Twelve Essential Roles for CFOs The Official Publication of the Power & Communication Contractors Association 1st Quarter 2013 Also Inside • Court Throws Out Illegal NLRB Recess Appointments • The Broadmoor: Home of the 2013 PCCA Mid-Year • Rural Telecom Carriers Delaying Projects Due to Regulatory Uncertainty
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1st Quarter 2013 Officer Directors Official Publication of the Power & Communication Contractors Association Board of Directors Craig Amerine Amerine Utilities Construction, Inc. David Aubrey Okay Construction Robert Breeden ElectriCom, Inc. Tony Briggs Vermeer Manufacturing Ed Campbell Henkels & McCoy, Inc. John Fluharty Mears Group, Inc. Mark Frosaker MasTec North America, Inc. Matthew Gabrielse Gabe’s Construction Co., Inc. John Hale John Deere Jerrod Henschel Michels Corporation Kevin Mason ElectriCom, Inc. Robert Orr Sherman & Reilly, Inc. Larry Pribyl MP Nexlevel, LLC Rob Pribyl MP Nexlevel, LLC Heath Sellenriek Sellenriek Construction Jameson Ringger NESCO, LLC Lindsley Thulin Michels Corporation Ron Tagliapietra Michels Corporation Publication Staff Publisher Timothy Wagner Editor Michael Ancell Advertising Stacy Bowdring & Mackenzie Fluharty 1908 Mt. Vernon Avenue, 2nd Floor Alexandria, Virginia 22301 (800) 542-PCCA • www.pccaweb.org ©2013 Power & Communication Contractors Association President Tommy Muse Aubrey Silvey Enterprises, Inc. President-Elect Glen Amerine Amerine Utilities Construction, Inc. 1st Vice President Steve Sellenriek Sellenriek Construction 2nd Vice President Timothy D. Killoren CCI Systems, Inc. Treasurer Todd Myers Kenneth G. Myers Construction Secretary James Dillahunty Henkels & McCoy, Inc. Court Throws Out Illegal NLRB Recess Appointments 7 In January, a federal appeals court ruled that President Obama violated the U.S. Constitution when he bypassed the Senate to fill three vacancies on the National Labor Review Board last January. The decision could potentially invalidate all decisions issued by the NLRB since those “recess appointments” as well as future decisions made until the issue is resolved, most likely by the U.S. Supreme Court. Welcome to The Broadmoor 9 Home to the 2013 PCCA Mid-Year Meeting, July 10-13, The Broadmoor welcomes guests to Colorado Springs with impeccable service, distinctive amenities, and endless opportunities to explore picturesque mountains, streams, and canyons. Twelve Essential Roles for CFOs 13 By Lee Ackerman and Ken Roper The economy is driving all contractors toward highly sophisticated financial management to survive and succeed in the construction industry. The competitiveness in the industry is forcing decisions that border on financial insanity. Does your organization excel at financial management? Is your CFO providing economic guidance for your organization? What are crucial roles for CFOs in the construction industry? Power News 22 Telecom News 25 Safety Watch 35 Safety News 37 PCCA Member News 41 Industry Calendar 44 Advertiser Index 44 Final Word 46
PCCA Journal|1st Quarter 2013 7 Labor News Continued on page 44 Court Throws Out Illegal NLRB Recess Appointments On January 25, a federal appeals court ruled that President Obama violated the U.S. Constitution when he bypassed the Senate to fill three vacancies on the National Labor Review Board (NLRB) last January. The decision could potentially invalidate all decisions issued by the NLRB since those “recess appointments” as well as future decisions made until the issue is resolved, most likely by the U.S. Supreme Court. In Noel Canning v. National Labor Relations Board, the United States Court of Appeals for the District of Columbia found the President’s NLRB appointments invalid for two reasons. One, the Senate was not in recess as required by the Constitution, and two, the vacancies did not occur during such a recess. Employer groups widely applauded the decision. “Employers across America thank the court for its decision to strike down a political, partisan move by the administration to pack the NLRB with illegal recess appointees,” said Coalition for a Democratic Workplace (CDW) Chairman Geoffrey Burr. “This is a major milestone in reining in an out-of-control federal agency seemingly bent on enacting Big Labor’s special interest agenda.” U.S. Chamber of Commerce President and CEO Thomas J. Donohue issued the following statement: “We are pleased with the D.C. Circuit’s ruling that the President’s recess appointments to the NLRB were unconstitutional. We warned last year that by appointing these members to the NLRB in such a controversial fashion, the President placed a cloud of uncertainty over the agency and its work. The D.C. Circuit’s historic decision has confirmed our concerns. The U.S. Chamber has been proud to stand with our member Noel Canning from the beginning, and they will continue to enjoy our full support and backing.” Considering the Aftermath The ruling will certainly have implications on past and future NLRB actions and on labor relations. The NLRB appears to be taking a business-as-usual response. NLRB Chairman Mark Gaston Pearce issued this statement following the D.C. Circuit’s decision: “The Board respectfully disagrees with today’s decision and believes that the President’s position in the matter will ultimately be upheld. It should be noted that this order applies to only one specific case, Noel Canning, and that similar questions have been raised in more than a dozen cases pending in other courts of appeals. “In the meantime, the Board has important work to do. The parties who come to us seek and expect careful consideration and resolution of their cases, and for that reason, we will continue to perform our statutory duties and issue decisions.” The Chamber of Commerce noted the uncertainty created by the decision and urged the Obama administration to seek immediate Supreme Court review. Writing in Politico, Donohue said, “Those regulated by the NLRB now face a host of difficult questions: Are the NLRB’s orders currently valid? Will they be invalidated in the future? Can a company reopen a case that has already been decided against it? Does a company need to raise a challenge to the recess appointments in its own case? What will happen if the NLRB sues to enforce an order outside of the D.C. Circuit? Should a company rush to file an appeal in the D.C. Circuit? Can a company wait and see what happens in the Supreme Court, or must it comply with an NLRB order now?” Rep. John Kline (R-Minn.) also urged the President to quickly fix the situation. “The President has run roughshod over the Constitution and has damaged the integrity of the board, harming our nation’s workforce in the process,” he wrote in the Minneapolis Star-Tribune. “A broken board can be made whole if President Obama sets aside politics and works with the U.S. Senate to seat qualified nominees. The president created this crisis, and it is time he addressed it.” Following the ruling, the CDW filed a request with the U.S. Court of Appeals as part of its ongoing litigation to block a union-election regulation pushed by the Obama administration. The rule would replace decades of practice in unionrecognition elections with “ambush” elections that deprive employees and employers the opportunity to have a fair
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PCCA Journal|1st Quarter 2013 9 Home to the 2013 PCCA Mid-Year Meeting, July 10-13, The Broadmoor welcomes guests to Colorado Springs with impeccable service, distinctive amenities, and endless opportunities to explore picturesque mountains, streams, and canyons. PCCA members will experience a truly one-of-a-kind resort where personalized luxury and modern details blend seamlessly with the timeless elegance of the historic hotel. PCCA President Glen Amerine, Amerine Utilities Construction, Great Bend, Kans., and the PCCA staff are currently putting together the Mid-Year program, and we will provide further details on the PCCA website (www.pccaweb.org) in early April and in the next issue of the PCCA Journal. The Broadmoor is the longest-running consecutive winner of both the AAA Five-Diamond and Forbes Travel Guide Five-Star awards. Since first opening in 1918, The Broadmoor has offered guests a unique way to experience the beauty of the American West, and continues that tradition through its five-star day spa, restaurants (including the Penrose Room, the only five-star, five-diamond restaurant in Colorado), 54 holes of championship golf, six tennis courts, indoor/outdoor pools, distinctive retail shops, specialty tours, and activities for guests of all ages and interests. The Broadmoor’s superb location near the southern edge of the Rockies is surrounded by stunning natural beauty and has been described as the gateway to the West. Originally a small mining town, Colorado Springs is now one of the top destinations in the U.S. for vacations and conferences due to its picturesque mountain backdrop, 300 days of sunshine, and friendly locals. From the top of Pikes Peak to upscale shopping, Colorado Springs offers an abundance of natural beauty, attractions, art galleries, and more. Classy Accommodations The Broadmoor’s accommodations offer the elegant touches and thoughtful amenities that have made the resort a disWelcome to The Broadmoor 2013 PCCA Mid-Year Meeting, July 10-13 Continued on page 10
PCCA Journal|1st Quarter 2013 10 tinctive destination for nearly 100 years. Each luxuriously appointed retreat features one king or two double beds, plush furnishings, and an array of modern amenities ideal for leisure or business travel. Many of the spacious guest rooms and suites offer stunning views of Cheyenne Mountain and the resort’s own Cheyenne Lake. From wireless internet access and eco-friendly amenities to flat-panel televisions, the resort’s signature accommodations offer everything necessary for an unforgettable stay. Historic Golf Venue East Course: The Broadmoor’s East Course is known for its wide, tree-lined fairways and expansive greens. With its challenging terrain and amazing mountain vistas, the course is ranked among the best golf courses in the country. When completed in 1918, it was the highest golf course in the United States at 6,400 feet in elevation. The East Course has been home to many major tournaments, including the 1959 U.S. Amateur (Jack Nicklaus’ first major win), the 1964 U.S. Amateur, and the 1995 U.S. Women’s Open (Annika Sorenstam’s first major title). Most recently, the famous course served as the host to the 2008 U.S. Senior Open and the 2011 U.S. Women’s Open Championship. West Course: Get ready for rolling fairways, multi-level greens, and demanding hazards at the stunning yet formidable West Course. At 6,800 feet, this 18-hole course has more doglegs and steeply angled greens than the East Course and offers breathtaking views of both the mountains and Colorado Springs. Host site of the 1998 PGA Cup Matches, the West Course plays tighter off the tee, with more heavily tree-lined holes than the East Course, and it gives players an array of spectacular approach shots. A combination of the original 1918 Donald Ross design and the Robert Trent Jones, Sr. 1964 design, the West Course offers players a challenging course with spectacular views. Mountain Course: After undergoing renovations by Nicklaus Design, the Mountain Course was reopened in July 2006. It features wide, forgiving fairways and large greens with beautiful mountain vistas, ideal for a range of skill levels and handicaps. Spa at The Broadmoor From the moment you step into the Forbes Travel Guide FiveStar Spa at The Broadmoor, you will be treated to an extraordinary journey of rejuvenation, balance, and pure relaxation. The healing properties of the natural surroundings, from the crystal-clear spring waters to the clean mountain air, have long been a beacon of wellness for residents and travelers alike. A complete menu of treatments celebrates the unique Colorado Springs location through soothing massages, expertly prepared facials and hydrotherapies, as well as signature salon service and indulgent spa packages. Between treatments, guests can relax in the spa’s gender-specific dry saunas, steam rooms, aromatherapy rooms, or Fireplace Lounges. The co-ed Mountain View Room, which overlooks a lush golf course and the Rocky Mountains beyond, offers an additional space to unwind and enjoy light refreshments. Vast Array of Activities Nestled on 3,000 acres under the shadow of CheyBroadmoor Continued from page 9
PCCA Journal|1st Quarter 2013 11 enne Mountain, Colorado’s unsurpassed natural beauty surrounds The Broadmoor and provides endless possibilities for excitement and exploration. The area has more than 300 days of sunshine each year and virtually no humidity. Described as the gateway to the American West, the expansive resort is framed by the picturesque mountains, lush meadows, and scenic canyons that have inspired visitors for centuries. The resort offers an inspiring array of outdoor activities that take advantage of the natural beauty of Colorado and cater to guests and their individual interests. • Biking, walking, and running trails • Horseback riding, including guided pony rides for children Paddle Boats on Cheyenne Lake • Pikes Peak • Pikes Peak Cog Railway • Cheyenne Mountain Zoo • Will Rogers Shrine of the Sun • World Figure Skating Hall of Fame and Museum • U.S. Olympic Headquarters and Training Center • Garden of the Gods • Cave of the Winds geological wonders • Manitou Springs Cliff Dwellings and Museum • Seven Falls, “The Grandest Mile of Scenery in Colorado” • Royal Gorge Bridge and Park • Pro Rodeo Hall of Fame and Museum of the American Cowboy • U.S. Air Force Academy Resort Amenities • The Spa at The Broadmoor • 54 holes of championship golf • 4 cushioned hard tennis courts and 2 Har-Tru clay courts • 3 swimming pools: outdoor, indoor, and heated lap pool • 3 outdoor hot tubs • Water slides & children’s wading pool • 18 restaurants, cafés, and lounges • Fitness center • Beauty salon • Business centers • 25 specialty, boutique, and retail shops • Movie theater 1.800.533.2077 • www.condux.com Underground Cable Pulling from Condux Tackle the toughest underground pulling applications with the APS75 Underground Cable Puller from Condux. The APS75 provides up to 7,500 lbs. of continuous pulling power. The unit is completely self-contained and transports easily from jobsite to jobsite. Each puller is backed with years of underground cable pulling experience and a commitment to quality customer service. For your next project, choose advanced underground pulling systems from Condux!
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PCCA Journal|1st Quarter 2013 13 Twelve Essential Roles for CFOs The CFO is often the last line of defense in avoiding crippling errors and omissions and is the driving force for positive changes to enhance productivity By Lee Ackerman and Ken Roper Continued on page 14 The economy is driving all contractors toward highly sophisticated financial management to survive and succeed in the construction industry. The competitiveness in the industry is forcing decisions that border on financial insanity. Does your organization excel at financial management? Is your CFO providing economic guidance for your organization? What are crucial roles for CFOs in the construction industry? Now more than ever, CFOs possess extensive financial skills and capabilities beneficial to the construction industry. Effectively implementing the right roles, combined with exceptional performance, helps contractors create a competitive advantage. CFOs are smart, hard-working, and dedicated managers who have many attributes that may be leveraged through training and development. These leaders and managers set standards, provide credibility to outside parties, and interface with owners and managers with respect to the operational aspects of the business. The key roles a CFO can play increase asset values and mitigate liabilities, adding significant value to any contractor. How can your firm capitalize on your CFO? This article presents 12 essential roles and best practices to leverage your CFO’s value in your organization.
PCCA Journal|1st Quarter 2013 14 Business Planner and Strategist Financial road maps and economic modeling include setting priorities to provide guidance to operational execution. The CFO must be forward-thinking, particularly regarding cash flow management. Without effective cash flow management, the contracting firm will not survive. The CFO must master the incremental economics of the business. In a cost-based pricing industry, the CFO holds the key to success or failure since the margin for error is only plus or minus 2 percent on average in construction. Pricing models and participating in the selection of customers, services, and delivery methods represent key strategy choices for contractors. Selection of the wrong project or customer results in the “bad jobs” all contractors experience, costing horrendous losses for this industry. Your CFO is the gatekeeper to prevent bad jobs from happening in your firm. Input from the conservative voice and risk manager in the financial area adds greater depth to the decision making that all successful contractors value and utilize. Because there are so many unknowns in project execution and numerous variables in delivery of construction projects, combined with the thin margin of profit, the selection of owners and the “right jobs” are imperative for success. The market bias toward selection of the low bidder and the significant number of competitors willing to compete on price significantly increase the risk. As a steward of the financial model, your CFO has to know when to draw the line and maintain margins of safety for profitability preservation. The margin of safety and the accurate timely financial control from the accounting processes provided during the life of a contract are assets to any project team. Your CFO is the vital agent responsible for development of financial modeling and for subsequent monitoring and control of the project execution processes. Scorekeeper The CFO has ultimate responsibility for timely, accurate financial reporting for both internal and external users, and the best CFOs master this responsibility. The construction industry has specific reporting methodologies and practices, which are unlike most other industries. Construction contracts serve as profit centers where revenues are recognizable on estimates of contract profitability. In most cases, profitability from these estimates flows through the income statement each month. Construction accounting (percentage of completion on uncompleted projects) matches the economics of the earnings with the costs associated with those earnings on a monthly basis, and changes in job profitability affect the income statement on a monthly basis. Earnings and costs are distorted when scope of work changes occur and change orders are not approved. Costs continue for the differences in scope of work without associated contract earnings. While the accounting for construction contractors makes sense under the circumstances of long-term contracts, it creates a challenging environment for the CFO and others involved in the accounting process, including construction project managers. Estimates that are constantly changing drive the information used to produce financial statements. These changing conditions mandate that the construction CFO be an astute evaluator of data. Project cost estimates are prepared prior to beginning a contract and fluctuate from that point through completion of all of the contract work as scopes change, as anticipated production rises or falls, and as contemplated prices from suppliers and subcontractors rise or fall. The construction contract scope of work is subject to change due to changing owner requirements, changed working conditions, and unanticipated events during the build-out. Optimistically, the large majority of scope changes will result in positive changes to the contract amount. Other CFO Feature Continued from page 13 2013 PCCA Mid-Year Meeting The Broadmoor Colorado Springs, Colorado July 10-13, 2013
PCCA Journal|1st Quarter 2013 15 changes have a less beneficial effect. The CFO’s responsibility is to analyze the estimates and other assumptions from project teams being used to predict the outcomes of projects and to separate logic from pure speculation. Reporting results for the month, quarter, or year gives the CFO significant opportunities for analysis. Comparing the numbers in hand to the prior corresponding time periods and to expectations, such as budgets and projections, with variances identified, allows for the CFO’s analysis and discussion of operations, financial position and likely cash flows. This analysis is generally a written explanation of unusual items in the income statement and balance sheet that provides insight to what is occurring and affecting the financial statements. The CFO is the financial expert and is the person most qualified to provide and interpret the key impacts on the financial statements. Accounting Technician The CFO must be an expert in applying generally accepted accounting principles (GAAP) that pertain to the construction industry. Financial statements are valuable only if accurately presented. Additionally, one of the most important uses of financial data is benchmarking—providing useful comparisons against the industry. Furnishing accurate financial statements that are reliable to bankers, sureties, and internal users is paramount. GAAP is an evolving proposition and has had an accelerating rate of change in the last several years. Accounting standard setters are in the process of reviewing GAAP for the United States to be consistent with accounting practices used internationally. Three key changes are currently being considered that will significantly affect the construction industry. They are the methodology for recognizing revenues, accounting for leases, and accounting for liabilities in multiemployer plans. The CFO must not only be aware of current requirements, but also anticipate changes likely to come. The effects of those standards on the company’s reporting will be substantial, and the impact on banking and bonding relationships will hinge on successful foresight. Several provisions in the Internal Revenue Code are sections (laws) applying specifically to contractors. While extremely complicated, there are a variety of potential benefits and pitfalls in applying income tax law. Some of the laws apply at the company level, such as choosing the most advantageous accounting or revenue recognition method, and some apply at the contract level, such as determining that a particular contract is a home construction contract. Understanding the impacts of the tax-accounting treatments available for equipment purchases can greatly influence the To keep great utility equipment working great, Scott Powerline backs every unit we provide with unparalleled 24/7 technical service and support. That includes emergency get-you-backup-and-running service. Wherever the job. With Scott Powerline, you’ll never be on your own. See all our product lines and services, including our best-in-industry RPO program, online! Also ask about our customized accessorizing to fill specific job needs. All the top manufacturers plus 24/7 service. Anywhere. Monroe, LA – 877-388-9269 • McDonough, GA – 877-396-1500 scottpowerline.com Rentals • Leasing • Service • Sales Continued on page 16
PCCA Journal|1st Quarter 2013 16 cash-flow analysis of investment decisions. Although outside advisors are available in the form of your outside accounting firm or other consultants, success in identifying issues and making the correct ultimate decisions depends upon a diligent and proactive CFO. Systems Administrator Growth can strain systems, procedures, and staffing capabilities. The accounting and administration for construction contracts is an onerous task with enormous amounts of detail and complexity. Change orders, for example, are constantly taxing organizations for pricing, approval, and payment. Some contracts may have hundreds of change orders. A compounded annual growth rate (CAGR) of 10 percent doubles the size of a contracting business in 7.2 years. A fully functioning system that works effectively at $100 million may be inefficient and ineffective at $200 million. People who were competent at lower volume levels may exceed their competencies at the higher volume levels. In the construction industry, this pace of growth is not unusual. The exception is the current recessionary period, but the question becomes more relevant as the industry begins to recover. Planning and developing the software, hardware, document flow, and support staffing in an organization require constant diligence. Technology developments only compound these challenges. CFOs are at the center of all these practices. The CFO ensures that practices remain efficient and effective in light of current activity levels. The choices of software and hardware packages support capturing transactions and operational practices. Compliance with procedures is also important. The very essence of higher productivity is consistency of procedural execution. Variability is the enemy of productivity. CFOs not only select and implement systems, but also ensure that people in the organization comply with best practices put in place. The administrative support staffing must also be adequate and competent to maintain organizational administration. The best CFOs recognize that they do not have to master all of the disciplines to achieve effectiveness, but they have to identify and select the right talent. They constantly evaluate staffing and make the necessary additions and changes. The CFO should never let the administration fall behind the operational needs of the organization. Risk Manager CFOs are proactive risk managers, constantly vigilant to avoid unnecessary liabilities. Financial management is managing risk. Risk is a cost driver and comes from several sources, such as safety, contract provisions, relationships with employees, customers (owners or general contractors), subcontractors, vendors, bankers, and sureties. The first steps in risk management are identifying and analyzing sources of risk so that they are manageable. Insurance is a tool in the risk management arsenal, but the transfer of risk by insurance coverage is generally the most costly alternative. Other risk management techniques include risk avoidance and loss control. The primary defense against the consequences of risk is avoidance through advanced planning, coupled with procedural compliance. Proactive safety management programs can generate significant cost savings through reductions in insurance premiums, diminished lost time from accidents and injuries, and avoidance of legal costs and disruptions caused by claims. Most insurers serving the construction industry offer ongoing safety training as a supplement to training from other sources. Contract analysis identifies the most significant risks in any given contract. Pricing contract risks fairly into the cost of the work is one method to manage risk. Understanding contract terms and conditions and having open and consistent communications of those items among project personnel are imperative to effective risk reduction. Effective communication is the underpinning of relationship management. Recognizing issues and open, honest, and prompt communication to all parties involved help to avoid escalation of resultant negative consequences. The CFO is often the company’s voice and, with the project team, is a key to successful project completion that meets targeted profit objectives. Leader and Manager CFOs are effective leaders and managers. Leadership and management are two different skills. Leaders set direction and align and motivate people, while managers plan, organize, and control the environment. Most of the CFOs in the construction industry tend to have stronger skill sets in the managerial area. Their background and training build depth in the managerial practice disciplines of planning, organizing, and controlling. Those skills are a significant asset and resource to an organization because all organizations require planning, organizing, and financial control. CFOs tend to have less operational experience, and their focus is narrow in scope, more managerial in nature. The operational focus of the CFO role can limit leadership skill development. Where a CFO has evolved as the leader and CEO, he or CFO Feature Continued from page 15
PCCA Journal|1st Quarter 2013 17 she tends to excel because of the balance of risk and reward that a CFO brings to the organization. The type of leader who balances risk and reward is more likely to build a successful contracting business. The industry itself is mature and loaded with competition. Some competitors in the industry exist without a business purpose. Return on investment, stock appreciation, and other monetary incentives are foreign concepts to these firms. The more progressive firms today are investing in training to build skill sets of both managers and leaders. Coaching and development programs are focusing on growing the next generation of these managers and leaders, including those who aspire to become CFO. Communicator CFOs who excel are great communicators. Communication skills contribute to the success of any leader or manager. Many construction industry executives have little, if any, formal training in communications. What to communicate, how to communicate, methods of communication, confrontational skills, negotiating skills, salesmanship, mediation skills, and other important communication abilities are, for the most part, skills learned through on-the-job training by managers and leaders. CFOs must deal with the economic reality of the organization. The CFO needs to be able to confront difficult situations and follow through to gain understanding of the economic reality. This determination of reality sometimes is unpopular and can cause significant internal friction. “Kill the messenger” reaction has caused the demise of more than one CFO. There is a delicate balance between being approachable and being susceptible to manipulation. Being approachable is both acceptable and highly desirable in resolving complex transactions that arise during the construction process. Allowing oneself to be manipulated by operational managers is never acceptable. Stakeholders rely on the accuracy of the financial reporting process. The CFO requires a high emotional quotient (EQ) for effectiveness. People skills are some of the best and most value-adding abilities managers and leaders have in their arsenal. Building work groups that deal with and manage the voluminous level of detail in the accounting process is vital for CFOs. High turnover causes excessive cost and disruption to the accounting process. Staffing is constantly increasing for growing construction organizations. Methods and systems Continued on page 18
PCCA Journal|1st Quarter 2013 18 for all types of communication require constant attention to enhance sharing of information. Little, if any, time and fewer resources are devoted to this important aspect of operations. The challenge becomes just keeping up with one’s day job, let alone any time for leadership messages and sharing of direction so important in organizational growth and development. Customer Service Manager Customer service for CFOs is easier than it appears. The right questions are “Who are my customers?” and “What are their needs?” CFOs who are effective have answers to both questions and are responsive to internal and external users of financial information. Constantly seeking input from the users allows the CFO to adjust reporting practices, systems, and procedures to accommodate the users. CFOs who monitor and measure their success on delivery and customer satisfaction find increased satisfaction in the roles they play in organizational success. As with any service, technology changes, rule and regulation changes, growth, and a number of other external factors can alter the customer service component of the business to its end users. CFOs who keep flexible and stay on top of market developments always have an easier time adjusting to changing market conditions. The inflexible manager who has done things the same way for the past 30 years will find his or her service and relevance in the modern contracting firm of little value. The CFO who views the CEO as his or her only customer worth servicing is providing both a disservice to that CEO and a liability to the organization at large. Such a view generally comes coupled with a corollary of “Catch ’em doing bad,” when it comes to the operational managers of the company. That CFO is emphasizing ambush rather than arming the company’s managers to work more effectively. Such a CFO would do well to take an extended course in the “Leader as Servant” philosophy—or find other work. Educator and Trainer CFOs who can paint clear pictures of the financial picture and communicate financial performance to nonfinancial managers are valuable assets. Accountants have their own unique language that all accounting types understand. The issue is that the accountant’s language is not user-friendly to the nonfinancial manager. Course after course has been presented on financial management for the nonfinancial manager with limited success. What is needed is the customer-service approach mentioned earlier to present financial information in ways those nonfinancial managers understand. The financial people in the organization should take responsibility for educating the operations personnel on financial reporting for contracts as it relates to their role in project management. Over time, the balance of training and educating users creates a consistent understanding of financial practices in the contracting organization. As important as the concept is, few, if any, project personnel receive sufficient training from colleges and universities on financial reporting practices for contractors. With technology, graphics allow financial departments the ability to “paint the picture” for the operations personnel. The better the understanding, the more effective the systems and decisions that support excellent financial management practices will be in the end. Technology Innovator Technology comes at a high cost, but not having the proper technology and supporting structure drives up the cost of doing business substantially. Because of the dollars involved, the CFO typically has substantial input, if not final authorization authority, over the selection of an IT system or determination if an IT system needs replacement. As with most aspects of the construction industry, IT decisions are important elements of sound risk management. CFOs must understand the risks, whether they result from within the company or from outside sources. Internal risks consist of company culture, technological sophistication of personnel, system selection, implementation, training, and support as well as the suitability of hardware infrastructure expected to accomplish tasks. External risks consist of natural disasters, external service providers, malicious attacks, and other threats beyond the company’s control. Common risk management and mitigation approaches, such as risk-cascade modeling, heat mapping, and scenario planning, among others, can be used to identify risks, evaluate the likelihood of occurrence, and consider the significance of the consequences. These techniques place the focus of efforts on the highest value targets. Decisions such as the level of internal administration versus outsourcing; cloud computing versus internal data management; document management solution alternatives; and tasks, such as developing a disaster recovery plan, are all products of appropriate analysis. Legal Compliance Officer CFOs are part-time lawyers. Laws of some jurisdictions, if not multiple jurisdictions, affect almost any action taken by CFO Feature Continued from page 17 Continued on page 20
PCCA Journal|1st Quarter 2013 20 a contractor. Contractors deal with income taxes, sales taxes, contract provisions, employment law, Davis-Bacon, and other government contract requirements, among other laws and regulations on a daily basis. While the wise contractor consults with legal professionals as needed, much of the dayto-day common-sense applications of legal requirements are left to the CFO. While income tax law is primarily determined by larger decisions, such as choice of entity, domiciles, and other farreaching determinations, actions taken on the contract level can have significant consequences. These include decisions to work in other states, performing work on contracts that have special income tax treatment, and contracting with governmental agencies. Sales tax laws are determined at not only the state level, but also the municipality and other local or district levels. To understand cash flow from a contract, the CFO has to understand the tax effects of contracts along with impacts of other decisions. Contract terms generally include requirements and timing for payments, change orders, and submission of claims. Government contracts have even greater compliance requirements. All of these items have the ability to affect the cash flow, and possibly profitability, on a contract when provisions are disregarded. Often, project personnel are focused on building the job, rather than administrative requirements of the contract. The CFO has primary responsibility for some aspects of the contract, such as Davis-Bacon compliance, and has compliance oversight responsibilities for other contract requirements. Moral Compass Keeper The cultural foundation for organizational ethics and internal controls is often called “tone at the top.” As a company leader, the CFO is looked upon to guide the organization with suitable values and ethics. In this position, value comes primarily from two sources, your knowledge and skills and your integrity. As a successful CFO, the old adage “figures lie and liars figure” can never be associated with you. As important as it is to be honest with everyone, it is most important to be honest with yourself. Next, it is vital that you are honest with those who are relying on you to provide valid information that will inform their decisions. Financial reporting for contractors involves significant estimates, more so than most industries. Manipulating numCFO Feature Continued from page 18 Bethea-Half-Proveit.indd 1 12/20/07 2:57:04 PM
PCCA Journal|1st Quarter 2013 21 For Placing Pulling Lines or Fiber Optic Cables into New, Old or Crowded Conduits RAMROD TRAILER-MOUNTED POWERED DUCT ROD PUSHER For use with GMP’s 1/2 inch (13 mm) duct rods Push/pull up to 300 lbs. (136 kg) of load Moves at a rate of up to 130 ft./min. (330 cm/min.) Override capability – allows you to rod occupied ducts Includes hydraulic power pack Pusher is trailer-mounted for maneuverability +1.215.357.5500 • GMPtools.com MADE IN USA Societyof Cable Telecommunications Engineers Detect Underground Location without Digging TONEABLE DUCT RODDER SYSTEM Find, follow or map underground duct routes Rods available in a range of sizes and lengths Detectable up to 13 feet (4 meters) deep Sonde, Signal Transmitter and Receiver are also available +1.215.357.5500 • GMPtools.com MADE IN USA Society of Cable� Telecommunication � Engineers Polypropylene Thermoplastic Jacket Resin Impregnated Hi-strength Fibers • • • 18 Gauge (1 mm2) Copper Wire GM6187AD4C_Layout 1 3/21/12 7:56 AM Page 1 bers and estimates is easy for a short time. Many financial statement manipulations are well-intentioned and rationalized with logic such as, “We will make up the cost overruns with future cost savings.” Although entered into with good intentions (smooth earnings so as not to upset the bonding company or banker, etc.), the foundation for the manipulation is inherently dishonest. Dishonesty at the top has a trickle-down effect to subordinates. The company culture becomes one of manipulation and “tell them what they want to hear,” which has never been the road map to success. The CFO is willing to face the consequences and rewards for the economic reality of the firm and does his or her best to present the financial picture accurately. Conclusion The CFO’s responsibilities cross virtually every aspect of a construction organization. The CFO is often the last line of defense in avoiding crippling errors and omissions and is the driving force for positive changes to enhance productivity. The position requires breadth and depth of skills as well as management and leadership abilities and is extremely challenging in all economic environments. As most CFOs rise through the accounting function, training and development are integral to successfully fulfilling the variety of requirements of the position. Successful CFOs have the intelligence, drive, and dedication to discharge their responsibilities. Leadership is challenged to provide an environment that values the roles CFOs play. Opportunity for advancement is necessary for talented CFOs, and this includes exposing CFOs to operational responsibilities, management succession, and work acquisition aspects of the business. Greater opportunities allow intellectual advancement and increasing contributions to organizational success. How does your CFO perform in these twelve crucial roles? Are there indications of personal growth? Is he or she appropriately rewarded? If you are the CFO, what goals and action plans should you set for personal growth? Lee Ackerman, CPA, is director of audit and accounting with Brock and Company, and Ken Roper is a principal with FMI Corporation. Reprinted with permission from FMI Corporation, 919.787.8400. For more information, visit www.fminet.com or call Sarah Avallone at (919) 785-9221.
PCCA Journal|1st Quarter 2013 22 The Federal Energy Regulatory Commission (FERC) on January 17 proposed reforms intended to reduce the time and cost to process small generator interconnection requests and allow for more efficient interconnection of these resources to benefit customers. These reforms also would maintain reliability, increase energy supply, and remove barriers to the development of new energy sources, according the FERC. The reforms, outlined in a Notice of Proposed Rulemaking (NOPR), are driven by market changes spurred in part by state renewable energy goals and policies. They affect FERC’s pro forma Small Generator Interconnection Procedures (SGIP) and Small Generator Interconnection Agreement (SGIA), which set the terms and conditions for interconnecting facilities of 20 megawatts (MW) or smaller. The NOPR proposes four reforms to the SGIP and SGIA. The first reform would allow interconnection customers to request from transmission providers a pre-application report to help them better evaluate points of interconnection before submitting a formal interconnection request. This added transparency could increase the efficiency of the interconnection process for both transmission providers and interconnection customers. The second reform would revise the current 2 MW threshold for participation in the Fast Track Process under section 2 of the SGIP. Fast Track eligibility instead would be based on individual system and resource characteristics, up to a limit of 5 MW. A third reform would revise the customer options meeting and supplemental review for projects that fail the Fast Track screens that identify reliability or safety issues. Finally, the NOPR would revise the pro forma SGIP Facilities Study Agreement by giving interconnection customers an opportunity to provide written comments on the upgrades that are necessary for the interconnection. The commission believes transmission providers should make the final decision on required upgrades but is concerned that failing to allow customers to review and comment on the upgrades may result in unjust and unreasonable costs. Comments are due 120 days after publication in the Federal Register. Because of the technical nature of the reforms, the commission directed staff to convene a workshop before the end of the comment period. FERC Proposes Reforms for Small Generator Interconnections Power News Continued on page 24 Survey Finds Many Consumers Unfamiliar with Smart Grid Concepts Smart grid rollouts are building momentum as utilities across the United States continue to invest in this new infrastructure in an effort to transform their power grids. However, even as utilities invest in these new technologies, they struggle to effectively communicate both the benefits of smart grids and the possibilities they make available to the end user. According to a new consumer survey from Pike Research, nearly one-third of respondents (30 percent) were unfamiliar with smart grids, and one-quarter (24 percent) were unfamiliar with smart meters. “The survey data indicates we are still in the early phase of consumer awareness and adoption of smart grid technologies, and consumers’ understanding of the benefits that can be derived from these technologies remains relatively low,” said senior research analyst Neil Strother. “Utilities and other smart grid stakeholders must find more effective means of engaging customers with simple, affordable, and helpful energy management products and services.” The survey also indicates that nearly three-fourths (73 percent) of consumers have concerns about the impact electricity costs have on their monthly budgets, and 63 percent are interested in managing energy used in their homes. When it comes to taking action on that interest, however, fewer than half (49 percent) are aware of companies offering home energy management services, and fewer than 40 percent have a high level of interest in participating in programs such as
PCCA Journal|1st Quarter 2013 23 1-888-633-1243 Congress included an extension of wind energy tax credits in final passage of the much-publicized legislation to avert the “fiscal cliff.” The American Wind Energy Association (AWEA) said that extension of the wind energy Production Tax Credit (PTC) and Investment Tax Credits for community and offshore projects will allow continued growth of the energy source that installed the most new electrical generating capacity in America last year, with factories or wind farms in all 50 states. AWEA said that the continuation of the policies is expected to save up to 37,000 jobs and create far more over time, and to revive business at nearly 500 manufacturing facilities across the country. The extensions in the final bill cover all wind projects that start construction in 2013. Companies that manufacture wind turbines and install them sought that definition to allow for the 18 to 24 months it takes to develop a new wind farm. Wind set a new record in 2012 by installing 44 percent of all new electrical generating capacity in America, according to the Energy Information Administration, leading the electric sector compared with 30 percent for natural gas, and lesser amounts for coal and other sources. AWEA said that America’s wind energy workers have been living under threat of the PTC’s expiration for more than a year and layoffs had already begun, as companies idled factories because of a lack of orders for 2013. Uncertain federal policies have caused a “boom-bust” cycle in U.S. wind energy development for more than a decade. “On behalf of all the people working in wind energy manufacturing facilities, their families, and all the communities that benefit, we thank President Obama and all the Members of the House and Senate who had the foresight to extend this successful policy, so wind projects can continue to be developed in 2013 and 2014,” said Denise Bode, AWEA’s CEO for the past four years. Congress Extends Wind Energy Tax Credits
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