Construction CFO and Controller Services for Contractors

A distributor can read its income statement and believe it. A contractor cannot, because revenue on a percentage-of-completion job is an estimate that depends on another estimate, the cost to complete, made by a project manager who is busy. The work-in-progress schedule is where those estimates are written down, tested, and turned into the over and under billings that make the balance sheet true. A contractor without a monthly WIP is reporting a number it has not checked, and every surety and lender knows it.

We build the WIP from contracts, approved change orders, job-cost detail, and billings, and then we reconcile it to the ledger every month so it is one set of books rather than two. Underbillings are the line we read first. An underbilling means one of three things: work was done and not billed, cost to complete is understated, or the job is losing money and nobody has said so. Each has a different fix, and the WIP review is where the team decides which it is.

Margin fade is tracked as a separate schedule: original estimated margin, current estimated margin, and the movement between them by job and by cause. Buyout that missed the estimate, self-performed labor over hours, unpriced change orders, general conditions that ran past the schedule, and weather or rework are named as categories, because a fade with a cause can be prevented on the next job and a fade without one cannot. Backlog gross profit, the margin already sold but not yet earned, is reported alongside so you know how many months of overhead are covered before the next award.

• Monthly WIP with contract sum, approved changes, cost to date, cost to complete, percent complete, earned revenue, billings, and over or under billing
• Over and under billing entries posted to the balance sheet each month
• Margin fade by job and by cause, month over month
• Backlog gross profit and months of overhead coverage

Job cost fails in predictable ways. The cost code list has 400 codes and the field uses nine. Subcontracts are entered when the first invoice arrives, so committed cost is a fiction until month four. Estimates are built in one structure and costs are captured in another, so estimate-to-actual comparison requires a spreadsheet nobody has time to build. Labor posts once a month at a burden rate someone set in 2019. Each of these makes the job-cost report something project managers ignore, and they are right to.

We rebuild the structure: a cost code list short enough to be used and consistent across every job, phases that match how estimating builds a bid, and a rule that every subcontract and purchase order is entered before the work starts so committed cost is known on day one. Estimate to complete becomes a monthly event with the project manager, the job-cost report, and a deadline, and the resulting cost to complete flows straight into the WIP. Estimating and accounting agree on the labor burden rate at least annually, which sounds like housekeeping and is worth two points of margin.

Change-order control is the second half. Owner change orders and subcontractor change orders live on separate logs with status, days outstanding, and dollars at risk, and work performed on a verbal approval is flagged as revenue at risk until the paper catches up. The rule is simple and hard: priced, signed, then performed, then billed, in that order. The log is reviewed at the monthly WIP meeting, and the pending column is the number that predicts next month's fade.

• A cost code list short enough for the field to use, consistent across jobs, and matched to the estimating structure
• Every subcontract and purchase order entered before the work starts, so committed cost is real from day one
• Monthly estimate-to-complete review with each project manager, with the job-cost report and a deadline
• Owner and subcontractor change-order logs with status, days outstanding, and dollars at risk

Retainage runs both directions on most contracts, and each direction needs its own ledger. Retainage receivable is earned money you cannot spend, aged separately from trade receivables, with release conditions and expected release dates by job, so it appears in the cash forecast on the week it will arrive rather than as a lump the CPA reclassifies in April. Retainage payable to subcontractors is matched to owner release, job by job, and never released early without a decision by the owner of the company.

Pay applications are a manufacturing process with a deadline. Cost cutoff, project-manager review, schedule-of-values update, lien waiver collection, stored-materials backup, and submission each get a date on a calendar that starts from the owner's draw meeting and works backward. Billing lag and collection lag are measured by job and by project manager and reported monthly, because a pay app that misses the draw meeting by one day misses the cash by 30.

The lien-deadline calendar is the part nobody assigns until something is lost. Preliminary notice deadlines, lien filing deadlines, and bond claim deadlines vary by state and by whether the project is public or private, and they run from dates that live in the field, not the office. We maintain the calendar by job with the dates your attorney confirms, tie it to the receivable aging, and flag every account that is approaching a deadline while still unpaid. Whether to file is a legal decision made with counsel. Knowing the date is a finance job, and we do it.

• Retainage receivable and retainage payable ledgers by job, with release conditions and expected dates
• Pay application calendar by owner, worked backward from the draw meeting
• Billing lag and collection lag by job and by project manager, reported monthly
• Lien and bond-claim deadline calendar by job and state, tied to the receivable aging

Labor is the largest cost most contractors control and the one most often mispriced. A fully loaded burden includes payroll taxes, workers' compensation by class code, health and retirement contributions, paid time off, small tools, training, and the unbillable hours between jobs. Contractors who estimate at a 25 percent burden and pay a 38 percent burden lose the difference on every hour and find out at year end. We calculate the real rate by classification, post labor to jobs weekly at that rate, and reconcile it to the payroll register every month.

Utilization is the second labor number: billable or job-charged hours as a share of paid hours, by crew, by technician, or by department. A service division at 62 percent utilization and an install division at 84 percent are two different businesses with two different overhead capacities, and pricing that treats them the same subsidizes one with the other. We report utilization weekly next to labor-to-estimate on each open job, so a foreman sees the hours against the budget on Friday rather than the margin against the estimate at closeout.

Owned equipment costs money whether or not it is on a job, and a contractor who charges nothing to jobs for equipment it owns outright is overstating job margin and understating the cost of the yard. We set an internal equipment rate by class that recovers depreciation or replacement, insurance, maintenance, and fuel, charge it to jobs by hours or days, and report the equipment company, whether it is a separate entity or a department, as its own P&L. The rate is compared to the rental market annually, which answers the buy-or-rent question with a number.

A surety underwriter reads working capital first, then the WIP, then the underbillings, then the relationship between the two. Bonding capacity is a function of those numbers and of how consistently they have been produced. We prepare interim statements in the surety's order, with retainage separated, over and under billings posted, and a backlog gross profit schedule attached, and we send the quarterly update before the agent asks. Program increases are conversations that begin from a schedule the underwriter has already seen three times.

The bank reads for covenants and, on asset-based facilities, the borrowing base. Covenant calculations are run monthly and forecast 13 weeks forward, so a tight quarter is discussed with the lender in week two rather than discovered in the compliance certificate. The 13-week forecast for a contractor is built from the jobs: pay app receipts by date, retainage releases, subcontractor payments under pay-when-paid terms, self-performed payroll, equipment notes, and line draws and paydowns. It is updated every Monday, and each week's variance is explained one line per job. Front-end mobilization on a large award, the moment most contractors first draw the line and most sureties first get nervous, is visible in the forecast before the contract is signed.

Systems carry all of this, and we work in yours. Our principal has worked in Timberline, now Sage 300 CRE, since production homebuilding, and has run multi-entity construction finance as CFO. We also work in Foundation, Procore for project data, and QuickBooks with a job-cost structure that does more than most owners expect. The system is rarely the first problem. The cost codes, the commitment rule, and the monthly WIP discipline are, and those can be installed in any of them.

• Sage 300 CRE (Timberline): job cost, commitments, WIP, and multi-entity consolidation
• Foundation: job cost, certified payroll, and equipment costing
• Procore: budget, commitment, and change-order data reconciled to accounting
• QuickBooks: cost codes, classes, and a WIP process that lives outside the software

A WIP schedule prepared once a year for the CPA is a history book. Prepared every month, it is a steering wheel.

The system above is the same for every contractor. The pressure points are not. A general contractor lives on the pay app calendar and the subcontract commitment log. An electrical contractor lives on copper pricing and stored materials. An HVAC company runs three businesses under one roof and has to make the busy season fund the slow one. A plumber bills rough-in, top-out, and trim on a builder's schedule. A remodeler holds deposits it has not earned and loses margin at the showroom. A specialty sub gets paid last and has to measure its exposure by general contractor.

Each trade has its own page, written for the finance problems that trade actually has, with the deliverables, the timeline, and the questions owners in that trade ask on a first call. The pages are not brochures with the trade name swapped in. They describe billing that matches how the work is staged, cost structures that match how the crews are paid, and the reporting that trade's lenders, sureties, and general contractors expect. Start with yours.

Contractors who run more than one trade, an HVAC company with a plumbing division, a GC that self-performs concrete, a specialty sub with a service arm, get a combined scope. The job-cost structure and the WIP are built once, with a segment for each business, so the owner can see which one earned the margin and which one consumed the cash. That question is usually the reason the owner called, and it is answered in the first monthly close under our process.

• General contractors: pay app calendar, sub retainage and lien waivers, subcontract commitments, bonding capacity (/construction-cfo/general-contractors)
• Electrical contractors: material price exposure, stored materials billing, prevailing wage and certified payroll, service versus construction margin (/construction-cfo/electrical-contractors)
• HVAC contractors: install, service, and maintenance-agreement P&Ls, seasonal cash, equipment deposits, technician utilization (/construction-cfo/hvac-contractors)
• Plumbing contractors: stage billing for rough-in, top-out, and trim, warranty reserves, builder pay cycles, cost per house (/construction-cfo/plumbing-contractors)
• Remodeling contractors: deposits and draw schedules, allowances and selections, change orders signed before work, job cost for 40 small jobs (/construction-cfo/remodeling-contractors)
• Specialty contractors: sub-tier retainage, pay-when-paid exposure by GC, unit-price costing, equipment rates, WIP by trade (/construction-cfo/specialty-contractors)