Why Inspection Contracts Look Profitable and Are Not
The invoice is right. The cost side is where the fiction lives.
Ask an inspection company which of its contracts are profitable and you will usually get a confident answer based on revenue minus direct technician hours. Ask the same question with mobilisation, standby, travel, equipment, rework and subcontracted NDT allocated properly, and the ranking often changes — sometimes reversing. This is not an accounting problem; it is a data-capture problem at the point of dispatch.
Where the cost actually goes missing
- Mobilisation and demobilisation absorbed as overhead instead of allocated to the contract that caused them.
- Standby and waiting time — permit delays, plant not ready, weather — recorded as non-billable and then forgotten rather than costed to the job.
- Travel days on remote and offshore work, which on some contracts exceed productive days.
- Equipment time: hire, transport, calibration cycles consumed and consumables, rarely tracked per job.
- Rework driven by report rejection or technique disputes, almost never attributed to the contract that generated it.
- Subcontracted NDT, which appears in payables but frequently not against the work order it served.
Capture at dispatch, not at invoicing
Every one of the items above is knowable at the moment it happens and unknowable three weeks later. If the work order is the object that dispatch, timesheets, equipment issue and subcontractor purchase orders all attach to, cost accumulates automatically. If cost is assembled at invoicing from timesheets and memory, it will be optimistic, consistently and in the same direction.
What visibility changes commercially
Contract-level margin visible during delivery changes three decisions: whether to accept scope creep without a variation, whether to renew at the current rate, and which contracts to bid for next. Companies that get this working typically discover that their most operationally demanding client is also their least profitable — which is a difficult conversation, but a much better one to have with numbers than with instinct.
It also changes rate reviews. Walking into a rate discussion with allocated mobilisation and standby cost per job is a materially stronger position than defending a percentage uplift.
Getting there without a finance project
- Start by making the work order the mandatory carrier of every hour, not the timesheet.
- Add equipment issue against the work order — even coarsely, per day, is far better than nothing.
- Route subcontractor purchase orders through the work order so third-party NDT lands where it belongs.
- Expose a simple running margin per contract to the operations manager, not only to finance.
- Review the three worst contracts quarterly and act on them. Visibility without a decision cadence changes nothing.
Frequently Asked Questions
Is this not just standard project accounting?
Conceptually yes; practically the difference is where the data originates. In inspection work the costly events — standby, remobilisation, rework, equipment movement — happen in the field and are recorded by technicians, not by finance. Unless the field capture tool records them against the work order at the time, project accounting receives an incomplete picture and produces a confident wrong answer.
How do we cost standby fairly when the delay is the client's fault?
Cost it to the contract regardless, and track its cause separately. Whether it is recoverable is a commercial question; whether it consumed your capacity is not. Contracts with high client-caused standby are still expensive contracts, and the data is what supports either a variation claim or a rate adjustment at renewal.
What granularity is enough?
Work-order level is enough for almost every decision that matters. Task-level costing sounds better and is usually abandoned within two months because technicians will not maintain it. Choose the granularity your field team will actually sustain, because incomplete fine-grained data is worse than complete coarse data.
How quickly does this change behaviour?
Faster than expected once operations managers — not just finance — can see running margin. The first quarter usually surfaces one or two contracts everyone privately suspected were unprofitable, and confirming it with allocated cost is what makes action possible.
See it running on your own workflow
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Related: Project management module · Work order management · Inspection management software · Atlantis NDT ERP