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Construction glossary

What is a Deduction?

A deduction in the construction industry refers to a reduction or subtraction of expenses or costs incurred during a construction project. Typical deductions may include costs of materials, labor, damage repairs or maintenance, and professional fees such as architect or engineer services. It is essential for construction businesses to keep track of these expenses as they can be beneficially used for tax deduction purposes. The aim is to lower the overall taxable income, resulting in a reduced tax bill. However, it is crucial to ensure that all deductions comply with laws and regulations to prevent any potential legal implications.

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Other construction terms

Request for Change Order (RFC)

What is a Request for Change Order (RFC)?

A Request for Change Order (RFC) in the construction industry is a formal proposal seeking alterations to an ongoing project that goes beyond the scope of the current plan or contract. It's typically initiated by either the client, architect, or contractor due to unforeseen circumstances, changes in requirements, or when new sources of funding become available. These changes can be related to design modifications, material replacements, timeline extensions, or budget adjustments, among others. An RFC necessitates an agreement among all stakeholders concerning the proposed changes' impacts, cost implications, and necessary adjustments in timelines before proceeding with implementation. This ensures transparency, control over cost overruns, and prevention of disputes.

Pay-When-Paid Clause

What is a Pay-When-Paid Clause?

A Pay-When-Paid Clause refers to a contractual provision often used within the construction industry. This clause essentially stipulates that a contractor or a subcontractor is not obliged to pay their subcontractors or suppliers until they themselves receive payment from the project owner. It serves to manage the risk associated with the delay or failure of payment in the construction chain, allowing the contractor to pass on the financial risks to the subcontractors. Such a clause can have significant implications on cash flows and may affect the commercial viability of construction projects, particularly for smaller subcontractors. It's crucial for all parties involved to carefully negotiate these provisions.

Lien

What is a Lien?

A lien, particularly in the construction industry, is a legal claim or right that a contractor, sub-contractor, or supplier places on a property at which they have rendered services or supplied materials, but haven't been paid. Essentially, it's a security interest granted over an item of property to secure the payment of a debt or performance of some other obligation. If the property owner does not fulfill the financial obligation, the lien holder may seek legal action to enforce their rights and might even result in the compulsory selling of the property to pay off the debt. Liens are crucial elements in construction law, ensuring parties are fairly compensated for their work and supplies provided.

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