18Under Brazilian law, when a service is performed through the supply of labour, the hiring company withholds 11% of the gross invoice amount and pays it to Social Security on behalf of the service provider by the 20th of the following month (Law 8,212/1991, art. 31).
For a builder, this means that part of what it bills never passes through its bank account: it arrives as a credit to be offset.
Added to the time it takes to approve a progress measurement, the tax withheld by the client and a payroll that falls due before payment, this arithmetic decides whether a site pays for itself or needs financing. The person in charge of it is the CFO, the chief financial officer.
This text describes the seat from the side of those who build: contracts, progress measurements, payroll, subcontractors and taxes. The reading is C&S Engenharia's, marked as such; the laws cited appear in the references at the end.
Three jobs coexist in a construction company's finance department. Paying and collecting, which is treasury. Recording events and closing the accounts, which is accounting.
And deciding, ahead of time, how the company will cross the gap between spending on site and getting paid by the client, which is the CFO's job.
Accounting has an owner defined by law. The Civil Code requires a business company to keep an accounting system with uniform bookkeeping, "in correspondence with the respective documentation", and an annual balance sheet (art. 1,179). Bookkeeping is the responsibility of a legally qualified accountant (art. 1,182).
The same code says that the staff in charge of bookkeeping are liable to the company for negligent acts and, towards third parties, jointly with the company for wilful ones (art. 1,177, sole paragraph).
The accountant answers for the record. The CFO, when holding an officer's position, answers for the decision.
In C&S Engenharia's reading, a builder's CFO carries three permanent questions. How much cash each site will consume until the next measurement is paid. How much of the billing is withheld, and when it comes back. And whether the contract price still covers the cost to finish.
A builder pays payroll on the legal calendar, suppliers on the agreed terms and subcontractors according to their own measurements.
It gets paid by the client when its own measurement is approved and settled. Between the two ends there is always a gap, and that gap defines each site's working capital.
The law guarantees the builder the right to be paid in parts. The Civil Code says that, if the work has distinct parts or is of a kind determined by measure, the contractor may ask for it to be checked by measure and "demand payment in proportion to the work performed" (art. 614).
The measurement also carries an important effect. What has been paid is presumed checked (§ 1). And what has been measured is presumed checked if, within thirty days of the measurement, the owner of the works or whoever oversees them does not report flaws or defects (§ 2).
Two things follow for the CFO. First: a well-documented measurement, with criteria set out in the contract, is a financial instrument, not just a technical one.
Second: an open-ended dispute is a cash risk. In C&S Engenharia's reading, the contract should state how long the client has to approve a measurement and what happens to the undisputed part.
Adding every site into a single cash pool hides the site that consumes what the others generate.
A cash flow per site separates, month by month, what each contract will receive, already net of withholdings, and what it will spend on payroll, materials, equipment and subcontractors. The worst cumulative balance is that site's working capital requirement.
Accounting moves alongside. NBC TG 47, the Federal Accounting Council's standard on contract revenue, equivalent to CPC 47 and IFRS 15, allows revenue to be recognised over time when the company's performance creates or enhances an asset that the customer controls as it is created (item 35, b). The typical case is a building raised on the client's land.
In that case, revenue follows the measure of progress on the works (item 39), and one of the accepted methods uses costs incurred relative to total expected costs (item B18). With this method, the cost to complete starts to determine each month's revenue. An outdated budget becomes a wrong result.
The same standard prevents waste from passing as progress. A company should not recognise revenue based on costs of "unexpected amounts of wasted materials, labour or other resources" (item B19, a).
And NBC TG 16, on inventories, sends abnormal waste straight to expense (item 16, a). The losses measured by the storekeeper feed into this calculation.
A construction invoice does not always turn into cash at full value. Two withholdings come up often, each with its own rules, and the CFO must forecast both in each contract's cash flow.
The first is the social security withholding. When services are hired through the supply of labour, the client withholds 11% of the gross invoice and pays it on behalf of the provider (Law 8,212, art. 31).
The law includes "labour-only contracting" in this situation and leaves the full list to regulation (§ 4, III). Whether a given contract is subject to withholding is a question for the tax adviser, contract by contract.
The amount withheld is shown separately on the invoice and may be offset, by any of the provider's establishments, against the contributions due on its own payroll (§ 1).
Whatever cannot be offset goes to a refund claim (§ 2), meaning it sits idle until the Federal Revenue Service pays it back. The law also requires separate payrolls for each client (§ 5), which forces the payroll to be split by site.
The second is ISS, the municipal services tax. Complementary Law 116/2003 lists the execution of building works by cost-plus contract, contract or subcontract (item 7.02) and requires the tax to be paid where the works are carried out (art. 3, III).
A corporate client that takes this service is liable for the tax (art. 6, § 2, II), even if it did not withhold it (§ 1). When the client withholds, the amount comes off the payment.
The value of materials supplied by the provider is excluded from the ISS tax base (art. 7, § 2, I). Separating services from materials on the invoice, with documents that support the split, changes the tax and therefore the net value of the measurement.
| Withholding | Legal basis | What the CFO tracks |
|---|---|---|
| Social security, 11% | Law 8,212/1991, art. 31 | Whether the contract qualifies, separate line on the invoice, offset against the month's payroll and balance claimed as a refund |
| ISS on the works | Complementary Law 116/2003, arts. 3, III, 6, § 2, II, and 7, § 2, I | Municipality of the site, withholding by the client, materials outside the base |
| Guarantee for joint social security liability | Law 8,212/1991, art. 30, VI | Amount the client may hold back until the builder proves the site's contributions were paid |
Law 8,212 chains the site's social security liability. The owner, the developer and the owner of the works are jointly liable with the builder, "and these with the subcontractor", for obligations to Social Security, with no benefit of order (art. 30, VI).
In plain terms: if the subcontractor does not pay, the tax authorities may collect from the builder, without first pursuing the subcontractor. The law preserves the right of recourse and allows amounts owed to the contractor to be withheld to secure those payments.
That is why, in C&S Engenharia's reading, paying a subcontractor calls for three checks: the measurement approved by engineering, the invoice with the correct withholdings and proof of the previous month's contributions.
The first comes from the site; the second, from supply management; the third, from the site administrator. The CFO receives all three and only then releases payment.
The same reasoning works from the top down. A builder hired by a developer knows that the developer is also jointly liable with it. Paying contributions on time and delivering the proof together with the measurement removes the client's reason to hold back payment.
Before any spreadsheet, the contract has already allocated the risk. Law 4,591/1964, which governs real estate developments, describes the regimes.
In a fixed-price contract, the price cannot be adjusted, "regardless of the variations in the actual cost of the works" (art. 55, § 1). In an adjustable-price contract, the price changes by the indices and on the dates set out in the contract (§ 2).
Under the administration regime, also called "at cost", the full cost falls on the purchasers, invoices are issued in the name of the purchasers' condominium and the money sits in condominium accounts (art. 58, I and II).
Cost estimate reviews take place at least every six months, jointly between the representative committee and the builder (art. 60).
The committee may examine the trial balances the builder prepares, with the condominium's receipts and expenses, and approve or challenge them (art. 61, a).
Under administration, therefore, the builder's CFO reports on money that does not belong to the builder, and must keep it apart from the company's own cash from day one.
When the builder works for a developer, there is also a schedule risk. The law makes the developer answer to buyers for unjustified delay, "with a right of recourse against the builder" if the builder is at fault (art. 43, II).
For the CFO, a late site is not just the cost of an idle site: it can come back as a claim from the client.
| Contract regime | Who bears rising costs | What the CFO controls |
|---|---|---|
| Fixed-price contract | The builder (art. 55, § 1) | Budget with a risk reserve, and early purchases when cash allows |
| Adjustable-price contract | The client, to the extent of the index; the builder, for the gap between index and actual cost (art. 55, § 2) | Monthly distance between the contract index and the cost of the works |
| Administration, at cost | The purchasers (art. 58) | Accounts and invoices in the condominium's name, trial balances to the committee (art. 61, a) and six-monthly cost review (art. 60) |
Law 9,718/1998 allows companies with total gross revenue of up to R$ 78 million in the previous year to opt for the presumed-profit regime (art. 13) and makes the actual-profit regime mandatory above that limit (art. 14, I). The presumed-profit option holds for the whole calendar year (art. 13, § 1).
In C&S Engenharia's reading, this choice is not made by rule of thumb. It depends on the portfolio of works expected for the year, the budgeted margins and the weight of inputs in the cost, numbers that only the per-site cash flow provides with some precision.
A portfolio growing close to the limit calls for a simulation before January, not after.
A builder that also develops property has a third route, limited to the development. The special regime of Law 10,931/2004 requires a segregated estate and taxes, in a single payment, 4% of the monthly revenue received by that project (arts. 2 and 4). IncorpBuilding covers the CFO seat from the developer's side, where that regime weighs more.
The general rule protects those who manage. An officer is not personally liable for obligations taken on in the company's name through a regular act of management (Law 6,404/1976, art. 158). The exceptions, however, almost all pass through finance.
The National Tax Code makes directors and managers personally liable for taxes that result from acts exceeding their powers or breaching the law, the articles of association or the bylaws (art. 135, III).
In a construction company's finance department, withholdings and payment slips are where this rule comes closest to the CFO's desk.
The Civil Code adds two rules. Officers are jointly liable for fault in performing their duties (art. 1,016). And where assets are commingled, a court may extend obligations to the assets of officers and partners who benefited (art. 50).
The law describes commingling precisely: the company repeatedly paying the obligations of a partner or officer, or transferring assets without consideration (art. 50, § 2, I and II).
Finally, omission. An officer answers for another's wrongdoing if complicit, negligent in discovering it or, knowing of it, failing to act (Law 6,404, art. 158, § 1). A reconciliation that nobody does is the shortest road to negligence in discovering.
When the Brazilian Securities and Exchange Commission (CVM) issued guidance to listed developers in 2018, it listed among the control failures reported by auditors the lack of segregation of duties and the absence of reconciliation of balances involving construction spending and bank statements.
The warning was written for developers, but it describes a builder's risk just as well.
The defence is the same in every case: the care and diligence of someone looking after their own business (Civil Code, art. 1,011), turned into routine.
Company accounts kept apart from partners' accounts, payment slips checked against payroll, contracts that say who approves what, and a record of the reason for each exception.
In the structure C&S Engenharia describes, the CEO runs the company and its execution within the agreed direction; the CFO and the COO, the chief operating officer, report to the CEO, each in their own area.
In structures that have a CVO seat, that seat looks after the long term and the direction: how much debt the company accepts, what size of portfolio it pursues, how much equity it keeps. Those decisions go up with the CFO's numbers and come back as limits the CFO controls.
The CFO is not on site, and does not need to be, as long as the information arrives. Four support seats make it arrive.
When one of these lines fails, the CFO keeps deciding, only with last month's number. In C&S Engenharia's reading, this first shows up as a measurement billed below what was executed, or as a payment made before the check.
The example is hypothetical. The assumptions are the author's, chosen to make the arithmetic easy, and do not describe a real site. A builder measures R$ 800 thousand in a month, of which R$ 500 thousand is services and R$ 300 thousand is material it supplied.
The contract is subject to the social security withholding, with no deductions, and the municipality where the works are located charges ISS at 3%, withheld by the client.
| Assumption or result | Measurement approved on time | Measurement approved 30 days late |
|---|---|---|
| Amount measured (assumption) | R$ 800,000 | R$ 800,000 |
| Social security withholding of 11% on the gross amount | R$ 88,000 | R$ 88,000 |
| ISS withheld: 3% on R$ 500 thousand of services (assumption) | R$ 15,000 | R$ 15,000 |
| Net amount that reaches the bank account | R$ 697,000 | R$ 697,000 |
| Extra days financing the works | zero | 30 |
| Cost of financing the delay (assumption: 2% a month) | zero | R$ 13,940 |
| Margin on the measurement (assumption: 8% of R$ 800 thousand) | R$ 64,000 | R$ 50,060 |
The calculation: R$ 800 thousand minus R$ 88 thousand minus R$ 15 thousand leaves R$ 697 thousand net.
Financing R$ 697 thousand for one month at 2% costs R$ 13,940, or 21.8% of the R$ 64 thousand margin on that measurement. One month's delay in approval eats more than a fifth of the month's result.
The withholding has a second effect. If the builder's payroll contributions for the month total R$ 60 thousand (assumption), only that amount is offset; the other R$ 28 thousand goes to a refund claim and sits idle until it is returned (Law 8,212, art. 31, §§ 1 and 2).
In a company with a small own payroll and a lot of billed services, that balance grows month after month.
Both losses have the same remedy: measurement criteria and approval deadlines written into the contract, payroll split by site and a cash flow that starts from the net amount, not the gross.
None of the laws cited requires a specific qualification for the seat. Bookkeeping needs a qualified accountant (Civil Code, art. 1,182) and each site needs a technical lead, but the finance directorship does not. The CFO must understand measurements, contracts and construction costs well enough to ask engineering the right questions and to notice when the answer does not add up.
It is not a cost; it is an advance. The amount withheld appears separately on the invoice and is offset against contributions on the builder's own payroll (Law 8,212, art. 31, § 1). Whatever cannot be offset goes to a refund claim (§ 2). The real cost is financial: the money that sits idle between the withholding and the offset or the refund.
Under the Civil Code, what has been measured is presumed checked if, within thirty days of the measurement, the owner of the works or whoever oversees them does not report flaws or defects (art. 614, § 2). And what has been paid is presumed checked (§ 1). That is why it pays to document each measurement and the date it reached the client.
Yes. Law 8,212 makes the builder jointly liable with the subcontractor for obligations to Social Security, with no benefit of order (art. 30, VI). The law allows amounts owed to be withheld to secure those payments and preserves the right of recourse. Checking the payment slip before paying is the practical way not to inherit the debt.
The CEO runs the company and its execution within the agreed direction and answers for the whole; in structures that have a CVO seat, the long term and the direction stay with it. The CFO answers for the money: cash, credit, taxes, accounting and controls. The CFO supports the others' decisions with numbers and warns when one of them no longer fits the cash.
By Raphael Schifino, CVO
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