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Section 3 Changes

Construction worker standing in front of crane

What is Section 3? 

Enacted under the Housing and Urban Development (HUD) Act of 1968, Section 3 details the basis for providing jobs for residents and awarding contracts to businesses in areas receiving certain types of HUD financial assistance. The Section 3 standards, principles, and procedures detail that HUD financial assistance recipients, their contractors and trade partners are to provide opportunities for training and employment to lower-income persons and to contract with businesses residing in the area that the development is being funded.  

What are the latest changes and when were these made effective? 

In measuring the effectiveness and results of the Section 3 program, HUD had been following the 1994 “interim rule” that stated 30% of all new hires must be low-income residents of the area where the project is funded, and that 10% of all contract dollars be awarded to certified Section 3 businesses. In September 2020, HUD published a “final rule” that overruled the 1994 “interim rule”, effective July 2021. The” final rule” has significant changes, including the most notable being the abandonment of new hires and 10% contracting standards, in favor of an “hours worked” compliance measurement system. Now, 25% of all labor hours performed on a Section 3 applicable project must be performed by low-income “Section 3 qualified” workers and 5% of that total are to be performed by “targeted Section 3 qualified” workers. The “final rule” also changes the definition of a Section 3 business by focusing on a percentage of hours worked, rather than by the number of those employed. Now to be considered a Section 3 business, companies need to certify at least one of the following:

  • Over 51% of the company is owned by a low-income resident
  • In a three-month period, at least 75% of total labor hours worked were performed by low-income employees
  • Over 51% of the company is owned by a public housing or Section 8 resident

Once certified as a Section 3 business, 100% of all employee hours worked on the Section 3 applicable project is documented and classified as “Targeted Section 3” work hours. In addition to being employed by a Section 3 business, Targeted Section 3 workers can be within the income parameters and living within one-mile radius of the project’s service area or YouthBuild program participants.  

How will this impact Harkins and the industry at large? 

Moving to an entirely hours-based measuring system will certainly require additional responsibilities. While many Section 3 applicable projects require Davis-Bacon wage reporting, not all do and the reporting for the Section 3 hours benchmarks is notably different and more encompassing. The hours documented for Section 3 need to include all employees and management professionals contributing work in connection with the applicable development. Davis-Bacon reporting is limited to hours performed by on-site laborers and mechanics only. Administrative systems will need to be deployed that effectively and accurately record the applicable hours. 

The point along a development life cycle where Section 3 activated funding is identified is not always clear and it may not be a consideration early. but the recipient prioritization and implementation of qualitative efforts necessary do require early efforts, creating a disconnect that must be resolved as early as possible. This inherent challenge can be mitigated by communicating with lending agencies, jurisdictions, and development teams very early to discuss the key components and potential funding paths. Furthermore, it is good practice deploying overall and ongoing regional qualitative efforts that can then be better refined for individual development applications as they are identified.

On the surface, the attainment to provide 25% of all labor hours associated with development to low-income workers may appear daunting but that is likely due to the misunderstanding of what qualifies as a low-income worker and to what extent the construction industry’s range of wages will provide for the 25% benchmark to be met. According to the US Bureau of Labor Statistics, May 2020 mean hourly wage for construction occupations was $25.93/hour. This represents the 50th percentile with half of the wages being above and half being below. As noted early, low-income is defined as individuals with an annual income below the HUD 80% Area Median Income (AMI), and for Mid-Atlantic regions that range is between $25.00-28.00/hour. From this vantage, it would appear that 25% of labor hours associated with development would be performed by workers meeting that definition of low-income. Furthermore, HUD has made accommodations in the “final rule” to provide a five-year reflection period in which a worker’s wages can be evaluated for Section 3 worker classification. The more important focus then becomes workers and business’ geographic proximity to the development with a diligent prioritization of efforts and opportunities to those within the “service area”, along with that development’s metropolitan area.  

Section 3 statistics

By changing the definition of a Section 3 business, previous registries and listings are no longer applicable and businesses will need to evaluate the new criteria to then consider certification. Section 3 business listings will require new entry and maintenance. This will be a large undertaking but a worthwhile one as a heavy focus on contracting with Section 3 businesses will lead to better overall results.  

The new HUD Section 3 “final rule” is a fundamental shift from previous procedures and includes many other nuances that need to be carefully considered. The industry’s ability to pivot will be challenging. It is important to truly understand the context of the program, its objectives, and requirements, and the infrastructure needed to outline a successful compliance response for each project. A strong organizational commitment to this strategy and implementation of qualitative efforts starting early in the preconstruction process is critical to success.  

The intent of Section 3 has always been to provide and promote economic uplift and self-sufficiency among low-income persons, level the playing field for Section 3 workers and businesses, and strengthen local economies. HUD’s primary motivation behind this most recent change is to better promote and support sustained employment. To be successful, a thoughtful long-term approach is necessary, and one that expands beyond that of just a single development. With knowledgeable team members and authentic partnerships, the good intentions of the Section 3 program can be realized and will further strengthen the communities that we serve. Harkins has gained a thorough understanding of the new requirements and has established procedures to ensure compliance on all Section 3 projects. 

There’s Data in Decision Making

Two employees looking at charts of projects

By: Harkins Director of Scheduling & Analytics Patrick Hennessy

It is no secret that the construction industry has seen a boom in technology in the last 20 years. Organizations that were previously using pen and paper to complete daily reports, inspections, and submittals have entirely moved these processes to the cloud. A major benefit of performing these tasks online in a cloud environment is the storage and control of the organizational data that is produced. Data that was previously filed away in a cabinet, never to be seen again, is now at the fingertips of Harkins’ decision-makers. We are actively using our data effectively by giving our leaders real-time information, combined with trends and historical facts, that lead to data-driven outcomes. 

When we committed to integrating data into our daily decision-making, we first focused on the low-hanging fruit. We asked ourselves, “What data is accurate and standardized across our portfolio, from region to region, and project to project?” and “What data can make an immediate impact to our organization?” The answer for us was simple: our safety data. Thus, our Safety Dashboard was born. During our initial investigative and brainstorming phase, we quickly realized our data integrity was poor and that efforts needed to be focused to standardize our processes and procedures across the entire organization, driving an improvement in our data integrity. This led to standardization efforts, the creation and distribution of SOPs, and training to ensure that these processes and procedures were being performed correctly. Today, we have a variety of solutions that provide real-time analytics across different divisions and teams, from individual projects to our entire organization at a portfolio level, to our human resources and risk management departments.  

The biggest challenges we have faced in our data integration efforts are mistrust in information and fear of too much oversight. To breed trust within our organization, we look for “light bulb” moments, such as a previously unspoken user giving positive feedback or telling a story of a situation where the insights helped make a decision or solve a problem. By capitalizing on these contagious moments, we can dramatically enhance the progress of data integration. In addition, fostering a culture of trust is essential. When there is a culture of trust, the concerns of too much oversight are eliminated. Organizational transparency breeds an unparalleled culture, particularly in analytics. 

In the future, Harkins plans to explore more advanced machine-learning methods and algorithms to help us predict risk before it becomes a thought, by using to an entirely proactive approach. Much of the construction industry is reactive to situations on the jobsite, leading to loss of productivity, profits, and more focus on present issues instead of the ultimate end-goal. We are constantly looking for more ways to tap into our data to help inform the decisions that we make, in hopes that we can soon have data-driven solutions assist in all decision-making processes.  

Our Commitment to Innovation Through Accounting

Accountant looking at files and typing on calculator

By: Harkins Controller Jim Beck

While all departments within Harkins are integral to the company’s success, accounting is especially important and tends to be overlooked. Accounting in the construction industry is not only demanding, but the attention to detail is crucial to ensuring that trade partners are paid in a timely fashion, that our employee-owners are compensated bi-weekly, and that project financials are represented accurately, all while acting as a safeguard to protect corporate internal and external data. Utilizing the latest technology, we can continue to evolve as a leader in the industry and allow our accounting department to continue advancing.  

Procore is one of the most widely used construction software, allowing teams to collaborate while finishing quality projects safely, timely, and within budget. In 2015, this software was introduced to our accounting department, and the Commitment and Budgeting Module completely altered the way accounting and project teams functioned daily. The next step in accounting’s commitment to change happened in 2017 when a committee selected Viewpoint as the new document scanning and storage software to easily manage and access large quantities of project and corporate documents. This was a major upgrade from the antiquated filing system we used previously, and the move to this paperless system was an essential step in modernizing Harkins’ document storage and payment process.  

 With our accounting team’s next advancement, they will upgrade our current Oracle PeopleSoft version to the latest version to effectively manage a variety of different processes. This upgrade will allow a more integrated system that will streamline workflow and document storage of invoices. It will also consolidate the use of human resources’ many systems into one to eliminate duplication of data entry, while creating other efficiencies. With the extraordinary effort, patience, and flexibility of accounting, human resources, and project teams, we can expect a successful transformation by 2023. As we work together to upgrade our PeopleSoft application, we will remain focused and look to the future for the next opportunity to positively transform the way that Harkins operates through leadership of change and advancement through software enhancements.  

Preconstruction: Value in Early Involvement

Team looking at drawings in preconstruction meeting

By Project Executive Casey Hughes

Throughout the industry, preconstruction has become one of the most important pieces in the construction process. It’s the time where teams can have the most impact on design, cost, and schedule, as well as formulate and develop a construction strategy that will extend throughout the life of a project. From budgeting to sequencing, we can guide decision-making from concept creation through construction. We can make accurate projections for cost and schedule, providing cost-efficient design solutions that will allow our clients to pursue their projects successfully, starting at a very early stage.

Harkins works closely with all project stakeholders up front to allow for comprehensive estimating, detailed scope narratives, continuous value engineering, exhaustive logistics, detailed scheduling, and safety planning. We utilize the knowledge of our preconstruction department to verify that the numbers we establish in the budget are realistic, appropriately forecast future pricing trends, and have the proper trade partner coverage at the time of the final GMP development. As part of Harkins’ preconstruction process, the construction team is assigned early, and is involved in logistics, staffing, and scheduling. This early involvement gives the team a head start on actual construction with subcontract awards, submittals, and mobilization. Through successful preconstruction efforts, the outcome is an engaged team that can supply coordinated sets of construction documents and a GMP in line with the project budget. These outputs help to streamline the start of the project and align all project partners for a successful start.

The level of detail that Harkins invests into analyzing early design documents is what differentiates us from other contractors. We work to become the early authority on every aspect and detail of the job, including the scope, design parameters, project assumptions, budget, schedule, and more. In this market, in-house preconstruction services are more critical than ever. Volatile material pricing, a stressed labor market, and a disrupted supply chain are wreaking havoc on projects industry-wide. Harkins’ early involvement in preconstruction helps to alleviate a number of these issues. Having the ability to procure key materials, secure the right trade partners, and resequence a schedule to achieve the best outcome is essential to our efforts. With the right team and involvement in the process early on, Harkins is able to set the framework for a successful project for all stakeholders.

Athol Manor Celebrates Ribbon Cutting

Columbia, MD

On Monday, October 4th, Harkins celebrated the ribbon cutting of The Apple Ford Center at Athol Manor, located on the property of Brightview Columbia in Columbia, MD.

In partnership with Legacy Investments and Brightview Senior Living, Athol Manor is an 18th century, 280-year-old building that Harkins restored while preserving its historical features. It was gifted to the Community Foundation of Howard County and now serves as the organization’s new headquarters. Made of local materials such as granite, oak, walnut, and pine, it was built this way to reflect the importance of the position that the church held within the colonial society and the craftsmanship of the immigrant Scottish masons who constructed the building. The once dilapidated building is now a dedicated space for non-profit art groups and is one of the oldest buildings in Howard County. Brightview Columbia proudly displays the 30-foot cupola that once stood on the manor.

“For an incredibly high-tech operation, Harkins operated in a very personal and old-fashioned way. The team put a lot of time and thought into preserving history in Athol Manor,” said Community Foundation of Howard County Director of Operations, Compliance, and Human Resources Jay Vidyarthi. “The original banister from the 1700s was too low for code. Rather than remove it completely, the team sliced it off the base and built a new base that looked like the original, raising it up to code. The professionalism of Harkins and love of the building’s past drove them to find unique solutions to keep the history alive.”

Ribbon Cutting Photos