The Work In Progress Schedule (WIP)

A key piece to underwriting a contractor for surety is the Work In Progress schedule, or WIP. 

What does the WIP tell us?

First, it gives the underwriter an idea of how much work the contractor has going on, and if they them have the capacity to take on more work. This is seen in both the aggregate dollar figure that they have under contract and how many jobs they have going on.

Additionally, we can see profitability in jobs. What the average margins for all of the jobs on their WIP. Is the contractor holding those margins, or are they losing money on one or more jobs. If a job is not holding its margin, then we call that “profit fade.” However, if a job is making more money than estimated, that is “profit gain.”

Another piece of information taken from the WIP is to see the size jobs that the contractor undertakes, giving us some insight into their experience. If we have references for jobs of $500,000, but see a $1.2 million job on their WIP, the underwriter might call that job in progress, and count that towards the contractor’s experience. Where the job stands in terms of completion will be a major factor in that decision.

Finally, the WIP schedule allows us to calculate over and underbillings for a contractor. On a balance sheet that uses percentage of completion accounting (preferred by sureties), this is also called Billings in Excess of Costs (overbillings), a liability, and Costs in Excess of Billings (underbillings), an asset. This quick calculation will allow us to determine if working capital on a simple accrual balance sheet is being overvalued or undervalued.

What all this analysis does is to allow the underwriter to make a more informed decision relative to either a single bond request or a request for a surety line of credit.

Insurors Indemnity uses a WIP format in a simple excel spreadsheet that will automatically calculate over and underbillings as long as 4 components to a job are presented: 

1) Contract amount

2) Estimated total costs

3) Billings to date

4) Costs to date

If you would like a copy of our WIP spreadsheet, please feel free to contact Somers Goodman at sgoodman@insurors.com.