Industry: Civil Engineering
Number of Employees: 300+
Commonly Qualifying Tasks:
- Design retaining wall structures, foundation and earthwork for unique site conditions
- Perform calculations and 3D model simulations to ensure proper loading and distribution
- Perform value engineering to reduce project cost or to leverage better materials and processes
- Evaluate different designs, materials, or connections to determine optimal designs
- Analyze and calculate proper grading for a particular project site
- Evaluate new engineering and construction processes
A civil engineering firm wanted to investigate the possibility of generating the R&D tax credit on a timely filed return. Their concern was that they would not be able to qualify projects because of several unfavorable court rulings and audit practices that affected the engineering industry. Their first goal was to identify the type of contracts that they had in place with their clients. This was necessary to determine if the company assumed the financial and technological risk to meet the IRS’ minimum requirements for project qualification.
The initial investigation showed that about 60% of the jobs were conducted on a Time and Materials (T&M) contract which would not lend itself to credit generation. However, the remaining 40% of time was split between Fixed Fee (FF) arrangements (roughly 35% of total time) and nonbillable hours associated with the development of designs, processes and estimates for project proposals.
Upon scrutinizing the development process, the company was able to capture quite a lot of time. All in all, the company was able to qualify 100 employees with job titles ranging from Principal to CAD Technician. This included both engineering personnel and executive management personnel that would oversee projects in addition to managing the proposals that were developed, and providing technical help to their individual development teams.
In addition to those activities, the company was able to capture a lot of time associated with the development of projects including proposals, development of analytical reports, value engineering, design development, design review, project management, process development, development of engineering solutions and requirements/specifications development. This not only included upfront engineering time, but time also spent during construction of projects wherein site-specific problems would arise which would cause the company to go back to the drawing board to modify designs based on conflicts or shortfalls that were identified during project execution.
Based on their activities, the company was able to qualify roughly $4M in expenses which yielded a credit of roughly $300,000 on their timely filed return. Since their first study, the company has seen an annual benefit of approximately the same amount.