Glossary

Construction finance glossary

The terms your surety, banker, and CPA use, defined in plain English with the formulas behind them.

B

Bonding capacityThe maximum size of a single job and the total backlog a surety will bond for a contractor, based largely on working capital, equity, and track record.

C

Change orderA written amendment to a construction contract that changes its scope, price, or schedule after the contract is signed.
Committed costsCosts you've contractually agreed to but haven't been invoiced for yet, such as open purchase orders and subcontract balances.
Cost to completeThe estimated remaining cost to finish a job. Together with costs to date, it sets total estimated cost and drives percent complete.

G

Gross profit fadeA decline in a job's projected gross profit over its life, comparing the margin at bid or contract to the margin projected today.

J

Job costingTracking labor, materials, equipment, subcontractor, and overhead costs against each individual project and cost code, so you know what every job actually costs.

L

Lien waiverA document in which a contractor, sub, or supplier gives up some or all of its lien rights in exchange for payment.

O

OverbillingBillings in excess of costs and estimated earnings: you've invoiced more than you've earned on a job. It's recorded as a liability on the balance sheet.

P

R

RetainageA percentage of each progress payment, commonly 5% to 10%, that the owner or GC holds back until the job or a phase is substantially complete.

S

Schedule of valuesA breakdown of the contract sum into line items, each with a value, used as the basis for progress billing.

U

UnderbillingCosts and estimated earnings in excess of billings: you've earned more than you've invoiced on a job. It's recorded as an asset on the balance sheet.

W

WIP scheduleA work-in-progress schedule lists every open job with its contract value, costs to date, estimated cost to complete, billings, and the resulting over- or underbilling.

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