Construction finance glossary

1

1099 subcontractor also independent contractor, 1099 worker, sub: An independent business you pay for work on your jobs, reported to the IRS on Form 1099-NEC once payments reach $600 a year, not an employee on payroll.

A

Allowance also selection allowance, material allowance: A placeholder amount in a contract for an item the client hasn't chosen yet. If the selection costs more, the overage is billed; if less, a credit is due.

B

Backcharge also back charge, chargeback, deductive charge: A cost a general contractor deducts from what it owes a sub for work the sub failed to do or damage the sub caused: cleanup, repairs, another trade's rework.
Budget vs. actual also budget variance, cost variance report, estimate vs. actual: The per-cost-code comparison of what a job should cost, what it has cost and what's committed. The report that shows drift while the job can still be steered.

C

Certificate of insurance also COI, insurance certificate, ACORD 25: A one-page insurer's summary proving a contractor or sub carries the coverage a contract requires, with limits and dates. Collected before work and payment.
Change order also CO, variation, extra: A written, signed amendment to a construction contract that adds, removes or alters scope and sets the new price and dates. The only way a fixed price moves.
Committed cost also commitment, open commitment: A cost you've agreed to pay but haven't been invoiced for: a signed subcontract, a placed order, an accepted quote. It belongs in the forecast from that day.
Contingency also contingency reserve, contingency allowance: Money set aside in a budget for expected costs that can't be named yet: the wall that isn't in the drawings. Usually 5% to 15% of direct cost on renovations.
Contract value also contract sum, contract price, original contract: The price the client agreed to pay for the original scope. It never changes retroactively; approved change orders stack on it as the adjusted contract value.
Cost code also cost category, cost division, CSI code: A short label from a fixed list (demolition, framing, electrical, permits, labor) tagged on every job cost, so budgets, actuals and estimates line up.
Cost to complete also estimate to complete, ETC: What a job still has to spend to finish: open commitments plus the labor and material not yet bought. Recorded cost plus cost to complete is the forecast.
Cost-plus contract also cost plus, cost-plus-fee, open book: A contract where the client pays the contractor's documented costs plus an agreed fee, a percentage of cost or a fixed amount, instead of one fixed price.

D

Deposit also down payment, initial payment, mobilization payment: What a client pays at signing, before work starts, to fund materials and hold the spot. Some states cap it on residential work; California at 10% or $1,000.
Direct cost also job cost, cost of sales, hard cost: A cost that exists only because a job exists: materials, crew labor on site, subs, permits, rentals and deliveries. The costs job costing assigns to a project.
Draw schedule also payment schedule, draws: The agreed list of payments on a contract, each tied to a milestone or date, stating what share of the price is due when. Progress billing's residential form.

E

Estimate at completion also EAC, expected final cost, forecast final cost: The total a job is expected to cost when it's done: what's been recorded so far plus the cost to complete. Against the contract, that's the expected margin.

F

Final payment also final draw, completion payment, balance due: The last draw on a contract, due when the work is complete and accepted, usually with retainage released. Most often delayed, and the one lien rights protect.
Fixed-price contract also lump sum, stipulated sum: A contract for a set scope at a set price. The contractor keeps any savings and absorbs any overrun; scope changes are priced separately as change orders.

G

General conditions also general requirements, site overhead, job overhead: The job-specific costs of running a site that belong to no trade: supervision, dumpsters, portable toilets, temporary power, cleanup, permits, site protection.
Gross margin also gross profit margin, gross profit: Revenue minus the job's direct costs (labor, materials, subs, permits), as a percentage of revenue. The number a bid is measured by, before overhead is paid.
Guaranteed maximum price also GMP, cost-plus with a cap: A cost-plus contract with a ceiling: the client pays documented cost plus fee up to an agreed cap; the contractor absorbs the rest. Savings are often shared.

I

Indirect cost also indirect job cost, burden, shared cost: A cost that supports the work without belonging to one job: yard rent, trucks, tools, insurance, shared supervision. Recovered through the overhead rate.

J

Job costing also job cost accounting, project costing: Keeping each job's money separate: what it was sold for, every cost it incurred, what's been collected and the margin left, so you know which jobs made money.

L

Labor burden also burdened labor rate, fully loaded labor cost: Everything a worker costs beyond the wage: payroll taxes, workers' comp, insurance, paid time off, unbillable hours. Wage plus burden is the true hourly cost.
Lien waiver also lien release, waiver of lien: A signed document in which a contractor, sub or supplier gives up the right to file a lien on the property for work or materials covered by a specific payment.

M

Markup also markup percentage, markup on cost: The percentage added on top of a job's direct cost to reach the price. Measured against cost, so a 25% markup is a 20% margin; the two are not interchangeable.
Mechanic's lien also construction lien, contractor's lien: A legal claim on a property by a contractor, sub or supplier who improved it and wasn't paid. It clouds the title until the debt is paid or the lien released.

N

Net margin also net profit margin, net income before tax: What's left of revenue after direct job costs and overhead are paid, as a percentage of revenue. The business's result, not the job's; averages sit near 6%.

O

Overbilling and underbilling also billings in excess of costs, costs in excess of billings: Overbilling is invoicing more than the work completed has earned; underbilling is invoicing less. Both are found by comparing billed to earned on a WIP report.
Overhead also indirect costs, general and administrative, G&A: The costs of running the business that no single job causes: rent, trucks, insurance, office, the owner's salary. As a rate, what every bid must recover.

P

Pay application also pay app, application for payment, AIA G702/G703, payment application: A formal progress-payment request: work completed per schedule-of-values line, prior payments, retainage and the amount due. AIA G702 and G703 are the forms.
Progress billing also progress payments, milestone billing, draws: Invoicing a job in stages as work is completed, by milestone or by percentage of each schedule-of-values line, instead of a single invoice at the end.
Punch list also snag list, deficiency list, closeout list: The small items left to fix or finish once a job is substantially complete: touch-ups, adjustments, missing hardware. Closing it unlocks final payment.
Purchase order also PO: A written order to a supplier or sub for specific goods or work at a stated price. Once accepted, it's a committed cost on the job, invoice or no invoice.

R

Retainage also retention, holdback: The share of each progress payment, usually 5% to 10%, that a client or general contractor holds back until the work is complete and accepted.

S

Schedule of values also SOV: A line-by-line breakdown of a contract price into the parts of the work, each with its own value, used to bill progress as a percentage of each line completed.
Substantial completion also substantially complete, beneficial occupancy: When the work is finished enough for the client to use the space as intended, punch list aside. It starts the clocks on final payment and warranties.

T

Time and materials also T&M, hourly plus materials: Billing labor by the hour at agreed rates plus materials at cost or cost plus markup, with no fixed total. Used when the scope can't be defined up front.

U

Unit price also unit rate, unit cost, per-unit pricing: A price per unit of measured work, such as per square foot of tile, per linear foot of fence or per cubic yard of concrete, billed on the quantity installed.

W

Work-in-progress report also WIP schedule, WIP report, work in progress: A schedule of every open job with contract, estimated cost, cost to date, percent complete, earned revenue and billings, revealing over- and underbilling.