During even the best of economic times, fraud is not uncommon in the construction industry. During periods of recession, however, it’s a problem that grows appreciably worse. For various reasons, contractors historically have had weaker internal controls than in other industries. That’s alarming because even the best of companies are at risk. U.S. businesses lose more than 5% of annual revenues to fraud, according to the Association of Certified Fraud Examiners Inc. That translates to more than $652 billion in fraud losses each year. Fraud isn’t the only reason contractors need to think about adopting formal internal controls. Controls help

For contractors needing to renew their insurance policies, the process is going to be difficult or manageable depending on where they work. For contractors operating in such subprime swamps as Florida, Nevada, California, North Carolina or Arizona, commercial and liability insurance will likely prove harder and more expensive than in past years. In some states, however, contractors are finding it easier to renew—but not for heart-warming reasons.. So many small contractors have gone under that insurance providers suddenly have to compete for clients. In Texas, financially stable firms with decent backlogs aren’t finding it particularly difficult to renew or expand

As financially risky as the construction industry is, contractors should give priority to the relationships with sureties, banks and other stakeholders. To lose them is to be thrown adrift in uncertain and fiscally dangerous waters. Contractors need to provide more than lip service. Occasional proof of profitability and a round of golf aren’t enough. What lenders and sureties need is a top-to-bottom understanding of a contractor’s financial management systems and plans for the future. The best way to share this information is with a comprehensive reporting package presented once or twice a year. This can allay many anxieties. To continue

The beginning of a new year is a great time for contractors to re-examine their key performance indicators and conduct any necessary fine tuning. Given the environment we’re in today, perhaps the first indicator contractors should consider is their bid-hit ratio. Why? Because many contractors do not know what their ratio is. In one survey of 2,000 general contractors, subcontractors and design-build companies, only 6 percent knew what their ratio was and tracked the information. GUAJARDO This lack of knowledge can be attributed partly to the fact that contractors perform a lot of work relatively quickly without the benefit of

Many contracting companies across the nation are watching with dismay as their accounts receivable climb out of the normal comfort zone. For any business, every penny counts whether times are good or bad. Probably nowhere is this mindset more prevalent than in the construction industry, where low profit margins require contractors to protect working capital any way they can. Their success, however, often depends on whether they have an effective billing and collection system. Without one, a contractor’s cash flow can quickly turn sporadic and unpredictable. That almost always leads to a siphoning of cash reserves, which in turn leaves

If you’re still pining for another 1990s-style construction boom, you clearly are a contractor and not an insurer. The insurance industry might rather forget that decade. The 1990s may have brought on skyrocketing construction volume, but they produced an unprecedented level of construction defect litigation. That was the era when premiums began to go up -- and carriers began to get out. Unfortunately, many small and mid-size contractors still struggle to find ways to insure projects that have a higher-than-normal liability. In the past couple of years, however, a growing number of them have found relief through the use of

Ever wonder how important federal money is to the state’s construction industry? Perhaps I can cast a bit of light. Since 2000, the federal government has awarded 165,610 contracts worth $256 billion to 12,689 Texas defense contractors. This information is furnished by the U.S. Department of Defense and posted at governmentcontractswon.com. GUAJARDO In one city alone, San Antonio, 30 contracts worth $700 million were scheduled to be awarded for Base Realignment and Closure projects during fiscal 2009, which ended Sept. 30. Those contracts were in addition to the $1.2 billion in BRAC-related construction awarded during fiscal year 2008. Meanwhile, the

Most businesses struggle with a shortage of cash at some point. For contractors it�s nearly a way of life. GUAJARDO What some contractors overlook is a way to raise cash other industries don’t have. This is provided by equipment through sale-leaseback agreements. Sale-leaseback agreements essentially work this way: A contractor sells its equipment to a finance company and leases it back. The contractor raises capital while retaining use of the equipment. For tax purposes, FASB Statement 13 generally treats a sale-leaseback as a single transaction in which any profit or loss is deferred and amortized by the seller, who becomes