How is SOX Impacting Construction Relationships?

Kent Beachy | September 8th, 2010

The Sarbanes-Oxley Act, (or SOX), set new or enhanced federal accounting standards for public companies as a reaction to a number of corporate and accounting scandals that cost investors billions of dollars. Passed into law in 2002, SOX appears to be having a trickle-down effect on construction companies and their publicly-held company clients.

A specialty trade contractor client for years negotiated contract prices with several large publicly-held companies. Recently, two different companies informed him his company was required to submit a “bid” as required by Sarbanes-Oxley. Another similar client has also seen more bid requests as opposed to negotiated contract pricing. That client also attributes the trend to SOX.

While SOX does not specifically require that public companies follow any type of formal bidding process, it does place an emphasis on ethics. It also gives the green light for public companies to have some type of competitive bidding requirement in their internal control processes and procedures to mitigate the risk of fraud. Once a company decides to implement this procedure and it becomes part of their internal control documents, it must be followed in order for them to be SOX compliant.

Not only are public companies responsible for their own internal controls, but SOX also requires they take responsibility for the controls of their vendors and suppliers. They can either obtain assurance themselves or from a SAS 70 report. To complicate the matter though, privately-held companies are not legally obligated to comply with SOX. They would not have to provide a SAS 70 report unless contractually obligated to do so. 

Contractors may now have no choice but to bid or propose on the work at hand. This makes it imperative to understand their costs so they can remain competitive. Contractors may also find they are being asked for a SAS 70 report by SOX-compliant companies, which will entail a detailed review of the company’s internal controls.

Your accounting professional can answer questions you may have about working with SOX-compliant companies. He or she can assist you through the bidding process as well as assist in completing a SAS 70 report.

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