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Case Study: Mechanical Engineering

Industry: Mechanical Engineering

Number of Employees: 400+

Commonly Qualifying Tasks:

  • Design of HVAC, plumbing, piping, fire protection, etc. systems
  • Design and development automated building systems
  • Develop engineering drawings, product specifications, etc.
  • Develop new or improved equipment such as pumps, heat exchangers, boilers, pressure vessels, etc.
  • Research on new applications for existing mechanical principles
  • Experiment with different materials to discover new applications
  • Conduct product testing, piping testing, etc.

A mechanical engineering contractor was interested in executing a study to determine how much in R&D tax credit they could generate. The company’s core competencies included the design, management and construction of HVAC and plumbing projects for large municipalities, major corporations, industrial projects and commercial developments.

Their process largely reflected the traditional model that most engineering firms followed. Their executive team and estimation group worked largely on highly technical design proposals that included design drawing preparation, equipment/process/material evaluations, cost estimates and phasing for projects that they were bidding on. This activity covered a significant amount of their annual time and based on their conversion of these proposals to projects, less than 10%, it was time that was unbillable.

Once a project was secured, a project manager was assigned to the project along with some engineers (dictated by the disciplines necessary to complete the project along with scale and complexity). The project team then began working on detailed design drawings in addition to adding to the value engineering efforts that were started in the proposal phase. Throughout this portion of the project cycle, there were technical reports being developed for specific milestones set during the proposal phase which included technical evaluations and design recommendations provided by the project team after site analysis was completed.

The next phase was construction. Though designs are finalized by this point there are a plethora of issues that speak to the qualifying activities still being performed. Specifically, any requests for information (RFIs) and change orders that are executed because of specific design conflicts, interferences, or problems identified on site during construction often require further evaluation and design iteration/modification.

Based on the activities being performed, they were able to qualify tasks such as Design Review, Detailed Design, technical support during construction, and value engineering that was performed on the jobs. In addition, their ability to bid and propose on a wide variety of projects annually and creating proposals that included a lot of upfront design activity, allowed them to qualify some of their executive staff and most of their estimation team. This resulted in a gross credit of $250K.

Will Chang

William Chang is a Managing Director at R&D Incentives Group with more than 13 years of experience whose primary responsibilities include providing tax credit consulting services to CPAs and their clients, managing RDIG’s relationship with its referral partners, and managing active audits. William has extensive knowledge of federal and state tax credits and incentives and is a frequent guest speaker for CPA firms. Prior to joining the R&D Incentives Group team, William founded The Enterprise Zone Company, a tax credit consulting firm based in Southern California.

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