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Features Industry Insight Tips & Advice

Construction Forecasting: Developing and Maintaining a Project Budget

In 2015, KPMG reported that 31% of construction projects come within 10% of the budget. And it seems the bigger the project, the worse the financial uncertainty. In 2016, McKinsey reported that 80% of large projects go over budget. The research shows that contractors and owners are struggling to maintain their budgets throughout their projects. Forecasting costs has only become even more difficult in the last couple of years, due to the global pandemic and supply chain issues. 

Knowing how to build a project budget and manage it over the life of a project is a skill that can be learned.

Here are some tips we have gathered to help.  

Developing a project budget 

Developing a project budget begins with a clear and complete scope of work. You must have a clear picture of what needs to be done and when it needs to be done before you can price the work. Talk to the owner about their project and get as many details as possible about the work and their schedule. 

Using the description gathered from the project owner, develop a breakdown of the work that needs to be completed, also called a work breakdown structure or WBS. A WBS breaks the work down into small, manageable, quantifiable scopes of work. For example, installing drywall. A WBS helps in both budgeting and scheduling work because each task and can be quantified for cost and time. 

Based on your conversations with the project owner, you should be able to establish milestones in the schedule that have to be met. These may include equipment delivery dates or occupancy. Establish key performance indicators (KPIs) that let you know if you are meeting both the owner’s and your own milestones. For example, you may have profit goals or productivity targets that you must meet for the project to be successful. Defining these ahead of time will help you assess the project’s success as it progresses, not just at the end. 

When developing the project schedule and budget, provide an optimistic view, a pessimistic view, and a most likely scenario. Leave some room for changes and added work. By analyzing these three schedules and budgets, you can assess the probability that you will meet your goals ahead of time and start to plan for potential issues before they come up. 

Maintaining the project budget 

A project budget should be a living document that changes as the project progresses. Added work, scope changes, and schedule delays often affect the schedule as a project moves on. Project managers can use several methods to forecast costs to complete the work. They include using a work breakdown structure, using Excel formats, third-party templates, and construction software. 

Some contractors use the list or work breakdown structure method to estimate their projects and forecast future costs. This technique involves listing all the work that needs to be performed and breaking it down into manageable tasks, like WBS. Then each of these tasks is budgeted, scheduled, and tracked throughout the project. While this technique may work for smaller simpler projects, it can easily get unmanageable on larger construction projects. 

The next step up from a written list is using Excel templates to manage costs, schedules, and other information. Excel spreadsheets have been used to track costs, schedules, daily reports, budgets, and much more. If you have not developed your own forms, many are available on the internet. The problem with excel spreadsheets is that they are not connected, and not tailored to construction. 

Some companies rely on templates and use them to track all correspondence and data for their projects. These templates are created by third-party companies and not customized for a specific project or scope. Again, they are not connected, and the data is not centrally located. 

The most modern way to track and maintain a project budget is using construction software. Today’s software is available in ERP (Enterprise Resource Planning) and all-in-one solutions that combine project management, actual costs, commitments, unanticipated costs, budgets, and communication together, where everything is in one place. They tie together estimating, job costing, timekeeping, communication, and financials. Using this information, project managers can more effectively forecast productivity and costs, providing a more accurate picture of where they will finish on the job and ensuring they are not caught with any surprises. They can review historical information and easily dive into the month-to-month variances to better understand the current budget and estimate at completion. 

Keys to better forecasting

  1. Get real-time data

When project managers try to forecast monthly, they often make mistakes if the accounting and job costing is not integrated into one software solution. Working with multiple software applications makes it difficult to compile the data taking several days or even weeks, leaving the Project Manager no choice but to base their forecasts on lagging information. Worst of all, they cannot trust the data to make accurate and informed decisions.  

Today’s financial construction software offers real-time data that automatically calculates the estimate at completion. This way you can easily compare your original estimate, current estimate, and estimate at completion. Software solutions offer great lock features allowing you to freeze the original estimate and forecasting period, forcing your team to properly enter any change orders in the correct period to record any movement on the job. This way, each month you can easily review the variances and see why the budget has moved.  

  1. Communicate

There is no substitute for continuous communication between contractors, owners, and design team members. When everyone is on the same page there are fewer hidden costs. Software solutions offer simple, integrated ways for team members to communicate in real-time about issues, change orders, and any concerns. With software introducing new and faster ways to approve and electronically sign off on commitments, ap invoices, and change orders, it ensures the estimate at completion is up to date and accurate. Members can easily approve, mark-up, decline, or reject key documents instantly. The ability to see what is outstanding and ensure you have your internal processes optimized to provide open, instant feedback, makes forecasting much simpler and more accurate. 

  1. Integrate systems

It’s time to say goodbye to disconnected excel spreadsheets. With real-time data, it makes it easy for a project manager to easily adjust the EAC using anticipated costs and make more informed decisions as to where the budget will end up. 

When systems are separated from each other due to the lack of software integration, time can be lost spent pulling information from multiple sources and compiling it into comprehensive reports. Teams need integrated data at their fingertips so they can act proactively view actual costs, commitments, change orders, pending items, etc. Using an ERP or all-in-one software financial construction solution provides project managers a macro and micro-overview of the budget as they can easily drill down into all the details waiting for other departments to provide information or for spreadsheets to be updated. 

  1. Automate

Saving time saves money. The more teams can automate daily data-entry tasks, the more time they can spend actively managing the work and proactively reviewing the high-risk itemsSo much time is being wasted on chasing down subcontractors, manually approving AP invoices, trying to collect signatures, and rekeying data from emails. An inefficient system makes it difficult for PMs to find the time to properly forecast. With proper construction financial software, the most time-consuming and complex tasks can be automated to save you valuable time and ensure you can scale the business without having to add more overhead. Best of all, you can start trusting your data and gain better financial control of your jobs and business.  

If you are ready to step up your forecasting game, look no further than Premier Construction Software. We have an easy-to-use financial construction software solution that will help manage your project from beginning to completion.  Get in touch with our team to schedule a demo today!Author Biography:

Dawn Killough is a construction writer with over 20 years of experience with construction payments, from the perspectives of subcontractors and general contractors. Dawn has held roles such as a staff accountant, green building advisor, project assistant, and contract administrator.  Her work for general contractors, design firms, and subcontractors has even led to the publication of blogs on several construction tech websites and her book, Green Building Design 101.

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Accounting Features Tips & Advice

Filing 2020 1099-NEC Forms in Premier

For tax years prior to 2020, companies were required to file a 1099-MISC form for any nonemployee compensation paid out to subcontractors for any amount over $600. This year the Internal Revenue Service (IRS) has created a new form to be filed, the 1099-NEC which is specifically used for nonemployee compensation.

This article is designed to explain how Premier can streamline reporting, as well as provide updates on the new form implemented by the IRS.

What is Non-Employee Compensation? 

Per the IRS, if the four conditions are met, you likely will need to report payments as Non-Employee Compensation:

  1. You made a payment to someone who is not your employee.
  2. You made a payment for services in the normal course of your trade or business (including government agencies and non-profit organizations).
  3. You made the payment to an individual, partnership, estate, or a corporation.
  4. You made payments to the payee of at least $600 during the year.

What Changed from 2019 to 2020 ?

For the tax years starting after 2020, the IRS has decided to bring back form 1099-NEC. In tax years prior to 2020, the filing deadline for NEC on the 1099-MISC 2019 Form was still January 31, for any amounts in Box 7 which related to non-employee compensation. This has been done to streamline and simplify the process given the different dead lines for each form. Now all items which would have previously been reported in Box 7 of the 2019 1099-MISC will instead be recorded in Box 1 of the 1099-NEC.

Extensions for Form 1099-NEC reporting Nonemployee Compensation can only be requested as a non-automatic 30-day extension of time and must be filed on paper using Form 8809.

Is its important to note per the IRS publication, that the 1099-NEC form is not part of the Combined Federal/State Filing (CF/SF) Program. This means you must file a separate form directly with the state.  Form 1099-MISC can continue to be filed with the CF/SF Program.

Although the forms have changed, it is important to note both forms are intended for trade or business reporting only and not related to personal payments. The 1099-NEC is strictly for reporting independent contractor payments exceeding $600 in the year.

How Premier Streamlines Your Report

Premier has specialized forms that allow you to directly print on your IRS Submission forms! This saves you valuable time by automatically generating your 1099-NEC’s. In Premier, simply select the 2020 – 1099-NEC Default Form to print directly on the IRS Forms. In Premier, you are also able to print completed forms directly on blank paper for State tax department forms (Copy 1), recipient tax forms (Copy 2 to file with taxes and Copy B for records), and your own personal copy (Copy C). Premier allows you to automatically generate your annual information for each independent contractor including their address, tax identification number (TIN) and total non- employee compensation paid out, including applicable taxes.

Premier also has the capability to file online directly with the IRS! You are required to have  Please note if you have over 200 1099-NEC’s to file, you must efile your forms with the IRS.

What should be reported on 1099-NEC?

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Box 1 Non-Employee Compensation:

  • Must report payments to independent contractors
  • Payments for working interests for oil and gas payments
  • Prizes and awards for services performed by nonemployees
  • Termination payments to former self-employed insurance salespeople if certain criteria are not met (see IRS for details)
  • All payments made to a corporation that provides legal services i.e. the attorney fees must be reported (note settlement payments for contracts are to be included in 1099-MISC box 10)

When reporting taxes on 1099-NEC, it is important to note that if you have paid state or local taxes on the amounts paid to a nonemployee, the amounts you have paid must be included in Box 1.

Some examples from the IRS of what should be included in Box 1 include the following:

  • Professional service fees, such as fees to attorneys (including corporations), accountants, architects, contractors, engineers, etc.
  • Fees paid by one professional to another, such as fee-splitting or referral fees.
  • Payments by attorneys to witnesses or experts in legal adjudication.
  • Payment for services, including payment for parts or materials used to perform the services if supplying the parts or materials was incidental to providing the service.
  • A fee paid to a nonemployee, including an independent contractor, or travel reimbursement for which the nonemployee did not account to the payer, if the fee and reimbursement total at least $600.
  • Exchanges of services between individuals in the course of their trades or businesses, such as a barter transaction.
  • Taxable fringe benefits for nonemployees, such as transit passes and parking passes which exceed $21 in a month. The value of parking may be excludable from an independent contractor’s gross income, and, therefore, not reportable on Form 1099-NEC if certain requirements are met

Box 4: Federal withholding taxes

For the majority of all 1099-NEC’s filed, this is may be non-applicable. There are only certain conditions that the IRS may mandate that withholding taxes be held back. The most likely scenario to occur which requires withholding is :

  • The recipient fails to provide their TIN to you
  • The IRS notifies you to impose backup withholding because the recipient provided an incorrect TIN

Box 5 to 7: State or local sales taxes

According to the IRS, these boxes are provided for your convenience and do not need to be completed.

Who is responsible to file?

If you make a payment on behalf of another person using their funds, you may be responsible for filing Form 1099-NEC.  In addition, if you make payments directly and even if you provide management oversight for the issuance of payments you are responsible for filing information returns for payments of $600 or more paid to contractors. Please note, if the independent contractor is registered as a C corporation or S corporation, a 1099-NEC will not be required.

IRS Deadlines

It is important to note the filing deadlines differ between the two forms. The deadline to file Form 1099-NEC using either paper or electronic filing with the IRS is on or before February 1, 2021 (note January 31, 2021 is a Sunday).

However, this is different for Form 1099-MISC. Paper filings for 1099-MISC must by filed by March 1, 2021 (note February 28, 2021 is a Sunday), but electronic filings must be completed on or before March 31, 2021.

Deadlines for Statement to Recipients

Regardless of whether you are filing Form 1099-NEC or 1099-MISC, all recipients must be provided their copy of their respective form by January 31. One exception is amounts reported in Box 8 or 14 of  Form 1099-MISC are due by February 15.

For detailed instructions please visit the IRS site for Instructions for Forms 1099-MISC and 1099-NEC (2020).

To learn more about Premier Construction Software can help you streamline your business, schedule a free demonstration with our sales team here

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Features Tips & Advice

How to manage RFIs to increase the success of your construction projects

We have all heard the saying time is money. This especially holds true in the construction industry where one small setback has the ability to derail an entire project off course, both financially and time wise.

Requests for information, or more commonly known as RFIs, are more than just inquiries about a current project. They are a formal written process that documents the clarification of plans, drawings, specifications and agreements between contractors, designer, supplier, subcontractors etc. It can be used to discuss construction items, timing and schedule, design change or clarification, change in process, omissions in specs or plans, material change, value engineering, utility conflict and or any other issues.

RFIs are a project management tracking tool to keep all these documents traced and recorded for both legal and organizational purposes so you can build correctly and deliver high-quality projects on time and on budget.

However, when it comes to managing RFIs, many construction businesses struggle to do so effectively. There can be hundreds of pending RFIs and if there isn’t a process in place to manage them, information might be missed, or documents might end up lost.

With the help of construction management software, this process has become a lot easier for construction businesses to control. To fully optimize your process, here are a few best practices to keep in mind.

Best practices for sending an RFI in construction management software

  • Before sending an RFI, you should be able to answer the 5 W’s & H.
    • Who will be impacted and who should be involved?
    • What is the issue and what tasks must be completed?
    • Where on the job site/drawings/is the budget impacted?
    • Why is this important- is there a time, cost or legal implication?
    • When is the response required and when are the impacted parties to be informed by?
    • How will the issue be resolved? How are you proposing it be resolved? How does this impact the job? Is there a change order, budget transfer etc.
  • Provide enough detail. If there is not enough information this can cause confusion and delay the project, as more time will be required for clarification. Avoid vague and generic comments and clearly identify the issue or inquiry that must be resolved. Provide some background information but ensure you only include relevant facts that pertain to the question you have asked.
  • Provide relevant documentation such as images, drawings or other documentation. Do not include unnecessary documents or information as this can confuse the recipient.
  • To avoid further delays, send requests as soon as you discover the need for additional information so this way, you have all the supporting documents. 
  • Limit each RFI to 1 topic. This will prevent questions from slipping through the cracks. If there is information overload and too many topics in the RFI there is a risk that no answer will be received and the project could become delayed.
  • When choosing recipients to include, ensure you are not including the wrong person. Only those who are directly involved should be included. This means anyone who was not involved or will not be impacted by the request should be excluded to avoid confusion.

There may be scenarios when you receive an RFI such as when you’re working with subcontractors. It’s important that you also respond accordingly to ensure there are no confusions or delays.

Tips for responding to RFIs in construction project management software

  • Always provide a definitive response and leave nothing to interpretation. When multiple options are presented there is a risk that different approaches will be followed by multiple recipients. Clearly state your recommendation I.e. use clear verbiage such as “We will paint the room blue”, instead of “We can paint the room red or blue. I like blue”.
  • Do not guess at what the issuer is trying to ask. Ensure you research the issue or ask relevant questions via a documented email. Verbal conversations are okay, but bear in mind paper trails such as emails between recipients can hold more credibility in case of a dispute.
  • Respond in a timely fashion. The rule of thumb is to respond back within a week. The longer the questions go unanswered, the bigger chance of delay.

Managing RFIs in Premier Construction Software

subcontractor completing an RFI using Premier's RFI request portalPremier Construction Software makes it easier than ever for construction companies to manage RFIs all from one platform.  Premier allows you to create RFIs, track responses, and view all applicable RFI’s for specific jobs.

By sending emails directly from the software, Premier helps minimize the no-response rate which is a likely cause of disputes in contracts. You can efficiently and conveniently track who you have received responses from and send reminder emails to those who have not. The system will automatically update the status of the RFI once the user responds. Users also have the option to manually add responses that could have taken place verbally over the phone. 

Premier also offers the flexibility to attach documents and drawings to RFIs. This ensures everyone involved has the information required to effectively make a decision and no documents are lost. For a quick audit on the status of all RFIs, users can easily generate reports for different jobs to review outstanding responses, and address pending items as quickly as possible to help avoid delays.

To learn more about Premier Construction Software and how it can improve your RFI process, get in touch with us today.

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Features

Stay Organized with Document Management

To be organized in business is to take forward previous experiences; to anticipate the unexpected; and to be prepared for what is to come. It’s no secret that this is also a recipe for success. To be organized may not guarantee success, but it makes achieving it much more attainable.

In construction, organization means having everything you need from contracts, drawings, emails, photos, compliances and even receipts when and where you need them, no matter the job site.

Whether building from the ground-up, or interior builds, a construction firm requires so much more than just the tools of the trade to be successful. It requires an organizational system that keeps everything from administrative documents to inspection reports, customer reports, invoices, contracts, change orders, estimates and so much more, in one place that can be accessed anywhere, at any time – in the office or on any given job site – via the Internet.

This integral document management system is available with the Premier Construction Software.

 

Fast and at Your Fingertips

For MAX Construction Inc., a full-service tenant finish general contractor company in Denver, CO, Premier’s document management has become a primary tool in day-to-day operations and a “one stop shop for all company data”.

Alex Szollosi, President of MAX Construction, has developed a complete system of 24 folders per project that ensures all files are ready when required—before, during and after a project—using Premier’s document management system.

The document management folder, what I like about it, is that it offers us the ability to store everything on the job in one location. We are using one product and we are finding everything we need – whether it’s accounting or project management.

Equally as important as ensuring that PM’s have real-time reports, Premier’s document management provides immediate access to anything required for a project, and even date stamps and tracks full version control.

“The flexibility of being able to create your own folders makes it one of my favorite features. The unlimited storage is not offered by many competitors”.

 

Efficiency & Focus

Staying organized is key to the success of a job. So is staying focused. Being able to access files wherever and whenever, from any device keeps projects moving forward. Things do not get held up because you’re waiting on paperwork, approvals or signatures. Everything is automated and real-time. All documents generated from Premier automatically tag and index saving you time. Users can easily drag and drop any outside documents including legal, HR, certifications, resume, emails, bids etc. Best of all, you can secure folders and share any documents with external users such as customers or investors.

It’s a product that any contractor who has a lot of work would want to use because they don’t have to go searching through file cabinets, or run down to storage lockers for drawings to have to reactivate a job. With Premier I have all that information in front of me.

Centralize all of your company’s content. Make it available anytime, on any device. And have unlimited use and storage. That’s what the document management feature in Premier Construction Software provides. And that — is a recipe for success.

 

For more information on Premier Construction Software and to speak to a representative, click here.