Construction Contracts Definitions

Front 1

Acts of God

Back 1

Events causing a project delay that are not caused by the owner or the contractor. Such delays often result in adjustments to the contract duration but not to the contract amount.

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actual acceleration

Back 2

An increase in the pace of construction as a result of a specific directive from the owner.

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addenda

Back 3

Formal changes or clarifications issued to all identified bidders by the owner or the owner's representative during the bidding period.

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additional work

Back 4

Construction work that was not recognized at the contract award but that must be performed in order to deliver a project as planned.

eg. a structural member may be designed to occupy the same space as air ducts. This will require additional work.

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adverse weather

Back 5

weather conditions not anticipated in a particular location for a particular time of the year that impede construction progress.

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advertisement

Back 6

a public announcement to solicit bids for a construction project.

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agency agreement

Back 7

An arrangement between a principal and an agent by which the agent agrees to perform certain tasks for the principal. The principal is bound to the actions of the agent.

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agent

Back 8

a party who acts for another party and binds that party by those acts.

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alternatives

Back 9

an itemization of selected items of work for which bidders are asked to provide prices will add or subtract from the base bid. These priced items will give the owner greater flexibility in choosing items to add or to delete from the contract.

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alternative dispute resolution technique

(ADR)

Back 10

a means used for settling conflicts by means of an alternative procedure to formal litigation.

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arbitration

Back 11

a well established alternative to litigation in which the conflict is resolved by an impartial third party or an impartial panel of selected individuals.

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as-built drawings

Back 12

also called as-builts; project drawings that show all data concerning the actual in-place locations of all construction items, including any items that differ from what was shown in the original drawings.

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balance bid

Back 13

a unit price that accurately reflects the actual anticipated price of each item of work to be performed.

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bid bond

Back 14

a surety instrument that guarantees to the owner that the bearer, if awarded the contract, will enter into a binding contract and provide all required bonds.

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bid peddling

Back 15

the effort by a bidder, usually a subcontractor, on a project to determine the relative standing of a quoted bid. If the bid is not the lowest bid, the bidder may reassess the amount originally quoted and submit a lower bid before the deadline for bid submittal.

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bilateral contracts

Back 16

an agreement made through the mutual promises of the contracting parties.

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board of directors

Back 17

an elected group of individuals who are assigned the responsibility of managing a corporation. They act as agents for the stockholders and are accountable to them.

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boilerplate

Back 18

the general conditions which outline the roles of the parties to a construction agreement and provide guidance concerning procedures to follow under varying circumstances.

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bonding capactiy

Back 19

the maximum amount of uncompleted construction work that a contractor can have under contracts, above which no bonds will be provided.

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brokerage

Back 20

a situation in which the general contractor subcontracts all the work on a project.

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builder's risk insurance

Back 21

construction insurance that provides coverage specifically for a project that is under construction. Although this is normally considered to be fire insurance, other types of losses are generally covered.

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calendar days

Back 22

the time unit that may be used to define the duration of construction.

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cardinal change

Back 23

a change order that is of such magnitude that the original scope of the project is altered to an extent that constitutes a new contract.

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caveat emptor (let the buyer beware)

Back 24

a defense, no longer valid, in which it assumed that a product must be accepted with whatever flaws exist at the time of purchase.

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certificate of insurance

Back 25

a written document that serves as evidence that a particular insurance policy is in force.

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change order

Back 26

a directive, usually authorized in writing by the owner, to alter or modify some aspect of a project. Such a directive is generally accompanied by an adjustment to the contract amount and/or the contract duration.

(occurs after contract has been signed; post tender period)

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closed specification

Back 27

a specification that is expressly restrictive in stating that only one or two products will satisfy the quality requirements or is implied when performance is so narrowly prescribed that only one or two products will satisfy the requirement.

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code of ethics

Back 28

the written standards of behaviour adopted by a profession.

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completion date

Back 29

the time of construction; stated not in terms of a specified duration but as a specified date by which construction must be completed.

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compliance officer

Back 30

the title of OSHA employees who are responsible for enforcing OSHA regulations through site inspections.

(Occupational Safety & Health Administration)

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complimentary bid

Back 31

a bid that is not prepared in earnest but is presented to appear to be a serious bid. Such bids are usually generated through collaborative efforts with another bidder who does submit a serious bid.

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condemnation

Back 32

the exercise of eminent domain to seize private property.

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consideration

Back 33

an essential ingredient to a contract that implies something of value, commonly a stated sum of money.

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construction scheduale

Back 34

a detail network analysis or bar chart of a construction project showing the sequence and duration of activities required to construct a project

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constructive acceleration

Back 35

an increase in the pace of construction that is not a result of a directive but is done by inference. Denial of a legitimate request for a time extension, such as for an excusable delay or a change order, would be an example.

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constructor

Back 36

the party, also called the prime or general contractor, who is primary responsibility for construction of a project.

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contractor-caused delays

Back 37

construction delays caused by or under the control of the contractor. No contract adjustments are associated with such delays.

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contributory negligence

Back 38

careless acts of an injured person that accompany the careless acts or physical conditions under control of a second party.

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cost-plus contract

Back 39

a contract in which the contractor is reimbursed for specified incurred costs, with an additional allowance provided for overhead and profit.

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counteroffer

Back 40

The rejection of an offer followed by another proposal. This proposal forms a new offer. A counteroffer by a party changes the roles of the negotiating parties.

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dedication

Back 41

Public permission granted by the owner of property for the public to use a given parcel of land for a specified use. This cannot be denied as long as consistent use is made as specified.

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design-build method

Back 42

an arrangement by which the owner lets a single contracts for both the design and the construction of a project; also known as design-construct or turnkey construction.

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designer

Back 43

the party responsible for translating the concept of a project to a document that can be used as a guide for its construction.

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design specifications

Back 44

"how to" specifications that state exactly what the contractor is to do in order to satisfy a quality requirement.

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differing site conditions

Back 45

physical conditions on a site that differ from what was shown in the bidding document or from what would be reasonably expected.

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disputes review board

Back 46

a panel of experts selected on a panel to render decisions on disputed brought to it for consideration.

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dividends

Back 47

Monetary return made by insurance companies to clients who have kept losses to an acceptably low level. Also, profit of corporations shared with stock holders.

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easement

Back 48

a restricted use of private land granted to another party. The restricted use may be in the form of the right to cross a parcel of land to gain access to another; the right to install, maintain, monitor a gas line; and so forth.

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eichleay formula

Back 49

a means by which delay reimbursement can be made to the contractor to compensate for home office overhead. This is a controversial approach that is not accepted universally.

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eminent domain

Back 50

the right of the federal government, state government, or another public agency to take possession of private property and appropriate it for public use.

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estoppel

Back 51

the legitimate, though implied, formation of a contract as evident through the actions of the parties involved. When one party places a reliance on the other party based on that party's actions, the second party cannot subsequently deny that an agreement exists.

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exclusions

Back 52

specific items stated in an insurance policy for which no coverage is provided.

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exculpatory provisions

Back 53

contract clauses that shift liability from one of the contracting parties to the other. In the absence of such a clause, the shift in risk will not occur.

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excusable delays

Back 54

delays for which time extensions are granted. Such delays typically include acts of god and owner-caused delays.

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executed contract

Back 55

an agreement in which both parties have fully performed in accordance with contract terms.

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executory contract

Back 56

an agreement in which one or both parties to the agreement have not yet performed.

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experience modification rating

Back 57

a factor, unique to a company, that reflects the past claims in history of that company. This factor is used to increase or decrease the basic insurance premium charges.

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express contract

Back 58

an agreement in which the terms of the agreement, whether verbal or written, are clear, concise, explicit and definite.

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express warranty

Back 59

the specific statement in a contract that a warranty is to be effective on a project.

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field change

Back 60

an authorized directive, usually by the owner's representative on a project, to alter or modify some aspect of the project. Normally, such a directive is not accompanied by any change in the contract amount or duration.

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final completion

Back 61

the status of a project when all punch list items have been satisfactorily addressed and the owner officially accepts the project. At this point, the retainage can be released to the contractor.

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force account

Back 62

arrangement in which the services of a contractor are reinbursed on a cost-plus basis; also referred to as a time and materials contract.

Front 63

front-loading

Back 63

a plan initiated by a contractor in which a disproportionate share of the payment to be made to the contractor are made early in the life of a project. This is a means of getting the owner to finance a greater share of the project.

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general contract methods

Back 64

a common procedure in which the owner of a project contracts with a single firm, often called a prime contractor, for its construction. This firm may contract with specialty contractors for portions of the work.

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holding company

Back 65

a firm that has a dominant interest in one or more other companies so as to be able, through its voting power, to prescribe the management policies of those companies.

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holidays

Back 66

days on which working days are not assessed against the contract duration. Such holidays must be clearly noted in the contract documents.

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housing starts

Back 67

the number of new homes placed under construction in a stipulated period of time, generally one month. This figure is used as an indication of the strength of the U.S. economy.

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implied contract

Back 68

an agreement in which the terms of the agreement are not clearly stated but are established through inference and deduction.

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implied warranty

Back 69

the general interpretation in the courts that a warranty exists despite the fact that there is no express warranty.

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inclusions

Back 70

specific items, as stated in an insurance policy, for which coverage is specifically provided.

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indemnification

Back 71

an exculpatory provision in which one party to an agreement agrees to hold the other party harmless. That is, one party assumes the liability that would normally fall on another party.

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independent contractor

Back 72

a contractor hired to produce a product without being specifically supervised or constrained by specific methods and means of performance.

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instructions to bidder

Back 73

guidelines or rules enumerated for bidders on a project concerning proper procedures for bid submittal and relavent project information.

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joint venture

Back 74

a company formed by two or more companies in which the sole objective is typically to construct a single project.

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letter of credit

Back 75

a demand instrument issued by a bank that guarantees the availability of a specified amount of funds to be paid to the owner in the event of contractor default.

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lien

Back 76

a claim placed on real property.

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limited partner

Back 77

a partner who contributes to a partnership and shares in the profits and losses but provides no services and has no vote in matters of management.

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limits of liability

Back 78

the maximum coverage for which a specific liability policy is written.

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liquidated damages

Back 79

a specified sum of money that is charged against a contractor for each day that project completion is delayed. The amount is assumed to accurately reflect the anticipated costs of late completion.

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litigation

Back 80

a means of resolving disputes in the judicial system in which a formal claim is filed and the disputing parties typically obtain the serviced of lawyers.

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loss ratio

Back 81

a quotient that reflects the amount of funds expended by an insurance company for the claims of a client divided by the amount of premiums paid by that client.

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lump sum contract

Back 82

A contract in which the contractor agrees to construct a project for a specified sum of money.

Fixed-priced contract.

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mechanic's lien

Back 83

a right created by law that permits a worker to place a claim on land on which improvements have been made.

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mediation

Back 84

an alternative to litigation in which knowledgeable individuals are used to get the disputing parties to agree on a compromise resolution to the conflict.

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meeting of the minds

Back 85

a basic ingredient in contracts in which the contracting parties agree on the basic meaning and legal implications of a contract.

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minitrial

Back 86

an alternative to litigation in which one or more individuals are asked to hear a case and render a decision. The rules for hearing such cases may be established on an individual basis.

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morals

Back 87

generally accepted standards of social behaviours for a community or society.

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no-damage-for-delay clause

Back 88

a contract provision that is exculpatory in nature and is intended to bar the contractor from receiving monetary compensation of any kind for any delays that may occur on a project, regardless of the source of delays.

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notice to proceed

Back 89

a means of notifying the contractor about the decision to award the contract and of specifically when the contract time will start.

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obligee

Back 90

a party whom a duty is promised by the surety.

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offer

Back 91

occurs when one person signifies to another willingness to enter into a binding contract on certain specified terms.

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offer and acceptance

Back 92

one of the basic ingredients of a contract. After an offer is made, a contract can become binding only if the other party agrees to be bound by the contract terms and accepts the offer.

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open specification

Back 93

an open or nonrestrictive specification in which a wide variety ( 3 or more )of products are considered suitable.

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owner

Back 94

the party with the overall responsibility for a project beginning from inception and ending with the project sale or occupancy.

Front 95

owner-caused delays

Back 95

construction delays directly attributable to the action or lack of action of the owner. Generally the contract duration will be extended for such delays, and the contract amount may be adjusted.

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partnering

Back 96

voluntary arrangement whereby the parties on a construction project agree to work together as a team with a common objective and to resolve disputes at the lowest managerial level.

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partnership

Back 97

an association of two or more persons to carry on a business. Each person acts as an agent for the other partners.

Front 98

payment bond

Back 98

a surety instrument guaranteeing the bearers' payments to suppliers, labourers and subcontractors.

Front 99

penalty provisions

Back 99

a specified sum of money that is charged against a contractor for each day that project completion is delayed. The amount is greater than the amount of the liquidated damages because a portion of it is considered a punitive assessment. To be valid, such a provision must also compensate or reward the contractor for early completion.

Front 100

performance bond

Back 100

a surety instrument in which the faithful performance of a contractor is guaranteed up to the face value of the bond.

Front 101

performance specifications

Back 101

a descriptive requirement that states the results or the performance of the finished product rather than the specific method and means used to construct the project.

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postbid bid shopping

Back 102

the efforts of a general contractor to get subcontractors to lower their bids after the general contractor has been declared the low bidder.

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preconstruction conference

Back 103

a meeting between the owner, the general contractor and the major subcontractors; that takes place after the contract is awarded but before construction begins. This conference addresses various matters deemed to be of importance to the project.

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premium

Back 104

a payment made to an insurance company in exchange for a specific type of coverage

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prescription

Back 105

the legal transfer of private property to a public agency or another private citizen that can occur when that property has been subjected to adverse use for a stipulated number of years.

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professional construction management method

Back 106

a method in which the owner hires a construction management firm to perform professional services and represent the owner during the design and construction phases.

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progress payment

Back 107

a payment to the contractor that compensates the contractor for work performed up to a given date. Such payments generally are made monthly and are reduced by a given percentage that is retained by the owner until final completion.

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progress schedule

Back 108

an updated construction schedule that presents an accurate portrayal of the work accomplished up to a given date.

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proprietary specification

Back 109

a closed specification that names a product made by a particular manufacturer.

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proprietorship

Back 110

a firm owned by an individual

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punch list

Back 111

a list developed at the time of substantial completion that itemizes all remaining work tasks that must be performed before a project reaches final completion

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quantum meruit

Back 112

term meaning "as much as deserved" which is an approach used to determine equitable compensation to be awarded under given conditions. It is implied by law that when one party benefits as a result of the materials or labour provided by another that there should be no unjust enrichment. If the parties do not have a contract, the party providing the labour and/or materials is to receive fair compensation.

Front 113

ratification

Back 113

the approval of an unsanctioned act after it has taken place.

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real property

Back 114

land and all items physically attached to it, such as buildings, fences, utilities and walls.

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reference specification

Back 115

a performance specification that defines the acceptable product in terms of its ability to satisfy a standard developed by one of several standards organizations.

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regular bid

Back 116

a bid that conforms to the standards outlined in the instructions to bidders. Only such bids can be considered on public works projects to assure all bidders of fair and equal treatment.

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reserve

Back 117

a given sum of money that an insurance company sets aside to cover anticipated claims costs on a case that is not closed.

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retainage

Back 118

a stated percentage of the progress payment request that is withheld by the owner. This amount is generally used as a incentive for the contractor to complete the project in an expedient manner. It is generally returned to the contractor after final completion.

Front 119

self-insurance

Back 119

an arrangement by which a firms acts as its own insurance company. Specific criteria must be satisfied for a company to qualify for self- insurance.

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self performance

Back 120

a mechanisms by which no contracts are awarded for a construction project. The owner's own workers or employers are solely responsible for the construction effort.

Front 121

separate contracts method

Back 121

an arrangement by which the owner lets contracts directly to speciality contractors for various portions of the work.

Front 122

site investigation

Back 122

an inspection of a proposed construction site during the bidding phase. Such a inspection is often contractually required to verify that the contractor is familiar with the site.

Front 123

specialty contractors

Back 123

firms with skills in specific areas of construction work. Such firms are typically involved in construction projects as subcontractors.

Front 124

standard specifications

Back 124

a compilation of general conditions, technical specifications and other requirements that an agency uses on numerous construction projects. Such documents are prepared by state departments of transportation and many major municipalities.

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stockholders

Back 125

the owners of a corporations, also known a shareholders

Front 126

subcontractor

Back 126

a speciality contractor who enters into an agreement with a general contractor. The subcontractor has no contractual agreement with the owner.

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submittals

Back 127

information concerning products to be incorporated in a construction project that must be approved by the owner before they are used. This information may include samples, calculations, performance tests and manufacturer's literature.

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subrogation

Back 128

an insurance term that states that when the insurance company pays for a particular loss for an injured party, the insurance company gains the injured party's right to sue the third party that caused the injury.

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substantial completion

Back 129

a designation of when a project is sufficiently finished to be occupied by the owner. The duration of the project is measured against substantial completion to determine when the last periodic payment can be made.

Front 130

supplementary conditions

Back 130

modifications or additions to the general conditions that address issues which were omitted in the general conditions or are specific requirements for a particular project.

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surety

Back 131

a firm that guarantees or vouches for the performance or indebtedness of another party.

Front 132

suspension of work

Back 132

a halt in the construction process for any of several reasons. Work is presumably resumed after the delay.

Front 133

technical specifications

Back 133

a document that provides the qualitative requirements for a project in terms of materials, equipment, work performed and so forth.

Front 134

termination

Back 134

the cancellation of a contract before the construction is complete. May be for the owner's convenience or for contractor default.

Front 135

time extensions

Back 135

modifications to a construction contract in which the project duration is increased. Such modifications are often granted for excusable delays of for change orders that increase the project duration.

Front 136

tort

Back 136

a wrong committed by a person against a second party as a result of an act or the failure to act when that person had a duty to the secon party.

Front 137

ultra vires contract

Back 137

agreements made by corporations for which the proper authorization was not made. Such agreements must often be ratified in order to be binding.

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umbrella coverage

Back 138

an insurance policy that is generally used to provide coverage in excess of the limits of coverage of another insurance policy.

Front 139

unbalanced bid

Back 139

a unit price bid in which the pricing of the various items of works does not reflect the actual anticipated costs but redistributes those costs to serve a specific objective of the bidder.

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unilateral contract

Back 140

a contract in which only one of the contracting parties make a promise. The other party exchanges something other than a promise, commonly performance.

Front 141

unit price contract

Back 141

a contract in which the payment is based on a contractor's quoted price per unit of work performed and the owner's measurement of the total number of such units installed.

Front 142

unjust enrichment

Back 142

a circumstance under which one party benefits at the expense of another without equitable compensation being given to the party that provided the labour and/or materials.

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value engineering

Back 143

a critical examination of construction contract documents performed for the owner to determine whether modifications can be made to decrease the delivered cost, reduce maintenance sots, simplify construction, reduce disputes, and the like.

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warranty

Back 144

certification that a certain aspect of a project is of the quality it was promised to be. In construction, such assurances are generally provided for one year from substantial completion.

Front 145

warranty period

Back 145

the duration for which a warranty is in effect, typically one year on construction projects.

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winter exclusion period

Back 146

a block of time, often consisting of several winter months, during which no work days are assessed against a contractor. Such exclusion periods are most common in states with harsh winter weather conditions.

Front 147

workers' compensation

Back 147

insurance coverage for the employees of a firm during their employment

Front 148

working days

Back 148

the time unit used to define the duration of a construction project. These days typically consist of work days except for holidays. Allowances are often granted to extend the project duration if adverse weather is encountered.

Front 149

wrap-up insurance

Back 149

insurance for a project that is obtained entirely by the owner.

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zoning

Back 150

restrictions places on land usage to assure orderly growth and development in a municipal areas.