Subconsultant markup and consultant invoices billed a month late: the count for A/E firms

How a consultant invoice rides a month

The timing problem is mechanical. A firm bills once a month on a fixed day. Consultants bill on their own cycle. Any consultant invoice that arrives after the firm’s billing has gone out waits for the next one, and then the client’s payment terms start.

Illustrative example: the firm bills on the 25th. A structural engineer’s invoice for additional services arrives on the 3rd of the next month. It goes out on the following 25th, 22 days later, and the client pays on net 30. The firm collects about 52 days after the consultant invoiced. If the sub-consultant agreement says the consultant is paid when the firm is paid, the consultant waits those 52 days and more; if it says the firm pays within 30 days of the consultant’s invoice, the firm carries the money for three weeks or so. The dates are invented.

The second leak is quieter. A consultant invoices the firm for extra work the client asked for in a meeting. Nobody wrote an amendment, so there is no client billing line to attach it to. The firm pays the consultant, and the cost sits in the project as overrun.

Subconsultant markup applied against markup allowed

Each consultant invoice that passes through billing can land in one of four places. Only one of them is right.

• Allowed and applied: the agreement states a percentage, and the invoice applies it
• Allowed but not applied: the agreement allows a markup, and the consultant invoice went out at cost by habit or by a template default
• Applied but not allowed: the agreement says zero, leaves the line blank or deletes it, and the invoice adds a markup anyway — a billing error the client can find in the records it is entitled to see
• Not billed at all: consultant extra work with no amendment behind it, paid to the consultant and never invoiced to the client

The third case creates disputes; the second and fourth cost money quietly. Reimbursable expenses deserve the same sort, with one extra column where the agreement requires advance authorization: was it given, and when.

Public work: named consultants and a ten-day clock

On federal architect-engineer contracts that carry FAR 52.244-4, subcontractors and outside consultants are limited to those “specifically identified and agreed to during negotiations,” and the firm needs the contracting officer’s written consent before substituting one. A consultant brought in mid-project without that consent is a billing problem waiting to happen, before it is anything else.

Texas sets a clock in the other direction for its public work. Under Government Code section 2251.022, a vendor who receives a payment from a governmental entity pays a subcontractor its appropriate share no later than the 10th day after receiving the payment; the share is overdue on the 11th day. Section 2251.001 defines a subcontractor as a person who contracts with a vendor “to work or contribute toward completing work for a governmental entity.” Whether that reaches a particular design sub-consultant agreement is a question for the firm’s attorney.

Either way, the firm needs to know, invoice by invoice, when the client paid and when the consultant was paid. Without both dates, neither rule can be checked.

The six-month count

The count needs three exports the firm already has: consultant invoices received (from accounts payable), client invoices issued with their line detail, and client payments received. For the last six months, build one row per consultant invoice:

• Consultant, project, invoice date, date received, and amount
• Type: basic services, supplemental or additional services, or reimbursable expense
• The client invoice that carried it, its date, and the days between receipt and billing
• Markup allowed by the agreement, and markup applied
• For extra work: the amendment number that covers it, or “none”
• Date the client paid that invoice, and date the firm paid the consultant

Illustrative example: 40 consultant invoices in six months. Twelve arrived after the billing day and waited an average of about 25 days to reach a client invoice. Three, totaling $9,000, were for extra work with no amendment and were never billed. On one project the agreement allowed a 10% markup and none was applied. The numbers are invented; the point is that each row comes from records the firm already keeps.

Fixing the timing without a new tool

Most of the fix is calendar and paperwork. Put a consultant billing cutoff in each sub-consultant agreement, a few days before the firm’s own billing day, so consultant work is billed in the month it was done. Log each consultant invoice the day it arrives, against the project and the client billing it belongs to. Add one line to the monthly billing review: consultant invoices received since the last billing, and where each one went.

For extra work, match each consultant invoice to an amendment before paying it, or record a written decision to absorb it. State the consultant markup and the reimbursables markup in every new agreement, even when the number is zero. And write the payment terms to consultants with an outside date, so both sides know the answer before anyone asks.

When not to hire anyone for this

If the firm uses two or three consultants on a handful of projects, the count above is an afternoon in a spreadsheet, and the fix is a billing-day habit. No outside help is needed.

An outside review is worth paying for when consultant pass-through is one leak among several: additional services without amendments, phases complete but not invoiced, time entered weeks late, receivables aging by client. That is the work of an architecture & engineering business consultant who reads records rather than drawings. Our Revenue Review reads the firm’s own agreements, consultant invoices, time, client invoices and aging, read-only, and puts a monthly dollar figure on each leak the records support. It takes two weeks. Drawings and models stay where they are. We do not run an architecture or engineering firm, and there are no client case studies on this site yet.

If it is unclear whether a fee is worth it, the next step is a free 20-minute call, which will say plainly when a firm does not need the Review.