounting Processes

Managing prevailing wage jobs using generic accounting software and spreadsheets requires multiple data entry that is both time-consuming and at-risk for human error. “Programs like QuickBooks may be adequate when contractors have a single pay rate and no need for actual labor burden, but if you want to compete for prevailing wage work, you’ll need a more robust accounting program,” said financial consultant, Monte TenEyek. “When you perform public works projects you need to have payroll software that supports multi-rate capabilities and different worker’s compensation rates for different jobs.”

Veronica Calderon, office manager for Ro’s Precise Painting, a commercial painting contractor in California, knows first-hand how challenging it is to stay in compliance without the right software tools. “This seems crazy now,” said Calderon, “but our old software couldn’t handle multiple pay rates. For each employee we would cut a separate paycheck for each job so that our certified payroll report would be accurate. One employee might get five or six paychecks each pay period!”

After upgrading to software with strong certified payroll tools, Calderon couldn’t believe the difference. “We were in shock because certified payroll reporting was so easy and accurate. Plus, we gained checks and balances that keep us from making mistakes. Having the right software makes a world of difference when you’re doing government work.”

TenEyck couldn’t agree more. “Make the decision to put procedures in place before going after prevailing wage work,” he recommends. “If you get solid advice up front, and have construction-specific software in place to automate prevailing wage processes and establish compliance consistency, you’ll have the peace of mind to focus on securing government work.”

Step No. 3: Bid on Projects Based on Your Strengths

On public works projects, the job is awarded to the lowest qualified bidder. And the competition can be tough. Bid too low and you might win the work-but bankrupt your business. Bid too high and you’re wasting your time. “It’s not uncommon to see twenty or thirty contractors bidding on the same public works job,” says TenEyck, “and according to contractors I’ve talked to, they estimate that it costs them $3,000 to bid on a single job.”

Since every contractor bidding on a prevailing wage job has to pay their employees the same rate of pay, the wage itself can’t be your competitive edge. Because of this, it makes sense to identify your strengths before going after projects. What types of projects do you excel at? What’s more, which of your crews perform the fastest? When making the shift to government work, identify the projects that, based on your strengths, will most likely put you in the lowest bidder spot while still turning a profit.

Moving Forward: Cultivating Relationships

After getting educated, automating your accounting processes and modifying your bidding process based on your strengths, you should have a solid foundation for making the shift to public works projects. The next thing you should focus on is building relationships with the people in charge of awarding you jobs.

“Unanswered questions are a barrier to public works projects,” states TenEyck. “If you have lingering questions about a job, you’re probably not going to submit a bid.” Getting to know the director of facilities management at your local university, for example, can be very advantageous. Not only will you have an “in” to discover what work is coming up, but you’ll have a specific contact to call if you have questions about the bidding process.

In the competitive world of public works construction, prevailing wage planning isn’t an option-it’s a necessity. Even if you already perform government work, it’s not a bad idea to revisit your software solution and processes, and consult with a financial planner to modify your fringe benefits structure to take advantage of every possible tax incentive.
 

Construction Business Owner, January 2009