The Construction Industry.
Most Engineering Contractors and Clients are running their business professionally and well.
The problem is many people don’t know they have a problem, for example many Engineering Contractors do not employ a Quantity Surveyor to look after their accounts, they don’t raise proper Applications for Payment, nor do they have a Variation Order Request system (VOR). They tend to rely on a Purchase Order only system, which in this case is better used for the supply of materials.
Their Applications that are submitted in many cases are not based on cumulative values and don’t show movement of value in the month, nor do they show value outstanding. Using the cumulative method informs both parties of the balance between what is complete and monies outstanding
The is no drill down reference structure, showing a easy understandably build up of costs within what they submit, so many Clients find it difficult, if not impossible to understand the Contractors entitlement. Consequentially proper payments are not received by the Contractor in a timely manor, leading to late claims and late payments, which does in many cases weaken the Contractors final account value and causes the Client’s mistrust.
Clients often use accounting systems that are not conducive to cumulative accounting, which is the basis of Construction work accounting. They raise several or more Purchases Orders on the same Contract, which can cause legal problems in having separate orders that cannot necessarily use the same terms and conditions. Many of these Purchase Orders are not properly referenced to the cost breakdown systems in contracts, so can confuse both Client and Contractor. It is becoming more regular that the Client insists the Contractor uses a separate Application for Payment for each order, which causes a deluge of unnecessary documentation and delay and confusion.
What we do is meet with both Client and Contractor the work with them implement the system that has worked for many years. With the Contractors it is easier, as they are not normally bound by Company Policy on this, whereas in many cases the Clients can be.