Employees whose time is given to different construction. jobs should be very careful in distributing their salaries to work being done under cost-plus contracts. By failure to charge their time equitably to all jobs, they can place the contractor in the position of being charged with favoring his lumpsum contracts at the expense of cost-plus work. Traveling Expenses A contractor's employees are often required to do considerable traveling. Expense accounts should be treated in a manner to avoid irritation, both to the employer and the employee. A man traveling should be given accommodations out of town at least equal to, and preferably better, perhaps, than those he has at home. The best guide to what a man can afford when at home is the salary he receives. A schedule of allowances for traveling expenses can be prepared, with various graduated traveling allowances based on the range of salaries paid, and taking into consideration the class of towns an employee will be compelled to visit. Branch Office Accounting The accounting between offices, except that covering capital transactions, is limited to that required by the relation existing between a debtor and a creditor. The main office should furnish the branch with sufficient capital to conduct its operations. On the books of the main office this advance is charged to a Capital account with the branch, and on the branch ledger it is credited to a Capital account with the main office. All further advances received by the branch and all returns of capital by it are entered in these accounts. The net profit or loss resulting from branch office operations for each fiscal period is transferred to these accounts. If, in an emergency, there should be an exchange of capital between two branches, the transaction should be cleared through the main office books, that is, if branch I furnished cash to branch 2, the amount of the advance would be treated as though returned to the main office by branch 1 and as though received from the main office by branch 2. Current transactions of minor amounts are carried in current accounts, each office charging any branch or main office with amounts due and crediting a branch or main office with amounts owing. Payments of accounts are treated the same. as payments made to any debtor or received from a creditor. A system of reports to be submitted by each branch office to the main office must be inaugurated,.as under the above plan each office becomes a separate accounting unit. Each branch must prepare its own operating statements, balance sheets, etc., and forward them to the main office. The main office consolidates all branch reports into one general statement of each class. Repair Work After a job has been physically completed and all workmen have been removed, the owner may suggest that the contractor send men to perform what he may call repair work. Care should be taken to investigate and determine whether the repair the owner requests done is in connection with work originally performed by a subcontractor, and, if so, whether the subcontractor should be required to furnish the workmen without cost either to the owner or the contractor. Work is usually guaranteed against defects in workmanship or material that may develop within one year after the completion of the work. In some instances the guaranty covers a five- or ten-year period. Liens Liens are a form of legal attachment placed upon property to try to enforce collection of unpaid balances. These liens can be placed by a mechanic for unpaid wages, by a material dealer for balances due for material furnished, by subcontractors for amounts due, and by the general contractor for payments not made by the owner. The only requirement for placing a lien on property is that the amount claimed as due from and unpaid must be for labor, material, or service rendered in connection with the works on which the lien is placed. A lien could not be placed on the Broadway Plant, if the labor and material were furnished for the Nassau Plant, even though the party owing the unpaid amount had an interest in both properties. The general effect of a lien is to cloud the title to the property. If, however, a subcontractor placed a lien upon the work at a time when the owner owed the general contractor an amount that equaled or exceeded the amount of the subcontractor's lien, the owner should see that either the lien is bonded or payment is made to the subcontractor before paying the general contractor the full balance due him. If the owner did pay the full balance to the general contractor in the belief or on the promise that the latter would settle with the subcontractor, he would run the risk of having to pay the amount of the lien to the subcontractor, in addition to the settlement made with the general contractor. Liens cannot be bonded in some states. It is inadvisable to attempt a discussion of liens in this book. Attention is simply called to their importance. The lien laws vary so greatly in the different states, and even in different cities in the same state, that the matter of liens is one on which attorneys must be consulted in the city or state in which the lien is to be placed or has been filed. State Licenses and Reports Whenever a corporation takes a contract for construction work to be done in any state other than the one from which it received its charter, the officers should immediately ascertain the provisions of the corporation laws of the state in which the contract is to be executed. The statutes may require that the corporation secure a state license as a foreign corporation. The necessity of obtaining licenses depends upon whether a corporation is "doing business" within the meaning of the laws of each particular state. The terms of the contract with an owner have a direct bearing on the license question. The corporation may be acting simply as an agent of the owner under an agency form of contract. A corporation is not considered as "doing business" in some states when it simply does work under one construction contract and then immediately retires from the state, particularly if the contract is in agency form. In the great majority of states, however, performing construction work is treated as "doing business." Failure to take out licenses when the corporation is "doing business" in a state often precludes it from instituting any suit in the state courts under any contract or agreement made by it in that state, although suit can always be brought against it. Corporations are frequently fined or penalized for failure to secure a license to do business. A corporation may take out a license in some states after it has begun the actual work of construction and thereby validate contracts made prior to the issuance of the license. Corporations can generally obtain relief by bringing suit in the federal courts. It is advisable, however, always to obtain competent legal advice from an attorney in the state in which work is to be performed. States require foreign corporations to appoint agents resident within the state for the purpose of accepting service in legal actions instituted within the state. ("Foreign corporation" means a corporation incorporated in any state other than the one in which it is doing business. It has no reference to foreign countries.) Reports are required to be made to different state officials covering various phases of a corporation's business and supplying information regarding the corporation's officers, directors, capital stock, etc. These reports involve payment of filing fees or special taxes, or both. Personal Property Assessments and Taxes The laws in different cities and states which determine the basis on which personal property is assessed vary so greatly that a contractor about to start work in a city in which he has never performed any should immediately acquaint himself with the requirements for filing reports and the basis of taxation. Federal Taxation Federal taxes are varied in nature and the rulings which are made by the Treasury Department cover such a wide field of business conditions that a contractor should have his reports examined by someone thoroughly familiar with all laws, rulings, and court decisions before filing them. If his own organization prepares the returns, he should at least consult someone who has made a study of taxation. Rulings and decisions are based on particular phases of business activity and their application to any particular contractor's business can only be made after a study of the conditions in his office. The conditions under which one contractor operates might differ so widely from those of another that any attempt to prepare a standard procedure for all would be folly. Every contractor should keep in mind that these rulings not only take into consideration the law on the subject, but are generally based on good sound accounting theory. The books of any business are supposed to be a statement of facts as they actually exist, and while it is true that bookkeeping compiles but does not create facts, the presumption is that they do state them. Care must be taken in the preparation of entries so that they will fairly, equitably, and properly reflect what has taken place. Accounting Instructions A standard set of instructions should be drafted outlining the general scheme of accounting used in a contractor's office |