Valuing work in process deals in construction

by a searcher from University of Virginia-Darden - Darden School of Business

1 year ago

Hi,

I'm having discussions with a seller in the general construction business on the work that would sell during the LOI period that's before the 'Deal Close'. If he sells it, buys materials for it, and then hasn't completed the work before I buy the business, how is that work valued? How do I compensate him for that? Does he just get all sold work 100% before we close? That also doesn't make sense...

Thanks!

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17 comments

searcher from Texas A&M University

they should have an AIA WIP bill they submit to a GC. it is a good place to see what has been completed % wise. I would assume overhead and labor is paid, but materials and subs are not. Need to make sure the scheduled of values if accurate and not front loaded. I.E. all profit is in the materials they have all ready billed for and they are just leaving enough in there to cover costs for the rest of the job (not profit). Also need to decide on the retainage, as that will be awhile till it is paid. Most of this wont show in quickbooks.

7 months ago | like reply | 0 likes

investor from IESE Business School

I would postpone any payment on WIP to the seller, no matter the method used, until full acceptence buy the clients of the finished work. You may have dispute that leed to impact the final price/cost of constructions. You wouldn't want to pay on uncertan levels.

1 year ago | like reply | 0 likes

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