A general contractor typically holds the main contract with the client and delivers the project through a combination of its own resources and specialist subcontractors. Under many main-contract arrangements it carries primary responsibility to the client for coordinating quality, safety and programme, including work performed by subcontractors, and it may have to fund a significant portion of project costs before corresponding client receipts arrive. With Pentoggle, a contracting business can describe its package structure, payment terms and reporting and generate the starting application around them.
Contract forms vary. Item rate, percentage rate, lump sum and design and build arrangements each change how quantity risk and pricing risk sit, and a contractor may run several forms at once across projects. What stays constant is the shape of the business, which is one contract in, many contracts out, and a timing gap between them.
Many contractors already run Tally or a comparable system for accounting, which can handle job costing and project-level financials. What commercial and project teams often still manage outside that workflow is which package has been awarded against which budget, what has been issued to which subcontractor, and how much cash a specific project is currently absorbing.
Key takeaways
- A general contractor may have to fund a significant portion of project costs before client receipts arrive. Money goes out to subcontractors, suppliers and labour on shorter cycles than money comes in from the client.
- Margin per project can look healthy while the business is short of cash, because they are different questions.
- Back-to-back terms are an intention. In practice a subcontractor who has to pay wages this week rarely waits for the client's certification.
- The scope between packages is where unpriced work tends to appear, because it belongs to nobody until it has to be built.
- A useful number is cash out against cash in per project, tracked over time, showing what each project is absorbing.
How the business actually works
A general contractor's project margin comes from the difference between what it earns from the client and the direct and indirect costs required to deliver the project. On competitively tendered work that difference is often modest, which means the business is less about markup and more about controlling risk that sits outside any single package.
Three things follow from that structure.
The contractor sits between the client's overall scope and multiple delivery packages, while also managing the timing between client receipts and outgoing package payments
It buys work from specialists and delivers it as a finished whole. Its commercial position is the sum of many smaller commercial positions, many of which are with specialist subcontractors and suppliers.
Responsibility to the client is not transferred by subcontracting
Under many arrangements a defect in electrical work is the electrical subcontractor's fault and the general contractor's problem, because the client's contract is with the contractor. Similar issues can arise with a safety incident, programme slippage caused by one trade, or a quality rejection.
The programme is largely a coordination problem
Multiple firms work on one site in a sequence where each depends on the last. A delay in one trade produces idle time in three others, and the contractor may end up carrying the immediate cost of that idle time, even where another party caused the delay.
A general contractor can carry a significant part of the project's working-capital requirement
This is the thing most general contractors know in their bones and few can see in a report.
Money often leaves on shorter cycles. Labour may be paid weekly, fortnightly or monthly, while suppliers and subcontractors operate according to their agreed credit and billing terms. Site establishment, supervision, plant hire and safety costs run continuously from the day of mobilisation.
Money arrives on long cycles. An RA bill goes to the client, waits for certification which may take weeks, and is then paid on the contract's payment terms from the date of certification. Retention is deducted from every receipt and comes back much later. Any disputed quantity waits longer still.
The gap between those two is funded by the contractor. On a growing order book, it can widen rather than narrow, which produces the familiar situation of a business winning more work, showing a reasonable margin, and being under constant cash pressure. Profit and cash are different questions and a project can answer them differently for months at a time.
Seeing this requires something many contractors do not have, which is a cash view organised by project. Accounting is organised by ledger and gives an accurate company position. A project-level view of cash out against cash in shows which project is absorbing money and roughly when it turns, which is the input to decisions about what to bid next and what to defer.
A useful thing to track alongside it is the peak funding a project has required, because that figure is a better guide to whether the business can take on a similar job than turnover or margin is.
Back-to-back is an intention rather than a state
General contractors often seek to pass relevant client terms down the subcontract chain. Depending on the subcontract, contractors may seek to align payment timing, retention, defect obligations and variation procedures with the corresponding client contract. Written into the subcontract, it looks like the risk has been transferred.
In practice, the commercial effect may be less complete than the drafting suggests.
A subcontractor with a workforce on site still has payroll and operating costs to meet even when client certification is delayed. What usually happens is that the contractor pays something on account to keep the trade working, because the alternative is a stopped package and a programme slip that costs more. The clause may remain in the contract, but the contractor may still choose to fund the subcontractor to keep the package moving.
The same applies in the other direction. Where a subcontractor has carried out instructed or otherwise contractually supported variation work before the client's corresponding approval is complete, the contractor may still face an immediate commercial claim from the subcontractor. A defect obligation passed down to a subcontractor who has since demobilised can be a clause with little practical remedy behind it.
None of this is an argument against back-to-back drafting, which is worth doing. It is an argument for knowing where the actual exposure sits, which means tracking what has been certified by the client against what has been paid to subcontractors, package by package. Where the two have drifted apart, the contractor may be funding a package ahead of corresponding client receipts, and that is worth seeing as a number rather than as a feeling. Subcontractor management covers the mechanics of the outgoing side.
The risk lives in the gaps between packages
Most work inside a defined package has an assigned scope and a price. The interfaces between packages are where omissions are more likely to appear.
Who provides and fixes the sleeves the plumbing subcontractor needs cast into the civil subcontractor's slab. Who makes good the chases the electrical subcontractor cuts. Who scaffolds for the facade trade. Who cleans and hands over an area between one finishing trade and the next. Who supplies power and water to the site and on what basis it is recovered.
Each of these is small. In aggregate they can become a meaningful source of margin erosion. They share a pattern: they are visible in the drawings, absent from every package scope, and discovered on site at the moment they block progress, when the only fast resolution is for the contractor to absorb them.
Two things help. The first is capturing them at award rather than on site, which means a scope record per package that names the interface items explicitly, including the ones assigned to the contractor itself. The second is recording them as they get absorbed, because a contractor who knows it spent a specific amount on interface work last project can price it in the next tender instead of rediscovering it. Many contractors carry this knowledge as experience rather than as a figure, which means it does not survive a change of estimator.
The workflows a general contractor runs
Each of these behaves somewhat differently in a general contracting business than in a specialist one, mainly because most of the work is executed by others.
- Construction Estimation and BOQ, where much of the estimate is assembled from subcontractor quotes and the contractor's own risk sits between them.
- Construction Cost and Budget Management, where committed cost from package awards is often a larger signal than incurred cost.
- RA Billing and Retention, running in two directions at once, outgoing to the client and incoming from subcontractors.
- Subcontractor Management, covering work orders, free issue material and recovery, and retention held.
- Construction Project Management, where the programme is largely a sequencing problem across firms.
- Construction Procurement and Purchase Orders, for the material the contractor buys directly and issues onward.
- Construction Quality and Inspection, where the contractor signs for work it did not perform.
- Construction Progress Tracking, consolidating what several firms did on one site.
Why general contractors choose Pentoggle
Both sides of the billing chain
Client bills and subcontractor bills on one structure, so package positions reconcile instead of living in separate files.
Free issue material tracked to recovery
Material issued to subcontractors held against the deductions or other recovery entries used to recover it.
Cash position by project
What has come in against what has gone out, per project, rather than only at company level.
Your package structure
Packages defined the way your business actually splits work, including interface scope assigned deliberately.
Sits around your accounting
Statutory books and GST stay where your CA already works. This is the project and commercial layer beside them.
A useful number for a general contracting business
Cash out against cash in, per project, tracked over time.
Turnover says how much work you are doing. Margin says what the job should earn. Neither says how much money the project is currently holding, and for a contracting business that is frequently the question that decides what happens next.
Track it per project and watch the shape rather than the point value. A project that absorbs cash during its early stages and then turns positive can be normal. One that keeps absorbing past the point where it should have turned is telling you something, usually about certification delays, retention, or a package being funded ahead of the client.
The peak figure is worth keeping after a project closes. A contractor who knows that a job of a certain size and client type required a particular amount of funding at its worst point has a far better basis for deciding what to bid next than a margin percentage provides.
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You are responsible for the whole project, even when much of the work is executed by others. Your systems should reflect that.