Construction WIP Report: A Year-End Guide for Contractors
Every December, the same thing happens in contractor offices. The CPA asks for the year-end work-in-progress schedule, the surety wants it with the financials, the bank wants it for the line of credit renewal, and somebody in the office opens a spreadsheet that has not been touched since June. The construction WIP report is the single page that tells outsiders whether your jobs are making money, and most owners only look at it when someone else asks.
That is backwards. A WIP report built and reviewed every month is the earliest warning system a contractor has. It shows profit fade before the job closes, it shows cash stuck in underbillings before payroll gets tight, and it shows your surety that you know your numbers. This guide walks through how to build one, how to read it, and how to get it clean before your year-end close.
Table of Contents
What a Construction WIP Report Actually Shows
A work-in-progress schedule is one row per open job, comparing what you have earned on each contract with what you have billed. It sounds simple, but it answers the three questions every lender, surety and CPA cares about:
Are the jobs profitable? The current estimated gross profit on each job, and whether it is shrinking.
Is billing keeping pace with the work? Whether you are ahead of the work (overbilled) or behind it (underbilled).
How much work is left? Backlog, which tells a surety how much of your bonding capacity is already in use.
Most contractors with a surety relationship report on the percentage-of-completion method, and sureties generally prefer it over completed-contract or cash-basis reporting, according to Grit Insurance's guide to WIP reporting. If you want the accounting background, our earlier piece on percent complete accounting for contractors covers the method itself. This article is about the report that sits on top of it.
The Nine Columns Every WIP Schedule Needs
Corpay's 2026 guide to the construction WIP report lays out the standard columns, and they match what I see surety underwriters ask for. One row per job:
Column | Where the number comes from |
|---|---|
Original contract value | The signed contract |
Approved change orders | Executed change orders only, not pending |
Revised contract value | Original contract plus approved change orders |
Estimated total cost | Current budget, including the estimate to complete |
Cost to date | The job cost ledger for the period |
Percent complete | Cost to date divided by estimated total cost |
Earned revenue | Revised contract value times percent complete |
Billed to date | Accounts receivable and pay applications |
Over or (under) billed | Billed to date minus earned revenue |
This is the cost-to-cost method. The weak link is almost never the math. It is the estimated total cost column. If your project managers have not updated their cost-to-complete in three months, every number to the right of it is wrong.
Why the estimate to complete matters most
Percent complete is driven by cost to date divided by estimated total cost. If a PM is carrying an old budget that understates what is left to spend, the job looks further along than it is, earned revenue looks higher, and the gross profit looks healthier than it will be at closeout. The correction shows up later, all at once, usually at year-end.
Approved change orders only
Pending change orders do not belong in revised contract value. Carrying them early inflates earned revenue on paper. Track them separately, and if your change order process is the reason approvals drag, our change order workflow guide is a good place to start.
Overbilling and Underbilling in Plain English
The last column is where most of the conversation happens.
Overbilled means you have billed more than you have earned. On the balance sheet it is "billings in excess of costs and estimated earnings," a current liability. It is not extra cash you own. It is work you still owe the owner.
Underbilled means you have earned more than you have billed. On the balance sheet it is "costs and estimated earnings in excess of billings," a current asset. The work is done, but the money is still sitting in your job, not your bank account.
Here is a simple example. Say a job has a revised contract of $1,000,000 and an estimated total cost of $800,000. You have spent $400,000, so the job is 50 percent complete and you have earned $500,000. If you have billed $450,000, you are underbilled by $50,000. If you have billed $560,000, you are overbilled by $60,000.
Why both extremes worry people
Grit Insurance notes that excessive overbilling suggests project funds are financing operations, and that sureties will dig into underbillings because they often signal unbilled costs, disputed work or optimistic estimates. Corpay makes a related point: retainage is earned and billed but withheld, while underbilling is earned and never billed. Both tie up cash, but underbilling is the one you control.
Who Reads Your WIP and What They Look For
Three outside readers will see your year-end WIP, and each reads it differently.
Your surety
Underwriters use the WIP to see how much of your aggregate bonding limit is already committed. Grit Insurance gives an example where $7.5 million of active work against an $8 million aggregate limit leaves little room for a new bond. They also look for profit fade, where a job's projected margin declines over time. Fade across several jobs points to estimating or project management problems. If bonding capacity is your growth constraint, read our guide on bonding capacity and business growth.
Your bank
Lenders use WIP numbers in covenant calculations and look hard at the overbilling balance, because it shows how much of your current cash is really a deferred obligation.
Your CPA
Your accountant uses the WIP to see whether the year-end adjustment will be a surprise. Grit Insurance recommends that your CPA be involved in preparing or reviewing the WIP so that its totals tie to your balance sheet and income statement.
A Year-End WIP Cleanup Checklist
If your next WIP is going to a surety or bank with your year-end statements, start now, not in January.
List every open job. Bonded and unbonded. Grit Insurance lists omitted projects as a red flag underwriters look for.
Close out finished jobs. Jobs that are substantially complete but still open distort backlog.
Get a fresh cost-to-complete from every PM. Line by line, not a gut feel. Date it.
Separate approved from pending change orders. Only approved ones go in revised contract value.
Reconcile cost to date to the general ledger. Uncoded invoices and late subcontractor bills belong in the period they were incurred.
Bill what you have earned. If a job is underbilled because a pay app was late, submit it before the close.
Explain the outliers. Any job with fade, a big underbilling or a big overbilling gets a one-paragraph note.
Tie it out. WIP totals should match the balance sheet and income statement before anyone outside sees it.
Turning WIP Into a Monthly Habit
Grit Insurance's guidance is blunt: at a minimum, update your WIP quarterly, and a year-end-only WIP means the surety is making decisions for twelve months based on a single snapshot. Monthly is better, and it is not hard once the inputs are routine.
A simple monthly rhythm
Week one: Accounting closes the prior month's job costs.
Week two: Each PM updates cost-to-complete for their jobs in a 30-minute review.
Week two: Accounting runs the WIP and flags any job where margin dropped from last month.
Week three: Owner, PMs and accounting meet for one hour on the flagged jobs only.
This is also where a clean cost code structure pays off. If costs are coded consistently, the WIP is a report you run. If they are not, it is a project you rebuild every month.
Where AI and automation help
I am a big believer in using AI for the back office. Pulling cost-to-date by job from your accounting system, comparing this month's projected margin to last month's, and drafting the outlier notes for your review are exactly the kinds of repetitive work these tools handle well. The judgment calls, like whether a PM's cost-to-complete is realistic, still belong to people who know the job.
What I've Seen Inside Contractor Shops
After 30+ years in construction operations, the pattern I see most often is not bad accounting. It is good accounting working from stale project information. The office closes the books on time, but the estimate to complete on half the jobs is whatever the PM entered at buyout. So the WIP says the company is having a great year right up until the jobs close, and the margin the owner was counting on in June is gone in December.
The shops that avoid this have one thing in common: the PMs own their cost-to-complete, and they update it every month whether anyone asks or not. The owner reads the WIP before the surety does. That habit does more for bonding capacity and bank relationships than any presentation at renewal time.
The other pattern is cash. Underbillings that sit for two or three months almost always trace back to a pay app that went out late or a change order nobody billed. The WIP report finds that money. You still have to go get it.
Get Help Building Your WIP Process
If your WIP is a once-a-year scramble, we can help you set up the monthly rhythm, the PM review and the reporting your surety and bank expect. Schedule a free call at rconstructionsolutions.com/schedule-a-free-call or call (408) 404-5792. If you want to swap notes with other contractors working through the same year-end close, join us in The Trailer.
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FAQ
What is a construction WIP report?
A construction WIP report, or work-in-progress schedule, lists every open job with its contract value, estimated total cost, cost to date, percent complete, earned revenue, billings to date and the resulting overbilling or underbilling. It shows whether jobs are profitable and whether billing is keeping pace with the work.
How is percent complete calculated on a WIP schedule?
Most contractors use the cost-to-cost method: cost to date divided by estimated total cost at completion. Earned revenue is then the revised contract value times that percentage.
Is overbilling bad for a contractor?
Not by itself. Overbilling is recorded as a liability because it represents work you still owe. Sureties and lenders get concerned when overbillings are large, because it can mean project funds are financing operations.
How often should a contractor update the WIP report?
At a minimum quarterly, and monthly is better. A year-end-only WIP gives your surety a single snapshot to rely on for twelve months.
What is profit fade on a WIP report?
Profit fade is when a job's projected gross margin keeps shrinking from one WIP to the next. Fade across several jobs signals estimating or project management problems, and sureties watch for it closely.
