Accurate Time Tracking Is So Much Easier With Workyard
Construction projects are often complex and multi-faceted, making them difficult to price accurately. This can lead to underbilling, which can be a major problem for construction companies. Underbilling can cause cash flow problems and put a strain on resources, leading to project delays and cost overruns.
It’s important to avoid common pitfalls that can lead to underbilling so that you can keep your construction projects on track and within budget.
Why Does Underbilling in Construction Happen?
There are a few common reasons why underbilling occurs in construction. One reason is that many construction contracts are not well written or detailed enough. This lack of detail can make it difficult to accurately estimate the cost of a project, leading to underbilling.
Another reason for underbilling is that construction projects often involve change orders. Change orders are requests from the client to make changes to the scope of work, and they can be very costly. If change orders are not included in the original contract price, they can lead to underbilling.
Being unable to track your organizational expenses is another common factor for underbilling—if you don’t know your employee’s mileage, for instance, you can’t bill it out.
Finally, many organizations underbill because they aren’t able (or aren’t tracking) potential variable expenses, such as labor or materials. Here are five reasons underbilling in construction can happen.
Reason 1. Creating an Inaccurate Bid
One of the most common causes of underbilling is creating an inaccurate bid. When you create a bid, you’re guessing how much the project will cost. It’s an informed guess, but it’s still an estimate. And this can be difficult to do accurately, especially for complex projects.
To avoid this pitfall, it’s important to have the right data. You should have detailed estimates for all of the different materials, labor, and other costs that will be involved in the project. Make sure your estimate is as realistic and detailed as possible by comparing it to previous cost reports. Insert enough “wiggle room” so that a budgetary overrun won’t be the end of the project.
Winning a bid is important. But if you underbid, all you may be winning is debt.
Reason 2. Not Tracking Change Requests
Another common cause of underbilling is change requests. Change requests are often made by the client, but sometimes they’re also initiated by your team. For instance, if a team isn’t planning correctly, or a team isn’t doing a job properly, they may need to re-do work.
It’s important to track these changes closely so that you can accurately bill out for them. You may want to include a clause in the contract agreement that outlines the process and requirements for change requests. Some construction companies make more money on change requests for the client than they do on the original project.
But when it comes to employee mistakes or errors, you need to have control over your worksites. Workyard can help—employees can send you project updates completely with notes and photos so you can keep track of a project as it progresses.
Reason 3. Not Tracking Labor Expenses Accurately
Another common reason for underbilling is not tracking billable employee expenses accurately. Many different costs can be involved in a construction project, from materials to labor costs to travel and mileage expenses.
If you’re not tracking these expenses closely, it’s easy to miss some that should be included in the billable amount. This can impact your initial bid, but it can also impact how much you think the project cost once complete.
Going over budget is bad. But going over budget and not knowing it is worse. Your organization needs real-time employee, labor, and mileage data. Without a construction cost report, you can’t tell when a project has started costing you money instead of making you money.
Workyard can help your organization track its time and mileage accurately—at the push of a button.
Reason 4. Failing To Price Risk Into Your Bids
Labor and material costs are estimates, not guarantees. Construction companies already operate on fairly lean margins. If you aren’t compensating for risks in your bids, then you’ll be left exposed if these costs come in high.
This can easily lead to underbilling—and, as a result, financial problems for your company. Include a buffer for these risks in your bid. Know which material costs or labor costs are likely to overrun and note them from the beginning of the project. This will help ensure that you don’t end up in the red if costs come in higher than expected.
Reason 5. Billing on the Wrong Schedule
Many smaller construction companies may not bill the client until they are 100 percent complete with the project. But there are many reasons to start billing earlier. Billing on a milestone basis doesn’t just ensure that you get your payments but also ensures that your client is intimately familiar with the costs of the job, is apprised of any budgetary changes as you go, and is willing to continue paying if costs are coming out a little higher than expected.
Underbilling occurs because organizations don’t have the right data or aren’t effectively communicating with clients. Resolving these issues leads to more accurate bids and more accurate bills.
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