Adaptation to Construction Accounting

Section is primarily to apprise you on the general concepts of management accounting and what needs to be distinguished appreciated when applying those concepts to construction activity, particularly in the context that most constructions are achieved through the process of tendering. The mere process of tendering, and 

construction through tendering, introduces two players in the scene - one the "OWNER" who tenders out the work and who will be the ultimate and continuing beneficiary, and the other, the "CONTRACTOR who will merely execute and complete  the work for the owner under the terms of the contract but would be nowhere if (and only if) all goes well, in the scene once the construction is through. Accordingly, certain theoretic concepts impinging practically on the performance of the contract will also be set out in the subsequent pages. 

In production industry, one talks of raw materials. work in progress and finished Godard; and also of fixed manufacturing overheads (at normal capacity), selling and administrative expenses (both fixed and variable), and so on. In construction industry, exact equivalents are not readily and unambiguously available except as materials at site, work under billing, etc. to the extent that they can be made out. Materials brought to site by contractor. may have been "pledged" or hypothetical to the owner and partial costs may have been received on an interim basis. Same may apply mutates mutants for equipment mobilized to work site. 

Each project site becomes a responsibility centre and may have its own subcultures. Site works are secured by contractors after successful bidding only if followed by depositing of earnest money - a quantum of money almost locked in with the owner as an insurance for good performance. Work completed from time to time by the contractor is billed on the owner who, after incidental due processes, reimburses the contractor -only partially in as much as a part of the claims in the bill is retained with the owner, as a continuing assurance for good performance. This retention money is apart from the earnest money deposited. There may be prescribed ceiling values for the sum of the earnest money and the cumulative retention. 

In essence, the contractor is at best being reimbursed partially from time to time, each time well after the event. Also, the cumulative retention and the earnest money can be finally returned to the contractor only after a definite interval after full and successful completion of the job. This intervening period, called the defects liability period, involves, as the name implies, attributable liabilities on the contractor to make good any deficiencies that may come to knowledge, deficiencies relative to the standards of performance and maintenance as stipulated in the standards, codes and the agreement, including on the quantities, specifications, and services agreed upon.