What constitutes a “special relationship” can sometimes be a mystery. One such special relationship in a contracting company is that between the accounts department and the quantity surveyors (QS’s). To the operations staff, both functions deal with “the numbers”, but what they do and how it all fits together can be equally mysterious. For a contracting business to fully know its numbers, the accountants and QS’s must work in harmony.
Why Construction Is Different
Unlike any other industry sector, payment for construction projects can only be partly predetermined before commencing. Projects are not fully designed when they start, and change is inevitable. Progress proceeds on many fronts with many third-party influences. To keep cash flowing, the industry uses quantity surveyors, who measure actual progress each month, calculate the value of the works, add the value of any changes in accordance with the contract, and request payment from the client or their representative.
The CVR: The Bridge Between QS and Accounts
The quantity surveyors can compare the actual cost of a project each month to the estimated costs — known as the Cost Value Reconciliation (CVR). This provides an indication of the profitability of a project at that point in time. Some costs will be known by the QS, such as subcontractor packages, but staff, direct labour, and materials invoices will be notified to them by the accounts department.
The accounts department is responsible for posting information against the correct project so the QS’s can pick up all the costs for their projects, and for making payments via the payroll and invoice payment runs. When the CVR is not showing the expected return, an account posting error might be just one of a number of reasons why.
Different Lenses on the Same Numbers
Whilst the QS is interested in the profitability of their individual projects, the accounts department is more interested in the combined gross profit across all projects — so they can report that overheads are covered and determine the operating profit. From the project gross profit summary, analysis can be done to determine which types of projects are most profitable. This information feeds into business strategy and helps determine what future work to pursue.
Beyond the project gross profit summary, the accounts department provides similar analysis for the senior management team: different forecasts, investment planning, and tax optimisation. Unlike other industries, the forecasts must consider that projects carry differing contractual risks and that valuations at specific times can be quite variable. Managing cash flow with so many variables requires the accounts department to have accurate project forecasts from the QS’s — hence the special relationship.
