PCCA Journal|1
st
Quarter 2013
20
a contractor. Contractors deal with income taxes, sales taxes,
contract provisions, employment law, Davis-Bacon, and
other government contract requirements, among other laws
and regulations on a daily basis. While the wise contractor
consults with legal professionals as needed, much of the day-
to-day common-sense applications of legal requirements are
left to the CFO.
While income tax law is primarily determined by larger
decisions, such as choice of entity, domiciles, and other far-
reaching determinations, actions taken on the contract level
can have significant consequences. These include decisions
to work in other states, performing work on contracts that
have special income tax treatment, and contracting with gov-
ernmental agencies. Sales tax laws are determined at not only
the state level, but also the municipality and other local or
district levels. To understand cash flow from a contract, the
CFO has to understand the tax effects of contracts along with
impacts of other decisions.
Contract terms generally include requirements and tim-
ing for payments, change orders, and submission of claims.
Government contracts have even greater compliance require-
ments. All of these items have the ability to affect the cash
flow, and possibly profitability, on a contract when provi-
sions are disregarded. Often, project personnel are focused
on building the job, rather than administrative requirements
of the contract. The CFO has primary responsibility for some
aspects of the contract, such as Davis-Bacon compliance, and
has compliance oversight responsibilities for other contract
requirements.
Moral Compass Keeper
The cultural foundation for organizational ethics and internal
controls is often called “tone at the top.” As a company
leader, the CFO is looked upon to guide the organization with
suitable values and ethics. In this position, value comes pri-
marily from two sources, your knowledge and skills and your
integrity. As a successful CFO, the old adage “figures lie and
liars figure” can never be associated with you. As important
as it is to be honest with everyone, it is most important to be
honest with yourself. Next, it is vital that you are honest with
those who are relying on you to provide valid information
that will inform their decisions.
Financial reporting for contractors involves significant
estimates, more so than most industries. Manipulating num-
CFO Feature
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