Underbilled Doesn’t Mean What Most Contractors Think It Means 

Author: Joe Leone, CPA, MSA, Partner

A job comes back underbilled, and the room reaches the same conclusion almost every time: bill more, problem solved. Sometimes that is exactly right. Often, it is not. 

Underbilled just means the contract value your team has earned so far is running ahead of what has actually been invoiced. On paper, that single word looks the same no matter what caused it. Underneath it, there are at least four different situations, and only one of them is actually fixed by billing faster. Treat a job that is quietly bleeding margin like it just has a paperwork problem, and the real issue keeps running while everyone believes it has already been handled. 

Here are the four causes we look for, in the order we actually check them. 

1

An unapproved change order with costs already paid

Crews don’t wait for paperwork to catch up before they do the work, so the cost hits the job now while the change order sits unapproved somewhere in the approval chain. Percent complete looks higher than it should, because real cost has outrun the contract value that hasn’t caught up to match it.

Fix: Track down the change order, get it approved and recorded, and bill it next cycle. This one usually closes itself out.
2

An estimate to complete that stopped reflecting reality

The costs on the job are recorded correctly. What’s wrong is the total estimated cost to finish, whether from an aggressive original bid, scope that grew without the budget growing with it, or conditions that changed after signing. When the estimate is too low, percent complete calculates too high, and billing looks like it’s lagging behind work that hasn’t actually happened.

Fix: Update the estimate to complete now, based on how the job has actually trended the last two or three periods. Once that number is honest, treat the job with the same urgency as any job actively losing money, because that may be exactly what’s happening.
3

A schedule of values that never matched the real cost curve

The plan for recognizing contract income across the job’s phases front-loaded too little into the opening phases, while the real costs—mobilization, early material buys, and initial labor—land heavy right at the start. The schedule of values and the actual cost curve are simply out of sync.

Fix: There usually isn’t much to correct on the job that’s already running. Let it play out, and rebuild the schedule of values on the next bid to match how costs actually land on a job like this one.
4

A true billing lag

The estimate to complete is accurate. The schedule of values is reasonably built. There’s no change order hiding in the costs. Billing has simply not kept pace with the work that’s actually been completed.

Fix: Catch billing up on the next cycle. This is the one case where “bill more” is also the correct answer.

The trouble is never diagnosing the fourth cause. The trouble is assuming every underbilling is the fourth cause, without ever checking the first three. An underbilling is not a verdict. It’s a question the job is asking you. 

The Two-Minute Diagnostic

Pick a job that’s showing underbilled right now. Work through the steps below in order and stop as soon as one applies.  

STEP 1
Is there a change order on this job where the work is done and the cost has already hit the job, but the change order itself is still unapproved or unbilled?

☐ Yes, cost is in but the change order isn’t approved or billed yet.
→ See Result A below. Stop here.

☐ No, change orders on this job are current.
→ Continue to Step 2.

STEP 2
Has the estimated cost to complete this job been recalculated in the last two or three periods based on how it’s actually trending, not just the original bid?

☐ No, it’s still based on the original bid or an old update.
→ See Result B below. Stop here.

☐ Yes, it reflects how the job is actually trending.
→ Continue to Step 3.

STEP 3
Compare the schedule of values to how costs are actually landing. Does the income schedule roughly match when the real costs hit, especially early on (mobilization, initial labor and material)?

☐ No, income was front loaded too little early, and real costs came in heavier up front.
→ See Result C below.

☐ Yes, they’re reasonably in sync.
→ See Result D below.

Your Result

A
Likely a Paperwork Lag, Not a Margin Problem

Crews rarely wait for paperwork before doing the work, so cost lands on the job before the change order catches up. That makes percent complete look higher than it really is. The job itself is probably fine.

Do this: Track down the change order, get it approved and recorded, and bill it on the next cycle. Watch for whether this keeps happening with the same PM or the same GC, since a repeat pattern is worth a process fix.
B
This Deserves More Than a Billing Conversation

When the estimate to complete is stale, percent complete calculates too high, which can make a job that’s quietly losing money look like it simply needs to bill faster. It doesn’t. It needs an honest number.

Do this: Update the estimate to complete based on the last two or three periods of actual trend, not the original bid. Once that number is honest, treat the job with the same urgency you’d give any job that’s actively losing money, because it may be exactly that.
C
The Job Probably Isn’t the Problem. The Schedule of Values Is.

When the schedule of values front loads too little income into the early phases while the real costs land heavy at the start, the job will show as underbilled even when nothing is actually wrong.

Do this: There’s usually not much to fix on this job. Let it play out, and rebuild the schedule of values on the next bid so it matches how costs actually land on jobs like this one.
D
A True Billing Lag, and Billing Faster Is the Right Move

Change orders are current, the estimate to complete is accurate, and the schedule of values is reasonably built. Billing has simply not kept pace with completed work.

Do this: Catch billing up on the next cycle. This is the one case out of four where the obvious fix is also the correct one.

This diagnostic offers general guidance based on common patterns in construction job costing. It is not a substitute for a full WIP review with your advisor, and does not constitute accounting, tax, attest, or legal advice. If your WIP is raising questions, connect with our team for a closer look at what the numbers may be telling you.