Changes in Plans and Specifications

Contracts with subcontractors provide the method of determining amounts to be added to their contract prices for additional work ordered or deductions to be made when work is omitted.

When an architect suggests a change in plans or specifications which affects work to be done by a subcontractor, a notice explaining the contemplated change is sent to him. He is requested to furnish an estimate of the amount by which his contract price will be increased or reduced, if the change in plans or specifications is finally ordered. He is asked to state whether its execution will require an extension of time beyond the date fixed in his contract for the completion of the entire work or whether the omission of work will advance the date.

CHANGE ORDERS. If the architect finally orders the change made and it involves additional work, the subcontractor is likewise instructed and an order, called a change order, is issued to him. This change order gives the amount to be added to his contract price, a description of the work covered by the change, and a statement that such work is to be executed under the terms and conditions expressed in the original contract. The change order is entered in the memorandum account (Entry 2, Form 21).

DEDUCTION ORDERS A deduction order is sent the subcontractor whenever the change in plans or specification results in the omission of work or substitution of materials reducing the total to be paid him. The only difference between the terms of a change order and those of a deduction order is that the former is an addition to the contract price and the latter a reduction from it. Copies of these change orders and deduction orders are sent to all departments, the subcontractor, and the job.

The accounting department enters the amount of the deduction order on the subcontractor's memorandum account (Entry 3, Form 21).

Agreement with Cost Records

A memorandum sheet for each job is prepared in duplicate, one copy for the accounting department and the other for the cost analysis department. The amounts shown on these sheets do not enter into trial balances. They simply show a listing of subcontracts let, change orders, and deduction orders issued. Each department uses this sheet as a checking medium to keep the records of both in agreement.

If few contracts are sublet, a comparison can be made of ledger with ledger, without requiring the preparation of this memorandum sheet.

Applications for Payments

Contracts with subcontractors generally provide for payments being made to them monthly. The value of work done by a subcontractor is incorporated by the general contractor in his own monthly application to the owner for payment.

A formal reminder should be mailed to each subcontractor prior to the end of each month, requesting his application for payment for work done during the calendar month. Proper provision for such work can then be made by the general contractor in the application which he himself prepares and submits to the owner.

The subcontractor's application should indicate the financial status of his work by stating: first, his total contract and changes; second, the value of work performed to date of application; third, the amount to be retained as a reserve; fourth, the total of all payments received; and fifth, the balance payable.

Checking Applications

The correctness of the figures on the applications is verified to determine the amount to be entered on the purchase register as a credit to the subcontractor and a charge to the job.

The contract and changes shown on his application are compared with amount appearing in his memorandum account ($100,400, Entries 1, 2, 3, Form 21). Any differences are referred to the employee in charge of changes in plans and specifications and the issuing of orders to subcontractors for investigation and adjustment.

Payment of Applications

The original application is then checked, first, to see that the deduction for retained percentage is in accordance with the contract, and second, that cash or its equivalent paid to the subcontractor is properly stated, and third, that the balance payable is correct.

The application is then given to the employee who certifies to the value of work performed by subcontractors. Obtaining this approval before making the entry crediting the subcontractor for work done will avoid having the credit greater than the general contractor's valuation of the work. The variations between the contractor's and the subcontractor's valuations are not usually of enough importance to justify delaying balance sheets and monthly statements to obtain this prior approval. The same possibility of difference of opinion in valuation of work exists in the contractor's application to the owner. Valuations during the progress of the work are expressions of opinion only. The only definite value established is the price set by the contract for performing the entire work. The entry covering the final application will credit the subcontractor with exactly the net amount of his contract and changes.

W. L. Stoddart. Architect

Regular Account and Accounting Entries

The duplicate application is approved for entry on the purchase register sheet in such amount as will make the total credits to him equal the subcontractor's valuation of work completed. If he applied for payment on the basis of having completed $15,000, and his prior application was for $5,000 (Entry 4, Form 21), the later application would be approved for $10,000 (Entry 5, Form 21). The authorization for the entry of $10,000 is indicated on the application by the ledgerkeeper.

The duplicate application is then entered on the purchase register sheet (Entry 5, Form 19). The credit is then posted from the purchase register to the Work Done column of the subcontractor's regular account.

After the original application has been approved, cash vouchers and checks are drawn when payments become due. The amounts of the checks are charged to the subcontractor on the cash book, from which they are posted to payment column of the subcontractor's account (Entries 6 and 7, Form 21).

Only entries affecting the value of the work done should appear in the Work Done column. Reduction of previous credit given should be shown in red. Only cash or its equivalent should be posted in the payment column. After the final payment has been made to a subcontractor, three totals should be in agreement: (1) contract and changes, (2) work done, (3) payments made.

A bill is sent to a subcontractor whenever any labor or materials are furnished to him. The bill is prepared by the timekeeper or the material clerk and shows the number of hours of labor or quantities of material given the subcontractor. The office places the unit prices on the bill and forwards a completed invoice to the subcontractor. The bill is entered as a credit to the cost of construction on the purchase