General Inquiries

Unbilled Subcontractor Costs

  • 1.  Unbilled Subcontractor Costs

    Posted 19 days ago
    We are having delayed project closings (sometimes it is 60 to 90 days on WIP) in our system because subcontractors are not fully billing their contracts.  Oftentimes, we receive the final pay app from the sub and then review the subcontract to find that they are not billing their final two change orders.  Even after reaching out to them, they never "get around" to billing us.  Sometimes these amounts are for $100 - $1,000, other times it's a change order of $5,000 to $8,000.  We cannot force them to bill us, but we know we rightfully owe them this money whenever they "get around" to billing us.  At the same time, we want to record the profit because the project is completed and the owner has even already made their final payment to us.

    Currently, if we only have two or three contracts keeping us from closing the project,  we credit our accrued subcontractor costs account and debit the project for these items to be able to close the project.  We deal with a lot of subcontractors whose owners do all the office/billing type of work to.  That's part of their problem when the markets are good like they are right now.

    What do you guys do? I would think it would be more normal for subcontractors to constantly be OVERbilling their contracts because the change orders have not been written on the contractors side. 

    Thanks

    Jordan Davidson
    Accounting Manager
     
    1033 Lafayette Ave
    Terre Haute, IN 47804
    812-232-3700 Office
    812-235-6757 Fax


  • 2.  RE: Unbilled Subcontractor Costs

    Posted 18 days ago
    Hi Jordan,

    I had the same problem when I worked for a GC. Now that I have worked and consulted for a few subcontractors, I have a better understanding of how this happens. When I worked for general contractors, I had maybe 10 - 12 projects at a time to deal with. The subs I have worked for are managing hundreds of projects PER MONTH. Every GC has their own billing checklist and their own pay application form, which means that in that short window of time between, say, the 18th of the month, and the 25th, when many billings are due, our AR people have to bill the work in our software, and then turn around and transcribe that information onto the GC's pay application, often by hand, and frequently with no information from operations about which billing items belong to which line items on the SOV prepared by the GC. They then have to track down the billing checklist that was sent (months ago) with the original contract documents, and deliver the invoice by whatever special method is required by the GC in question. Many subs are working out of QuickBooks and even those who have invested in construction accounting software often find that the software on the market is ill-equipped to help track the enormous number of upstream and downstream obligations a subcontractor is managing at any given time.

    I will be interested to find out how other GCs deal with this, but here is my advice: If your PMs are telling you the work is done, and especially if you have signed COs from the sub and are reasonably sure that you have agreement on the contract amount, then go ahead and bill out the subcontractor. Stick the check in a drawer, and send the sub's AR person (not the estimator or the salesperson) an email saying the check is ready to be mailed as soon as they fork over their final pay app and closeout documents. You get to close out your project, and it puts the ball in the sub's court to get the paperwork done. As a bonus, you will probably get a reputation among subs for being easy to work with, which may even impact the pricing you get on the next job.

    Hope this helps.

    ------------------------------
    Britt Galipault CCIFP
    Accountant
    Smith Fence Company
    Saint Petersburg FL
    (941) 321-8522
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  • 3.  RE: Unbilled Subcontractor Costs

    Posted 18 days ago
    Hi Jordan,

    We are dealing with the same kind of issue, and it seems to be an issue across the industry when dealing with smaller subcontractors. One of the things we are working on is putting together a Final Payment Affidavit for the subcontractors to sign confirming all final contract amounts, and we are hoping that will actually spur them to bill.

    But as for tracking those costs and making sure they don't get lost, I think I would do it roughly the same way that you're doing it. I feel like as long as it doesn't disappear off my balance sheet and I know I have a liability out there, I'm happy to hold the subcontractors money and make some interest off of it if possible.

    Another option - if your accounting system allows it - is to set up a separate A/R account for these particular items, and then post a phantom bill into that account. The only reason I think I would prefer that option is it gives you the ability to do A/P Aging.

    Anyway, it's good to know we're not the only ones dealing with this issue. Hard to believe people wouldn't bill for their work! But I guess that's why they're not in CFMA. ;-)

    Thanks!

    ------------------------------
    Jack Kiperman
    COO / CFO
    Viking Engineering + Construction
    Portland OR
    (503) 987-0570
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  • 4.  RE: Unbilled Subcontractor Costs

    Posted 17 days ago
    Hi Jordan,

    We do a significant amount of our work on the tribal reservations in Arizona, so we also work with many small subcontractors and run into this problem often. It can be challenging to get billings mid-project at times, much less closeout. It's not uncommon for us to prepare the final billing and conditional final lien waiver ourselves and send them to the sub requiring only a signature.

    As Britt mentioned, if they know final payment is ready to go in the mail and it's as simple as signing a couple of documents, the process usually gets expedited. It can be frustrating at times to basically be acting as the AR department for some of our subs, but the return on the niche market we typically serve makes it worth it.



    ------------------------------
    Brandon Hubbard BS Finance, CCIFP
    Controller
    M. Greenberg Construction, Inc.
    Gilbert, AZ
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  • 5.  RE: Unbilled Subcontractor Costs

    Posted 15 days ago
    Jordan,
      We have the same issue.  Boggles the mind that subs don't seem to want their money.  Before we pay retention on the project, we run the sub status report to find if the subs have billed the project in full.  If they have not, it is one of their requirements to be able to receive their retention check.  So far this has been working.

    ------------------------------
    Cynthia Dean
    Controller
    Nevada General Construction
    Las Vegas NV
    (702) 254-0262
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  • 6.  RE: Unbilled Subcontractor Costs

    Posted 12 days ago
    Edited by Matt Newman 12 days ago
    We have the same problem.  I also accrue the costs to a liability account and soft-close the job (so it falls off the WIP).  Then, if you are using Vista, you can change the "department" of the job so that when the actual costs come in later the debits run to the balance sheet.  This works well so that you can keep the subledgers intact.

    ------------------------------
    Matt Newman
    Controller
    Alcorn Construction Inc.
    Lakewood CO
    (303) 339-6233
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