August 18, 2022

Change orders and inflation costs are common and challenging to any construction project. Military projects, however, add a level of complexity that makes them even more so. A process known as reprogramming allows defense officials to move funding between budget line items to offset additional costs; however, when the monetary amount exceeds a certain threshold, projects must reenter the appropriations process.

Recently, the Senate Appropriations Committee approved a request from the American Subcontractors Association (ASA) to raise the reprogramming threshold in respect to federally funded military construction projects. “It is important to provide the military services with an appropriate level of flexibility to proceed with construction contracts without disruption or delay, especially in our current inflationary environment,” ASA stated.

The current reprogramming limit for military construction and family housing projects has remained unchanged at either 25% of the project funded amount or $2 million (whichever is less) since 1982. That may sound like a lot of wiggle room, but it is easy to incorrectly forecast project costs when material and labor prices are rapidly increasing, said Chris Ring, of NACM’s Secured Transaction Services. “Federal acquisition regulation is outdated relating to inflation. If there is an inflationary cost increase then the project must go back through appropriations in order to approve the money, which can stall projects, or even stop them altogether.”

The Committee recommends that starting in 2023, the reprogramming threshold dollar amount be increased to $10 million, according to Title I of the Military Construction, Veterans Affairs and Related Agencies Appropriations Bill of 2023. Due to “the increased cost and complexity of military construction projects …, the Committee supports increasing the reprogramming threshold to enable the Department to be more agile and reduce delays associated with cost overruns,” the bill reads.

The recommendation comes at a pivotal time. Even though wholesale inflation slowed to 9.8% in July thanks to cooling gas prices, core inflation (minus volatile food and energy prices) rose 0.3% last month, per the U.S. Bureau of Labor Statistics. And wage inflation in the construction industry also has skyrocketed in recent years.

“[The reprogramming threshold for construction projects] is just one more speed bump from the inflationary tail that everyone needs to be concerned about,” Ring explained. “If these projects get held up in appropriations, everyone loses for a period of time until the price increase gets approved.”

As a professional, your credentials and expertise are valuable currency. The level of proficiency you attain can translate into higher salaries and more opportunities. Many individuals who want to expand their skill sets typically will research topics or attend events such as webinars, conferences or keynote speeches. However, another way to grow as a professional is to put yourself on the other side of the podium and become a speaker. Speaking at events can help propel you as a subject-matter expert and thought leader among your peers. It also gives your company a voice and recognition.  

“Speaking affords you the opportunity to inspire and mentor others,” said Jill Leimbach, director of meetings at NACM National. “It’s an amazing professional opportunity that can help boost your career and show that you are valuable to your company.”

Interactions with audience members are a prime opportunity to build relationships and increase company visibility. You need to position yourself as a subject-matter expert in business credit if you hope to become a leader in the field. Start by building a reputation. “Any opportunity that you get to share your unique perspective or knowledge is an opportunity to build your reputation,” according to an article from WikiJobs.

Many people will equate a leader’s amount of time in a specific industry to more credibility, but everyone has something to offer in a speaker role regardless of their experience level. “Not everyone has the absolute highest level of credentials, but I think there’s always something you can share,” Leimbach said. “Our speakers want to mentor other people and give back.”

Speaking at events will build your reputation as an expert, and it will help position you as a reliable resource and authority. Speaking also can provide an opportunity to give back through the distribution of knowledge to others; a skilled speaker will nurture conversations with audience members.

Presenting at industry events, such as NACM’s Annual Credit Congress, has countless benefits, Leimbach added. Topics that are covered at NACM’s Annual Credit Congress are credit-focused and informing. Other intangible skills such as leadership and management are developed through the speaking process.

Interested in becoming a speaker? NACM is accepting speaking proposals from all levels of credit and financial management professionals for NACM’s 127^th Credit Congress & Expo. If you have a new or innovative topic that you believe will bring value to your peers, please submit a proposal for consideration. Submissions are due by Sept. 16, 2022.

There were 212 commercial Chapter 11 filings registered in July 2022, a decrease of 13% from the 245 filings in July 2021, according to data provided by Epiq Bankruptcy, provider of U.S. bankruptcy filing data. Overall commercial filings decreased 8% in July 2022, as the 1,592 filings were down from the 1,723 commercial filings registered in July 2021.

Small business filings, captured as Subchapter V elections within Chapter 11, decreased 3% to 104 in July 2022 from 107 in July 2021. Total bankruptcy filings were 30,848 in July 2022, a 5% decline from the July 2021 total of 32,399. Noncommercial bankruptcy filings totaled 29,256 in July 2022, also registering a 5% decrease from the July 2021 noncommercial total of 30,676.

“New bankruptcy filings slowed in July, including Chapter 13 cases, which had been on a steady increase so far this year,” said Chris Kruse, senior vice president of Epiq Bankruptcy. “We continue to monitor closely the impact of new variants of the COVID-19 virus, historically low unemployment rates and fears of difficult economic times ahead, which lead us to anticipate an increase in bankruptcy filings as we exit the summer.”

July’s commercial Chapter 11 filings decreased 53% from the 449 filings in June 2022. The commercial filing total represented a 15% decrease from the June 2022 commercial filing total of 1,878. Subchapter V elections within Chapter 11 increased 7% from the 97 filed in June 2022. July’s total bankruptcy filings represented a 4% decrease when compared to the 32,182 total filings recorded the previous month. Total noncommercial filings for July represented a 3% decrease from the June 2022 noncommercial filing total of 30,305.

“In addition to global supply and inflation concerns, rising interest rates pushing overall borrowing costs higher could leave financially distressed consumers and businesses in a precarious economic position,” said ABI executive director Amy Quackenboss. “Bankruptcy provides refuge for struggling families and businesses looking to establish a financial fresh start.”

As we move into the third year of the pandemic, the global economy is still rippling from pricing and supply-chain disruptions—and it is not yet clear when those will fade. Many key economic indicators are moving in opposite directions. But we can still mine them for some clues about what’s coming, according to Kellogg finance professor Sergio Rebelo, speaking in a special virtual event for alums.

Here are five economic trends Rebelo says are worth monitoring:

1. Central banks are running to catch inflation, but there is only so much they can do.

The aspects of inflation consumers complain about the most—rising prices for gas and food—are not usually a focus area for central banks like the U.S. Federal Reserve. That is because energy and food commodity costs are too volatile to manage with the tools of monetary policy. But as prices in general soared, the Fed has been forced to try to catch up by quickly raising interest rates.

When the Fed makes borrowing costlier, it can dampen an overheated economy by reducing demand for goods such as appliances, cars and houses. Unfortunately, the Fed’s leverage does not extend to fixing problems with the supply of goods.

“In places like the U.S., the EU, and many countries in Asia, we have inflation caused by a combination of demand and supply shocks,” says Rebelo. “The recent burst of inflation was more of a supply than a demand phenomenon.”

Supply shocks are generally temporary. However, the U.S. risks tipping into long-term inflation caused by higher wages. “When unemployment is low as it is now, workers feel comfortable leaving their jobs and asking for big pay raises. If your company has increased wages, sooner or later, you have to increase prices,” says Rebelo.

2. Supplying the world with goods is getting cheaper, for the most part.

Pandemic-related shutdowns caused the cost of shipping goods around the world to soar, but that cost is returning to normal—with one notable exception. “What has not normalized is shipping to and from China,” says Rebelo. “China has not vaccinated a lot of its elderly population, so every time it opens up, COVID deaths increase, causing more shutdowns.”

That means that the tight supply of goods such as automobiles that rely on computer chips from China likely will not loosen up any time soon. On the other hand, supply of commodity-based goods such as gasoline and food are starting to normalize. But consumers will not soon notice extra money in their pockets, due to a phenomenon called “rockets and feathers.”

“When oil prices go up, gas prices go up immediately like a rocket, but when oil prices come down, gas prices come down slowly, like a feather,” he notes. “Most prices of items produced with commodities behave in this way. We see wholesale commodity prices come down, but it takes time for the retail prices that consumers pay to decline.”

3. Blame long-term trends for labor shortages.

Unemployment in the U.S. is about as low as it ever gets. Many workers are quitting part-time or temporary jobs they took as pandemic stopgap measures, while others depart in search of higher wages. But employers should not assume that the current labor shortage is an aberration. They are facing a decades-long trend of reduced birth rates in the U.S. and around the world.

Economic downturns can also lower birth rates and shrink the pool of workers a generation later. “It takes about 26 years to produce a 25-year-old worker,” Rebelo jokes. “You can’t go back and undo those kinds of decisions.”

The demographic outlook is stark. For example, the number of U.S. people most active in the labor market—those aged 25 to 54—hit a plateau in 2000 after more than 40 years of steep growth.

A significant reduction in net migration to the U.S. compounds the labor shortage. In 2016, one million people per year came to the U.S. These immigrants helped the economy in two ways, says Rebelo: They filled jobs, and they had higher fertility rates. Now that flow has dwindled to 200,000 per year.

4. Employers are embracing remote work.

Do not pay attention to those grumpy CEOs who post essays about forcing people back to the office. The reality is many businesses have learned that working from home, at least part of the time, significantly boosts productivity. Studies on call centers and other workers in China showed that those who were randomly assigned to work from home had higher rates of productivity and lower rates of turnover and absenteeism, Rebelo says.

Other professionals, like software engineers and accountants, who require long stretches of uninterrupted time, have embraced work-from-home and hybrid schedules. As many as 40% of professional employees are now working from home at any given time.

The argument for going to the office a few days a week is that it may be necessary for collaboration and acquiring new skills. “Working from home is great for things we already know how to do, but less good for things that we haven’t done before,” says Rebelo. “That’s probably why Elon Musk doesn’t like it.”

5. The world is taking steps to fight climate change.

The world still gets more than a quarter of its energy by burning coal. And the disruptions in the energy markets caused by Russia’s invasion of Ukraine and the resulting sanctions have interrupted the shift from coal to cleaner natural gas, particularly in Europe.

But there is good reason for hope on the climate-change front. Industrial investments in China have significantly decreased the cost of photovoltaic cells, making solar energy price-competitive in many places. And the U.S. is very close to implementing policies with attractive tax incentives for investing in renewable energy as part of the Inflation Reduction Act.

“This act might spark the beginning of a green revolution,” says Rebelo. He points out that news about the tax breaks has already boosted the value of an index of renewable energy stocks. Another reason for hope is that countries joined forces once before to solve a climate problem by replacing the chemicals responsible for destroying the ozone layer. “We can succeed again, but we need to rise to the challenge posed by climate change,” he says.

This first appeared in Kellogg Insight; reprinted with permission.