What is an Audit?

A guaranteed maximum price (GMP) is a financial cap used in construction contracts, representing the highest possible price a client can expect to pay for a particular project. This cap encompasses raw materials, labor, indirect costs, and a margin for the contractor’s profit. 

While offering financial predictability and safety to the client, this method can significantly impact subcontractors. To transfer a portion of the financial risk, general contractors (GCs) typically offer subcontractors fixed-price (or lump sum) subcontracts. This setup incentivizes subcontractors to adhere to budgets and timelines, as cost overruns directly affect their profit margins (unless the client was the one who requested changes). Conversely, if the project is completed under budget, subcontractors may benefit by sharing the savings with the GC. Ultimately, GMP contracts foster transparency and collaboration, promoting shared responsibility for project success between all parties involved. 

In GMP contracts where payments are tied to milestones or completion percentages, accurate pay applications—a core feature of Siteline—are crucial to getting paid sooner. Siteline also enables subcontractors to track outstanding balances and monitor their cash flow in real-time, empowering them with insights to proactively manage their financial health—which is paramount in GMP contracts. Ready to take control of your cash flow under GMP contracts? See how Siteline can help by scheduling a demo today.

Outside financing, in the context of the construction industry, refers to the process of seeking funds from external sources to cover costs associated with building projects. These sources can be institutional lenders like banks, credit unions, insurance companies, or private sources such as private equity funds, venture capitalists, or individual investors. Construction firms can opt for outside financing when internal resources or profits aren't sufficient to meet the materials, labor, and equipment costs. Different types of outside financing for construction can include loans, lines of credit, or bonds. The specific financing option chosen often depends on factors such as the scale of the project, the creditworthiness of the construction firm, and the risk appetite of the prospective financer. Some loans could be short term, covering immediate costs, while others may be long term, planned for extensive projects. While outside financing can be a lifesaver, it's noteworthy that it adds to the project's overall cost due to the interest and fees charged by lenders. Thus, it should be optimally strategized in the project's financial planning phase.

The Receivables Turnover Ratio (RTR) in the construction industry is a critical financial metric that measures the efficiency with which a construction company can collect from its clients. This ratio indicates the number of times a company's accounts receivables are collected, or "turned over," during a specific period. It is calculated by dividing the company's net credit sales by its average accounts receivable. A higher RTR implies that the company collects its receivables more frequently, indicating efficiency in its credit and collection processes. On the other hand, a lower RTR suggests that the firm needs to revisit its credit policy as its customers may be delaying payments, which could impact cash flow - a vital aspect in the construction business.