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Percentage-of-Completion
What is percentage of completion?
Percentage of completion (POC) is a metric that represents the proportion of work completed on a construction project at a given point in time. It is expressed as a percentage of the total contracted work. The POC is important to subcontractor workflows for several reasons:
- Payment schedules: Most construction contracts stipulate that subcontractors receive payment based on the percentage of work completed rather than a lump sum payment at the end of the project. The POC determines the amount of payment that a subcontractor can request from the general contractor (GC) or the project owner for the work performed during a specific billing period.
- Cash flow management: Subcontractors rely on progress payments to maintain a healthy cash flow and cover expenses such as labor, materials, and equipment. The POC directly impacts the timing and amount of progress payments received, allowing subcontractors to plan and manage their financial resources effectively.
- Project monitoring and control: Tracking the POC helps subcontractors monitor their progress against the project schedule and budget. It enables them to identify potential delays or cost overruns early on, allowing for prompt corrective actions.
- Dispute resolution: In the event of disputes or claims related to payment or project delays, POC documentation can serve as evidence to support the subcontractor's position and substantiate their claims for outstanding payments or compensation.
- Resource allocation: By monitoring the POC, subcontractors can better plan and allocate their resources (labor, materials, equipment, etc.) across multiple projects, ensuring efficient utilization and avoiding resource conflicts or shortages.
- Project closeout: The POC is crucial during the project closeout phase, as it helps determine the final payment due to the subcontractor and ensures that all work has been completed according to the contract terms.
Overall, POC serves as a versatile tool throughout the entire project lifecycle, from initial payment requests to final closeout. And with Siteline, managing POC workflows becomes effortless. Siteline makes progress billing a cinch by:
- Generating custom pay applications with real-time POC calculations
- Offering intuitive dashboards for clear financial visualization and decision-making
- Integrating with GC payment portals for accurate, timely pay application submissions
- Centralizing all documentation for enhanced collaboration and communication
Book a demo today to experience how Siteline can empower your team to make informed decisions, maintain a steady cash flow, and ensure successful project closeouts.
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Other construction terms
What is Cost of Goods Sold (COGS)?
Cost of Goods Sold (COGS) in the construction industry represents the direct costs associated with the production of goods or services that a company sells. These costs may comprise the cost of raw materials such as lumber, steel, concrete; direct labor costs; storage costs, and direct utility costs. It can also include direct expenses like subcontractor costs, labor burden (i.e., benefits, insurance, taxes related to employee wages), material costs, and equipment costs that are directly attributable to a project's completion. COGS does not include indirect expenses such as sales and distribution costs or overhead costs such as office rent and utilities. In essence, COGS in construction is directly tied to specific projects and is a key factor in determining a project's gross profit and thus a company´s profitability.
What is the Matching Principle?
The Matching Principle is a crucial accounting concept prevalent in the construction industry. This principle dictates that all expenses must be matched with the revenues they generated in a particular financial period, ensuring that all costs and income for each project are accurately reported on the income statement. For example, if a construction company incurs costs for labor, materials, and equipment in July and August for a project that's completed in September, those costs would be recorded in September when the income is recognized. This principle is essential as it provides a more accurate picture of a company's profitability and financial health for a specific period. It allows construction companies to better manage their cash flows, project budgeting, and financial planning.
What are Indirect Costs?
Indirect costs, in the context of the construction industry, are expenses not directly tied to a specific project, but are essential for the overall operation of a construction firm. They represent the expenditures that do not contribute to the building process directly, yet they are crucial for the smooth running of projects. Such costs could include administrative expenses like office rent, utilities, and salaries of personnel not active on the field but are involved in management, planning, or supervision. Other examples include insurance, security, equipment depreciation, and legal fees. Understanding indirect costs is key to accurate budgeting and financial control in construction projects. Failure to consider these costs can lead to a significant underestimation of the actual project cost, leading to financial losses. Therefore, contractors need to accurately factor indirect costs into their pricing to secure profitability.
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