Accounting practices in Construction & Infrastructure Industry

Introduction: In current Indian scenario Construction & infrastructure industry is one of the biggest industries and also one of the major employments providing as well as economically much viable industry also. Such a service orient industry and having very much scope to learn lot of things in accounts and also challenging industry also for accounts professionals. In this article I discussing about the accounting practices in the construction industry and problem which we are facing as accounts professional in accounting, taxation and other statutory related matters. I want to discuss part by part for all sections. So it may lead more than 2 parts. I want to discuss the following parts in the articles:

·  General Concept of the industry

·  Accounting practices of the industry

·  Taxation practices of the industry

·  Specific factors which facing by Accounts professional in this industry.

                  

I. General Concept:

In this general concept I am discussing about some main concepts other than accounting need to know as Accounts persons.

1. Business Coverage: Under the construction & infrastructure industry several sub sectors are there, which are Builders, Contractors of Government project like Road construction, dam construction, Technology park construction and power sector projects, water sector project, airport /port construction and other infrastructure developments.

2. Service Industry: This is the industry which doing service. But sometime not only service also involves supply of materials and construction of civil works and other related labour works also involved.

3. Nature of work: Construction and Infrastructure companies except the builder case most of other companies doing government projects work only. Such as like Pubic Private Partnership Model(PPP), Build, Own, Operate, Transfer (BOOT), Build, Operate, Transfer (BOT), Build, Own, Operate, Maintenance (BOOM), Build, Lease, Operate, Transfer (BLOT), Build, Lease, Transfer(BLT) and Engineering, Procurement and Construction (EPC) and Turnkey basis projects. Further points we discuss each type of project and nature.

4. PPP model: (PPP) refers to a contractual arrangement between a government agency and a private sector entity that allows for greater private sector participation in the delivery of public infrastructure projects through concession agreements. Public Private Partnerships or PPPs are being promoted for implementation of infrastructure projects. PPP is often described as a private business investment where two parties comprising government as well as a private sector undertaking form a partnership. The deficit can be overcome by ensuring much more private capital investment. Expert guidance is the only way out for enabling efficiency through subsequent reduction in cost

5. BOO Model: BOO (build, own, operate) is a public-private partnership (PPP) project model in which a private organization builds, owns and operates some facility or structure with some degree of encouragement from the government. Although the government doesn't provide direct funding in this model, it may offer other financial incentives such as tax-exempt status. The developer owns and operates the facility independently.

6. BOOT Model: BOOT Model the same as explained the above BOO model, but in this the end of the concession period the total project and assets will be transfer to the Government.

7. BOOM/BOLT/BOT: All this projects  nature are the same explained above in BOO but the based on the agreement term some projects need to be maintain by the developers itself for some period and some like need to lease to other parties, but finally some projects assets need to be transfer to Government.

8. Engineering, Procurement & Construction (EPC):  This is one typical type of contract in construction and infrastructure Industry. In this model total contract will be awarded to one contractor and he is the single point contact for all the process for entire project. Engineering involves design and engineering for the project. The engineering would include basic engineering, project engineering and detailed engineering for the project as well as the plant, equipment and components thereof. Procurement involves identifying, negotiating and arranging supplies of equipment duly ensuring the compatibility of different pieces of equipment with each other. In case of non-standard equipment, this could also involve design, fabrication and supply of equipment. The EPC contractor is also required to ensure that the different pieces of the equipment are delivered within the agreed time frame. Construction involves civil works, receiving and handling equipments on-site, on-site erection, project management, project monitoring, supervision, commissioning and testing of the project.  This also referred as “turnkey contract” and” composite contract” as various names.

Conclusion: These general concepts are very important terms and terminologies need to understand as a Accounts professional working in this industry, further part we discuss about all other details.