The tender looked good. The numbers worked. The margin was there. So why, six months

later, is the project making little or no money?

For many contractors, the problem isn't winning work.

It's winning work that looked profitable on paper but slowly loses money once the project gets underway.

A tender can show a healthy margin on day one. But construction projects rarely go exactly to plan. Costs move, programmes change, information arrives late, variations occur and contractual obligations come into play.

Small problems can quickly become big commercial problems.

A £500,000 project with a £50,000 anticipated margin might look attractive. But if £5,000 disappears here, £10,000 there and another £15,000 is lost through delay, additional labour or unrecovered variations, that healthy margin can disappear surprisingly quickly.

So where does the money go?

Here are seven of the most common reasons contractors lose money on projects they initially thought were profitable.

1. The tender wasn't priced as thoroughly as it could have been

It sounds obvious, but one of the easiest ways to lose money is to start the project with an inaccurate price.

In a competitive market, contractors are under pressure to submit tenders quickly and competitively.

But rushing a tender can create problems that don't become apparent until you're on site.

Perhaps a scope item was missed.

Perhaps the drawings weren't fully coordinated.

Perhaps the labour allowance was too low.

Perhaps preliminaries weren't sufficient.

Perhaps a subcontractor quotation was based on a different scope.

Perhaps an assumption was made about access, working hours or sequencing.

None of these errors necessarily look catastrophic individually.

Together, they can have a significant impact.

The lesson:

Your margin starts with your tender.

The more robust the tender process, the greater the chance that the margin you're expecting is actually achievable.

Before submitting a tender, contractors should be asking:

• Have we captured the full scope?

• Are the drawings and specifications consistent?

• Have all labour and material requirements been included?

• Are subcontractor quotations comparable?

• Are preliminaries realistic?

• Have we identified assumptions and exclusions?

• Have we allowed for the risks associated with the project?

The cheapest price isn't necessarily the best price.

The best price is one that allows you to deliver the project profitably and realistically.

2. Scope gaps and “We'll sort it out later”

One of the most expensive phrases in construction is:

“We'll sort it out on site.”

Maybe there is uncertainty around who is responsible for something.

Maybe the specification isn't clear.

Maybe the drawings don't show exactly how something should be constructed.

Maybe everyone assumes someone else has included it.

The problem is that assumptions don't pay subcontractors, suppliers or wages.

If an item wasn't clearly included in the original scope, you may find yourself having a difficult conversation about who should pay for it.

And even when you're ultimately entitled to additional payment, recovering that money isn't always straightforward.

The lesson:

Unclear scope creates commercial risk.

The earlier a scope gap is identified, the easier it is to clarify it, price it and document the agreed position.

3. Variations aren't being properly captured

Variations can be one of the biggest opportunities for contractors to recover additional costs — but only if they're properly managed.

A client asks for a change.

The site team gets on with it.

Materials are ordered.

Labour is used.

The work is completed.

Then someone asks:

“Where's the instruction?”

That's when the commercial problem starts.

Contractors can find themselves trying to demonstrate what changed, when it changed, who instructed it and what additional costs were incurred.

And the longer the project continues, the harder that evidence can become to establish.

Good variation management means keeping records of:

• What changed

• Why it changed

• Who instructed it

• When it was instructed

• The additional labour

• Materials

• Plant

• Subcontractor costs

• Programme impact

• Supporting correspondence

A variation isn't simply extra work.

It's a commercial event that needs to be properly recorded and valued.

4. The Programme Is Eating Into the Margin

A project might have been priced around a 20-week programme.

It takes 26 weeks.

Those additional six weeks aren't necessarily free.

Your site management team is still there.

Your welfare facilities are still there.

Plant may still be on hire.

Scaffolding may still be standing.

Site accommodation, security, temporary works and other preliminaries may continue accumulating costs.

Then there is labour productivity.

A delayed project can create inefficiencies throughout the supply chain.

The important question isn't simply:

“Why is the project late?”

It is:

“Who is responsible for the delay, and what does the contract say about the financial consequences?”

This is where the relationship between programming and contract management becomes extremely important.

Contractors need to understand their contractual rights around extensions of time, delay, loss and expense and associated costs.

5. The contract wasn't properly reviewed

This is one of the biggest areas where contractors can expose themselves before work has even started.

The tender might be based on one set of assumptions.

The contract might contain another.

A contractor may focus heavily on the price and scope but give less attention to the contractual terms attached to the project.

That's risky.

A contract can contain provisions covering:

• Payment

• Retention

• Set-off

• Liquidated damages

• Extensions of time

• Variations

• Design responsibility

• Insurance

• Indemnities

• Defects

• Termination

• Suspension

• Programme requirements

• Dispute resolution

Each clause can potentially have a commercial impact.

For example, a contractor might have priced a project assuming a realistic programme and normal payment cycle.

If the contract then imposes significant delay damages and restrictive payment provisions, the commercial risk may be very different from what the tender initially suggested.

The lesson:

Don't wait until there's a problem to discover what the contract says.

A contract review before signing gives contractors the opportunity to identify risks, seek clarification and, where appropriate, negotiate changes before they become expensive problems.

6. Costs are being managed too late

Another common problem is waiting until the end of the month — or worse, the end of the project — to understand what's happening commercially.

By then, it can be too late.

A project might be overspending because:

• Labour hours are higher than allowed

• Material costs have increased

• Subcontractors are exceeding their allowances

• Plant is being hired for longer

• Productivity is lower than anticipated

• Variations haven't been recovered

• Preliminaries are running over budget

The earlier these issues are identified, the more options you have.

A contractor who discovers a problem in week four can potentially take action.

A contractor who discovers the same problem in month eight may simply be looking at a much smaller final margin.

Commercial management isn't about looking backwards.

It's about understanding where the project is going while there is still time to influence the outcome.

7. Cashflow is being confused with profit

A project can be profitable on paper and still create serious cashflow problems.

Equally, a contractor can have plenty of money coming into the bank while the underlying project is performing poorly.

Cashflow and profit aren't the same thing.

A contractor might have:

• Long payment periods

• Retention being withheld

• Applications disputed

• Variations not yet agreed

• Subcontractors requiring payment

• Materials needing to be purchased in advance

You can therefore have a project that is expected to make £50,000 profit but still put significant pressure on your business's cash position.

That pressure can become particularly dangerous when multiple projects are running simultaneously.

The lesson:

Know your margin. Know your costs. Know your cash position.

All three matter.

So, How Do You Protect Your Margin?

There is no magic formula that makes construction projects risk-free.

There will always be unknowns.

There will always be changes.

There will always be things that don't go exactly according to plan.

But contractors can significantly improve their position by managing the commercial side of a project from the beginning.

That means:

Before the tender

Understand the opportunity.

Is the project suitable for your business?

Is the scope clear?

Is the programme achievable?

Are the risks acceptable?

Is the likely margin worth pursuing?

During the tender

Price properly.

Don't rush.

Check the scope.

Challenge assumptions.

Review subcontractor quotations.

Identify exclusions.

Allow for realistic preliminaries.

Understand the risks.

Before signing the contract

Read what you're actually agreeing to.

Does the contract reflect your tender?

Are the payment provisions acceptable?

Who carries the risk?

What happens if the programme changes?

How are variations dealt with?

What happens if either party wants to terminate?

During the project

Manage the commercial position continuously.

Track costs.

Record variations.

Monitor progress.

Maintain records.

Submit notices and applications where required.

Understand your contractual rights.

Don't wait until the final account to discover you've lost money.

The Bottom Line

A construction project doesn't suddenly become unprofitable on the day the final account is prepared.

The margin is usually lost gradually.

A missed tender item.

An underestimated programme.

An undocumented variation.

A poorly managed delay.

An unfavourable contract clause.

A few thousand pounds here.

Another few thousand there.

And suddenly the profit that looked so healthy at tender stage has disappeared.

The key is to identify those risks before they become costs.

At Daedalus Consultancy, we help contractors take a more commercially informed approach to construction projects — from identifying and reviewing tender opportunities through to tender support and construction contract reviews.

Because winning the project is only the beginning.

The real goal is to finish it profitably.

Daedalus Consultancy

Tender smarter. Contract better. Protect your margin.

If you're pricing a new project or have been sent a contract you're being asked to sign, speak to us before committing your business.

The best time to deal with a commercial risk is before it becomes a commercial loss.