AIU in construction: what it is and how to calculate it
AIU stands for Administración, Imprevistos y Utilidad (administration, contingencies and profit): the indirect costs added to the direct cost of a Colombian construction contract. It comes with a tax rule many people get wrong: VAT is charged on the profit only.
01What it covers
The three letters
- Administration: site engineer, storekeeper, security, bonds, site office.
- Contingencies: a reserve for what cannot be foreseen, like rain or material shortages.
- Profit: what the contractor earns. It is the only part that pays VAT.
02Example
How to calculate it
Direct cost of COP 100,000,000 with 10 % administration, 3 % contingencies and 5 % profit:
- 01Administration: 10,000,000
- 02Contingencies: 3,000,000
- 03Profit: 5,000,000
- 0419 % VAT on profit: 950,000
- 05Total: COP 118,950,000
03VAT
AIU or full VAT
If the contract is not priced with AIU, full VAT applies: 19 % on everything. Same example, COP 119,000,000.
A contract is one or the other. The costliest mistake is mixing them, for example charging AIU and then VAT on the total.
04In BIW
How BIW does it
In BIW each contract is AIU or full VAT from the day it is created, and the percentages apply on every bill by themselves. Nobody rebuilds the formula, and the margin management sees is the real one.