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Rules Make the Fun in Contract Compliance

 

Rules Make the Fun in Contract Compliance

As Monica from “Friends” once said, “Rules are good. Rules help control the fun.” While not everyone may agree that construction contract compliance is fun, it is certainly true that a contract provides the rules the parties have agreed to conduct their business by.

Too often, those entering into a construction project (both owners and contractors) become complacent in reviewing contract documents. Having gone through the process many times before, some owners and contractors have a tendency to think that the current contract they are about to enter contains the same language as the one before. But they may not be asking crucial questions. What does the contract really say about what should be included within the cost of the work? Are charges incurred by the project manager separately identifiable costs that can be billed to the project, or are those costs included within an overhead component? Are small tools included within an hourly labor rate, or can they be billed separately?

Speaking of rates — will craft labor hours be billed at agreed-upon rates or at actual costs? If the contract states that actual costs should be used for labor, what are the various components (e.g., wages, insurance and taxes) that may be included within actual costs? If the contractor is using company-owned equipment, how is the hourly rate for the use of that equipment determined, as defined in the contract — or is it defined at all?

These are just some of the questions that may arise when it comes time to ensure that costs have been billed in compliance with the contract terms. The less ambiguous the contract is, the easier it is to follow the rules. And even when the rules have been clearly defined, those involved may not necessarily be following them.

Whether you are looking for assistance in the auditing of billing rates during your project’s pre-contract phase, or you want confirmation that what is being billed is in accordance with the contract documents, the professionals at Wipfli can assist you. Contact us today to learn more.

Author(s)

Krueger_Kevin
Kevin P. Krueger, CPA
Senior Manager
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