Construction CFO Services for Specialty Contractors

A specialty contractor's largest receivable risk is not a slow customer. It is a general contractor who has not been paid by an owner who has not been funded by a lender. We build an exposure report by GC: open receivables, retainage held, pending change orders, unbilled work, and the pay-when-paid or pay-if-paid language in each subcontract, reviewed with your attorney for what it actually means in your state. The report ranks GCs by total exposure and by their own days-to-pay history from your ledger, which is a more honest number than the one in the contract.

Retainage is tracked by job from the first pay app to the final release: amount held, contractual release conditions, projected release date, and the status of the closeout documents the GC will require before releasing it. Retainage receivable is separated from trade receivables on the balance sheet so nobody mistakes it for cash arriving next month. Preliminary notices and lien deadlines are calendared per job, because the right to lien is only useful before it expires. A specialty contractor with 10 percent retainage on 20 jobs has an interest-free loan outstanding to 20 general contractors. The ledger at least tells you which ones.

• Exposure report by GC: receivables, retainage, pending changes, unbilled work, and contract terms
• Days-to-pay history by GC from your own ledger
• Retainage ledger with release conditions, projected dates, and closeout document status
• Preliminary notice and lien deadline calendar by job

Trade contractors bid in units: squares of roofing, cubic yards or square feet of concrete, sheets or square feet of drywall, gallons or square feet of paint, tons of steel, square feet of glazing. The estimate was built in units times a production rate times a crew cost, plus material per unit. We set the cost codes to match that structure so the job cost report shows cost per unit installed against the bid unit cost, by phase, every week. A dollar-only report tells you the job is over budget. A unit report tells you whether it is the production rate, the material price, or the quantity.

On lump-sum contracts, the same unit data drives the schedule of values and the percent complete on the pay app, so billing follows installed quantities rather than the PM's estimate of how it feels. On unit-price contracts, field-measured quantities are reconciled to the GC's or owner's quantities each period before the pay app goes out, and disputes are logged at the period they arise instead of at closeout. Change orders, back-charges from the GC, and quantity overruns each have their own log, with dollars and days outstanding, so the pay app is defensible line by line.

Concrete pumps, boom lifts, scaffolding, roofing kettles and conveyors, spray rigs, cranes, and the trucks that move them are a specialty contractor's second largest cost after labor, and they are the most commonly mispriced. Most companies either leave equipment in overhead, where it makes every job look better than it is, or charge it at a rate someone picked years ago. We compute an internal rental rate for each equipment class from ownership cost (depreciation or lease, interest, insurance, and taxes) plus operating cost (fuel, maintenance, repairs, and tires), divided by realistic annual hours. Jobs are charged at that rate for the hours or days they use each unit.

The result is an equipment cost center that shows whether the fleet is recovering its cost, which units are underutilized, and where a rental would have been cheaper than owning. Job margins now include the equipment they consumed, so the bid unit rates can be corrected before the next job rather than after. Idle equipment on a yard is a cost of 100 percent of its payment and 0 percent of its recovery. The equipment report makes that arithmetic monthly instead of annual.

If equipment sits in overhead, every job is profitable and the company is not. Charging it to jobs at a real rate is the least popular fix and the most useful one.

The margin on trade work is decided by production: units installed per crew per day against the estimate. We build the field reporting so foremen record crew hours and quantities installed by phase daily or weekly, and the job cost report shows production rate achieved versus bid, by crew and by job. Labor posts at a fully loaded burden rate by classification, including payroll taxes, workers' compensation at your trade's rates (which are among the highest in construction for roofing, steel, and concrete), benefits, and per diem where it applies.

The production report is the management tool, and it reaches the field. A crew that runs 15 percent below bid production on a job that is 30 percent complete is a job that will lose money unless something changes in the next two weeks, and the report says so while there is still time. Prevailing wage jobs carry their own burden rates and certified payroll on a weekly schedule, and workers' compensation classification is reviewed annually with your broker, because misclassified payroll is either an overpayment or an audit finding, and neither is good for cash.

Every specialty contractor with jobs longer than a month needs a monthly WIP schedule, and the percent complete method has to fit the trade. Roofing and painting often finish in weeks and turn on installed square footage. Concrete and steel have heavy front-end material and equipment cost that inflates cost-to-cost percent complete before the work is earned. Drywall and glazing carry stored materials and long lead fabrication. We select and document a percent complete method per contract type, apply it consistently, and reconcile the WIP to the general ledger so over and under billings post to the balance sheet each month.

Estimate to complete is updated monthly from the production report, the remaining quantities, the material exposure on unpurchased items, and the change order and back-charge logs. Margin fade is reported by job and by cause: production rate, material price, quantity growth without a change order, back-charges accepted, or equipment overruns. Underbillings are examined every month because on a subcontractor's WIP they usually mean one of two things: work performed under a directive that has not been priced, or a loss that has not been booked.

The cash forecast for a specialty contractor is built from the pay chain, GC by GC. Each pay app becomes a receipt on that GC's actual days-to-pay from your history, less retainage, and each retainage release is scheduled on its projected date. Payroll is weekly at current crew size, material suppliers are paid on their terms, equipment payments and rentals are fixed, and the line of credit is drawn or repaid as the schedule requires. The forecast is updated every Monday. The variance report explains, in one line per GC, which payment moved and why.

Backlog is reported by month of expected billing with gross profit in backlog and months of overhead covered. If you bond, the surety reads the WIP, working capital, underbillings, and the concentration of your receivables in a small number of GCs, and we prepare that package quarterly on a calendar. If you borrow, covenants are calculated monthly and forecast forward, and the borrowing base excludes retainage and over-90-day balances the way the bank's formula does. In 90 days, you should have an exposure number by GC that you check weekly, a retainage ledger with release dates, unit costs by job you trust, an equipment rate that recovers the fleet, and a forecast that tells you which week the pay chain gets tight.