What is a Cost Overrun?

In construction, an allowance is a predetermined dollar amount included in a contract to cover materials, fixtures, or finishes that haven’t yet been selected. Allowances are typically used for flooring, lighting fixtures, plumbing fixtures, appliances, or other finish materials (things that contribute to the project’s aesthetic) where the owner may want flexibility to make selections as the project evolves.

Here’s how allowances work: When contractors bid on a project, they’ll include specific allowance amounts (e.g., $5,000 flooring allowance). Once construction begins and the owner chooses actual materials, the costs are reconciled against the allowance. If the materials cost less, they receive a credit. If more, the owner pays the difference via a change order.

Siteline can help you track and manage those change orders, ensuring you get paid for that difference. Learn more about how Siteline streamlines change order management here.

A mortgage, within the framework of the construction industry, is essentially a loan secured by a real property through the use of a mortgage note to evidence the existence of the loan and the encumbrance of that realty. This serves a crucial financial function during the building process as it allows homeowners or builders to purchase land or property without needing the full amount upfront. In most cases, a banking institution or lender offers the borrower a certain sum to buy a property, the borrower then repays this sum, typically monthly, with added interest, over a defined period. The mortgage ties the obligation of repayment to the property itself. Hence, when a mortgage loan is used for construction of a new property, the funds are dispersed to the borrower as work on the construction project proceeds. In the event that the borrower defaults on their mortgage payments, the lender has the right to take possession of the property, in a process known as foreclosure.

Top-of-Chain or High-Tier refers to the superior position in a hierarchical structure within the construction industry, often denoting the entities or individuals who have the utmost authority or control. This could involve top-tier construction companies, project managers, stakeholders, or contractors who handle major decisions and oversee the whole project operations. These high-tier participants are responsible for ensuring the project is executed according to the plan, budget, and timeframe. They manage sub-contractors, labor crews, purchase materials, and communicate with clients. Their decisions have significant influence on the project's success. Being at the top of the chain, they often bear the highest level of risk, but also stand to make the most profit.