Case Study: Construction

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While the majority of research and development tax credits within the Architecture, Engineering, and Construction space is directly related to engineering and design activities, construction companies can claim the credit for a wide variety of activities they are doing with regard to new building projects on a day-to-day basis. Similarly, companies within the Mechanical, Electrical, and Plumbing (MEP) engineering space also qualify even though they may only be working on specific systems within larger building projects.

In reality, there is technical uncertainty indicative of research activity in all the engineering trades especially with regard to the design of custom systems for both new and existing structures. Activities such as design reviews for constructability, development of new construction processes, experimentation with new raw materials, in addition to alternatives assessments which are done continuously throughout the life of construction projects may be qualified.

In addition to internal labor, qualified research expenses (QREs) often include the costs associated with hiring outside consultants to perform these activities.

General Construction Qualified Research Activities (QRAs)

  • Development of estimates based on designs provided by architects or engineers
  • LEED and green initiatives
  • Evaluation of engineering and construction methods for improvement in build time or overall performance and reliability
  • Development of prefabrication processes
  • Development of unique material transfer systems on project sites (e.g. crane design)
  • Development of temporary support structures for active construction
  • Testing and validation of new mechanical systems to solve technical uncertainties
  • Building Information Modeling (BIM), AutoCAD and Revit modeling activities

Mechanical, Electrical & Plumbing (MEP) QRAs

  • Design and development of HVAC systems for new or existing structures
  • Evaluation and calculation of structure needs and loads with regard to environmental systems
  • Development of unique heat exchange, humidity control, and air filtration solutions
  • Improvement of energy efficiency via system design
  • Design and implementation of unique active/passive cooling solutions
  • Design and development of control and instrumentation systems
  • Programming to automatically monitor data and temperature controls
  • Design and development of electrical systems
  • Architectural lighting design
  • Development of renewable electricity generation systems
  • Development of backup power storage systems
  • Design and development of control and instrumentation systems
  • Design and development of plumbing systems
  • Development of hydroponic systems
  • Development of water distribution systems with regard to augmented use and load
  • Development of greywater/blackwater recycling systems
  • Development of coolant delivery systems for refrigeration
  • Development of pressurized air, water, other substance distribution systems
  • Design and development of sprinkler and fire protection systems
  • Specialty system design such as clean rooms and bio-containment laboratories

R&D Tax Credit Case Study:  Construction / MEP

This full-service construction firm serves public and private sector clients throughout the United States. Their personnel are highly skilled in the disciplines of engineering, architecture and construction to develop innovative approaches to every project. Service sectors include Corporate, Cultural, Healthcare, Education, Life Sciences, Residential, Retail and Hospitality.  Core MEP services include HVAC Engineering, Electrical Engineering, Plumbing and Sanitary Engineering, and Fire/Life Safety Engineering. 

R&D Tax Credit Qualification for Construction / MEP

Potential clients submitted request for proposal (RFP) and during this process the company evaluates the delivery system, be it a Design-Bid-Build (DBB), Design-Build (DB), Integrated Project Delivery (IPD) and reviewed the building plans and technical specifications with a core focus on public safety, reliability and energy efficient designs.

During research and conceptual design, activities often included the research of energy needs and utility systems of the building. The company reviewed architectural schematics and discussed alternative types and classes of Mechanical, Electrical, and Plumbing (MEP) engineered systems. 

Building renovations often displayed a vast amount of uncertainty as building records and historical data could be erroneous or lack information.  With this, the company developed designs aimed at minimizing occupant disturbance by providing temporary system connections.

Specifically for electrical, engineers evaluated the electrical requirements, general purpose repositories, electrical distribution systems, lighting systems and any specialized electrical provisions. Load requirements of the machinery, equipment and receptacles were defined. Equipment location and wiring routes were then developed to determine the optimal location for the building’s electrical distribution system (EDS), main switchboard and panelboards to distribute power to the branch circuits. Before the circuits and feeders could be installed, tests were performed. 

Plumbing system design required review of the building occupancy and plumbing fixture requirements to determine the necessary flow for all water supply fixtures. Engineers performed in depth technical calculations to derive pipe sizes based on flow rate and velocity limitations.  The company analyzed static and residual pressure.  Hydraulic engineering principles were also used to determine the available pressure. The anticipated high and low pressures were critical to ensure the plumbing systems are operating properly and efforts were made to determine pressure losses through the building’s interior supply systems including pipe friction, elevation loss, and equipment loss. Piping and instrumentation diagrams (P&ID) for documentation of pipe lengths, diameters, flows and materials were assessed to ensure the load calculations are correct. 

Heating, Ventilation, and Air Conditioning (HVAC) technologies, such as controls, distribution systems, installation, operation, and maintenance practices, involved extensive research.  This company then reviewed the building orientation, number and type of windows, insulation levels, space and process requirements, general performance metrics, load and climatic criteria. Engineers calculated the surface area of each building feature related to heat gains or losses, power usage, and airflow to establish new loads and equipment capacity requirements.

Across all construction and MEP activities, software tools to develop 2D, 3D, mathematical, and analytical models using software platforms such as BIM and AutoCAD were used.  These tools helped determine if engineering calculations meet specification requirements related to geometry, materials, and installation. Virtual tests were used to evaluate multiple design scenarios against numerous criteria. Data was collected to evaluate failures, errors, and related performance requirements. 

After all identified issues at this stage were resolved, construction documents were created. During construction, design changes are often required.  As the project nears completion, teams checked off punch lists to validate that all deliverables were complete as specified.  After construction, if specified, a project may require commissioning and/or special inspections and/or analysis and testing. Often, construction was especially complicated due to ongoing public access issues and corresponding safety concerns.  As a result, many design and construction efforts involved developing temporary solutions which also met regulatory and safety requirements, some of these activities also qualified for the R&D tax credit. 

Results Speak For Themselves

Total combined federal and state tax credits for this $115 million MEP company average about $440,000 annually.

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