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Construction Terms, Explained by What They Cost You

17 words that decide how much of a job you keep, each one written from the mistake it causes rather than from a dictionary. Every page ends at the free form or calculator that puts it to work.

A glossary is easy to write and almost always useless, because the definition is never the part that was confusing. Nobody loses money because they could not define retainage. They lose it because nobody told them the release is traded against a final lien waiver and a punch list that was never written down.

So these pages are built the other way round. The definition is the first sentence and then the page moves straight to what going wrong costs, what the real numbers are, which line of which form the word appears on, and what to do about it today.

The money words

Five words that decide what you keep. Every one of them is routinely used to mean something it does not mean, and each mistake has a number attached to it.

Markup vs marginMarkup is the percentage you add on top of your cost. Margin is the percentage of the final price that is profit. They are two different numbers and confusing them is the most expensive arithmetic mistake in the trades.Overhead and profitTwo separate numbers that are usually quoted as one. Overhead is what it costs to run the business whether or not you work today. Profit is what is left after every cost, including that overhead, is paid.RetainageA percentage of every progress payment, usually 5 to 10 percent, that the owner keeps back until the work is finished and accepted. It is money you have already earned and have not yet been handed.Late feeA charge added to an invoice that was not paid by its due date. It only exists if your contract or your invoice said it would, in writing, before the work was done.Draw scheduleThe agreed plan of when you get paid during a job and what has to be complete before each payment. Get it wrong and you finance the customer's building out of your own working capital for the length of the project.

The documents you sign

Short pieces of paper with permanent consequences. What each one actually gives away, and which line on it is the one people fill in without reading.

Lien waiverA signed document giving up your right to file a mechanics lien for work that a payment covers. There are four kinds and signing the wrong one against a check that has not cleared is how contractors lose the debt and the lien on the same afternoon.Change orderA written amendment to the contract that changes the scope, the price, the schedule, or all three, signed by both sides before the extra work is done.Subcontractor agreementThe contract between a general contractor and a trade contractor doing part of the work. Most of it is boilerplate. One clause, the payment clause, decides who carries the risk that the owner never pays, and two versions of it that read almost the same do opposite things.Certificate of insuranceA one page summary of somebody else's insurance policy, usually an ACORD 25, showing what cover they carry and when it expires. It is proof of insurance, not insurance, and the difference between the two boxes on it is the difference between being told and being covered.

The documents that say what done means

One says what is included, the other says what is left. Most arguments at the end of a job are really arguments about which of these two was written badly at the start.

Scope of workThe written description of exactly what work the price covers. Everybody writes the inclusions. The money is in the exclusions, because every job dispute you will ever have is an argument about whether something was in the scope.Punch listThe agreed list of small items still to be corrected before the work is accepted. It reads like a formality and it is not, because in practice the punch list is the gate on your final payment and on the release of your retainage.

The paper chain that ends in a lien

Four notices and the lien itself, in the order they happen. The first two are served while everything is still going well, which is exactly why they are the ones people lose.

Notice of commencementA document the property owner records before work begins, naming everyone involved in the project. For a subcontractor it is the address book: it says exactly who your preliminary notice has to go to.Preliminary noticeA notice sent near the start of a job telling the owner, and usually the general contractor and the lender, that you are furnishing work or material. In most states it is the precondition that makes your lien right exist at all.Notice to ownerFlorida's name for the preliminary notice. If you are not in direct contract with the owner, section 713.06(2)(a) requires you to serve it before you start or within 45 days of starting to furnish labor, services or materials, and the lien right depends on it.Notice of furnishingThe notice a subcontractor or supplier serves to record that they are furnishing labor or material to a project. Ohio is the state the term is most associated with, and ORC 1311.05(B) sets the deadline at 21 days from the first day you furnish.Notice of intent to lienThe written warning you send before recording a mechanics lien, saying what is owed and that a lien will follow if it is not paid. It is free to send, it arrives with real weight behind it, and a large share of stuck invoices are paid within a fortnight of one landing.Mechanics lienA claim recorded against the improved property itself by someone who furnished labor or material and was not paid. It is the strongest collection tool in construction, and it is lost far more often on a missed deadline than on the strength of the debt.

The rest of the vocabulary

These have no page of their own, deliberately. A term earns a page here when there is something on this site to send you to next, and not before. Everything below is defined here and nowhere else.

Stop notice
A claim made against the money rather than against the property. Instead of encumbering the building, it tells the owner or the lender to hold back funds that would otherwise go to the general. Available in a minority of states, and on public jobs it is often the only remedy because you cannot lien public property.
Allowance
A dollar figure written into the contract for a selection that has not been made yet, such as tile or fixtures. The contract price includes the allowance, and the difference is settled by change order once the real choice is made. An allowance set too low to be realistic is a dispute scheduled for later.
Substantial completion
The point at which the owner can use the building for its intended purpose, even with items outstanding. It matters because it often starts the warranty period, ends liquidated damages, and starts the clock on lien deadlines and retainage release.
Progress payment
A payment for part of the work, made during the job rather than at the end, usually against a schedule of values or a draw schedule. Retainage is withheld from each one.
Schedule of values
A line by line breakdown of the contract sum, used to justify how much of the job is complete when a progress payment is requested. Front loading it is common and is the first thing a lender's inspector looks for.
Back charge
A cost one party deducts from what it owes another, for work that party should have done. Cleanup, damage to another trade's work and rented equipment are the usual causes. A back charge with no written notice behind it is a deduction that will be disputed.
Bonded
Covered by a surety bond, which is a third party's promise to pay if the contractor does not perform or does not pay. A payment bond is the reason a claim on a public job goes against the bond instead of against the land.
Lien
A legal claim attached to property as security for a debt. In construction it is recorded against the improved property by someone who furnished labor or material and was not paid. Everything else on this page exists either to create it, preserve it or give it up.
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Contractor Handbook · https://contractorhandbook.com/construction-terms/