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The contract with the customer

A contractor enters into a contract to build a hospital for a customer. The contractor is responsible for the overall management of the project and identifies various promised goods and services, including engineering, site clearance, foundation, procurement, construction of the structure, piping and wiring, installation of equipment, and finishing.

Considerations in determining whether the goods and services are distinct:

 The promised goods and services are capable of being distinct because the customer can benefit from the goods and services either on their own or together with other readily available resources. This is evidenced by the fact that the contractor’s competitors will regularly sell many of these goods and services separately to other customers. In addition, the customer could generate economic benefit from the individual goods and services by using, consuming, selling, or holding those goods or services.

 The promises to transfer the goods and services are not separately identifiable as evidenced by the fact that the contractor provides a significant service of integrating the goods and services (the inputs) into the hospital (the combined output) for which the customer has contracted.

Conclusion

The criterion has not been met for the goods and services to be considered distinct, and therefore the contractor will account for all of the goods and services in the contract as a single performance obligation. To put another way, the customer entered into a contract with the contractor to a hospital and without the engineering, site clearance, foundation, procurement, construction of the structure, piping and wiring, installation of equipment, and finishing, the hospital could not have been built.