Construction contractors take engineering or architectural designs and turn them into reality. Without the construction piece of a private development or public works project, drawings and specifications have little to no value, which is why the construction industry comprises a large portion of the U.S. GDP each year. While the design team provides general direction to the contractor on a project, showing what the end product should look like and the materials needed to achieve this result, the means and methods are typically left to the builder.

Since a builder has leeway in terms of how the actual construction gets done, they can provide a higher quality product, more efficiently, and at a lower cost if they’re able to innovate new construction methods and stay up to date with the latest breakthroughs. For instance, if a new concrete admixture is discovered which allows concrete to cure faster and with a higher resulting compressive strength, a contractor can potentially save time and money by utilizing this new technology. R&D tax credits can be used to offset the costs of designing and researching new ways to do things more efficiently, allowing a builder to be more competitive with their bids and provide better value to their clients.

How does a construction company qualify for the credit?

There is a four-part test used to determine whether a company has a project that qualifies for the R&D Tax Credit. If you have a project that meets each of the four quadrants below, your project most likely qualifies.

Technological in nature

  • Discover information that fundamentally relies upon principles of Hard Sciences (i.e. Physical Sciences, Biological Sciences, Engineering, Computer Science, etc.)
  • Not social, economic, or psychological Permitted Purpose

Permitted Purpose

  • Develop a new, or improve an existing, product or process
  • Related to Functionality, Performance, Reliability, Quality, Significant cost, Savings, etc.
  • Not Aesthetics
Four Part Test

Eliminate Uncertainty

  • Capability
  • Uncertain if able to achieve desired result
  • Methodolgy
  • Uncertain of optimal design or process to achieve project goals
  • Goals to show there were issues and potential alternate solutions

Process of Experimentation

  • Evaluate and test alternative design or process to identify optimal solutions
  • Methods to use
  • Prototyping
  • Modeling
  • Systematic Process of Trial and Error
  • Simulation
  • Computer Science Testing (Validation, Beta, etc.)

Once a company determines that their project meets these criteria, three expense categories factor into the tax credit calculation:

Wages

Supplies

  • Resources consumed or used up during the carrying out of qualified research.

Contract Research

  • 3rd parties paid to assist in the conducting or carrying out of qualified research.
  • Requires the Company to maintain rights to the project (i.e. research performed on behalf of the Company)
  • Requires the Company to bear the expense if the research is unsuccessful.

Once a company determines that their project meets these criteria, three expense categories factor into the tax credit calculation

Mechanical Construction Contracting

Where carpenters and steel erectors build the bones of a building, the mechanical contractor builds the respiratory and cardiovascular system. Building mechanical is a key component for virtually every project that involves any level of plumbing, drainage, or HVAC work. This construction specialty lends itself especially well to R&D tax credit qualification due to the number of new mechanical technologies constantly being offered by vendors. A few examples of qualifying activities that a mechanical contracting company might partake in include:

  • Developing scale models for a building mechanical system to analyze a new technology being offered by a vendor.
  • Building Information Modeling (BIM) to identify potential conflicts (clash detection) before starting construction.
  • Creating a new method for estimating material or construction costs.
  • Designing a mechanical system to meet LEED or other energy efficiency standards.
  • Experimenting with new piping or ductwork materials to optimize for a given criteria, whether it be energy efficiency or cost.
  • Evaluating and improving upon a construction method, such as an improved method to support pipe or ductwork.