September 26, 2023

Glossary of Contractor Terms

General Contractors speak their own language. We’ve always loved the esoteric words the building trades use to describe their specialized tasks: reglet, deadman, cant, falsework, etc. But those are the subject of another post. This glossary will define the unfamiliar words and phrases a client is likely to find in the proposals and agreements of a general contractor (GC). A clear understanding of these contractor terms is critical to evaluating the cost of a project.

Allowances:
Allowances are placeholders the GC includes in a bid to cover items not yet finalized. For example, if the selection of lighting fixtures is still in question, a GC might substitute a typical fixture cost instead. Then during construction, when the actual fixture is decided, the GC will adjust for the difference with a change order. The problem with allowances, though, is that they’re not reliable numbers. If the contractor inserted too many allowances or underestimated their prices, the resulting change orders could be onerous.
Access Agreement:
City buildings typically abut other city buildings. When work to a building affects a party wall, an access agreement with the neighbor is usually required. This stipulates the extent of the encroachment, any proposed underpinning, the protection required, and the duration of the work. It’s always wise to execute access agreements before construction begins.
Change Orders:
Though contracts are the final word on a project, sometimes things need to change. A contractor cannot change the price or timeline of a stipulated-sum project without a change order approved by the client. These changes can be driven by the client (“Let’s add a hot tub on the roof!”), by the city (a DOB inspector demands a sidewalk fence), by site conditions (a bolder buried under the cellar blocks the proposed excavation), or by the architect (“Would you like to add a hot tub on the roof?”). Change orders aren’t penalties, but they are more expensive than initial costs. This is because bidding contractors are desperate to cut costs to win a job. That desperation vanishes once a contract is signed.
Contingency:
We typically recommend clients budget a 15% contingency to cover the inevitable surprises that come up during construction when renovating an old building.
Cost-Plus Contract:
Instead of a set price, a cost-plus contract compensates the contractor for all project expenses plus a fee for the contractor’s overhead and profit. Also known as time+materials, this agreement allows a project to start quickly, but the client agrees to pay the cost of all the work, including labor, materials, equipment, and all trade subcontractor work. If actual costs are lower than projected, the client gets the savings. But if actual costs exceed the predicted expenses, the client pays the cost overruns.
Credits:
Credits are the sunny side of change orders. Instead of a price increase, they are a decrease, lowering the total cost of the construction.
Design-Build:
Design-build is a project delivery method where the owner or agency hires a single firm or company to handle both the design and construction of the building.
Exclusions:
A GC’s bid price includes everything in an architect’s bid plans and specifications, unless an item is specifically excluded by the GC. During construction, these exclusions can be added back into the scope by means of a change order.
General Conditions:
General conditions are operations, procedures, and services provided by the general contractor that are indirectly related to construction but are still necessary for executing the project. These include project management, temporary site facilities, safety compliance, and waste removal.
Lien:
A property claim made by the contractor or subcontractor against the owner when they are not paid for the completed work.
Shop Drawings:
Shop drawings are drawings provided by the GC that detail the fabrication of components.
Site Safety Plan:
A site safety plan is a drawing provided by the GC that delineates a proposed encroachment on a neighbor’s property, the protection required to complete the work, and the encroachment and fabrication of that protection. A site safety plan is typically required for an access agreement with the neighbor.
Stipulated-Sum Contract:
With a stipulated-sum contract, the GC agrees to complete the project for a predefined set price. Also called a lump sum or fixed-fee contract, it binds the contractor to a predetermined cost. If the actual labor and material costs are lower than expected, the GC profits, but if the actual costs are higher, the GC pays the difference.

Allowances:	Allowances are placeholders the GC includes in a bid to cover items not yet finalized. For example, if the selection of lighting fixtures is still in question, a GC might substitute a typical fixture cost instead. Then during construction, when the actual fixture is decided, the GC will adjust for the difference with a change order. The problem with allowances, though, is that they’re not reliable numbers. If the contractor inserted too many allowances or underestimated their prices, the resulting change orders could be onerous.
Access Agreement:	City buildings typically abut other city buildings. When work to a building affects a party wall, an access agreement with the neighbor is usually required. This stipulates the extent of the encroachment, any proposed underpinning, the protection required, and the duration of the work. It’s always wise to execute access agreements before construction begins.
Change Orders:	Though contracts are the final word on a project, sometimes things need to change. A contractor cannot change the price or timeline of a stipulated-sum project without a change order approved by the client. These changes can be driven by the client (“Let’s add a hot tub on the roof!”), by the city (a DOB inspector demands a sidewalk fence), by site conditions (a bolder buried under the cellar blocks the proposed excavation), or by the architect (“Would you like to add a hot tub on the roof?”). Change orders aren’t penalties, but they are more expensive than initial costs. This is because bidding contractors are desperate to cut costs to win a job. That desperation vanishes once a contract is signed.
Contingency:	We typically recommend clients budget a 15% contingency to cover the inevitable surprises that come up during construction when renovating an old building.
Cost-Plus Contract:	Instead of a set price, a cost-plus contract compensates the contractor for all project expenses plus a fee for the contractor’s overhead and profit. Also known as time+materials, this agreement allows a project to start quickly, but the client agrees to pay the cost of all the work, including labor, materials, equipment, and all trade subcontractor work. If actual costs are lower than projected, the client gets the savings. But if actual costs exceed the predicted expenses, the client pays the cost overruns.
Credits:	Credits are the sunny side of change orders. Instead of a price increase, they are a decrease, lowering the total cost of the construction.
Design-Build:	Design-build is a project delivery method where the owner or agency hires a single firm or company to handle both the design and construction of the building.
Exclusions:	A GC’s bid price includes everything in an architect’s bid plans and specifications, unless an item is specifically excluded by the GC. During construction, these exclusions can be added back into the scope by means of a change order.
General Conditions:	General conditions are operations, procedures, and services provided by the general contractor that are indirectly related to construction but are still necessary for executing the project. These include project management, temporary site facilities, safety compliance, and waste removal.
Lien:	A property claim made by the contractor or subcontractor against the owner when they are not paid for the completed work.
Shop Drawings:	Shop drawings are drawings provided by the GC that detail the fabrication of components.
Site Safety Plan:	A site safety plan is a drawing provided by the GC that delineates a proposed encroachment on a neighbor’s property, the protection required to complete the work, and the encroachment and fabrication of that protection. A site safety plan is typically required for an access agreement with the neighbor.
Stipulated-Sum Contract:	With a stipulated-sum contract, the GC agrees to complete the project for a predefined set price. Also called a lump sum or fixed-fee contract, it binds the contractor to a predetermined cost. If the actual labor and material costs are lower than expected, the GC profits, but if the actual costs are higher, the GC pays the difference.