MATERIAL PRICES MOVED.
DID YOUR MARGIN
MOVE WITH THEM?
Material buyout — the process of purchasing materials after a contract is awarded — is where estimated margin either gets locked in or given away. Buy too late and prices move against you. Buy too early and you carry cost before billing. Miss a vendor discount and you've given away 3–5% of material cost on every purchase. Most subcontractors have no formal buyout strategy.
The estimate used a material price from three weeks ago. The contract got signed. By the time the purchase order goes out, that price has moved — sometimes up, sometimes dramatically. A concrete subcontractor who bid rebar at $0.72/lb and buys at $0.89/lb has given away 24% of their material margin on that line item. On a $400K material package, that's $68K of estimated profit gone before the first crew shows up.
WHERE MATERIAL MARGIN
GETS LOST.
Price Escalation After Bid
Material prices between bid and purchase can move significantly — especially on long-lead items like steel, copper, conduit, and concrete. A buyout 60 days after contract award on a volatile commodity can eliminate all estimated material margin.
Missing Early Pay Discounts
Most material vendors offer 2–5% discounts for early payment — Net 10 vs Net 30. On a $300K material package, that's $6K–$15K available. Subcontractors with cash flow problems can't take the discount. Subcontractors with cash flow systems can.
Overbought or Underbought
Buying too much creates storage cost, theft risk, and working capital tied up in material. Buying too little means a second purchase order at current price — which may be higher than the estimate.
HOW TO PROTECT
MATERIAL MARGIN.
Lock Price on Volatile Items Immediately at Award
Identify the top 3–5 material line items by dollar value on every project. Get binding price quotes within 48 hours of contract award. Don't wait for the buyout meeting — price movement on steel, copper, or conduit can eliminate margin in two weeks.
Structure Billing to Fund Buyout
On large material packages, bill for stored materials before the materials are delivered to site. Most contracts allow billing for materials delivered and stored — get the billing right in the SOV before the contract is signed. Cash from early billing funds buyout before the vendor invoice is due.
Track Buyout Variance Against Estimate
Every material purchase should be logged against the estimate line item. Favorable buyout — bought below estimate — is margin to protect. Unfavorable buyout — bought above estimate — is a signal to review whether the remaining scope estimate is still valid.
HOW CFOS TRACKS
BUYOUT VARIANCE.
CFOS includes a buyout variance report as part of the job cost structure. Every material purchase is compared to the estimated unit price. Variances over 5% trigger a review — is this an estimating miss, a price movement, or a quantity change? The answer determines whether the project's projected margin needs to be revised.
The vendor relationship angle: Subcontractors who pay on time — or early — build the vendor relationships that get preferential pricing on the next job. A systematic collections process that accelerates AR collection funds early payment discounts. Cash flow and material margin are connected.
