← Business Metric: Financial (all topics)
Execution margin compression
What it is
The gap between the margin assumed at bid and the margin actually realised on completion. It arises from input cost inflation on fixed-price contracts, delays that stretch overheads, client-caused idling and claims that settle years later at a discount
It is the standard reason infrastructure order books do not convert into expected profit
Impact on industries
- Fixed-price contracts against multi-year builds transfer inflation risk entirely to the contractor, and price-variation clauses rarely cover everything
- Idle equipment and teams during client-caused delays are real costs that must be funded before any claim is recovered
- Disciplined bidding, input hedging and integration into aggregates or fabrication are the genuine defences, and separate the survivors across cycles
- It is the same mechanism as fixed-price EPC risk and bid discounting - three views of why construction converts revenue to profit badly