Thursday, September 2, 2010

Weather or Not

The Weatherization Assistance Program (WAP) has been around since 1976: a federally-funded program designed to reduce energy consumption in lower-income housing. According to the U.S. Department of Energy, over 6.2 million homes have been weatherized since the inception of the program. Along came the Great Recession, and Congress responded with the American Recovery and Reinvestment Act (ARRA). Included in ARRA was $5 billion of additional funding for WAP, with the intent to kick start job creation in the construction industry.

The first installment occurred in March of 2009, with the goal of using at least half of the $5 billion by June 17, 2009. To quote a U.S. Department of Energy announcement about the weatherization program, “Special consideration will be given to projects that promote and enhance the objectives of the Act, especially job creation, preservation and economic recovery, in an expeditious manner.” This is why ARRA was nicknamed “the stimulus.”

The Department of Energy recently announced that $2.6 billion, or about 52% of the funds had been expended as of August 20, 2010, or 14 months after the target date – more of a push start than a kickstart. It’s fair to say that the goal of creating jobs in an expeditious manner was not achieved (blamed on the lack of infrastructure to process the increased funding, which is now in place). The good news is that a large amount of funds remain. This provides an opportunity for contractors that could still use some stimulation, and who are capable of bidding and delivering low-margin volume work and carrying receivables for 30 days or more. Some conditions of working under this program include:

- Reporting, tracking and segregation of incurred costs;
- Reporting on job creation and preservation;
- Access to records by Inspectors General and the Government Accountability Office;
- Ensuring that manufactured goods are produced in the United States;
- Certification and registration;
- Ensuring that wage rates are comparable to those prevailing on projects of a similar character.

This last condition comes from applying the Davis-Bacon Act requirements to ARRA-funded projects, and will be the first time it’s been required in the 34-year-old weatherization program. While these requirements are common in federally-funded construction projects like highways (which are heavily unionized), they’re not typically applied to residential work. Depending on the region, Davis-Bacon wages may be higher than a given company’s pay scale (see Wage Determination by State), which would put pressure on margins and could introduce some dissonance among employees that are paid less on typical company jobs. Also, compliance can be cumbersome for a small contractor, which argues for outsourcing payroll to an expert – adding another cost to overheads.

One billion dollars of the $5 billion enhancement to WAP is set aside for funding technical assistance and training at both the state and national levels. The goal is to “help form the foundation for a sustainable energy efficiency industry in America that can extend to the more than 100 million middle-class homes that stand to benefit from weatherization.” If this fits in your strategic plans, you should utilize the resources.

An additional $3 billion of ARRA funds above the $5 billion for WAP have been allocated to the State Energy Program (SEP), which is primarily intended for developing and implementing comprehensive state energy conservation plans (technical assistance, training, education, etc.) and not for construction projects. However, it will fund rebates to consumers for home energy audits, which is another opportunity for contractors that are positioned to provide that service.

The states deliver federal WAP funds through a network of local community action agencies, non-profit organizations and local governments, which may perform the work themselves or put it out to bid (for a list of agencies, see your state’s department of housing and community affairs). More information on the weatherization program can be found at ARRA and WAP and WAP Online.

Various estimates of the number of new jobs created by the additional $5 billion put the cost of each job at between $37,000 and $57,000. Perhaps this could be one way of making your tax dollars work for you.

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