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🏗️ Contracting Workflows

In Saudi Arabia, contracting and construction represent over 20% of the SME market. These businesses operate on project-based accounting, requiring specialized workflows to manage cash flows, milestones, and subcontractor relationships.

1. Bill of Quantities (BOQ) Management​

A project begins with a Bill of Quantities (BOQ), detailing all labor, equipment, and materials.

[Estimate/Tender BOQ] ──> [Project Budget BOQ] ──> [Task & Purchase Control]
                                            └──> [Actual Cost Tracking]

Happy Path Steps​

  1. BOQ Import: The project engineer uploads the client-approved BOQ (typically from Excel/PDF).
  2. Budget Mapping: The system parses items, links them to ERPNext cost centers/tasks, and establishes budget controls.
  3. Procurement Guardrails: Material purchases and subcontractor agreements are validated against BOQ item lines. If a purchase order exceeds the BOQ rate or quantity, it triggers a step-up approval request to the Managing Director.
  4. Actuals vs. Commitments: Real-time dashboards compare BOQ estimate rates with actual costs (materials received, labor logged, sub-contracts billed).

2. Progress Billing (Milestone Invoicing)​

Contracting businesses bill based on progress certificates rather than simple delivery of goods.

Happy Path Steps​

  1. Work Valuation: The project manager records the percentage of work completed for each BOQ item.
  2. Joint Measurement Certificate (JMC): The client's engineer inspects the site and issues a certified completion percentage.
  3. Progress Invoice Draft: The accountant generates a draft sales invoice in BayanCore. The system automatically pulls the certified completion percentage, calculates the gross amount, and prompts ZATCA clearance.
  4. VAT Posting: VAT (15%) is applied only to the certified, invoiced portion, complying with Saudi VAT rules for continuous supply of services.

3. Retention Management​

Clients in Saudi Arabia typically retain 5% to 10% of each progress invoice value as a guarantee against defects. This retention is held until the warranty period expires.

Gross Progress Billing (SAR 100,000) 
  ├── VAT 15% (SAR 15,000)
  ├── Retention 10% (SAR 10,000 withheld)
  └── Net Cash Receivable (SAR 105,000)

Happy Path Steps​

  1. Retention Rule Configuration: When creating a contract, the project accountant sets a retention rate (e.g., 10%).
  2. Automatic Withholding: On each progress invoice, the system isolates the retention amount and posts it to a Retention Receivable asset account, while the net amount is posted to Accounts Receivable.
  3. Retention Aging Alerts: The system tracks the retention release dates (e.g., 365 days post-handover) and alerts the collections team to request the retention payout.

4. Work in Progress (WIP) & Revenue Recognition​

Contracting projects span months or years, requiring accurate cost capitalization and revenue matching.

  • WIP Accounting: Unbilled material costs, subcontractor advances, and direct labor are held in a WIP Asset Account on the balance sheet.
  • Revenue Recognition (Percentage of Completion Method): Recognized Revenue = Total Contract Value × (Actual Costs Incurred ÷ Estimated Total Costs)
  • Reconciliation: Monthly journal entries auto-transfer matching costs from WIP to the cost-of-goods-sold (COGS) expense account as revenue is recognized, ensuring compliant financial statements.