SCT - Scott Tech

[Snoopy]

You’re not the only Scott supporter! Really appreciate your insights into the financials.

My understanding is if a contract milestone payment exceeds revenue received, Scott has paid a subbie or for materials in advance of billing the client for the work, therefore it’s a liability until the client pays for it. I’d classify that as WIP, and is a risk and should not be included in profit calcs.

Let's take a job where Scott takes on a project and due to time constraints they need to farm out some of that project work to a sub contractor. This is not a theoretical example. This is exactly what Scotts have had to do in the past at their Christchurch base. The work outsourced is not outside the scope of what the skilled engineers at Scott's can normally tackle. The sub contracting is purely due to a timing issue where Scott's engineers have been switched away from the project to help complete something else within the wider company, resulting in an unplanned for shortage of in house workers.

From a client perspective, Scott completes the project work on time. I think what you are implying Bullfrog is that, in this case, Scotts have ticked off the job. But as a result of Scotts having to await billing from their sub contractor, there may be a delay in receiving the bill from the sub contractor and passing on that part of the bill to the end client. Thus in the period the sub contracting work is done but has not been paid for by Scotts and/or passed on to the final client then such work becomes a 'contracting liability'.

I put it to you that the 'Work In Progress' (WIP) in these circumstances is the same work that Scotts in house team are doing in parallel for the same client. So I find it hard to come to terms with your remark that the execution risk or payment risk is any different to the risk that Scott's own engineers face in not doing the job properly and not being paid. In summary I think such work should be included in the net profit figures for the period and not rolled into a later period as the current accounting treatment seems to regard as the proper way to present things. Maybe I need to take it up with the auditors?

SNOOPY