A construction WIP report lists every open job on one line and answers one question per line: have you billed more or less than the work you have actually earned? That gap is called over- or under-billing. It is the number your bank and your bonding company look at first, because it tells them whether your cash is real and whether your job estimates are honest. It is calculated from four inputs: contract value, estimated total cost, cost to date and billed to date. Three of those come from accounting. The fourth, estimated total cost, comes from whoever runs the job. That is the one that makes the report true or false.

What is on the report

WIP stands for work in progress. Accountants often call the report the WIP schedule. It is a table with one row for each job not yet closed out. The columns vary by CPA, but these are the ones that matter:

  • Contract value: the original contract plus approved change orders. Pending ones are not included.
  • Estimated total cost: what the job will cost when it is finished. It is cost to date plus estimated cost to complete.
  • Estimated gross profit: contract value minus estimated total cost.
  • Cost to date: every dollar posted to the job through the report date, covering labor, materials, subs and equipment.
  • Percent complete: cost to date divided by estimated total cost.
  • Earned revenue: percent complete times contract value.
  • Billed to date: the total of every pay application or invoice sent, including billed retainage.
  • Over/(under) billing: billed to date minus earned revenue.
  • Cost to complete and remaining backlog: what is left to spend and what is left to earn.

Nothing on the report is a physical measurement. Percent complete is not the superintendent's walk-through estimate. Under the cost-to-cost method, which the formula above uses, it is a ratio of dollars. That one fact explains almost everything odd about the report.

How over/under is calculated, using one job

Take a single job on a $1,200,000 contract with an estimated total cost of $1,000,000. Through month-end, $400,000 of cost has been posted and $550,000 has been billed.

  1. Percent complete: $400,000 ÷ $1,000,000 = 40%.
  2. Earned revenue: 40% × $1,200,000 = $480,000.
  3. Over/under: $550,000 billed − $480,000 earned = $70,000 overbilled.
  4. Gross profit to date: $480,000 earned − $400,000 cost = $80,000. The job is on track for $200,000 at completion.

Now suppose a foundation redesign and a framing package that came in high mean the job will really cost $1,100,000, and nobody updated the estimate. Run the numbers again with the true figure:

  • Percent complete drops to 36.4%.
  • Earned revenue drops to $436,364.
  • Overbilling rises to $113,636.
  • Projected gross profit falls from $200,000 to $100,000.

Cost to date is the same and billings are the same. On paper it is a different company.

That is the whole mechanism. The over/under column is not an accountant's opinion of your billing habits. It is a check on whether your estimated cost at completion is believable.

Overbilling: cash you hold but have not earned

Overbilling shows up on the balance sheet as a liability, usually labeled billings in excess of costs and estimated earnings. It means the owner has paid or been invoiced for more work than your costs say you have done. Several things produce it:

  • A front-loaded schedule of values.
  • Billing for stored materials.
  • A mobilization line paid up front.

Moderate overbilling is normal, and lenders do not panic at it. What they check is whether the cash is still there. Say $113,636 has been collected ahead of the work and the bank account does not show it. That money has gone into overhead, another job or the owner's draw. The remaining work on this job will then be built with cash you no longer have. This is how contractors who look profitable run out of money in the back half of a busy year.

Overbilling is also where an unrevised estimate hides. In the example, the $43,636 jump in overbilling is the overrun nobody wrote down.

Underbilling: an asset you may have to prove

Underbilling is the reverse: earned revenue is higher than billings. It sits on the balance sheet as an asset, labeled costs and estimated earnings in excess of billings. There are two ways to get there, and the report cannot tell them apart.

  • Honest underbilling: the work is done and simply not billed yet. A pay app went out late, retainage terms lag, or change order work is finished but the change order is unsigned. The money is real. It is just sitting in your field instead of your bank.
  • Overrun underbilling: costs are running ahead of plan. Cost-to-cost treats every dollar spent as progress. Overspending pushes percent complete up, which pushes earned revenue up, which makes you look underbilled. The report credits you with revenue for money you lost.

This is why a surety underwriter looking at a large underbilling does not see an asset. They see a question: will this ever be collected, or is it a loss that has not been recognized yet? If you cannot answer that job by job, expect them to treat the number with suspicion when they work out how much work you can take on.

Unsigned change orders are the most common source of honest underbilling, and the easiest to fix. Cost on extra work lands in cost to date the day it is spent. Contract value does not move until the change order is approved. Every week a change order stays a handshake, the report shows that job drifting further into underbilling. The case for writing them down is made in why verbal change orders fail on memory.

Estimated cost to complete is the only number on the report that a person types in rather than a system posts. Suppose the PM leaves it at the original budget. Then percent complete, earned revenue, over/under and gross profit are all wrong. The profit columns stay wrong in the flattering direction until the job is nearly finished. At that point the whole overrun lands in one quarter. Revise the figure every month, on every open job, even when the answer is 'no change'.

Why your bank and your surety start here

A bank reading your financial statements wants to know whether the income is real. A surety wants to know two things: whether you can finish the work you already have, and how much more you can take on. The over/under line speaks to both questions. That is why underwriters tend to open the WIP schedule before the income statement.

Here is what they look for:

  • Profit fade: estimated gross profit on the same job shrinking from one report to the next. A job bid at 18% that shows 15%, then 11%, then 7% tells them your estimates slide. They apply that conclusion to everything in your backlog.
  • Large underbillings, for the reasons above.
  • Overbilling not matched by cash: billings in excess on the balance sheet with no corresponding cash or receivable.
  • Closed-job surprises: jobs that finish at a margin well below where the last WIP showed them.
  • Consistency: whether the numbers reconcile to the general ledger and to last quarter's report.

None of this is about whether you are profitable this year. It is about whether your reported profit can be trusted. A builder with modest margins and a WIP that never surprises is easier to bond than one with strong margins and a history of fade.

The parts a builder owns

Your CPA assembles the schedule and signs the statements. The inputs come from the field and the office, and four of them decide whether the report is honest:

  1. Cost coded to the right job, weekly. Cost posted to the wrong job inflates one job's percent complete and deflates another's. Month-end cleanup is too late. The reasoning is in job costing works weekly, not at month-end.
  2. Estimated cost to complete, revised by the person running the job. It should not be the original budget carried forward.
  3. Change orders signed and entered as they happen, so contract value keeps pace with cost.
  4. Pay applications sent on schedule, so honest underbilling does not pile up.

In BuilderSolve, the estimate becomes the job budget, and actual costs read in from QuickBooks against it. Budget vs. actual by job then shows cost to date against estimated cost, line by line. QuickBooks stays the book of record. The platform reads from it and does not post back. That gives the PM a place to see an overrun forming while there is still time to revise the estimate. It does not replace the CPA who prepares the WIP schedule your surety receives, and it should not.

Some builders have nobody to keep those inputs current. For them, BuilderSolve's finance team handles AR/AP, change orders and QuickBooks upkeep. That is the upstream work a WIP schedule depends on.

What to do before the next one

Pull your last construction WIP report and do three things with it before the next quarter closes.

  1. Find the three jobs with the largest underbilling. For each one, write down which kind it is: unbilled work or overrun. If you cannot tell, that is the answer.
  2. Compare estimated gross profit on each open job to the previous report. Any job that dropped more than a couple of points needs a revised cost to complete and a written reason.
  3. Check total overbillings against the bank balance. If overbillings exceed cash on hand, find out where the difference went before your underwriter asks.

Then set the habit. The PM revises cost to complete monthly. Change orders get signed before the work. Costs get coded weekly. A job-level reports view that puts budget against actual for every open job makes the monthly revision a review rather than a reconstruction. The next construction WIP report your bank reads will be one you already understand.

Common questions

what does underbilling mean on a WIP report

Underbilling means your earned revenue is higher than what you have billed. Earned revenue is percent complete times contract value, and underbilling appears on the balance sheet as an asset. It can mean finished work that has not been invoiced yet, such as unsigned change order work. It can also mean costs are running over plan, because cost-to-cost counts every dollar spent as progress. Sureties treat large underbillings with caution until you explain them job by job.

is overbilling bad in construction

Not by itself. Overbilling is a liability: you have billed more than you have earned. Moderate overbilling is common on jobs with front-loaded schedules of values or stored-material billing. It becomes a problem when the cash collected is no longer in the bank because it was spent on overhead, other jobs or draws. The remaining work then has to be funded from somewhere else, and lenders check for exactly that.

how is percent complete calculated on a WIP schedule

Under the cost-to-cost method, percent complete equals cost to date divided by estimated total cost at completion. It is a ratio of dollars, not a field estimate of physical progress. That makes it only as accurate as the estimated total cost. If the estimate to complete has not been revised for known overruns, then percent complete, earned revenue and gross profit to date will all be overstated.

how often should a contractor update WIP report numbers

Update the inputs monthly, whatever schedule your CPA uses for the formal report to the bank and surety. The person running each open job should revise its estimated cost to complete every month, even if nothing changed. Waiting for the quarter or year-end means overruns get discovered all at once. That shows up on the schedule as profit fade, which is the pattern underwriters weigh most heavily.