Accounting for Small and Medium Contractors

This post is written with my working experience with small and medium contractors. The persons who are executing contracts from Rs. 50 Lac per annum to 10 Crore Per Annum.

The Government's development activities are mostly completed with the help of contractors. The Government departments float tenders, invite bids and then select a contractor to be awarded the job on the basis of predetermined scrutiny process.
With a view to secure contract, contractors most of times quote very low rates which are not worked out scientifically and when they are awarded the contract, they try to cut their cost in all the possible means. The most easiest way to cut cost is to bypass legal compliance in all possible manner. The main non-compliance area are given below :

1. Not maintaining proper accounts. The reason quoted is that it is very difficult. If accounts are maintained as per law, then contract will become a loss proposition.

2. Making almost all the payments in cash. The reason is work on site is designated in the hands of staff and he is not having authority and convenience to make payment by cheque. Also the parties to whom payments are made are also not ready to extend service or supply if payments are enforced by cheque.

3. Not insisting on bills/vouchers to support payment or expense. Two reasons are mostly quoted. First is that the supplier is not willing to issue bills even if the contractor is willing to pay all the taxes. And the second reason quoted is the cost of supply or service increases and it makes contract again a loss proposition.

I welcome all concered persons to send more and more suggestions in this regard to complete this article. I just want to highlight problems faced by contractors and if government can do anything to take them out of this problem, then this should also be part of this article.