WIP Red Flags: Warning Signs Every Contractor Must Watch

By Martin · 14 min read · Updated 2026-02-02

I've reviewed thousands of WIP schedules over the past two decades. After enough of them, you develop pattern recognition — the ability to look at a WIP report and know, within minutes, where the problems are hiding. Not because the numbers are obviously wrong, but because certain patterns are reliable predictors of trouble that hasn't surfaced yet.

This guide shares those patterns. These are the red flags I look for every time I open a WIP schedule, whether it's a $5M subcontractor or a $100M general contractor. If you learn to spot them, you'll catch problems weeks or months before they become crises.

Red Flag #1: Margin Compression Without a Cost-to-Complete Update

What it looks like: A job that started at 18% projected margin is now showing 14%. The costs-to-date have increased, but the estimate-to-complete (ETC) hasn't been updated in 60+ days.

Why it matters: This is the most common red flag I see. When costs are rising but the ETC stays flat, one of two things is happening: either the PM genuinely believes they'll make up the overrun in the remaining work (they almost never do), or the PM hasn't updated the estimate and the true margin is even worse than what the WIP shows.

What to do: Require a fresh, bottoms-up ETC from the PM. Not a phone call where they say "we're fine." A detailed review of remaining scope, current labor productivity, sub commitments, and material costs. In my experience, when you force a real update after costs have been running over, the projected margin drops another 2-4 points. Better to know now than at closeout.

Real example: A $22M GC had a $3.8M hospital project showing 15% margin. Costs were running 8% over budget, but the ETC hadn't moved in three months. When we forced an update, the real margin was 6%. The PM had been "planning to make it up on the mechanical rough-in." The mechanical rough-in was already 80% complete. There was nothing left to make up.

Red Flag #2: Percent Complete Doesn't Match the Story

What it looks like: A job shows 65% complete based on costs, but the PM says they're "about halfway done." Or a job shows 40% complete but the schedule says it should be at 55%.

Why it matters: Disconnects between cost-based percent complete and physical progress indicate one of several problems:

What to do: When percent complete based on costs diverges from physical progress by more than 10 percentage points, investigate immediately. Compare the cost-to-date breakdown (labor, material, subs) to the original estimate line by line. Find where the money went.

Real example: A mechanical contractor's WIP showed a data center project at 52% complete. The project manager said they were about 35% through the physical work. The gap was labor productivity — they were installing at 60% of estimated efficiency because of coordination issues with other trades. The 52% "complete" reflected cost burn, not actual progress. The job was headed for a significant loss that the WIP was masking.

Red Flag #3: Overbilling Above 15% of Costs Incurred

What it looks like: A job with $600K in costs incurred has $750K in billings. The overbilling percentage is 25%.

Why it matters: Moderate overbilling (5-10%) is normal and often healthy. But when overbilling exceeds 15% of costs incurred, you're heading toward a cash cliff. You've collected cash for work you haven't done. When the project progresses into the heavily overbilled zone, you'll have months of costs going out with minimal new billings coming in.

What to do: Check the billing schedule. How much billing capacity remains? At the current run rate of costs, when will the overbilling burn off? Model the cash flow impact of performing the remaining work with reduced or no new billings. If it creates a gap, plan for it now.

The danger multiplier: One project at 15% overbilling is manageable. Three projects at 15%+ overbilling, all between 60-80% completion, is a cash crisis waiting to happen. Always evaluate overbilling at the portfolio level, not just project by project.

Red Flag #4: Growing Underbilling on Active Jobs

What it looks like: A job's underbilled position has increased each of the last three months. You started at $30K underbilled and now you're at $120K.

Why it matters: Growing underbilling means the gap between work performed and billings is widening, not closing. Something is preventing you from billing for work you've done. Common causes: disputed work, rejected pay applications, change order work performed without approval, or a PM who isn't submitting billing on time.

What to do: Investigate immediately. Why is billing falling behind? Is there a dispute? Has the owner rejected pay apps? Is the PM sitting on paperwork? Growing underbilling rarely fixes itself — the cause needs to be identified and addressed.

Real example: An electrical sub's underbilling on a commercial office project grew from $40K to $185K over four months. Turns out the GC was disputing labor rates on a T&M portion of the work. The PM was "still negotiating" while continuing to perform the disputed work. We stopped the T&M work until the rate dispute was resolved. Without intervention, they would have performed another $100K+ in work at a rate that might never be approved.

Red Flag #5: Multiple Jobs with the Same PM Showing Margin Fade

What it looks like: Three of your five worst-performing jobs are run by the same project manager.

Why it matters: When margin problems concentrate around one PM, it's almost never coincidence. Common causes: poor cost-to-complete estimating (the PM is consistently optimistic), weak change order management (they're not capturing extra work), poor labor productivity management, or they're in over their head on job complexity.

What to do: This requires a direct conversation — not about blame, but about support and process. Review each of the PM's jobs in detail. Look for patterns: Are ETCs consistently optimistic? Are change orders being submitted promptly? Is labor tracking to budget? The fix might be more oversight, better training, or reassigning complex jobs to more experienced PMs.

Real example: I noticed a contractor's three worst jobs (out of 12 active) all belonged to one PM. All three showed the same pattern: estimated margin starting strong, then fading 4-6 points by midpoint. The PM was experienced and well-liked, but he had a blind spot around change order management. He considered change orders adversarial and avoided submitting them. Once we required weekly change order logs and mandatory submission within 7 days, his jobs improved by an average of 3 margin points.

Red Flag #6: Revenue Recognized But No Corresponding Cash

What it looks like: Your WIP shows $800K in earned revenue on a project, but your AR aging shows only $500K has been billed and $200K has been collected.

Why it matters: Revenue recognition under percentage-of-completion is based on work performed, not cash collected. If there's a big gap between earned revenue and collected cash, you have a multi-layered problem: billing isn't keeping up with work, and collection isn't keeping up with billing.

What to do: Trace the flow: earned revenue → billings → collections. Where is the bottleneck? Is it billing timing? Owner disputes? Slow payment? GC holding funds? Each cause has a different solution. But the first step is quantifying the gap and understanding how much of your recognized profit is actually sitting in someone else's bank account.

Red Flag #7: Jobs Over 90% Complete That Won't Close

What it looks like: You have three or four projects sitting at 92-97% complete for more than 90 days.

Why it matters: Jobs that won't close out are silent cash flow killers. They're tying up retainage (typically 5-10% of contract value), consuming bonding capacity, carrying overhead (PM time, insurance, job costs), and creating accounting complexity. Each one sitting at 95% with $150K in retainage is $150K that could be in your bank account.

What to do: Review each stalled close-out. What's preventing completion? Punch list disputes? Missing documentation? Final change orders unresolved? Create a close-out plan with specific deadlines. Assign someone to drive it. Track it weekly. For most stalled close-outs, the blocker is attention, not capability.

The math: Five jobs at 95% complete, each with $100K in retainage, equals $500K in trapped cash. At a 6% cost of capital, that's $30K per year in carrying cost — plus the bonding capacity those jobs consume.

Red Flag #8: WIP Report Hasn't Been Updated in 60+ Days

What it looks like: The WIP schedule is dated November, and it's now January.

Why it matters: A stale WIP report isn't just unhelpful — it's dangerous. Every decision you make based on a 60-day-old WIP is based on a fiction. Costs have changed. Billing positions have shifted. Jobs that looked fine might be in trouble. A WIP report that isn't current is worse than no WIP report, because it gives false confidence.

What to do: Update your WIP monthly at minimum. Weekly is better for high-volume contractors. The report itself might take a day to compile, but the visibility it provides saves weeks of scrambling later.

Red Flag #9: Original Estimate Never Revised Despite Scope Changes

What it looks like: A project's original budget hasn't changed since the job started, but there have been three change orders totaling $180K. The change order revenue is reflected, but the original cost estimate is untouched.

Why it matters: Change orders don't just add revenue — they add cost. If you've added $180K in change order revenue but haven't updated the cost estimate, your margin percentage looks artificially high. The real question is: did those change orders include margin, or did you price them at cost? And does the original estimate still hold for the original scope?

What to do: Every change order should trigger an ETC update. The cost budget needs to reflect the full scope, including changes. I've seen contractors show 16% margin on a job where the original scope was fading to 10% and the change orders were priced at cost. Blended, the true margin was 8%. The failure to update the original estimate hid the problem.

Red Flag #10: Net Over/Under Position Trending in One Direction

What it looks like: Your net overbilling was $100K in January, $200K in February, $350K in March, $500K in April.

Why it matters: A billing position that's trending steadily in one direction — especially toward increasing overbilling — indicates systemic behavior, not project-level variance. You're becoming more dependent on front-loaded billing across your portfolio. When those projects mature and the overbilling burns off, the cash impact will hit your entire operation, not just one job.

What to do: Plot your net billing position monthly for the past 12 months. Is there a trend? If overbilling is growing, identify which projects are driving it and why. Is it deliberate strategy or operational drift? If underbilling is growing, you have a billing discipline problem that's draining cash. Either way, the trend should be stable or improving. Directional drift needs investigation.

How to Build a Red Flag Review Into Your Monthly Process

These red flags aren't hard to spot if you're looking for them. The problem is most contractors produce a WIP report and review the numbers but don't systematically scan for patterns.

Here's a simple monthly checklist:

Step 1: Margin scan (5 minutes) Sort jobs by projected margin, lowest first. Any job below your company target margin gets flagged. Any job that dropped 3+ points since last month gets flagged.

Step 2: ETC freshness check (5 minutes) When was each job's ETC last updated? Flag any job where the ETC is more than 30 days old and costs have changed by more than 5%.

Step 3: Billing position review (5 minutes) Calculate overbilling/underbilling percentage for each job. Flag anything above 15% overbilled or 10% underbilled. Note the portfolio net position and compare to last month.

Step 4: Stale job scan (2 minutes) Identify any jobs over 90% complete for more than 60 days. What's preventing close-out?

Step 5: PM pattern check (3 minutes) Sort flagged jobs by PM. Is there concentration? Are the same names showing up repeatedly?

Total time: 20 minutes. That's it. Twenty minutes of structured review, added to your existing WIP process, will catch the majority of financial problems weeks or months before they become crises.

The Bottom Line

WIP red flags are predictable. The same patterns show up over and over, at every size of contractor, in every market. Margin fade that nobody catches. Overbilling that turns into a cash cliff. Change orders that never get submitted. Jobs that won't close out. Billing that falls behind.

None of these are catastrophic when caught early. All of them become expensive when caught late.

Build the 20-minute red flag review into your monthly process. Train your PMs to understand what you're looking for and why. Create a culture where surfacing problems early is valued, not punished.

The WIP report isn't just a schedule of numbers. It's an early warning system. But only if you learn to read the warnings.