.svg)
Job Costing
What is Job Costing?
Job Costing, in the context of the construction industry, is a specific accounting methodology used to track costs and profitability associated with individual projects. It hinges on a project-by-project approach, meaning every construction project is treated as its own separate financial entity with its associated expenditures and revenues. This process might involve itemizing labor rates, material expenses, subcontracting work, equipment usage, direct and indirect costs, etc - all attributable to a particular job. Through this project-centric focus, construction firms can assess the financial success of each job, understand where costs are exceeding estimates or budgets, thereby facilitating better bidding, budgeting, and overall project management in future projects. It's a critical tool for aligning project performance with business profitability goals.
Trusted by trade contractors across the country
Other construction terms
What is Days Working Capital?
Days Working Capital (DWC) in the construction industry is a financial metric used to measure the effectiveness of a company's short term liquidity and operational efficiency. It's calculated by dividing working capital by daily operating expenses. The result represents the number of days a company can continue its operations with the current level of working capital. A lower DWC indicates a company is managing its cash flow efficiently, and a higher DWC may suggest a company is not using its short-term assets efficiently. The construction industry often has a high DWC because of the long project durations and upfront material and labor costs that are required before payment is received. In other words, they have money tied up in work-in-progress. So, for a construction company, it's crucial to manage DWC effectively to maintain a healthy cash flow and remain competitive.
What is a Performance Obligation?
A Performance Obligation in the construction industry refers to a commitment or liability that a contracting party has to perform and fulfill, according to the terms stipulated in a contract. It includes the delivery of services or completed work components. For example, if a construction company has a contract to build a commercial complex, their performance obligation could involve the construction of the entire complex or individual stages of the contract, such as erecting the structure, installing heating systems, laying down the flooring, among others. Each of these components may have their own deadlines and quality standards. Thus, not fulfilling these obligations could result in penalties or legal consequences. Therefore, recognizing and managing performance obligations is crucial in construction project management.
What is a Unit Price Contract?
A unit price contract is a widely used pricing model in the construction industry where general contractors (GCs) provide a fixed price for each unit of work and material (based on the anticipated quantities specified by the client). The final contract amount is calculated by multiplying the pre-agree unit prices by the actual quantities used or work performed.
This approach allows for flexibility as the total costs adjust to reflect actual usage. Therefore, unit price contracts are ideal for projects with uncertain material and work quantities, helping avoid cost overruns due to miscalculations.
For subcontractors, there are specific considerations when working with unit price contracts. It’s crucial to ensure precise unit price calculations to maintain profitability and implement sound systems for tracking and reporting actual quantities. Clear communication with the GC about quantity changes is also important, and subcontractors should be prepared to justify any discrepancies that may occur.
Siteline—an intuitive A/R management system—simplifies unit price billing for subcontractors, allowing them to:
- Easily input and update unit prices;
- Automatically calculate billing amounts based on reported quantities; and
- Generate accurate, detailed pay applications that show up-to-date unit prices and quantities.
Ready to optimize your unit price billing process? Contact Siteline today to learn how our solution enhances A/R workflows to accelerate payments.
Ready to end the fire drill and get paid faster?
