General Inquiries

Indirect Expense Job Allocation for General Contractors

  • 1.  Indirect Expense Job Allocation for General Contractors

    Posted 03-13-2019 10:38
    From a general contractor's perspective, how do you all charge your jobs for indirect expenses, particularly usage of small tools and project manager/engineer time?  Being new to the GC world (previously worked for a subcontractor), I'm learning that some owners allow us to include project management/engineer time in our general conditions and others do not.  Also, I'm trying to develop a consistent way to charge small tool usage to our jobs.  I have ideas on how to do this but I want to see if they are consistent within the industry.

    To-date, small tool purchases have been charged directly to the job in most cases.  PM and PE salaries have been charged to overhead, but at the end of 2018 I did an allocation to job cost a % of their salaries.  Our PMs and PEs also do some estimating, so 100% of their time is not billable to jobs and we do not require them to keep time cards.  Our estimators currently do not have a solid way to come up with budgeted amounts for these general condition items.

    We are a newer GC company with young professionals, so forgive me if the answer to these questions may seem like a no brainer.

    Thank you in advance for any input you can provide regarding indirect expense job allocations and compilation of general condition budgets!

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    Krystal Sund, CCIFP
    Controller
    Perry Reid Construction, Lincoln, NE
    (402) 488-1666
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  • 2.  RE: Indirect Expense Job Allocation for General Contractors

    Posted 03-14-2019 08:36
    Krystal:
    I wrote a blog article on this subject some time ago.  I included a link below.  The referenced and cited sources are listed at the end of the article and are a great source for more information.  I hope this helps:

    https://www.corecon.com/should-company-overhead-expenses-be-included-in-job-cost-reports

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    David Holler
    Corecon Technologies
    Construction Software Consultant and Trainer
    Savage MD
    dholler@corecon.com
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  • 3.  RE: Indirect Expense Job Allocation for General Contractors

    Posted 03-14-2019 09:35

    Krystal,

     

    As you say, not all contracts will allow you to charge home office expense to the job. Most of ours do not. We carry our Project Managers and Assistant Project Managers in overhead. When we can charge them directly to the job, we do so. That's decided job by job and the individual is directed to report time accordingly. We use AboutTime for time reporting. We have some individuals who are not on it, and on payroll day, we simply charge X hours of their time to a job. That's how we charge Executive time when we're able to charge it to a job.

     

    Small tools and equipment rentals are budgeted in each job and charged to it. I've never found this to be a significant expense. If the contract is some kind of cost plus, we make sure these costs are coded outside general conditions, to the exact line item for which they are incurred.

     

    There are some other home office expenses such as company trucks, maintenance which I take each month and allocate to all jobs pro-rata, based on that month's cost. I also charge most of my insurance program to the jobs. Since my General Liability is paid based on billings, I allocate the other policies based on each project's monthly billings.

     

    My basic goal in all of this is to charge each job with as much cost as it should have. I look at each GL account and ask myself, "if I didn't have any jobs, would I still have this expense?" If the answer is "no" then I'm going to figure out how to charge the job for it.

     

    Tim

     

     

    Timothy J. Mickunas, CPA, CCIFP

    Chief Financial Officer

    Office: (956) 686-9573

    Email: TimM@DWilsonConstruction.com

    Web: www.dwilsonconstruction.com

    Address: P.O. Box 3455, McAllen, TX 78502-3455

    An Employee-Owned Company

     

     

     






  • 4.  RE: Indirect Expense Job Allocation for General Contractors

    Posted 03-14-2019 10:23
    Hi, Krystal.

    We have an equipment rental rate that we apply to jobs when we bring a "tool crib" or "job shack" to the job.  Each day that work is performed on a job, we charge an equipment rental rate based on the presence of the "job shack" on the job.  As to PM and PE time, our situation is different in that we pay these employees hourly rather than salary.  These employees track the time that they spend working on or administering the jobs they are in charge of and they are considered direct costs of that job, with their time being estimated as part of our job bids.  We have other "jobs" or costs centers set up to capture the cost of their time spent estimating, training, etc. and those are allocated over all jobs as overhead.

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    Erik Wakeling
    Controller
    Knight Const. & Supply, Inc.
    Deer Park WA
    (509) 276-2229
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  • 5.  RE: Indirect Expense Job Allocation for General Contractors

    Posted 03-14-2019 11:04
      |   view attached
    ICCIFP did a survey several years ago on this topic with 189 member responses - see attached.  Surprisingly, 44% of contractors expense their tools to jobs as purchased.  30% use an allocation factor which I think would be a best practice.

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    Chuck Elyea, CCIFP
    Founder/CEO, ShareMyToolbox | 704-201-1222 (c)
    ------------------------------

    Attachment(s)



  • 6.  RE: Indirect Expense Job Allocation for General Contractors

    Posted 03-15-2019 18:20
    Here is a March 2018 CFMA Cafe thread on a similar topic:

    http://cafe.cfma.org/communities/community-home/digestviewer/viewthread?MessageKey=877bb306-61f6-4b78-b99b-7eb86c848809&CommunityKey=b0fdb0a6-dc05-4f5b-becc-5d5aca76b221&tab=digestviewer#bm877bb306-61f6-4b78-b99b-7eb86c848809

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    David Stern, CCIFP
    David Stern CFO, Inc.
    Berkeley, CA
    (510) 910-1637
    david@davidsterncfo.com
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  • 7.  RE: Indirect Expense Job Allocation for General Contractors

    Posted 03-16-2019 09:11
    Tools are always lost, broken, and replaced.  It would seem that simply expensing to a job as needed is the most efficient method.  Making sure that the job costing process and category of expense line items compare and are comparable to the estimate and its language is the first guideline always...mirroring the estimate.  As to tools, there should be a history of turnover of tools.  I would be more concerned about lost/stolen tools and tracking standards of useful life, and reducing cost if the variance is significant.  In my practice with construction companies nationally, that turnover rate (tool turnover cost divided by job cost hours) once a standard has been determined is the easiest telltale.

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    Tony Burruano
    Managing Director
    Burruano Group
    Cherry Hill NJ
    (239) 595-2149
    tonyb@burruanogroup.com
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