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General and Administrative Costs (G&A)
What are General and Administrative Costs (G&A)?
General and Administrative Costs (G&A) in the construction industry refer to expenses associated with day-to-day operations that are not directly tied to a specific project. These are necessary costs for a business to operate but are not easily assignable to a particular construction job. They typically include office rent, utilities, office supplies, insurance, legal fees, accounting services, salaries of non-project related staff, and other management expenses. It's important for construction businesses to carefully manage G&A costs as they can significantly impact the profitability if not monitored and controlled carefully. These costs are usually spread proportionately across various projects, based on some measure like total project labor costs. A high amount might indicate inefficiency, while a very low amount could suggest underinvestment.
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Other construction terms
What is Accounts Receivable (A/R)?
Accounts Receivable (A/R) in the construction industry refers to the amount of money owed to a construction company for goods and services it has provided but has not yet been paid for. This is typically recorded as an asset on the company's balance sheet as it represents a legal obligation for the customer to remit payment to the company. The A/R system helps track these outstanding payments within a set time period, allowing construction companies to manage their cash flow effectively. It's essential for construction firms to monitor their A/R closely, as late or uncollected payments can significantly impact their financial health and ability to fund future projects.
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.
What is General Liability Insurance?
General Liability Insurance, particularly applicable to the construction industry, is a specific type of coverage that safeguards construction businesses against financial losses due to liability claims. These losses may arise from bodily injuries or property damages that occur on the construction site. It can also extend to cover slander, defamation or false advertising claims. Moreover, in the event of any such undesired incidents, the insurance policy is responsible for handling lawsuits and paying out the settlements. However, it's essential to note that general liability insurance doesn't cover damages due to professional errors or employee injuries; these would fall under professional liability insurance and workers' compensation, respectively.
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