Why construction is more exposed than most sectors
In most businesses there is one hand-over between the sale and the invoice. In construction there are five or six: estimating, the PM, the foreman on site, the QS, the office and accounts. Every hand-over is a place where information can get lost (source).
Scope changes once work starts, jobs run for months or years, and a lot of decisions are agreed verbally on site. The foreman knows it's a variation and knows it should be written down, but the work comes first.
Seven places money leaks
These seven patterns are identified in the original revenue leakage study. For more on point four, see missed price indexation.
Variations agreed on site but never written down
The foreman agrees extra work with the client, the architect or the QS on site. The job gets done, materials are bought and hours are worked, but nothing is recorded. When the final account comes round there is no evidence, so you concede it or settle for part.
Variations recorded but never billed
The instruction is signed and sitting in a folder or an email thread, but it never makes it into a valuation. Small items get left to "bundle later", and they go missing when a PM moves to another job.
Provisional sums left unsettled
When the actual cost goes over a provisional sum and nobody adjusts it, you pay the difference yourself. If the agreed mark-up on the overrun is also forgotten, the margin goes with it.
Price increases you are allowed to pass on
Plenty of contracts allow for material and labour price increases. That only helps if someone works out what can be claimed, backs it up and submits it on time.
Valuations running behind progress
When valuations are not kept up to date you invoice later than the contract allows. You end up funding the job yourself, and old stages tend to get swallowed into the final account.
Daywork with missing hours and materials
Missing timesheets, stock taken without being recorded, hired plant left on site longer than booked. Every gap is money you never bill.
Snags and retentions left open
One small open snag can hold up the final payment. A year later nobody chases it, and two years later it is written off.
Why it doesn't show up in the figures
A leaking job usually just looks like a job that went badly. The margin comes in under budget and the reasons seem obvious: setbacks, price rises, a difficult client. Working out how much of that was billable means going line by line through costs, variations and the contract. That rarely happens, because the team has already moved on to the next job and the data is spread across spreadsheets, accounts packages, WhatsApp and email.
A worked example
Picture a contractor turning over €10 million across 20 projects a year, where each job has these small gaps:
That's 1.9% of revenue, and no single job feels like a disaster. These figures are an illustration, not a benchmark. Your number depends on how many variations your jobs have, how you record them and how quickly you settle. The example is adapted from the original study, which cites a general estimate of 1 to 5% of revenue for B2B companies.
How to find it
You don't need a new system to start. These three checks nearly always turn something up.
Match variations to invoices
Take your last ten finished projects. List every variation instruction, signed or confirmed by email, and find the invoice line it ended up on. Anything you cannot find is likely leakage.
Check provisional sums against actual cost
For each provisional sum: what was allowed, what was spent and what was settled? An overrun with no adjustment is money you can still chase.
Read your contracts for price clauses
Which live contracts include an indexation or price adjustment clause, when can it be applied, and has it been?
For step-by-step guides, see invoice checks and contract checks for construction companies.
How to prevent it
Checking afterwards finds the leaks. Preventing them happens on site, with habits simple enough to keep up on a busy job.
One variation form, every time
Description, reason, who gave the instruction, estimated value and a confirmation. Captured on the phone, on site, as it happens.
A live variations register per project
Requested, approved, done, invoiced. Anything marked done for three weeks without an invoice gets flagged to the office.
Valuations on a fixed day
Assess progress on the same day every month and invoice straight away, even when the amount is small.
Contract terms on one sheet
Price clauses, provisional sums, payment schedule and terms, all set out at the start so the office knows when something can be claimed.
A deadline for the final account
Agree that the final account goes out within, for example, six weeks of completion. The longer you leave it, the weaker your position.
Why it's worth it
Money you recover from leakage is almost all margin. A €2,500 variation you finally bill has already paid for its labour and materials, so the full amount goes to your bottom line. When net margins are a few percent, recovering even 1% of revenue can make a real difference to profit.
Frequently asked questions
Is a variation without a written instruction always lost?
Not always, but you are negotiating without evidence. Photos, timesheets and a dated note made on the day put you in a far stronger position than memory.
How much leakage is typical?
There is no reliable figure for Irish construction. A commonly cited estimate is 1 to 5% of revenue for B2B companies generally, which is a reasonable starting point to compare your own numbers against.
Do we need new software to fix this?
Not necessarily. The checks above can be done with what you have. Where we help is in co-designing a simple system around how your crews and office already work, so variations get captured on site rather than recovered afterwards.
References
- Revenue leakage in construction (original study) (Automaat)
- Revenue leakage from missed price indexation (Automaat)
- Invoice checks for construction companies (Automaat)
- Contract checks for construction companies (Automaat)
Want to know where it's leaking in your business?
We sit down with your crews, foremen and office, map how a job moves from tender to handover and show you where the gaps are.
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