A few years back I was running a $1.2 million tenant improvement job for a regional bank. Solid client, solid scope, the kind of work where you think you know your numbers cold. On paper at month four, my PM handed me a job cost report showing 8% projected net margin. I signed the draw and went home feeling fine.
Three weeks later I sat down to do construction work in progress reporting for my surety renewal, and the actual numbers came together for the first time. Three change orders the GC's PM had told us were "approved verbally" never got signed. Cost-to-complete had drifted up $63,000 because of a wall framing issue nobody told the office about. Retainage I'd been counting as receivable was held an extra 60 days past contract terms. When the WIP math got run, that 8% margin job was losing $40,000 and the over-billing was masking it on the income statement.
That's the entire reason WIP reports exist. Without them, contractors don't know which jobs are making money and which jobs are quietly eating their cash. I've been doing WIP reports for my surety annually for 20 years, and monthly for my own sanity for the last 12.
What WIP Reporting Actually Tells You
A WIP report is a schedule that lists every open contract you have and reconciles four key numbers for each one: the contract value, the costs you've actually incurred to date, your projected total cost at completion, and the amount you've billed to date. From those four inputs, the report calculates your percentage of completion, your earned revenue, and whether you're over-billed or under-billed on the job.
The percentage-of-completion (POC) formula is straightforward:
% Complete = Costs Incurred to Date / Estimated Total Cost at Completion
So if you've spent $480,000 on a job and you project total cost at $800,000, you're 60% complete from a revenue recognition standpoint. If the contract value is $1,000,000, your earned revenue to date is $600,000. If you've actually billed $700,000, you're over-billed by $100,000. If you've billed $550,000, you're under-billed by $50,000.
Those over-billing and under-billing positions are the heart of WIP reporting. Both of them tell you something important about how the job is actually running.
Over-Billings: The Profit Cushion That Hides Losses
Most contractors over-bill on purpose, especially early in a job. You front-load your schedule of values, you bill heavy on mobilization and early-trade work, you collect cash before you've earned it. Over-billing is a legitimate cash flow tool — it funds your operations and reduces your need for credit lines.
But over-billing also hides losses. Here's why: if you've billed $700,000 against $600,000 of earned revenue, that $100,000 difference sits on your balance sheet as a liability called "Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts." On your income statement, you're only recognizing $600,000 of revenue, not $700,000. The cash came in, but the profit isn't recognized until you actually earn it.
Where this becomes a problem is when cost-to-complete creeps up and nobody catches it. If that $800,000 cost estimate quietly becomes $880,000 because of unsigned change orders or productivity losses, the math changes. Your % complete drops, your earned revenue drops, your over-billing position grows — and your projected job profit collapses. The cash in the bank doesn't change. The illusion of profitability does.
I've seen contractors run for 18 months on over-billings that masked losses on three or four major jobs. When the jobs finally closed out and the cost-to-complete updated to actual, the projected losses landed all at once — sometimes wiping out an entire year's profit on the financial statements.
The fix: update cost-to-complete weekly on every active job over $250,000. Not monthly. Weekly. If your PMs can't tell you in 30 seconds what their projected final cost is on every active job, you don't have a WIP system. You have a billing system pretending to be one.
Under-Billings: The Scope Creep Warning
Under-billing is the opposite problem. You've spent $480,000, you're 60% complete and should have earned $600,000, but you've only billed $480,000. That $120,000 gap shows up as an asset called "Costs and Estimated Earnings in Excess of Billings."
Under-billing is almost always a bad sign. It usually means:
- Unauthorized work. Owner's PM asked for something, you did it, and it never made it into a change order. You're carrying cost without contract authority to bill against it.
- Billing isn't keeping up. PM hasn't updated the schedule of values, hasn't submitted the pay app, or the GC is holding it up.
- Pending change orders. You're carrying the cost of changed work but can't bill until the CO is signed.
I treat any under-billing position above 5% of contract value as a red flag. It's almost always recoverable, but it requires direct intervention — getting change orders signed, fixing the billing schedule, or having a hard conversation with the owner.
For the broader picture beyond WIP, the 5 financial metrics every contractor should track covers backlog, working capital ratio, and the other surety metrics that go on the same package every year.
The Cost-to-Complete Number Is Everything
The entire WIP calculation hinges on your cost-to-complete estimate. Get that wrong and every other number on the report is fiction.
Most contractors do cost-to-complete badly. They take the original budget, subtract what's been spent, and call the remainder their cost-to-complete. That's not a real estimate — that's wishful thinking based on a budget you wrote before you knew anything about actual job conditions.
A real cost-to-complete estimate requires the PM to sit down each week and answer these questions for each remaining cost code:
- What scope is genuinely left to do? Not what's left in the budget — what's left in the work.
- What are unit costs actually running at? If you bid framing labor at $1,800 per square and you're actually running $2,100, that delta has to project forward through the remaining scope.
- What change orders are coming that aren't yet in the contract? Both billable additions and uncompensated overruns.
- What weather, supply, or labor risks remain? Realistic contingency, not a wish.
When my PMs do this properly, the number bounces weekly — up when we find a problem, down when we lock in a favorable buyout. That bouncing is healthy. A gut check: run your projected margin through the markup and margin calculator and ask if it passes the smell test for what you're seeing in the field. If the field looks like a 4% job and the WIP says 11%, something is wrong with your cost-to-complete.
The Three WIP Mistakes I See Most
After 20 years of doing these reports, the same errors come up over and over. If you avoid these three, you're ahead of 80% of small and mid-size contractors.
Mistake 1: Treating retainage as cash
Retainage is a contract receivable, not cash. Typically held until 60-90 days after substantial completion. On a $1 million contract with 10% retainage, that's $100,000 you've earned but won't see for months — sometimes a year — after the job closes. I've watched contractors build cash forecasts around retainage like it's coming in next week, then run out of working capital when release dates slip. On your WIP, list retainage as a separate line item with what's been held, released, and projected release date.
Mistake 2: Ignoring change orders that haven't been signed
If your PM is doing work based on a verbal change order, an email, or a "we'll true it up at the end" handshake, that work is sitting in your cost column with no offsetting contract value. Some contractors push pending CO amounts into the contract value column on the WIP. I don't. Pending isn't approved — approved means a signed document. Until then, the cost stays in the WIP without contract offset, and the PM lives with the pressure to get the paper signed. That pressure is the right pressure.
Mistake 3: Updating the WIP only when the bonding renewal is due
A WIP you only run once a year for your surety is a financial autopsy, not a management tool. By the time you see a losing job in an annual WIP, the loss is locked in and your only choice is how to absorb it. Run monthly at minimum — you'll catch the $40,000 loss when it's still $8,000 and there's time to recover. Quarterly is the legal floor for most sureties. Weekly cost-to-complete updates on major active jobs is what the best contractors do.
What Tools to Use
You don't need expensive software to do construction work in progress reporting 2026 correctly. A well-built Excel template handles WIP for contractors up to $10-15M in revenue. Above that, dedicated construction accounting software earns its cost.
- Excel WIP template. Free, flexible, requires discipline. CFMA publishes a standard template that mirrors what most sureties want.
- QuickBooks Contractor Edition with a WIP add-on. $2-8M range.
- Sage 100 Contractor or Sage Intacct Construction. $8-30M, native WIP pulled from job cost.
- Foundation, Viewpoint Vista, or Procore + Procore Accounting. $25M+ multi-entity reporting.
The discipline matters more than the software. Build the cost estimator outputs from your bids into job setup so your WIP starts from the same numbers you bid. The contractors who never have surprises at year-end built the WIP discipline early. The ones hammered with surprise losses every December treat WIP as paperwork for the surety, not as a management report for themselves.
Frequently Asked Questions
What is a WIP report in construction?
A work-in-progress report is a schedule that lists every open construction contract a contractor holds and reconciles contract value, costs incurred, estimated total cost, and amounts billed to calculate percentage of completion, earned revenue, and over- or under-billing positions for each job. It is the primary financial management tool for contractors using percentage-of-completion accounting and a required submission for most surety renewals.
How often should a contractor update their WIP report?
At minimum, monthly for management review. Quarterly is typically the surety requirement floor for bonded contractors. The best contractors update cost-to-complete weekly on every active job over $250,000 and produce a full WIP report monthly. Annual-only WIP reporting is a financial autopsy that catches problems too late to do anything about them.
What is the percentage-of-completion method?
Percentage-of-completion is the revenue recognition method required for most long-term construction contracts under US GAAP and IRS rules. Revenue is recognized as work progresses based on the ratio of costs incurred to total estimated costs. Required for bonded contractors and for any contractor with average annual gross receipts above the small contractor threshold (currently $30 million in 2026).
What does it mean to be over-billed on a construction job?
You've invoiced more revenue than you've earned based on actual work completion. Billed $700,000 against $600,000 of earned revenue at 60% completion means over-billed by $100,000. Appears as a balance sheet liability called "Billings in Excess of Costs and Estimated Earnings." Over-billing improves cash flow but can hide losses if cost-to-complete drifts upward without anyone catching it.
What does it mean to be under-billed on a construction job?
You've earned more revenue than you've invoiced. Usually signals unauthorized scope work, billing schedules that haven't kept up with field progress, or pending change orders that haven't been approved. Appears as a balance sheet asset called "Costs and Estimated Earnings in Excess of Billings." Any job under-billed by more than 5% of contract value deserves immediate attention.
Why does my surety want WIP reports?
Sureties use WIP reports to assess your ability to complete bonded work without running out of working capital. They look at your aggregate over-billing position (a leading indicator of profit fade), under-billing concentration, trend of projected job margins vs. bid margins, and backlog size relative to working capital and equity. A clean WIP is the most important document in your surety renewal package.
READ NEXT: The 5 Financial Metrics Every Contractor Should Track
