WIP Schedule Red Flags: What Your Surety Spots and How to Fix Them
Most contractors know their surety wants a work-in-progress schedule. Fewer know what the underwriter is actually looking for when they read it. The WIP is where your estimates, billings, and income statement meet, and underwriters read it with a short list of warning signs in mind. Understanding the most common WIP schedule red flags lets you fix problems before they show up in a bond request.
If you need a refresher on what a WIP schedule is and why it matters, start with our overview of WIP reporting for contractors. This article assumes you know the basics and focuses on how underwriters test it.
How the WIP Schedule Ties to Your Income Statement
Under percentage of completion accounting, the WIP schedule is not a separate report. It is the calculation that determines how much revenue you recognize. For each open job, the core columns work like this:
Contract value includes the original contract plus approved change orders.
Estimated total cost is cost to date plus the estimated cost to complete.
Estimated gross profit is contract value minus estimated total cost.
Percent complete is usually cost to date divided by estimated total cost.
Earned revenue is contract value multiplied by percent complete.
Billings to date is what you have invoiced.
Over or underbilling is the difference between billings and earned revenue.
Earned revenue across all jobs, open and closed, is what appears as contract revenue on your income statement. Overbillings appear as a liability and underbillings as an asset on your balance sheet. If the WIP does not tie to those numbers, an underwriter will notice immediately.
The WIP Schedule Red Flags Underwriters Look For
1. Large or growing underbillings
An underbilling means you have recognized more revenue than you have billed. Sometimes that is legitimate timing. Large or persistent underbillings, though, can mean unapproved change orders, billing delays, or costs that are running over budget and inflating percent complete. Underwriters often discount underbillings when calculating working capital.
2. Margin fade from one report to the next
Underwriters compare your current WIP to the prior one. A job estimated at a 15% margin last quarter and 9% this quarter is fading. One fading job may be explainable. A pattern of fade suggests your estimates are optimistic. We cover this in detail in our article on profit fade.
3. Estimates to complete that never change
If the estimated total cost on a job stays exactly the same month after month while costs accumulate, it usually means nobody is updating the estimate. That makes percent complete, and therefore revenue, unreliable.
4. Jobs near completion with large remaining margin
A job that is 95% complete with a large share of its gross profit still unrecognized is unusual. Either the remaining work is very profitable, or costs are about to land that are not in the estimate.
5. A WIP that does not tie to the financial statements
Total earned revenue, over and underbillings, and cost of revenue should reconcile to the financial statements. Differences without explanation are among the fastest ways to lose an underwriter's confidence.
6. Losses not fully recognized
Under GAAP, when a contract is projected to lose money, the full expected loss is generally recognized right away, not spread over the remaining work. A WIP showing a loss job with only a partial loss recognized will raise questions.
None of these red flags automatically disqualifies a contractor. Underwriters see imperfect WIP schedules every day. What they want is evidence that management understands each job, knows why the numbers moved, and is taking action. A WIP that arrives with a one-page summary of the largest jobs, the reasons for any fade, and the status of pending change orders tells a very different story than a spreadsheet with no context. The goal is not a perfect report. It is a credible one.
How to Fix These Red Flags
Update estimates to complete monthly with input from project managers, not just accounting.
Bill promptly and push change orders to approval so underbillings do not build up.
Reconcile the WIP to the general ledger every time you prepare it.
Track fade over time by comparing each job's estimated margin to prior reports.
Write short explanations for unusual jobs before the underwriter asks.
Tie job costing to cost codes so that cost to date is accurate in the first place.
Many contractors prepare one WIP for the surety and different numbers for taxes. That can be appropriate, but the two need to reconcile. Our article on the WIP schedule for bonding vs the tax return explains how.
Frequently Asked Questions
Why does my surety ask for a WIP schedule?
The WIP shows how your open jobs are performing and whether your reported revenue and margins are reliable. It helps the underwriter judge whether you can complete your current backlog and take on more work.
What is a red flag on a WIP schedule?
Common red flags include large underbillings, margin fade between reports, estimates that are never updated, losses not fully recognized, and totals that do not tie to the financial statements.
How often should a contractor update the WIP schedule?
Monthly is a strong practice for bonded contractors. At minimum, prepare it quarterly and at year end, and always when you submit a bond request or financial package.
Get CFO-Level Financials Before Your Next Bond Request
SuretyCFO provides CFO and controller services for bonded commercial contractors. We prepare monthly WIP schedules that tie to your financial statements, review estimates to complete with your project managers, and flag fade early so you can address it before it reaches your surety.
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