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GLOSSARY OF TERMS:

What is a Lien?

A Lien given by law upon a building or other Improvement upon land, and upon the land itself, as Security for the payment for labor done and materials furnished for improvement. Also called a material-man's lien.

Example: The unpaid contractor filed a mechanic's lien against the property while it was under construction. The builder had to satisfy the lien in order to give Clear Title to the buyer.

Agent

One authorized by a client (principal) to act in his/her stead or behalf and owes the client a "fiduciary duty" (Trust). Example: Construction Manager for fee but classified as an independent contractor for tax purposes. A construction manager for fee does not have any financial responsibility whereas a construction manager at-risk does have financial risk similar to a general contractor.

Agreement

An arrangement between the parties regarding a method of action.

Alterations

1. A term used to describe partial construction work performed within an existing structure

2. Remodeling without a building addition.

Application for Payment

Contractor's written request for payment for completed portions of the work and, for materials delivered or stored and properly labeled for the respective project.

Architect

One who designs and supervises the construction of buildings or other structures.

Architect-Engineer

An individual or firm offering professional services as both architect and engineer.

Bid

1. An offer or proposal of a price

2. The amount offered or proposed.

Bid Bond

A written form of security executed by the bidder as principal and by a surety for the purpose of guaranteeing that the bidder will sign the contract, if awarded the contract, for the stated bid amount.

Bond (see Bid Bond; Contract Bond; Contract Payment Bond; Contract Performance Bond; Labor and Material Payment Bond; Performance Bond; Subcontractor Bond; surety)

Bonding Company

A properly licensed firm or corporation willing to execute a surety bond, or bonds, payable to the owner, securing the performance on a contract either in whole or in part; or securing payment for labor and materials.

Building

1. To form by combining materials or parts

2. A structure enclosed within a roof and within exterior walls housing, shelter, enclosure and support of individuals, animals, or real property of any kind.

Building Inspector/Official

A qualified government representative authorized to inspect construction for compliance with applicable building codes, regulations and ordinances. Courts have ruled that building inspections are exempt from errors and omissions liabilities.

Building Permit

A written document issued by the appropriate governmental authority permitting construction to begin on a specific project in accordance with drawings and specifications approved by the governmental authority.

Building Process

A term used to express every step of a construction project from it’s conception to final acceptance and occupancy.

Change Order

A written document between the owner and the contractor signed by the owner and the contractor authorizing a change in the work or an adjustment in the contract sum or the contract time. A change order may be signed by the architect or engineer, provided they have written authority from the owner for such procedure and that a copy of such written authority is furnished to the contractor upon request. The contract sum and the contract time may be changed only by change order. A change order may be in the form of additional compensation or time; or less compensation or time known as a Deduction (from the contract) the amount deducted from the contract sum by change order.

Change Order Proposal

A change order proposal is the written document before it has been approved and effected by the Contractor and Owner. A change order proposal can be issued by either the contractor or the owner. The change order proposal becomes a change order only after it has been approved and effected by the Contractor and Owner.

Change Order Request

A written document issued by the owner requesting an adjustment to the contract sum or an extension of the contract time; generally issued by the architect or owners representative.

Construction Documents

All drawings, specifications and addenda associated with a specific construction project.

Construct

To assemble and combine construction materials and methods to make a structure.

Construction

The act or process of constructing.

Construction Cost

1. The direct contractor costs for labor, material, equipment, and services; contractors overhead and profit; and other direct construction costs. Construction cost does not include the compensation paid to the architect and engineer and consultants, the cost of the land, rights-of-way or other costs which are defined in the contract documents as being the responsibility of the owner.

Construction Documents

A term used to represent all drawings, specifications, addenda, other pertinent construction information associated with the construction of a specific project.

Construction Management

Organizing and directing men, materials, and equipment to accomplish the purpose of the designer.

Contract

1. An agreement between two or more parties, especially one that is written and enforceable by law

2. The writing or document containing such an agreement.

Contract Bond

A written form of security from a surety company, on behalf of an acceptable prime or main contractor or subcontractor, guaranteeing complete execution of the contract and all supplemental agreements pertaining thereto and for the payment of all legal debts pertaining to the construction of the project.

Contract Payment Bond

A written form of security from a surety company to the owner, on behalf of an acceptable prime or main contractor or subcontractor, guaranteeing payment to all persons providing labor, materials, equipment, or services in accordance with the contract.

Contract Performance Bond

A written form of security from a surety company to the owner, on behalf of an acceptable prime or main contractor or subcontractor, guaranteeing the completion of the work in accordance with the terms of the contract.

Contractual Liability

The liability assumed by a party under a contract.

Contractor

A properly licensed individual of company that agrees to furnish labor, materials, equipment and associated services to perform the work as specified for a specified price.

Contractor's Option

A written provision in the contract documents giving the contractor the option of selecting certain specified materials, methods or systems without changing in the contract sum.

Contracting Officer

An official representative of the owner with specific authority to act in his behalf in connection with a specific project.

Date of Commencement of the Work

The date established in a written notice to proceed from the owner to the contractor.

Date of Substantial Completion

The date certified by the architect when the work or a designated portion thereof is sufficiently complete, in accordance with the contract documents, so the owner may occupy the work or designated portion thereof for the use for which it is intended.

Field Work Order

A written request to a subcontractor or vendor, usually from the general or main contractor, site for services or materials.

Final Acceptance

The action of the owner accepting the work from the contractor when the owner deems the work completed in accordance with the contract requirements. Final acceptance is confirmed by the owner when making the final payment to the contractor.

Final Inspection

A final site review of the project by the contractor, owner or owner’s authorized representative prior to issuing the final certificate for payment.

Final Payment

The last payment from the owner to the contractor of the entire unpaid balance of the contract sum as adjusted by any approved change orders.

Finish Date

The date that an activity or project is completed.

General Contractor

Properly licensed individual or company having primary (prime) responsibility for the work.

General Contracting

When a prime or main contractor bids the entire work AFTER the final design, plans and specifications are complete and have been approved by the owner.

Independent Contractor

One free from the influence, guidance, or control of another or others and does not owe a "fiduciary duty". Example: architect, engineer, prime or main contractor, construction manager at-risk.

Improvements

1. A term sometimes used to describe TI'S or Tenant Improvements.

2. Improvements can be in the form of new construction or remodel work.

Indemnification

1.The act of indemnifying.

2. The condition of being indemnified.

Inspection

1. The act of inspecting.

2. An official examination or review of the work completed or in progress to determine its compliance with contract requirements.

Inspection for Disbursement of Funds

An independent vehicle for the disbursement and accounting of construction funds allowing construction obligations to be paid (progress payments) when work is completed, inspected and approved. Job Costs are reviewed prior to making disbursements to establish that the actual construction payments are within the confines of the original estimate confines or schedule of construction values.

Inspection List (punch list)

A list prepared by the owner or his/her authorized representative of items of work requiring immediate corrective or completion action by the contractor.

Invoice

A list sent to a purchaser containing the items and charges of merchandise. (see Statement)

Labor and Material Payment Bond

1. A written form of security from a surety (bonding) company to the owner, on behalf of an acceptable prime or main contractor or subcontractor, guaranteeing payment to the owner in the event the contractor fails to pay for all labor, materials, equipment, or services in accordance with the contract.(see Performance Bond and Surety Bond)

Leasehold Improvements

A term used to mean Tenant Improvements. Generally, this term is used when building in retail stores as contrasted with the term Tenant Improvements which are generally associated with office buildings. The terms are often used interchangeably.

Lien, Mechanic's or Material

The right to take and hold or sell an owner’s property to satisfy unpaid debts to a qualified contractor for labor, materials, equipment or services to improve the property. (see Preliminary Lien Notice)

Lien Release

A written document from the contractor to the owner that releases the Lien, Mechanic’s or Material following it’s satisfaction.

Lien Waiver

1. An written document from a contractor, subcontractor, material supplier or other construction professional(s), having lien rights against an owner’s property, relinquishes all or part of those rights.

2. Lien waivers are generally used for processing progress payments to prime or main or subcontractors as follows: Conditional Lien Waiver, Unconditional Lien Waiver, and Final Lien Waiver.

Mechanic's Lien

Enforceable claim, permitted by law in most states, securing payment to contractors, subcontractors and suppliers of materials for work performed in constructing or repairing a building. The lien, which attaches to real property, plus buildings and improvements situated on the land, remains in effect until the workmen have been paid in full, or in event of liquidation, gives the contractor Priority of Lien ahead of other creditors.

Owner

1. An individual or corporation that owns a real property.

Owner-Architect Agreement

A written form of contract between architect and client for professional architectural services.

Owner-Builder

A term used to describe an Owner who takes on the responsibilities of the general contractor to build a specific project.

Owner-Construction Agreement

Contract between owner and contractor for a construction project.

Owner-Construction Management Agreement

Contract between construction manager and client for professional services.

Performance Bond

1. A written form of security from a surety (bonding) company to the owner, on behalf of an acceptable prime or main contractor or subcontractor, guaranteeing payment to the owner in the event the contractor fails to perform all labor, materials, equipment, or services in accordance with the contract.

2. The surety companies generally reserve the right to have the original prime or main or subcontractor remedy any claims before paying on the bond or hiring other contractors. (see Labor and Material Payment Bond and Surety Bond)

Plan

1. A line drawing (by floor) representing the horizontal geometrical section of the walls of a building. The section (a horizontal plane) is taken at an elevation to include the relative positions of the walls, partitions, windows, doors, chimneys, columns, pilasters, etc.

2. A plan can be thought of as cutting a horizontal section through a building at an eye level elevation.

Preliminary Lien Notice

A written notice given to the property owner of a specific project by the subcontractors and any person or company furnishing services, equipment or materials to that project. The notice states if bills are not paid in full for the labor, services, equipment, or materials furnished or to be furnished, a mechanic's lien leading to the loss, through court foreclosure proceedings, of all or part of the property being so improved may be placed against the property even through the owner has paid the prime contractor in full. The notice explains how the owner can protect himself against this consequence by 1. requiring the prime contractor to furnish a signed release by the person or firm thus giving the owner notice before making payment to the prime contractor or 2. any other method or device which is appropriate under the circumstances. The state of California mandates that a Preliminary Lien Notice must be given to the property owner not more than 20 days after starting the work on the specific project.

Priority of Lien

Order in which creditors are paid when the assets of a borrower are liquidated. Creditor priority is established under the first to file rule in the Uniform Commercial Code, and is summarized as follows: creditors holding a Security Interest in collateral are paid before unsecured creditors. As a general rule, holders of secured claims are paid in the order their claims were filed, starting with the earliest recorded lien.

For example, in a Voluntary Bankruptcy filed under Chapter 7 of the Bankruptcy Code, the debtor's assets are liquidated to meet unpaid obligations. In general, the bankruptcy estate is distributed as follows: (1) administrative costs, including court costs, trustee's fees, attorney's fees incurred by the debtor; (2) wage claims; (3) costs and expenses incurred by creditors; (4) federal, state and local tax claims; (5) debts having priority under federal law, i.e., claims of secured creditors, followed by claims of general creditors (unsecured creditors.) Creditors holding a perfected security interest are paid before other creditors.

Statute of Limitations

The period of time in which legal action must be brought for an alleged damage or injury. The period commences with the discovery of the alleged damage or injury; or in construction industry cases with completion of the work or services performed. Legal advise should be obtained.

Structure

1. Something constructed

2. A building put together based on specific plans and specifications.

Sub

An abbreviation for Subcontractor.

Subcontract

A written form of agreement between the prime or main contractor and another contractor or supplier for the satisfactory performance of services or delivery or material as set forth in the plans and specifications for a specific project.

Subcontractor

A qualified subordinate contractor to the prime or main contractor.

Subcontractor Bond

A written document from a subcontractor given to the prime or main contractor by the subcontractor guaranteeing performance of his/her contract and payment of all labor, materials, equipment and service bills associated with the subcontract agreement.

Sublet

To subcontract all or a portion of a contracted amount.

Supplier

An individual or firm who supplies and/or fabricates materials or equipment for a specific portion of a construction project but does not perform any labor on the project.

Surety (see Bonding Company)

Work

The successful performance of the entire scope of the project being performed for a specific construction project including labor, materials, equipment, and other associated items necessary to fulfill all obligations under the contract.

Working Drawing

A drawing sufficiently complete with plan and section views, dimensions, details, and notes so that whatever is shown can be constructed and/or replicated without instructions but subject to clarifications.

Work Order

A written order, signed by the owner or his representative, of a contractual status requiring performance by the contractor without negotiation of any sort.

Work Letter

A written statement of the specific materials and quantities the owner will provide at his own expense. The work letter defines the building standards, including the type of ceiling , the type and number of light fixtures, the size and construction of the suite-entry and interior doors. Building standards define the quality of tenant spaces. Generally, a Work Letter is associated with the leasing or renting of office space by a tenant within a Building Envelope.

Parties seeking to know more about construction laws in their State should always consult their State Statutes directly or an attorney.