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Construction Tip: 12 Terms to Familiarize Yourself With

As with any industry, the commercial construction industry has its own set of acronyms and key terms. What’s the difference between a contingency and an allowance? When do OAC meetings start? Having a general understanding of these key terms helps alleviate confusion between an owner and the general contractor and/or designer. We believe specificity and clear communication are keys to providing our clients with a great construction experience.

12 Common Commercial Construction Terms

  1. Contingency: Money, often a percentage of the total project cost, reserved to cover unexpected project costs that arise during a project. For example, a contractor starts excavating a site and hits bedrock. To remove it, different equipment needs to be brought in and the excavation takes longer than originally estimated. Contingency funds would be used to pay for this unexpected cost.
  2. Allowance: Funds set aside to cover a known cost of an unknown amount. For example, an owner wants to use tile flooring in their front entryway so the contractor budgets for a standard tile material that costs $5 per sq/ft.  The owner ultimately selects an $8 per sq/ft option and agrees to pay the $3 per sq/ft amount by which the actual tile exceeded the allowance.
  3. Consequential Damages: Damages to an owner’s business indirectly resulting from a breach of contract and which are generally foreseeable but not defined at the start of a project. For example, delays in the completion of a project for a manufacturing company result in the company’s inability to complete contracts for its customers.
  4. Liquidated Damages: A sum of money the contractor agrees to pay the owner, typically for each day the contractor completes the project late. For example, a contractor pays the owner of an office building $1,000 per day for every day the office building is completed after the contractual completion date.  The amount cannot be so great that it would be considered a penalty.  Liquidated Damages are typically accompanied by an equal and opposite Early Completion Bonus.
  5. Punchlist: A list of scope items that must be completed before a construction project is declared complete. Examples might include: replacing a damaged ceiling tile, touching up paint or ensuring dirt in light fixtures is cleaned.
  6. Substantial Completion Date: The date an owner can occupy the building for its intended use. For example, if there’s a long lead time on carpet that isn’t available to install in a conference room, the lack of carpet in that room doesn’t prevent the office building from being used.
  7. Final Completion: The date the project is fully and satisfactorily complete, Including the completion of all punchlist items.   The contractor can receive final payment upon final completion.
  8. OAC (Owner, Architect, Contractor) Meetings: Periodic meetings between the owner, architect and contractor to discuss the progress of a project.
  9. Change Request: A contractor’s request of the owner to compensate for something that needs to be modified on the project.  For instance, the owner may be considering adding a door to a room. This change is made to the design documents and sent to the contractor for pricing. The contractor issues a Change Request for the additional door.
  10. Change Order: A formal change in a project’s scope, often also impacting construction costs and completion dates. In the Change Request example above, when the owner approves the Change Request for the additional door, a Change Order is issued which formally adds the door to the project for the agreed price and (if applicable) a completion date extension.
  11. RFP (Request for Proposal): A document created by a property owner that announces, describes and solicits cost proposals from qualified contractors for a specified project.  It’s common for public entities like schools or other government agencies to issue RFPs.
  12. RFI (Request for Information): A means to clarify ambiguities or fill in gaps in information that appear in the plans or specifications. For example, a concrete subcontractor needs more detail on rebar placement than was shown on the plans, so they submit an RFI to the contractor who either responds to the RFI or forwards it to the architect/engineer for a response.
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