Subcontractors usually cost more than the purchase order says because extras, variations and delays get invoiced bit by bit, and nobody compares each invoice to the PO as it arrives. By the time the overrun shows up in your job cost report, the work is done and the money is spent. The fix is a committed cost tracker: for every subbie on every job, show the PO value, what has been invoiced to date and what is left - and look at it every week.
How subcontractor costs creep up
For example, you raise a PO for a subcontractor's scope of work. The job proceeds. The first invoice is close to plan. Then a variation for extra work comes in, then a claim for a delay that wasn't the subbie's fault, then some additional materials. Each one might be perfectly legitimate. But added together, the final cost lands well above the original PO - and nobody raised a flag along the way.
This isn't usually a subbie problem. It's a visibility problem. The common causes are:
- Invoices are approved one at a time. Whoever approves them checks that the work was done, not whether the running total is still inside the PO.
- Variations aren't recorded against the PO. A site manager agrees to extra work verbally, and the paperwork catches up later, if at all.
- Job cost reports lag. If costs only reach the job report after month-end processing, you are looking at problems weeks after they started.
- Data lives in different places. POs in one system, invoices in the accounting software, variations in emails and site diaries.
Why it matters for your margin
On a construction job, your margin is the gap between what you charge the client and what the work costs you. Subcontractors are often the biggest part of that cost. A creeping overrun on one trade package can eat a large share of the profit on the whole job.
Worse, if extra subbie work came from a client-requested change, and nobody tied it to a variation, you may have paid for work you never billed. That's money you can only recover if you notice in time. Our page on construction job costing explains how the numbers fit together.
The simple fix: a committed cost tracker
A committed cost tracker shows three numbers for every subcontractor on every job:
- PO value - what was originally agreed, plus any approved variations
- Invoiced to date - what has been billed so far
- Remaining - how much is left before you hit the PO limit
It sounds basic, and it is. That's the point. When the remaining figure gets close to zero but the work isn't finished, you know there's a conversation to have - with the subbie, with the site manager, or with the client about a variation - while there's still time to act.
Making it work in practice
A tracker only helps if it's up to date and someone looks at it. A few practical rules:
- Every subbie gets a PO before work starts. No PO, no work, no payment. This is the foundation.
- Variations go against the PO. When extra work is agreed, record it as a variation to the PO, and if the client asked for it, raise the matching client variation at the same time.
- Check invoices against the remaining balance. Before an invoice is approved, the approver should see how much of the PO it uses up.
- Review weekly, by job. A short weekly look at each active job is enough to catch overruns early.
- Flag automatically where you can. If an invoice would take a subbie over their PO, the system should flag it rather than rely on someone noticing.
You can start this in a spreadsheet. Many builders do. The trouble comes when the spreadsheet depends on someone copying invoice totals across from the accounting system by hand - it falls behind, and then nobody trusts it.
Connecting the tracker to your accounts
The tracker becomes far more useful when it reads POs and invoices directly from the systems where they already live, such as Xero or MYOB and your job management software. That way the "invoiced to date" figure updates as bills are entered, and the remaining balance is always current.
This is the kind of integration we build for builders: committed costs, invoices and variations pulled together into one job view, so overruns appear as they happen rather than at month end. Our pages on subcontractor management and construction financial visibility explain the approach.
Frequently asked questions
What is a committed cost in construction?
A committed cost is money you have agreed to spend but haven't been invoiced for yet, usually through a purchase order or subcontract. Tracking committed costs shows what a job will really cost before the invoices arrive.
Can I track subcontractor costs in Excel?
Yes, and it's a reasonable place to start. The risk is that it relies on manual updates. If the spreadsheet falls behind the invoices, it stops catching overruns.
How often should I review subcontractor costs against POs?
Weekly for active jobs is a practical rhythm. It's frequent enough to catch overruns while you can still act, without becoming a burden.
What should I do when a subbie goes over their PO?
Find out why before approving the invoice. If it's extra scope the client requested, raise a client variation. If it's an agreed change, update the PO. If it's unexpected, talk to the subbie and site manager straight away.
If subcontractor costs are slipping past you, book a free initial chat and we can talk through how to get committed costs visible on every job.