Bid and Contract Glossary

The words in a bid or a contract that come up most often, in plain terms. Usage varies by builder, contract form, and region, so when a word in your own documents matters, ask how that document defines it. These are general descriptions, not legal advice.

Allowance

A placeholder dollar amount for something not chosen yet, like tile, lighting, or appliances. If your selection costs more, you pay the difference, often with markup. See Allowance math.

Alternate

A separately priced option the bid lists outside the base number, such as snowmelt or an upgraded window package. You decide whether to add it.

As-builts

Drawings or notes showing how the house was actually built, including changes made in the field. Useful years later when you remodel or chase a problem.

Bid leveling

Adjusting two or more bids so they price the same scope and the same allowances, so the remaining differences are real.

Builder's risk insurance

Property insurance that covers the house while it's under construction, against things like fire, theft, or storm damage. Who buys it varies by contract, so check.

Certificate of occupancy

The building department's sign-off that the house can be lived in. Often a trigger for final payment or for releasing holdback.

Change order

A written change to the contract's scope, price, or schedule, signed before the work happens. See Is that change order price final?

Conditional lien waiver

A lien waiver that takes effect only once the payment it describes actually clears. Usually exchanged with a draw request. See Lien waivers.

Construction documents

The final, most detailed drawing set, used for permitting and pricing. The third of the usual design phases. See How complete do your drawings need to be?

Contingency

Money set aside for things nobody can price yet. A contract should say how much there is, who controls it, and what happens to what's left.

Cost of the work

In a cost plus or GMP contract, the list of costs the builder can bill you at cost, before the fee. What's on that list matters as much as the fee. See Fixed price, GMP, or cost plus.

Cost plus

A contract where you pay the actual cost of the work plus the builder's fee, with no ceiling. The number in the proposal is an estimate.

Deposit

Money paid ahead of the work, either at signing or to order long-lead items like windows or cabinets. A deposit in a draw should say what it's for and how it gets credited.

Design development

The middle design phase, where the layout gets firmed up and systems and materials start to be defined. A good point for a budget check. See Check the budget at every design phase.

Design-build

One company handles both design and construction. See Design-build for a custom home.

Draw

A payment request during construction, usually monthly or at milestones, often funded through a construction loan.

Eleven-month walkthrough

A walk through the finished house shortly before a one-year warranty ends, to list anything that needs fixing while it's still covered. See The 11-month walkthrough.

Exclusions

The list of what the bid does not include. Often where the real differences between bids hide. See Read the exclusions page first.

Fee

What the builder earns for running the job, either a percentage or a fixed amount. Check exactly what a percentage fee applies to.

Finish brief

A short document, usually with photos, describing the finish level you want, room by room. Sent with the drawings so every builder prices the same house.

Fixed price

A contract where the builder commits to one number for a defined scope. Also called lump sum or stipulated sum. The price moves through allowances, exclusions, and change orders.

General conditions

The cost of running the job: supervision, temporary facilities, utilities, dumpsters, cleanup. Much of it is monthly, so it grows with the schedule. See General conditions.

GMP (guaranteed maximum price)

A contract where you pay the cost of the work plus a fee, up to a ceiling. The ceiling can move with changes, so read what adjusts it.

HOA design review

An approval process some communities require before a permit, covering things like materials, colors, height, and lighting. It can add months and conditions. See HOA and design review.

Holdback (retainage)

A percentage withheld from each payment until a completion point the contract sets, as an incentive to complete it. How much and when it's released depend on the contract and state law.

In balance

A construction loan is in balance when the money left on the loan, plus anything you've put in, covers the cost to finish. When it isn't, the lender may ask you to cover the gap. See Your lender's inspector works for the bank.

Lead time

How long an item takes from order to delivery. Windows, cabinets, and some fixtures can take months, which is why selections have due dates.

Lien waiver

A document from a contractor, subcontractor, or supplier giving up the right to file a lien on your property for amounts they've been paid. See Lien waivers.

Markup

A percentage the builder adds on top of a cost, often on change orders and allowance overages. The contract should say the rate and what it applies to.

Not to exceed

A change order or price with a ceiling: you pay the actual cost up to that amount, and no more.

Payment schedule

How and when you pay the builder: milestones, monthly draws, or cost reports with backup. See The payment schedule before you sign.

Percent complete

How far along the work is, used to size draws. The builder and the lender's inspector each estimate it, and they don't always agree.

Preconstruction

Work a builder does before construction starts, often during design: estimates, constructability input, schedule planning. Sometimes paid, sometimes not.

Punch list

The list of small items to finish or fix near the end of the job, made during walkthroughs.

Schematic design

The first design phase: rough layout, size, and massing. Too early for a firm price, useful for a rough budget.

Selections

The specific products you choose: tile, fixtures, lighting, cabinets, appliances. Each one usually draws against an allowance and has a decision date.

Shop drawings

Detailed drawings a fabricator or subcontractor makes before building something, like cabinets, steel, or stairs, for review before it's made.

Submittals

Product data, samples, and shop drawings sent for review before items are ordered, to confirm they match the design.

Substantial completion

The point when the house is finished enough to use for its purpose, even with punch list items left. Contracts often tie warranty start, final payment, or holdback to it. Definitions vary.

Time and materials

Work billed at actual labor hours and material cost, usually with markup, with no fixed price. Common for change orders where the scope is unclear.

Unconditional lien waiver

A lien waiver that takes effect when it's signed, whether or not payment has cleared. Usually given after payment is received.

Value engineering

Looking for ways to lower cost while keeping the function. Sometimes it's smart, and sometimes it's a quieter word for cutting scope, so ask what changes.

Warranty

The builder's promise to fix defects for a set period after completion, plus manufacturer warranties that pass through to you. Read what's covered and how to make a claim.