ARTICLE | September 01, 2026

TL;DR 

A construction project can be on schedule, fully staffed, and generating revenue while quietly losing money. For U.S. contractors, protecting profit starts well before closeout. The biggest opportunities are often straightforward: know the true cost of the job, bill in line with progress, manage change orders immediately, and understand the financial risks built into the contract.

Construction margins leave little room for surprises. CFMA benchmarking has consistently shown contractor profitability in the low single digits to mid-single digits, depending on contractor type and project mix. That means a small miss in labor, materials, billing, or schedule can erase a meaningful share of expected profit.

Revenue Is Not the Same as Cash

One of the easiest traps in construction is confusing a profitable backlog with available cash.

A contractor may have millions of dollars in work under contract and still be financing jobs out of working capital. Underbillings, retainage, delayed approvals, disputed change orders, and slow collections can create a gap between when costs are incurred and when cash is received.

That gap matters.

As Larson Gross has noted in its construction work, over- and under-billings can have a direct impact on both cash flow and financial decision-making. Underbilling may indicate that the company has earned revenue it has not yet collected, while overbilling can provide useful cash today but create pressure later if the remaining work costs more than the remaining billings.

The question is not simply, “Are we profitable?” It is, “Where is the cash, and what does the next 90 days look like?”

Forecast Cash at the Project Level

A company-wide cash forecast is useful, but large jobs should also be viewed individually. Forecast expected billings and collections alongside payroll, subcontractor payments, material purchases, retainage, and change-order cash needs. A job can be profitable on paper while consuming cash for months, so identifying that gap early gives management time to adjust billing, purchasing, or financing plans.

The Job Budget Is Only Useful If It Stays Current

A project estimate becomes less useful every time actual costs move away from the original assumptions without being reflected in the forecast.

That makes job costing and WIP reporting essential management tools, not just accounting exercises.

Strong contractors are continually asking: What have we spent? What remains to be spent? Has the expected gross margin changed? Are we billing fast enough to support the work? What assumptions changed, and why?

The earlier those questions are answered, the more options management has. Waiting until month-end or year-end to discover margin erosion leaves very few options other than accepting the loss.

Watch Labor Productivity Before Margin Slips

Labor is often one of the earliest places margin erosion appears. Comparing estimated hours to actual hours, units installed, percent complete, and the latest estimate to complete can reveal problems before they show up clearly in the financial statements. The sooner project teams understand why productivity is off plan, the more opportunity they have to correct course.

Change Orders Are a Profitability Issue

Change orders are often treated as an administrative task. They should be treated as a financial control.

Scope changes can affect labor productivity, material costs, equipment utilization, scheduling, overhead, and financing needs. CFMA research has also highlighted the hidden cost of changes that never become formal change orders, including schedule shifts, relocations, and extra work performed as a favor to a customer or general contractor.

The lesson is simple: if the scope changes, the financial forecast should change too.

Document the work. Price it. Get the approval. Update the job forecast.

Verbal agreements may keep a project moving, but they do not necessarily protect the margin.

Collections and Retainage Need Active Management

Submitting the invoice is not the end of the cash cycle. Contractors should know each customer’s approval process, confirm pay applications are complete and received, monitor aging by project and customer, and escalate disputed amounts quickly. Retainage should also be tracked separately and pursued as soon as contractual milestones allow. Profit that sits in receivables or retainage cannot fund the next job.

Your Contract Is a Financial Tool

The contract is more than a legal document. It determines how risk moves through the project. Before signing, contractors should understand the practical financial implications of:

Contract type. Fixed-price work can place more cost-escalation risk on the contractor, while time-and-materials arrangements may shift more risk toward documentation, approvals, and collection.

Payment terms. When does the contractor have the right to bill? What can delay payment? What is subject to retainage?

Change-order provisions. What constitutes a change? Who can authorize it? What documentation is required?

Dispute procedures. How quickly must a dispute be raised, and what happens to payment while it is being resolved?

Insurance and indemnification. Are you accepting risks that your insurance program was not designed to cover?

The goal is not to eliminate risk. That is impossible in construction. The goal is to understand it well enough to price it, negotiate it, and manage it.

Manage the Timing of Cash In and Cash Out

Payment timing deserves the same attention as price. When suppliers and subcontractors must be paid well before the owner is expected to pay, the contractor is effectively financing the project. Where possible, align vendor and subcontractor terms with expected customer collections. For major or volatile material purchases, identify long-lead items early, confirm quote-expiration dates, and address price-escalation risk before the contract is signed.

Protecting Margin Requires Discipline

The construction companies navigating difficult markets successfully are not necessarily the ones winning the most work.

They are the ones that know their numbers well enough to make deliberate decisions.

That may mean walking away from a bid that does not support the company’s overhead. It may mean changing billing practices so the company is not financing a project unnecessarily. It may mean reviewing equipment utilization, strengthening internal controls, or improving the speed and accuracy of job reporting.

Larson Gross recently made a similar observation about the current U.S. construction market: bidding aggressively is not the problem. Bidding without knowing your true costs is.

That distinction matters.

A contractor can consciously accept a lower margin for a strategic reason. What creates danger is discovering after the project starts that the margin was never there to begin with. Backlog should also be evaluated for quality, not just quantity. A large backlog with weak margins, unfavorable payment terms, concentrated customer risk, or unrealistic staffing demands can strain the business rather than strengthen it. Maintaining adequate working capital and access to credit before it is needed can provide a cushion when otherwise healthy projects create temporary timing gaps.

Know the Early Warning Signs

Repeated underbillings, growing unapproved change orders, declining projected gross margin, aging receivables, rising labor hours without comparable progress, and large unreleased retainage balances are all signals worth investigating. No single indicator proves a job is in trouble, but trends across several of them should trigger a closer review.

The Best Risk Management Happens Before the Risk Shows Up

Financial controls do not make construction predictable. They make surprises easier to see.

For owners, CFOs, controllers, and project leaders, that means building a rhythm around the numbers: Price the work with complete overhead visibility. Update job forecasts regularly. Keep billing aligned with progress. Track under- and over-billings. Document changes before the work gets ahead of the paperwork. Review contract risk before signing. Forecast cash before it becomes a problem. Monitor labor productivity against the estimate. Manage receivables and retainage actively. Review the cash demands of major jobs individually. Protect liquidity before a timing gap becomes a crisis.

The strongest construction businesses are not simply good at building projects.

They are good at knowing which projects are worth building in the first place.

This article is for general informational purposes and is not legal advice. Contract and payment requirements vary by state, project, and contract terms.