In Plain English
Quick Answer
A financial report that shows the current billing and profitability status of every active construction project.
Definition
Definition
Work in Progress (WIP) is a financial schedule prepared by a construction contractor that calculates the earned revenue, costs incurred, billings to date, and resulting over- or under-billing position for each active project. WIP schedules are a key financial statement used by bonding companies, lenders, and CPAs to assess contractor financial health. A deteriorating WIP trend — growing underbillings, declining backlog margin — is an early warning sign of financial distress.
Context
Why It Matters in Bidding
The WIP schedule is where estimating accuracy gets validated against reality, since it reveals whether bid margins are holding as costs are incurred and whether billings are keeping pace with progress. Sureties and lenders read the WIP to set bonding capacity, so a clean, well-managed schedule directly affects how much work a contractor can bid and win.
Example
Example
A GC's controller reviews the monthly WIP, spots a project drifting into underbilling, and works with the PM to accelerate billing on completed scope so cash flow stays positive before the next draw.
See Also
Related Terms
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Related Tools & Templates
FAQ
Questions Contractors Ask
Why do bonding companies require a WIP schedule?
Sureties use the WIP to gauge a contractor's financial health, profit fade, and reliance on underbillings, which signals how much risk they assume in backing future bonds. A stable WIP with healthy backlog margin supports higher single-job and aggregate bonding limits, directly expanding the work a contractor can pursue.
What is the difference between overbilling and underbilling?
Overbilling means a project has been billed more than the cost-plus-earned-margin completed, effectively financing operations with the owner's money. Underbilling means earned work has not yet been billed, tying up the contractor's cash. Persistent underbilling on the WIP is a warning sign of poor billing practices or hidden cost overruns.
How does the WIP relate to estimating accuracy?
The WIP compares costs incurred to the estimated cost at completion, exposing whether original bid assumptions are holding. Profit fade, where projected margin shrinks as the job progresses, points back to optimistic takeoffs, missed scope, or under-bought subs. Reviewing WIP trends feeds lessons learned into future estimates and markup decisions.
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