Contract Developers for Capitalizable Software Development Projects

Contract developers only help your capitalization case if their hours are traceable. That’s the catch. If you’re a CFO, controller or VP of Engineering planning an internal-use software build, the staffing firm’s paperwork matters as much as the developer. Costs for internal-use software may be capitalizable once a project clears the probable-to-complete bar in A S U twenty twenty-five oh six. Your controller makes that call. Not your staffing firm.

The old rule split a software project into three stages. Preliminary, development, and post-implementation. Only development-stage costs were eligible to capitalize. FASB scrapped that in September twenty twenty-five. The update swaps the stages for one probable-to-complete threshold, applied once and checked again if the facts change. It applies to all entities for annual periods beginning after December fifteenth, twenty twenty-seven. Early adoption is allowed. That sounds far off. It isn’t, if you’re already scoping a multi-quarter build. And none of it makes a contractor’s hours capitalizable on its own. Your controller still has to run the test.

Three things make a contractor’s hours usable in a capitalization memo. Skip one and the file comes back for rework. A project code on every line, not a department code. Descriptions that name the work. Backend A P I development for the order module passes. General dev work gets kicked back. Then weekly sign-off, before the invoice. KORE1 builds the time tracking into week one. Not month three, when finance starts asking questions and the paper trail is already thin. One project code per build, shared with your controller before the contractor’s first day. A short list of pre-approved task descriptions. And one named manager who signs every Friday, before it becomes an invoice line.

Now the money. Budgeting a capitalizable build means knowing what the team costs. Nationally, mid-level contract software engineers bill ninety-six to a hundred and twenty-two dollars an hour. The median is a hundred and eight, per the KORE1 Contract Rate Index for the fourth quarter of twenty twenty-six. At the median, a three-month contract at forty hours a week runs about fifty-six thousand one hundred dollars. Six months is about a hundred twelve thousand two hundred. Senior engineers run higher, with a median of a hundred thirty-one dollars an hour. QA testers and project managers sit lower. Those national figures are modeled from public wage data plus a twenty-four percent employer burden. The full ladder is on the page.

Devin Hornick, a KORE1 partner, draws the line this way. The contract allows that company to write it off as a cap ex, if they’re working on a development project. And on the flip side. If they’re cap ex, that’s wonderful. If they’re op ex and they’re sitting on your budget, I’m not sure if they’re the greatest contractor to keep. A contractor whose hours never clear the test still shows up on your P and L every month. That’s not a reason to panic. It’s a reason to ask, before the engagement starts, whether the work is project-coded or just general support dressed up as one. KORE1 bills hourly and keeps the timesheets clean. That’s it. We don’t issue an accounting conclusion, and we won’t tell you a contractor’s hours are capitalizable.

You might be wondering whether KORE1 will tell you if your project qualifies. No. We hand you clean, project-coded timesheets and a sample invoice layout. The qualification decision under A S C three fifty forty belongs to your controller, your auditor, or outside counsel, on your facts. And is a cap ex contractor better than an op ex one? Not automatically. An op ex contractor can still be the right hire. The question worth asking is whether the role is actually project work. Scoping a capitalizable build? Ask for a bill rate quote for a project-coded contract dev team. A recruiter will price it and send a sample timesheet and invoice layout for your controller to review. It’s all at KORE1.com.