The Architecture and Engineering (A&E) and straight engineering space have been long-time R&D tax credit-generating industries. There is technical uncertainty indicative of research activity in all of the engineering trades especially with regard to civil, structural, bridge, roadway, and building design and development. Each design is highly complex and rarely “cookie-cutter” for both new and existing structures. Design reviews, development of new processes, experimentation with materials, as well as evaluation of alternatives are often qualified activities.
Qualified activities are generally performed by estimators, engineers, project managers and technicians. Estimators perform bid and proposals. Many technical aspects of a job are identified at this stage. Estimators are often engineers, who are highly trained and experienced. Bids are based on drawings that estimators closely examine and analyze against information gathered through research. Equipment, material, and labor cost estimations are critical due to numerous unknowns. These individuals develop initial phase hypothetical performance specifications and must have the experience and skill level to anticipate these requirements while considering cost constraints successfully. Engineers often perform surveys to establish reference points, grades, and elevations.
Further activities may include: soil testing for structural and foundation alternatives, new building materials testing, and risk analysis and the use of design software to develop new systems. Project managers spend time in the field, identifying issues and coordinating resolutions through alternative methods and techniques including land, grade, and soil changes. Technicians are responsible for collaborating with various engineers and project managers and their activities include soil analysis, software design and modeling, and drafting construction contract design documents.
In addition to internal labor, qualified research expenses (QREs) often include the costs associated with hiring outside consultants to perform these activities. Often, engineering firms underestimate the amount of R&D expenses and related R&D tax credit they deserve. Activities that can qualify for the credit are much broader in nature and scope than what may traditionally be thought of as qualified research and development.
Typical A&E projects have several stages. Research activities are usually more prevalent in the early stages but may occur later as well. Common Architecture and Engineering development stages include:
Development of schematic design, design development, and final construction documents
- Design modification to overcome conflicts when coordinating drawings from multiple trades
- Design of unique buildings and structures
- Development of unique/custom structural support solutions
- Evaluation of multiple design solutions for technical problems involving structural integrity and custom architectural design elements
- Design activities including estimating and programming
- Design review and modification for cost reduction and energy efficiency
- Evaluation of alternative materials for unique design requirements (e.g. sound absorption, energy efficiency, etc.)
- Development of architectural master plans
- Development of curtain wall, façade, and other building envelop systems
- Foundation design based on geotechnical findings
- Development of design alternatives to overcome project site issues
- Structural designs for seismic retrofits
- Development of industrial processes for production facilities
- Environmental remediation activities
- Performing CAD & BIM modeling to develop 3D building plans
- Computer modeling and simulation of design and site conditions
- Utilization of AutoCAD, REVIT, BIM, HEC-RAS, STAAD, and ANSYS
- Design changes and modifications due to regulatory compliance issues
R&D Tax Credit Case Study: Architecture & Engineering
This structural engineering firm employs the most advanced engineering techniques and processes. Their expertise is in performing intense studies and analyses of structural components utilizing technologies such as radar, lasers, acoustics, pulse velocity or impact, fiber optics, x-ray, ultrasonics, and a variety of monitors for cracks, tilts, winds and environments for extensometers and large scale movements. In addition, the firm is increasingly embracing concepts of sustainability and “green” construction techniques and processes.
R&D Tax Credit Qualification for Architecture & Engineering
Principles of engineering and physical science were relied upon to create new or improved designs, methods, and processes. The firm designed and evaluated alternatives to ensure that the plans would meet specific requirements. The firm’s research and development cycle was continuous and iterative as each phase of development yields additional data that was leveraged to achieve a result. Numerous R&D initiatives were simultaneously pursued each year, and each initiative was unique.
Initially, the firm reviewed drawings and technical specifications then identified areas for improvement with a core focus on alternative material usage and the improvement of the structure. Team members took the proposed designs and converted them into a digital format where in-depth analysis of the designs took place. Research activities often included, Green Building Design/LEED, seismic analysis, alternative material experimentation, load and grade computations, acoustical quality improvements, and stress factor evaluation. Strength and stiffness were critical considerations when designing a building as proper load support must be introduced to avoid stresses caused from seismic activity. At this stage, hypotheses was developed as to what engineers believed would be the most likely development track, capturing technical information relative to codes and by-laws, principles of physics, and overall risk.
Problem solving was iterative and included the evaluation of alternative solutions through studies, topographical data, material performance under various environmental conditions, and load stresses.
This firm utilized software tools to develop 2D, 3D, mathematical, and analytical models. The firm used REVIT, BIM and CAD software platforms to determine if engineering calculations met specification requirements related to geometry, materials, and constructability. Data was collected to evaluate failures, errors, and related performance requirements. At this stage, the process returned to research and conceptual design if the failure was significant.
During testing, the firm ran simulations to test digital prototypes created within the modeling phase of development. Virtual tests were used to test multiple design scenarios against numerous criteria. As an example, to predict design failure before it occurred in the field, they ran static and dynamic simulations to evaluate the performance of the design over time.
Detailed design and development, and construction often run concurrently due to technical complexities encountered in the field. Once construction began, certain aspects of plans often failed or needed to be redesigned in order to execute the correct sequence of work.
Results Speak For Themselves
Total federal credits for this A&E firm in the current year were $275,000 given annual R&D expenses of approximately $4.7 million.