Construction Is Project-Based#
Construction and contracting businesses are fundamentally project-based. Every job is unique, with its own budget, timeline, and profitability. ERP systems for construction must excel at project accounting.
Core Construction Requirements#
Job Costing#
Job costing is the foundation of construction ERP:
Cost categories: - Labour - Materials - Equipment - Subcontractors - Overhead
Cost tracking: - By project - By phase/stage - By cost type - By responsibility
Budget vs actual: Real-time comparison to budget.
Progress Billing#
Construction billing differs from standard invoicing:
Progress claims: Billing based on completion percentage.
Schedule of values: Detailed breakdown of contract value.
Retention: Amounts withheld until completion.
Change orders: Adjustments to original contract.
Retention Management#
Retention protects project owners:
Retention percentage: Typically 5-10% of claim.
Release timing: Upon practical completion, defects period.
Tracking: Retention receivable by project.
Commitment Accounting#
Construction requires commitment tracking:
Purchase orders: Committed costs for materials.
Subcontract agreements: Committed costs for subcontractors.
Budget impact: Committed vs actual vs budget.
Construction-Specific Functionality#
Certified Payroll#
Government contracts require certified payroll:
Prevailing wage: Wage rates by trade classification.
Fringe benefits: Benefit calculation and reporting.
Reporting: Weekly certified payroll reports.
Union Requirements#
Union construction has additional requirements:
Craft classification: Worker classification by trade.
Benefit funds: Contributions to union funds.
Reporting: Union reporting requirements.
Equipment Management#
Construction equipment is a significant asset:
Utilisation tracking: Equipment usage by project.
Maintenance scheduling: Preventive maintenance.
Cost allocation: Equipment costs to projects.
Depreciation: Asset accounting.
Subcontractor Management#
Subcontractors are a major cost component:
Pre-qualification: Subcontractor vetting.
Insurance tracking: Certificate management.
Payment management: Subcontractor payments.
Retention: Retention from subcontractor payments.
Financial Reporting#
Work in Progress (WIP)#
WIP reports show project status:
Contract value: Total contract amount.
Costs to date: Actual costs incurred.
Earned revenue: Revenue recognised.
Backlog: Remaining contract value.
Percentage of Completion#
Revenue recognition for long-term contracts:
Cost-to-cost: Based on costs incurred.
Units delivered: Based on physical progress.
Survey of work: Based on engineering assessment.
Over/Under Billing#
Billing compared to revenue recognition:
Over billing: Billed more than earned.
Under billing: Earned more than billed.
NZ/AU Considerations#
New Zealand#
Construction Contracts Act: Payment rules and adjudication.
Health and safety: Site safety requirements.
Building Code: Compliance requirements.
Australia#
Security of Payment: Payment claim requirements vary by state.
Building codes: National Construction Code.
Industrial relations: Fair Work requirements.
Vendor Landscape#
Enterprise#
SAP: Comprehensive, complex implementation.
Oracle: Strong project accounting.
Trimble: Construction-specific (Viewpoint, Prolog).
Mid-Market#
Sage: Popular in construction (300 Construction, 100 Contractor).
Foundation: Construction-focused.
CMiC: Construction-specific.
Local Options#
Jobpac: Australian construction software.
RedTeam: Construction management.
Implementation Considerations#
Project Structure#
Design project structure carefully:
Project levels: Project, phase, task.
Cost structure: Standard cost categories.
Reporting structure: Company, division, region.
Integration#
Construction ERP typically integrates with:
Estimating: Estimate to project budget.
Scheduling: Schedule to project timeline.
Field operations: Field data collection.
Document management: Project documentation.
Change Management#
Construction organisations have unique change challenges:
Field operations: Remote workers, multiple sites.
Union environment: Workforce considerations.
Project teams: Temporary project organisations.
Conclusion: Construction ERP Is Specialised#
Construction ERP is not general ERP with job costing added. It requires deep functionality for project-based financial management, retention, certified payroll, and construction-specific reporting.