Under ASC 606 the transaction price includes amounts that are uncertain, but only to the extent it’s probable that a significant reversal won’t occur when the uncertainty resolves (the “constraint”, ASC 606-10-32-11). In construction, typical variable consideration includes unapproved or unpriced change orders, claims, early-completion bonuses, GMP shared savings, and liquidated damages (which reduce the price).
Why it matters
Including a claim in the contract price lifts earned revenue and margin immediately. If the owner later rejects it, the reversal hits a later period as fade. Documentation of the estimate and the reason for the constraint is what auditors ask for.
Worked example
A T&M contract with a $50,000 not-to-exceed has $6,320 of work over the cap on approved tickets (illustrative). Until the owner approves a change, it’s constrained to $0 of revenue.
Common mistakes
- Booking unapproved changes at full value.
- Forgetting to reduce the price for probable liquidated damages.
How os.construction handles it
The accounting preview does not track variable consideration yet; the WIP schedule is planned. See Job cost and WIP.