Construction Financial Glossary

Welcome to the Construction Financial Glossary, your essential resource for understanding the financial terms and concepts unique to construction. This glossary is crafted for both industry professionals and newcomers, covering everything from basic budgeting to advanced cost management.

Whether you’re overseeing project finances, managing cash flow, or preparing cost forecasts, you’ll find the definitions you need here. Stay informed and make confident decisions on every project.

Your guide to 99 different financial terms in construction.

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Capital Expenditure (CapEx)

Capital Expenditure (CapEx) refers to funds used to acquire or improve long-term assets such as machinery, buildings, or land.

Cashflow Forecast

A cashflow forecast is a projection of anticipated income and expenses over the course of a project.

Change Directive

A change directive is an instruction issued by a project owner or architect that requires a contractor to proceed with a change in work before the cost or schedule impact has been fully agreed upon.

Client

The client is the individual or organisation that commissions the construction project.

Commitments/Liabilities

Commitments or liabilities refer to the obligations or debts that a contractor is required to pay.

Consolidated Invoices

A consolidated invoice combines multiple invoices into a single billing statement, simplifying the payment process for construction firms that manage numerous subcontractors, vendors, or suppliers.

Construction Accounting Software

Construction accounting software is a specialized financial management tool designed for contractors, subcontractors, and project owners.

Construction Management at Risk (CMAR)

Construction Management at Risk (CMAR) is a contract where the construction manager agrees to a Guaranteed Maximum Price (GMP) and assumes responsibility for cost overruns beyond that price.

Construction Manager

A Construction Manager works on behalf of the client to oversee the execution of the project, ensuring that timelines, quality standards, and safety protocols are met.

Contingency Budget

A contingency budget is a set amount reserved in the overall project budget to cover unexpected costs or unforeseen changes during construction.

Cost Accruals

Cost accruals refer to expenses incurred but not yet paid for in a construction project.

Cost Breakdown Structure (CBS)

A cost breakdown structure (CBS) is a detailed framework that categorizes all costs associated with a construction project.

Cost Code

A cost code is a unique identifier used to categorize and track project expenses.

Cost Escalation

Cost escalation refers to the increase in construction project costs over time due to factors such as inflation, material price fluctuations, labor shortages, or changes in regulatory requirements.

Cost Forecasting

Cost forecasting is the process of predicting future construction expenses based on current project data, historical trends, and anticipated risks.

Cost Value Reconciliation (CVR)

Cost Value Reconciliation (CVR) is a financial analysis process that compares the value of work completed against actual project costs.

Cost-Loaded Schedule

A cost-loaded schedule integrates project costs into the construction schedule, linking expenditures to specific project activities.

Cost-Plus Contract

A Cost-Plus Contract reimburses the contractor for actual project costs, including materials and labour, plus a fixed fee or a percentage of the total cost.

Cost-to-Complete

Cost-to-complete refers to an estimate of the remaining expenses required to finish a construction project.

Credit Notes

A credit note is a financial document issued by a contractor or supplier to correct an invoicing error, refund a client, or adjust previously billed amounts.

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Pass-Through Costs

Pass-through costs are expenses incurred by a contractor that are directly charged to the project owner without markup.

Pay-When-Paid Clause

A Pay-When-Paid clause is a contractual provision that delays payment to subcontractors until the general contractor receives payment from the client.

Payment Application

A Payment Application is a formal request from a contractor to the client, seeking payment for completed work based on project progress.

Performance Bond

A performance bond is a financial guarantee issued by a surety company ensuring that a contractor will complete a project according to the terms of the contract.

Preliminary Costs

Preliminary costs, also known as pre-construction costs, are expenses incurred before actual construction work begins.

Prepayment

Prepayment refers to an advance payment made to secure services or materials before they are delivered or work is performed.

Profit Fade

Profit fade occurs when a project’s final profit margin is lower than originally estimated due to cost overruns, mismanagement, or unforeseen expenses.

Profitability Forecasting

Profitability forecasting is the process of predicting the expected profit margins of a construction project by analyzing projected costs, revenue, and potential financial risks.

Progress Billing

Progress billing is a payment structure where contractors invoice clients based on work completed rather than waiting for full project completion.

Project Cost Breakdown

A project cost breakdown is a detailed summary of all expenses associated with a construction project, categorized by cost type.

Project Manager

A Project Manager oversees the planning, resource allocation, and tracking of project milestones in construction.

Punch List Holdback

A punch list holdback is a portion of the final project payment that is withheld until all outstanding punch list items are completed.

Purchase Order (PO)

A Purchase Order (PO) is a formal document issued by a buyer authorizing the purchase of goods or services.

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