Percentage-of-Completion Accounting Before You Pick a Tool

Most engineering firms bill using an indirect cost, or overhead, rate applied to direct labor, a rate that has to be recalculated periodically as staffing and non-billable time shift. If that rate goes stale, every project's percentage-of-completion revenue recognized against it drifts too, and the error compounds across every active job rather than staying contained to one account.

This matters even more for firms doing any government-funded work, where the overhead rate methodology itself can be subject to review under federal cost principles. Recalculating and documenting the rate on a set schedule, not whenever someone remembers to, is the control that keeps every downstream reconciliation trustworthy.

For every active project, billed-to-date revenue has to tie to the percentage of completion calculated from actual costs incurred against the total budgeted cost, or from an engineer's estimate of physical progress on design-phase work. That reconciliation, project by project, is exactly the kind of high-volume, repeatable check close management software handles well: standardizing the template, enforcing review by someone other than the project manager, and flagging any project where billed and earned revenue have drifted apart.

Firms running dozens of concurrent projects lose the ability to catch this drift from memory fast, and it's usually the first place the close breaks down as project count grows.

Engineering firms carry professional liability, or errors and omissions, exposure tied to the actual design and construction-phase work, separate from financial reporting risk. A dispute over whether a project was completed to spec can also become a revenue recognition dispute, since a client withholding payment over a quality claim directly affects whether that revenue was ever really earned.

Documenting how project quality disputes get flagged and escalated to finance, not just handled by the project manager informally, closes a gap that sits between operations and accounting, and it's the kind of cross-functional control a GRC platform is built to track once a firm is large enough that finance doesn't automatically hear about every dispute.

Picture a structural review project where the client verbally approves additional scope mid-project, work the team starts immediately, but the formal change order paperwork lags behind by several weeks. If the reconciliation only looks at signed change orders, the project's percentage-of-completion understates the work actually performed, and the firm is effectively financing unbilled scope creep without realizing it.

A reconciliation that flags any project where logged hours have grown without a corresponding change order catches this early enough for a project manager to formalize the paperwork, rather than discovering months later that a project's real cost-to-complete was badly underestimated.

If your last audit or management review flagged inconsistent percentage-of-completion calculations, stale overhead rates, or project reconciliations that don't tie to actual costs, fix that first with close management software. It's the discipline that protects revenue recognition accuracy on every active project, not just the ones an auditor happens to sample.

A formal GRC platform is worth prioritizing once the firm has government contract compliance obligations, is pursuing an acquisition, or a bonding company or lender specifically asks for documented, tested financial controls rather than a clean set of project reports.

A practical order of work for each month end:

1. Recalculate the overhead rate against actual indirect costs and current staffing, then confirm every active project uses the updated rate.
2. For each project, tie billed-to-date revenue to percentage of completion, using actual costs against total budgeted cost or an engineer's progress estimate.
3. Document any variance between billed and earned revenue, and have someone other than the project lead review the explanation.
4. Reconcile subconsultant invoices against what was billed to the client so late invoices do not slip into a closed period.
5. Look at a formal GRC platform once these reconciliations run cleanly and a lender, acquirer or funder asks for tested controls.

Projects that bring in a geotechnical or surveying subconsultant often pass that cost through to the client with a small markup, which means the subconsultant invoice, the amount billed to the client, and the percentage-of-completion calculation all have to agree. A subconsultant invoice that arrives late, after the related client billing already went out, is a common source of a project reconciliation that doesn't tie.

Track subconsultant costs against expected billing on the same cadence as direct labor, flagging any project where a subconsultant invoice is overdue relative to when that portion of work should have been billed, so the gap gets chased down before it becomes a stale, unexplained variance at close.