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.
A
Advance Billing
Advance billing is the process of billing the client for certain project costs upfront.
Architect
An architect is responsible for designing the construction project, preparing drawings, and ensuring that the design complies with the client’s requirements and regulatory standards.
B
C
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.
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.
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 Code
A cost code is a unique identifier used to categorize and track project expenses.
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-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.
D
Design-Build Contract
A Design-Build Contract combines design and construction services under one contract, with a single contractor responsible for both the design and execution phases.
Developer
A developer is the party responsible for financing and overseeing the construction project.
E
F
G
I
Integrated Project Delivery (IPD)
Integrated Project Delivery (IPD) is a collaborative contract that aligns the interests of all parties involved in the construction project by sharing both risks and rewards.
Interim Payment
An interim payment is a partial payment made throughout the duration of a construction project as work is completed.
Invoice Reconciliation
Invoice reconciliation is the process of verifying that all costs on an invoice align with project records and agreements.
L
M
Main Contractor
The Main Contractor is the primary contractor responsible for overseeing the entire construction process.
Markup
Markup refers to the percentage added to the cost of a service or product in construction, allowing contractors to cover overhead and generate profit.
N
O
Overbilling
Overbilling occurs when a contractor invoices the client for work that has not yet been completed.
Overhead Allocation
Overhead allocation is the process of distributing indirect costs, such as administrative expenses, rent, and utilities, across various construction projects.
Overhead Costs
Overhead costs are the indirect costs associated with running a construction business, such as administrative expenses, rent, utilities, and insurance.
P
Payment Application
A Payment Application is a formal request from a contractor to the client, seeking payment for completed work based on project progress.
Prepayment
Prepayment refers to an advance payment made to secure services or materials before they are delivered or work is performed.
Project Manager
A Project Manager oversees the planning, resource allocation, and tracking of project milestones in construction.
Purchase Order (PO)
A Purchase Order (PO) is a formal document issued by a buyer authorizing the purchase of goods or services.
Q
R
Request for Quotation (RFQ)
A Request for Quotation (RFQ) is a formal document used by contractors to request pricing information from suppliers or service providers for specific materials or services.
Retention
Retention is a portion of payment, typically 5-10%, that is held back until the project is completed.
S
Schedule of Values
A Schedule of Values (SoV) is a detailed breakdown of the total contract sum, divided into specific work items with assigned values.
Subcontract
A subcontract is an agreement where a primary contractor hires a secondary party, or subcontractor, to perform specialized tasks within a larger construction project.
Subcontractor
A subcontractor is a specialist hired by the main contractor to perform specific tasks within a construction project.
Supplier
A supplier provides the materials and equipment needed for construction projects.
T
Target Cost Contract
A Target Cost Contract sets an estimated target cost for the project, with incentives for the contractor to stay within this target.
Time and Materials (T&M) Contract
A Time and Materials (T&M) Contract allows the contractor to bill for materials used on the project, plus an hourly or daily labour rate.
U
Underbilling
Underbilling happens when a contractor invoices for less than the work completed, often unintentionally.
Unit Price Contract
A Unit Price Contract is an agreement where the contractor sets a fixed price for each unit of work, such as “per mile” or “per square meter”.
V
Valuation
Valuation is the assessment of completed work used to determine interim payments throughout a construction project.
Variance Analysis
Variance analysis compares budgeted costs to actual costs to identify discrepancies in a project’s financial performance.
Variation
A variation is an amendment to the original contract that adjusts the scope, cost, or timeline of a project.