The project that looked profitable on the bid is rarely the one that paid.
In construction and engineering, the bid is a forecast and the margin is a surprise. Direct labour and materials are visible. What decides whether a project paid is the part nobody costed at bid time: overhead allocated by a crude percentage, equipment time charged at an average, rework that never made it onto a cost code, and the project-management drag of a difficult client. Time-driven costing turns those into numbers, project by project and phase by phase.
Cost and Profitability Consulting · 150+ models since 2010 · TDABC
Construction and engineering profit hides in overhead allocation and in the gap between the bid and the as-built cost. We do not publish a construction-specific benchmark, because rigorous sector figures are not in our base. What is well established and applies here is transversal: traditional costing spreads overhead by volume, so complex, low-volume work comes out cheaper than it is, and in the models we build 20 to 40 percent of a fully costed portfolio turns out unprofitable. TDABC assigns overhead, equipment and project-management time to the projects and phases that actually consumed them, so true project margin replaces the blended percentage on the bid sheet.
The bid models direct cost. The margin lives in everything else.
Overhead is allocated by a crude percentage
A flat percentage of labour or contract value charges every project the same, regardless of the supervision, planning and admin it actually pulled. Traditional costing spreads overhead by volume, so complex, low-volume work comes out cheaper than it is.
The bid is not the cost
Cost overruns are not random; they are unpriced consumption. Rework, change orders, idle crews waiting on a dependency and equipment standing by all consume cost the bid never modelled. Without a true as-built cost, the same mistakes are bid again.
Equipment and crew carry an idle cost nobody books
A machine or a specialist crew has a capacity cost whether it works or waits. Kaplan and Anderson put practical capacity at 80 to 85 percent of theoretical, and almost nobody measures the cost of the unused slice.
Client and project mix decide the year
A handful of well-run projects and disciplined clients carry the firm; a few overrun-prone, change-order-heavy projects quietly erase the rest.
THE BID IS NOT THE COST
Illustrative structure, not a sector benchmark. The gap between bid and as-built is unpriced consumption: overhead by real use, rework, change orders and idle time.
Two parameters, no surveys.
A capacity cost rate per resource group (crew type, equipment class, PM and engineering office) and time equations that describe how each project and phase consumes those resources. The cost drivers that matter here are project complexity, the number and size of change orders, rework events, equipment scheduling, crew idle and wait time, and supervision intensity by client.
Project cost = direct labour and materials + crew hours per phase x crew capacity cost rate + equipment hours x equipment capacity cost rate + PM and supervision time driven by project complexity + rework and change-order time (the cost the bid ignored) + share of office / engineering overhead by time consumed
Illustrative structure, not a measured benchmark. The rework and change-order term is where a profitable-looking bid turns into a loss.
The whale curve maps the portfolio.
There is no construction case in our base, so we do not invent one. What we can say with confidence is structural and transversal: the whale curve applies to a project and client portfolio exactly as it does anywhere else. Across sectors, industry research shows the top 20 percent of clients or jobs generate 150 to 300 percent of profit, while the bottom 10 to 20 percent destroy 50 to 200 percent. In an engineering or construction firm, that bottom band is usually the overrun-prone projects and the change-order-heavy clients that a blended margin hides. A true as-built cost per project is what draws the curve and tells you which work to bid for and which to walk away from. We use the transversal whale curve as the lens; we do not attach a construction-specific number to it, because we do not have one.
PROJECTS & CLIENTS, RANKED BY MARGIN
Transversal whale curve applied to a project portfolio. Not a construction benchmark; the agnostic shape used as the lens for project and client mix.
Strong job costing, weak overhead allocation.
Construction and engineering firms usually have strong job-level direct costing but weak Cost Allocation, overhead by flat percentage, and weak Strategic Decision Support, bid and capacity decisions made without a true as-built cost to learn from. TDABC Process Design is the missing capability: turning phases and crews into time equations so the next bid is informed by the last project's real cost. The seven dimensions are read qualitatively here, with no invented sector score.
AI can bid closer to true cost. If a true cost exists.
AI changes construction cost at the estimate and on the site. AI-assisted estimating and design draw on as-built history to bid closer to true cost, which only works if that true cost exists. On site, scheduling and progress-tracking AI cut the idle and wait time that overruns are made of. The firms that benefit are the ones that already capture real cost per project and phase, because AI needs that history to estimate against. This is a question of decision quality, not a regulatory countdown.
Two ways into the sector's cost.
Frequently asked questions
- How do you calculate the true cost of a construction project?
- Beyond direct labour and materials, load crew and equipment capacity cost, supervision, rework and change-order time, and a consumption-based share of overhead using time equations. A flat overhead percentage understates or overstates by a wide margin.
- Why do projects that looked profitable on the bid lose money?
- Because the bid models direct cost but not the overhead, rework, idle time and supervision the project actually consumed. Traditional costing spreads overhead by volume, so complex, low-volume work comes out cheaper than it is.
- What is TDABC for construction and engineering?
- Time-driven activity-based costing assigns cost via a capacity cost rate per resource and time equations per phase, giving a true as-built cost per project without timesheet surveys.
- Do you have a construction-specific benchmark?
- No. We do not publish sector figures we cannot stand behind. We apply transversal evidence (cost distortion, whale curve, capacity costing) and the TDABC method to your own project data.
See which projects and clients actually paid.
ProfitAudit 360 builds the true as-built cost per project on a TDABC base. Or take the Profit Check first: 12 to 15 minutes, no data upload, and it points to where your bids are most likely out of line with real cost.
- Fee
- Fixed, agreed before we start
- Duration
- 3 to 5 weeks
- Your time
- 2 to 4 hours in total
- Access
- No ERP access, no lock-in
Proof
A distributor in New Zealand. €1.335M of cost-to-serve made visible, then halved, and 830 loss-making customers brought down to 295.
Read the case study →Who you would be talking to
Miguel Guimarães, Founding Partner
Cost and profitability practitioner for 25+ years. Presented the Damco cost-to-serve case at Managing for Profit (Amsterdam RAI, December 2009), on the same programme as Robert S. Kaplan.
Call +351 910 313 731
Workshops20-21 Oct · Online, ZoomReserve a seat
Reviewed by
Miguel Guimarães
Founding Partner, Cost and Profitability Consulting
More than 150 Time-Driven ABC engagements across 11 sectors since 2010, working within the Kaplan and Anderson framework.
About the author →Published
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- 1Time-driven activity-based costing: ABC made simple and scalable
- 2Cost-to-Serve Analysis
- 3The Whale Curve
- 4TDABC vs ABC
- 5Make-or-Buy and Relevant Costs
- 6Cost-Volume-Profit (CVP) and Break-Even Analysis
- 7Customer Profitability Analysis
- 8Methods & Frameworks: how we cost, defensibly
- 9TDABC for Financial Services
- 10How to calculate cost to serve, step by step