40 April 2026

By Derrick Rebello and Brad Carlson

If you’ ve worked in construction for a while, you remember when material prices were just a number. You’ d get a quote, add it to your estimate, and move on. Those days are gone.“ Stabilized” doesn’ t mean“ predictable.” Lumber prices jump with housing starts. Steel costs shift the moment tariffs are announced. Diesel moves with global events no one sees coming. Contractors who protect their margins aren’ t just lucky with timing— they’ ve built systems to handle price swings without taking the hit. Here’ s how.

Escalation Clauses: Stop Absorbing Risk that Isn’ t Yours

Most contractors know about escalation clauses. Fewer use them consistently, and even fewer use them well. The usual worry is competition:“ If I add an escalation clause, the owner might pick someone who doesn’ t.” That’ s a real concern. It’ s also why many contractors have lost sixfigure sums on jobs they actually won.

A good escalation clause identifies the materials covered( steel, lumber, copper, fuel, concrete), the index used to track price changes( ENR Construction Cost Index, PPI, or EIA diesel prices), the threshold that triggers it( typically 5 – 10 percent above the bid price), and how costs are shared above that limit. Asking the owner to absorb 100 % is a hard sell. Splitting costs 50 / 50 above a 10 % increase is fair and far more likely to get approved.

On public projects, escalation protections are increasingly common after the cost spikes of 2020 – 2022. If you’ re a subcontractor on these jobs, make sure your contract includes the same terms. A common margin leak: The GC has escalation protection from the owner but doesn’ t pass it down to subs. Don’ t be the sub holding the risk that was already covered upstream.

Change Orders: The Money You Leave on the Table Every Single Project

Unresolved or underbilled change orders

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617.405.4221 www. nemca. org @ NewEnglandMCA are among the top reasons project margins shrink. A job with a 7 % margin can lose all of it from just 1 – 2 percent in change order losses. The problem is usually cultural, not procedural: PMs want to keep things smooth, superintendents don’ t want to stop work to document changes, and“ we’ ll figure it out later” becomes never.

The fix is simple: Price the change before you start the work, or at minimum get written approval before proceeding. A verbal“ just go ahead” won’ t hold up when you submit a $ 40,000 change order weeks later. Keep a change order log for every project that tracks each change from the moment you spot it, not when you submit the form. Record the date, the directive, the work done, and costs incurred. And don’ t discount your markup on change orders. They’ re often faster-moving, harder to execute, and carry the same overhead. Price them like it.

Real-Time Job Costing: If You Find Out in Month Three, You’ ve Already Lost

Most job costing happens 30 – 60 days after the work. That means the cost report you’ re reviewing in month three shows what happened in month one. You’ ve spent two more months making the problem worse before you even knew it existed.

Real-time job costing links field activity to financial reporting as close to daily as possible. Field teams enter labor hours by cost code each day. Purchasing codes material receipts by job. Accounting processes data without long delays. The bottleneck is rarely software— it’ s discipline.

A full job cost report shows three figures: actual costs( invoices paid), committed costs( purchase orders and subcontracts issued), and projected final cost( your total forecast). A contractor who only tracks actuals and sees green on a job with $ 200,000 in committed purchases still pending isn’ t looking at a healthy job. They’ re looking at a false positive.

Margin Leakage: Finding the Holes Before They Drain You

Margin leakage is the gap between the margin you estimated and the one you collect. A structured leakage diagnostic compares your estimates to actual results throughout the project, not just at the end. The most common sources: material cost overruns( manageable with escalation clauses and smarter purchasing), labor productivity losses( often bigger and harder to spot— track labor by phase against estimated rates weekly, not monthly), underbilled change orders from subcontractor scope gaps, billing timing mismatches, underestimated warranty and punchlist costs, and overhead absorption failures when a project runs longer than planned.

A simple diagnostic: Take your three largest active projects, pull the original estimate, current job cost report( including committed costs), and billing-to-date, and calculate projected margin at completion. If any job is more than two points below its original estimate, you have active leakage. Not all of it is recoverable— but some of it is, and contractors who look for it find money others miss.

The New Bottom Line

Volatile material markets aren’ t a shortterm problem. They’ re the operating environment now. Contractors who succeed will treat contract language, change management, job costing, and financial diagnostics as core competencies— not paperwork. The difference between knowing you should do these things and actually doing them is where your margin lives.

If you’ d like to run a margin leakage diagnostic on your current portfolio, or help drafting escalation clause language suited to your contract types, we’ re here to work through it with you.

Derrick Rebello, CPA and Brad Carlson are partners in the Construction Practice Group at Gray, Gray & Gray, LLP. They can be reached at( 781) 407- 0300 or powerofmore @ gggllp. com. www. high-profile. com