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Subcontractor Default
What is Subcontractor Default?
Subcontractor Default, often seen in the construction industry, refers to the circumstance when a subcontractor fails to fulfill their contractual obligations. This could be due to many reasons - ranging from financial instability and resource unavailability to poor performance or bankruptcy. When a Subcontractor Default occurs, the prime contractor becomes liable, which could lead to significant project delays, increased costs, and potential legal issues. It represents a major risk in the construction industry, which is why many firms secure themselves with Subcontractor Default Insurance (SDI) as a financial risk management tool. Managing relationships with subcontractors carefully, monitoring their performance, and conducting background checks are some ways to avoid Subcontractor Default.
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Other construction terms
What is an Allowance?
An allowance, in the context of the construction industry, refers to a specific cost included in a contract to cover a particular item or work, the exact nature and cost of which are not yet determined at the time of contract formation. Essentially, it's a budget provision for various categories of items that could not be specified or quantified at the time the contract was made. This amount can then be adjusted as necessary based on the actual expenses incurred for the specified work. Examples of allowances could be funds set aside for fixtures, fittings, or finishes, where the specific models or types may not have been selected when the contract was drawn up. The primary objective of an allowance is to enable the smooth progress of work without interruption due to financial constraints. Hence it also helps in maintaining a scheduled timeline for project completion. However, it requires careful management to ensure that spending stays within the predetermined limits.
What is a G703?
A G703 is a continuation sheet used in the construction industry. It's part of the AIA (American Institute of Architects) document set for contract documents. The G703 form includes a schedule of values listing portions of the work, scheduled values, work completed, materials stored, total completed and stored, percentage of work completed, balance to finish, and the amount of change orders. Hence, it is primarily used for breaking down the contract sum into portions of work in accordance with a schedule of values prepared by the contractor. It provides a running total of completed work and can be updated as work progresses.
What is Insurance?
Insurance, in the context of the construction industry, refers to a contract known as an insurance policy, that a company or individual buys from an insurance provider to reduce the financial risk associated with potential loss or damage. There are numerous types of insurance policies like liability insurance, builder's risk insurance, and workers compensation that are specifically designed to safeguard construction businesses against various hazards. For example, if a construction site accidentally experiences unexpected damages, having proper insurance can alleviate the burden of these costs. Each insurance policy has a premium and a deductible, and the terms and conditions can extensively vary based on the policy. The selection of insurance types and coverage should be made meticulously considering the nature and scope of the construction project.
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