Construction Outlook October 2013

A publication of the Utility Contractors’ Association of New England, Inc.

OCTOBER, 2013

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OCTOBER, 2013

IN THIS ISSUE

OFFICERS President AL MORTEO FED. CORP. President Elect TONY BORRELLI Celco Construction Corp.

Treasurer JOHN OUR Robert B. Our Co., Inc. Secretary PAUL SCENNA Albanese D&S, Inc.

BOARD OF DIRECTORS MARCELLA ALBANESE Albanese Bros., Inc. JEFF BARDELL Daniel O’Connell’s Sons, Inc. VINCENT BARLETTA Barletta Heavy Division MICHAEL BISZKO, III Biszko Contracting Corp.

STEVEN COMOLETTI P. Caliacco Corp.

MAUREEN DAGLE Dagle Electrical Const., Corp.

ADAM DeSANCTIS DeSanctis Ins. Agency, Inc. THOMAS DESCOTEAUX R. H. White Const. Co., Inc. JERRY GAGLIARDUCCI Gagliarducci Construction, Inc. MARCO GIOIOSO P. Gioioso & Sons, Inc. BILL IRWIN C.J.P. & Sons Const. Co., Inc. PHIL JASSET Honorary Board Member BILL KEAVENEY A. R. Belli, Inc. ROBERT LEE J. F. White Contracting Co. RYAN McCOURT McCourt Construction Co. RICHARD PACELLA, JR. R. M. Pacella, Inc. LOUIS SCHOOLCRAFT Ti-SALES, Inc. ANNE KLAYMAN Executive Director

5 President’s Message:

New CDL Self-Certification Policy: A Bread and Butter Issue

7 Legislative Update:

• Senate President Releases Water Infrastructure Proposal • Joint Committee on the Environment, Natural Resources and Agriculture Hears Environmental Bond Bills and Water Infrastructure Legislation • Massachusetts Water Pollution Abatement Trust Awards No-Interest Loans • “Tech-Tax” on Computer and Software Design Services Repealed • Town of Lexington Weighs Potential Increase in Water and Sewer Rates to Meet Water Infrastructure Needs for 2014 • Attorney General Martha Coakley Announces Bid for Corner Office

19 How Funding a Secondary Trust Fund Can Assist Municipalities and Regional Authorities 23 Legal Corner:

Differing Standards for Front-Loading on State vs. Federal Projects

29 Environmental Viewpoint:

NSR Preconstruction Permitting and Proposed Changes

30 Associate Member of the Month:

Minichiello Bros., Inc./Scrap-It, Inc. “Turn Your Metal Into Money”

37 The Importance of Business Succession Planning:

Bag Lady Syndrome

40 UCANE’s September Dinner Meeting:

UCANE Members Present Three Successful Infrastructure Projects and the Challenges They Faced

45 UCANE’s Annual Christmas Party & Scholarship Auction 47 Safety First:

Beyond Compliance: Tips to Maximize Trench Safety Training

51 Financial Management:

• Tax Planning for Same-Sex Spouses • Don’t Waste 529 Tax Benefits • IRS Approves Simpler Home Office Deductions

Editor: Anne Klayman, Associate Editor: Suzanne Savage, Graphic Designer: Sherri Klayman Construction Outlook Chairman: Al Morteo Editorial Board: Al Morteo, Tony Borrelli, John Our, and Paul Scenna CONSTRUCTION OUTLOOK published monthly by the Utility Contractors’ Association of New England, Inc., 300 Congress Street, Suite 101, Quincy, MA 02169; Tel: 617.471.9955; Fax: 617.471.8939; E-mail: aklayman@ucane.com; Website: www.ucane.com. Statements of fact and opinion are those of the authors alone and not necessarily those of UCANE and the Construction Outlook editorial board and staff.

Subscriptions are included in dues payments for UCANE members. Presorted Standard postage paid at Abington, MA. POSTMASTER, please send form #3579 to Construction Outlook, Crown Colony Office Park, 300 Congress Street, Suite 101, Quincy, MA 02169.

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New CDL Self-Certification Policy: A Bread and Butter Issue

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Anyone in Massachusetts Holding a CDL License Must be Aware of This

he federal government has issued a new policy and application form on Commercial Drivers License (CDL) Self-Certification which, if not completed correctly and submitted by January 30, 2014, could result in the loss of an individual’s CDL license.

Some UCANE members have already had problems with the new form and have asked that I inform other members about this. As an indication of the scope of the problem, UCANE has been notified that, to date, only one in four applications have been completed correctly. This is a serious issue and I am asking every UCANE member to take immediate action.

All CDL drivers are required by federal regulation to notify their motor vehicle licensing agency, which in Massachusetts is the Registry of Motor Vehicles, whether they plan to operate interstate or intrastate, and whether or not (depending on the type of commerce) they are required to have a medical certificate. Applications with incorrect information may result in the loss of a CDL. If our members have any questions, or need assistance, they can call the UCANE office. The

Self-Certification Policy and Form can be found on UCANE’s website at www.ucane.com with a link to the Massachusetts RMV site at www.massrmv.com/ rmv/faq/cdl.htm.

Also in this month’s Construction Outlook magazine, you will notice that many articles relate to the Massachusetts legislature’s debate on water and sewer issues and specifically how to fund the projected backlog of more than $18 billion in necessary work over the next 20 years.

It now appears that UCANE’s efforts to present the facts and educate the public are bearing true results. Our message has always been that our waterways and clean drinking water sources need to be protected; that sewage, which is a major polluter of land, waterways, and aquifers needs to be treated; and other man-made pollution products, which introduce nitrogen into our waterways, need to be controlled. In total, these are not easy problems to resolve. We are all looking forward to the day when the citizens of Massachusetts and New England, and hopefully our nation, can drink the purest water that nature can provide and enjoy the recreational benefits of our natural waterways.

Why has our message taken so long to be heard and acted upon? The fact is that water and sewer problems, which our members try to correct everyday, are basically out-of-sight and out-of-mind, and only come to the surface when pipes break and the public is adversely affected. Because water is so basic to our everyday life, champions of clean water, like UCANE, don’t need to hold rallies, or say incendiary things to get results. If we continue to present the facts, people will eventually come to the right conclusion, and I believe one day Massachusetts will lead the country and be a model for every other state to follow. n OCTOBER, 2013

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Senate President Releases Water Infrastructure Proposal

rue to her word, in early October Senate President Therese Murray filed legislation aimed at reforming the Commonwealth’s water infrastructure system. Operating from many of the findings of the Massachusetts Water Infrastructure Financing Commission (WIFC), the legislation seeks to provide the Massachusetts Water Pollution Abatement Trust (WPAT) with greater flexibility in providing financial assistance while implementing many of the best management practices identified by the WIFC. In particular, the legislation will: • Increase statutory caps on WPAT spending from $88 million to $138 million, while imposing a floor on spending of 80% of the statutory cap.

• Allow the WPAT to create a sliding scale interest rate from 0-2 percent on loans for qualifying projects or systems.

• Allow the WPAT to establish a principle forgiveness program for qualifying projects that satisfy demand.

• Require the establishment of an enterprise fund as a condition of receiving assistance from the WPAT. • Require the Commonwealth to reimburse the MWRA for its assistance program for cities and towns to enhance their collection systems.

• Provide a mechanism to assist municipalities

with the MWRA entry fee.

• Simplify the regulatory burden of complying with Title V. • Allow the Public Private Partnership (PPP) Oversight Commission, established for transportation projects, to assist in the evaluation of PPP proposals for cities and towns.

• Require a leak clarification system for water pipes, ensuing that high-hazard leaks are identified and mitigated.

The legislation, which was filed as a “late file” matter, will be referred to the Joint Committee on the Environment, Natural Resources and Agriculture, whereupon it will receive a public hearing. The Senate President was joined at the press conference announcing the initiative by Senator Jamie Eldridge, who co-chaired the WIFC; Majority Leader Stan Rosenberg; Senate President Pro Temp Richard Moore; Minority Leader Bruce Tarr; and Senators Petruccelli, Wolf, Lovely, Rodrigues, Rush, and Jehlen. It is anticipated that the legislation will receive additional scrutiny through this longer legislative process (i.e., not directly released from Senate Ways and Means) with an initial goal of Senate passage between late November and January. continued on page 9

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Legislative Update continued from page 7

I

Joint Committee on the Environment, Natural Resources and Agriculture Hears Environmental Bond Bills and Water Infrastructure Legislation

n a post-Labor Day burst of attention on the Commonwealth’s water infrastructure financing gap, the legislature’s Joint Committee on the Environment, Natural Resources and Agriculture held two public hearings to consider the environmental bond bill and water infrastructure legislation, respectively. In filing a $911 million, five-year environmental bond bill, Secretary of the Executive Office of Energy and Environmental Affairs, Richard Sullivan, suggested that the Administration cannot authorize $200 million in additional bonding for ten years due to bond cap considerations. Various groups have rallied around legislation filed by Representative Carolyn Dykema (D-Holliston) that would authorize that amount of bond based funding.

Overall, the environmental bond bill would borrow and invest $911.5 million in land preservation, parks, and clean energy. The legislation includes $312 million for an accelerated energy program, $124 million for land and parks, and $121 million to the Department of Conservation and Recreation for facilities and flooding control.

In a separate hearing held by the same Committee a week later, legislation directly impacting water infrastructure received public comment. Various elected officials and municipal officials pushed for state funds to address billions of dollars in unfunded drinking and wastewater system needs.

Senator Jamie Eldridge and Representative Dykema, who cochaired the Massachusetts Water Infrastructure Finance Commission, continued to push legislation that authorizes the creation of a $2 billion, 10-year bond bill to fund local drinking water, waste-

OCTOBER, 2013

water, and storm water improvements. The bond, which proposes to provide $200 million annually for local projects, would be segmented into three different use groups: maintenance, capital projects, and supplemental funding to existingwater infrastructure projects. Each year, 20 percent of the funds would be sent to every municipality, similar to Chapter 90 transportation funding; 40 percent would supplement the existing State Revolving Fund low-interest loan program administered by the Water Pollution Abatement Trust Fund; the remaining 40 percent would fund grants for water projects to communities that adopt long-term asset management plans and met other criteria. continued on page 11

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Legislative Update continued from page 9

Massachusetts Water Pollution Abatement Trust Awards No-Interest Loans

A

ccording to a recent press release from the Masrivers, and deserve to be rewarded for their hard work.” sachusetts Water Pollution Abatement Trust The WPAT lends financial assistance to the Com(WPAT), the communities of Leominster, Sturmonwealth by providing subsidized loans to cities and bridge, and North Attleborough will receive interest-free towns for clean water and drinking water infrastrucloans to upgrade wastewater treatment facilities. The ture development. Since its establishment in 1989, loans were awarded to projects that specifically focus the WPAT has loaned nearly $6 billion to improve and on reducing environmentally harmful nutrients that flow maintain the quality of water in the Commonwealth into local water bodies from wastewater discharges. while creating numerous direct and indirect jobs. An Specific details about the three projects funded by estimated 97 percent of Massachusetts’ citizens have the loans are: benefited from the MWPAT’s financial assistance. continued on page 13 • Leominster: $28 million in loans to refurbish the city’s secondary wastewater treatment facility, which has not undergone any significant Aon Risk Solutions upgrade since being built 30 Construction Services Group years ago. The improvements will permit the facility to clean up discharge into the North Nashua River, and ultimately, the Atlantic Ocean. The interest-free arrangement will save the city an estimated $15.2 million comAs the leading provider of risk solutions to the construction industry, Aon pared to market rates.

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617.457.7715 617.457.7699 617.457.7727 • North Attleborough: $25.7 mark.herendeen@aon.com mark.toglia@aon.com million to fund upgrades to the town’s wastewater treatment facility and improve the quality of the facility’s discharge into the Ten Mile River. The interestfree arrangement will save the town an estimated $13.9 million compared to market rates.

Susan Perez, Executive Director of the WPAT, commented that she was “proud to be able to offer these communities additional financial assistance below our normal 2 percent loans. These borrowers have shown a commitment to protecting their citizens and the enRisk. Reinsurance. Human Resources. vironment by implementing further controls over nutrient flow into surrounding

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Legislative Update continued from page 11

“Tech Tax” on Computer and Software Design Services Repealed

L

eaders of the Massachusetts House of Representatives and Massachusetts Senate acquiesced to the growing chorus of concern about the potential growth of a recently implemented tax on computer and software design services. Governor Patrick signed the repeal into law shortly thereafter in a bid to quell the perception that Massachusetts was not friendly to high tech industries or those relying on computer and software design services.

While the effort to repeal the tax initiative faced rancor within the House, the Senate saw legislators attempt to replace the tax with an increase in other taxes. Senator Cynthia Creem, attempting to raise the gas tax further, argued that with the tech tax gone there will not be enough money to invest in transportation. The proposed amendment, which was ultimately rejected, would have raised the current gas tax from 24 cents to 29 cents.

The tech tax was counted on to raise $160 million and was part of the $500 million tax package approved this summer, which included a 3-cent per

gallon increase in the gas tax and $1 tax increase on tobacco products. Future gas tax increases are tied to inflation. With House Speaker Robert DeLeo indicating his inclination to not levy a new tax to replace the “tech tax”, as it became known, leaders pointed to the fact that higher than expected revenues will provide sufficient revenue on a go forward basis. continued on page 15

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Legislative Update continued from page 13

Town of Lexington Weighs Potential Increase in Water and Sewer Rates to Meet Water Infrastructure Needs for 2014

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he Lexington Minuteman newspaper reports that the Town of Lexington could see an increase in its water and sewer rates soon.

Lexington's Finance Department is proposing an increase for a combined 3.6 percent hike for Lexington’s water and wastewater rates. This increase would affect households based on their annual water usage, measured in hundred cubic feet (HCF).

Those who use the least amount of water, roughly 50 HCF per year, would see an increase on their annual bill of 2.4 percent or $12.50. The average user, 120 HCF, would see a 2.3 percent increase, or $35.60 annually. The highest users, 1,000 HCF, would see an increase of 2.2 percent each year. The water budget will increase from $8.14 million to $8.67 million, a 6.7 percent increase. On the wastewater side, there would be a .9 percent increase, jumping the budget from $9.14 million to $9.22 million.

According to the published report, the Town also receives money from Bedford through an agreement where Lexington sells the water it buys from the MWRA to Bedford. The rate increase is expected to be approved in the month of October. continued on page 17

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Legislative Update continued from page 15

Attorney General Martha Coakley Announces Bid for Corner Office

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ttorney General Martha Coakley, who was considering whether to run for a third term at the helm of the Office of Attorney General, announced that she will run as a candidate for Governor instead.

Coakley joins a growing Democratic field vying to succeed Governor Deval Patrick that already includes Treasurer Steven Grossman, former United States Office of Medicaid and Medicare Director, Donald Berwick; national security expert and former columnist, Juliette Kayyem; Wellesley biotech executive and physician, Joseph Avellone and, potentially, State Senator Dan Wolf.

Republican Charles Baker is also running for governor for a second time, and independent Evan

Falchuk has declared his candidacy.

While Coakley was defeated by former Senator Scott Brown in 2010 for U.S. Senate following the death of the late Sen. Edward Kennedy, she returned to the Attorney General’s Office with zeal and vigor. In addition to her work on behalf of foreclosed homeowners and victims of human trafficking, Attorney General Coakley played a prominent role in challenging the Defense of Marriage Act in the United States Supreme Court. Coakley, a native of North Adams, Massachusetts and a graduate of the Boston University School of Law, will relinquish her seat as Attorney General at the end of 2014. No candidates have announced their intentions to run for her seat at this time. n

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How Funding a Secondary Trust Fund Can Assist Municipalities and Regional Authorities

By Mark Molloy, Esq., Lynch Associates, Inc.

Financing the Commonwealth’s water infrastructure needs will be no easy proposition. Whether through direct revenue, bonds, or some other source, funding of some type is needed. Whatever funding source is identified, the greater question will be how new funding is to be utilized. The Massachusetts Water Infrastructure Finance Commission, after hearing testimony from impacted parties throughout the Commonwealth, came to the conclusion that new revenue should flow, in part, to a newly established secondary trust fund. This article will look at potential uses of a secondary trust fund that will provide assistance to municipalities and regional water authorities without competing against existing government programs.

T

he first principle that must underpin the use of any secondary trust fund is that it should not compete with existing, successful government programs. The Water Pollution Abatement Trust’s (WPAT’s) Clean Water / Drinking Water SRF (“State Revolving Loan Fund”) is one such government program. In one of the Commonwealth’s best-kept secrets, few people recognize the important role that the WPAT has played in creating jobs while assisting municipalities and regional water authorities to address their water infrastructure needs. To implement a mechanism that would create competition with the SRF program simply serves to undercut job growth and reasonable financial accountability. Accordingly, any secondary trust mechanism must not compete against the WPAT’s successful SRF program or other similar government programs.

A secondary trust fund can complement the WPAT’s existing SRF program and other government programs through flexibility of purpose and strategic funding according to need. As contemplated, a secondary trust fund, ideally managed by the WPAT, could be used for a variety of purposes ranging from pre-SRF technical assistance (i.e., asset management assistance, fair pricing initiatives, conservation pricing, etc.) for municipalities and regional water authorities as well as the fostering of

OCTOBER, 2013

regional partnerships to principal forgiveness for using the SRF program. Access to these new funds could be structured to be an incentive for municipalities, authorities, and districts that adopt best management practices in full cost pricing, financial management, asset management and environmental sustainability, and use watershed-based solutions and regional approaches.

Consider the following scenario. A municipality recognizes the importance of investing in a water infrastructure project. The town has recently seen declining tax revenue. The WPAT, DEP and the town recognize this is a project that must be completed. It is a $5 million project. After application, the project is included as part of the Department of Environmental Protection’s intended use plan of approved projects. With the creation and funding of a secondary trust, the WPAT could receive 20% ($1 million) of principal forgiveness from the secondary trust to reduce the municipality’s overall obligation. Instead of a $5 million loan with 2% interest (Overall cost: $6.2 million); the municipality will be responsible for a $4 million loan with 2% interest (Overall cost: $4.96 million). A struggling municipality, through principal forgiveness provided under the secondary trust, would save $1.24 million.

The aforementioned example highlights one pocontinued on page 20

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Secondary Trust Fund continued from page 19

Sample Use of Secondary Trust Fund DEP (Project: $5,000,0 00) - IUP list contains project for WPAT funding. Municipality or regional water authority may have additional finance needs Secondary Trust pays 20% of the approved cost ($1,000,000) to WPAT

WPAT uses f unding capacity & the secondary trust to provide loan

Communities pay to WPAT $4,000,000 plus 2% interest

Municipalities and regional water authorities receive loan agreement totaling $5,000,000 with 2% interest and 20% principal forgiveness.

continued on page 21

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OCTOBER, 2013

Secondary Trust Fund continued from page 20 tential application of the secondary trust; its flexible design would enable the WPAT to determine its best application in complementing the SRF program from year to year. In some years, the WPAT, led by the DEP Commissioner, Treasurer, and the Secretary of the Executive Office of Administration and Finance, may determine that principal forgiveness is necessary to complement the SRF program. In other years, the WPAT may recognize that without technical assistance, a municipality or regional water authority will not continue to progress – either for purposes of qualifying for a SRF loan or protecting a previous investment through the SRF. While it is most likely that a combination of these initiatives could be undertaken at the same time, the key will be that the use of the secondary trust fund remains flexible.

As a final thought, it should be noted that the creation of a secondary trust fund could be used in a manner that further encourages any required reforms within the water infrastructure system.

Want to ensure that municipalities or regional water authorities have an asset management plan in place? Want to ensure that municipalities or regional water authorities have a realistic pricing mechanism in place? Want to ensure municipalities and regional water authorities coordinate infrastructure projects to improve efficiency? Make it a requirement for receiving funding from the secondary trust.

The potential for a secondary trust fund to provide greater investment in our Commonwealth’s infrastructure is significant. Creating a secondary funding mechanism, however, must complement existing programs, not compete against them. Programs like the WPAT’s Clean Water and Drinking Water SRF successfully finance projects, assist municipalities and create jobs. With the added flexibility of a secondary trust fund, these programs will be able to give an incentive to more municipalities and regional water authorities to invest in their water infrastructure. n OCTOBER, 2013

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Scott A. McQuilkin

Differing Standards for Front-Loading on State vs. Federal Projects Note: I would like to acknowledge the assistance of my colleague, Scott McQuilkin, who prepared this article. Scott is an Associate at Hinckley Allen LLP’s Construction and Public Contracts Group.

Front-loading is a well-known method of unbalanced bidding in which a bidder submits an abnormally high bid price for items that the owner pays for first. The bidder receives more money at the beginning of the project than the actual value of the work that will be performed. In essence, the owner could be put in the position of financing its own project.

Contractors should be aware that state and federal authorities will analyze potentially front-loaded bids differently.

On state projects in Massachusetts, a front-loaded bid may result in the rejection of the bid or provide grounds for overturning a contract award without much analysis by some awarding authorities or the Attorney General’s Office as to whether accepting the front-loaded bid would cause actual harm to the awarding authority. Federal authorities, however, may exercise discretion and analyze whether a front-loaded bid has upset equal footing or will likely cause some other harm.

At the federal level, the analysis is OCTOBER, 2013

controlled by federal regulations and statutes. Under the required analysis, contracting officers have discretion to allow a certain amount of front-loading – so long as the subject bid is unlikely to harm the government (by causing the government to pay an unreasonably high price), create an unfair advantage over other bidders, and result or amount to an advance payment for work not performed.

Contractors must be wary, however, that a patently front-loaded bid will likely be rejected on a federal project just as it would be rejected on a state project. continued on page 25

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Legal Corner continued from page 23

Front-Loading on Public Projects in Massachusetts While unbalanced bidding is, in general, permissible in Massachusetts1, unbalancing a bid by frontloading is improper. A bidder can penny bid some items, and submit abnormally high prices on other items. But if the abnormally high prices are for work items performed at the beginning of the project, the bid may be rejected as being front-loaded.

The two reasons most often cited by the Massachusetts Attorney General’s Office (“AGO”) as to why front-loading is impermissible are that (1) it can upset the equal footing principal, and (2) it threatens an awarding authority’s ability to control the project.

Equal footing can be compromised because front-loading gives the bidder an unfair advantage by allowing the bidder to recover more money up front than the other bidders. As to “control,” the concern is that if the contractor receives too much of its overIn fact, it is even permissible to bid below cost or engage in other forms of strategic bidding as long as the strategic bidding is not combined with some other form of manipulation (such as front end loading) that gives the bidder an unfair advantage.

1

Equal footing can be compromised because front-loading gives the bidder an unfair advantage by allowing the bidder to recover more money up front than the other bidders. head and profit early on in the project, the contractor will have little incentive to perform the remaining work satisfactorily.

Awarding authorities and/or the AGO may reject a bid or overturn a contract award once it is determined that a bid is front-loaded without much analysis as to whether the front-loaded bid will likely cause harm.

In some instances, however, authorities have looked beyond the mere fact of whether a bid is front-loaded and have upheld awards of front-loaded bids if they have determined that allowing the award to stand will not cause harm to the bid process or the authority.

Notably, the potential harm to an awarding authority in the case of a below cost bid is essentially the same as the potential harm in the case of frontcontinued on page 27

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Legal Corner continued from page 25 loading. In each case, there is a risk that due to the structure of the bid, the contractor will have little incentive to complete the work satisfactorily. A below cost bid will not be overturned (unless it is combined with some form of bid manipulation), but a front-loaded bid may be overturned.

Front-Loading on Federal Projects Federal contracting officers are required by federal law and federal regulations to look beyond the mere fact of front-loading to determine whether an apparent front-loaded bid will likely cause harm or increase risks to the government.

The harms of front-loading that federal contracting officers focus on are similar to the harms identified by the Massachusetts AGO. They include: • Allowing the bidder the unfair advantage of the use of interest-free money for contract start-up purposes; • Providing a disincentive for the government to administer the contract properly (for example, after making the front-loaded payments, the government may be disinclined to terminate a non-performing contractor); and • Increasing the financial risk to the government if the contract must be terminated after the front-loaded items are paid for.

In reviewing potentially front-loaded bids, federal contracting officers must: • Consider the risks to the Government associated with the unbalanced pricing in determining the competitive range and in making the source selection decision; and • Consider whether award of the contract will result in paying unreasonably high prices for contract performance.

In addition, a federal statute, the Advance Payment Act, prohibits the government from making “a payment under a contract to provide a service or deliver an article for the United States Government” that is “more than the value of the service already provided or the article already delivered.” Accordingly, contracting officers must also consider whether the apparent front-loading will amount to an advance payment.

The contracting officer may reject the bid if the officer determines that the lack of balance poses an unacceptable risk of harm to the Government and/or will result in an improper advance payment.

Importantly, not all seemingly over-priced frontend items are determined to be improper advance

OCTOBER, 2013

payments. For example, in one case, the Comptroller General did not find improper front-loading, even though the low bidder submitted a price of $450,861 for mobilization, which was $200,000 higher than the government estimate, and $155,000 higher than the next lowest bidder’s estimate for mobilization.

Because the costs appeared to be “reasonably related” to the low bidder’s actual costs, they did not constitute an improper “advance payment.”

If, however, the contractor’s price for front-end items is grossly disproportionate to the estimated cost or appears to bear no relation to the cost of the work, the bid will be deemed to be improperly frontloaded. For example, in F&E Erection Company, the low bidder bid $75,000 and $150,000 respectively for bid items estimated to cost $13,471 and $11,744. The Comptroller General determined that the bid prices were “far in excess of the value of the work performed under those line items,” and would therefore amount, essentially, to improper advance payments.

In short, while the federal analysis seems to allow for a certain amount of front-loading on federal projects, contractors must be wary that front-loaded bids that are deemed to be, essentially, advance payments for work not yet performed, and/or that contain grossly disproportionate pricing, will be rejected.

Conclusion Contractors should be aware of the approaches taken by federal and state awarding authorities in analyzing potentially front-loaded bids, and should take these approaches into account when determining how to structure their bids. n

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Environmental Viewpoint Robin L. Main, Esq.

Rhiannon Campbell, Esq.

Hinckley Allen, LLP

NSR Preconstruction Permitting and Proposed Changes Note: Robin L. Main is a Partner in Hinckley Allen LLP’s litigation group and co-chair of the firm’s environmental practice group. Rhiannon A. Campbell is an Associate in Hinckley Allen LLP’s litigation and environmental practice groups. Samantha J. Chu is a J.D. Candidate at the University of Connecticut School of Law.

As part of the 1977 Clean Air Act Amendments, Congress established the New Source Review (“NSR”) permitting program under the umbrella of the United States Environmental Protection Agency (“EPA”).

Also known as construction permitting or preconstruction permitting, NSR is a preconstruction permitting program serving two important purposes.

First, NSR ensures that air quality is not significantly degraded from the addition of new and modified factories, industrial boilers, and power plants. In areas with unhealthy air, NSR assures that new emissions do not slow progress toward cleaner air. In areas with clean air, NSR assures that new emissions will not significantly worsen air quality. Second, NSR assures the public that any large, new, or modified industrial source in their neighborhoods will be as clean as possible, and that advances in pollution control occur concurrently with industrial pollution.

In short, NSR requires stationary sources of air pollution to get permits before they start construction.

NSR permits are issued by state or local air pollution control agencies and facility owners/operators must abide by them. A NSR permit specifies what construction is permitted, what emission limits must be abided by, and often how a source may be operated.

A NSR permit may also contain conditions to ensure that a source is designed to match the parameters of the application relied on during its review process.

OCTOBER, 2013

There are three types of NSR permitting requirements: (1) Prevention of Significant Deterioration (“PSD”) permits which are required for new major sources or a major source making a major modification in an area where levels of pollutants meet primary health standards; (2) Non-attainment NSR permits which are required for new major sources or major sources making a major modification in an area where levels of pollutants exceed primary health standards and; (3) Minor source permits. A stationary source of air pollution must meet one or more of these permitting requirements.

The EPA establishes the basic requirements for a NSR program and is the permitting authority in some jurisdictions. Thus, where state or local air pollution control agencies have not developed a unique NSR program, they rely completely on the EPA's NSR program. These areas, like Massachusetts, are delegated the authority to issue permits on behalf of EPA and are often referred to as "delegated states." However, states may develop their own unique NSR requirements and procedures so long as the program’s requirements are at least as stringent as EPA's requirements. A state's NSR program is defined and codified in its State Implementation Plan (“SIP”). n

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ASSOCIATE MEMBER OF THE MONTH

Scrap-It, Inc.’s Second Street location in Everett, MA

30

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OCTOBER, 2013

Years ago, when scrap metal was thought of as just that…scrap, a person with a small truck could troll the streets picking up metal that had been cast aside at construction sites, demolitions, or dumping grounds, and sell his load to a junk dealer, turning a small profit. The common belief was that anyone could start a scrap metal business, but who would want to?

Well, luckily there was one…Frank Minichiello, Sr. Frank was the founder of what would become Minichiello Bros., Inc./Scrap-It, Inc., a once local company that has now expanded and performs services throughout the New England area.

Post WW II Dismantling Ships Starting his business over 60 years ago, post-WW II, Frank saw an opportunity to make a living by focusing on dismantling all types of ships, including battleships and submarines. When the dismantling business waned, Frank turned to buying scrap metal, and over time his company grew into a successful business.

Starting from the Bottom of the Bucket In his early days working in the scrap metal yard, Frank’s son Frankie vividly remembers the lessons taught by his father and credits him with much of his success today. “He taught me about life and how much work went into making a dollar.” Frankie remembers some of his earliest years, when he was just a toddler going to the yard with his father and wanting to do something. Frankie tells the story that his father put a magnet in one hand continued on page 32

OCTOBER, 2013

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31

Minichiello Bros., Inc./Scrap-It, Inc. continued from page 31 and a bucket in the other and told him to put anything that didn’t stick to the magnet in the bucket.

Starting at the bottom and working hard were virtues that Frank believed deeply. As he got older, Frankie tells how his father let him graduate to using an axe. “While there were torches and other cutting tools available, my dad handed me this axe and told me to get to work chopping up the scrap metal.” Frankie remembers chopping up cars, pipe, sheet metal, and things you thought could not be cut. “I chopped up everything using that axe,” he said.

Hard Times to Decision Time

Frank Minichiello, Sr.

According to Frankie, “Like many familyowned businesses, the company suffered as economic times changed. As the war years moved into the boom years and the value and price of scrap metal fell, so did the fortunes of the company. There was a glut of scrap metal that no one wanted and the prices reflected it.”

In addition, the founding generation as they are known—Frank, his brothers, and family members who later joined the company—got older and eventually passed away. Soon after the company closed it’s doors Frankie, having worked at the company for most of his life, believed that the core of the business was still viable, but just needed some new ideas and renewed energy. It was at that point in 1999 that he and his wife Tanya made a fateful

32

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Tanya & Frankie Minichiello

OCTOBER, 2013

decision to buy the company from family members who, had given up on the business just six months before. Borrowing money to buy the business, and with only $5,000 in his pocket, Frankie, with Tanya’s help, started to rebuild the company. Frankie credits Tanya, who is currently the company President, for much of the business success saying, “I could not have done it without her.”

Scrap Metal Prices Skyrocket As with most situations, if you wait long enough things will change. Scrap metal prices, which had been depressed, started to rebound. The company’s single location in Everett, MA eventually expanded into a second location off Route 12 in Swanzey, NH, a third on Second Street in Everett, and a fourth on Meridian Street in East Boston, which is a ship dismantling facility. Frankie and Tanya are preparing a “soon to open” fifth location on Breed Ave. in Woburn, MA for their spin-off company, Scrap-It, Inc. In fact, Ralph Carbonaro, General Manager of the NH facility was asked by NHDES to participate as a scrap metal stakeholder at their meetings to help re-write the the scrap metal regulations for the State of NH. According to Ralph, this facility is currently being used by the state as a model of how a scrap metal facility should be set up and operated. In the future, Frank and Tanya are thinking about a location close to a rail siding, or one that can support an auto shredder or a high temperature furnace for processing “irony aluminum”.

While a company needs fresh ideas to grow, sometimes looking back at what was successful in the past presents new opportunities for the future. Ralph explained that he will have all the manpower and standard machinery to run a successful scrap metal operation, but also as an added capability, will be able to process and dismantle automobiles. This dismantling activity is a throwback to the early days when the company dismantled ships.

Additionally, the company has expanded the types of scrap that they can process and sell. In the beginning, the company dealt with only non-ferrous metals such as copper, brass, aluminum, and stainless steel. But times are changing again and the company now accepts ferrous (iron, light iron, and cast iron) metals. The company also accepts items ranging from automobiles and automobile parts including batteries, catalytic converters, and radiators, to computer printed circuit boards, electric motors, and wire. The company is also a licensed and an approved scrap facility for the disposal of oil tanks. In the modern era, the company is doing its part to make the public aware of its responsibility to recycle with a simple saying, “Turn your metal into money.” To bring the company further into modern times, and with the price of gold hitting some all-time highs, the company also buys gold

OCTOBER, 2013

and other precious metals such as silver and platinum. In fact, the company has initiated a “Gold Party” program, whereby anyone or group of friends, family, or co-workers can get together and sell gold jewelry and other precious metals.

Wide Range of Services Provided How many ways can a scrap metal dealer provide services? That number is six according to the company website. Pick-up, Weigh and Pay is exactly that. Minichiello Bros., Inc./Scrap-It, Inc. will send a truck to your home, yard, or facility, and pay cash on the spot. Container/Rolloff is for material that can’t be weighed at their facility; fill a container, and they will swap it out and weigh the contents. Live-Loading sends a truck that will wait while you load. Boiler Removal Service will provide an employee to remove the boiler from any commercial location. Demolition and Dismantling includes clean-outs, gut-outs, and complete commercial plant takedowns. Rail Services, handled by their offshoot company, Scrap-It, Inc., specializes in “rails-to-trails” development, where the company’s equipment and employees are used to perform railroad continued on page 35

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“Nationally Ranked First-Tier in the Litigation-Construction category by U.S. News & World Report and Best Lawyers”*

U.S. News and Best Lawyers considered more than 10,000 law firms in 170 metropolitan locations *Source: U.S. News Media Group and Best Lawyers

Many thanks to our clients, peers and friends whose comments contributed to our being awarded a first-tier national ranking in the Litigation-Construction category.

h i n c k l e y a l l e n . c om ALB AN Y

B OS T ON

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Hinckley, Allen & Snyder LLP, Attorneys at Law

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Minichiello Bros., Inc./Scrap-It, Inc. cont. from page 33

The company has a great working relationship with many UCANE members. track clean-up/removal operations throughout the USA. There is also a sales/buying staff that is aggressive in purchasing and pricing, and will come to your location to advise on how to best handle your metal recycling needs.

To accomplish these services, Minichiello Bros., Inc. relies on many unique types of equipment. According to CEO Kevin Burns their present vehicle and equipment fleet counts four material handlers; three stick shears; one high reach machine; five excavators; one aluminum/stainless steel baler; seven bobcats; three frontend loaders; two stationary shears; box, tub, and flatbed trailers, and six roll-off trucks with over 150 containers.

Always Valuable and Never Spoils You can just sense from talking to Frankie that “scrap metal” is in his blood and the little kid with the magnet is still around. Frankie offered these comments about his business, saying “The best part of the business is that you get to wreck stuff. The good thing about scrap is that it doesn’t go bad; it doesn’t matter what it looks like; it still has value, and never spoils.”

Customer Service and Teamwork are Highest Priority According to Frankie, “Our company is unique. From the company President on-down through the ranks, each of us believes the key to success is customer service and innovative solutions to industrial problems, which we encounter on a daily basis. Again, we are different from most scrap yards because we believe and take pride in our facilities and yards. Also, everyone has learned that team work is very important to getting any job done ef-

OCTOBER, 2013

Fred Rogers is the company’s UCANE representative. ficiently and safely. Teamwork in the yard and always keeping our customer’s needs first are our highest priority.” Jillian Burns, the administrative director, states that, “We run our offices smoothly and efficiently, and we genuinely care about each and every one of our employees, as well as our customers, and do our best to keep smiles on everyone’s face every day.”

Working with UCANE Members According to Fred Rogers, who is the company’s UCANE representative, Minichiello Bros., Inc./Scrap-It, Inc. continues to have a great working relationship with UCANE members. “We have had multiple projects this year working for the MassDOT, clearing out their facilities, as well as currently working with McCourt Construction Co., P. Gioiosio & Sons, Inc., and SPS New England, Inc. to name just a few companies. We are happy to be part of the UCANE family and hopefully we will be able to make our mutually beneficial services known to other companies.”

UCANE is proud to count Minichiello Bros., Inc./Scrap-It, Inc. as one of our Association newest members. Our officers, board, and staff wish them continued growth and success. n

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The Importance of Business Succession Planning

Kevin Ellman, CFP

Paul D. Miller

Wealth Preservation Solutions, LLC

Bag Lady Syndrome Recently, I got a call from one of my clients who lost her husband about a year ago. She was completely stressed and wound up. When I asked her what was wrong, she told me that she was working three different jobs and was miserable. “Why” I asked, “are you working three jobs?” Her response: “I’m terrified of running out of money and becoming a homeless person!”

I

was a little befuddled. She (and her husband) had been my client for the last 10 years, and in our most recent meeting, a few months earlier, I had reviewed her finances and cash flow and assured her that she had more than enough money to retire on while still maintaining her lifestyle.

I asked her to tell me about her jobs. She told me that she hated two of the jobs but really loved the third one. “I work in a surf shop with a bunch of young people; it makes me feel young, and I am even learning how to surf!” I advised her to quit the two jobs she hated, and, even though she did not need the money, to keep the third job for as long as it made her happy.

My client’s fear is a perfect example of what I call “Bag Lady Syndrome,” in other words, the fear of running out of money. In fact, the most often cited cause of stress among all Americans is related to, plain and simple, money. This fear and related stress seems to take a particularly heavy toll on women, regardless of status; single, married, divorced, widowed, or affluent.

Frankly, it is not an irrational or unfounded fear. Everyone should take steps to make sure they do not run out of money. Why? Because all of the retirement systems currently in place were conceived at a time when people did not live as long as they do today. When social security was created, average life expectancy was around 67. In 2013, average life expectancies are pushing into the 80s. This, coupled with the fact that women tend to outlive men, means that it is wise to plan for a much longer period of living in retirement.

OCTOBER, 2013

So, what can you do? Plan!

Step One: Know where you stand NOW. If you are a do-it-yourselfer, you can go onto any one of a hundred websites for retirement planning. If not, then you need to work with a financial advisor who will review your goals, gather all the facts, and present you with a snapshot of your current financial position.

Step Two: Once you know where you stand today, consider your options, ask questions, and plan for the future. Are your investments working hard enough? Do you need to start saving more and spending less? Do you need to consider working part continued on page 39

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Succession Planning continued from page 37

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time in retirement? A financial advisor should be able to help you understand all of your alternatives and set realistic goals.

Step Three: Take action. Implement and follow a plan. Make the changes your advisor recommends. No matter how you plan to spend your retirement years, solidifying and sticking to a plan will make it more likely that you will be able to turn your vision into reality.

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UCANE Members Present Three Successful Infrastructure Projects and the Challenges They Faced

W

Featuring: Brian Rawston and Shawn Wyatt, Jay Cashman, Inc. Ryan McCourt, McCourt Construction Co. Jeff Bardell, Daniel O’Connell’s Sons, Inc.

here else but at a UCANE meeting could our members hear presentations about three widely varying and successful infrastructure projects? These included a marine dredging and wharf construction project; the undertaking of a multi-year major highway/bridge and utility expansion; and a water treatment plant UV modernization job. Three of our Association’s most successful and respected companies were the drawing cards for another great turnout at UCANE’s September Dinner Meeting.

UCANE’s Executive Director, Anne Klayman kicked off the meeting by introducing two new member companies and their representatives. The first was Fred Rogers of Scrap-It, Inc./Minichiello Bros.

Inc., who was sponsored by Gino Gioioso of P. Gioioso & Sons, Inc. Anne then welcomed back former members, Dennis Ford, Jim Agis, and John Shannahan each of whom had recently joined HD Supply White Cap. Prospective members Collette Cullen and Hernan Chappuzeau of AFLAC Insurance, sponsored by Jim D’Amico of J. D’Amico, Inc. were also introduced.

Anne began the evening’s program by stating, “Tonight you will hear about three companies whose skill, determination, and experience to overcome unbelievable challenges to complete their jobs will give all of us great pride in knowing that the industry you support and derive your living from is one that requires men and women with talent, intelligence, and the American ‘can do’ attitude.”

40

New Bedford Marine Commerce Terminal Project The first speakers were Brian Rawston, Chief Estimator, and Shawn Wyatt, Project Manager, from Jay Cashman, Inc. who gave an overview of the New Bedford Marine Commerce Terminal project.

This is a $60 million project that has a very unique dredging component as well as an equally challenging construction component, which requires the installation of 1,000 feet of new bulkhead and wharf structure, designed to sustain loads of 4,000 pounds per square foot. The project is scheduled to take 20 months to complete with the first six to be spent on dredging. When complete, the job will service as the storage and loading facilities for the Cape Wind Project, which is scheduled to begin in the spring of 2015.

Route 128 Add-a-Lane Project The next speaker was Ryan McCourt, President of McCourt Construction Co. who spoke on the company’s multi-year Route 128 Add-a-Lane project.

Ryan provided some interesting background about Route 128, or the “Boston Bypass” as it was called when it was first completed in 1956. He said, “The highway originally extended from Hull to Gloucester.

In 1991, because the number of automobiles using the highway began to exceed its design, the use of the breakdown lane was allowed during rush hour to help alleviate traffic congestion.”

The current project includes adding a lane, rebuilding 22 bridges, and upgrading underground utility

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Shawn Wyatt, Project Manager and Brian Rawston, Chief Estimator Drillboat Kraken Jay Cashman, Inc.

Ryan McCourt, President McCourt Construction Co.

Jeff Bardell, President Daniel O’Connell’s Sons, Inc.

John Carroll WTP UV Facility

12

Bid Date

Contract Amount LocaFon

The New Bedford Marine Commerce Terminal Owner

Owner’s Team

Designer

Design Team

Contractor

GC Team

March 29, 2011 $29,413,382 Marlboro, MA

The Route 128 Add-a-Lane Project

John J. Carroll Water Treatment Plant UV Facility

MWRA William Sullivan – Design Manager and drainage structures over a 14.3 mile distance between Route 24 to the south and Route the north.

Anandan Havanandan – “Nava” – Director of 9CtoonstrucFon It will be done in five separate segments totaling over Charlie ScoV $315 – ConstrucFon Coordinator million. McCourt Construction was low bidder on Segments 3 and 4, when combined is a 7-year project. The company is ending the fifth year of the project AECOM with Segment 3 substantially completed and Segment Brian Antonevich – Senior Project M 4 scheduled for completion in anager 2015.

Mark Phelan – RSome esident Engineer notable facts about McCourt’s job are that

there was over 350,000 tons of excavation material removed from the site; more than 1,000 drainage struc Daniel O’Connell’s Sons tures were replaced or rebuilt; and over nine miles of – drainage pipe installed. Six retaining walls, two Barbara Kelley Project Manager miles–of sound barrier, and two culverts were also in Richard Jackson Superintendent stalled, while seven bridges were reconstructed. Over

250,000 tons of asphalt was required for the highway expansion. Equally challenging to the construction effort was the severe traffic constraints imposed which included maintaining the flow of 200,000 vehicles per day while keeping all lanes open during high volume traffic periods. The overall construction challenges, as well as the traffic constraints, required McCourt to maintain flexible crews, with much of the work being performed at night. While a very challenging project, McCourt plans to complete the project on-time. continued on page 43

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Dinner Meeting continued from page 41

John Carroll Water Treatment Plant UV Upgrade Project The third speaker was Jeff Bardell, President of Daniel O’Connell’s Sons, Inc. who presented an overview of the John Carroll Water Treatment Plant Facility Ultraviolet Upgrade. The goal of the project was to bring the facility up to the current EPA guidelines for maintaining two means of treatment. One of the first efforts was to isolate the storage tanks. This was done by installing temporary gates to allow the plant to continue to function. Jeff stated, “We then got to do what all contractors like to do, we got to break things.” The storage tanks were then demolished and steel baffle walls removed.

Core holes for the 48-inch discharge piping were drilled, and finally the UV reactors, “magic tubes that kill bugs” were installed. The project was completed a year earlier than planned.

Anne concluded the evening by presenting each speaker with a gift in appreciation for taking the time out of their busy schedules to showcase their projects. n

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Beyond Compliance: Tips to Maximize Trench Safety Training Safe work is efficient work; efficient work is profitable work. Any contractor who’s been around the track a few times knows that these statements are true. The “P&L effect” of a safe work environment, and the importance of OSHA compliance, are equally good reasons to choose the most effective training program for your workers.

C

lasses in confined space entry training (CSE) on OSHA standard 29 CFR 1910.146, and excavation safety training for competent persons (CPT) on OSHA standard 1926 subpart P, are widely available from industry suppliers, private providers, universities and online sources. Although all are designed to satisfy OSHA requirements, the instruction methods and even the instructors themselves can be substantially different.

Given the importance of risk management in the construction business model, it’s well worth the effort to identify the best trench safety training programs for your particular business. Here are some things to consider: Field perspective. If you had the choice, would you learn to drive a car from someone who has done it before or only read about it in a book? Many contractors find that instructors with hands-on field experience are better equipped to convey both the technical information and the practical application of CSE and CPT content to workers.

As one example, a worker entering a confined space may use a lifeline and retrieval system “by the book.” But if that worker suddenly loses consciousness from toxic gas, a few seconds can make a difference between life and death. Does the coworker

OCTOBER, 2013

above ground know whether to crank the winch to the left or to the right? By sharing real-life jobsite stories, an instructor with field experience can help trainees retain critical information.

Regionality. Regional differences in vocabulary, trade terminology, and regulations can reduce trainee retention if the program does not address continued on page 49

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Safety First continued from page 47 them. A blower in one area of the country may be called a ventilator or fan somewhere else – that small thing can be a stumbling block to learning. Soils differ widely from one region to another, and even the same soil may be described locally in different terms. Another consideration is state-specific requirements: some states and municipalities have regulations that add another layer of compliance to the federal standards.

For these reasons, I have found it more effective to base instructors permanently in a region, rather than use a centralized curriculum with traveling instructors. While a more generic program can adequately certify workers, any local or state variances

will need to be communicated by the contractor.

Touch and feel. Have you ever held a multi-gas monitor in your hand? Neither have most of the construction workers who attend confined space training classes. Being able to examine a gas monitor, tripod hoist, or ventilation duct can be as valuable as reading about hydrogen sulfide or carbon monoxide levels in a textbook.

Again, one is not a substitute for the other – it’s a case of practical application reinforcing theoretical instruction. If you feel your employees will respond to “touch and feel” CSE and CPT training, then look for a program that includes access to equipment as part of the curriculum.

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Managing risk can be very difficult. Which is why it’s critical to obtain adequate and proper insurance coverages. Our underwriting specialists will work with your best interests in mind when proposing solutions to your insurance needs.

When it’s time to navigate through the complexities of surety bonding, you can rely on our expertise and connections to get you aggressive representation and unbeatable access to industry decision-makers.

“The entire surety bonding team at Driscoll has the experience, expertise and industry contacts to give us the best possible representation and service.

In an industry as specialized as ours, we wouldn’t consider letting any other agency handle this important need of our company.” – Satisfied Client To discover the Driscoll difference, contact Tim Lyons, Bond Department Manager at 781-421-2560 or tlyons@driscollagency.com.

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The convenience factor. With the advent of online train-

ing, CSE, and CPT compliance can be accomplished with minimal disruption to the workday. There are some trade-offs, such as the lack of face-to-face interaction with an instructor. Nevertheless, web-based training can be the best practicable avenue for workers who find it easier to train on their own schedule.

A good middle ground, from a convenience standpoint, is to find a provider with a large branch network and a reliable schedule of holding classes at least once a month at each location. This has the advantage of face-to-face sessions without delaying project schedules.

Alternatively, some providers will train crews at the contractor’s place of business – a more convenient option if you have a large group that needs to be trained at one time.

Ultimately, any recognized and complete trench safety training program with a good track record will tick the box on compliance and go a long way toward keeping your workers injury-free. But there are degrees of effectiveness – and smart contractors connect the dots between safety, efficiency, and profitability. When you put in the effort to identify a “best fit” training provider, you demonstrate a top-down commitment to the health and welfare of your crew as well as your business. n

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John E. Merchant, CPA

Cullen, Murphy & Co., P.C.

IN THIS ISSUE • Tax Planning for Same-Sex Spouses • Don’t Waste 529 Tax Benefits • IRS Approves Simpler Home Office Deductions

Smart Tax, Business & Planning Ideas from your Tr

Tax Planning for Same-Sex Spouse

Tax Planning for Same-Sex Spouses

T

he Supreme Court ruled in June this year (Windsor, No. 12-307 (U.S. 6/26/13)) that Section 3 of the federal Defense of Marriage Act (DOMA) was unconstitutional. This decision has many consequences, including a major impact on tax law.

Under the Windsor decision, same-sex marriages will be recognized for federal tax purposes if the couple was married in a state that permits same-sex marriages and still lives in such a state.

Example: Judy Adams and Kathy Benson were married in Maine and still live there, so they qualify for federal tax treatment as a married couple. The same would be true if they moved to Minnesota.

However, if this couple had moved to, say, Indiana, where such marriages are not allowed, their status would be unclear. Under Section 2 of DOMA (not struck down by the Court), Indiana doesn’t have to recognize their Maine same-sex marriage. Whether they would still be recognized as married for federal purposes was not addressed by the Court. It is also unclear how the decision applies to the status of same-sex couples in civil unions and domestic partnerships in states that recognize those relationships.

Going forward, the federal government may issue clarification on these points. For OCTOBER, 2013

Example: Judy and Kathy Benson married in Maine live there, so they q for federal tax trea as a married coupl same would be tru moved to Minneso However, if thi had moved to, say, where such marria not allowed, their would be unclear.

Section 2 of DOM (not struck down Court), Indiana do have to recognize t Maine same-sex m Whether they wou be recognized as m for federal purpose The Supreme Court ruled in June who were not addressed by the Court. It is now, same-sex couples married this year (Windsor, No. 12-307 (U.S. unclear how the decision applies and still reside in states recognizing their 6/26/13)) that Section 3 of the federal status of same-sex couples in civ marriages qualify federal treatment.

Defense of Marriage Actfor (DOMA) was taxand domestic partnerships in sta unconstitutional.

This decision has key many changes. recognize those relationships.

Following are some of the consequences, including a major impact Going forward, the federal on tax law. government may issue clarificatio Income Tax Under the Windsor decision, same-sex these points. For now, same-sex c marriages be recognized for federal whosingle were married Legallywill married couples can’t file as tax- and still resid tax purposes if thethey couple wasfile married states payers.

Instead, can joint in returns orrecognizing use the their marriage a state that permits same-sex marriages for federal tax treatment. Follow “married filing separately” status. and still lives in such a state. some of the key changes.

Generally, joint tax returns will produce a lower tax bill. However, if both spouses have high incomes, combining their earnings on a joint return may lead to a larger tax bill. Similarly, married individuals might be better off filing separately if one spouse has substantial itemized deductions, such as unreimbursed medical expenses. continued on page 53

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OCTOBER, 2013

Financial Management continued from page 51 Estate and Gift Tax The Supreme Court’s decision in Windsor actually resulted from an estate tax case. Edith Windsor brought the action, seeking to recover $363,000 in federal estate tax she had paid after her spouse’s death in 2009.

Under federal law, a deduction (the marital deduction) generally is allowed for estate tax purposes for the value of bequests to a surviving spouse, regardless of the amount involved. The marital deduction makes it possible for spouses to leave assets to each other without incurring a federal estate tax obligation. Under the holding in Windsor, the marital deduction now applies to same-sex couples. Moreover, the “portability” section of the tax code now applies to same-sex married couples as well: the second spouse to die can use the other spouse’s unused federal estate tax exemption, with proper planning.

Gifts between spouses now are also tax exempt.

Thus, Judy Adams from our example can give her spouse, Kathy, more than $14,000 this year without having to be concerned about filing a gift tax return or losing some of her estate tax exemption. Moreover, unlimited tax-free gifts between spouses may give some samesex couples more flexibility in their estate planning.

Same-sex couples now can split gifts, too. If Judy wants to give her niece $28,000 this year, to help pay for college or buy a condo, Kathy can elect to absorb half the gift, for tax purposes, so neither spouse will have exceeded the current $14,000 annual gift tax exclusion.

consent from the spouse to retain the non-spouse as the beneficiary, according to the plan’s rules.

IRAs As Individual Retirement Accounts, IRAs do not have the same spousal privileges and requirements that bind employer plans such as 401(k)s. Nevertheless, same-sex couples will enjoy some easing of IRA restrictions.

• Contributions. Individuals with no earned income can’t contribute to IRAs. A worker’s spouse can, however. Thus, if Judy works while Kathy stays home to do household tasks, both spouses can make full contributions to IRAs. • Distributions. After age 701⁄2, IRA owners must take taxable required minimum distributions (RMDs). An IRA owner with a spouse more than 10 years younger can take smaller RMDs, leaving more money in the tax deferred IRA. • Beneficiaries. A surviving spouse can roll an inherited IRA to his or her own name, designate new beneficiaries, and perhaps delay RMDs. A nonspouse IRA beneficiary does not have this privilege. continued on page 55

Employee Benefits The Supreme Court’s decision will also affect the tax treatment of employee benefits. Same-sex spouses who paid tax on imputed income from group health insurance coverage no longer will have to do so, for example. Medical expenses incurred by same-sex spouses now can qualify for pretax reimbursement from flexible savings accounts and health savings accounts.

Beyond health benefits, same-sex spouses have new status in relation to qualified retirement plans such as 401(k)s. In most cases, spouses are entitled to survivor benefits, to veto power over plan loans, and to joint pensions. A spouse’s consent is usually necessary, therefore, if a married plan participant wants to name a non-spouse as primary retirement account beneficiary or wants to retire with a single life annuity.

Therefore, same-sex spouses should go over their employee benefits carefully. If a non-spouse is currently the retirement plan beneficiary, for instance, the plan participant should either name the spouse as the new primary beneficiary or obtain a written

OCTOBER, 2013

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Financial Management continued from page 53

Q

Don’t Waste 529 Tax Benefits

ualified tuition programs (QTPs), also known as 529 plans, offer substantial tax benefits. Investment earnings inside such plans avoid income tax. In addition, distributions from 529 plans to cover qualified higher education costs are tax-free.

However, you’ll lose the full value of 529 tax benefits if you’re not careful about managing distributions. One trap is taking out too much money; another involves not pulling enough money from your 529.

Expensive Excess The risk of insufficient 529 withdrawals may be easier to grasp. If you leave money in the account after all the relevant college bills have been paid, further distributions may be highly taxed.

Example 1: Art and Kim Wilson open up a 529 account for their daughter, Eve. After Eve graduates and gets a full time job, there is still $20,000 left in the 529 account. The senior Wilsons have no younger children to whom they might transfer the account.

If the Wilsons want to use that $20,000 for purposes other than education, distributions will be taxable.

The taxable amount will depend on the ratio of earnings to the overall account value. The Wilsons also will owe a 10% penalty on the amount included in income.

Qualified (that is, tax-free) distributions from a 529 plan may cover tuition, fees, books, supplies, and equipment, as well as room and board, in many cases. However, money spent by the Wilsons or by Eve to repay student loan debt will not be considered a qualified 529 expense, for this purpose. Ideally, 529 account owners should fully draw down 529 accounts for qualified higher education costs before all the likely beneficiaries are finished attending classes.

Credit Check Another 529 tax trap involves other college tax breaks such as the American Opportunity Tax Credit, the Lifetime Learning Tax Credit, and the tuition and fees tax deduction. Many taxpayers can save taxes by claiming such benefits. For instance, the American Opportunity Tax Credit is fully available to joint continued on page 57

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OCTOBER, 2013

Financial Management continued from page 55 filers with modified adjusted gross income (MAGI) of $160,000 or less, and to single filers as well as household heads with MAGI of $80,000 or less. (Partial credits are available with slightly higher income.)

Someone who qualifies can trim taxes by as much as $2,500, on $4,000 worth of higher education outlays.

However, you can’t claim these education tax benefits and 529 qualified distributions for the same expenses. To claim either credit or the deduction, you may owe tax on your 529 distribution.

Example 2: Eve Wilson’s total qualified college costs in 2013 are $25,000. Her parents take a $25,000 distribution from their 529 account to pay those bills. When the senior Wilsons file their 2013 tax return, they discover they are eligible for a full American Opportunity Tax Credit, which they claim.

Because the Wilsons use $4,000 of Eve’s qualified expenses to claim the tax credit, only $21,000 of their 529 withdrawal counts as a qualified distribution. Thus, the Wilsons must treat $4,000 as a nonqualified distribution. (Note: Taxpayers won’t owe the 10% penalty if they lose the 529 tax break because of a conflict with the American Opportunity Tax Credit.)

If the Wilsons had been aware of this tax treatment, they could have paid $4,000 of Eve’s college bills from another source to align with the American

Opportunity Tax Credit. Then they could have withdrawn only $21,000 from the 529 plan, all of which would have been tax-free. continued on page 58

Trusted Advice Family QTP Transfers • Assets in a Qualified Tuition Program (QTP) can be rolled over or transferred from one QTP to another. In addition, the designated beneficiary can be changed without transferring accounts.

• There are no income tax consequences if the designated QTP beneficiary is changed to a member of the existing beneficiary’s family.

• A beneficiary’s family includes many relatives, for this purpose. Besides children, stepchildren, foster children, and adopted children, the extensive list includes parents, siblings, in-laws, and their spouses.

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Financial Management continued from page 57

3

D

IRS Approves Simpler Home Office Deductions expenses between business and

225 by $5, Saraheducting legitimate expenses for a home ms a deduction office isn’t personal use.but it can be done. easy, 2013 income taxMillions of taxpayers (including selfemployed individuals owners) Now forand thebusiness negatives alls this a safe such deductions each year.method Moreover, Using the safe harbor will meaning thatclaim Sarah the process may be easier for 2013 and future be simpler but may not be better. ow $1,125 years, of thanks to an IRS ruling.

Under the new rules, the home office o the business In useRevenue Procedure 2013-13, the IRS deduction limited to to report home offices spelled out an optionalismethod exof 300 square feet, for home. a maximum penses for business use of your The process is simple, to say the least: you findeven e advantages deduction of $1,500.

That’ s true the size of your home office and multiply the prime advantage of if your home office is larger.

What’s more, you also can deduct other exsquare footage by $5. ethod. Under prior you’ll havebusiness to passthat certain tests to to the When you use this safe harbor penses of your are not related Example: Sarah Williams keeps an office business use of your home.

Such deductions d to fill out in IRS qualify for home office deductions. could you can’t take depreciation her home.deduction, She measures the space at 225 include advertising and supplies, for example. In adh has more square than 40feet. deductions example, the spaceoninSchedule your home home office.

Multiplying for 225your by $5, Sarah caldition,For if you itemize expenses A of Form a deduction of $1,125 you scan include all office of yourmust mortgage expenses, claim homeculates office and claims used as an be used Altogether, it’s possible thaton your 1040,that’ real estate taxes,and andexclusively casualty losses.

Taxpayers usherharbor 2013 income taxdeductions return. Thewill IRSbe calls u use the safe regularly for business. annual less,this if ing Form 8829 must allocate such expenses between a safe harbor method, meaning that Sarah t have to deal with After clearing this hurdle, a home you use the safe harbor method, business and personal use. doesn’t need to show $1,125 of expenses rean, if you wish, office must be either the principal compareduse to the deductions lated go to the business of the home. you Now for the Negatives tween Form 8829 place of business; a place used by can claim by filling out Form 8829.

Assessing the Advantages Using the safe harbor method will be simpler but harbor method, patients, clients, in the Maximizing business expenses on may not be better.

Underor thecustomers new rules, the home ofSimplicity is the prime advantage of the safe fice deduction is limitedof to business; home offices ofin300 square he next. harbor method.Form normal course or a 8829 may have secondary Under prior law, taxpayers had to fill feet, for a maximum deduction of $1,500.

That’s ou also can out deduct separate structure where business true too.has You’ll IRS Form benefits, 8829, which morereduce than 40your lines, even if your home office is larger. in order home office deductions.

If youdecrease use your business that to claim is conducted. If you’re an employee, business income, which may When you use this safe harbor deduction, you can’t the safe harbor method, you won’t have to deal with you’ll be entitled to for a home office he businessForm use of your taxand obligation. take depreciation deductions your home office.

8829. You can,self-employment if you wish, go back forth deductionit’sonly if thethat office for the deductions could alsothe reduce yourharbor adjusted between FormYou’ll 8829 and new safe meth-gross Altogether, possible yourisannual deducod, from one year to the next. tions will be less, if you use the safe harbor method, g and supplies, income, which may generate more tax convenience of your employer. In any continued on page 59 case, your home office deduction can’t dition, if you deductions and tax credits elsewhere exceed the gross income from the on Schedule A of on your tax return. related business. an include all of Ground rules Our office can help you determine penses, real estate Regardless of whether you use Form whether the safe harbor option is losses. Taxpayers 8829 or the safe harbor method, desirable for you. g must allocate such

013

TAX CALENDAR a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until November 12 to file the return.

have an automatic six-month extension to file your For federal unemployment tax, deposit the tax owed through or 2012, file Form 1040, 1040A, or 1040EZ and September more than $500. OUTLOOK” 58 “BUY FROM THE ADVERTISERS IN ifCONSTRUCTION OCTOBER, 2013 t, or penalties due.

NOVEMBER 2013

Financial Management continued from page 58 compared to the deductions you can claim by filling out Form 8829. Maximizing business expenses on Form 8829 may have secondary benefits, too. You’ll reduce your business income, which may decrease your self-employment tax obligation. You’ll also reduce your adjusted gross income, which may generate more tax deductions and tax credits elsewhere on your tax return.

SAND & STONE CORP. 192 Plain St. North Attleboro, MA 02760 (508) 699-2911 www.borocorp.com

Ground Rules Regardless of whether you use Form 8829 or the safe harbor method, you’ll have to pass certain tests to qualify for home office deductions. For example, the space in your home that’s used as an office must be used regularly and exclusively for business. After clearing this hurdle, a home office must be either the principal place of business; a place used by patients, clients, or customers in the normal course of business; or in a separate structure where business is conducted. If you’re an employee, you’ll be entitled to a home office deduction only if the office is for the convenience of your employer. In any case, your home office deduction can’t exceed the gross income from the related business.

Reprinted from CPA Client Bulletin. n

Don’t dig yourself into trouble...

The Perfect Excavation: • Pre-mark the location of intended excavation using white stakes, paint or flags.

• In MA, ME, NH and RI, notify Dig Safe® at least 72 business hours in advance.

• In Vermont, notify Dig Safe® at least 48 business hours in advance.

• Notify non-member facility owners.

• Maintain the marks placed by underground facility owners.

Call

• Use caution and dig by hand when working within 18” of a marked facility.

• If a line is damaged, do not backfill.

Notify the affected utility company immediately if the facility, its protective coating, or a tracer wire is damaged.

• Call 911 if the damaged facility poses a risk to public safety.

• Know your state’s excavation requirements.

Go to digsafe.com for educational material and current laws.

before you dig. digsafe.com

Call Dig Safe®. It’s Smart, It’s Free, and It’s the Law.

OCTOBER, 2013

“BUY FROM THE ADVERTISERS IN CONSTRUCTION OUTLOOK”

59

E.H. Perkins Construction, Inc. & Subsidiaries P.O. Box 301, Wayland, MA 01778 (508) 358-6161 • (781) 890-6505

-PLANT LOCATIONSQUINN-PERKINS S & G CO. Burlington (781) 272-0200 PANDOLF-PERKINS CO. Sterling (978) 422-8812 • (800) 339-3389 KANE-PERKINS CO. Hudson (978) 562-3436 • (800) 287-3436 GRAVEL • SAND • STONE FILL AND LOAM BITUMINOUS CONCRETE (PAVING) READY-MIX CONCRETE PRECAST CONCRETE PRODUCTS

E

H

P

Equal Opportunity/Affirmative Action Employer

60

Advertisers’ Index ATS Equipment, Inc. ....................................... Ins. Back Cvr. Adler Tank Rentals ..............................................................38 Aon Construction Services Group........................................11 Boro Sand & Stone Corp......................................................59 Dennis K. Burke, Inc............................................................13 Concrete Systems, Inc......................................................... 46 Dagle Electrical Construction, Corp....................................22 Darmody, Merlino & Co., LLP............................................56 DeSanctis Insurance Agency, Inc. .......................................52 Dig Safe System, Inc............................................................59 The Driscoll Agency ............................................................49 EJ..........................................................................................16 Eastern Insurance Group, LLC............................................12 Eastern Pipe Service, LLC...................................................52 Eastern States Insurance Agency, Inc..................................17 T. L. Edwards, Inc..................................................................7 Ferguson Waterworks...........................................................54 Geod Consulting, Inc............................................................21 L. Guerini Group, Inc...........................................................54 HD Supply Waterworks..........................................................6 HD Supply White Cap..........................................................26 A. H. Harris & Sons, Inc. ....................................................57 Hinckley Allen, LLP............................................................34 John Hoadley & Sons, Inc......................................................9 P. A. Landers, Inc.................................................................56 Lawrence-Lynch Corp..........................................................20 Liddell Brothers Inc..............................................................28 Lorusso Corp........................................................................25 Lorusso Heavy Equipment, LLC.........................................48 Mabey, Inc............................................................................55 Mass Broken Stone Company...............................................27 Milton CAT................................................................ 2, 3, & 4 Norfolk Power Equipment, Inc.............................................39 Our Outhouses, Inc...............................................................54 Palmer Paving Corporation..................................................39 E. H. Perkins Construction Co., Inc.................................... 60 Podgurski Corp.....................................................................53 E. J. Prescott, Inc..............................................Ins. Front Cvr. Rain For Rent-New England................................................ 24 Read Custom Soils ...............................................................21 Rogers & Gray Insurance Agency, Inc................................ 44 Schmidt Equipment, Inc.......................................... Back Cvr. The Scituate Companies.......................................................10 Shea Concrete Products........................................................36 Smith Print............................................................................50 Social Mavens.......................................................................58 Ti-SALES, Inc. ....................................................................56 Albert J. Tonry & Co., Inc....................................................50 United Concrete Products, Inc. ............................................50 United Rentals Trench Safety...............................................14 Wealth Preservation Solutions, LLC....................................15 C. N. Wood Co., Inc. ..............................................................8 Woodco Machinery, Inc.......................................................42

“BUY FROM THE ADVERTISERS IN CONSTRUCTION OUTLOOK”

OCTOBER, 2013

New UCANE June ad 2012.indd 1

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