FINANCIAL CONTROL

Financial Control In Construction Projects



Financial Control In Construction Projects

Introduction

The construction industry plays a very important role in the national economy in both developed and developing countries (Miles and Neale, 1991). There is normally a vigorous demand for construction in industrialization and urbanization, which is reflected from the sizeable proportion of added value of the construction industry in the gross domestic product (GDP) (Miozzo, 2000). In the period of economy ''take-off'' in Japan from 1956 to 1973, the percentage of the construction industry in GDP went up from 4-5% to 9% while the average annual increase of GDP will be up to 10% (World Bank, 1984). In Korea, the percentage increased from 3% at the beginning of 1960s to 9.8% in 1991. In Singapore, the percentage increased from 3.5% in 1970s to 8.5% in 1980s (Miozzo, 2000).

Since Countries adopted the policies of reform and opening to the outside world in 1978, the traditional planned economy system has been replaced by the market economy gradually. Since then, the countries observe that economy has undergone rapid changes. As a result, the construction industry has formed one of the pillar industries in the economy (Miozzo, 2000).

With the advent of economy globalization, keen competition between construction enterprises has been witnessed (Jaafari, 2000). Moreover, after joining the World Trade Organization (WTO), the global construction industry needs to take up the global market opportunities. It is indubitable for the contractors to improve their competitiveness in order to cope with the challenges from foreign firms, which have better technological know-how and management capability (Raftery et al., 1998).

Background and Overview

Low interest rates have fueled a construction boom for several years, with homebuilding the strongest industry segment in 2001. Buildings continue to go up--and contractors of all types need CPAs to help with taxes, bonding and borrowing services. In leaner periods, they need assistance with cost controls, ways to maximize tax savings and strategies for obtaining credit. "There''s plenty of work out there," says Peter McGuigan, CPA, head of McGuigan & Co., a four-professional firm in Wall, New Jersey. The firm has specialized in construction since its 1990 inception and also does technology consulting; individual, corporate and estate tax work; and retirement planning (Ahadzi, 2001).

The market: Construction offers a diverse market for CPAs. Major contractors undertake federal government projects (such as dams and military buildings) and other heavy construction jobs including refineries, power plants and utilities, highways, municipal centers and international ventures. Each subcontractor for discrete phases of such projects is a potential client, too. These include ironworkers, masons, cement workers, electricians, sheetrock installers, plumbers and painters, as well as elevator and fire-sprinkler installers and heating, venting and air conditioning (HVAC) specialists: Other types of subcontractors--such as those for highway construction--move dirt, lay pavement, operate heavy equipment, coordinate traffic safety and install work lights. Every construction job''s legal, regulatory and bidding requirements are highly detailed, and the complexity scales up in proportion to the project. Many contractors settle into a niche and stick ...