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Cost system in contracting


Cost system in contracting


Subject Index


Define cost centers.
Define cost measurement units.
Determine the book and documentary cycle
Determine the cost components.


In this article we deal with a brief overview of the cost system in contracting companies, as the cost system was designed in line with the nature and characteristics of these companies to achieve some objectives, the most important of which is providing data and information necessary to determine the actual cost of projects, by examining the direct and indirect costs related to a contract Project, in addition to following up on implementation processes, controlling cost elements, ensuring efficient performance, and reducing confusion and tampering. In the technical specifications, theft, embezzlement, and the difficulty of applying the standard cost system in the control process of the nature and characteristics of this activity.

What are the components of the cost system?

Elements of the cost system in construction companies

First: Defining cost centers

Second: Determine the units of cost measurement

Third: Determine the book and documentary cycle

Fourth: Determine the cost elements


First: Defining cost centers

Cost centers (productive, service) are necessary for the purposes of inventory and cost collection. Cost centers in the contracting sector are divided into:

1- Production centers

The contract is considered a cost center or unit to collect cost elements, but considering the contract as a cost center makes the general control less useful, so the contract items can be considered cost centers to facilitate the identification of cost elements and linking them to them such as: -

Foundation Drilling Center - Concrete Works Center - Building Center - Laying and Painting Works Center. Etc ..

The depth of the analysis depends on the importance and contractual value of the item, as well as the economic benefit from the analysis process.


2- Production service centers

These centers at the level of the company that serve the contract exactly as they serve other centers, and this does not prevent the existence of corresponding production services at the site of implementation, but rather they are integrated within the production centers and include production services centers

- Maintenance center - Machinery center (cars, tractors, etc.) - Equipment center (vibrators, cranes, mixers ... etc.) - Technical management center - Transportation center - Storage center, etc.

-Note that the position cost does not include the costs of operating machinery and equipment while they are performing a specific contract


3- Marketing services cost centers

This center includes the cost of advertising, communication and the cost of marketing


4- Administrative and Financial Services Centers

It includes board of directors cost center, legal affairs and contracts cost center, financial affairs center, administration affairs center, public relations center, procurement cost center, etc.


5- Capital Operations Center

It includes the workshops and laboratories of the company, and it is necessary to prepare a directory of cost centers to facilitate the inventory of cost data.


 Second: Determine the units of cost measurement

This is the measure by which the product's cost is calculated. The volume of production is measured by the sum of the units that make up the production. For example, the unit of cost measurement in the contracting activity can be expressed in number, volume m3, or area in square meters.


Third: Determine the book and documentary cycle

This group is the primary data source for aggregating and recording the cost elements, and it is necessary to prepare documentaries for each cost element. Specify the document path from its source to save it. Stores, cards to calculate attendance and departure times, and cards specifying the number of working hours for each equipment.

The documentary group consists of a number of records, including records of production and services centers such as a contract account record, a wage control account record, a material control account record, a commodity control record, another for service supplies, a maintenance cost account record, a machinery cost account record, And log to calculate the cost. Transportation log and inventory control ... etc.


 Fourth: Determine the cost elements

 The cost components in the contracting activity are as follows:

Contracting costs

 Cost of material  *  

Such as sand, gravel, stones, cement bricks, rebar and wood in construction contracting and are stored at the project site, and these materials represent the bulk of the previous materials in the process. These items are priced at the purchase price plus all expenses until they arrive. To the site, and included in the stores.

These materials are not considered part of the contract costs during the cost period or the accounting period except after these materials have been exhausted in the implementation, meaning that the materials on the site are considered as installations and are not part of the contract cost even after their use. The contract does not bear anything except what is used in it.

( The cost of work (salaries and wages) * 

Usually a group of workers, technicians, engineers, heads of workers, guards and others are assigned to each contract as a result of the geographical difference between the contracting activity units, and therefore it is the ease of collecting wages and salaries for all workers in the different sites and contracts related to them, and these wages and salaries are considered directly regardless of the type of the client carrying The contract directly to the beneficiary.

The cost of machines, tools and tools: They are represented in cranes, tractors, bulldozers, various drilling machines, piling machines ... etc., and these machines may be rented from others and may be owned by the employer. The company, and if it is chartered, the beneficiary holds the contract. The machines are directly attributable to the rental value


 Subcontractor costs * 

These costs are considered directly on the contract benefiting from them with the addition of the material and succession costs that the company provides to subcontractors in addition to the costs of supervision and control of those works and when defects appear in the parts that the subcontractors implement after receiving them and the evacuation of their responsibilities and the costs of repairing these defects are considered a loss that the contract does not bear And asks the supervisor responsible for receiving these works from the subcontractors.

Tender Study Cost: The contract bears all the bid study costs. As for the costs of studying the bids that the company cannot win its contracts, they are not considered among the costs of the contracts executed by the company. They are considered general expenses that are transferred to the general profit and loss account. 


Other indirect service costs *

These costs are mainly represented in the expenses related to the head office of the company and the tools associated with it, such as the salaries of managers, the depreciation of the administrative buildings, the expenses of the administrative and financial departments, the bank interests, the commissions and other financing costs. These costs are calculated and then distributed to the contracts according to the basis of appropriate distribution, while Some argue that contracts should not be charged with these costs, but rather deducted from the total profit, unless these costs are related to preparing the estimate with which the company enters the bid from the beginning, whether they are administrative or financing costs, such as credit facilities obtained from banks, Or other costs that are incurred by the beneficiary contracts.

The contract also bears the costs of temporary construction at the site directly, such as the costs of temporary buildings, the costs of constructing roads to the sites and the costs of providing services to those facilities. The contract also bears the costs of operating these structures and the costs of removing them after completion of the project.