A timely update for architectural and engineering firms on the National Compensation Matrix, benchmarking, tax issues, mechanics' lien rights, and inbound marketing.

1. Architecture/Engineering Industry Seminar
Wednesday, October 10, 2012

2. 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

3. NATIONAL
COMPENSATION
MATRIX
Presented by:
Craig B. Evans, CPA
Manager
1

4. Learning Objectives
• 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
Contents
• What is it?
• What’s it for?
• How it’s used
• How it compares
www.kmco.com
2

5. What is it?
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
What is it?
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

6. What is it?
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
What is it?
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

7. What is it?
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
What is it?
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

8. What’s it for?
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
How it’s used
http://audit.transportation.org/Documents/2012_National_Co
mpensation_Matrix(FINAL%205-7-12).xls
• Let’s walk through the Excel
www.kmco.com
6

9. How it compares
ERI Median plus 10% vs. NCM for Chairman (non-CEO)
$450,000
$400,000
$350,000
S
$300,000
a
l $250,000
a $200,000 ERI
r $150,000 NCM
y
$100,000
$50,000
$0
$1 $5 $10 $20 $25 $50 $75 $100 $200 $250 $500
Revenue (millions)
www.kmco.com
How it compares
ERI Median plus 10% vs. NCM for CEO/President
$900,000
$800,000
$700,000
S
$600,000
a
l $500,000
a $400,000 ERI
r $300,000 NCM
y
$200,000
$100,000
$0
$1 $5 $10 $20 $25 $50 $75 $100 $200 $250 $500
Revenue (millions)
www.kmco.com
7

10. How it compares
ERI Median plus 10% vs. NCM for EVP/COO
$600,000
$500,000
S
$400,000
a
l $300,000
a ERI
r $200,000 NCM
y
$100,000
$0
$1 $5 $10 $20 $25 $50 $75 $100 $200 $250 $500
Revenue (millions)
www.kmco.com
How it compares
ERI Median plus 10% vs. NCM for Senior Vice President
$500,000
$450,000
$400,000
S $350,000
a $300,000
l $250,000
a ERI
$200,000
r NCM
y $150,000
$100,000
$50,000
$0
$1 $5 $10 $20 $25 $50 $75 $100 $200 $250 $500
Revenue (millions)
www.kmco.com
8

11. How it compares
ERI Median plus 10% vs. NCM for Vice President
$450,000
$400,000
$350,000
S
$300,000
a
l $250,000
a $200,000 ERI
r $150,000 NCM
y
$100,000
$50,000
$0
$1 $5 $10 $20 $25 $50 $75 $100 $200 $250 $500
Revenue (millions)
www.kmco.com
How it compares
ERI Median plus 10% vs. NCM for Chief Financial Officer
$500,000
$450,000
$400,000
S $350,000
a $300,000
l $250,000
a ERI
$200,000
r NCM
y $150,000
$100,000
$50,000
$0
$1 $5 $10 $20 $25 $50 $75 $100 $200 $250 $500
Revenue (millions)
www.kmco.com
9

12. How it compares
ERI Median plus 10% vs. NCM for Top Engineering Executive
$350,000
$300,000
S $250,000
a
$200,000
l
a $150,000 ERI
r NCM
y $100,000
$50,000
$0
$1 $5 $10 $20 $25 $50 $75 $100 $200 $250 $500
Revenue (millions)
www.kmco.com
How it compares
ERI Median plus 10% vs. NCM for Human Resources Director
$250,000
$200,000
S
a $150,000
l
a ERI
$100,000
r NCM
y
$50,000
$0
$1 $5 $10 $20 $25 $50 $75 $100 $200 $250 $500
Revenue (millions)
www.kmco.com
10

13. How it compares
ERI Median plus 10% vs. NCM for Director of Business Development
$350,000
$300,000
S $250,000
a
$200,000
l
a $150,000 ERI
r NCM
y $100,000
$50,000
$0
$1 $5 $10 $20 $25 $50 $75 $100 $200 $250 $500
Revenue (millions)
www.kmco.com
Summary
• 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

14. BENCHMARKING
Presented by:
David E. Shaffer, CPA
Director
13

15. Learning Objectives
 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
Contents
 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

16. Key Definitions Used in the Ratios
 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
PSMJ Respondents
Respondents by Size of Firm
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)
www.kmco.com
15

17. PSMJ Respondents
By Firm Type
Architectural 30
Architectural/Interiors 27
Interior Design 1
Engineering (Prime) 93
Engineering (Subconsultant) 36
Engineering (Survey) 12
Architecture/Engineering (or
E/A) 16
A/E/P/I (full-service design) 12
Landscape Architecture 3
Construction Management 2
Other 8
www.kmco.com
PSMJ Respondents
Source of Revenue Number Percentage
Private Sector 108 45%
Government Sector 72 30%
Mixed 60 25%
www.kmco.com
16

18. Big Picture Results
 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
Big Picture Results
 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

19. 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
www.kmco.com
18

20. Highlights
 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
Highlights
 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
19

21. Highlights
 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
Direct Labor Hours
Lower Median Mean Upper
Direct Labor Hours Per: Quartile Quartile Quartile Quartile
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
www.kmco.com
20

22. Staffing Size
Lower Median Mean Upper
Technical Staff Ratio to: Quartile Quartile Quartile Quartile
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
Common Sized Balanced Sheet
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%
www.kmco.com
21

23. Common Sized Balanced Sheet
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%
www.kmco.com
Weekly Report
 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.
www.kmco.com
22

24. Monthly Reports
 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
www.kmco.com
Summary
www.kmco.com
23

25. TAX UPDATE AND
ISSUES
Presented by:
Kevin McGinn, CPA
Manager
25

26. 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

27. 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

28. 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.
28

29. 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

30. 3.8 Percent Medicare Contribution Tax (cont’d)
 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.
3.8 Percent Medicare Contribution Tax (cont’d)
 Example 1
A 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 2
A 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 3
Married 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

31. 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

32. 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

33. 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.
Domestic Production Activities Deduction (DPAD) (Cont’d)
 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

34. Domestic Production Activities Deduction (DPAD) (Cont’d)
 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 production
of the film is compensation for specified production services
(such as actors, directors, or producers) performed in the U.S.
Domestic Production Activities Deduction (DPAD) (Cont’d)
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

35. Domestic Production Activities Deduction (DPAD) (Cont’d)
 The following steps compute the DPAD:
 Step 1 Determine DPGR
Step 2 Determine QPAI
Step 3 Compute the AGI limitation
Step 4 Determine the W-2 wage limitation
Step 5 Calculate the DPAD
Example
Mel 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 $900,000
Costs 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

36. ©2012 Jacoby
Donner, P.C.
37

37. Architecture/Engineering Industry Seminar
Wednesday, October 10, 2012
ARCHITECTS AND ENGINNERS
MECHANICS’ LIEN RIGHTS
PA & NJ
Christopher I. McCabe, Esquire
JACOBY DONNER, P.C.
©2012 Jacoby Donner, P.C.
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
©2012 Jacoby Donner, P.C.
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38. Mechanics’ Liens in Pa.
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
©2012 Jacoby Donner, P.C.
Mechanics’ Liens in Pa.
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
©2012 Jacoby Donner, P.C.
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39. Mechanics’ Liens in Pa.
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
©2012 Jacoby Donner, P.C.
Mechanics’ Liens in Pa.
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
©2012 Jacoby Donner, P.C.
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40. Mechanics’ Liens in Pa.
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
©2012 Jacoby Donner, P.C.
Mechanics’ Liens in Pa.
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
©2012 Jacoby Donner, P.C.
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41. Mechanics’ Liens in Pa.
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
©2012 Jacoby Donner, P.C.
Mechanics’ Liens in NJ
OVERVIEW
 NJ Construction Lien Law
 NJ Statutes 2A:44A
©2012 Jacoby Donner, P.C.
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42. Mechanics’ Liens in NJ
WHAT IS SUBJECT TO LIEN?
 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
©2012 Jacoby Donner, P.C.
Mechanics’ Liens in NJ
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
©2012 Jacoby Donner, P.C.
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43. Mechanics’ Liens in NJ
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
©2012 Jacoby Donner, P.C.
Mechanics’ Liens in NJ
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
©2012 Jacoby Donner, P.C.
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44. Mechanics’ Liens in NJ
EXEMPTIONS FROM MECHANICS’ LIENS
 Public Works or Improvements for Public Entity
 Leasehold Premises
 Can lien leasehold interest of tenant
 No lien against interest of landlord
 Except where landlord states in writing that the work is for its
immediate use and benefit
©2012 Jacoby Donner, P.C.
QUESTIONS?
©2012 Jacoby Donner, P.C.
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45. - THANK YOU FOR YOUR ATTENDANCE -
Christopher I. McCabe, Esquire
JACOBY DONNER, P.C.
1700 Market Street
Suite 3100
Philadelphia, PA 19103
cmccabe@jacobydonner.com
215-563-2400
215-563-2870 (fax)
www.papubliccontracts.com
©2012 Jacoby Donner, P.C.
46

46. David E. Shaffer, CPA
Director, Audit & Accounting
Government Contracting Industry Group Leader
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
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47. Craig B. Evans, CPA
Manager, Audit & Accounting
Areas of Specialization
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
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48. Kevin McGinn, CPA
Manager, Tax Strategies
Areas of Specialization
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
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49. 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 marketing programs for the company as well as
business, knowing its customers, and providing its various portfolio companies. She was also
the right set of solutions. Marketri has a large instrumental in executing the company’s growth
portfolio of highly satisfied clients in a wide range strategy by identifying attractive industry segments
of businesses, with a special emphasis on service and potential acquisition candidates.
providers in the legal, accounting, engineering and
management consulting sectors. Debbie earned an MBA in Marketing and a Bachelor
of Science in Finance from the University of
Marketri’s customized solutions range from providing Maryland at College Park. She is the past Chair for
clients with a full-service outsourced marketing the Professional Marketing Forum and the Founder
department and strategic guidance at the Chief and past member of the B2B Professional Alliance.
Marketing Officer level to senior-level mentoring Currently, she is a member of the Board for the
to help a firm’s young marketing professionals or Bucks County SPCA and Central Bucks Chamber of
new hires get fully trained in their responsibilities to Commerce, as well as a Committee Member of the
succeed within the company environment. Chamber’s annual Bucks Fever signature program.
She is also a past Board Member of the Central
Debbie’s background includes eight years of
Bucks Rotary Club, and participates in a number of
experience with several Big Four Accounting firms,
charitable activities.
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
www.marketri.com
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