The R&D Tax Credit Aspects of Building Management Control, Design & Integration

By , , and

        Automation within building management systems (BMS) is a significant part of managing and maintaining a large range of systems which are needed for a building’s full functionality. A building management system can significantly increase a building’s energy efficiency, occupant comfort and value.

        A building management system is essentially the interconnection of software, and electronic and mechanical devices to control various building systems, which include security, lighting, fire safety, and heating, ventilation, and air conditioning (HVAC) systems.

        Navigant Research conducted a study which stated that commercial building automation revenue will increase by approximately $30 billion in 2021. Currently, North America has the largest building management system market and is expected to continue having the largest market for the next few years.  Manufacturers, designers, and integrators of BMS systems often engage in activities eligible for Federal and State R&D Tax Credits.

The Research & Development Tax Credit

        Enacted in 1981, the now permanent Federal Research and Development (R&D) Tax Credit allows a credit that typically ranges from 4%-7% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

  • Must be technological in nature
  • Must be a component of the taxpayers business
  • Must represent R&D in the experimental sense and generally includes all such costs related to the development or improvement of a product or process
  • Must eliminate uncertainty through a process of experimentation that considers one or more alternatives

        Eligible costs include U.S. employee wages, cost of supplies consumed in the R&D process, cost of pre-production testing, U.S. contract research expenses, and certain costs associated with developing a patent. 

        On December 18, 2015, President Obama signed the PATH Act, making the R&D Tax Credit permanent. Beginning in 2016, the R&D credit can be used to offset Alternative Minimum tax for companies with revenue below $50MM and for the first time, pre-profitable and pre-revenue startup businesses can utilize the credit against $250,000 per year in payroll taxes.

Building Management Systems

        Building management systems normally utilize sophisticated devices such as sensors, software, and cloud-based data storage. The incorporation of IoT  devices allows building owners to obtain a better grasp of controlling, monitoring and sensing systems. The addition of a new BMS normally requires customization for installing, programming and maintaining the system.

        The average cost of integrating a new building management system is $2.50 per square foot but can cost as much as $7.00 per square foot. However, this can be offset by the significant energy and maintenance cost savings that these systems provide. Additionally, with the use of IoT components, owners can save 30% of the cost of a regular system due to lower costs in wireless sensors and networks that consume less power. It is estimated that the cost of IoT components will continue to decrease which will make installing building management systems more affordable for building owners.

        Many smart buildings utilize building management controls to collect data analytics from various building systems. This collected data allows operators to detect if there are any patterns or activities that shouldn’t be occurring. Big data is helpful when utilized correctly, such as when management systems are programmed to prioritize data that contain highly critical alerts or issues. Operators can use this information to create improved processes or fix any particular issues within building systems.  

        There are three main types of data analytics, consisting of descriptive, predictive and prescriptive analytics, which are all important for building management purposes. Descriptive analytics gathers information for operators to analyze what actions have already occurred within systems. Predictive analytics incorporate statistical models and assist in forecasting predictions for building systems. Prescriptive analysis takes advantage of optimization and simulation to figure out what actions should be taken to prevent any potential issues.

        Besides using analytics, a BMS keeps track of several building systems through advanced software systems and various electronic devices. Some of the components controlled are lighting units, sensors, variable frequency drives, and actuators.


        A major component of building management systems is the software , as it acts as the brain of the system. New developments in software algorithms can significantly improve the accuracy, reliability and function of BMS equipment. Many BMS companies invest significantly in software improvements, the development of which is eligible for significant R&D Tax Credits.

        Schneider Electric is one of the many companies investing in these developments, and they have created SmartStruxure, which is a software system to assist owners in monitoring and optimizing their building system needs. The software features a personalized user interface, easy access to information, as well as a scalable system based on open protocols. To deliver the best building efficiency, the software assesses certain factors on an enterprise, operations and control level. SmartStruxure optimizes energy, operations, and assets to meet financial, regulatory, and business standards. 

Cyber Security

        Cyber security  can be a serious threat to building management systems. Owners have realized how important it is to prevent hackers from disrupting the system and accessing their private information. Inadequately designed or maintained building systems can be easily hacked, costing owners a significant amount of money, stolen information, as well as, the shutdown of systems. Establishing certain protocols and standards of maintaining the systems is important to keep information safe. 

Variable Frequency Drives (VFDs)

        Variable frequency drives are used in various building systems, mostly for control over pumps, fans and compressors, more specifically to increase or reduce the speed of these devices. This provides controllability of equipment, but also creates large energy cost savings. Because of what is known as the “Fan/Pump Affinity Laws”, reducing the speed of a motor generates exponential energy savings.

        There are three main types of VFDs which include current source inversion (CSI), voltage source inversion (VSI), and pulse-width modulation (PWM). Each type of VFD offers its unique advantages, but the most widely used is the PWM VFD due to its lower cost, high efficiency and power source. As buildings become more automated, VFDs will become more significant in creating efficient energy systems. 


        Actuators are the components that carry out the actions of a control system. Developments of these components have the ability to increase the scope of BMS.

        Schneider Electric created a new actuator called the SmartX MG35OV which was designed to easily connect with building management systems. The actuator serves the purpose of lowering operation costs while increasing energy efficiency. The SmartX actuator contains LED lights and signals to display valve positioning, alarms, valve blockage, as well as service and internal issues. The actuators can be used to support variable air volume units, fan coil units, air handling units, chillers, boilers and heating or cooling systems. 

Lighting Controls

        Lighting controls are a popular application for BMS systems, since they can significantly reduce energy costs and allow for advanced color schemes. Honeywell is one example of the many companies focusing on improvements to accuracy and controllability of lighting controls.

        Honeywell Lighting Controls has developed smart lighting controls systems to improve energy efficiency, by utilizing smart scheduling, presence detection and photocells to provide the most optimal lighting solutions. Smart scheduling allows operators to manage what time to turn lights on and off as well as how long lights should be on for. Vacancy detectors are used to turn lights off when there are no occupants in a room, which saves energy usage. Photo sensors are also utilized to detect when there is enough natural light so lighting levels can be lowered.  All of these devices assist in controlling and improving building energy consumption.


        Sensors play a big role in a building management system, since they are the eyes and ears of the system. As such, a BMS is only as good as its ability to read the environment around it, which motivates companies to develop accurate smart sensors.

        Enlighted  is a startup from California which has focused on creating a light that is comprised of sensors which measure natural light, occupancy status, temperature and more to provide the most optimal energy efficiency. The company has been testing new concepts and studying how sensors  can be used in lights to further understand how people can best utilize space. Companies or building owners can now visualize where lighting is needed or not needed in order to determine how lighting fixture placement or usage can be improved.


        Due to advancements in the efficiency of building management controls, building owners are now equipped with the tools to drastically improve their energy usage. With the deployment of new software and technology, owners will have better control and management over buildings. Companies involved in creating and improving new building management control products, as well as companies who implement these into their buildings and are eligible to receive the Federal R&D Tax Credit.

Article Citation List