Sureties do not lend money, they underwrite performance. When a contractor asks for bond capacity, the surety’s underwriter looks through the company’s work-in-progress schedule to answer a few direct questions: Are you making money on current jobs, are you billing correctly, and will cash be there to finish? A well-built WIP report gives them that confidence. A sloppy one triggers more questions, delays, lower capacity, or tighter terms. I have watched capable builders lose weeks and opportunities because their WIP was thin on support, or worse, told a different story than the general ledger. The fixed costs of that mistake show up as bid deadlines missed or bond programs trimmed just when you need them most.
This guide breaks down how to assemble a WIP that sureties trust. It covers the mechanics, the judgment calls, and the small touches that separate a passable schedule from a compelling one.
What sureties want to see, and why
A work-in-progress schedule is a rolling snapshot of your jobs: contract value, approved change orders, costs to date, earned revenue under the selected revenue recognition method, billings to date, and the resulting job position (underbillings or overbillings). Sureties use it as an early warning system. If jobs are bleeding gross margin quietly or if billings lag far behind earned revenue, risk rises. If overbillings mask thin cash or unfunded costs loom, the underwriter adjusts their view of your program.
Several themes usually drive the review:
- Accuracy and consistency. The WIP needs to reconcile to the general ledger, including revenue, cost of goods sold, and the under/overbilling accounts. Numbers that tie out are table stakes. Timeliness. A WIP older than 60 days forces assumptions. Fresh data reduces the haircut underwriters take on estimates. Transparency about estimates. Percent complete and estimated costs to complete should be grounded in field input and recent production rates, not wishful thinking. Sureties read the narrative between the numbers. Cash flow posture. Overbilled projects can fund working capital, but only up to a point. Underbillings signal exposure, especially when they balloon near project end. Underwriters weigh those balances alongside backlog margin and bank support. Control environment. Audit trail, approvals, and consistent methods show discipline. Discipline correlates with finish power when projects get rough.
If you deliver all five, the discussion turns from defense to growth. The surety becomes a partner, not a hall monitor.
The essential template and where each line can go wrong
A strong WIP template is simple and complete. You can add more columns for internal management, but sureties expect at least these:
- Job name and number, contract type, and owner. Original contract value, approved change orders, current contract value. Original estimated cost, revised estimated cost. Costs to date. Percent complete. Earned revenue to date (under your method). Gross profit recognized to date and gross profit remaining. Billings to date. Underbilling or overbilling. Estimated cost to complete, estimated gross margin at completion. Projected finish date.
Each data point has ways to go sideways. A few cases come up often in contractor bonding and insurance reviews.
Contract value without current change orders. If your contract value excludes approved changes, everything downstream is distorted. Percent complete and earned revenue rest on an outdated denominator. Keep a running tally of approved COs. For pending changes, note the exposure in a memo column or the narrative, not in the contract value, unless your contract authorizes interim billing for disputed work under force account terms.
Revised estimated cost frozen in time. Labor productivity rarely holds perfectly. Concrete and mechanical trades in particular see drift in labor hours as drawings develop and site conditions evolve. If revised estimated cost does not move for months while costs to date climb beyond the original budget curve, the underwriter assumes gross https://sites.google.com/view/axcess-surety/license-and-permit-bonds/east-lansing-city-taxicab-bond margin slippage is hiding in plain sight. Reforecast monthly, even on lump sum jobs. Invite the superintendent to challenge assumptions before finance locks the number.
Percent complete measured two different ways. You can use cost-to-cost, units completed, or physical progress methods, but mixing within the same job confuses the math. Pick a primary method per job type and document the rationale. If you override it, note why. For example, on a steel erection package, you may use units erected for percent complete during the structural frame phase, then switch to cost-to-cost for punch list and closeout. Spell it out so the shift is understood, not seen as a maneuver.
Billings to date out of sync with earned revenue. Large underbillings often mean you lack approved pay apps or failed to bill stored materials. Large overbillings are not inherently bad, but if they persist late in the job with little cost left, the inevitable reversal can hurt cash. Sureties prefer to see billings track earned revenue closely across the portfolio, with exceptions explained by contract milestones or retainage timing.
Under/overbillings that do not match the balance sheet. This is where many submittals stumble. The total underbillings should equal the job schedule’s sum and the GL’s construction in progress asset for unbilled revenue. The same goes for overbillings and the associated liability account. When they do not tie, the underwriter wonders where the leakage sits. Prepare a simple tie-out schedule and provide it with the WIP.
Revenue recognition that underwriters trust
Most contractors use percentage of completion with a cost-to-cost calculation. That works if your costs are complete and coded consistently, and if unusual costs are handled with discipline. For surety purposes, a few practices inspire confidence:
- Exclude significant, nonproductive costs from percent complete when they distort progress. Mobilization, major equipment purchases that sit idle, and unusually large material prebuys can front-load cost without reflecting installed work. Set clear policies. If you exclude them from the percent complete calculation, track them in a separate cost code so they are visible, and reconcile to GAAP at period end if your CPA requires it. Align stored materials with contract terms. Where contracts permit billing for stored materials with proof of insurance and proper warehousing, seize the opportunity. It reduces underbilling and shows command of cash flow. When storage is offsite, ensure your contractors bonding and insurance certificates name the owner as loss payee where required, and attach them to the pay app. Sureties notice when you work the contract intelligently. Handle contingencies above the line through estimate-to-complete, not as hidden slush. If risk remains on a design-build job, capture a quantified contingency in the cost to complete. Do not bury it in a generic overhead code that never releases to margin. Underwriters expect to see margin stabilize or drift modestly as jobs mature, not swing wildly when contingencies are discovered late. Lock revenue once jobs reach substantial completion, then recognize only closeout adjustments that have support. Dragging percent complete increments for a nearly done job invites skepticism.
If you follow these steps, the math behind earned revenue feels right. Numbers need to reflect what boots on the ground would say if asked how far along the job is.
Tying the WIP to your books without drama
A WIP that cannot be traced to the ledger spooks even friendly surety partners. The reconciliation process should be boring and predictable:
- The sum of earned revenue across active jobs equals period-to-date revenue in the GL, adjusted for general conditions reclasses if you run some costs centrally and allocate later. The sum of job costs to date equals cost of goods sold for the period plus job cost WIP balances as appropriate. If you maintain committed costs separately, note that in a footnote to avoid confusion. The aggregate of underbillings matches unbilled receivables or costs and estimated earnings in excess of billings. The aggregate of overbillings matches billings in excess of costs and estimated earnings. Retainage receivable and payable reconcile to schedule totals per job.
Sureties appreciate a one-page reconciliation with a few lines that bridge any differences. If your CPA compiles or reviews the statements, match the terminology in their notes. When differences are timing based, describe them in plain language, such as the month-end cutoff for a large pay app or a supplier invoice batch posted the first week of the next month.
Estimating cost to complete with field-tested discipline
The cost-to-complete column makes or breaks credibility. You can sense when it is a guess. A solid estimate rests on quantities, crew rates, production history, and subcontractor status. For self-performed scopes, use current productivity, not the bid book rates. If your electricians are averaging 220 fixtures per day on this hospital, do not plan the last floors at 300 just to hold margin. If winter hits in two months, factor weather productivity, heat, and protection. For subcontracted scopes, base the remaining cost on executed subcontracts plus approved change orders and known exposures, not the unproven hope that a claim will settle in your favor this quarter.
Edge cases matter. When escalation spikes mid-project, materials can burn contingency quicker than your job cost system catches. On a high school reroof last year, a contractor carried an extra 8 percent for membrane price risk after hurricanes dented supply. The WIP reflected that in cost to complete, and the surety appreciated the honesty because it showed the team was running ahead of the curve, not behind it.
Change orders, claims, and the line between hope and revenue
Change management separates mature firms from stressed ones. Sureties ask three questions as they scan the WIP and job files: Are approved changes fully captured in contract value, are pending changes tracked and pursued, and do claims appear in revenue before they are real?
Approved change orders belong in the contract value and in the revised estimated cost. Pending changes deserve their own tracking log with aging, like receivables. Axcess Surety You can flag them in a WIP comment column or attach a one-page summary for the top five exposures. Recognize revenue from a claim only when persuasive evidence exists and the amount is reasonably estimable under your revenue policy. In practice, that means a signed change directive, a time-and-materials record with clear owner acknowledgement, or a settlement agreement in draft with only ministerial steps left. Anything short of that goes in a narrative: “Pending COs totaling 425k, including 180k of added casework approved in principle, pricing under review.” The underwriter then credits you for process without relying on numbers that may evaporate.
Retainage, pay apps, and the cash calendar
Retainage looks harmless on paper, but it ties up profit. A portfolio with 10 percent retainage across most jobs can hide large sums. Sureties examine retainage aging, especially at fiscal year end. If multiple owners hold retainage well past substantial completion, they doubt your closeout push or paperwork discipline.
Address retainage proactively. For example, on a municipal library, the contractor requested a reduction from 10 percent to 5 percent after drywall inspection per contract, and then partial release at substantial completion for trades complete, supported by conditional lien waivers and as-builts. The WIP for that quarter showed underbillings drop by 600k and cash swing positive. That result depends on early negotiation and airtight documentation, including certificates of insurance and endorsements that satisfy the owner’s bond and insurance requirements. These touches reassure the surety that you recover your cash promptly, which protects the program.
Backlog quality and gross margin runway
A WIP does not end with active jobs. It tells a story about what is next. Sureties look at the weighted gross margin in backlog. If active projects carry a solid 12 percent gross margin but backlog sits at 7 percent, next year’s earnings power will drop unless you improve productivity or scope mix. Conversely, a thin active margin with a higher backlog margin suggests a turning point.
Your WIP package should include a short backlog rollforward that connects awarded not yet started work to expected gross profit over the next two to four quarters. It does not need to be fancy, just coherent. For design-build or GMP work, acknowledge fee risk and any target value design sharing that could move contingency.
A clean narrative turns numbers into judgment
Underwriters read for context. A half page of narrative can head off a dozen emails. Focus on changes, not a recitation of the whole schedule. The notes should cover significant margin moves, major delays, claim posture, unusual underbillings tied to specific contract terms, and cash inflows expected within 30 to 60 days. Keep the tone factual. If you cite weather, include counts of lost days and owner acknowledgments. If a subcontractor defaulted, note mitigation steps, like bond calls or replacement mobilization dates, and the estimated cost impact already reflected in the WIP.
An anecdote from a water treatment plant illustrates the point. The contractor’s December WIP showed a margin fade from 9.8 percent to 7.9 percent. The note explained two change directives priced conservatively pending negotiation, plus winter heat costs booked upfront. By February, the surety saw the margin stabilizing at 8.1 percent with cash collections from both directives. The early transparency meant the surety left the bond program intact during a critical bid window.
Coordination between operations, accounting, and risk
The best WIPs are coauthored. Operations owns quantities and productivity. Accounting owns cutoffs, tie-outs, and GAAP consistency. Risk management ensures insurance, bonds, and contractual compliance line up with billing rights. When these groups talk weekly, small problems stay small. For stored materials, risk confirms builders risk or installation floater coverage and loss payee language, operations confirms delivery schedule, and accounting bills against it immediately with the correct attachments.
On firms that scale well, each project manager reviews the WIP draft for their jobs mid-month, not on the last day. They sign off on percent complete and cost to complete, note any pending changes with values and likelihood bands, and flag drilling issues like geotechnical unknowns or utility conflicts. That mid-month touch speeds month-end and makes the final report sharper.
Common red flags and how to cure them
Underwriters tend to pause on a few predictable red flags. If you see them in your schedule, fix the cause or explain it clearly.
- Large underbillings concentrated in the final quarter of jobs. Cure by accelerating pay app approvals, billing stored materials, or aligning milestone definitions with the contract. If retainage is the source, pursue reductions early. Margin fade on more than a third of active jobs. This pattern points to estimating gaps, weak change management, or field productivity issues. Show your root cause analysis and the steps taken: bid reviews tightened, precon assumptions updated, foreman training, or vendor re-sourcing. Negative cash cycle masked by overbillings. If overbillings fund the whole enterprise, one schedule slip can starve another. Provide a cash flow view by job and show liquidity supports beyond job billings, such as an unused line of credit tied to borrowing base, and internal cash reserves. WIP older than 90 days. Commit to a calendar. Close within 10 business days of month end, share with your broker and surety within two days after that. If CPA adjustments are coming, tell them what and when. Claims recognized as revenue without approvals. Reset the policy. Document thresholds and evidence required. Move hopeful amounts into narrative only, and when they convert, bring them back with clarity.
Sureties and brokers will give you room when they see trendlines headed the right way and a team that reacts quickly to data.
The role of your broker and CPA
A seasoned surety broker earns their fee by sharpening your WIP before it reaches underwriting. They know house preferences and will catch mismatches, such as a contractor recognizing field work as complete where the owner disputes substantial completion. Ask them to review your first few monthlies after any template change. They can also guide how much narrative is enough and when to attach supporting detail like a top jobs one-pager.
Your CPA’s involvement depends on your size and the surety’s requirements. Reviewed statements carry more weight than compiled, and audits the most. Even with compiled statements, bring your CPA into the revenue recognition policy discussion, especially around stored materials, contingencies, and claim recognition thresholds. Consistency between monthly internal WIPs and year-end financials eliminates confusion that can freeze a bond request at the worst time.
Practical workflow: from field notes to a finished WIP
Most contractors benefit from a simple monthly cadence. Here is a streamlined sequence that keeps quality high without bogging the team down.
- Day 0 to 3 after month end: Accounting closes AP and payroll, locks cost postings for the period. Operations reviews job progress notes and quantities, updates percent complete estimates with current productivity and remaining scope. Day 4 to 6: Project managers update cost-to-complete, validate pending change order log, and flag billing issues. Risk verifies insurance documents needed for stored materials and owner-specific endorsements. Day 7 to 8: Accounting compiles the WIP, calculates earned revenue and under/overbillings, and prepares the tie-out to the GL. Variances from prior month’s projected margins are highlighted. Day 9: Leadership reviews exceptions, finalizes narrative for major jobs, and adjusts forecasts for backlog where lessons learned apply. Day 10: Send the WIP package to the broker and surety, along with any requested supplemental schedules.
This rhythm prevents the last-day scramble that often introduces mistakes. It also teaches the organization to treat the WIP as a living management tool, not a compliance chore.
Technology helps, judgment still rules
ERP systems and job cost software can generate the WIP automatically. That solves the math but not the thinking. Percent complete still demands human evaluation, especially when unusual items appear. Dashboards can flag anomalies, such as jobs with underbillings greater than 15 percent of contract value or margin variances over 2 points month to month. Use those flags as prompts for conversations, not as answers.
A word on data hygiene: keep your cost codes lean and consistent across jobs, with a clear mapping to revenue. Overly granular codes look sophisticated but often produce noise, not insight. For many trades, 30 to 60 codes cover the essentials. Train foremen and project admins on coding at the front end. One hour of training saves days of cleanup when you prepare the WIP.
Insurance intersections that affect your WIP
WIP quality and insurance posture meet in two places most often: stored materials and jobsite events that change cost to complete. When you bill for stored materials, confirm coverage under builders risk or an installation floater, and secure endorsements the owner requires. Claims adjusters and owners ask for proof of coverage before they approve pay apps tied to storage. Few things stall cash like an incomplete insurance certificate.
When losses occur, such as water intrusion or theft, show the surety how you treat the costs. Separate insured loss costs and anticipated recoveries clearly. Do not let insured expenses inflate cost to complete and distort percent progress. Work with your broker to submit claims promptly and to estimate net impact with a realistic recovery timeline. The tighter your contractors bonding and insurance coordination, the cleaner your WIP will look.
What great looks like from the surety’s chair
When underwriters speak candidly, they praise WIPs with three traits: coherence, candor, and control. Coherence means the math lines up and the story hangs together from job to job and month to month. Candor shows up in early recognition of problems with specific corrective steps, not bland assurances. Control appears in reconciliations, approvals, and consistent policies.
One midsize civil contractor I worked with grew bond capacity from 20 million single and 40 million aggregate to 50 million single and 100 million aggregate within two years without changing ownership or injecting capital. The core driver was a WIP renaissance. They tightened percent complete, cut underbillings by half through assertive billing of stored materials and faster pay apps, and documented change orders so thoroughly that claim revenue never needed to float the P&L. Their surety leaned in, not because margins shot to the moon, but because predictability went up and surprises went down.
Final checks before you send it
Before you submit your WIP to the broker and surety, run a short preflight. Keep it quick, focused, and repeatable.
- Do totals reconcile to the GL for revenue, costs, and under/overbillings, and are any differences explained? Have project managers signed off on percent complete and cost to complete for material jobs? Are approved change orders fully reflected, and are the top pending changes summarized with status? Do large underbillings or overbillings have clear, contract-based reasons, and are near-term cash events noted? Is the narrative crisp, no more than a page, covering real changes since last month?
Send the package as a single PDF with bookmarks for the WIP, tie-out, backlog rollforward, and narrative. If the surety wants an Excel version, provide that too, but make the PDF your definitive record.
A dependable WIP is a strategic asset. It unlocks capacity when you bid, steady rates when markets wobble, and trust when projects turn difficult. It is also one of the best management tools you have. If you treat it that way, your surety will notice, your team will run tighter, and your results will show it.