About cost code numbering for general contractors

A common mistake when creating cost codes is building a long list that contains too much detail. It is not necessary to include trades that the contractor does not perform or subcontract. Unless a general contractor performs the work, one cost code is usually sufficient. For example, a general contractor rarely needs separate cost codes for Rough Electrical, Electrical Trim, Electrical Fixtures, and Alarm. Including such trades only creates an unwieldy cost code list. While you can use a single cost code in place of many cost codes, how do you track costs? With each payable invoice, the contractor creates job costs that detail the type of work performed. Continuing with the example above, an electrical subcontractor on most jobs submits three to six invoices to the general contractor. By printing a Job Cost Journal for the specific job, the journal details each electrical cost entry made to the job as well as the total electrical costs.

There are circumstances in which having several cost codes are useful. If you have allowances in a contract, you will want to track those costs separately. For example, you might use Electrical and Electrical Fixtures as separate cost codes, allowing you to separate the electrical costs. Over the course of the project, you can provide the owner with a report detailing the total amount spent on allowance items. You can always enter a change order to adjust the prime contract based on the over/under amount of the allowance.

When building the list of cost codes, it is best to begin with a small list with room for expansion. Over time you can add more cost codes in the appropriate sections.

For ease of use, many general contractors use the Construction Specifications Institute (CSI) divisions. Be aware that the CSI numbering system classifies materials and workmanship in a construction project and not cost breakdowns. In most cases, the first two levels of the CSI system work for cost codes. If you decide to use the CSI divisions, use the main 16 divisions. To provide room for growth in the cost code list, add two or three zeros after each division number.

While creating the cost codes, keep in mind that you will assign a cost type to each job cost. It is unnecessary, therefore, to create cost codes that break apart costs into materials, labor , equipment, subcontracts, and so forth.