kreischer miller architecture/engingeering industry seminar - october 10, 2012

Architecture/Engineering Industry Seminar Wednesday, October 10, 2012

KREISCHER MILLER ARCHITECTURE/ENGINEERING INDUSTRY SEMINAR

OCTOBER 10, 2012

TABLE OF CONTENTS Topics Page National Compensation Matrix .................................................................................. 1

What is it? ......................................................................................................... 3 What is it for? ................................................................................................... 6 How is it used? ................................................................................................ 6 How does it compare? .................................................................................... 7

Benchmarking ............................................................................................................. 13

Key definitions used in the ratios ............................................................... 15 Respondent information ............................................................................... 15 What happened to the trends in 2011 ......................................................... 17 History of some key ratios ........................................................................... 18 Common sized balance sheet ....................................................................... 21 Key reports used by professional service companies

- Sample Kreischer Miller Reports .................................................... 21

Tax update and issues ................................................................................................ 25

Overview of expiring tax cuts - New tax law/What is on the horizon? ........................................... 26

Domestic production activities deduction overview ............................... 32

Mechanics’ lien rights for architects and engineers in Pennsylvania and New Jersey ......................................................................... 37

Mechanics Liens in PA .................................................................................. 38 Mechanics Liens in New Jersey ................................................................... 42

Inbound Marketing (Web-based presentation)

Presenter Profiles ........................................................................................................ 47

P r e s e n t e d b y :

Craig B. Evans, CPA Manager

NATIONAL COMPENSATION

MATRIX

1

L e a r n i n g O b j e c t i v e s

• Learners will become familiar with what the National Compensation Matrix is

• Learners will become familiar with the purpose of the National Compensation Matrix

• Learners will become familiar with how to use the National Compensation Matrix

• Learners will gain an understanding of the differences between reasonable salary under the National Compensation Matrix and the ERI Median plus 10%

www.kmco.com

C o n t e n t s

• What is it?

• What’s it for?

• How it’s used

• How it compares

www.kmco.com

2

W h a t i s i t ?

Excel-based tool for determining reasonable compensation

• Released May 2012

• NCM 2012 is to be used for December 31, 2011 year-ends

• NCM 2013 expected to be released earlier so it can be incorporated for overhead rates typically due by June 30.

www.kmco.com

W h a t i s i t ?

Tool, continued

• Developed using a mix of survey data

• That means…• NO taking the results of this and combining with ERI

• Mutually exclusive

• HOWEVER you can use your own compensation studies

www.kmco.com

3

W h a t i s i t ?

Tool, continued

• Does not incorporate geographic differentials

• That means…• NO differentiation for wages across the nation

• This may be incorporated into future versions of the NCM

• Impact…• Those firms in Harrisburg (~ 7% less) may benefit

• Those firms in Philadelphia may not (depending upon your firm’s percentile)

• We’ll compare to Philadelphia a little later on

www.kmco.com

W h a t i s i t ?

Tool, continued

• Does not incorporate an allowance for unallowable costs

• That means…• Prior to determining whether your compensation is

reasonable in comparison to NCM, you must eliminate unallowable costs

• Distributions of profits

• Time spent on advertising

• Lobbying

• Entertainment

• Charitable activities

www.kmco.com

4

W h a t i s i t ?

Tool, continued

• Does incorporate a retirement contribution (DC plans only)

• Does incorporate a range of reasonableness

• Based on statistical analysis and standard deviation• That means…

• Set $ amount vs. set % (i.e. ERI median plus 10%)

• Let’s do a quick example.

www.kmco.com

W h a t i s i t ?

Tool, continued

• Incorporates the following positions for firms ranging from $1 million to $500 million:

• Chairman (non-CEO)

• CEO/President

• Executive Vice President/COO

• Senior Vice President

• Vice President

• CFO

• Top Engineering Executive

• HR Director

• Director of Business Development

www.kmco.com

5

W h a t ’ s i t f o r ?

Determining Reasonable Compensation

• Compliance with FAR 31.205-6

• Chapter 7 of the AASHTO Guide

• Engineering consultants are responsible for demonstrating compliance

• Compensation costs are reasonable and allowable• Remember the statutory cap of $763,029 for 2011

• Can either:• Prepare a compensation analysis

• Use the NCM

• Promotes consistency

www.kmco.com

H o w i t ’ s u s e d

http://audit.transportation.org/Documents/2012_National_Compensation_Matrix(FINAL%205-7-12).xls

• Let’s walk through the Excel

www.kmco.com

6

H o w i t c o m p a r e s

www.kmco.com

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$1 $5 $10 $20 $25 $50 $75 $100 $200 $250 $500

Salary

Revenue (millions)

ERI Median plus 10% vs. NCM for Chairman (non-CEO)

ERI

NCM


www.kmco.com

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

$900,000

$1 $5 $10 $20 $25 $50 $75 $100 $200 $250 $500

Salary

Revenue (millions)

ERI Median plus 10% vs. NCM for CEO/President

ERI

NCM

7


www.kmco.com

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$1 $5 $10 $20 $25 $50 $75 $100 $200 $250 $500

Salary

Revenue (millions)

ERI Median plus 10% vs. NCM for EVP/COO

ERI

NCM


www.kmco.com

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000

$1 $5 $10 $20 $25 $50 $75 $100 $200 $250 $500

Salary

Revenue (millions)

ERI Median plus 10% vs. NCM for Senior Vice President

ERI

NCM

8


www.kmco.com

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$1 $5 $10 $20 $25 $50 $75 $100 $200 $250 $500

Salary

Revenue (millions)

ERI Median plus 10% vs. NCM for Vice President

ERI

NCM


www.kmco.com

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000

$1 $5 $10 $20 $25 $50 $75 $100 $200 $250 $500

Salary

Revenue (millions)

ERI Median plus 10% vs. NCM for Chief Financial Officer

ERI

NCM

9


www.kmco.com

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$1 $5 $10 $20 $25 $50 $75 $100 $200 $250 $500

Salary

Revenue (millions)

ERI Median plus 10% vs. NCM for Top Engineering Executive

ERI

NCM


www.kmco.com

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$1 $5 $10 $20 $25 $50 $75 $100 $200 $250 $500

Salary

Revenue (millions)

ERI Median plus 10% vs. NCM for Human Resources Director

ERI

NCM

10


www.kmco.com

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$1 $5 $10 $20 $25 $50 $75 $100 $200 $250 $500

Salary

Revenue (millions)

ERI Median plus 10% vs. NCM for Director of Business Development

ERI

NCM

S u m m a r y

• Learners became familiar with what the National Compensation Matrix is

• Learners became familiar with the purpose of the National Compensation Matrix

• Learners became familiar with how to use the National Compensation Matrix

• Learners gained an understanding of the differences between reasonable salary under the National Compensation Matrix and the ERI Median plus 10%

www.kmco.com

11


David E. Shaffer, CPA Director

BENCHMARKING

13

L e a r n i n g O b j e c t i v e s

Learners will become familiar with key ratios of professional service firms

Learners will become familiar with the definition of terms used in the computation of different ratios

Learners will understand the recent trends of A&E firms

Learners will get example reports of key ratios that our managers and directors look at weekly/monthly

www.kmco.com

C o n t e n t s

Key definitions used in the ratios

Respondent information

What happened to the trends in 2011

History of some key ratios

Common sized balance sheet

Key reports used by professional service companies- Sample Kreischer Miller Reports

www.kmco.com

14

K e y D e f i n i t i o n s U s e d i n t h e R a t i o s

Median values: are the midpoint of the values versus the mean which is the average. In most cases, the median values have been used to eliminate the extreme values in the database.

ODC’s: Other direct costs such as mileage, printing, etc.

Net Revenues: Total revenues less subcontractors and ODC’s

Technical Staff: Those charging over 50% of their total time to projects

www.kmco.com

P S M J R e s p o n d e n t s

Respondents by Size of Firm

www.kmco.com

1 to 20 (52) 21 to 50 (61)

51 to 100 (50) 101 to 200 (36)

201 to 350 (21) 351 to 750 (15)

over 750 (5)

15


By Firm Type

www.kmco.com

Architectural 30

Architectural/Interiors 27

Interior Design 1

Engineering (Prime) 93

Engineering (Subconsultant) 36

Engineering (Survey) 12

Architecture/Engineering (orE/A) 16

A/E/P/I (full-service design) 12

Landscape Architecture 3

Construction Management 2

Other 8

www.kmco.com


Source of Revenue Number Percentage

Private Sector 108 45%

Government Sector 72 30%

Mixed 60 25%

16

B i g P i c t u r e R e s u l t s

The net multiplier achieved increased to 3.04, but still remains below 2008’s all-time high of 3.09. This indicates that the financial performance of project activities improved over the past year.

Operating profits (before incentive/bonuses and taxes) as a percentage of net revenues decreased 6% to 9.31%.

Gross revenues increased 3% this year versus no growth last year and 7.0% decrease reported in 2009.

Backlogs grew last year, indicating a 4% increase for the median firm. Nearly all firms indicated a shrinking backlog of booked business at the end of 2009.

Balance sheets are getting stronger – most everyone repaying debt

www.kmco.com

B i g P i c t u r e R e s u l t s

This year’s results indicate no growth in staff size, this is a significant improvement from the 7.5% decrease reported in 2010 and the 1.1% decrease reported last year.

Overhead rates held relatively steady at 168.42, a slight 1% increase above the 2011 report. While last year’s results reversed an upward trend, these rates remain at record highs. Although this year’s rate increased slightly, we expect the very slow movement toward economic recovery to result in continued emphasis on reducing or stabilizing overhead costs.

www.kmco.com

17

www.kmco.com

K e y R a t i o C o m p a r i s o n s o f 2 0 11 t o 2 0 1 0

2010 2011 %

Net Revenues per Total Staff $117,474.00 $119,410.00 2.0%

Net Revenues per DL Hour $94.69 $100.32 6.0%

DL Costs per DL Hour $30.99 $31.31 1.0%

Total Costs per DL Hour $86.06 $88.73 3.0%

Equity per Total Staff $19,866.00 $22,249.00 12.0%

Operating Profit (Net Revenues) 9.86% 9.31% -6.0%

OH Rate (Before Bonus) 166.41% 168.42% 1.0%

Chargeability (Payroll Dollars) 58.50% 58.40% 0.2%

www.kmco.com

K e y R a t i o C o m p a r i s o n s o f 2 0 11 t o 2 0 1 0

2010 2011 %

Backlog Change 1.0% 4.0%

Gross Revenues Change 0.0% 3.0%

Staff Size Change -1.1% 0.0%

Net Direct Labor Multiplier achieved 2.98 3.04% 2%

Average Work-in-Process Days 22.88 25.48 11%

Average Collection Dates 67.96 70.27 3%

2012 PSMJ A/E Financial Performance Benchmark Survey

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H i g h l i g h t s

Net direct labor multiplier achieved increased slightly (about 2%) to a reported level of 3.04 (median). The performance ranged from 2.74 (25th percentile) to 3.40 (75th percentile). This indicates that high-performing firms continue to achieve much more profitable project results than some of their counterparts.

Backlog increased 4% in 2011. Gross revenues increased 3% compared to reductions in 2010 and 2009. While this small increase is markedly better than the last few years, it continues to reflect slow recovery and ongoing uncertainty in the economy.

Firms were successful in increasing prices in 2011 while maintaining salary increases at a lower rate.

www.kmco.com

H i g h l i g h t s

The turnover rate decreased to 11.5%, significantly below the 15.9% reported in the 2010 survey. This rate, which reflects all types of terminations (resignations, layoffs, retirements, etc.), peaked in 2000 at 18.1%. In times of rapid expansion, turnover rates increased to over 20%, due to employees being enticed to move to other firms. Anticipation of the recent economic downturn and forced cutbacks once the full impact of the recession hit the industry may have been influential in pushing turnover rates upward over the past few years. However, with significant decreases for the past two years, the rate has reached a 25-year low.

www.kmco.com

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H i g h l i g h t s

www.kmco.com

One area of concern is the relatively low level of contributions to both mandatory and discretionary retirement plans. Total retirement plan funding is only 2.1% (median) of total payroll, a level well below other industries. Typical retirement funding levels in other industries are 7% to 15% of payroll.

Balance sheet:

Current ratio is 2.51which is an improvement over 2010

Total equity per staff member is $22,249

www.kmco.com

D i r e c t L a b o r H o u r s

Direct Labor Hours Per:Lower

QuartileMedianQuartile

MeanQuartile

UpperQuartile

Technical Staff Ratio 1,370 1,537 1,549 1,734

Total Staff Ratio 1,098 1,225 1,238 1,363

Project Manager Ratio 3,590 5157 6,936 7,661

Partner/Principal Ratio 5,971 9,567 12,904 16,298

20

www.kmco.com

S t a f f i n g S i z e

Technical Staff Ratio to:Lower

QuartileMedianQuartile

MeanQuartile

UpperQuartile

Non-Technical Staff Ratio 2.90 4.03 4.45 5.81

Project Managers Ratio 2.33 3.35 4.04 4.84

Partners/Principals Ratio 4.29 6.34 8.46 11.12

www.kmco.com

C o m m o n S i z e d B a l a n c e d S h e e t

Median Mean

Cash 7.5% 12.0%

Accounts Receivable 47.8% 47.1%

Work in Process 11.9% 12.0%

Other Current Assets 4.2% 4.8%

Total Current Assets 78.7% 75.1%

Fixed Assets 6.7% 11.3%

Other Assets 2.6% 3.5%

Total Assets 100.0% 100.0%

21

www.kmco.com

C o m m o n S i z e d B a l a n c e d S h e e t

Liabilities Median Mean

Accounts Payable 7.4 8.9

Deferred Taxes 2.7 7.3

Line of Credit Borrowing 4.4 7.9

Current Portion of Long Term Debt 1.7 2.5

Other Current Liabilities 8.5 10.1

Total Current Liabilities 34.9% 34.2

Long-Term Portion of Debt 5.0 8.0

Other Liabilities 2.8 5.1

Total Liabilities 45.9% 43.5

Total Equity 46.7% 42.4

Total Liabilities and Equity 100.5% 100.0%

We e k l y R e p o r t

www.kmco.com

Billable hours per director, manager, senior, and staff for the week, month to date, and year to date – all compared to prior totals

Total production in $ compared to prior year.

Current billing per director, gross and net.

Gross production per billable hour compared to prior year.

Cash position, including debt, compared to prior year.

Total accounts receivable and work in process compared to prior year. Director reports are available for everyone to see.

22

M o n t h l y R e p o r t s

www.kmco.com

Director performance report:

Gross production compared to prior year

Net production $ and percentage

Aged AR and WIP per director

Total WIP and AR as a percentage of total production

Billable hours compared to prior year

Production per billable hour

3 year realization history per director per client

Have similar reports for each manager

S u m m a r y

www.kmco.com

23


Kevin McGinn, CPAManager

TAX UPDATE ANDISSUES

25

Agenda

Overview of expiring tax cuts

New tax law/What is on the horizon?

Domestic Production Activities Deduction Overview

Questions & Answers

Bonus Depreciation

Eligibility - overview

2011 – 100%

2012 – 50%

2013 – 0%

26

Section 179

Eligibility - overview

2011 – $500,000 - $2,000,000 investment cap

2012 - $125,000 – $500,000 investment cap

2013 - $25,000 – $200,000 investment cap

Income Tax Rates

The current 10, 15, 25, 28, 33 and 35 percent rate structure is set to be replaced by the 15, 28, 31, 36 and 39.6 percent levels.

27

Capital Gains

Absent Congressional action capital gains will increase significantly after 2012.

Current rates are 0% for taxpayers in the 10% and 15% brackets and 15% for all others.

Set to increase to 10% for taxpayers in the 15% bracket and 20% for all others.

Qualified Dividends

Absent Congressional action capital gain will increase significantly after 2012.

Current rates are 15%

Set to be taxed at ordinary income tax rates.

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3.8 Percent Medicare Contribution Tax

Starting 2013, the Medicare surtax tax will be imposed on the “net investment income” (NII) and will generally apply to passive income.

The Medicare surtax also will ally to capital gains from the disposition of property.

The Medicare surtax will not apply to income derived from a trade or business or from the sale of property used in a trade or business.

For individuals the Medicare surtax will apply to the lesser of the taxpayer’s NII or the amount of “modified” adjusted gross income above a specified threshold.

3.8 Percent Medicare Contribution Tax (cont’d)

Thresholds

The Medicare surtax applies to an individual on the lesser of the taxpayer’s NII or the amount of “modified” adjusted gross income above certain thresh-holds. Those AGI thresholds are:

• $250,000 for married taxpayers filing jointly or a surviving spouse

• $125,000 for married taxpayers filing separately; and

• $200,000 for single and head of household taxpayers.

29


Net Investment income (NII)Net investment income (NII) for purposes of the 3.8 percent Medicare surtax includes:

• Gross income from interest, dividends, annuities, royalties, and rents provided this income is not derived in the ordinary course of an active trade or business;

• Gross income from a trade or business that is a passive activity (within the meaning of Code section 469)

• Gross income from a trade or business of trading in financial instruments or commodities; and

• Net gain (taken into account in computing taxable income) from the disposition of property, other than property held in an active trade or business.


Example 1A single taxpayer has modified AGI of $230,000, including NII of $40,000. The Medicare Surtax applies to the lesser of NII($40,000) or the excess of AGI over the applicable threshold ($230,00 – $200,000= $30,000). Thus, the Medicare surtax applies to $30,000.

Example 2A single taxpayer has modified AGI of $175,000, including $70,000 of NII. Because the taxpayer’s income is below the single taxpayer threshold of $200,000, the taxpayer does not owe the Medicare surtax, despite having substantial NII.

Example 3Married taxpayers have modified AGI of $350,000, including NII of $75,000 and filing jointly. The Medicare surtax applies to the lesser of NII ($75,000) or the excess of AGI over the applicable threshold ($350,000 - $250,000 = $100,000). Thus, the Medicare surtax applies to $75,000.

30

Additional .9 Percent Medicare Tax

Effective January 1, 2013, higher income individuals will be subject to an additional 0.9 percent HI (Medicare) tax. This additional Medicare tax should not be confused with the 3.8 percent Medicare surtax.

The additional Medicare tax means that the portion of wages received in connection with employment in excess of $200,000 ($250,000 for married couples filing a joint return and $125,000 for married couples filing separately) will be subject to a 2.35 percent Medicare tax rate.

The additional Medicare tax also attaches to self-employed individuals.

Alternative Minimum Tax (AMT)

Year-end tax planning has traditionally looked at a taxpayer’s potential liability for the alternative minimum tax (AMT) and 2012 is no different. As in past years, taxpayers are waiting to see if Congress will enact an AMT “patch” for 2012. the last patch – which provided for increased exemption amounts and use of the nonrefundable personal credits against AMT liability – expired after 2011.

31

Other Tax Changes

Personal Exemption /Itemized Deduction Phase outs

Child Tax Credit

State and Local Sales Tax Deduction

Mortgage Insurance Premiums

Charitable distributions from IRA’s

Education

American Opportunity Tax Credit

Student Loan Interest deduction

Higher Education Tuition Deduction

Domestic Production Activities Deduction (DPAD)

The American Jobs Creation Act of 2004 authorized a deduction for income attributable to certain manufacturing and domestic production activities conducted in the U.S. (the Domestic Production Activities Deduction, or DPAD). The DPAD is 9% for tax years beginning in 2010 and beyond. It is not limited to any specific entity and is available to sole proprietorships, C and S corporations, and partnerships, among other entities. The DPAD is not allowed in computing self-employment income and the taxpayer can claim the deduction for both regular tax and AMT.

32

Domestic Production Activities Deduction (DPAD) (Cont’d)

The DPAD equals a percentage 9% for 2011 and beyond of the lesser of:

1. Qualified Production Activities income (QPAI) for the year, or

2. Adjusted Gross Income (for an individual taxpayer) determined

a. after application of IRC Sec. 86 (Social Security and tier 1 railroad retirement benefits), IRC Sec. 135 (income from U.S. savings bonds used to pay higher education tuition and fees), IRC Sec. 137(adoption assistance programs), IRC Sec. 219 (retirement savings), IRC Sec. 221 (interest on education loans), IRC Sec. 222 (qualified tuition and related expenses), and IRC Sec. 469 (passive activity losses), and

b. without regard to the DPAD.


QPAI is defined as the taxpayer's domestic production gross receipts for the year, reduced by the sum of the following items [IRC Sec. 199(c)(1)]:

1. The cost of goods sold allocable to such receipts; and

2. Other deductions, expenses, or losses directly allocable to such receipts. The DPAD itself is not an allocable deduction.

The taxpayer's domestic production gross receipts drive the deduction, but the deduction is limited to 50% of the qualified W-2 reported wages for the year that are allocable to domestic production gross receipts. Thus, for those taxpayers with large production activities but little W-2 wages (because the work is subcontracted out), the benefits of the deduction may be minimal.

33


Domestic Production Gross Receipts (DPGR)

Taxpayers must have income from qualified production activities to be eligible for the DPAD. In order to compute income from qualified production activities, taxpayers must determine the amount of DPGR that they have for the tax year. The definition of DPGR from qualified production activities is very broad. DPGR includes the taxpayer's gross receipts from the lease, rental, license, sale, exchange, or other disposition of any of the following [IRC Sec. 199(c)(4)]:

1. Qualifying production property (tangible personal property, computer software, and sound recordings), if the property is manufactured, produced, grown, or extracted (see discussion later in this key issue) by the taxpayer in whole or significant part [see Reg. 1.199-3(g) for what constitutes significant part] in the U.S.

2. Motion picture, film, videotape, and sound recording production, renting, and licensing (with exclusions provided in the statute), provided at least 50% of the total compensation relating to the productionof the film is compensation for specified production services(such as actors, directors, or producers) performed in the U.S.


3. Production of (but not transmission or distribution of) electricity, natural gas, or water in the U.S.

4. Construction or substantial renovation of real property in the U.S., including residential and commercial buildings and infrastructure such as roads, power lines, water systems, and communications facilities.

5. Civil engineering and architectural services performed in the U.S. for construction projects in the U.S.

6. Farming (i.e., growing and selling agricultural products and food).

7. Processing of agricultural products and food (but not the sale of food and beverages prepared by the taxpayer at a retail establishment).

34


The following steps compute the DPAD: Step 1 Determine DPGR

Step 2 Determine QPAIStep 3 Compute the AGI limitationStep 4 Determine the W-2 wage limitationStep 5 Calculate the DPAD

ExampleMel Myers owns Myers Engineering, a sole proprietorship in the U.S. The company conducts no other activities; therefore, all of its income is qualified production activity income. Mel's adjusted gross income for 2011 is $250,000. During 2011, Myers Manufacturing showed the following income and expense:

Gross receipts $900,000Costs of Goods sold (including $350,000 of W-2 wages allocable to DPGR) (600,000)Other allocable expenses (100,000)Net Income $200,000

Mel's QPAI is $200,000 and his tentative deduction is $18,000 [9% × $200,000;the lesser of QPAI ($200,000) or modified adjusted gross income ($250,000)]. His DPAD is limited to 50% of W-2 wages, which is $175,000 (50% of $350,000).

Uncertainty – 2012 and Beyond

Thank You!

35


Architecture/Engineering Industry SeminarWednesday, October 10, 2012

ARCHITECTS AND ENGINNERS MECHANICS’ LIEN RIGHTS

PA & NJ

Christopher I. McCabe, EsquireJACOBY DONNER, P.C.

Architecture/Engineering Industry SeminarWednesday, October 10, 2012

ARCHITECTS AND ENGINNERS MECHANICS’ LIEN RIGHTS

PA & NJ

Christopher I. McCabe, EsquireJACOBY DONNER, P.C.


Mechanics’ Liens in Pa.Mechanics’ Liens in Pa.

OVERVIEW

Pa. Mechanics’ Lien Law of 1963

Statute is strictly construed: But see Bricklayers (2012) decision

Suggests that the law must be liberally construed to effect its objects and to promote justice

Case concerned definition of “subcontractor” Case could change other aspects of the lien law

On appeal to Supreme Court of Pennsylvania

OVERVIEW

Pa. Mechanics’ Lien Law of 1963

Statute is strictly construed: But see Bricklayers (2012) decision

Suggests that the law must be liberally construed to effect its objects and to promote justice

Case concerned definition of “subcontractor” Case could change other aspects of the lien law

On appeal to Supreme Court of Pennsylvania

38



WHAT IS SUBJECT TO LIEN?

Improvement on property is subject to lien

What is “improvement”? Building Structure Significant change in use or of existing structure

What is not an “improvement”? landscaping Race track Excavation Tennis court


Improvement on property is subject to lien

What is “improvement”? Building Structure Significant change in use or of existing structure

What is not an “improvement”? landscaping Race track Excavation Tennis court



WHO CAN FILE LIEN?

Contractor: Includes architect or engineer But: Need contract with owner (express or implied)

Is your contract with someone else? Must superintend or supervise erection,

construction, alteration or repair

Subcontractor: Does not include architect or engineer who

contracts with contractor or subcontractor

WHO CAN FILE LIEN?

Contractor: Includes architect or engineer But: Need contract with owner (express or implied)

Is your contract with someone else? Must superintend or supervise erection,

construction, alteration or repair

Subcontractor: Does not include architect or engineer who

contracts with contractor or subcontractor

39



SERVICES GIVING RISE TO LIEN

Erection and construction of improvement No lien for foundation of building not constructed Ski slope seeded and mulched – not erection or

construction

Alteration of repair of improvement Work done on existing building or structure

SERVICES GIVING RISE TO LIEN

Erection and construction of improvement No lien for foundation of building not constructed Ski slope seeded and mulched – not erection or

construction

Alteration of repair of improvement Work done on existing building or structure



ARCHITECTS/ENGINEERS

Lienable architectural/engineering services Supervision at job site Decisions on execution and progress of work Preparation of drawings if accompanied by

supervision

Non-lienable architectural/engineering services: Preparing drawings only Attendance at zoning hearings Visiting site before work Observation is not supervision

ARCHITECTS/ENGINEERS

Lienable architectural/engineering services Supervision at job site Decisions on execution and progress of work Preparation of drawings if accompanied by

supervision

Non-lienable architectural/engineering services: Preparing drawings only Attendance at zoning hearings Visiting site before work Observation is not supervision

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LIEN WAIVERS – ARE THEY ENFORCEABLE?

Upfront lien waivers are now disallowed on all commercial projects

Lien waivers are allowed for residential projects – regardless of price Residential = building of not more than 3 stories

LIEN WAIVERS – ARE THEY ENFORCEABLE?

Upfront lien waivers are now disallowed on all commercial projects

Lien waivers are allowed for residential projects – regardless of price Residential = building of not more than 3 stories



AMOUNT AND FILING OF LIEN

Lien is for amount which is owed Must be greater than $500 Can consolidate claims for work on single

improvement under more than one contract

Lien must be filed within 6 months after date work was completed

AMOUNT AND FILING OF LIEN

Lien is for amount which is owed Must be greater than $500 Can consolidate claims for work on single

improvement under more than one contract

Lien must be filed within 6 months after date work was completed

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EXEMPTIONS FROM MECHANICS’ LIENS

Public Purpose No lien where labor is furnished for a purely public

purpose Carter-Jones Lumber Co. v. Northwestern PA Humane

Soc., 913 A.2d 1002 (2006) Animal shelter held to be for a public purpose Test is not who owns property Property which is privately owned may be exempt from lien

Leasehold Premises No lien against interest of landlord

Except where landlord states in writing that the work is for its immediate use and benefit


Public Purpose No lien where labor is furnished for a purely public

purpose Carter-Jones Lumber Co. v. Northwestern PA Humane

Soc., 913 A.2d 1002 (2006) Animal shelter held to be for a public purpose Test is not who owns property Property which is privately owned may be exempt from lien

Leasehold Premises No lien against interest of landlord



Mechanics’ Liens in NJMechanics’ Liens in NJ

OVERVIEW

NJ Construction Lien Law NJ Statutes 2A:44A

OVERVIEW

NJ Construction Lien Law NJ Statutes 2A:44A

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Improvement to property is subject to lien

What is “improvement”? Actual or proposed physical changes to property Resulting from work or services By contractor

If work requires licensure, work shall not be improvement unless performed by licensed claimant

Examples of “improvement” Excavation Digging Drilling Grading landscaping


Improvement to property is subject to lien

What is “improvement”? Actual or proposed physical changes to property Resulting from work or services By contractor

If work requires licensure, work shall not be improvement unless performed by licensed claimant

Examples of “improvement” Excavation Digging Drilling Grading landscaping



WHO CAN FILE LIEN?

Contractor One with direct contract with owner Written signed contract

Definition also includes Licensed architect Licensed engineer Licensed land surveyor Certified landscape architect

Performing professional services Related to improvement

WHO CAN FILE LIEN?

Contractor One with direct contract with owner Written signed contract

Definition also includes Licensed architect Licensed engineer Licensed land surveyor Certified landscape architect

Performing professional services Related to improvement

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AMOUNT OF LIEN AND FILING REQUIREMENTS

Lien amount Value of work or services performed Based on contract price

Lien must be filed within 90 days following last date of work or services Service of notice within 10 days of filing Suit within one year of last date of work

AMOUNT OF LIEN AND FILING REQUIREMENTS

Lien amount Value of work or services performed Based on contract price

Lien must be filed within 90 days following last date of work or services Service of notice within 10 days of filing Suit within one year of last date of work



SPECIAL RESIDENTIAL FILING REQUIREMENTS

Includes condominiums and community associations

Notice of Unpaid Balance Filed within 60 days of last date of work Demand for arbitration within 10 days of filing of

NUB

Lien filing Within 10 days of receipt of arbitrator’s award Not later than 120 days from last date of work

SPECIAL RESIDENTIAL FILING REQUIREMENTS

Includes condominiums and community associations

Notice of Unpaid Balance Filed within 60 days of last date of work Demand for arbitration within 10 days of filing of

NUB

Lien filing Within 10 days of receipt of arbitrator’s award Not later than 120 days from last date of work

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Public Works or Improvements for Public Entity

Leasehold Premises Can lien leasehold interest of tenant No lien against interest of landlord



Public Works or Improvements for Public Entity

Leasehold Premises Can lien leasehold interest of tenant No lien against interest of landlord



QUESTIONS?QUESTIONS?

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- THANK YOU FOR YOUR ATTENDANCE -

Christopher I. McCabe, Esquire

JACOBY DONNER, P.C.1700 Market Street

Suite 3100Philadelphia, PA 19103

[email protected]

215-563-2870 (fax)www.papubliccontracts.com

- THANK YOU FOR YOUR ATTENDANCE -

Christopher I. McCabe, Esquire

JACOBY DONNER, P.C.1700 Market Street

Suite 3100Philadelphia, PA 19103

[email protected]

215-563-2870 (fax)www.papubliccontracts.com

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Areas of Specialization

David provides audit, tax, and management consulting services for a variety of clients and industry groups. His areas of expertise include engineers, architects, government contractors, and other service-related companies. He serves as an instructor for in-house professional training seminars and has conducted seminars throughout Pennsylvania regarding compliance with the Federal Acquisition Regulations. David has advised clients on either buying or selling their businesses and has completed over $500 million in transactions. He has developed unique due diligence and post-acquisition tools to facilitate a successful transaction.

As the Government Contracting Industry Group Leader, David works with a number of Department of Defense contractors and many contractors supporting second tier government organizations such as Homeland Security and the Department of Energy. He also works with a number of professional service firms that support state Departments of Transportation and other state agencies, to assist them with their indirect cost rates. David is also the leader of the firm’s Architecture & Engineering industry group.

David also assists in collateral reviews for banks and advises clients in financing matters.

Background

David joined Kreischer Miller in 1994. Prior to joining Kreischer Miller, he was the Chief Financial Officer for a local bank and worked for a large national accounting firm, where he audited financial institutions and closely-held companies. David has also coached Horsham’s Challenger Baseball League—a league for disabled children—for over 10 years and owns a tree farm in Western Pennsylvania.

Professional and Business Affiliations

American Institute of Certified Public Accountants – Member Pennsylvania Institute of Certified Public Accountants – Member Horsham Rotary – Member, Past President, and 2010 Ike Jarrett Memorial Award Winner

for significant contributions to the community Horsham Chamber of Commerce – Member of the Board of Directors Supply Force Account Management – Officer and member of the Board of Directors Greater Valley Forge Transportation Association – Member College Settlement – Corporate member and member of the Finance Committee American Council of Engineering Companies – Member Engineers Club of Philadelphia – Member American Institute of Architects – Associate Member Education and Certifications

Certified Public Accountant in Pennsylvania B.S. – Washington and Jefferson College

David E. Shaffer, CPA Director, Audit & Accounting Government Contracting Industry Group Leader

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Craig has a wide range of experience providing traditional audit and accounting services to a variety of businesses, including government contractors, engineers, architects, manufacturers, distributors, retailers and investment companies. For government contractors, Craig specializes in assisting clients in being compliant with the Federal Acquisition Regulations and preparing overhead rate audits for DOTs and other state and federal agencies. Within the investment industry, in addition to the rendering of traditional audit services, he assists clients with implementing the GIPS standards and performs GIPS verifications and composite examinations, SEC custody examinations, and operational due diligence on internal controls across the globe. Craig serves on Kreischer Miller’s Training Committee and as an instructor for Kreischer Miller’s in-house professional training seminars. He has delivered presentations on various complex accounting and technical issues, including Business Combination Accounting, Fair Value Accounting, and GIPS Composite Construction.

Background

Craig joined Kreischer Miller in 2003 upon his graduation from college. Professional and Business Affiliations

American Institute of Certified Public Accountants – Member Pennsylvania Institute of Certified Public Accountants – Member Leading Edge Alliance Young Professional Special Interest Group —

Member North American GIPS Verifiers Roundtable — Member

Education and Certifications

Certified Public Accountant in Pennsylvania B.S. – Business Administration with a concentration in Accounting,

Bloomsburg University

Craig B. Evans, CPA Manager, Audit & Accounting

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Kevin has a diversified range of experience providing tax services to architects, engineers, government contractors and a variety of distribution, manufacturing, service, and exempt organizations. His tax background includes assisting corporate, partnerships/limited liability companies, trusts, and individuals in connection with tax compliance, tax planning, tax research, audit representation, and problem resolution at the federal, state, and local levels. Kevin also has specialized experience involving exempt organizations and has spoken on various tax-related topics for a number of groups. Background

Kevin joined Kreischer Miller in 2010. Prior to working for Kreischer Miller, Kevin worked in industry and at a regional accounting firm. Professional and Business Affiliations

American Institute of Certified Public Accountants – Member Pennsylvania Institute of Certified Public Accountants – Member

Education and Certifications

Certified Public Accountant in Pennsylvania M.S.T. — Taxation, Philadelphia University B.B.A. – Accounting, Temple University

Kevin McGinn, CPA Manager, Tax Strategies

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Debbie Andrews Founder / President Marketri, LLC

With more than 20 years of marketing, new business development and professional services experience, Debbie founded Marketri, LLC in 2004 to satisfy the critical need for customized, results-driven marketing programs for small to mid-sized B2B companies. As Owner and President, her

primary responsibility is ensuring clients have successful, proactive, targeted marketing strategies and programs to reach

and exceed their marketing goals.

Debbie is committed to learning each client’s business, knowing its customers, and providing the right set of solutions. Marketri has a large portfolio of highly satisfied clients in a wide range of businesses, with a special emphasis on service providers in the legal, accounting, engineering and management consulting sectors.

Marketri’s customized solutions range from providing clients with a full-service outsourced marketing department and strategic guidance at the Chief Marketing Officer level to senior-level mentoring to help a firm’s young marketing professionals or new hires get fully trained in their responsibilities to succeed within the company environment.

Debbie’s background includes eight years of experience with several Big Four Accounting firms, including Ernst & Young, PricewaterhouseCoopers and the middle-market Investment Banking subsidiary of KPMG LLP, KPMG Corporate Finance, where she transformed the Mid-Atlantic Practice from a geographic to sector-based marketing approach.

In her position as Principal for a private-equity firm run by the former CEO of WR Grace, Debbie directed

marketing programs for the company as well as its various portfolio companies. She was also instrumental in executing the company’s growth strategy by identifying attractive industry segments and potential acquisition candidates.

Debbie earned an MBA in Marketing and a Bachelor of Science in Finance from the University of Maryland at College Park. She is the past Chair for the Professional Marketing Forum and the Founder and past member of the B2B Professional Alliance. Currently, she is a member of the Board for the Bucks County SPCA and Central Bucks Chamber of Commerce, as well as a Committee Member of the Chamber’s annual Bucks Fever signature program. She is also a past Board Member of the Central Bucks Rotary Club, and participates in a number of charitable activities.

www.marketri.com

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