Every term on this site, defined plainly.
One definition per term: what it means, how it is calculated, why it costs money, and where the number lies. Written for a finance lead on a project, not for a textbook.
52 terms · defined for construction and EPC projects · updated
Process
- Process miningprocess discovery · automated process discoveryProcess mining is a technique that rebuilds the real map of how work flows through a business by reading the timestamps its software already records, rather than by asking people how they think it works.
- Process intelligenceprocess analyticsProcess intelligence is process mining plus the money: it rebuilds how work actually flows and then prices each delay, so the output is a ranked list of what to fix rather than a diagram.
- Event logAn event log is the raw material of process mining: a table where every row says which case moved, which step happened, and when.
- Casecase IDA case is the single thing whose journey is being followed through a process: one RA bill, one purchase order, one vendor invoice, identified by an ID that stays the same from first step to last.
- BottleneckA bottleneck is the step in a process where cases wait longest, so the speed of the whole process is set by it and by nothing else.
- Rework loopA rework loop is a stretch of a process that the same case travels through more than once: sent back, corrected and resubmitted. It is usually the largest single source of hidden delay.
- Conformance checkingConformance checking compares the process as it actually ran against the process as it was supposed to run, and lists every case that departed from it.
- Throughput timecycle time · lead timeThroughput time is the total elapsed time from the first step of a case to its last, including every queue, weekend and rework pass, not just the time somebody was working on it.
- Cost of delayCost of delay is what one more day of waiting costs at a particular step, and it is what turns a process map into a ranked list of things worth fixing.
Working capital
- Working capitalFor an Indian EPC contractor, working capital is the money tied up in running projects: work executed but not yet certified, bills certified but not yet paid, retention held by the client and material on site, less what is owed to vendors and subcontractors.
- Cash conversion cycleCCCThe cash conversion cycle is the number of days between paying for something and being paid for the work it went into. It is the length of time your own money is funding the project.
- Days sales outstandingDSOIn construction, days sales outstanding (DSO) is the average number of days a contractor waits for money after billing a client: receivables divided by revenue for the period, times the days in the period.
- Days payable outstandingDPO · payable days · payables periodDays payable outstanding (DPO) is the average number of days a contractor takes to pay a supplier, counted from the date of their invoice: payables divided by cost of sales for the period, times the days in the period.
- Order-to-cashO2C · order to cashOrder-to-cash (O2C, also written order to cash) is the whole run from work being done to the money arriving: on a project, from site execution through measurement, certification and invoicing to receipt.
- Procure-to-payP2PFor an Indian EPC contractor, procure-to-pay is the run from a project site asking for material to the vendor being paid for it: requisition, purchase order, goods receipt, invoice, match, payment.
- Unbilled revenueunbilled receivables · unbilled WIP · contract asset · work in progressUnbilled revenue is work a contractor has done and recognised as revenue but has not yet been able to invoice, because the contract makes billing conditional on measurement or certification rather than on time passing.
- Contractor DSODSO from execution · true DSOContractor DSO is days sales outstanding measured from the day work was executed rather than from the day the invoice was raised, which is the only version that reflects how long a contractor actually waits for money.
- Certification lagCertification lag in construction is the number of days between a contractor submitting an RA bill and the client certifying it, a wait that comes before the invoice and so sits outside receivables and a DSO measured from the invoice date.
- Pay-when-paidback-to-back payment · pay-if-paid · conditional payment clauseA pay-when-paid clause makes a main contractor's payment to its subcontractor depend on the main contractor having been paid by the client for the same work.
- MSME 45-day payment ruleSection 15 MSMED Act · Section 43B(h) · MSME payment ruleThe MSME 45-day payment rule requires a buyer to pay a micro or small enterprise supplier within the time agreed in writing, and in any case within 45 days of the day the goods or services are accepted.
- TDS on contractor paymentsTDS 194C · tax deducted at source on contractsTDS on contractor payments is income tax that a client deducts from each payment to a contractor and deposits with the government on the contractor's behalf, so the contractor receives the bill less that tax.
- Receivables ageing reportageing report · aging report · AR ageing · debtors ageingA receivables ageing report sorts the amounts clients owe into time bands, such as 0-30, 31-60, 61-90 and over 90 days, so a finance team can see how long money has been outstanding and which balances to chase first.
- Overbilling and underbillingbillings in excess of costs · costs in excess of billings · over billing · under billingOverbilling is the amount a contractor has billed on a contract beyond the revenue its progress has earned so far, and underbilling is the reverse: revenue earned by progress but not yet billed.
Construction & EPC
- RA billrunning account bill · progress bill · IPC · interim payment certificateAn RA bill is the periodic invoice a contractor raises for work completed so far on a project, measured on site and certified by the client before payment.
- Retention moneyretentionRetention money is the share of every certified bill, commonly 5 to 10 per cent, that the client holds back as security, releasing it only at completion and after the defects liability period ends.
- Variation orderchange order · VO · EOT claimA variation order is work outside the original contract scope that the client has instructed, priced and agreed separately. Until it is agreed, it is work being done for nothing.
- Goods receipt noteGRN · goods received noteGRN is the short form of goods receipt note, also written goods received note: the record that material actually arrived on site, in what quantity and condition. It is the middle document of the three-way match.
- Three-way matchA three-way match is the control that releases a payment only when the purchase order, the goods receipt note and the supplier invoice agree on what was ordered, what arrived and what is being charged.
- Mobilisation advanceadvance payment · mobilization advanceA mobilisation advance (spelled mobilization advance in US English) is money a client pays a contractor before any work has been billed, to fund site establishment and early costs, and it is recovered out of later running account bills rather than being kept.
- Bank guaranteeBG · performance guarantee · advance payment guaranteeA bank guarantee is a bank's undertaking to pay the client a stated sum if the contractor fails to meet an obligation, and on an EPC contract there are usually two of them: one securing the mobilisation advance, one securing performance.
- Security depositSDA security deposit is the name Indian government works give to money deducted from each bill and held as security, which is the same mechanism private contracts call retention money.
- Defect liability periodDLP · defects liability periodThe defect liability period is the stretch after completion during which the contractor must make good defects at its own cost, and it is the clock that decides when the second half of retention is released.
- Price variation clauseescalation clause · price adjustmentA price variation clause adjusts the contract rate when the cost of labour, fuel, steel or cement moves during the contract, so that a multi-year project is not priced on the day it was tendered.
- Bill of quantitiesBOQ · BoQ · bills of quantities · schedule of quantitiesBOQ is the short form of bill of quantities: the itemised list of every piece of work in a contract, with its unit, its quantity and its rate, and the price list every later bill is measured against.
- Measurement bookMB · joint measurement sheetA measurement book is the signed record of the quantities of work actually executed on site, and every running account bill is built from it.
- Work done certificateWDC · work completion certificate · completion certificateA work done certificate is a document issued by a client confirming the work a contractor has executed and its value, and it is used as proof of experience when bidding for later tenders.
- Bill certificationcertification of bill · bill passing · bill approvalBill certification is the client's formal check and approval of a contractor's running bill, and no invoice can be raised and no payment made until it is done.
- Liquidated damagesLD · delay damages · compensation for delayLiquidated damages are a sum fixed in the contract that a contractor pays the client for each period of delay in completion, agreed in advance so the client does not have to prove its exact loss.
- Extension of timeEOT · EOT claim · time extensionAn extension of time is the contractor's right, set out in the contract, to a later completion date when delay is caused by something the contract treats as the client's risk, such as late drawings or instructed changes.
- Earned valueEV · earned value management · EVMEarned value is the budgeted cost of the work actually completed to date, and comparing it with what was spent shows whether a project is running over or under its budget.
- Secured advancesecured advance against materials · advance on materials brought to siteA secured advance is money a client pays a contractor against materials brought to site but not yet built into the work, secured on those materials and recovered from later running account bills as the materials are used, or within the number of bills the contract sets.
- Retention money guaranteeretention bond · retention bank guarantee · bank guarantee in lieu of retentionA retention money guarantee is a bank guarantee a contractor gives the client in place of cash retention, so the client releases the retained money, or stops deducting it, and holds the bank's promise as security instead.
- Final billfinal account · closing billA final bill is the last bill on a construction contract: prepared after the work is complete, it settles the whole contract value, every running account bill already paid, every deduction and every adjustment, and states what remains due to or from the contractor.
- No claim certificateno dues certificate · no-claim declarationA no claim certificate is a signed declaration by a contractor, usually given with the final bill, that it has received what it is owed and will make no further claim under the contract.
- Earnest money depositEMD · bid securityAn earnest money deposit (EMD) is a refundable sum a bidder pays with its tender, or secures with a bank guarantee where the tender allows, to show the bid is serious; the buyer can keep it if the bidder withdraws or, on winning, fails to sign or to furnish the performance security.
- Performance securityperformance bank guarantee · PBG · contract performance securityPerformance security is the security a winning contractor gives the client, often as a performance bank guarantee, that the contract will be carried out; the client can claim it if the contractor fails, and returns it once the obligations it covers, often including the defect liability period, are complete.
- Works contract (GST)works contract service · section 2(119) CGST ActUnder India's GST law, a works contract is a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of immovable property in which property in goods is transferred in the course of the work.
- Deviationdeviation in quantity · extra item · substituted item · deviation statementA deviation is a change in the quantity of an item that is already in the contract, and the contract's deviation limit decides how much of that change is paid at the agreed rate; an extra item is new work with no line in the contract, and a substituted item replaces an agreed item.
- Taking-over certificatetaking over certificate · TOCA taking-over certificate is the document by which the employer, or the engineer acting for it, confirms that the works, or a section of them, are complete enough to be taken over; under FIDIC contracts the date it states is the date of completion that later periods run from.
- Letter of acceptanceLOA · letter of award · work order · letter of intent · LOIA letter of acceptance (LOA), also called a letter of award, is the client's formal notice to a bidder that its tender has been accepted; a work order authorises the start of the work, and a letter of intent signals an intention to award that may or may not be a binding contract.
- Project management consultantPMC · project management consultancyA project management consultant (PMC) is a firm a client appoints to manage a project on its behalf, and where the client gives it that role, the PMC checks the contractor's RA bills and recommends or certifies them before the client pays.
- Order bookorder backlog · unexecuted order bookIn construction, the order book is the value of contracts a company has won but not yet executed: the work still to be done, and so the revenue still to be earned, on its signed contracts.