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  • Writer's picturePeter Searle

Accounts & QS's

Updated: Jun 14


The special relationship between the management accountant and quantity surveyors in a contracting company.


What constitutes a “Special relationship” can sometimes be a bit of a mystery. One such special relationship in a contracting company is that between the accounts department and 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 a mystery. For a contracting business to fully “know its numbers” the accountants and QS’s must work in harmony to produce their respective reports.


Unlike any other industry sector, payment for construction projects can only be partly predetermined by the parties before commencing. Projects are not fully designed when they commence, and thus change is inevitable. Progress proceeds on many fronts and there are often many 3rd party influences. So that payments can be made on a regular basis to keep the cash flowing, the industry uses quantity surveyors, who measure the actual progress each month and then calculate the value of the works. They then add to this the value of any changes, which are valued in accordance with The Contract and request payment for this amount from the Client or their representative.


The quantity surveyors can compare the actual cost of a project each month to the estimated costs for the work, which is known as the “cost value reconciliation, CVR”. The comparison provides an indication of the profitability of a project at that point in time. Some of the costs for the project will be known by the QS, as they may have worked up the costs, e.g. to subcontractors, but staff, direct labour, plant hire and materials invoices will be notified to them by the accounts department. The accounts department is responsible for posting information on the accounts system against the correct project and will issue those costs to the QS’s to use in their CVR. The accounts department is also responsible for making payments, when authorised, via the payroll and invoice payment runs for; internal staff, materials and plant hire. When the CVR is not showing the expected return, no stone is left unturned to correct the issue. An account posting error, might be just one of several reasons for the discrepancy. The QS is responsible for obtaining a certificate for the value of the work, including variations, from the client's QS each month, which is passed to the accounts to invoice the client. The certification and invoicing process must be strictly controlled to keep the cash flowing on time.


Whilst the QS is interested in the profitably of their projects and the profitability of the elements which make it up, the accounts department are more interested in the combined Gross Profit that all the projects make, so they can report that the overheads can be covered and what the operating profit will be. From the accounts project gross profit summary analysis can be done to determine which types of projects are most profitable. This information should be fed into the business strategy and assist in determining what future work to pursue. Beyond the Project Gross Profit summary, the accounts department provides similar analysis for the senior management team with different forecasts, investment planning and tax optimisation. Unlike other industries the forecasts must consider that projects carry differing contractual risks and the valuation of projects at specific times can be quite variable. Managing the cash flow with so many variables require the accounts department to have accurate project forecasts from the QS’s. Hence the special relationship between accounts and QS’s.


If you are a contracting business owner and would like to Know your Numbers better, by coordinating your accounts and QS staff then get in touch Peter.Searle@ba4cs.co.uk for more information.

 

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