CBO Releases Report on ARRA Impact

This week the Congressional Budget Office (CBO) released its report on the ARRA’s overall impact on employment in the fourth quarter of calendar year 2010.

Using statistical models and information submitted by ARRA grant recipients, the CBO estimates that the ARRA’s policies had these effects during the fourth quarter of calendar year 2010:

Lowered the unemployment rate by between .7 percentage points and and 1.9 percentage points,
Increased the number of people employed by between 1.3 million and 3.5 million, and
Increased the number of full-time-equivalent (FTE) jobs by 1.8 million to 5.0 million compared with what would have occurred otherwise. (Increases in FTE jobs include shifts from part-time to full-time work or overtime and are thus generally larger than increases in the number of employed workers)

The report goes on to say that while recipients of ARRA funds are reporting jobs they and their subcontractors have created, lower-level subcontractors are not included in the reporting.

The Federal Budget and How it Impacts Contractors

It seems every time you turn on the television or go online, someone is discussing federal budgets – how to fund the rest of fiscal year 2011 and how to provide funding for fiscal year 2012. Will there be another continuing resolution? Will the government shut down?

It can be difficult to understand what the real issues are, and how they’ll impact business – especially federal contractors. Here’s a synopsis of the situation with both the 2011 and 2012 budgets and the primary issues related to each.

FY 2011 Budget:

The budget for FY 2011 has never been finalized, so agencies are operating under a continuing resolution.  This first continuing resolution was passed last year with the intention of giving lawmakers more time to determine the final spending bill for 2011. Since passage of the continuing resolution, the government has been funded at FY 2010 spending levels.

Congress recently passed another continuing resolution, which will keep the government operating until March 18, 2011. By that deadline, Congress and the White House must adopt another continuing resolution, now pass a new spending resolution to keep the federal government operating through the end of the fiscal year – September 30, 2011 – or confront the prospect of a government shutdown.

FY 2012 Budget:

President Obama’s budget includes “a five-year freeze on all discretionary spending outside of defense and national security, slowing the growth in the Pentagon budget and eliminating or downsizing 200 programs to achieve $1.1 trillion of deficit savings over the next decade”.

Historically discussion over discretionary spending has focused on “defense” vs. “non-defense”. Now the category has been broadened so the term “security” encompasses not only defense but also homeland security and veterans programs.

While the proposed cap would limit spending, funding for various programs could be increased if cuts are made elsewhere. “Security” programs would not be subject to the cap. These programs are projected to increase over the next several years, but the rate of growth is much lower than in previous years, which means agencies will have less to spend. Overall , the “non-security” cap is projected to save the government an estimated $400 billion over the next ten years, even though the cuts apply to only about 12% of the total budget.

Ramifications:

Federal agencies are delaying programs as lawmakers decide how to proceed with FY 2011. If major cuts are made to the remainder of the 2011 budget, it would most certainly reduce the number of programs awarded over the next 6 months.

If lawmakers cannot agree, within the next two weeks, on a spending bill for the remainder of 2011, or enact another extension, the government will have to shut down. That could have serious implications for federal contractors.

In 2011 and beyond, contractors will continue to face issues concerning cuts or reductions in discretionary spending. In the proposed 2012 budget discretionary funds only represent 35% of the total budget. About 40% of those discretionary funds go towards contracts. Government agencies, especially those conducting “non-security” projects, will have to work with less money than in previous years. Just how much less has yet to be determined. But with the goal of reducing the deficit high on lawmakers’ agendas , discretionary spending will certainly be impacted.

Dramatic Health Insurance Premium Increases Announced in California

A recent article on cnnmoney.com reports that health insurance carrier Blue Shield recently announced plans to increase its rates in California as much as 59%.This announcement has spawned much discussion and controversy regarding sharp premium increases.

In light of these increases, using the fringe benefit portion of prevailing wages to provide benefits for hourly workers makes even more sense from a bottom line perspective. Government contractors who are already using the fringe benefit monies to pay for benefits should make sure they are taking full and proper credit against the fringe to ensure they maximize savings on payroll burden.

You can read the article here.

Many States Scrutinizing Unions

A recent article in the NY Times documents a movement in several states to curb the power of unions, particularly those which represent government workers.

In an effort to trim strained state budgets, many states are looking at government worker salaries and pensions.  The article goes on to say that this effort is afoot in states controlled by both Republican and Democratic governors.  Union representatives are said to be concerned about the spread of right-to-work laws, which forbid employers and unions from requiring workers to join a union or pay any dues or fees to unions to represent them.

Read the entire article here.

US DOL Enforcement Efforts to Focus on Subcontractors

The number of Davis-Bacon investigations in 2010 as compared to 2009 has nearly quadrupled.  The DOL has increased the number of investigators on its staff, and recently indicated that future enforcement efforts would focus on subcontractor compliance.

Since prime contractors are ultimately responsible for ensuring that all subs on a project are in compliance with the Davis-Bacon and Related Acts, this is news that will impact contractors at all tiers of a project.  Prior to using a subcontractor, prime contractors should:

– check the “excluded party list system”, available at epls.gov, to be certain the subcontractor is not listed
– include contract language stipulating that the prime has the right to review all records and to schedule and conduct its own audits

Lower-tier subcontractors should also be informed of their responsibilities to comply with the Davis-Bacon Act.  Penalties for failure to comply with the laws attendant to taxpayer-funded projects can be quite severe, and can even include debarment from working on federal projects for three years.

Using the Federal False Claims Act to Enforce Davis Bacon

An order that government contractor Circle C Construction, LLC pay treble damages to the US Government for breaching its agreement to abide by the Davis-Bacon requirements to pay prevailing wages, in violation of the federal False Claims Act, serves as a harsh warning for government contractors.

Total damages in the judgment against Circle C, a company which has held government contracts for more than 20 years, are $1,661,243,13.  The United States Government filed a lawsuit against Circle C and its electrical subcontractor, Phase Tech, LLC in 2008.  In the lawsuit, the government alleged that Circle C:

• Failed to disclose Phase Tech as a subcontractor;
• Failed to identify any of Phase Tech’s employees; and
• Falsely certified that Circle C and its agents were paying the prevailing wages to employees which were required by the contract.

It’s critical for contractors to list all subcontractors and subcontractor employees when filing reports.  Failure to do so can result in substantial fines, particularly if a lawsuit is filed using the federal False Claims Act.

December = Deadlines

If your plan year is based on the calendar year, several important deadlines are coming up quickly.  December is a busy month for compliance.  Here are some of the dates to watch for:

• 1st – Deadline to send annual 401(k) safe harbor notice
• 6th – Deadline to return HCE questionnaires
• 10th – Deadline for requesting plan amendment to be signed by end of year
• 15th – Extended deadline to distribute Summary Annual Report to participants
• 15th – Deadline for requesting cash outs for the next quarter
• 31st – Deadline for processing ADP refunds with 10% excise tax
• 31st- Deadline to sign any plan amendment for discretionary changes
• 31st -Deadline to sign amendment to convert existing 401(k) plan to a safe harbor 401(k) plan
• 31st – Deadline to sign amendment to remove safe harbor status for the following year
• 31st- Deadline for depositing top heavy employer contributions for prior year

If your plan year is not aligned with the calendar year, contact your plan administrator for adjusted compliance deadlines.

“Missing Two-thirds of the Iceberg”

During a recent webcast sponsored by Reed Construction Data, the Associated General Contractors and the American Institute of Architects, AGC chief economist Ken Simonson cast an interesting light on job creation claims related to work funded by the American Recovery and Investment Act.

“I think we’re missing about 2/3 of the iceberg,” Simonson stated.  “Past studies have shown that only about 1/3 of the jobs created by nonresidential construction are direct jobs that a contractor would know about and report.”  Simonson says many jobs created by stimulus funds are, in his words, “invisible” – meaning they are jobs created for those companies that might supply and/or service government contractors, or “induced” jobs created by increased spending done by construction employees and owners.
If you missed the original webcast, you can still view it online here.

Construction Spending Declines, Proportions Shift

The US Census Bureau recently released figures on construction spending for July 2010. While construction spending overall has declined in the past year, public construction has become a larger share of the construction market.

In the past year, construction declined approximately 12%, a seasonally adjusted decrease from $901 billion to $805 billion. Spending on private construction declined 14%, from $577 billion to $506 billion, and it now makes up a slightly smaller percentage of total construction when compared to a year ago.

Public construction spending, however, declined only 8% in the past year, dropping from $324 billion to $299 billion and currently comprises a greater share of total construction spending. When looking at construction spending over the past five years, this trend is even more noticeable, as public construction made up only 20% of total construction in 2005 and now accounts for 37% of all construction.

In spite of the overall decline in construction spending, there are some areas which are actually growing. In particular, sewage and waste disposal, water supply, and conservation and development are all on the increase, collectively increasing 9% over last year and making up $48 billion in spending.

Retirement Funds – The Big Picture

One of the factors employers consider when choosing a retirement plan provider is the fees which are charged. Of course this is important – but it should never be the only consideration.

How beneficial is it for you and  your employees to pay low fees for funds which are poorly managed and don’t perform?  It’s kind of like buying a car because it has the lowest price – and then finding out it has many problems which end up costing you more in the long run.

It’s true that past fund performance is not a predictor of future returns. However, funds which have historically been well-managed are generally more likely to continue along that same path.  At The Contractors Plan we are proud to offer funds managed by an advisor with a proven track record during challenging market conditions as well as robust economic times.

Many financial analysts have referred to the past ten years as a “lost decade” for stocks.  A report recently released by Manning & Napier Advisors shows that Manning & Napier Pro-Mix Collective Investment Trust Funds far outperformed a representative benchma rk and yielded double-digit positive returns, as compared to a negative return for the ma rk et (as represented by  the S&P).  A study of cumulative returns from January 1, 2000 through December 31, 2009 demonstrates how  Manning & Napier’s active asset allocation approach benefits investors regardless of whether the markets are in bull or bear phase.

At The Contractors Plan, we work hard to offer our clients quality choices within their prevailing wage benefit plans.  When evaluating potential benefits plan providers, be sure to look at the big picture.