GCs Won't Pay Stored Material on Software Licenses
You wire five figures for VMS and access licenses at PO, and the GC rejects them on stored material because there's nothing on a pallet to photograph. You're the bank until commissioning.
Per channel VMS licenses, per door access control licenses, server OS, and the annual SMA all get bought at PO to fix the software release and the price, and none of them exist as a physical object. Every other material line on the job can be photographed on a pallet with a serial tag and paid at 90 percent, while yours can't be photographed at all. The maintenance clock also starts at activation, so a year of coverage the owner is paying for is used up while the building is still under construction.
The size of it
You send five figures of hard cash out six to twelve months before it becomes billable, on every mid-size job, and you recover none of it if the job is cancelled or descoped.
List software licenses in the subcontract as a payable milestone at PO issuance, in writing, before anybody signs. Standard stored material language was written for crates in a bonded warehouse, so an intangible license gets rejected even though the same dollars in cameras would have been paid without a question. The cash is gone the moment the PO issues, because licenses are non-returnable and non-transferable once they register to the site, and you fund it six to twelve months with no recovery if the scope gets cut. Put licenses on their own cost code and their own SOV line so the exposure shows in your WIP rather than disappearing into a lumped equipment number. If a GC still refuses the milestone, price the cost of waiting into the bid and tell them that's what you did.
Three moves, in order
Step 01: Job cost structure
Seven cost categories and three levels of granularity, built so the estimate and the ledger use the same words.
What else costs security systems contractors money
The same mechanism in other trades
What security systems owners ask
Will a GC pay stored material on VMS software licenses?
You wire five figures for VMS and access licenses at PO, and the GC rejects them on stored material because there's nothing on a pallet to photograph. You're the bank until commissioning.
What does it cost?
You send five figures of hard cash out six to twelve months before it becomes billable, on every mid-size job, and you recover none of it if the job is cancelled or descoped.
What do I do first?
Add a subcontract rider at buyout: software licenses billable at 100 percent on issuance of the manufacturer PO, with PO and license certificate as backup.
What are security systems contractors supposed to be making?
Security systems has 22% gross margin, 16% overhead and 6% net profit after taxes at $1M to $5M. The all-trade average is 7%, so this trade is 1 point below it. The CFOS target is 10%.
Which part of the system fixes it?
The step is number 01, job cost structure. Seven cost categories and three levels of granularity, built so the estimate and the ledger use the same words. It comes from chapter 1 of CONTROL: C.F.O.S. Construction Financial Operating System.
Everything on this page is something you can install yourself, and CONTROL is the order to do it in. If you would rather buy the finished result, SPM The Construction CFO does this work for security systems contractors as a service. It is a separate firm, Sulphur Prairie Management, LLC, led by the same author.
Wrote CONTROL, the 8 step system behind these figures. More about the author.