The Subcontractor Cycle
A contracting business runs two mirrored chains at once. On the owner side it bills the client for work delivered; on this side it buys work — from the blockwork gang, the electrical subcontractor, the piling specialist — and pays for it. Same vocabulary, same screens, same term codes. Opposite direction of money.
That is the sentence to keep in your head while reading these pages. Everything the project contracting cycle says about revenue, receivables and receipt vouchers is true here about cost, payables and payment vouchers. The chain is deliberately the same shape, because the same code builds both sides.
You will find the chain at Contracting > Contractor Contracting, under licence contracting. The subcontractor's own record, his classification and the fine reasons live one menu group up, under Contracting > Master Files. And one document filed in this group does not belong to this side at all: the Measurements Request is a customer-facing document — the owner side covers it.
The rule that governs the chain
Signing a subcontract books nothing. The extract (مستخلص) books everything. The offer and the subcontract are both master files, the execution and the update produce no journal entry, and cost, payables, retention, advance recovery and tax all reach the ledger through the subcontractor extract.
The qualifier matters, though, because this side has more documents standing beside the chain than the owner side does. Advance payments, other payments, fines, material sold to the subcontractor, the daily labour book and the miscellaneous purchase invoices all post in their own right the moment they are committed. What the rule really says is: within the contract chain, only the extract posts.
And one thing about signing that surprises people who have just learned that rule:
Saving a subcontract does have one side effect
It creates the financial papers — cheques or promissory notes, issued to the subcontractor — from the instalment schedule on the contract's payments grid, when your module configuration allows this document type to mint them. No journal entry, no payable, but real commercial paper in the treasury. On the owner side the same mechanism produces papers received from the customer.
Throughout these pages we follow one package: on the Tower A project for Al-Fanar Development, the blockwork is subcontracted as CC-0042 — 2,000 m² of 200 mm blockwork at 40, an 80,000 subcontract, with 10% retention withheld from every certificate and a 16,000 mobilisation advance paid up front and recovered as the work proceeds.
The chain, step by step
Contractor (master file — who you subcontract to)
↓
Subcontractor Offer (master file — his quotation. Optional)
↓ Convert To Contract
Subcontract (master file — books nothing; mints his cheques)
↓ ↘ Subcontract Update — the variation order
Subcontractor Execution (optional — what he actually built)
↓
Subcontractor Extract ← THE money document: cost, payable, retention,
↓ advance recovery, fines, material charge-back
Payment vouchers1. Register the subcontractor. The subcontractor record is a party master file with its own accounting subsidiary (الذمة), and it may optionally point at a supplier. That link is worth thinking about once, up front: link him and his contracting balance lands on the supplier's accounts, so contracting and purchasing show one balance for one firm; leave it empty and the contractor's own accounts group is used and the balance lives only in contracting.
2. Ask for prices. A subcontractor offer is one firm's priced quotation for one package. You capture each quote as its own record, compare them, and convert the winner with one button. It is entirely optional — for a trade you buy every month at a framework rate you would go straight to the subcontract.
3. Award the work. The subcontract is the centre of gravity of this side, exactly as the project contract is of the other: the rates you have agreed to pay, the retention and other clauses that will reduce every certificate, the instalment schedule, the site team. It stays alive — executions, extracts and cost documents write their running totals back onto its term lines.
4. Vary it when the scope moves. Once the first extract exists the subcontract freezes its prices, quantities and conditions, and the sanctioned way to change it is a subcontract update. It is a genuine document with a book and a value date, and it rewrites the contract in place.
5. Measure what he did. Subcontractor execution (حصر كميات) is the site measurement: 800 m² of wall this month. It is optional, and it is incremental per document — each execution states only what was measured since the last one, and the subcontract's term line carries the running total.
6. Certify and book. The subcontractor extract is his payment application and the only document in the chain that reaches the ledger. It prices the certified quantities, adds tax, then applies everything that reduces what he is paid — retention, a slice of the advance, fines, and the material you sold him — and arrives at a net payable. Committing it builds an accounting business request (طلب أعمال) that is processed in the background.
7. Pay him. Payment vouchers (سند صرف) settle the extract, and the extract itself shows how much of the certificate has actually been paid. Separately, advances and other payments are paid outside the extract and recovered inside it.
What is optional, and what books
| Step | Optional? | Books anything? |
|---|---|---|
| Subcontractor record | No | No |
| Subcontractor offer | Yes | No |
| Subcontract | No | No — but it can mint financial papers |
| Subcontract update | Yes | No |
| Subcontractor execution | Yes | No |
| Subcontractor extract | No | Yes — cost, payable, tax, retention, recoveries |
| Advance payment / other payment | Yes | Yes |
| Fine | Yes | Yes |
| Material sold to the subcontractor | Yes | Yes — it is a sale |
The emptiness of that middle block is the design, not an oversight. The commercial record (the subcontract) and the accounting record (the extract) are kept apart deliberately, which is why you can negotiate, amend and re-amend a subcontract for months without disturbing a single journal entry.
Where this side differs from the owner side
This is the list to read before you assume a screen behaves the way its twin does. Everything here is deliberate.
| Owner side | Subcontractor side | |
|---|---|---|
| Direction of money | a receivable — revenue, the client owes you | a payable — cost, you owe the subcontractor |
| Settled by | receipt vouchers | payment vouchers |
| Whose accounts the balance lands on | the customer's | the contractor's own accounts, or those of the supplier linked to him |
| Instalment financial papers | received from the customer | issued to the contractor |
| Cross-reference to the other side | none — the project contract is the top | every non-parent subcontract line, and every fine line, must carry the project term code of the client-contract item it belongs to |
| A ceiling on quantity | none | the quantities of the same client-contract item across all subcontracts may not exceed what you sold, unless the configuration allows over-letting |
| Write-back | executions and extracts write onto the contract | the same, plus an optional write-back of extracted quantities up onto the client contract and both budgets |
| Deductions on the extract come from | contract conditions, project advances, project fines | contract conditions, subcontractor advances, other payments, fines — and material you sold him |
| Owner-side fines | deducted from the client's extracts | deliberately excluded — a penalty on your client can never be charged to a subcontractor |
| An extra payment document | — | Other Payment, a second advance-shaped document with its own accounts and numbering |
| Taxes on the extract | a tax-term mechanism derives the tax lines, with its own tax detail grid | percentages typed on the document; no tax-term derivation and no tax detail grid |
| Actual-cost accounting entries on the extract | yes | no — actual-cost postings are an owner-side feature |
| Cost analysis on extract lines | — | the extract fills the analysis term code and analysis card from the matching subcontract term |
| Closing the contract | — | a Final extract marks the subcontract finished, and it then stops appearing in contract pickers |
Two of those are worth a sentence more, because they are the ones that generate support calls.
The project term code is not optional. A subcontract term is a slice of a client-contract term: your blockwork item, sold to Al-Fanar as term 3.01, might be delivered by three different firms' term 3.01s. Unless the configuration says otherwise, every priced line on a subcontract has to name the client-contract item it belongs to. That single column is what makes the quantity ceiling, the write-back and the "how much of the blockwork have I sublet?" question possible.
Material issued to a subcontractor is a sale, not a project cost. Issue cement from your store to the blockwork gang and he is invoiced for it, VAT and all. Nobody expects a cheque back — the money returns as a deduction on his next extract, and a return arrives as an addition. This mechanism has no owner-side counterpart at all. See selling material to a subcontractor.
The numbers, end to end
CC-0042's three extracts, which the extracts page builds line by line:
| Extract 1 | Extract 2 | Extract 3 (Final) | |
|---|---|---|---|
| Quantity certified | 800 m² | 700 m² | 500 m² |
| Work value | 32,000 | 28,000 | 20,000 |
| VAT 15% | 4,800 | 4,200 | 3,000 |
| Retention 10% | −3,200 | −2,800 | −2,000 |
| Advance recovered | −6,400 | −5,600 | −4,000 |
| Material charge-back | −2,400 | — | — |
| Fine | — | −1,500 | — |
| Net payable | 24,800 | 22,300 | 17,000 |
Retention withheld comes to 8,000 — 10% of the 80,000 subcontract. The advance clears exactly as the last certificate closes. And none of it existed in the ledger until the first extract was committed: the day CC-0042 was signed, the only thing that happened in the system was that his cheques were minted.
Where to read next
- Subcontractor offers and subcontracts — the two master files this side is built on.
- Subcontract updates — changing a live subcontract.
- Subcontractor execution and subcontractor extracts — measuring and certifying.
- Advances and other payments and fines — the documents that arrive on the extract as deductions.
- The project contracting cycle — the mirror image of this page.
- How project cost is built — where subcontractor extracts sit among the other sources of actual cost.