Energy Efficient Tax Deduction Comes Back to Life

Last evening the Senate overwhelmingly passed the Tax Extenders Bill (HR.5771) which extends all expired tax provisions retroactively from 12/31/2013 through the end of 2014. The bill will now move onto the President to be formally signed into law. Presidential veto is not expected on the one year package.

Why should I care?

You should care if you are the owner, builder or designer of a commcercial or public building put into service in 2014.

It means a Federal 179D Tax Deduction of up to $1.80 per square foot will be available for all qualifying buildings. If your building’s energy performance exceeds a benchmark set in 2005, you may be able to claim this federal income tax deduction.

This applies to owners of commercial buildings and designers and/or builders of public buildings.

We recommend starting the process of certifying all 2014 EPAct 179D Tax Deduction projects as soon possible to ensure timely filing. It's easy.  Contact us to find out how.

Theft of a Sale (Bryant Wheeler)

I was drug up in the construction industry as my father was before me. I was tarring foundation walls as soon as a brush would fit in my hands. It was a time when your word carried more merit than a signature on a paper. When a contractor not only built a building he also built a reputation. A reputation of self-worth, value, character and honoring one’s word. This stood in life no matter if it were private or business affairs.

Polycrete USA still recognizes and lives by these values. Sure we get things in writing – but the word of a person or business still holds value to this day. We see and hear all too often in this ICF industry where an installer or distributor is working on a deal but the manufacture takes it in house because they are afraid to lose a truck load of forms. Maybe they think the person working the sale can't close it. Or maybe perhaps they just jumped the gun. Either way, if it’s your lead, it should be your sale.

When the manufacture takes your customer in house for whatever reason without your consent this is theft of a sale.

If you, the installer, contractor or manufactures rep, feel you can't close the deal on a PolycreteUSA lead you should call for help. I for one love to help close deals. But it’s still your sale. We are not going to sell direct without paying the rep, and we are not going to send another crew to the site to do the erection. That is your job.

We know how hard you work to make a sale -- so much goes into it. First you must get the lead from somewhere. If it’s by word of mouth this is because you have built a reputation with someone and that’s a beautiful thing.

If the contact comes from a lead source this costs hard earned money out of your pocket. Either way you put countless hours into working this sale. From convincing the customer that is the best way to build, to working with their architect and making suggestions to their engineer.

It could be a developer you have to pitch. Maybe you point out a tax incentive, insurance breaks, make site visits and general schmoozing -- most of the time it is all of the above including your reputation for doing good honest work.

Coming from the construction industry, later joining the Marine Corps then back into construction, acting honorably has been imbedded into me and this is why we do what we do. I would like to challenge ALL the manufacturers and installers to try to live by these values. To assert great character and build this industry on honesty and self-respect.

This industry has seen the bottom. Let’s all of us grab our boot straps now and pick it back up. Work together for the greater good. We need to do this with old values and new technologies. If we treat our partners, supply chains, and distribution channels ethically and honorably we can show America that ICF technology’s time has come.

Bryant Wheeler, Executive VP
PolycreteUSA
Richmond, Virginia

Sometimes the ICF industry is its own worst enemy.

A picture in a recent issue of Concrete Homes and Low Rise Construction is just one of many examples I see happening.

Forty-three feet off the ground, there are no hard hats, no guardrails on the scaffold, no safety line, no backup man on the pump nozzle, no internal vibration, walk board cantilevered dangerously off to one side, and another walk board appears to be a TJI! This sets a bad example for ICF in general – makes installers look irresponsible to GCs. Worse yet, the general public may think this is perfectly fine.

Recently, an ICF installer proudly posted a well-produced video of his pour on YouTube. Again, no hard hats, no safety rails and no internal vibration. There’s a guy on the ground, directly beneath the nozzle man banging on the wall with a 2x4! One commenter asked if that’s the manufacturer’s recommended way to vibrate the wall. Another mentioned that it did not look OSHA compliant. The installer replied that the job was “out in the middle of nowhere,” so OSHA was not likely to drop by.

Irresponsible installers and suppliers are damaging our industry. There is a debacle underway on a higher-education project  right now. An ICF manufacturer persuaded a large well-known GC that the ICF spec as written was too tight and if they allowed in the lower grade block and a cheaper installer, they’d save some money.

The result is a big mess -- walls out of plumb and straightness. The GC reportedly tried to find another installer to take over the job, but no reputable installer wants to go near it. I don’t know what the job’s status is now. The GC, who we’ve been working on for years, told us their ICF experiment is likely over. Fool me once, shame on you. Fool me twice, shame on me.

This is a pattern we’ve seen repeatedly on Military bases. ICF manufacturers chase each other’s prices down to absurd levels. The manufacturer agrees to sell material direct to the GC at a cut-rate price and pressures the installer to bid a low, labor only price. What does this accomplish other than the sale of a few truckloads of material at little or no profit? Well, for one thing, it creates an impression in the commercial/government market that pricing SHOULD be $11 or $12 per sqft for a multi-story building at prevailing wage, which is nonsense.

There’s more: The manufacturer takes money out of his installer’s pocket by eliminating his margin on the product and encouraging him to cut his profit on the labor portion. Top installers won’t allow themselves to be pressured by suppliers, so you end up with a less qualified installer. It also creates bitterness on the installer’s part, reduces his margin of error and moves him to cut costs and corners. When something goes wrong, he’s more likely to walk away because he can get upside down very quickly.

Since ICF construction is relatively new to the commercial market, most GCs are still not knowledgeable about its vagaries.  Estimators are encouraged to buyout as aggressively as possible. When a less than ethical salesperson starts pushing a cut-rate price, the estimator lets himself get talked into believing there will be no difference in the final product -- even though common sense tells him otherwise. When you’ve got four subs bidding $15 a foot and one at $11, it’s probably not the $15 guys that are out in left field.

Far too often, these stories have ugly endings and when the finger pointing starts, it’s ICF construction in general that gets the blame. That big influential GC that we want on our side is left with a bad taste in its mouth. In the corporate world, new things that go bad rarely get a second chance.

When we raise these issues on various ICF forums, we are told to quit being negative and just say happy things – be supportive of our industry.

Well we’re happy to say that there are good products out here that are good for building houses and there are good products out here that work best in commercial. There are great installers doing terrific work all across the country. But every ICF is not the solution to every job and picking the installer’s pocket will not motivate him to do his best work.

I challenge the rest of the industry to increase installer training and standards, stop referring business to any sub willing to install your product and end this cannibalization so our industry can achieve the respect and credibility it deserves.

(This article was originally printed in Concrete Homes and Low Rise Construction Magazine September 2014)

ICF Industry Consolidation

ARXX Building Products filed bankruptcy at the end of December . In the beginning of the month, Reward Wall announced that it’s selling its assets to Airlite/Fox Blocks.  Here’s my take on the current consolidation in the insulated concrete forms market.

Nearly all the ICF products generally available in the marketplace are considered “residential grade” and are essentially identical. Two panels of Type II EPS joined by plastic cross ties. They’re all about the same size and shape and all have about the same baseline performance.

There are only three outliers of any substance: Polycrete, ARXX Steel and Nudura (I’m not sure if the ARXX Steel line is still available). Some might consider knock-down blocks in a separate category, but their steep installation labor costs ensure they will remain a niche product.

Since nearly all residential grade ICF products are alike, since they compete primarily on price, since there is a concerted price war in the market, we can expect to see more companies like ARXX and Reward Wall being absorbed and disappearing.  There are too many similar brands chasing too few jobs. If they can’t find anything to compete on except price, consolidation is the natural result.

In this pricing environment, the best managed, structured, positioned ICF suppliers will survive. The best structured are those that control their own manufacturing. If they have a diversified product line as well, they should be better positioned to survive reduced margins. Hopefully their other product lines are profitable and can finance their price war.

Those ICF brands that have real, tangible and provable differentiators should be fine over the long term as long as management  continues to sell the unique benefits and resists the urge to leap into the price war.

Recently we lost a job to Nudura. It was a small job. They came in at half of our price. When the contractor told us Nudura’s quote, we said, “Sorry, we don’t sell our product that cheap,” and walked away. We know our costs, we don’t sell below cost, and we’re always happy to let our competitors lose money.

It’s difficult to tell where this consolidation will end. Airlite/Fox seems to be the big dog in the fight. They have their own manufacturing, a diversified product line and the financial heft to hang in for a longer time.

This type of highly aggressive pricing can be a minefield for the entire industry. One danger is that small manufacturers and those that outsource will try to hang on by cutting costs and quality. More high profile failures by inadequate products will damage the entire industry.

A second hazard to the industry’s reputation is the habit of selling material directly to GC/Owner. This may aid the supplier’s margin, but it cuts out the installer’s profits. ICF suppliers that squeeze installers are slitting their own throats. It’s a habit that reduces the installer’s margin of error and increases the likelihood of him losing money or walking off the job. It happens and we all know it.

One more hazard is overselling product or aggressively selling into an inappropriate market, which causes troubled installations. This results in disappointed customers and leaves a lasting bad taste in the mouths of construction/A&E professionals.  

If you have a residential grade product, stick to houses. This is a sword that cuts  both ways. Polycrete products work best in a commercial environment. Many of our installers do residential work as well, and we always encourage them to use the right product for the job. When presented with an opportunity that’s not appropriate for Polycrete, we don’t hesitate to hand it off.

In my opinion, those ICF suppliers that cannot survive long term should read the handwriting on the wall and cut the best deal they can with a firm that has its own manufacturing capacity sooner rather than later. Alliances, equity deals and earn-outs are easy to structure if everyone’s serious and all can be winners. That will get the consolidation over with and our industry can go on to make some money.