Jeffrey T. Willoughby, CPA, CFF, CFE, Forensic Accounting Expert
James A. Stavros, CPA, MBA, Forensic Accounting Expert
Case Synopsis: A commercial painting and cleaning contractor was hired as the general contractor to clean, repair and paint several bridges along a section of interstate highway lasting several months. The contractor hired another company to be the primary subcontractor performing painting and cleaning work. Part of the compensation for the primary subcontractor was to include a portion of the profit earned on the contract based upon the work completed. The agreement between the primary contractor and the primary subcontractor was oral.
The cleaning and painting work slowed during the winter months due to the cold weather. The subcontractor left the job site and did not return. The general contractor completed the remaining portion of the contract, working through the winter months and hiring additional workers to replace the labor expected to be performed by the primary subcontractor. The general contractor completed the work outlined in the contract at a profit, and, because of provisions in the contract, earned performance bonuses for early completion of certain portions of the contract.