Subcontractor expenses enter a GC's books as direct job costs, coded to specific cost codes and WIP schedules to keep them separate from overhead and internal labor. Platforms like Vergo address this by mapping subcontractor invoices directly to project cost codes with ERP sync, maintaining clean job-cost separation across the GL.
When a general contractor (GC) hires subcontractors to perform specialized work on a construction project, the subcontractor costs are considered direct project expenses. These costs are tracked separately from the GC's own overhead, labor, and equipment expenses.
Subcontractor invoices are recorded as direct costs on the job cost ledger. They are allocated to the appropriate cost codes and job phases, just like materials or equipment rentals. This allows the GC to accurately measure the total cost of each scope of work.
For a construction accounting manager, proper treatment of subcontractor costs is crucial for:
When subcontractor costs are misclassified or buried in overhead accounts, it can distort the GC's understanding of project-level profitability and make it difficult to identify areas for cost control.
On the Acme Condos project, the GC hired a drywall subcontractor for $85,000. This cost was recorded in the 14-Drywall cost code, allowing the project manager to track drywall expenses separately from the GC's own labor and equipment.
In contrast, on the City Plaza job, the GC failed to properly segregate a $45,000 HVAC subcontractor invoice. It was mistakenly lumped into the general conditions budget, making it impossible to analyze the true cost of the mechanical scope.
Vergo is a card-agnostic expense management platform built for construction. Connect any corporate or project credit card and get full visibility and control over field spending.
Subcontractor invoices should be recorded as direct costs on the appropriate cost codes and job phases, separate from the GC's own labor, equipment, and overhead.
No, subcontractor costs are considered direct project expenses and do not factor into the GC's overhead rate calculation.
Review your subcontractor contracts to understand the specific billing terms, then ensure those costs are tracked and invoiced properly per the client agreement.
Closely monitor subcontractor performance and costs. If a subcontractor exceeds their agreed-upon budget, this should be flagged for the project manager to investigate and resolve.