C+S March 2020 Vol. 6 Issue 3 (web)

on improving deficiencies and strengthening efficiency in standard operating procedures, internal controls and the successful execution of your overall business plan. If you wait for the market to dictate your actions, you will not only miss valuable opportunities, but you may find yourself in a distressed position when the next recession occurs. Here are a few areas that all contractors should be focusing on: 1. Human Resources / Risk Control – How a company attracts, trains and retains great people has a dramatic impact on its success. Consider includ- ing a Growth and Development Advisor (GDA) on your management team to drive a strategic approach and attack the ongoing labor challenges that have plagued the construction industry. Building a best-in-class culture and onboarding process will pay dividends many times over. 2. Project Controls – Adopting and integrating advanced communication and technology into all phases of your business will have a significant im- pact on morale, productivity and overall profitability. Rapid developments in artificial intelligence (AI), robotics and industry specific automation and data management tools are creating competitive advantages for early adaptors. From estimating and material and equipment procurement to subcontract management and project execution, the opportunities are endless for im- proving efficiencies. 3. Financial Controls – Much like project controls, updating your accounting software to ensure your business is utilizing the right accounting system is a crucial component to driving your success. The process should begin with evaluating the market options and discussing your company’s needs with your accounting team and trusted advisors. Whether it’s a fully integrated or standalone product, regularly updating your accounting system and controls will produce more efficiency and, as a result, increase bottom-line success. 4. Contract Procurement and Management – Understanding and know- ing the best procurement methods for your company and project team are critical in today’s contracting environment. Those firms that don’t properly manage the risks associated with hybrid delivery models -- including P3, IPD, CM/GC, MP, DBB and even some DB (Design/Build) obligations with errone- ous efficiency guarantees -- could find themselves in a vicious financial trap with unsophisticated owners, design professionals and/or subcontractors. 5. Succession/Continuity - Succession planning is a topic most owners avoid. For many, it signifies the culmination of your life’s work and it’s easier to ignore and put it off until it’s absolutely necessary. However, failing to effectively develop a detailed plan can have grave consequences, not only for your company but for business owners and their families. Work with your advisors to develop a well thought-out and comprehensive succession plan. The process may take years, but if done right, it can ensure the continued success and legacy of your business for you and your loved ones. 6. Pay-Off Debt – To manage swelling backlogs, some contractors have been increasingly dependent on their bank lines of credit or other debt facilities to help bolster cashflow. The challenge this presents is that, once the economy enters the next recession and companies experience reduced revenue and backlogs, contractors might find it increasingly difficult to service outstand- ing debt obligations. To ease this potential burden, business owners should

now look to proactively service debt loads when unearned profits in backlogs are strong. In lieu of significant labor shortages, rising material costs and uncer- tain political policies, both domestic and international signs indicate that 2020 will be another profitable year for the Surety industry. Direct premium written and construction revenues should be up, contractor failures should remain relatively low, margins should continue to rise, and, for most, backlogs should remain strong. While there is an overall positive forecast for next year, there are some contractors who are experiencing growing pains and having a difficult time managing increased backlogs. But those that are thriving in the current market should not neglect the importance of taking the time to reflect on their strengths and focus on improvements for short- and long-term success. Health Insurance Outlook for 2020 The Affordable Care Act (ACA) has two parts that will affect the small group (2-99 employees) in 2020: • HIT = Health Insurer Tax, which began in 2014 with ACA, is a tax of roughly 2 percent that health insurers must pay to the federal government and which must be built into the rates. Congress suspended HIT for 2017 and for 2019, but HIT is back again for 2020. So this means that rates for policy periods in any months during 2020 need to be relatively higher than 2019 due to the need to include HIT. RADV stands for Risk Adjustment Data Validation, and is the process that CMS (Centers for Medicare & Medical Services) uses to ensure the accuracy and integrity of risk adjustment data (diagnosis codes, etc.) that are used to determine the risk adjustment transfer payments: i.e. the amount of money a carrier receives due to having members with worse risk and the amount of money a carrier pays out due to having healthier members. The Cadillac Tax, which was intended to help fund benefits to the un- insured, is still on the table. Most do not think this will be implemented until after the 2020 election. If the Cadillac Tax goes through, a 40 percent tax on the cost of health plans where the premium is above $10,200 per individual and $27,500 for family coverage will be added. Throughout 2019, we saw minimal increases mostly due to age and plan changes. Blue Shield handed out the largest increases, which were due to the HIT and RADV mentioned above. Each of us will be one year older in 2020, which means our rates will automatically increase. For 2020, we expect low single-digit rate increases and minimal plan changes. Rates for all “small” employers (2-99 eligible employees) will be based on the employee and their dependents’ individual ages, plan design and location of the company. For example, a family of five will pay for each family member based on each individual’s age and the plan they select. We forecast additional plan changes in 2020 that will remain compli- ant with ACA guidelines. All of the major insurance companies have


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