Construction input costs up 11.9%: Re-estimate Every Open Job Before the October WIP

Construction input costs rose 11.9 percent in the twelve months to September 2026, the largest jump in four years, and diesel more than doubled. For a contractor on fixed-price work, the response is not a new estimating spreadsheet. It is a revised estimated cost to complete on every open job, posted before the October WIP schedule closes.

Why this matters now

On 2026-10-15 the Bureau of Labor Statistics released the Producer Price Index for September 2026. Final demand prices rose 1.3 percent in the month. Final demand goods rose 2.6 percent, the largest increase since the series began in December 2009, and more than 80 percent of that came from energy, which jumped 10.8 percent. Diesel fuel alone rose 21.0 percent in September and accounted for nearly half of the rise in processed goods for intermediate demand. Over the twelve months to September, final demand climbed 6.3 percent, the largest annual increase since December 2022.

The same day, 2026-10-15, the Associated General Contractors of America reported that the producer price index for inputs to new nonresidential construction jumped 11.9 percent from September 2025 to September 2026, the most in four years. Construction Briefing carried the breakdown on 2026-10-16: diesel up 115.2 percent, liquid asphalt up 17.7 percent, truck transportation of freight up 19.3 percent, aluminum mill shapes up 25.2 percent, steel mill products up 27.6 percent, and copper and brass mill shapes up 30 percent. Association officials said firms appear to be absorbing most of the increases, since demand is soft outside data centers. Labor moved too. On 2026-10-16 AGC reported that first-year union wage-and-fringe packages negotiated from January through September 2026 rose 4.9 percent, or $3.39, above the 4.7 percent average for 2025, according to the Construction Labor Research Council.

The fuel spike is large enough that the IRS acted on it. In IR-2026-122, dated 2026-10-14, the agency said it will not impose excise tax penalties when dyed diesel is sold for or used in highway vehicles from October 1 through December 31, 2026, following the October 5, 2026 executive order on emergency diesel tax relief. That relief is federal only, and it changes the tax on a gallon, not the price of it.

The coverage so far tells you the numbers and advises escalation clauses on the next bid. It doesn't tell you what the numbers do to jobs already under contract. "Absorbing" the increase means the margin on those jobs shrinks, and under percentage-of-completion accounting the shrinkage lands in the month the estimate is revised, all at once, as a cumulative catch-up. If nobody revises the estimate, the WIP schedule keeps reporting the old margin until the invoices arrive, and the overrun surfaces after the money is spent. This post walks through the mechanics with a worked example, then sets out the controls that keep the re-estimate honest.

What a higher cost to complete does to a percentage-of-completion job

Most contractors measure progress by cost. Percent complete equals costs incurred to date divided by the estimated total cost at completion. Revenue earned to date equals the contract price times percent complete. Gross profit to date is the difference between that revenue and the costs incurred. Every one of those figures depends on the estimate at completion, which is the one input nobody in the accounting office produces. The project manager does.

That dependency creates a trap. If a job spends more than planned and nobody changes the estimate, the extra spending raises percent complete, which raises revenue earned, which makes the overrun look like progress. The profit and loss shows the original margin right up to the month the estimate finally moves. Then the whole correction arrives in one period. Under the cumulative catch-up method, the revenue recognized this month equals the new cumulative revenue earned minus everything recognized in prior months. There's no spreading it over the remaining life of the job.

Two balance sheet accounts absorb the difference between what has been billed and what has been earned. When billings to date exceed revenue earned, the excess is a liability, billings in excess of costs and estimated earnings, carrying a credit balance. When revenue earned exceeds billings, the shortfall is an asset, costs and estimated earnings in excess of billings, carrying a debit balance. These are point-in-time positions at month end. Revenue, cost, and gross profit are flows for the month. A re-estimate changes both: the flow for the month and the balance at the end of it.

One more rule matters when input costs jump this far. If the revised estimate at completion exceeds the contract price, the job is a loss job, and the full expected loss is recognized in the period you identify it, not as the work is performed. A job that was earning a small margin and is now underwater produces a swing equal to the profit previously recognized plus the whole loss.

Re-estimate every open job: a worked example

Take a fixed-price job with a contract price of $500,000 and an original estimated total cost of $425,000, a $75,000 margin at 15 percent. Through September the job has incurred $255,000 of cost, so it is 60 percent complete. Revenue earned to date is $300,000, gross profit to date is $45,000, and the owner has been billed $320,000, so the job is overbilled by $20,000.

The original estimate left $170,000 of cost to complete: $80,000 of materials, $30,000 of fuel and hauling, and $60,000 of labor and everything else. The project manager re-prices the remaining work with October quotes. Materials come in 20 percent higher, since the remaining buy is heavy in steel and copper and some of it isn't locked yet, adding $16,000. Fuel and hauling come in 40 percent higher, a blend of diesel that has more than doubled and trucking up about a fifth, adding $12,000. Labor adds $2,000, because the crew's rates were set earlier in the year and the 4.9 percent settlement only touches the final weeks. The revised cost to complete is $200,000 and the revised estimate at completion is $455,000.

Read the last three rows together. Nothing changed on the cost side this month. The entire $19,780 correction comes through revenue, because the same $255,000 of cost now represents 56 percent of a bigger job instead of 60 percent of a smaller one. The journal entry is a debit to contract revenue for $19,780 and a credit to billings in excess of costs and estimated earnings for $19,780. Gross profit to date drops from $45,000 to $25,220, and the remaining $19,780 of margin will be earned over the last 44 percent of the work, if the new estimate holds.

Now run the loss case. Suppose the remaining work was more fuel-heavy and the re-priced cost to complete came to $260,000 instead of $200,000. The estimate at completion would be $515,000 against a $500,000 contract, a $15,000 loss. The job's cumulative gross profit must then equal negative $15,000 immediately. Having already recognized $45,000 of profit, the month absorbs a $60,000 swing. That is the number the owner needs to see in October, not in March when the final invoices post.

Repeat the exercise for every open job. Cost to date by job and cost type comes from the job cost ledger, and the earlier post on building a construction WIP schedule from QuickBooks covers pulling it. The cost to complete comes from the project manager with dated quotes. Labor is only as good as the payroll coding behind it, which is why the labor job cost tie-out belongs in the same close. The re-estimate is a month-end step, not a year-end one, for as long as prices move like this.

Accounting controls for the re-estimate

Source data: the inputs are the job cost ledger for costs incurred to date, open purchase orders and subcontracts for committed cost, dated supplier quotes for the remaining buy, the signed contract and approved change orders for contract price, and the accounts receivable ledger for billings to date. The BLS release and the AGC figures are reasonableness references, not estimates. A national average of 11.9 percent says nothing about one job's remaining mix, so the cost to complete comes from quotes, and the quotes are dated and filed with the job.

Calculation: the WIP schedule is a deterministic calculation from those inputs. Percent complete equals cost to date divided by the revised estimate at completion. Revenue earned to date equals contract price times percent complete. The month's revenue adjustment equals revenue earned to date minus revenue previously recognized. Over or under billing equals billings to date minus revenue earned to date. If the estimate at completion exceeds the contract price, the loss is the difference, recognized in full. Three ties catch most errors: the sum of job revenue for the month equals the contract revenue account, the sum of the over and under billing positions equals the two balance sheet accounts, and cost to date per job equals the job cost ledger.

Review: the controller compares each project manager's cost to complete with last month's and flags any change beyond the agreed threshold for a written reason. The reviewer checks that committed costs are in the estimate, that fuel surcharges on hauling invoices were coded to the job rather than to overhead, that uninstalled stored materials are not inflating percent complete, and that unapproved change orders have not been added to contract price. The reviewer also confirms that the WIP entry balances, that overbilling sits as a credit balance liability and underbilling as a debit balance asset, and that any loss job carries its full loss.

Decision: the owner, or the operations lead, decides how often estimates are re-priced while costs are moving, monthly being the reasonable answer right now, the threshold above which a project manager must explain a change, whether to pursue an escalation claim or a change order on a job where the contract allows it, and whether to accept a loss reserve or re-sequence the work. Each is a policy, set once and applied to every job, so the answer doesn't depend on who is in the room.

Limits and common mistakes

The 11.9 percent figure is an index for inputs to new nonresidential construction across the country. Residential work, heavy civil work, and any single job will differ, and materials already bought and stored carry no further price exposure. Use the index to decide which jobs to re-price first, then price them from quotes.

Stored materials are a separate trap. Under a cost-to-cost measure, paying for steel that sits in the yard raises percent complete without any work being done. Many contractors exclude uninstalled materials from the progress calculation and carry them as inventory or as a separate job cost line until installed. Decide the treatment once and apply it consistently, or the re-estimate and the progress measure will fight each other.

Change orders are another. A pending change order that the owner hasn't approved does not increase contract price. Adding it early overstates revenue in exactly the month you are trying to correct it. Record the cost when incurred and the price when approved.

Fuel surcharges deserve a specific check. Hauling and ready-mix vendors have been adding surcharge lines to invoices, and bookkeepers often code the surcharge to a fuel expense account in overhead. The job then looks cheaper than it is, and the cost to complete is built on an understated base. Route surcharges to the job the load went to.

Finally, the book re-estimate and the tax return are different documents. A small contractor on the completed-contract method or the cash method for tax does not change taxable income by revising the WIP schedule, and a contractor who changed methods this year under the guidance covered in the post on building a construction tax transition register should keep the two reconciled rather than merged. Spreadsheet models for job cost and WIP tracking, which you can adapt for the example above, are in the FinBoard templates library.

Frequently Asked Questions

What does the 11.9 percent rise in construction input costs measure?

It is the change in the producer price index for inputs to new nonresidential construction from September 2025 to September 2026, as reported by the Associated General Contractors of America from Bureau of Labor Statistics data. It is a national average across materials, fuel, and services bought by contractors, and the largest annual increase in four years.

How does a higher cost to complete change percent complete?

Under the cost-to-cost method, percent complete equals costs incurred to date divided by the estimated total cost at completion. Raising the estimate at completion lowers percent complete, which lowers revenue earned to date and gross profit to date, even though no new cost has been incurred.

Do I spread the profit reduction over the remaining months of the job?

No. Under the cumulative catch-up method, the month's revenue equals the new cumulative revenue earned minus everything recognized in prior months, so the whole correction posts in the month the estimate changes. If the revised estimate exceeds the contract price, the full expected loss is recognized immediately.

What is the difference between overbilling and underbilling on a WIP schedule?

Overbilling is billings to date in excess of revenue earned, carried as a liability with a credit balance. Underbilling is revenue earned in excess of billings, carried as an asset with a debit balance. Both are point-in-time balances at month end, while revenue and cost are flows for the month.

Does re-estimating a job for the WIP schedule change my tax return?

Not by itself. The WIP schedule drives book income under percentage of completion. A contractor on the completed-contract or cash method for tax reports on that method, and a contractor using percentage of completion for tax applies the tax rules to the same revised estimate. Keep the book and tax computations reconciled, not merged.

FinBoard builds the job cost and WIP view from the QuickBooks ledger, so cost to date by job, billings to date, and the over and under billing positions tie to the transactions underneath them, and a revised estimate at completion flows through percent complete, earned revenue, and gross profit in the same close. See how FinBoard handles job costing and WIP reporting for contractors.