Construction Industry Glossary: 60+ Essential Terms Every Contractor Should Know

Construction Industry Glossary: 60+ Essential Terms Every Contractor Should Know

The construction industry speaks its own language. From bid bonds to weather delays, understanding essential terminology is critical for accurate estimating, effective communication, and successful project delivery. This glossary covers the 60+ terms every contractor, estimator, and project manager should know.

Financial and Contract Terms

A

**AIA (American Institute of Architects)** Professional organization that publishes standard contract documents used throughout the construction industry, including AIA A201 (General Conditions) and A101 (Agreement between Owner and Contractor).

**Allowance** A specified amount in a contract for a particular item or work not yet fully specified. Allowances cover items like cabinetry, flooring, or appliances where final selection hasn't been made.

**Alternate Bid** An alternative price submitted by a contractor for a different material, system, or design approach. Owners may accept or reject alternates during bid evaluation.

**Architect/Engineer (A/E)** The licensed professional responsible for design, drawings, specifications, and contract administration.

B

**Bid Bond** A surety bond guaranteeing that a contractor will enter into a contract and provide performance and payment bonds if awarded the bid. Typically 10% of the bid amount.

**Bid Date** The date and time by which bids must be submitted. Late bids are usually rejected.

**Bid Shopping** The unethical practice of sharing a subcontractor's quote with other subcontractors to drive down prices. Most AIA contracts prohibit bid shopping.

**Bill of Quantities (BOQ)** An itemized list of materials, parts, and labor with their quantities and costs. Common in international and heavy civil projects.

**Bond** A guarantee from a surety company that a contractor will fulfill contractual obligations. Types include bid bonds, performance bonds, and payment bonds.

**Breakdown** A detailed cost allocation showing how the total bid price is distributed among labor, materials, equipment, overhead, and profit.

C

**Change Order** A written modification to the contract altering the scope, price, or schedule. Change orders must be signed by the owner, architect, and contractor to be valid.

**Construction Management (CM)** A project delivery method where the CM acts as the owner's agent, managing design, bidding, and construction. Can be "Agency CM" (advisor) or "CM at Risk" (guarantor).

**Contract Documents** The legally binding set of documents forming the agreement between owner and contractor, including the agreement, conditions, drawings, specifications, and addenda.

**Cost-Plus Contract** A contract where the owner pays the actual cost of work plus a fee (percentage or fixed) for the contractor's overhead and profit.

**CSI (Construction Specifications Institute)** Organization that developed the MasterFormat system for organizing construction specifications and cost data.

D

**Davis-Bacon Act** Federal law requiring payment of prevailing wages to laborers and mechanics on federally funded construction projects.

**Daywork** A method of pricing extra work based on actual labor, material, and equipment costs plus an agreed percentage for overhead and profit.

**Defects Liability Period (DLP)** The period after substantial completion during which the contractor must correct defects. Typically 12 months.

**Demolition** The process of removing all or part of an existing structure. Includes selective demolition, strip-out, and total teardown.

E

**Earned Value Management (EVM)** A project performance measurement technique integrating scope, schedule, and cost. Key metrics include PV (Planned Value), EV (Earned Value), and AC (Actual Cost).

**Estimate** The predicted cost of a project or scope of work. Types include order of magnitude, schematic, design development, and bid estimates.

**Expense** Direct costs incurred for a specific activity, such as material delivery or equipment rental.

F

**Fast Tracking** A project delivery method where design and construction phases overlap. Reduces schedule but increases risk of change orders.

**Field Order** A written order from the architect/engineer directing changes in the work within the general scope of the contract. Typically does not change the contract sum or time.

**Final Payment** The last payment made by the owner to the contractor after all work is complete, all obligations are satisfied, and all liens are released.

**Fixed Fee** A lump-sum amount for the contractor's overhead and profit, not tied to a percentage of project cost.

G

**General Conditions** Costs incurred for the overall project administration but not directly tied to specific construction activities. Includes site office, utilities, security, cleanup, and temporary facilities.

**General Contractor (GC)** The primary contractor responsible for overall project coordination, subcontractor management, and delivery of the complete project.

**Guaranteed Maximum Price (GMP)** A cost-plus contract with a ceiling. The contractor is reimbursed for actual costs plus fee, but total payment cannot exceed the GMP.

H

**Hard Costs** Direct construction costs including labor, materials, equipment, and subcontracts. Excludes soft costs like design fees and permits.

**Hidden Costs** Expenses not explicitly stated in the contract, such as cleanup, protection of existing conditions, or unknown site conditions.

**Holdback / Retainage** A percentage of each progress payment withheld by the owner to ensure contract completion. Typically 5-10%, released upon final completion.

I

**Indirect Costs** Costs not directly attributable to a specific work item, such as supervision, temporary facilities, and insurance. Also called overhead.

**Inflation Escalation** An allowance for increased material and labor costs due to inflation during the project duration. Common on long-duration projects.

**Insurable Interest** A financial stake in property or project that justifies insurance coverage.

L

**Labor Burden** The additional cost of labor beyond base wages, including payroll taxes, workers compensation, benefits, and union dues. Typically 30-50% of base wages.

**Lien Waiver** A document from a contractor, subcontractor, or supplier releasing their right to file a mechanic's lien against the property.

**Liquidated Damages** Pre-determined damages for late completion, specified in the contract as a daily or weekly amount.

**Load Factor** The ratio of gross area to rentable or usable area. Represents space lost to structure, corridors, and mechanical rooms.

M

**Man-Hour** One hour of work by one person. The basic unit for labor estimating and productivity analysis.

**Markup** A percentage added to direct costs to cover overhead and profit. Common markups range from 10-20%.

**Material Takeoff** A detailed list of all materials required for a project, with quantities and units of measure. Performed from plans and specifications.

**Mechanic's Lien** A legal claim against a property by a party unpaid for labor or materials. Protects contractors and suppliers from non-payment.

**Milestone** A significant event or point in the project schedule, such as substantial completion or start of a major phase.

O

**Open Shop** A construction company that employs both union and non-union workers. Also called merit shop.

**Overhead** Indirect costs of doing business, including office expenses, salaries of management, insurance, and bonding. Applied as a percentage of direct costs.

P

**Payment Bond** A surety bond guaranteeing that a contractor will pay subcontractors, suppliers, and laborers. Protects the owner from mechanic's liens.

**Performance Bond** A surety bond guaranteeing that a contractor will complete the project according to contract terms. Typically 100% of the contract value.

**Permit** Official permission from a government authority to proceed with construction. Required for most building, electrical, plumbing, and mechanical work.

**Prevailing Wage** The wage rate determined by the US Department of Labor for each trade on federally funded projects. Based on local union rates.

**Productivity** The rate at which work is performed, typically measured in units per labor hour (e.g., linear feet of pipe per hour).

**Progress Payment** Partial payments made to the contractor during construction, typically monthly, based on completed work.

**Project Manual** The bound volume containing bidding requirements, contract forms, conditions of the contract, and specifications.

R

**Request for Information (RFI)** A formal request from the contractor to the architect/engineer for clarification of drawings or specifications.

**Request for Proposal (RFP)** A document requesting proposals from contractors or subcontractors for design-build or negotiated contracts.

**Request for Qualification (RFQ)** A preliminary screening document asking contractors to demonstrate their qualifications, experience, and capabilities.

S

**Schedule of Values** A detailed breakdown of the total contract sum allocated to various parts of the work. Used as the basis for progress payments.

**Scope of Work** A detailed description of the work to be performed, including materials, equipment, labor, and quality standards.

**Shop Drawings** Detailed drawings prepared by a contractor, subcontractor, or manufacturer showing how a specific component will be fabricated and installed.

**Site Work** Earthwork, utilities, paving, and other improvements to the construction site outside the building footprint.

**Soft Costs** Non-construction costs including design fees, permits, legal fees, financing, and marketing. Typically 15-25% of total project cost.

**Specifications** The written portion of the contract documents describing materials, equipment, systems, standards, and workmanship requirements.

**Subcontract** A contract between the general contractor and a specialty trade contractor for a portion of the work.

**Substantial Completion** The stage when the project is sufficiently complete for the owner to occupy or use it for its intended purpose. Trigicks the start of the defects liability period and the release of retainage.

T

**Takeoff** The process of measuring and listing quantities of materials from drawings and specifications. Also called quantity takeoff or material takeoff.

**Terms and Conditions** The legal provisions governing the contract, including payment terms, dispute resolution, warranties, and force majeure.

**Temporary Facilities** Temporary structures and utilities needed during construction, including site offices, portable toilets, temporary power, and storage sheds.

U

**Unit Price** The price per unit of measurement (e.g., per cubic yard, per square foot, per linear foot). Used in unit-price contracts for uncertain quantities.

V

**Value Engineering** A systematic process to analyze project elements and identify cost-saving opportunities without sacrificing function or quality.

**Variance** The difference between budgeted and actual costs. Favorable variance means actual cost is less than budgeted; unfavorable means it is higher.

W

**Weather Delay** A delay caused by adverse weather conditions. Most contracts allow a certain number of weather days without penalty.

Z

**Zoning** Local government regulations controlling land use, building height, setbacks, density, and use types. Zoning compliance is critical to project feasibility.

Want to Learn More About Construction Estimating?

Understanding these terms is just the beginning. Accurate estimating requires applying this knowledge to real projects with real data. Apex Accuracy Estimating provides professional estimating services that combine industry expertise with advanced software and rigorous quality control.

[Explore Our Services](/services) | [Call (862) 366-7732](tel:+18623667732)