How much working capital a project actually needs across mobilisation, billing cycles, and retention — and why undercapitalised projects stall mid-way.
A project can be genuinely profitable on paper and still run into serious cash trouble mid-execution, because profitability and working capital are two different things. Profitability measures whether the numbers work out over the life of the contract. Working capital measures whether the contractor has enough cash on hand at each point in time to keep paying labour, suppliers, and equipment vendors before client payment catches up. Undercapitalised but profitable projects are a common and avoidable failure pattern.
Costs — labour wages, material purchases, equipment hire — are typically incurred continuously, often on relatively short payment terms to suppliers and workers. Revenue — client payment against certified bills — lags behind by the billing cycle (commonly 30-60 days from work completion to actual payment receipt, sometimes longer) plus whatever portion is withheld as retention. The gap between "cash going out now" and "cash coming in later" is the working capital requirement, and it exists on every project to some degree — the question is whether it has been sized correctly and funded before the project starts, not whether it exists at all.
Site setup, initial material stockpiling, equipment mobilisation, and advance or upfront labour costs are all incurred before the first bill has typically even been submitted, let alone paid. This mobilisation period is where working capital demand is highest relative to any revenue received so far, and it is also where many contractors underestimate the actual cash requirement — treating mobilisation cost as "recoverable from the first bill" without accounting for the 30-60 day (or longer) lag before that first bill is actually paid.
Retention money, commonly 5-10% of each certified bill, is withheld by the client until defect liability period (DLP) completion or a defined release milestone — meaning that percentage of every single bill throughout the project is cash the contractor has genuinely earned but cannot access until much later, often after the project has physically finished. Over the full life of a project, retention represents a real, ongoing reduction in available working capital that needs to be planned for explicitly, not treated as a rounding difference against the headline contract value.
At project start, whatever initial capital or credit line the contractor has arranged is still largely intact, so cash problems are rarely visible in the first weeks. The gap widens as the project progresses — mobilisation costs have been spent, the first few billing cycles have only partially caught up (each new cycle's costs are being incurred while the previous cycle's payment is still pending), and retention is compounding across multiple bills. This is why working capital shortfalls typically surface a few months into execution rather than immediately — by which point the contractor has fewer options (a credit facility not arranged in advance is much harder to secure mid-project under financial pressure) than if the requirement had been sized and funded before mobilisation began.
Contractors with reliable cash positions size working capital requirement as a specific calculation before mobilisation — not a general assumption — factoring in actual (not optimistic) billing cycle length and retention percentage for that specific contract, and arrange any credit facility needed to bridge the gap before the project starts rather than reacting once a shortfall is already visible.
