Basically there are four types of contracts used in the construction industry:
Based on their pricing arrangements are fixed price or lump-sum contracts, cost-type (including cost-plus) contracts, time-and-materials contracts, and unit-price contracts, which are defined in the FASB ASC glossary and further described as follows:
The four types are:
- A fixed price contract, also known as a lump-sum contract, provides for the contractor’s performance of all work to be performed under the contract for a stated price.
- A cost-type (including a cost-plus) contract provides for reimbursement of allowable or otherwise defined costs incurred plus a fee for the contractor’s services that represents profit.
- A time-and-materials contract is similar to a cost-plus contract and generally provides for payments to the contractor on the basis of direct labor hours at fixed hourly rates (the rates cover the costs of the indirect labor and indirect expenses and profit and cost of materials or other specified costs. This type of contract is usually the safest option for the contractor, but the riskiest for the owner.
- A unit price contract provides for the contractors performance of a specific project at a specified price per each unit of output. Unit price contracts are seldom used for an entire major construction project, but are frequently used for agreements with sub contractors.
What are the four types of contracts in construction?
Ref: AICPA Construction Contractors – Audit and Accounting Guide
As we are going through the study plan we will be using the following spreadsheet to track our progress.
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Study Plan Guide
We will be using this guide as a check list and cliff notes during the study times.
Week 1 we will continue to cover the Accounting &
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In Accounting for contracts, the basic accounting policy decision is the choice between the two generally accepted methods: the percentage of completion method including units of delivery and the completed contract method.
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Billings or earned revenue
In a non accounting mind, from a cash standpoint, it makes more sense to project billings, costs and retainage held to give a cash position.
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This week we’re going to be studying for the CCIFP using the
“CONSTRUCTION ACCOUNTING & FINANCIAL MANAGEMENT, 3/e helps construction professionals and construction management students master the principles of financial management, and adapt and apply them to the challenge of profitably managing construction companies.” You can rent this book or purchase from Amazon.
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What every construction accountant should know…the importance of Revenue Recognition and the story it tells.
Whether you are the PM, Accountant, Bookkeeper, Controller CFO or the President of your Construction company the WIP report is a tool that will help you manage your projects.
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Hi everyone! My Name is Terry and I’m here to study for the CCIFP exam. (Certified Construction Industry Financial Professional).
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