Understanding Accounting vs. Contract Administration
Jan 15/24
by Michael Copas
Accounting is an accrual method of tracking financial transactions, reflective of the last observation plus, the current observation, that must equal observations to date. In contract administration the observation is, of what is observed to date, minus the observation of the past, to determine the current change in observation.
Accounting is an accrual method of tracking financial transactions, reflective of the last observation plus, the current observation, that must equal observations to date. In contract administration the observation is, of what is observed to date, minus the observation of the past, to determine the current change in observation. The reason why we do it this way, is because of the very nature of observing the progress of construction and is not like an inventory methodology.
For example:
A contractor has been hired to install 1,000 sheets of drywall. However, he has a small work crew and can only install 20 sheets of drywall, on any given day. This activity will take 50 days to complete, likely over two or more pay cycles. The contractor, will in all likelihood, try to bill the drywall, as a single billing, rather than as how the work actually progresses. When in fact, an observer will only see part of the drywall completed in the first pay cycle and then perhaps all the drywall installed, the second pay cycle.
Unless meticulous notations were taken about what drywall was observed, where, and in what quantity, how does the observer differentiate what work was completed last cycle, compared to this cycle?
What if there is a supply chain issue with the drywall? What if a replacement drywall must be made? What happens if there is a drywall worker’s strike?
The installation could be incomplete for months and the accrual method creates confusion and inaccuracy.
It is essential that the design profession accurately “account” for the work observed completed, to accurately certify certificates for payment. The accrual method cannot account for all the variables during construction, nor the best way to account for the observed progress.
That said, competitor software are often project management applications or diluted forms of contract administration applications, less detailed than Statslog. Either targeting a simplified part of the market, requiring additional applications to complete the work and/or appealing to the construction industry.