Surety Bond Quarterly - Winter 2017 - 28

Other or Miscellaneous
Direct Costs
Miscellaneous direct costs are items
that can be specifically traced to a
unique contract (in other words, it
doesn't benefit more than that one
contract). Examples are:
* Permits
* Surety bonds
* Job site utilities
* Temporary fencing
* Specific job travel, lodging,
meals (or per diem)
* Professional services unique
to a job that wouldn't be
considered in the category as
a subcontractor (for example,
architecture, engineering, design,
inspection, testing)
What About Sales or
Gross Receipts Tax?
A contractor has two choices on how
to record sales or gross receipts taxes
on construction contracts. First, billings can be recorded as revenue
to a specific contract net of gross
receipts tax, and gross receipts tax
is recorded only as a liability to be
paid based on whatever method a
contractor uses to report the tax (as
billed or when collected). Second,
billings can be recorded as revenue
to a specific contract, including sales
or gross receipts tax. If this is the
method used, then the corresponding sales or gross receipts tax should
be recorded as a direct cost to the
specific contract.
A contractor should consistently
apply whichever method he or she
uses to all jobs. This is sometimes
difficult based on the provisions of a
particular contract and how accounting software may record the sales tax
from an invoice.
INDIRECT COST COMPONENTS
Indirect job cost is the area that we
find gives contractors the most problems. The numbers change every
week, every month, every quarter.
How is a contractor supposed to
handle these variations? Indirect job
cost is harder to understand, track,
and apply. Failure to understand indirect cost components leads to errors

28

in bidding, which often turns into
unprofitable jobs. Because indirect
cost is primarily subjective, the contractor must decide what should be
included. Once a contractor figures
out what should be included, then
the contractor must determine how
it should be allocated or applied to
a specific job.
Indirect costs or overhead generally falls into three distinct categories:
* Labor burden or overhead
* Internal equipment overhead
* Other indirect overhead
Indirect costs or overhead does
not include costs considered to be
in the category of general and administrative costs (such as general office
expenses, office personnel, office
supplies, office building rent, etc.),
which do not relate to the actual construction activity.
Many contractors start out only
using one large general pool to accumulate and allocate indirect costs.
Over time, as a contractor grows in
experience and understanding of this
area, there is usually a movement
towards separating the varied elements and their method of allocation.
There is no limit to the number of
cost pools that can be designed; the
important concept is consistency of
theory and allocation in each pool.
Labor Burden or Overhead
The major categories of costs to
include are the following:
* Payroll taxes (employer paid
portion of FICA, Medicare,
federal unemployment and state
unemployment taxes)
* Workers' compensation
insurance
* General liability insurance (labor
burden if based on payroll
exposure; however, sometimes
general liability is based on
sales exposure and put to other
indirect overhead)
* Support labor (such as
general project management
or supervision)
* Health insurance
* Retirement benefits
* Vacation and holiday pay
* Training

SURETY BOND QUARTERLY | WINTER 2017

A CONTRACTOR'S BOTTOM
LINE IS DIRECTLY AFFECTED
BY ERRORS IN BIDDING,
ESTIMATING, AND JOB
PROFIT REALIZATION;
JOB COST ACCUMULATION
AND ALLOCATION ARE KEY.
* Other miscellaneous items
(such as uniforms that only exist
because of field labor)
Depending on the sophistication
of the accounting software used and
the accounting personnel supporting
the contractor, some areas of labor
burden are often recorded as direct
costs to contracts. These costs follow
the specific labor dollar recorded to
the specific contract. The most common items that are recorded as direct
costs include:
* Payroll taxes
* Workers' compensation insurance
* General liability insurance
Other costs as described previously
would still be a part of an indirect labor
cost pool.
Indirect costs specifically associated with labor should be allocated to
jobs based on the direct labor dollars
recorded to a specific job. The average
labor burden percentage per dollar
of direct labor should be projected
for any given year (or other period, as
long as the assumption is tested several times during that period based on
actual results). Having this information
frequently tested supports a contractor, providing the individuals who are
estimating and bidding work have the
most current information available.
Internal Equipment Overhead
Contractors usually take a varied
approach to equipment leasing or
ownership. Some contractors prefer
to own as little equipment as possible
and rely on renting the specific type of
equipment that may be needed for a
job. Other contractors prefer to make
a more substantial investment in owning or leasing equipment, especially
for those pieces used on a consistent
basis in their contracting operation.
Contractors should recognize that the



Table of Contents for the Digital Edition of Surety Bond Quarterly - Winter 2017

NASBP Upcoming Meetings & Events
2017–2018 Executive Committee
From the CEO: Looking Backward to Reach Forward
Relationships for the Long Run
Subcontractor Default Insurance: Relevant Considerations for the Surety Claims Professional
Bottom Line Protection with Job Cost Accumulation & Allocation
Inside the AIA’s New Insurance and Bonding Contract Exhibit
The Calm After the Storm: Managing Disaster Response Contracts
Practical Tools to Help Jump-Start Your Company’s Cyber Plan
Index to Advertisers
Surety Bond Quarterly - Winter 2017 - Intro
Surety Bond Quarterly - Winter 2017 - cover1
Surety Bond Quarterly - Winter 2017 - cover2
Surety Bond Quarterly - Winter 2017 - 3
Surety Bond Quarterly - Winter 2017 - 4
Surety Bond Quarterly - Winter 2017 - 5
Surety Bond Quarterly - Winter 2017 - 6
Surety Bond Quarterly - Winter 2017 - 2017–2018 Executive Committee
Surety Bond Quarterly - Winter 2017 - 8
Surety Bond Quarterly - Winter 2017 - From the CEO: Looking Backward to Reach Forward
Surety Bond Quarterly - Winter 2017 - 10
Surety Bond Quarterly - Winter 2017 - Relationships for the Long Run
Surety Bond Quarterly - Winter 2017 - 12
Surety Bond Quarterly - Winter 2017 - 13
Surety Bond Quarterly - Winter 2017 - Subcontractor Default Insurance: Relevant Considerations for the Surety Claims Professional
Surety Bond Quarterly - Winter 2017 - 15
Surety Bond Quarterly - Winter 2017 - 16
Surety Bond Quarterly - Winter 2017 - 17
Surety Bond Quarterly - Winter 2017 - 18
Surety Bond Quarterly - Winter 2017 - 19
Surety Bond Quarterly - Winter 2017 - 20
Surety Bond Quarterly - Winter 2017 - 21
Surety Bond Quarterly - Winter 2017 - 22
Surety Bond Quarterly - Winter 2017 - 23
Surety Bond Quarterly - Winter 2017 - 24
Surety Bond Quarterly - Winter 2017 - 25
Surety Bond Quarterly - Winter 2017 - Bottom Line Protection with Job Cost Accumulation & Allocation
Surety Bond Quarterly - Winter 2017 - 27
Surety Bond Quarterly - Winter 2017 - 28
Surety Bond Quarterly - Winter 2017 - 29
Surety Bond Quarterly - Winter 2017 - Inside the AIA’s New Insurance and Bonding Contract Exhibit
Surety Bond Quarterly - Winter 2017 - 31
Surety Bond Quarterly - Winter 2017 - 32
Surety Bond Quarterly - Winter 2017 - The Calm After the Storm: Managing Disaster Response Contracts
Surety Bond Quarterly - Winter 2017 - 34
Surety Bond Quarterly - Winter 2017 - Practical Tools to Help Jump-Start Your Company’s Cyber Plan
Surety Bond Quarterly - Winter 2017 - 36
Surety Bond Quarterly - Winter 2017 - 37
Surety Bond Quarterly - Winter 2017 - Index to Advertisers
Surety Bond Quarterly - Winter 2017 - cover3
Surety Bond Quarterly - Winter 2017 - cover4
https://www.nxtbook.com/naylor/SBPQ/SBPQ0118
https://www.nxtbook.com/naylor/SBPQ/SBPQ0417
https://www.nxtbook.com/naylor/SBPQ/SBPQ0317
https://www.nxtbook.com/naylor/SBPQ/SBPQ0217
https://www.nxtbook.com/naylor/SBPQ/SBPQ0117
https://www.nxtbook.com/naylor/SBPQ/SBPQ0416
https://www.nxtbook.com/naylor/SBPQ/SBPQ0316
https://www.nxtbook.com/naylor/SBPQ/SBPQ0216
https://www.nxtbook.com/naylor/SBPQ/SBPQ0116
https://www.nxtbook.com/naylor/SBPQ/SBPQ0415
https://www.nxtbook.com/naylor/SBPQ/SBPQ0315
https://www.nxtbook.com/naylor/SBPQ/SBPQ0215
https://www.nxtbook.com/naylor/SBPQ/SBPQ0115
https://www.nxtbook.com/naylor/SBPQ/SBPQ0414
https://www.nxtbook.com/naylor/SBPQ/SBPQ0314
https://www.nxtbook.com/naylor/SBPQ/SBPQ0214
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