Margin fade is the drop between the margin you expected and the margin you’re now forecasting. It’s measured period over period (last month’s projected margin versus this month’s) and bid-to-current. The opposite, margin gain, happens too, but fade is the one that keeps CFOs up.
Why it matters
Fade is rarely a single event. It’s usually unbilled changes, productivity slipping a few points, a sub over budget, or general conditions running long because the schedule slipped. Each is small on its own. Caught early, most are recoverable through change orders, back charges or a crew change. Caught at closeout, they’re just losses. Sureties also watch fade across a portfolio as a sign of estimating or project management problems.
Worked example
Illustrative: Riverside Medical Center showed a 12.2% projected margin last month and 11.4% this month on a $49.3M contract.
Fade = 0.8 points times $49.3M = $394,400 of projected gross profit.
Drivers might include Volt Electric trending 4% over on 26 Electrical and fire damper work from RFI-212 that’s been performed but not yet approved as CO #14. Across a 14-job portfolio, three jobs showing fade in the same month is a pattern worth a meeting.
Common mistakes
- Only looking at fade at quarter-end or job closeout.
- Hiding fade by leaving the cost-to-complete unchanged until the last month.
- Treating fade as a PM problem only, when the estimate itself may have been light.
How os.construction handles it
We’re building fade tracking from forecast history on the same record as cost and changes, so each drop shows its drivers. AI insights will flag patterns; people decide what to do.