Mega Project Assurance
Copyright 2016 CIPRAS PRESS
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Table of Contents
Assurance is an action of assuring, as a pledge or guarantee. Assurance is also being certain in the mind, giving confidence of mind or manner.
With complex mega-project investments, that exceed one billion in U.S. dollars, being certain of mind and manner can mean the difference between success and disaster. As such, the project assurance function has evolved from a common audit function into a critical part of a successful project delivery.
The Mega Project Assurance Series provides effective tools, guidance and instruction for professional accounting, audit, construction, design, engineering, finance, infrastructure, legal, project management and operations practitioners. The purpose of this series is to outline how project assurance professionals mitigate risk, disputes, and generate cost recovery -- real results. The material contained in this series is field tested under actual conditions, on publicly and privately funded mega projects. However, it should be noted that each mega project is unique. Each has its own unique system, time, resources, people, organization, language, design, geography, culture, politics, and economic constraints. This series is designed to accommodate the practitioner’s needs and their actual conditions.
Volume One addresses the terminology commonly used throughout the Mega Project Assurance Series and is a useful reference for practicing professionals and students. The content is broken down into three sections: Project Accounting & Audit; Project Finance, and Construction & Technology.
As with any business reference, terminological definitions and their uses are dynamic. We are dedicated to maintaining content accuracy and value for all readers, and we welcome your constructive comments, edits and suggestions for improving its value.
Editor & Publisher
Mega Project Accounting & Audit Terms
AAA: See, American Arbitration Association
Acceleration clause: A clause in a contract that states that if a payment is missed, or some other default occurs (such as the debtor becoming insolvent), then the contract is fully due immediately. This is a typical clause in a loan contract; miss one payment and the agreement to pay at regular intervals is voided and the entire amount becomes due and payable immediately.
Acceleration (1): A forced reduction in the project schedule, effectively shortening the time period within which the Work or a designated portion thereof is to be completed. Effective acceleration requires no change in the end date for the project.
Acceleration (2): Acceleration occurs when the contractor is compelled by the Owner to complete the project ahead of schedule. But, it comes at a price to the Owner. Changes in contract time, whether delay or acceleration, increase the contractor’s cost and often become the subject of a claim.
Acceptance Testing: The performance of all testing necessary to demonstrate that installed equipment and/or systems will operate satisfactorily and safely in accordance with plans and specifications. It includes hydrostatic, pneumatic, electrical, ventilation, mechanical functioning, and run-in tests of equipment, portions of systems, and finally of completed systems.
Account Current: An account current is the billing statement an insurance company sends to its producer.
Account Receivable Turnover: A measure used to determine a company’s average collection period for receivables. It is computed by dividing net sales (or net credit sales) by average accounts receivable. [net sales/avg. acct. receivable]
Account Receivable: A current asset representing money due for services performed or merchandise sold on credit.
Account: An accounting record, in which the results of transactions are accumulated, shows increases, decreases, and a balance.
Accountability Matrix: (See RESPONSIBILITY ASSIGNMENT MATRIX)
Accountability: The requirement, obligation, or willingness of an individual to accept responsibility for the outcome, results and consequences of their actions and decisions. In a project setting, accountability is inseparable from authority and responsibility.
Accounting Cycle: The procedures for analyzing, recording, classifying, summarizing, and reporting the transactions of a business.
Accounting Model: The basic accounting assumptions, concepts, principles, and procedures that determine the manner of recording, measuring, and reporting an entity’s transactions.
Accounting System: The set of manual and computerized procedures and controls that provide for identifying relevant transactions or events; preparing accurate source documents, entering data into the accounting records accurately, processing transactions accurately, updating master files properly, and generating accurate documents and reports.
Accounting: A service activity designed to accumulate, measure, and communicate financial information about economic entities for decision-making purposes.
Accounts Payable (or Trade Accounts Payable): Are balances owed to others for goods, supplies, or services purchased on open account. Accounts payable arise because of the time lag between the receipt of services or acquisition of title to assets and the payment for them. This period of extended credit is usually found in the terms of the sale. For example: 2/10, n/30 or 1/10, E.O.M. (End Of Month) and is commonly 30 to 60 days. The terms 2/10, n/30 means that, although the credit period is thirty days, the buyer may deduct 2% of the amount of the invoice if payment is made within 10 days of the invoice date.
Accounts Receivable Turnover: Measures the internal collection efficiency and potential bad debt exposure. The calculation is: Acct. Rec. X 360 /Annual Revenue. Sureties are looking for a figure of 60 days or less.
Accrual Basis: Gross income is recognized when earned.
Accrual-Basis Accounting: A system of accounting in which revenues and expenses are recorded as they are earned and incurred, not necessarily when cash is received or paid.
Accrued Cost: Amounts owed for items or services received, expenses incurred, assets acquired, or construction performed, for which a bill (e.g., progress billing and other billings) has not yet been received or approved. In earned-value context accruals represent cost (liability) for work performed, and thus costs incurred, for the reporting period even though the bills have not yet been received. Thus accruals are included in the Actual Cost of Work Performed when reporting performance in the earned value system. It is essential that the accrual methodology be consistent with the time phasing of the Budgeted Cost of Work Scheduled. Note that the time phased Budgeted Cost of Work Scheduled should be consistent with the contractual obligations for procurement of goods and services.
Accrued Expenses: Expenses that arise through adjusting entries when accounting for unrecorded expenses.
Accrued Liabilities: Liabilities that arise through adjusting entries when account for unrecorded liabilities.
Accumulated Depreciation: The total depreciation recorded on an asset since its acquisition, a contra account deducted from the original cost of an asset on the balance sheet.
Acid-Test Ratio (or Quick Ratio): A measure of a firm’s ability to meet current liabilities, more restrictive than the current ratio. It is computed by dividing net quick assets (all current assets, except inventories and prepaid expenses) by current liabilities.
Acquisition Executive (AE): The individual designated by the Owner to integrate and unify the management system for a project, and monitor implementation of described policies and practices. Approves all appropriate Critical Decisions, with the exception of mission need, which is to be approved by the designated approval authority. Selects from among competing systems those that are to be advanced to development, demonstration, and reproduction, operation, and authorizes development of a non-competitive (single concept) system.
Acquisition Performance Baseline (APB): A quantitative expression reflecting total scope of a project with integrated technical, schedule, and cost elements. It is the established risk adjusted, time-phased plan against which the status of resources and the progress of a project(s) is measured, assessed, and controlled. Once established, baselines are subject to change control discipline (modified).
Acquisition Performance Baseline (APB): Includes all cost, schedule, and performance parameters (both objectives and thresholds) for a program/project. Key elements in formulating an APB include the integration and assessment of program/project scope, schedule, and cost baselines: a systematic risk analysis, and the development and inclusion of adequate risk allocation to address factors that might cause technical/schedule/cost growth during project performance. Project completion without an increase in the APB thresholds or extending the schedule, is the primary measure of success in formulating the APB.
Acquisition Plan (AP): Provides the procurement and contracting detail for elements of a program, project, or system. A formal written document reflecting the specific actions necessary to execute the approach established in the approved acquisition strategy and any appropriate guiding documentation. The AP is performance-oriented and provides the framework for conducting and accomplishing a project following MNS approval.
Acquisition Planning: The process by which the efforts of all personnel responsible for an acquisition are coordinated and integrated through a comprehensive plan for fulfilling the agency need in a timely manner and at a reasonable cost. It is performed throughout the acquisition’s life cycle and starts with developing an overall acquisition strategy for managing the acquisition after MNS approval; and from a project standpoint, goes to project turnover.
Acquisition Program/Project: Acquisition programs and projects are distinct elements of work, equal to or greater than $5 million, regardless of the funding source or type, that delivers or creates a product, service, or capability, with a specified beginning and end, a stated cost, and expected performance objectives. They are directed, funded efforts whose purpose is to provide a useful, material capability in response to a validated mission or business need. An acquisition program may be facility construction, infrastructure repairs or modifications, system, production capability, remediated land, closed site, disposal effort, software development, information technology, space system, research capability, or other asset. Acquisition programs, as they related to projects, are generally made up of multiple projects, related by a common mission, in which each project remains a useful segment and able to perform it’s intended function.
Acquisition Strategy (AS): A business and technical management approach designed to achieve acquisition objectives within the resource constraints imposed. It is the framework for planning, directing, contracting, and managing a system, program, or project. It provides a master schedule for research, development, test, production, construction, modification, Post-production management, and other activities essential for success. The AS is the basis for formulating functional plans and strategies (e.g., acquisition strategy, competition, systems engineering, etc.). Once approved, it should reflect the approving authority’s decisions on all major aspects of the contemplated acquisition. See ACQUISITION PLAN.
Act of God: An event that is caused solely by the effect of nature or natural causes and without any interference by humans whatsoever. Insurance contracts often exclude “acts of God” from the list of insurable occurrences as a means to waive their obligations for damage caused by hurricanes, floods or earthquakes, all examples of “acts of God”.
Activity Based Budgeting – ABB: A method of budgeting in which the activities that incur costs in every functional area of an organization are recorded and their relationships are defined and analyzed. Activities are then tied to strategic goals, after which the costs of the activities needed are used to create the budget. Activity based budgeting stands in contrast to traditional, cost-based budgeting practices in which a prior period’s budget is simply adjusted to account for inflation or revenue growth. As such, ABB provides opportunities to align activities with objectives, streamline costs and improve business practices. By looking at the cost structure of an organization via the processes that are actually being performed, managers can more effectively analyze the profit potential of a company’s products and services. Cost efficiencies can be found by comparing activities performed in different areas of the organization and consolidating or rerouting certain functions. At its essence, activity-based budgeting begins by looking at results and the activities that created them, as opposed to cost-based budgeting, which often begins with raw input and material and works outward. ABB can also help firms create more accurate financial forecasts.
Activity Reports of the internal auditing department highlight significant audit findings and recommendations and inform senior management and the board of any significant deviations from approved audit work schedules, staffing plans, and financial budgets, and the reasons for them.
Activity: A component of work performed during the course of a project. An activity normally has an expected duration, an expected cost and expected resource requirements. Activities are often subdivided into tasks.
Actual Cost of Work Performed (ACWP): Total costs incurred (direct and indirect) in accomplishing an identified element or scope of work during a given time period. See also EARNED VALUE.
Add Value – Organizations exist to create value or benefit to their owners, other stakeholders, customers, and clients. This concept provides purpose for their existence. Value is provided through their development of products and services and their use of resources to promote those products and services. In the process of gathering data to understand and assess risk, internal auditors develop significant insight into operations and opportunities for improvement that can be extremely beneficial to their organization. This valuable information can be in the form of consultation, advice, written communications, or through other products all of which should be properly communicated to the appropriate management or operating personnel.
Addendum (1): (Addenda) Written information adding to, clarifying or modifying the bidding documents. An addendum is generally issued by the Owner to the contractor during the bidding process and as such, addenda are intended to become part of the contract documents when the construction contract is executed.
Addendum (2): Written information, including drawings or other graphic documents, issued to bidders between distribution of the RFP and before award of the Work, to formally communicate modifications to, or interpretations of, the bidding documents (i.e. RFP, Contract Documents and/or Construction Documents). Addenda become part of the Contract Documents at the time they are issued. Each Addendum should state that it supersedes and supplements all portions of the bidding documents with which it conflicts.
Additional Insured: A person, company or entity protected by an insurance policy in addition to the insured.
Additional Services Request: An “ASR” for additional Professional services may, upon request or approval, be rendered by a party under direct contract to the Owner in addition to the basic services identified in the agreement between the Owner and the other contracting party.
Adequate Control – Present if management has planned and organized (designed) in a manner that provides reasonable assurance that the organization’s risks have been managed effectively and that the organization’s goals and objectives will be achieved efficiently and economically.
Adjudication: This term is most frequently encountered in the construction industry in the U.K. Adjudication is a binding decision made by an appointed neutral, often a quantity surveyor, either by deciding on the basis of submitted documents, or as is increasingly the case, after a hearing. It is designed to provide a speedy, if not always elegant, resolution to enable work to continue on site without interruption. Either party may appeal the adjudicator’s decision to court or arbitration, or indeed settle the dispute by mediation. The Housing, Grants, Regeneration Act 1996 in the United Kingdom has greatly increased the use of adjudication.
Adjusted Gross Income: An individual taxpayer’s total income minus deductions (adjustments) for individual retirement plan contributions and alimony paid.
Adjuster: A person who investigates and settles losses for an insurance carrier. In the surety industry, those persons are more often referred to as claims representatives, claims attorneys, or consultants.
Adjusting Entries: Entries required at the end of each accounting period to recognize, on an accrual basis, revenues and expenses for the period and to report proper amounts for asset, liability, and owners’ equity accounts.
Adjustments to Gross Income: Amounts deducted from the gross income of an individual taxpayer in arriving at adjusted gross income, includes contributions to individual retirement plans and alimony paid.
Administered Arbitration: The parties select an agency (for-profit or not-for-profit) which serves as an intermediary between parties and the arbitrator (like a “middle-man”). The agency’s fees are in addition to the arbitrator’s.
Administrative Closure: Generating, gathering, and disseminating information to formalize project completion.
Admitted Carrier: A company doing business, under a Certificate of Authority issued by a State’s Department of Insurance subject to the laws and regulations of the State.
ADR Rider to Bond: While contracting parties in the construction process have been moving towards alternative disputes resolution processes for many years, the surety industry has traditionally favored litigation as the means of resolving its disputes. Increasingly, sureties are embracing mediation and other techniques to avoid and resolve disputes. For example, the Dallas Fort Worth Airport Capital Development Plan’s Subcontractor Master Surety Program marked one of the first efforts to provide a pre-default agreement by sureties to use ADR procedures. The ADR rider to the performance bonds on that project utilize step negotiation, facilitation and a non-binding advisory opinion by a third party neutral in the event of a dispute over the propriety of a subcontractor termination.
ADR: See, Alternative Dispute Resolution.
Advance Payment Bond: A bond that guarantees repayment or liquidation by the principal of funds advanced in connection with a construction supply or other type of contract.
Adverse Opinion: Audit report indicating the auditor believes the overall financial statements are so materially misstated or misleading that the statements do not fairly represent the financial position or results of the operations and cash flows.
Advisory Opinion: A nonbinding statement by an arbitrator, facilitator, mediator, or project neutral of its interpretation of the facts and law on a matter submitted for that purpose. Federal Courts are constitutionally prohibited from issuing advisory opinions by the case or controversy requirement.
AE: Architect-Engineer: An individual, firm or design team offering professional services as both architect and engineer.
Affiliate / Affiliated Owner: Any company or other legal entity that (a) controls a party either directly or indirectly, or (b) is controlled by a party either directly or indirectly, or (c) is directly or indirectly controlled by a company or other legal entity that directly or indirectly controls a party. In this definition, the words "controls", "controlled" and "control' mean the right to exercise 50% or more of the voting rights in the appointment of directors or of the voting shares of such company or legal entity.
AGC Surety Bond Committee: One of the standing committees of the Associated General Contractors of America, this committee works closely with the Surety Association of America and the National Association of Surety Bond Producers to develop policy on such issues as directed suretyship, bond forms, and alternative default insurance products.
Agent or Broker of Record Letter: Surety companies will work with only one agent representing a principal at any one time. In order to change agent representatives, the surety may require the customer to provide a signed and dated Broker of Record letter spelling out whom the principal want as its agent. The surety may send a copy of the letter to the original agent or broker, allowing the original agent an opportunity to obtain a countermanding broker of record letter.
Agent: The authorized representative of an insurance company or companies.
Aging Accounts Receivable: The process of categorizing each account receivable by the number of days it has been outstanding.
AIA Documents: The AIA Contract Documents Program, one of the oldest and most comprehensive programs of its kind in the world, develops standardized contract forms and administrative procedures that provide the building industry with a basis for nationwide uniformity for contractual relationships in the design and construction process. Although opportunity for industry-wide input into these documents is afforded, they are decidedly pro-design professional.
Aleatory: A type of contract. The term is usually applied to insurance contracts in which payment is dependent on the occurrence of a contingent event, such as injury to the insured person in an accident or fire damage to his insured building.
Allowance for Uncollectible Accounts: A contra asset, deducted from Accounts Receivable that shows the estimated losses from uncollectible accounts.
Allowance Method: The recording of estimated losses due to uncollectible accounts as expenses during the period in which the sales occurred.
Allowance: An incremental amount (technical margin, cost and schedule contingency) that is made part of an estimate or baseline and is expected to be required, or applied when complete. It is normally developed from experience or risk analysis.
All-Risk: An insurance policy which endeavors to cover any loss or damage to an insured property unless such loss is specifically excluded by the policy language.
Alternate Bid: Amount stated in the bid to be added or deducted from the base bid amount proposed for alternate materials and/or methods of construction.
Alternate Dispute Resolution Procedure: A voluntary or contractually agreed upon procedure used by parties to resolve disputes instead of litigation. Also known as “ADR”. ADR includes arbitration, mediation, dispute review boards, and mini-trials. The Owner General Conditions include a form of ADR, the Dispute Resolution process defined in the Agreement, for resolution of claims. The advantages of ADR are speed and money: it costs less and is quicker than court litigation. ADR forums are also private. One form of multi-step ADR is the ‘wise man’ procedure, typically used when problems arise in long-term partnerships such as those in the oil and gas industry. The wise men (or women) are respected senior executives of each company who are uninvolved in the project. These officials are given a fairly short time frame (sometimes just 30 days) to investigate the dispute. If that fails, the matter goes to a third step, usually binding arbitration. Sometimes called “progressive negotiation” or “mutual escalation,” this procedure refers matters first to a partnership committee which oversees the day-to-day operations of the project. If the problem cannot be resolved at that level, the wise-man option the next ADR step is employed.
Amendment: A written modification to the Contract terms and conditions signed by both parties.
American Arbitration Association: The largest full-service ADR provider in the U.S. The American Arbitration Association assists in the design and implementation of ADR systems for corporations, unions, government agencies, law firms and the courts. Administers mediation, arbitration, and dispute review boards.
American Institute of Architects (AIA): Based in Washington, D.C., the American Institute of Architects (AIA) has been the leading professional membership association for licensed architects, emerging professionals, and allied partners since 1857.
American Insurance Association (AIA): The American Insurance Association (“AIA”) is a property and casualty insurance trade organization.
Amortization: The process of cost allocation that assigns the original cost of an intangible asset to the periods benefited.
Analytical Auditing Procedures: are performed by studying and comparing relationships among both financial and non-financial information. The application of analytical auditing procedures is based on the premise that, in the absence of known conditions to the contrary, relationships among information may reasonably be expected to exist and continue. Examples of contrary conditions include unusual or nonrecurring transactions or events; accounting, organizational, operational, environmental, and technological changes; inefficiencies; ineffectiveness; errors; irregularities, or illegal acts.
Annual Report: Companies send their shareholders an annual report at the end of a fiscal year. The magazine or brochure sizes up company operations and displays earnings, sales, balance sheets and financial footnotes.
Annuity: A series of equal amounts to be received or paid at the end of equal time intervals.
Application for Payment: Written request for payment of amount due, from a party under direct contract to the Owner, for completed portions of the Work and, if the Contract so provides, for materials delivered and suitably stored pending their incorporation into the Work.
Application: A questionnaire which must be completed, when required, by an applicant for a fidelity or surety bond. On a surety bond, it also may contain the applicant’s agreement to indemnify the surety in the event of loss.
Appointment: The instrument providing documentation certifying a company’s desire that an agent represent that company in the sale of insurance or surety products. An agent may be appointed by any number of companies legally doing business, but must be sponsored at all times by at least one company to maintain an active license to sell insurance.
Appreciation means the ability to recognize the existence of problems or potential problems and to determine the further research to be undertaken or the assistance to be obtained.
Arbiter: See, Arbitrator.
Arbitration Agreement or Arbitration Clause: A contract by two or more individuals or entities to submit a particular dispute that has arisen or disputes that may arise in the future to arbitration rather than to court. Such an agreement usually specifies the binding nature of the arbitration, that any arbitrator’s decision may be enforced in court, and whether the arbitration proceedings will be confidential.
Arbitration: An alternative dispute resolution method by which an independent, neutral third person (“arbitrator”) is appointed to hear and consider the merits of the dispute and renders a final and binding decision called an award. The process is similar to the litigation process as it involves adjudication, except that the parties choose their arbitrator(s) and the manner in which the arbitration will proceed.
Arbitrator: An arbitrator is independent and impartial and is selected by the parties or on their behalf (by the Institute or by another appointing authority) on the basis of their arbitral/technical expertise, reputation and experience in the field of activity from which the dispute stems.
Arm’s-Length Transactions: Business dealings between independent and rational parties who are looking out for their own interests.
Articulation: The interrelationships among the financial statements.
As-Built Drawings: (also known as Record Drawings) Contract drawings marked up to reflect changes made during the construction process. It is good practice to make As-Built drawings by marking the changes on reproducible drawings for the duplication purposes later.
Ask: This is the quoted ask, or the lowest price an investor will accept to sell a stock. Practically speaking, this is the quoted offer at which an investor can buy shares of stock.
Assessment: The act of assessing, or to assess, estimate, judge, value, or evaluate against a known standard.
Asset Condition Index (ACI): Asset Condition Index (ACI) is a standard benchmark in the asset management industry, which is used to objectively assess the current and projected future condition of an asset. By definition, the ACI is defined as the ratio of current year required renewal repairs to asset replacement value. It is often used as a snapshot in time as a comparator to similar assets or as an index, which quantifies the adequacy of a funding level over a longer period of time.
Asset Planning: Capital Asset Planning in a traditional financial sense involves calculating the value of an asset based, typically, on straight-line depreciation over varying periods of time. Asset Planning in the future will involve more carefully assessing the worth of an asset based on activities which truly extend the lifecycle of an asset and, hence, its book value. This will require integration of Financial, Maintenance, Facility and Construction Program management systems to provide a comprehensive picture of the value, funding requirements, future liabilities and lifecycle of organizational assets.
Asset Renewal: Changes to the physical characteristics of an existing facility asset or installed equipment so that it can be used more effectively for its currently designated purpose.
Asset Turnover Ratio: An overall measure of how effectively assets are used during a period. It is computed by dividing net sales by average total assets.
Assets: Economic resources that are owned or controlled by an entity.
Assignment of Intellectual Property: Contractual provisions whereby rights to, and ownership of intellectual property (includes patents, copyrights, trade secrets and trademarks which are considered grants of some privilege, property or authority made by the Owner to a company or one or more individuals) developed and/or owned by one party are assigned to another party.
Association of Attorney Mediators: AAM is a non-profit trade association of qualified, independent attorney-mediators. Members of AAM must meet qualifications and ethical standards, which meet or exceed state or Federal requirements for mediators. AAM’s role in the mediation process is to help potential users of mediation services find the attorney-mediator best suited to assist the parties in resolving their dispute. AAM fulfills its mission through a National Office located in Dallas, Texas. As a trade association, AAM promotes the use of mediation and protects the mediation process. AAM conducts seminars for attorneys, assists the Judiciary in drafting and implementing local rules and procedures for mediation; submits amicus briefs to the Courts on selected issues involving mediation; and monitors legislation concerning the mediation process.
Association of Independent Sureties: This is the association for the many small and mid-sized surety companies in the United States.
Assurance Services: An objective examination of evidence for the purpose of providing an independent assessment on risk management, control, or governance processes for the organization. Examples may include financial, performance, compliance, system security, and due diligence engagements.
Attachment: Those attachments designated in (and incorporated and made a part of) the “Standard Form of Agreement” or “Short Form of Agreement”: for example, “Attachment A – General Conditions”, and “Attachment B – Project Release”.
Attestation: The acts of watching someone sign a legal document, such as a will or power of attorney, and then signing your own name as a witness. When you witness a document in this way, you are attesting -- that is, stating and confirming -- that the person whom you watched sign the document in fact did so. Attesting to a document does not mean that you are vouching for its accuracy or truthfulness. You are only acknowledging that you watched it being signed by the person whose name is on the signature line.
Attorney in Fact: The person to whom authority is given under a Power of Attorney.
Attorney Work Product Privilege: A rule that protects materials prepared by a lawyer in preparation for trial from being seen and used by the adversary during discovery or trial.
Attorney’s Fees: The usual and ordinary meaning of the words “attorney’s fees” is the consideration that a litigant pays or becomes liable to pay in exchange for legal representation.
Attorney-Client Privilege: A rule that keeps communications between an attorney and her client confidential and bars them from being used as evidence in a trial, or even being seen by the opposing party during discovery.
Audit Committee: Members of a client’s board of directors who are responsible for dealing with the external and internal auditors.
Audit Objectives: Broad statements developed by internal auditors and define intended audit accomplishments.
Audit Procedures: The tasks the internal auditor undertakes for collecting, analyzing, interpreting, and documenting information during an audit. Audit procedures are the means to attain audit objectives.
Audit Program: A document, which lists the audit procedures to be followed during an audit. The audit program also states the objectives of the audit.
Audit Report (1): A report issued by an independent auditor, or CPA that expresses an opinion about whether the financial statements present fairly a company’s financial position, operating results, and cash flows in accordance with generally accepted accounting principles (GAAP).
Audit Report (2): A signed, written document, which presents the purpose, scope, and results of the audit. Results of the audit may include findings, conclusions (opinions), and recommendations.
Audit Scope: Refers to the activities covered by an internal audit. Audit scope includes, where appropriate: Audit objectives; Nature and extent of auditing procedures performed; Time period audited. Related activities not audited in order to delineate the boundaries of the audit
Audit Work Schedules: Include (a) what activities are to be audited; (b) when they will be audited; and © the estimated time required, taking into account the scope of the audit work planned and the nature and extent of audit work performed by others.
Audit Working Papers: Documents that record the information obtained, the analyses made, and conclusions reached during an audit. Audit working papers support the bases for the findings and recommendations to be reported.
Audit: The result of an independent auditor/accountant’s review of the statements and footnotes to ensure compliance with generally accepted accounting principles (GAAP) and to render an opinion on the fairness of the financial statements.
Auditable Activities: Those subjects, units, or systems, which are capable of being defined and evaluated. Auditable activities may include: Policies, procedures, and practices; Cost centers, profit centers, and investment centers General ledger account balances; Information systems (manual and computerized); Major contracts and programs; Organization units such as product or service lines; Functions such as electronic data processing, purchasing, marketing, production, finance, accounting, and human resources; Financial statements Laws and regulations.
Auditee: Any individual, unit, or activity of the organization that is audited.
Authenticity, Bond: Obligees should always verify the authenticity of surety bonds they are being asked to accept. The most reliable way to authenticate a surety bond is to contact the issuing surety company directly. However, it is often difficult to ascertain the correct address, telephone number or person to contact at the surety. The Surety Association of America has published a guide that contains a list of surety companies together with information as to how they can be contacted for the purposes of authenticating a bond.
This guide is available at: http://www.surety.org/obligeus.htm
Authority, Agent’s Apparent: Authority of an agent that is created when the agent oversteps actual authority, and when inaction by the surety or insurance company does nothing to counter the public impression that such authority exists.
Authority, Agent’s Express: Express authority is exemplified by the agent’s agency agreement, which is kept on file by the agent and sponsoring company. It is also exemplified in the power of attorney granting the agent power and authority to take certain acts or bind The Owner to specified obligations.
Authority, Agent’s Implied: Although certain functions an agent may perform are not set out in the express authority documentation (agency agreement or power of attorney), the routine performance of these may lead the public to reasonably believe the agent has been given express authority where none exists.
Authority: The power or right granted or assigned to an individual to (a) lead, guide, and direct an activity, (b) make decisions, © authorize action, and (d) influence or control other individuals. In a project setting, authority is inseparable from accountability and responsibility.
Authorization: Implies that the authorizing authority has verified and validated that the activity or transaction conforms with established policies and procedures.
Authorized Stock: The amount and type of stock that may be issued by a company, as specified in its articles of incorporation.
Authorizing: Includes initiating or granting permission to perform activities or transactions.
Available-for-Sale Securities: Debt and equity securities not classified as trading, held-to-maturity, or equity method securities.
Award: The decision of an arbitrator or other non-judge in a dispute submitted to him or her.
Back charge: A cost charged by the Owner or by a party under direct contract to the Owner to a vendor, or supplier, of products, services, or work for the non-performance of work scope or damages caused to others. Back charges are usually a zero cost to the Owner.
Backlog Funding: An accumulation of uncorrected or deferred deficiencies that represents a liability (in both physical and financial terms) for an asset. When a Backlog is permitted to exist from year to year, some deficiencies may result in major long-term economic losses or safety risks.
Bad Debt: An uncollectible account receivable.
Bad Faith: Accusations by policyholders that insurers took steps to deliberately delay, underpay, or deny a claim.
Balance Sheet: (statement of financial position): The financial statement that shows the assets, liabilities, and owners’ equity of an entity at a particular date.
Bank Reconciliation: The process of systematically comparing the cash balance as reported by the bank with the cash balance on the company’s books and explaining any differences.
Bar Chart: A graphic display of schedule-related information. In the typical bar chart, activities or other project elements are listed down the left side of the chart, dates are shown across the top, and activity durations are shown as date-placed horizontal bars.
Baseball Arbitration: In this process, used increasingly in commercial disputes, each party submits a proposed monetary award to the arbitrator. At the conclusion of the hearing, the arbitrator chooses one award without modification. This approach imposes limits on the arbitrator’s discretion and gives each party an incentive to offer a reasonable proposal, in the hope that it will be accepted by the decision-maker. A related variation, referred to as “night baseball” arbitration, requires the arbitrator to make a decision without the benefit of the parties’ proposals and then to make the award to the party whose proposal is closest to that of the arbitrator
Basket Purchase: The purchase of two or more assets acquired together at a single price.
Benchmarking: An improvement process in which an organization, agency or company measures its performance against that of best-in-class organizations, agencies, or companies; determines how those organizations, agencies, or companies achieved their performance levels; and uses the information to improve its own performance. Benchmarking can compare strategies, operations, processes, and procedures.
Beneficial Use or Occupancy Date: The process by which the Owner gains “beneficial use, or occupancy” of building, or facility, portions thereof, or the last piece of principal equipment, is released for use by others, prior to final acceptance. Non-integral or subsidiary items and correction of design inadequacies subsequently brought to light may be completed after this date. On multiple-facility projects, beneficial use of the overall project will be the beneficial use date of the last major building or facility. This activity is always documented and approved by the responsible parties.
Beta: This measures the volatility of a share of stock. A high beta stock, for example, will raise more in value than the stock market average on a day when shares in general are rising. In addition, it will fall more sharply than the average on a day when shares are falling. The S&P 500 Index of stocks, an index that represents large-company stocks, has a beta of 1.
Bid Bond: A bid bond assures the Owner that, upon acceptance of the contractor's proposal, the contractor will proceed to enter into a contract and will furnish performance and payment bonds if required by the bid documents. Failure to satisfy these requirements generally leads either to forfeiture of the bid bond (usually in the penal sum of 5% to 20% of the bid) or more commonly, payment of the difference between the bidder's price and the second low bidder's price or the bond amount, whichever is less. Bid bonds are often required on public projects where formal competitive bidding is required, but are less frequently used on private projects.
Bid Listing: A procurement system in which a general contractor must submit with its bid the names of the subcontractors they intend to use if awarded the contract.
Bid Shopping: A practice by which contractors, both before and after their bids are submitted, attempt to obtain prices from potential subcontractors and material suppliers that are lower than the contractors’ original estimates on which their bids are based, or after a contract is awarded, seek to induce subcontractors to reduce the subcontract price included in the bid.
Bid Shopping: The practice of a general contractor asking, requiring, or otherwise pressuring a subcontractor to lower bids for subcontracts, or accepting lower bids from subcontractors, after submitting a bid without passing the savings from the lower bids back to the project owner. Some states prevent bid shopping by “bid listing,” a system in which a general contractor must submit with its bid the names of the subcontractors they intend to use if awarded the contract.
Bid: This is the quoted bid, or the highest price an investor is willing to pay to buy a security. Practically speaking, this is the available price at which an investor can sell shares of stock.
Bidding or Negotiations Phase: The phase of a Project in which bids or negotiated proposals are solicited, obtained and evaluated and in which contracts are awarded. The Bidding or Negotiations Phase generally follows the Contract Documents Phase
Bills Paid Affidavit: An affidavit executed by a contractor or subcontractor in connection with interim or final payments wherein the contractor or subcontractor states, under oath, that it has either paid all of its bills on a project, or that that it has paid all bills for work performed during previous draw periods and that it will pay all bills associated with the payment to be made in reliance on the affidavit. While the affidavit does not relieve the recipient from responsibility for claims that may be filed if the affidavit is not truthful, the person signing the affidavit faces potential civil and criminal sanctions for filing a false affidavit.
Board of Directors: Individuals elected by the stockholders to govern a corporation.
Board: The board of directors, audit committee of such boards, head of an agency or legislative body to whom internal auditors report, board of governors or trustees of a non-profit organization, or any other designated governing bodies of organizations.
Bond Carrying Value: The face value of bonds minus the unamortized discount or plus the unamortized premium.
Bond Discount: The difference between the face value and the sales price when bonds are sold below their face value.
Bond Indenture: A contract between a bond issuer and a bond purchaser that specifies the terms of a bond.
Bond Maturity Date: The date at which a bond principal or face amount becomes payable.
Bond Premium: The difference between the face value and the sales price when bonds are sold above their face value.
Bond: Bonds are debt and are issued for a period of more than one year. The U.S. government, local governments, water districts, companies and many other types of institutions sell bonds. When an investor buys bonds, he or she is lending money. The seller of the bond agrees to repay the principal amount of the loan at a specified time. Interest-bearing bonds pay interest periodically, or to put it simply, a contract between a borrower and a lender in which the borrower promises to pay a specified rate of interest for each period the bond is outstanding and repay the principal at the maturity date.
Bonding Around a Lien: The process of posting a bond to indemnify a property owner, title company, or lender from liability for a filed mechanic’s lien is known as “bonding around.” The process may take the form of statutory bond to release a recorded lien, or a common law obligation to indemnify parties who rely on such a bond.
Bonding Owner: Same as a “Surety”
Bonds: Three-party agreements in which the issuer of the bond (the surety) joins with the second party (the principal) in guaranteeing to a third party (the obligee) the fulfillment of an obligation on the part of the principal. An obligee is the party (person, corporation or government agency) to whom a bond is given. The obligee is also the party protected by the bond against loss.
Bonus-Penalty Clause: A positive/negative incentive to comply with a schedule. A bonus is paid for timely performance; a penalty is assessed for untimely performance. The dollar amount of the bonus and penalty must be equal.
Book Value of Depreciable Assets: The difference between the cost of any depreciable asset and its related accumulated depreciation is referred to as the book value of that asset.
Book Value Per Share: A measure of net worth. It is computed by dividing stockholders’ equity for each class of stock by the number of shares outstanding for that class.
Book Value: A company’s book value is: Total Assets minus intangible assets and liabilities such as debt. A company’s book value might be more or less than the market value of the company, or the net amount shown in the accounts for an asset, liability, or owners’ equity item.
Bordereau: A report, listing the risks reinsured, that the ceding company regularly provides to the reinsurer. This report typically includes the insured’s name, premium basis, premium and the amount of coverage.
Breach: A project breach occurs when the current estimate of a performance, technical, scope, schedule, or cost parameter is not within the threshold value (APB) for that parameter. It is handled as a deviation, not through the normal change control system.
Broad Form Indemnity: See, Indemnity Clauses
Broad Form Property Coverage including Completed Operations: A coverage extension that is of great value to the general contractor as respects “completed operations” property damage liability claims. Without it, the normal Comprehensive General Liability policy will not respond for “completed operations” claims (i.e., claims arising out of work performed on behalf of the insured by subcontractors). With this coverage extension, this exposure is covered. Additional broadening coverage features are also included, but none as important as the above to the general contractor.
Budget at Completion (BAC): The total authorized budget for accomplishing the program scope of work. It is equal to the sum of all allocated budgets plus any undistributed budget. (Management Reserve is not included.) The Budget at Completion will form the APB as it allocated and time-phased in accordance with program schedule requirements.
Budgeted Cost of Work Performed (BCWP): The sum of the approved cost estimates (including any overhead allocation) for activities (or portions of activities) completed during a given period (usually project-to-date). See also EARNED VALUE.
Budgeted Cost of Work Scheduled (BCWS): The sum of the approved cost estimates (including any overhead allocation) for activities (or portions of activities) scheduled to be performed during a given period (usually project-to-date). See also EARNED VALUE.
Builder’s Risk Insurance: Indemnifies for loss of or damage to a building under construction. Insurance is normally written for a specified amount on the building and applies only in the course of construction. Coverage customarily includes fire and extended coverage and vandalism and malicious mischief. Builders risk coverage can be extended to a “special” form as well. The builders risk policy also may include coverage for items in transit to the construction site (up to a certain percentage of value) and items stored at the site.
Business Documents: Records of transactions used as the basis for recording accounting entries; includes invoices; check stubs, receipts, and similar business papers.
Business Expenses: Expenses that have been paid or incurred in the course of business and that are ordinary, necessary, and reasonable in amount.
Business: An organization operated with the objective of making a profit from the sale of goods or services.
Buy-Sell Agreement: Buy-Sell Agreement: An agreement made by the owners of a business to purchase the share of a disabled or deceased owner. The value of each owner’s share of the business and the exact terms of the buying-and-selling process are established before death or the beginning of disability.
Calendar Year: An entity’s reporting year, covering 12 months and ending on December 31.
Call Option: This security gives investors the right to buy a security at a fixed price within a given time frame. An investor, for example, might wish to have the right to buy shares of a stock at a certain price by a certain time in order to protect, or hedge, an existing investment.
Callable Bonds: Bonds for which the issuer reserves the right to pay the obligation before its maturity date.
Capacity: A term that refers to the size of a bond, which a surety is able to write. Capacity is determined by a combination of factors, including the amount of capital and surplus a surety possesses available reinsurance, and regulatory restrictions.
Capital Account: An account in which a proprietor’s or partner’s interest in a firm is recorded; it is increased by owner investments and net income and decreased by withdrawals and net losses.
Capital and Surplus: The sum of paid up capital, gross paid in and contributed surplus and unassigned surplus.
Capital Assets: Land, structures, equipment, systems, and information technology (e.g., hardware, software, and applications) that are used by the Owner and have an estimated useful life of 2 years or more. Capital Assets do not include intangible assets, such as the knowledge resulting from research and development and education and training. See PHYSICAL ASSET.
Capital Budgeting: The process of determining whether or not projects such as building a new plant or investing in a long-term venture are worthwhile. Popular methods of capital budgeting include net present value (NPV), internal rate of return (IRR), discounted cash flow (DCF), and payback period. Also known as investment appraisal.
Capital Consumption Rate (CCR): Capital Consumption Rate (CCR) is the characteristic of an asset to consume Capital throughout its lifecycle. It is based on the individual components, which make up the asset, their theoretical lives and their costs of renewal. The CCR is a physical characteristic of an asset and must be managed in a manner consistent with corporate goals and activities.
Capital Expenditure: An expenditure that is recorded as an asset because it is expected to benefit more that the current period.
Capital Gain: The excess of the selling price over the cost basis when assets, such as securities and other personal and investment assets, are sold.
Capital Lease: A leasing transaction that is recorded as a purchase by the lessee.
Capital Project Expenditure Request: The formal process and documentation required to be approved by the Owner prior to any Capital Expenditure. The CPER will at a minimum have Budget, schedule and project charter as attachments.
Capital Program Management: A forward thinking business management approach that integrates capital asset strategy, asset investment and asset management needs of a business enterprise. Where changes in capacity or capability; changes in functional requirements; or renewal of existing assets are required by changes in business strategy, Construction Program Management processes analyze capital investment expenditures prior to and over the life cycle of the capital investments and closely manage those investments from concept to operations and realization of the investment returns. Construction Program Management interrelates capital projects in a manner wherein an organization will achieve maximum benefit from its short and long range Capital Plan and associated processes. The integrated approach provides the Owner with capital investment business options that enable decisions with a higher degree of cost and risk management than a non-integrated approach. See CAPITAL ASSETS.
Capital Retention Agreement: Partial wavers of personal indemnity on surety bonds are occasionally granted where the contractor agrees to maintain certain financial ratios, such as working capital or equity.
Capital Stock: The portion of a corporation’s owners’ equity contributed by investors (owners) in exchange for shares of stock.
Capital: The total amount of money or other resources owned or used to acquire future income or benefits.
Captive Agent: A licensed insurance agent who sells insurance or bonds for only one company.
Captive Insurance Owner: A company owned solely or in large part by one or more non-insurance entities for the primary purpose of providing insurance coverage to the Owner. The Owner's stock is controlled by one interest or a group of related interests so as to provide coverage for their business operations. A captive insurance company may be a non-admitted, non-resident, or foreign insurer. Sometimes it may provide reinsurance to a self- insured or a domestic company.
Cardinal Change: A truly fundamental change by the Owner or obligee in the nature of the bonded contract is a breach of contract, which discharges the principal from its obligations to perform further. This type of change is usually referred to in the case laws as a “cardinal change.” When a cardinal change in the bonded contract is found to occur, both the contractor and the surety will be discharged from further performance.
Cash Basis Accounting: A system of accounting in which transactions are recorded and revenues and expenses are recognized only when cash is received or paid.
Cash Basis: Gross income is recognized when cash is received.
Cash Disbursements Journal: A special journal in which all cash paid out for supplies, merchandise, salaries, and other items is recorded.
Cash Dividend: A cash distribution of earnings to shareholders.
Cash Equivalents: Short-term, highly liquid investments that can be converted easily into cash.
Cash Flow Projections: A projection prepared at the outset of a project indicating the amount of money to be earned and spent monthly during the construction life of the contract.
Cash Inflows: Any current or expected revenues or savings directly associated with an investment.
Cash Outflows: The initial cost and other expected outlays associated with an investment.
Cash Receipts Journal: A special journal in which all cash received, from sales, interest, rent, or other sources, is recorded.
Cash Short and Over: An account used to record overages and shortages in petty cash.
Cash: Coins, currency, money orders, checks, and funds on deposit with financial institutions; the most liquid of assets.
Caucus: Private meeting or series of meetings that take place in concert with a dispute resolution process. Can include a meeting between the neutral third party and each of the interested parties separately. In large-scale group processes, it can consist of an informal meeting of parties with similar interests. The caucus serves to give parties a chance to create new alternatives, clarify their proposals and interests, gather information, and/or allow for a “cool-down period.”
Cause: is the reason for the difference between the expected and actual conditions (why the difference exists).
Cede: To transfer all or part of a risk written by an insurer (the ceding, or primary company) to a reinsurer.
Ceding Owner: The insurer which cedes all or part of the insurance or reinsurance it has written to another insurer. A company which has placed reinsurance, distinguished from The Owner that accepts it.
Ceiling: The maximum market amount at which inventory can be carried on the books; equal to net realizable value (NRV).
Certificate of Deposit (CD’s): Represent formal evidence of indebtedness, issued by a bank, subject to withdrawal under the specific terms of the instrument. Often issued in $10,000 and $100,000 denominations, they normally mature in 30 to 360 days and generally pay interest at the short-term interest rate in effect at date of issuance.
Certificate of Final Acceptance: A statement from The Owner to a party under direct contract to the Owner confirming formal acceptance by The Owner of the Project Work as being complete and in accordance with the contract requirements. See “Final Acceptance.”
Certificate of Insurance: A statement of coverage issued to an individual insured under a group insurance contract, outlining the insurance benefits and principal provisions applicable to the member.
Certified Public Accountant (CPA): A special designation given to an accountant who has passed a national uniform examination and has met other requirements; CPA certificates are issued and monitored by state boards of accountancy or similar agencies.
Change Control Board (CCB): A multi-discipline functional body of representatives designated and chartered by the appropriate management level to ensure the proper definition, coordination, evaluation, and disposition of all proposed changes.
Change in Scope: A change in objectives, work plan, costs, or schedule that results in a material difference from the terms of an approval-to-proceed previously granted by higher authority. Under certain conditions, stated in the approval instrument, change in resources application may constitute a change in scope. Under contractual agreement, COs are the only the Owner personnel authorized to issue a change order of contract modification to a contractor/performer, in order to implement a change of scope. A change in scope may also affect the availability of current year funds until the proper congressional notification procedures have been executed.
Change Order Request: A written communication to The Owner from a party under direct contract to the Owner requesting, and presenting the justification for, adjustment in the Contract Price and/or Contract Time.
Change Order: A written document between the Owner and the contractor signed by The Owner and the contractor authorizing a change in the work or an adjustment in the contract sum or the contract time. A change order may be signed by the architect or engineer, provided they have written authority from the Owner for such procedure and that a copy of such written authority is furnished to the contractor upon request. The contract sum and the contract time may be changed only by change order. A change order may be in the form of additional compensation or time; or less compensation or time known as a Deduction (from the contract) the amount deducted from the contract sum by change order.
Change Proposal: The instrument/document prepared to provide a complete description of a proposed change and its resulting impact on project objectives.
Change: This shows the change in price of a security from the previous day's closing price. For instance, -1 1/8 means that the security has fallen $1.12.
Chart of Accounts: A systematic listing of all accounts used by a company.
Chart of Accounts: Any numbering system used to monitor project costs by category (e.g., labor, supplies, and materials). The project chart of accounts is usually based upon the corporate chart of accounts of the primary performing organization, and is directly linked to the project’s work breakdown structure. See also CODE OF ACCOUNTS.
Charter (Articles of Incorporation): A document issued by a state that gives legal status to a corporation and details its specific rights, including the authority to issue a certain maximum number of shares of stock.
Charter Document: A legally binding, or non-binding agreement between two or multiple parties to create an organization that outlines the scope, specific roles and responsibilities and purpose of the organization during the course, or period defined in the Charter and what is to be accomplished by the organization. Under Construction Program Management, the Charter Document creates an organization of major parties involved in planning and executing a program or project.
Charter of the internal auditing department is a formal written document, which defines the department’s purpose, authority, and responsibility. The charter should (a) establish the department’s position within the organization; (b) authorize access to records, personnel, and physical properties relevant to the performance of engagements; and © define the scope of internal auditing activities.
CIP: Construction in Process. The accounting term used internally to the Owner accounting for capital assets under construction.
Claim: A written demand proposing a specific relief or remedy to an issue arising out of or relating to the Contract, the Contract Documents, or the Work and/or Services, including, without limitation, all contract claims, equitable claims, and claims for an extension of time to be handled in accordance with the General Conditions. A claim may also be an unresolved and disputed change order.
Claimant: A term used to describe one making a claim against a bond, or one making a claim in a non-judicial dispute resolution proceeding. Those persons or entities that are entitled to make a claim against a statutory bond are defined in those statutes. In the case of non-statutory bonds, the definition of a claimant will usually be set forth in the bond.
Claims Made Policy: A liability insurance policy under which coverage applies to claims filed during the policy period.
Classified Balance Sheet: A balance sheet in which assets and liabilities are subdivided into current and noncurrent categories.
Closed Transaction: A transaction that is completed within the accounting period; both the purchase and payment or sale and receipt of payment occur within the same accounting period.
Closed-end Fund: A closed-end fund sells a fixed number of shares to investors. Those shares sell on an exchange and vary in price, depending on demand for the fund. A fund’s shares, for example, can trade below their net asset value or above their net asset value – depending on investors demand for the shares. Country funds that represent shares in a specific country or region, such as Italy or France, are often closed-end funds.
Closeout: The process for closing out of books of account, accounting records and tax records, resolution of any claims, and the delivery of releases of liens, turn-over of deliverables, etc. to The Owner.
Closing Entries: Entries that reduce all nominal, or temporary, accounts to a zero balance at the end of each accounting period, transferring their preclosing balances to a permanent balance sheet account.
Code of Accounts: Any numbering system used to uniquely identify each element of the work breakdown structure. See also CHART OF ACCOUNTS.
Code of Ethics of the Institute of Internal Auditors (IIA) promotes an ethical culture in the global profession of internal auditing. A code of ethics is necessary and appropriate for the profession of internal auditing, founded as it is on the trust placed in its objective assurance about risk, control, and governance. The Code of Ethics applies to both individuals and entities that provide internal audit services and calls for high standards of honesty, objectivity, diligence, and loyalty.
Code of Professional Ethics: Rules set by the AICPA’s Committee on Professional Ethics, which govern the conduct of CPA’s.
Collateral: A surety company may occasionally request collateral to reduce the risk of the bond. Collateral is sometimes required for higher risk principals or unusual obligations. There are many forms in which collateral may be provided, including cashier’s checks, certificates of deposit or irrevocable letters of credit. In addition, collateral reduces the risk a surety company assumes when issuing a bond. After all obligations of the bond have been met, the obligee releases the surety company from their obligation under the bond and the collateral is returned to the principal.
Combined Ratio: A measure of the relationship between dollars spent for claims and expenses and premium dollars taken in; more specifically, the sum of the ratio of losses incurred to premiums earned and the ratio of commissions and expenses incurred to premiums written. A ratio above 100 means that for every premium dollar taken in, more than a dollar went for losses, expenses, and commissions.
Commercial Bid Summary: The formal review/ratification process at the Project level for the AE, Contractor, CM, CMA, or DB to award subcontracts or purchase material. Prior to awarding work to Subcontractors or Consultants, the AE, Contractor, CM, CMA, or Design-Builder must have an Owner approved Commercial Bid Summary (with all required signatures) and sufficient funds authorized by a Project Release.
Commercial Paper: Commercial paper is a short-term note (normally 30 to 270 days) issued by corporations with good credit ratings. Issued in $5,000 and $10,000 denominations, these notes generally yield a higher rate than Treasury bills.
Commission (1): The part of an insurance premium paid by the insurer to an agent or broker for his services in procuring and servicing an insurance or surety account.
Commission (2): This is a fee an investor pays a broker for buying or selling securities.
Commissioning (1): Commissioning is a systematic process for achieving, verifying, and documenting that the performance of the facility and its various systems meet the design intent and the functional and operational needs of the Owner’s operations, and guests. The process extends through all phases of a project, from conceptualization to occupancy and operation, with numerous checks at each stage of the process to ensure that established procedures are followed.
Commissioning (2): The process by which equipment or systems are taken from the completion of construction through initiation and testing to sustaining operation by the Owner. Specifically, the comprehensive process of starting systems, including writing of procedures, performing Design Verification, Operational Acceptance Testing, Functional Acceptance Testing, performing Shakedown, and finalization of Punch list.
Commitment: An administrative reservation of funds, prior to creation of an obligation. A commitment is based upon a valid request for procurement that authorizes the creation of an obligation without further recourse to the official responsible for assuring the availability of funds. (Note: This definition concerns commitments in the accounting sense and therefore differs from loan guarantee commitments.)
Commodity: A commodity is a food, a metal or another physical substance that investors buy or sell, usually via futures contracts.
Common Law Bond: A non-statutory bond, one on which the rights and obligations are determined by it terms or the law of contract.
Common Stock: Common stock is the residual corporate interest that bears the ultimate risks of loss and receives the benefits of success. Common stock shares give the investor a vote on such matters as the election of directors. They also give the holder a share in a company’s profits via dividend payments or the capital appreciation of the security.
Communications Planning: Determining the information and communications needs of personnel, support personnel, management, and project stakeholders.
Comparative Financial Statements: Financial statements in which data for two or more years are shown together.
Completed Operations: Liability arising out of faulty work performed away from the premises after the work or operations are completed. Applicable to contractors, plumbers, electricians, repair shops, and similar firms. This form of liability insurance provides coverage for bodily injury and property damage rising from completed or abandoned operations, provided the incident occurs away from premises owned or rented by the insured. Operations are deemed completed at the earliest of: (1): when all operations to be performed by or on behalf of the insured under contract have been completed; (2): when all operations to be performed by or on behalf of the insured at the site of the operations have been completed; (3): when the portion of work out of which injury or damage rises has been put to its intended use by a party other than the contractor or subcontractor.
Completing Contractor: In a surety default situation, the contractor retained by the surety or the obligee to complete the bonded obligation. Occasionally, the defaulting contractor may serve in this capacity, although under the surety’s supervision and control.
Completion Agreement: Agreement signed between the surety for a defaulting contractor and a contractor chosen to complete the bonded obligation. The essential purpose of the agreement between the surety and replacement contractor is to delineate the areas of responsibility with respect to completion of the bonded contract and payment therefore. These responsibilities may be outlined in a separate agreement between the surety and replacement contractor, or in one instrument executed by the surety, obligee and replacement contractor.
Completion Bond: This is a bond issued to a mortgagee. It guarantees that the construction for which the mortgagor has borrowed money will be completed and will be able to serve as collateral for the mortgage upon completion
Completion See: “Final Completion.”
Compliance: The ability to reasonably ensure conformity and adherence to organization policies, plans, procedures, laws, regulations, and contracts.
Component Renewal: The replacement of 50% or more of a building subsystem component (lighting system, roof system, etc.) as it reaches the end of its useful life. These expenditures are typically made from a capital budget.
Compound Journal Entry: A journal entry that involves more than one debit or more than one credit or both.
Compounding Period: The period of time for which interest is computed.
Concealed Condition: Conditions encountered at the Project site which are either a) subsurface of otherwise concealed physical conditions which differ materially from those indicated in the Contract Documents, or b) unknown physical conditions of an unusual nature, which differ materially from those ordinarily found to exist and generally recognized as inherent in construction activities of the character provided for in the Contract Documents.
Conceptual Design Report (CDR): The CDR documents the outcome of the conceptual design phase and forms the basis for a preliminary ROM baseline.
Conceptual Design: Conceptual design encompasses those efforts to: (a) develop a project scope that will satisfy program needs; (b) assure project feasibility and attainable performance levels; © develop reliable cost estimates and realistic schedules in order to provide a complete description of the project for Congressional consideration; and (d) develop project criteria and design parameters for all engineering disciplines, identification of applicable codes and standards, quality assurance requirements, environmental studies, materials of construction, space allowances, energy conservation features, health safety, safeguards, and security requirements, and any other features or requirements necessary to describe the project.
Conclusions: (Opinions) are the internal auditor’s evaluations of the effects of the findings on the activities reviewed. Conclusions usually put the findings in perspective based upon their overall implications.
Condition Assessment: The practice of inspecting facilities to identify deficiencies or conditions requiring correction, renewal or replacement. Condition Assessments may serve the following purpose:  identifying deficiencies and preventive maintenance needs,  facility capital improvement plans or alterations, and  determination of facility replacement value.
Condition Precedent: A contractual condition that suspends the coming into effect of a contract unless or until a certain event takes place. Many residential real estate contracts have a condition precedent which states that the contract is not binding until and unless the property is subjected to a professional inspection, the results of which are satisfactory to the purchaser. Compare with “condition subsequent”.
Condition: is the factual evidence, which the internal auditor found in the course of the examination (what does exist).
Conditional Lien Waiver and Release: A Lien Waiver and Release that is executed and delivered prior to receiving payment for the Work in question, the benefit of which is conditioned upon receipt of such payment or which may be conditioned upon receiving payment subject to pending claims or disputes
Conditional or Provisional Acceptance: The acceptance of a unit or facility with a documented listing of the specific testing to be accomplished or work remaining including the furnishing of any outstanding submittals of technical and record data, to be completed by the construction contractor, and on or by what date the actions are scheduled to be complete.
Conduit Principle: The idea that all income earned by an entity must be passed through to the owners and reported on their individual tax returns; applicable to proprietorships, partnerships, and S corporations.
Configuration Acceptance: The systematic evaluation, coordination, approval (or disapproval), documentation, implementation, and audit of all approved changes in the configuration of a product after formal establishment of its configuration identification.
Configuration Management: The technical and administrative direction and surveillance actions taken to identify and document the functional and physical characteristics of a configuration item; to control changes to a configuration item and its characteristics; and to record and report change processing and implementation status.
Configuration: The functional and/or physical characteristics of hardware, firmware and/or software, or any of their discrete portions, as set forth in technical documentation and achieved in a product. Configuration items may vary widely in complexity, size, and type, from a facility, electronic, or control system to a test meter or process vessel. Any item required for logistic support and designated for separate procurement is a configuration item.
Conflict of Interest: refers to any relationship, which is or appears to be not in the best interest of the organization. A conflict of interest would prejudice an individual’s ability to carry out their duties and responsibilities objectively.
Consent of Surety: Many contracts require, and good practice dictates, that a surety’s consent be obtained in connection with final payment of retainage under a bonded contract, or any time that payment is being made in the face of potential claims or defaults. In this manner, the surety cannot be heard to later complain that contract balances, to which it looks for security, were released prematurely.
Consequential Damage: Damage that results as a consequence rather than directly from some failure to meet an obligation. If a contractor agrees to build a hotel for $1 million and defaults, and the Owner spends $200,000 more than the original $1 million to complete the work, the $200,000 is a direct damage. If the opening of the hotel was delayed beyond the prime tourist season, causing the hotel operator to lose those revenues, and in turn future business, those losses are consequential damages.
Consignee: A vendor who sells merchandise owned by another party, known as the consignor, usually on a commission basis.
Consignment: An arrangement whereby merchandise owned by one party (the consignor) is sold by another party (the consignee), usually on a commission basis.
Consignor: The owner of merchandise to be sold by someone else, known as the consignee.
Consolidated Financial Statements: Statements that report the combined operating results, financial position, and cash flows of two or more legally separate but affiliated companies as if they were one economic entity.
Constructability: The optimizing of cost, time, and quality factors with the contracting structures and techniques used on a project; accomplished by matching owner contracting requirements with available construction industry practices.
Construction Completion Date: The date on which work normally performed by construction forces (including installation of equipment by operating contractors or others) is accepted by the Owner. This includes the completion of all-building items, the erection and/or installation of mechanical units and/or processing equipment, and the installation of all furnishings as required making a fully functioning building, facility, or process. Correction of minor deficiencies and exceptions may be accomplished after the recorded date.
Construction Documents: Formal documents, prepared by the AE team, which set forth in detail the requirements for construction of the Project, including Drawings and Specifications that establish in detail the quality levels of materials and systems required for the Project.
Construction Industry Rules of the American Arbitration Association: Representatives of the twenty-two construction industry organizations l constitute the National Construction Dispute Resolution Committee (NCDRC) of the American Arbitration Association. This committee is the sponsor of the arbitration and mediation procedures specially designed for the construction industry by the AAA. The rules may be found at www.adr.org
Construction Management: Specific professional services relating to the management of a project during the pre-design, design, and/or construction phases. The types of services provided include development of project strategy, design review relating to cost and time consequences, value management, budgeting, cost estimating, scheduling, monitoring of cost and schedule trends, procurement, observation to assure that workmanship and materials comply with plans and specifications, contract administration, labor relations, construction methodology and coordination, and other management efforts related to the acquisition of construction. A construction delivery method where the construction manager serves as either the agent (“Construction Manager-Agent” or “Pure Construction Manager”) for the project owner, or as the general contractor (“Construction Manager at Risk”) for a project, providing pre-construction and construction services.
Construction Manager “At Risk” (CM): CM is a “prime” member of the Project Team, under direct contract to Owner, responsible for providing designated services, materials and labor, required for the Work, and having full responsibility for performing the Work to Contract Price and Contract Time. CM generally enters into direct contract(s) with Contractor(s) and Suppliers required for a Project.
Construction Manager as “Advisor and Project Representative” (“CMA”): The CMA is a “prime” member of the Project Team, along with Internal Audit under direct contract to the Owner, responsible for providing designated managerial services, and/or acting in the capacity of an advisor with varying degrees of authority. CMA is responsible for maintaining formal communications with other contracting parties but generally has no direct contractual relationship with any entity other than The Owner.
Construction Manager: Optional member of the Construction Program Management team to oversee specific elements of project schedule, cost, construction, project management or building technology. Construction Managers can serve in different capacities with varying degrees of authority, depending on how the Project is structured. Construction Management services can range from a) advising during a particular phase of the building process, to b) acting as Owner’s agent in specific matters.
Construction/As-built Services: Those activities required assuring that the project is constructed in accordance with the plans and specifications (e.g., construction inspection), and that the quality of materials and workmanship is consistent with the requirements of the project (e.g., materials testing). As-built documentation follows as the deliverable from the contractor or service provider.
Construction: Any combination of engineering, procurement, erection, installation, assembly, demolition, or fabrication activities involved in creating a new facility, or to alter, add to, rehabilitate, dismantle, or remove an existing facility. It also includes the alteration and repair (including dredging, excavating, and painting) of buildings, structures, or other real property, as well as any construction, demolition, and excavation activities conducted as part of environmental restoration or remediation efforts. Construction does not involve the manufacture, production, finishing, construction, alteration, repair, processing, or assembling of items categorized as personal property.
Constructive Acceleration: Constructive acceleration occurs in the absence of an owner directed acceleration, such as where the Owner has refused a valid request for time extensions or threatened other action which requires the contractor to accelerate its work to avoid liquidated damages, or other loss or risk of loss. The classic case is when a request for a time extension for excusable delay is denied and the contract provides liquidated damages for late completion. The law construes this as an order by the Owner to complete performance within the originally specified completion date, a shorter period at higher cost than provided for in the contract. The constructive acceleration doctrine allows recovery for the additional expenses the contractor can establish.
Consultant: An individual or organization engaged by The Owner or a party under direct contract to the Owner to render professional consulting services, such as surveying, quantity surveyors, complementing or supplementing the services of others.
Consulting Services are advisory and related client service activities, the nature and scope of which are agreed upon with the client and which are intended to add value and improve an organization’s operations. Examples include counsel, advice, facilitation, process design, and training.
Consumer Price Index (CPI): The CPI measures the prices of consumer goods and services and is a measure of the pace of U.S. inflation. The U.S. Department of Labor (DOL) publishes the CPI every month.
Consumer Stock: The stock of a company that produces consumer-oriented products like food, beverages, tobacco, and pharmaceuticals.
Contingency: An amount or percentage of the total construction budget included in a guaranteed maximum price contract to address additional costs arising during the construction of the project. The contractor’s contingency is usually under the control of the contractor and covers such things as unanticipated costs, minor mistakes in bidding or performance of work, defaults by suppliers and subcontractors, etc. An owner’s contingency is usually a fund outside of the contract sum, controlled by the Owner, for changes in the work or schedule not contemplated at bid time. The failure to identify the nature of the contingency, its use and control, is a frequent cause of dispute which could be easily avoided by careful contract drafting. Contingency is that budget held by the Owner that is not put on contract. Contingency can be applied at various levels and lines items within the budget and as a general rule: Contingency is a reciprocal of known cost.
Contingent Liability: A potential obligation, dependent upon the occurrence of future events.
Contingent Payment Clause: A clause in a subcontract that makes payment from the Owner to the general contractor a condition precedent to the subcontractor’s right to payment from the general contractor. Also known as a “pay if paid” clause. Contrast this with “pay when paid” clauses that speak to the timing of payment rather than liability for payment.
Contra Account: An account that is offset or deducted from another account.
Contract Administration Phase: The Contract Administration Phase generally follows the Bidding or Negotiations Phase and is usually the final phase of AE Services.
Contract Advance Funding: Obligations to a contract or project, to cover future work or materials not yet ordered. The value of advanced funding is the difference between a non-cost obligation and unfilled orders outstanding.
Contract Balance: The original contract price, including adjustments for changes, less the amount paid to the contractor in accordance with the contract terms.
Contract Bond: A bond given to secure the performance of a contract. Frequently, two bonds are required – one to cover performance and the other to cover payment of certain labor and material bills. The former is commonly known as a performance bond, and the latter is known as a payment bond.
Contract Closeout: Completion and settlement of the contract including resolution of all outstanding items.
Contract Documents Phase: The phase of a Project in which requirements of the Work are set forth in detail. Formal AE deliverables provided upon completion of the Contract Documents Phase are called Contract Documents or Construction Documents. The Contract Documents Phase generally follows the Design Development Phase and is when one or more Contractors will perform the Work, and during which the AE will provide authorized Services during Construction.
Contract Price: The total amount of compensation to be paid by the Owner to a party under direct contract to the Owner for performing the Work or Services set forth in the Agreement, including adjustments through approved Change Orders. The whole sum of money which passes from the Owner to the contractor when final settlement is made between the parties to the contract. The contract price is used as the basis for the premium charge on most types of construction and supply contract bonds.
Contract Time: Period of time, including authorized adjustments, allotted in the Contract Documents for Final Completion of the Work.
Contract: The entire and integrated legal agreement between two parties. The contract supersedes prior negotiations, representations or agreements, either written or oral. See also “Agreement”. A contract is a mutually binding agreement that obligates the seller to provide the specified product and obligates the buyer to pay for it. It includes all types of commitments that obligate the Owner to an expenditure of funds and which, except as otherwise authorized, are in writing.
Contractor Controlled Insurance Program (CCIP): The Contractor Controlled Insurance Program concept originally emerged as a form of consolidated insurance program that placed the responsibility for providing insurance coverage on the prime contractor, or GC, for all its subcontractors. Sometimes referred to as “wrap-up” insurance.
Contractor: The party identified in the Construction Services Agreement (either a General Contractor or Trade Contractor) including its legal successors and permitted assignees as may be accepted by The Owner, in writing, pursuant to the terms of the Agreement.
Contributed Capital: The portion of owners’ equity contributed by investors (the owners) in exchange for shares of stock.
Control (Cost) Account: A management control point at which budgets (resource plans) and actual costs are accumulated and compared to earned value for management control purposes. A control account is a natural management point for planning and control since it represents the work assigned to one responsible organizational element on one work breakdown structure element and is the lowest level where all three PMB elements are accumulated.
Control Account: A summary account in the General Ledger that is supported by detailed individual accounts in a subsidiary ledger.
Control Activities: Policies and procedures used by management to meet its objectives; generally divided into adequate segregation of duties, proper authorization of transactions and activities, adequate documents and records, physical control over assets and records, and independent checks on performance.
Control Environment (1): refers to the attitude and actions of the board and management regarding the significance of control within the organization. The control environment provides the discipline and structure for the achievement of the primary objectives of the system of internal control. The control environment includes the following elements; Integrity and ethical values; Management’s philosophy and operating style Organizational structure; Assignment of authority and responsibility; Human resource policies and practices; Competence of personnel.
Control Environment (2): The actions, policies, and procedures that reflect the overall attitudes of top management, the directors, and the owners about control and its importance to the entity.
Control: Any action taken by management, the board, and other parties to enhance risk management and increase the likelihood that established objectives and goals will be achieved. Management plans, organizes, and directs the performance of sufficient actions to provide reasonable assurance that objectives and goals will be achieved. Thus, control is the result of proper planning, organizing, and directing by management.
Convertible Bonds: Bonds that can be traded for, or converted to, other securities after a specified period of time.
Convertible Preferred Stock: Preferred stock that can be converted to common stock at a specified conversion rate.
Corporation: A legal entity chartered by a state; ownership is represented by transferable shares of stock.
Correction Period: A specified period of time within which designated deficiencies in the Work are to be remedied or corrected.
Corrective Action Plan: A formal plan for making correction to identified deficiencies in the Work or associated processes and procedures, which includes specific tasks required and the timeline within which those tasks are to be accomplished.
Corrective Action: Changes made to bring expected future performance of the project into line with the plan.
Cost Budgeting: Allocating the cost estimates to individual project components.
Cost Control: Controlling changes to the project budget and forecast to completion.
Cost Estimate: A documented statement of costs estimated to be incurred to complete the project or a defined portion of a project. Cost estimates provide input to original baselines and changes to baselines, against which cost comparisons are made throughout the life of a project.
Cost Estimating: Estimating the cost of the resources needed to complete project activities.
Cost Method of Accounting for Investments in Stocks: Method used to account for an investment in the stock of another company when less than 20% of the outstanding voting stock is owned.
Cost of Goods Sold (COGS): The expenses incurred to purchase or manufacture the merchandise sold during a period.
Cost of Work (COW): Cost of Work shall be the total of actual costs of all subcontracts, materials/equipment, including costs of related transportation, taxes, insurance and Self-performed Work provided by Contractor, which are required for and incorporated in the completed construction Project. COW does not include indirect costs or direct purchases made by The Owner.
Cost Plus Fixed Fee (“Cost Plus”) (CPFF) Contract: Method of compensation in which compensation is made for actual cost of the work, plus a fee based on an agreed fixed sum. This method of compensation is appropriate for complex projects where, due to the absence of a complete SOW, total costs are initially difficult to determine. Also, a type of contract where the buyer reimburses the seller for the seller’s allowable costs (allowable costs are defined by the contract) plus a fixed amount of profit (fee).
Cost Plus Incentive Fee (CPIF) Contract: A type of contract where the buyer reimburses the seller for the seller’s allowable costs (allowable costs are defined by the contract), plus a fee calculated on the basis of defined performance criteria.
Cost Plus or Cost Plus Fee Agreement: An agreement under which the contractor is reimbursed for its direct and indirect costs and, in addition, is paid a fee for its services. The fee is usually stated as a percentage of cost, but may be a fixed amount. The agreement may or may not include a guaranteed maximum price or a savings split.
Cost Principle: The idea that transactions are recorded at their historical costs or exchange prices at the transaction date.
Cost Variance: It is the algebraic difference between earned value and actual cost (Cost Variance = Earned Value – Actual Cost.) A positive value indicated a favorable position and a negative value indicates an unfavorable condition.
Cost-Benefit Relationship: means that the potential loss associated with any exposure or risk is weighed against the cost to control it.
Costs to Date: Costs incurred to date by the contractor and reported to the Owner recorded as accrued costs. They represent all charges incurred for goods and services received and other assets required, regardless of whether payment for the charges has been made. This includes all completed work and work in process chargeable to the contract. Accrued costs include invoices for: (1): completed work to which the prime contractor has acquired title; (2): materials delivered to which the prime contractor has acquired title; (3): services rendered; (4) costs billed under cost reimbursement, or time and material subcontracts for work to which the prime contractor has acquired title; (5) progress payments to subcontractors that have been paid or approved for current payment in the ordinary course of business (as specified in the prime contract); and (6) fee profit allocable to the contract.
Co-Surety: One of a group of sureties directly participating in a bond with obligations joint and several.
Countersignature: A signature of a licensed domiciled agent or representative, required by the laws of some states in order to validate a bond.
Coupon bonds: Unregistered bonds for which owners receive periodic interest payments by clipping a coupon from the bond and sending it to the issuer as evidence of ownership.
Court-Annexed Mediation: Any ADR process which parties may be required or advised to undertake by the court, or an ADR facility which is offered by the court.
Credit Card Draft: The part of the multiple-page credit form that is sent by the retailer to the credit card company for reimbursement of the stated amount.
Credit: An entry on the right side of the account.
Criteria: The standards, measures, or expectations used in making an evaluation and/or verification (what should exist).
Critical Activity: Any activity on a critical path or with a zero or negative float value; most commonly determined by using the critical path method. Although some activities are “critical” in the dictionary sense without being on the critical path, this meaning is seldom used in the project context.
Critical Decision (CD): A formal determination made by the AE and/or designated official (Mission Need Statement) at a specific point in a project life cycle that allows the project to proceed. Critical Decisions occur in the course of a project. For example: prior to commencement of conceptual design, commencement of execution and prior to turnover.
Critical Path Method (CPM): A network analysis technique used to predict project duration by analyzing which sequence of activities (which path) has the least amount of scheduling flexibility (the least amount of float). Early dates are calculated by means of a forward pass using a specified start date. Late dates are calculated by means of a backward pass starting from a specified completion date to result in zero total float for each activity.
Critical Path: A planning, scheduling and control technique whereby a construction project is completely planned and scheduled and an arrow diagram is drawn to show the interconnected individual tasks involved in constructing the project. It permits determination of the relative significance of each event, and establishes the optimum (or “critical”) sequence and duration of operations. In a project network diagram, the series of logically linked activities that determine the earliest completion date for the project. The critical path may change from time to time as activities are completed ahead of or behind schedule. Although normally calculated for the entire project, the critical path can also be determined for a milestone or subproject. The critical path is usually defined as those activities with float less than or equal to a specified value, often zero.
Cumulative-Dividend Preference: The rights of preferred stockholders to receive current dividends plus all dividends in arrears before common stockholders receive any dividends.
Currency: This shows the currency that a security trades in, such as USD for U.S. dollar.
Current (or working capital) Ratio: A measure of the liquidity of a business; equal to current assets divided by current liabilities.
Current Assets: Cash and other assets that may reasonably be expected to be converted to cash with a year or during the normal operating cycle.
Current Ratio: The ratio of current assets to current liabilities. Bond underwriters like this ratio to be 2 to 1 or better on the balance sheets of contractors for whom they are considering contract bonds. If it drops below 1.0, the ability to pay bills is impaired. If it is much greater than 2.0, there is a possibility that assets are not being used efficiently to generate new revenue.
Current Replacement Value (CRV): Current Replacement Value (CRV) is computed by multiplying the replacement cost per square foot (SF) of the building times the gross square footage of the building. Please note that the CRV for existing buildings is determined using standard real estate valuation methods for replacement of the building and does not include: demolition costs of existing structures, site work and excavation, land, landscaping, parking, furnishings, phone and utility installation, or development fees. However, these items must be taken into account when estimating the overall development and construction costs of new or replacement facilities.
Current Yield: If a security has a dividend, the yield is the price of a stock dividend. A $10 stock that pays a 50 cent dividend for the year has a 5% yield.
Current-Dividend Preference: The rights of preferred shareholders to receive current dividends before common shareholders receive dividends.
Cut Through Clause: A clause, rider, or endorsement occasionally found in treaties which allow the obligee on a bond to recover directly from the reinsurer in the event of a failure by the surety (reinsured) to pay a loss due to specified circumstances. Because there are entirely separate contractual relationships as between obligee and surety (reinsured) and between reinsured and reinsurer, there is no privity of contract between insured and reinsurer absent such a clause.
Cyclical Stock: The stock of a company whose fortunes are closely tied to the cyclical ups and downs of the economy in general. For example, General Motors is a cyclical stock since its business of selling autos is highly dependent on a robust economy with its attendant high levels of employment, rising personal incomes, etc.
Damages: In a lawsuit, money awarded to one party based on injury or loss caused by the other. There are many different types or categories of damages that occasionally overlap, including: compensatory, punitive, nominal, consequential, and treble.
Data Date: The point in time that separates actual (historical) data from future (scheduled) data. Also called as-of date.
Date of Commencement: The date on which the Work is formally commenced.
Date of Final Acceptance: See “Final Acceptance, Date of”
Date of Final Completion: See “Final Completion, Date of”
Date of Final Payment: See “Final Payment, Date of”
Date of Record: The date selected by a corporation’s board of directors on which the shareholders of record are identified as those who will receive dividends.
Day High: This is the highest price that a security has traded at during the day.
Day Low: This is the lowest price that a security has traded at during the day.
Deactivation: The process of placing a facility in a stable and known condition including the removal of readily removable hazardous and radioactive materials to ensure adequate protection of the worker, public health and safety, and the environment, thereby limiting the long-term cost of surveillance and maintenance. Actions include the removal of fuel, draining and/or de-energizing nonessential systems, removal of stored radioactive and hazardous materials, and related actions. Deactivation can also include disposition of wastes generated during deactivation efforts. Deactivation does not include all decontamination necessary for the dismantlement and demolition phase of decommissioning, e.g., removal of contamination remaining in the fixed structures and equipment after deactivation.
Debentures (unsecured bonds): Bonds for which no collateral has been pledged.
Debit: An entry on the left side of an account.
Debt Financing: Acquiring funds by borrowing money from creditors in the form of long-term notes, mortgages, leases, or bonds.
Debt Securities: Financial instruments issued by a company that carry with them a promise of interest payments and the repayment of principal.
Debt to Net Worth Ratio: A ratio of total debt to net worth that measures the equity the owners have in the construction company compared to the interests of outsiders. Sureties look for a ratio of (3):1 or less.
Debt-Equity Management Ratio: A measurement of the relative utilization of debt and equity. It is computed by dividing average total assets by average stockholders’ equity.
Declaration Date: The date on which a corporation’s board of directors formally decides to pay a dividend to shareholders.
Declining-Balance Depreciation Method: An accelerated depreciation method in which an asset’s book value is multiplied by a constant depreciation rate (such as double the straight-line percentage, in the case of double-declining-balance.)
Decommissioning: The process of closing and securing a facility or equipment, or materials storage facility so as to provide adequate removal from service, salvage, or preparation for a sale transaction.
Deductible: An agreed specified sum to be deducted from the amount of loss and assumed by the insured; An amount which a policyholder agrees to pay, per claim or per accident, toward the total amount of an insured loss.
Deduction: Business expenses or losses that are subtracted from gross income in computing taxable income.
Default Insurance: A relatively new form of insurance that protects an insured against the losses caused by the defalcation of another party.
Default: Breach of contract arising from the failure of a party to a contract to perform an act or obligation legally required under that contract or the omission of performance. A failure to perform a legal duty, observe a promise, or fulfill an obligation. For example, the word is often used for the failure to make a payment on a debt once it is due.
Deferred Income Taxes: An account used to record the difference between income tax expense on the income statement and income taxes payable for the year to federal and state governments.
Deferred Maintenance: Usually high-cost work that must be postponed as a result of inadequate planning and/or funding. Examples include roof replacement, HVAC system replacement and window replacement. Deferred maintenance adds to the backlog of maintenance and repairs.
Definition: A term coined to define the time period in a project’s life cycle between all pre-acquisition planning/pre-acquisition design and conceptual design activities and actions.
Delay: An act or failure to act by one party to a contract that impedes hinders or retards the ability of another party to perform an act or obligation legally required under that contract.
Delivery Methods: Various methods and contractual arrangements for contracting for the design, construction, and delivery of construction projects. Examples would include Construction Management (both pure or agency, and at risk), Design-Build, and Design-Bid-Build
Depletion: The process of cost allocation that assigns the original cost of a natural resource to the periods benefited.
Design Development Phase: The phase of a Project in which the size and character of the Project are further refined and described, including architectural, structural, mechanical, electrical and other building systems, materials and other elements as appropriate. Formal AE deliverables provided upon completion of the Design Development Phase are called Design Development Documents. The Design Development Phase generally follows the Schematic Design Phase.
Design Professional(s): See “Architect-Engineer” and “AE”.
Design-Bid-Build: The most common construction delivery method. The Owner contracts with a design professional, and requests bids from a contractor, contracting separately with the designer and contractor.
Design-Build: A construction delivery method where a single entity is contracted to provide both design and construction services.
Design-Builder: A delivery method that offers the ability to contract with a single entity that is responsible for providing both design and construction services.
Detective Controls: Actions taken to detect and correct undesirable events which have occurred.
Development Assurance: The assurance function combining the processes, disciplines and practices of assessing, reviewing, auditing, examining and monitoring all aspects of the real estate development process, including all components of the real estate asset lifecycle (financing, maintenance/operations, and demolition/salvage). Development Assurance professionals provide reasonable assurance of process efficiency, value optimization and risk mitigation on behalf of the asset’s stakeholders, investors and owners. At the Owner, this function resides within Internal Audit and acts as a prime member of the development process at the Owner. (Interchangeable with the term: Project Assurance).
Developments: Works of authorship, inventions, improvements, plans, specifications, software programs (including source code), developments and discoveries conceived, made or discovered by a party under direct contract to the Owner solely or in collaboration with others, in the course of its performance of services or the development of deliverables for the Owner hereunder as well as all patents, copyrights, trade secrets, trademarks and other intellectual property rights therein and thereto. Defined in the General Conditions.
Deviation: A project deviation occurs when the current estimates of cost, schedule, or performance are not within the threshold value established in the APB. See BREACH.
Differing Site Condition: Conditions encountered at the Project Site, which differ materially from those expected or ordinarily found to exist and generally recognized as inherent in construction activities of the character provided for in the Contract Documents.
Direct Method: A method of reporting net cash flow from operations that shows the major classes of cash receipts and payments for a period of time.
Direct Write-Off Method: The recording of actual losses from uncollectible accounts as expenses during the period in which accounts receivable are determined to be uncollectible.
Direct Writer: The industry term for a company which uses its own sales employees to write its policies. Sometimes refers to companies which contract with exclusive agents.
Direct Written Premium: The entire premium arising from bonds or policies issued directly by the primary insurance company to policyholders.
Directed Change: A change imposed on a project(s), with direction to implement that affects one or more of the project’s (projects’) baselines. Examples of directed changes include, but are not limited to: (a) Changes to approved budgets, or funding, and (b) changes resulting from the Owner’s policy directives and regulatory or statutory requirements.
Directed Suretyship: Owner designation of a specific producer or surety company from which contractors must obtain surety bonds. The federal government and several states have enacted legislation expressly prohibiting this practice.
Directing: involves, in addition to accomplishing objectives and planned activities, authorizing and monitoring performance, periodically comparing actual with planned performance, and documenting these activities to provide additional assurance that systems operate as planned.
Directive Controls: are actions taken to cause or encourage a desirable event to occur.
Director of Internal Auditing and/or Director: identify the top position in an internal auditing department. In the case where internal audit activities are obtained from outside service providers, the chief audit executive is the person responsible for overseeing the service contract and the overall quality assurance of these activities, reporting to senior management and the board regarding internal audit activities, and follow–up of engagement results. The term also includes such titles as General Auditor, Chief Internal Auditor, Chief Audit Executive, and Inspector General.
Disclaimer of Opinion: A disclaimer indicating the auditor was unable to satisfy him or herself that the overall financial statements were fairly present in accordance with GAAP.
Discount Period: The time between the date a note is sold to a financial institution and its maturity date.
Discount Rate: This is the interest rate charged by the U.S. Federal Reserve, the nation’s central bank, for loans to member banks. The Fed alters rates to increase or decrease the growth of the nation’s economic output, or the interest rate charged by a financial institution for buying a note receivable.
Discount: The amount charged by a financial institution when a note receivable is discounted, calculated as maturity value times discount rate times discount period.
Discounting a Note Receivable: The process of the payee’s selling notes to financial institution for less than the maturity value.
Disposition: A general term for those activities that follow completion of program mission, including, but not limited to, stabilization, deactivation, decontamination, decommissioning, dismantlement, and/or reuse of physical assets. It is used as a general term for those project types that follow mission completed.
Dispute Resolution Procedure: Formal procedure set forth in the Contract or General Conditions for resolving disputes between the parties to the contract.
Dispute Review Board or DRB: A construction dispute avoidance and resolution technique involving the selection of three experienced, respected, and impartial observers before construction begins. The Board meets at the job site periodically. Members are provided with the contract plans and specifications, become familiar with the project procedures and the participants, and are kept abreast of job progress and developments. When any dispute arises that cannot be resolved by the parties, it is referred to the DRB for a non-binding ruling which typically must be followed pending the exercise of other contract dispute resolution procedures.
Dispute: Any unresolved Claim to be handled in accordance with the General Conditions; or those disputes or controversies that are specifically exempt from the Dispute Resolution and Alternate Dispute Resolution procedures.
Distribution: This is another way of saying: professional selling. A stock is under distribution when volume expands on days when price moves down.
Diversified Companies: Companies operating in more than one line of business.
Dividend Payment Date: The date on which a corporation pays dividends to its shareholders.
Dividend Payout Ratio: A measure of the percentage of earnings paid out in dividends. It is computed by dividing cash dividends by the net income available to each class of stock.
Dividend: A dividend is a portion of a company’s profit paid to common and preferred shareholders. A stock selling for $20/share with an annual dividend of $1/share yields the investor 5 percent.
Dividends Account: The account used to reflect periodic distributions of earnings to the owners (stockholders) of a corporation.
Dividends in Arrears: Missed dividends for past years that preferred stockholders have a right to receive under the cumulative-dividend preference if and when dividends are declared.
Do Nothing Option: After carefully investigating and considering all issues associated with a default, a surety may determine that it, indeed, has no obligation to perform and may communicate to the obligee that it will not perform. This is the surety’s “do nothing” option…although it will usually be doing something…preparing for the litigation that often results when the obligee takes exception to that position. This term has often been misunderstood to refer to a surety’s supposed option to simply stand by its principal’s position without the benefit of further investigation and analysis. Most responsible sureties would suggest the latter option does not really exist.
Double-Entry Accounting: A system of recording transactions in a way that maintains the equality of the accounting equation.
Dow Jones Industrial Average: This is the best known U.S. index of stocks. It contains 30 stocks that trade on the New York Stock Exchange (NYSE). The Dow is a barometer of how shares of the largest U.S. companies are performing. There are thousands of investment indexes around the world for stocks, bonds, currencies, and commodities.
Drawings Account: The account used to reflect periodic withdrawals of earnings by the owner (proprietor) or owners (partners) of a proprietorship or partnership.
Drawings (1): Distribution to the owner(s) of a proprietorship or partnership; similar to dividends for a corporation.
Drawings (2): Graphic and pictorial portions of the Construction Documents showing the design, location and dimensions of the Work, generally including plans, elevations, sections, details, schedules and diagrams.
Dual Obligee Bond: A bond which names as additional obligee a lender or other party, putting them in a position to invoke the performance features of the bond. Obligees are most often added to the bond by a Dual Obligee Rider to the bond, rather than being named in the body of the bond.
Due Professional Care: Calls for the application of the care and skill expected of a reasonably prudent and competent internal auditor in the same or similar circumstances. Due professional care is exercised when internal audits are performed in accordance with the Standards for the Professional Practice of Internal Auditing. The exercise of due professional care requires that: Internal auditors be independent of the activities they audit; Internal audits be performed by those persons who collectively possess the necessary knowledge, skills, and disciplines to conduct the audit properly; Audit work be planned and supervised; Audit reports be objective, clear, concise, constructive, and timely; Internal auditors follow up on reported audit findings to ascertain that appropriate action was taken.
Duration: The number of work periods (not including holidays or other non-working periods) required to complete an activity or other project element; usually expressed as workdays or workweeks; Sometimes incorrectly equated with elapsed time.
Earned Value (EV): (1): A method for measuring project performance. It compares the value of work performed (Budgeted Cost of Work Performed) with the value of work scheduled (Budgeted Cost of Work Scheduled) and the cost of performing the work (Actual Cost of Work Performed) for the reporting period and/or cumulative to date.
Earnings Per Share (EPS): The amount of net income (earnings) related to each share of stock. It is computed by dividing net income by the number of shares of common stock outstanding during the period.
EBITDA: (Earnings before Interest, Tax, Depreciation & Amortization) means, for any period, Net Income for such period. The term represents a cash-flow vision of shareholder’s return.
Economical Performance: accomplishes objectives and goals at a cost commensurate with the risk.
EDP (electronic data processing): A term referring to the use of computers in recording, classifying, manipulating, and summarizing data.
Effect: is the risk or exposure the auditee organization and/or others encounter because the condition is not the same as the criteria (the impact of the difference).
Effective (yield or market) Rate of Interest: The actual interest rate earned or paid on a bond investment.
Effective Control: Is present when management directs systems in such a manner as to provide reasonable assurance that the organizations objectives and goals will be achieved.
Effective Date: The calendar date at which a Contract becomes effective as a suitable contractual basis for awarding and performing Work and/or Services.
Effective Tax Rate: A tax rate that reflects the percentage of the actual tax liability to the accounting income generated by the company, that is, net tax liability/financial (book) income before taxes.
Effective-interest Amortization: A method of systematically writing off a bond premium or discount that takes into consideration the time value of money and results in an equal rate of amortization for each period.
Efficient Performance: accomplishes objectives and goals in an accurate and timely fashion with minimal use of resources.
Eichleay Formula: The Eichleay formula, first articulated in Eichleay Corp., ASBCA No. 5183, 60-2 BCA 2688, affd on reconsideration, 61-1 BCA 2894, is intended as a mechanism for computing the compensation a contractor can appropriately recover for unabsorbed overhead due to a Government caused suspension or delay. The formula first determines the pro rata share of the contractor’s total overhead that is allocable to the delayed contract. It then converts that into an amount per day, and finally the appropriate daily rate is multiplied by the number of days for which compensation is owed.
Electronic Data Processing (EDP): A term referring to the use of computers in recording, classifying, manipulating, and summarizing data.
Eminent Domain Proceeds: All amounts and proceeds (including monetary instruments) received in respect of any Event of Eminent Domain relating to the Project less any costs or expenses incurred by The Owner and its Subsidiaries (other than Non-Recourse Subsidiaries) or its agents in collecting such amounts and proceeds.
End Item: The product/deliverable of a specific type of procurement action. To qualify as an end item, the procurement action product or deliverable is to be a stand-alone unit that meets all requirements and performs its intended function/mission without any additional components, infrastructure support or supporting assemblies. For example, a fire trucks, a mobile crane, an earthmover.
Engagement Objectives: are broad statements developed by internal auditors that define intended engagement accomplishments.
Engagement Work Program: is a document that lists the procedures to be followed during an engagement, designed to achieve the engagement plan.
Engagement: is a specific internal audit assignment, task, or review activity, such as an internal audit, Control Self-assessment review, fraud examination, or consultancy. An engagement may include multiple tasks or activities designed to accomplish a specific set of related objectives.
Entity: An organizational unit (a person, partnership, or corporation) for which accounting records are kept and about which accounting reports are prepared.
EPS (earnings per share): The amount of net income (earnings) related to each share of stock. It is computed by dividing net income by the number of shares of common stock outstanding during the period.
Equipment Run: Green-tagged equipment in operation to support the project critical path.
Equipment Start: The initial attempt to start equipment and components of a system. As the equipment or components of a system are energized, Facilities will be responsible to operate and maintain the equipment and system. Warranties become effective for operating equipment.
Equitable Subrogation: The rationale for equitable subrogation stems from the notion that those contract proceeds that are reserved for disbursement until the contract’s completion are as much for the indemnity of him who may be a guarantor of the performance of the contract as for him for whom it is to be performed. It is well settled in our law that the surety whose funds go to discharge contractor’s obligations is thereby subrogated to the rights of the Owner to apply the contract balances to the completion of the project and payment of bills incurred in that connection. The completing surety is subrogated to the rights of other parties to the bonded project as well. A surety that fulfills a defaulting contractor’s obligations is subrogated to the rights of (1): the contractor, insofar as it is due receivables, (2): the material men and laborers who may have been paid by the surety, and (3): the Owner for whom the project was completed. The completing surety’s right of subrogation arises in equity as an outgrowth of the suretyship relationship itself; it is not dependent on assignment, lien or contract.
Equity Financing: Acquiring funds in the form of investments by owners (proprietor, partner, or stockholder).
Equity Method of Accounting for Investments in Stocks: Method used to account for investments in the stock of another company when significant influence can be imposed (presumed to exist when 20 to 50 percent of the outstanding voting stock is owned).
Equity Securities: Shares of ownership in a corporation that can change significantly in value and that provide for a return to investors in the form of dividends.
Error: as it relates to internal audit reports is an unintentional misstatement or omission of significant information in a final audit report.
Errors & Omissions Insurance: Liability insurance policy that provides protection against loss incurred by a client because of some negligent act, error, or omission by the insured.
Estimate At Completion (EAC): The current estimated cost for program authorized work.
Estimate To Complete (ETC): Estimate of costs to complete all work from a point in time to the end of the project or program.
Estimated Cost: An anticipated cost for applied work scope.
Ethics: Professional standards of conduct. Standards of fair and honest conduct in general.
Evaluative Mediation: Evaluative mediation is a process modeled on settlement conferences held by judges. An evaluative mediator assists the parties in reaching resolution by pointing out the weaknesses of their cases, and predicting what a judge or jury would be likely to do. An evaluative mediator might make formal or informal recommendations to the parties as to the outcome of the issues. Evaluative mediators are concerned with the legal rights of the parties rather than needs and interests, and evaluate based on legal concepts of fairness. Evaluative mediators meet most often in separate meetings with the parties and their attorneys, practicing “shuttle diplomacy”. They help the parties and attorneys evaluate their legal position and the costs vs. the benefits of pursuing a legal resolution rather than settling in mediation. The evaluative mediator structures the process, and directly influences the outcome of mediation.
Event of Eminent Domain: With respect to any Property any compulsory transfer or taking by condemnation, seizure, eminent domain or exercise of a similar power, or transfer under threat of such compulsory transfer or taking or confiscation of such Property or the requisition of the use of such Property, by any agency, department, authority, commission, board, instrumentality or political subdivision of any Governmental Authority having jurisdiction; and any settlement in lieu thereof.
Evergreen Clause: One that specifically states the expiration of a letter of credit will not take place without notice by the issuer and one that allows the issuer to conduct an annual review of the account party’s financial condition. If prior notice of expiration is not given by the issuer, the letter of credit is automatically extended for one year.
Excess of Loss Reinsurance: A generic term describing reinsurance which, subject to a specified limit, indemnifies the ceding company against the amount of loss in excess of the specified retention. It includes various types of reinsurance, such as Catastrophe, Per Risk, Per Account, and Aggregate Excess of Loss. Contrast with Pro Rata Reinsurance. A form of reinsurance which indemnifies the ceding company for that portion of the loss resulting from a single occurrence, however defined, that exceeds a predetermined amount, which is referred to as a first loss retention or deductible.
Exchange Gain or Loss: The gain or loss incurred when the exchange rates are different on the purchase and payment dates or on the sale and receipt of payment dates.
Exchange Rate: The value of one currency in terms of another.
Exclusions: Gross receipts that are not subject to tax and are not included in gross income, such as interest on state and local government bonds.
Excusable Delay: A delay resulting from event or events over which a party under direct contract to the Owner does not have direct control, as further defined, described and qualified in the General Conditions, of the Contract.
Execution: A term coined to define the time period in a project’s life cycle, i.e., all preliminary design, final design, and construction/remediated activities and actions.
Expense Ratio: The ratio of a company’s operating expenses including acquisition costs to premiums written or earned.
Expenses: Costs incurred in the normal course of business to generate revenues.
Extension of Time: Formal authorization from The Owner to increase the time period within which the Work or a designated portion thereof is to be completed.
External Auditors: Independent CPAs who are retained by organizations to perform audits of financial statements.
External Auditors: Refers to those audit professionals who perform independent annual audits of an organization’s financial statements.
External Audits: Audits conducted by Auditors/CPAs who are independent of the client company.
External Reviews: Reviews by an external internal auditing organization are performed to appraise the quality of a second internal audit organization’s operations. External reviews should be performed by qualified persons who are independent of the organizations and who do not have either a real or apparent conflict of interest.
External Service Provider: is a person or firm, independent of the organization, which has special knowledge, skill, and experience in a particular discipline. Outside service providers include, among others, actuaries, accountants, appraisers, environmental specialists, fraud investigators, lawyers, engineers, geologists, security specialists, statisticians, information technology specialists, external auditors, and other auditing organizations. The board, senior management, or the chief audit executive may engage an outside service provider.
Extraordinary Items: Nonoperating gains or losses that are unusual in nature, infrequent in occurrence, and material in amount.
Facilitation: A collaborative process involving the use of a neutral third party (facilitator) to design and oversee a group process. Facilitation is used to help a group reach a goal or complete a task to the mutual satisfaction of participants. Often used when there are many interested parties or stakeholders, as opposed to mediation which tends to focus on a single issue dispute between two parties. (See Facilitator)
Facilitative Mediation: In facilitative mediation, the mediator structures a process to assist the parties in reaching a mutually agreeable resolution. The mediator asks questions; validates and normalizes parties’ points of view; searches for interests underneath the positions taken by parties; and assists the parties in finding and analyzing options for resolution. The facilitative mediator does not make recommendations to the parties, give his or her own advice or opinion as to the outcome of the case, or predict what a court would do in the case. The mediator is in charge of the process, while the parties are in charge of the outcome.
Facilitator: A person competent in the use of dispute resolution who provides a neutral’s services to groups (usually more than two) involved in a dispute or conflict. The facilitator provides procedural assistance to the parties, enhancing information exchange and working with the parties to develop and evaluate possible agreements that could lead to a resolution.
Facilities: Buildings and other structures; their functional systems and equipment, including site development features such as landscaping, roads, walks, and parking areas; outside lighting and communications systems; central utility plants; utilities supply and distribution systems; and other physical plant features.
Facility Condition Index (FCI): Facility Condition Index (FCI) is a standard benchmark in the asset management industry, which is used to objectively assess the current and projected future condition of an asset. By definition, the FCI is defined as the ratio of current year required renewal repairs to asset replacement value. It is often used as a snapshot in time as a comparator to similar assets or as an index, which quantifies the adequacy of a funding level over a longer period of time. FCI = Cost of Renewal / Current Replacement Value.
Factor: To sell accounts receivable at a discount before they are due.
Failure Event: Also, see “risk events”. Risk events can materialize into “failure events” if left alone, or ignored. Realized failure events (i.e., changes, errors, omissions, gaps in scope) can then multiply by cause and effect to ultimately cause total program failures resulting in great cost, costly legal actions and in some cases, organizational bankruptcy. See also “Success Event.
Fair Market Value: The current value of an asset, e.g., the amount at which an asset could be sold or purchased in an arm’s-length transaction.
Fair Value Cost Estimates: Used to check the cost of proposed designs or provide benchmarks for scope to be outsourced to others.
FASB (Financial Accounting Standards Board): The private organization responsible for establishing the standards for financial account and reporting in the U.S.
Fast Tracking: Compressing the project schedule by overlapping activities that would normally be done in sequence, such as design and construction. Increasingly overlapping activities increase the risk of accomplishing those activities on time and at cost.
FCPA (Foreign Corrupt Practices Act): U.S. Foreign Corrupt Practices Act of 1977 (“FCPA”) that generally prohibits U.S. companies and citizens, foreign companies listed on a U.S. stock exchange, or any person acting while in the United States, from corruptly paying or offering to pay, directly or indirectly, money or anything of value to a foreign official to obtain or retain business (the “Antibribery Provisions”).
Fee: In the context of a construction contract, this is the sum, either fixed, percentage or imputed that the contractor receives to cover his home office overhead and profit.
FICA (social security) Taxes: Federal Insurance Contributions Act taxes imposed on employee and employer, used mainly to provide retirement benefits.
Fidelity & Surety Committee of the ABA: A subcommittee of the Tort and Insurance Practice Section of the American Bar Association. This subcommittee is one of the most active in the American Bar and is the source of most scholarly writing and educational materials on surety and fidelity claims law and practices in the U.S.
Fidelity Bond: Bonds designed to guarantee honesty. Generally, the bond guarantees honesty of employees. These bonds cover losses arising from employee dishonesty and indemnify the principal for losses caused by the dishonest actions of its employees.
FIFO (first-in, first-out): An inventory cost flow whereby the first goods purchased are assumed to be the first goods sold so that the ending inventory consists of the most recently purchased goods.
Final Acceptance, Date of: The day of issuance of a Certificate of Final Acceptance.
Final Acceptance: Formal acceptance by The Owner of the Project as complete, including the entire scope of Work of the contract. This signifies completion of all items required by the Contract and all Punch List items but does not mean legal release by the Contractor, CM, or Design-Builder of their Subcontractors and Suppliers. Acceptance is final and conclusive, except for latent defects, defects resulting from fraud, and warranty or guarantee failures. Final Acceptance is confirmed by making of Final Payment unless otherwise stipulated at the time of making such payment.
Final Completion: Completion of the entire SOW of a Contract as determined by The Owner or as specified in the law of the state or municipality where the Project is located. The day the Work is certified to be complete in accordance with the definition of “Final Completion”. Also, the date at which warranties commence, and, unless otherwise provided in the Contract, the date on which formal responsibilities for security, maintenance, heat, utilities, damage to the Work and insurance transfer to the Owner.
Final Design: Completion of the design effort and production of all the approved design documentation necessary to permit procurement. Construction, testing, checkout, and turnover to proceed.
Final Payment, Date of: The date Final Payment is made by the Owner to a Construction Program Management vendor, contractor, and consultant.
Final Payment: The duty to make Final Payment, including all Retainage, and in accordance with the Contract and state and local codes, generally arises upon Final Acceptance.
Financial Accounting: The area of accounting concerned with reporting financial information to interested external parties.
Financial Guarantee Bond: A guarantee that others will pay sums of money due. A Sales Tax Bond, for instance guarantees the state that the merchant will pay his sales taxes on time and in full.
Financial Statements: Reports such as the balance sheet, income statement, and the statement of cash flows, which summarize the financial status and results of operations of a business entity.
Financing Activities: Transactions and events whereby resources are obtained from, or repaid to, owners (equity financing) and creditors (debt financing).
Financing by Surety: The surety providing direct or indirect financial assistance to the principal in the hope that the obligations secured by the performance bond will be completed by the principal.
Findings: Pertinent statements of fact. Audit findings emerge by a process of comparing what should be with what is.
Fiscal Year: An entity’s reporting year, covering a 12-month accounting period.
Fixed Assets to Net Worth: A ratio that indirectly measures liquidity showing what part of “permanent” assets are covered by “permanent” capital
Fixed Price Contracts: Fixed price contracts provide for a firm price or, under appropriate circumstances, may provide for an adjustable price for the supplies or services that are being procured. In providing for an adjustable price, the contract may fix a ceiling price, target price (including target cost), or minimum price. Unless otherwise provided in the contract, any such ceiling, target, or minimum price is subject to adjustment only if required by the operation of any contract clause that provides for equitable adjustment, escalation, or other revision of the contract price upon the occurrence of an event or a contingency.
Fixed Price Incentive Fee Contract: A type of contract where the buyer pays the seller a set amount (as defined by the contract), and the seller can earn an additional amount if it meets or exceeds defined performance criteria.
Float: The amount of time that an activity may be delayed from its early start without delaying the project finish date. Float is a mathematical calculation and can change as the project progresses and changes are made to the project plan. Also called slack, total float, and path float.
Floor: The minimum market amount at which inventory can be carried on the books; equal to net realizable value minus a normal profit.
Flow Down Provisions: A contract provision by which the parties incorporate the terms of the general contract between the Owner and the general contractor into the lower tier agreement.
Flowchart: A representation, primarily through the use of symbols, of the sequence of activities in a system (process, operation, function, or activity).
FOB (free-on-board) Destination: A business term meaning that the seller of merchandise bears the shipping costs and maintains ownership until the merchandise is delivered to the buyer.
FOB (free-on-board) Shipping Point: A business term meaning that the buyer of merchandise bears the shipping costs and acquires ownership at the point of shipment.
Follow-up: Internal auditor defined process by which they determine the adequacy, effectiveness, and timeliness of actions taken by management on reported audit findings. Such findings also include relevant findings made by external auditors and others.
Force Majeure: Events that are considered to be beyond the control of either the Owner or a party under direct contract to the Owner, including the following: (a) fire, flood, earthquakes, lightening, hurricanes, explosions, unusually severe weather conditions for the area, or other Acts of God; (b) national or regional labor disputes, strikes or riots, unless caused by the acts or omissions of a party under direct contract to the Owner or Subcontractors, or failure to act in good faith to resolve such disputes; © acts of the Owner entities enjoining the Project from proceeding, except the Owner entities that have an interest in the Project or the outcome of the Project; (d) acts of war, civil disturbance, rebellion, insurrection, epidemic, terrorism, sabotage, riots, or violent demonstrations, unless caused by acts or omissions of the party under direct contract to the Owner or Subcontractors. Defined in the General Conditions.
Forecast: A projection of total costs for a project. Forecasts are based on sound historical data and current quotes that may be obtained.
Forfeiture Bond: Type of bond that upon default of the Principal (breach of the condition of the bond) calls for the full amount of the bond (the bond penalty) to be paid to the Obligee on demand
Formal Internal Reviews: Periodic self-assessments of the internal auditing department to appraise the quality of the audit work performed. These reviews generally are performed by a team or an individual selected by the director of internal auditing.
Franchise: An entity that has been licensed to sell the product of a manufacturer or to offer a particular service in a given area.
Fraud: An array of irregularities and illegal acts characterized by intentional deception, concealment, or violation of trust. These acts are not dependent upon the application of threat of violence or of physical force. Frauds are perpetrated by individuals and organizations to obtain money, property, or services; to avoid payment or loss of services; or to secure personal or business advantage.
Freight-in: An account used with the periodic inventory method for recording the costs of transporting into a firm all purchased merchandise intended for sale; added to purchases in calculating cost of goods sold.
Friend of the Project: A term coined by the American College of Construction Lawyers to describe a dispute avoidance and resolution process wherein a project advocate or friend of the project represents the project itself and not any of the contracting parties.
Functional Currency: The currency in which a subsidiary conducts most of its business; generally, but not always, the currency of the country where it does most of its spending and earning.
Functional Organization: An organization structure in which staff are grouped hierarchically by specialty (e.g., production, marketing, engineering, and accounting at the top level; with engineering, further divided into mechanical, electrical, and others).
Funds Control: A method of taking control of contract funds to ensure subcontractors and suppliers will be paid appropriately and that contract proceeds remain dedicated to the bonded contract.
Furniture, Fixtures and Equipment (FF&E): Items not normally considered permanently attached to the structure, but are considered a bond-able cost in situations of new construction or major renovation.
GAAP (Generally Accepted Accounting Principles): Authoritative guidelines that define accounting practice at a particular time.
GAAS (Generally Accepted Auditing Standards): Auditing standards developed by the AICPA.
Gap Insurance: A type of auto insurance that car owners can buy to protect themselves against losses that can arise when the amount of compensation received from a total loss does not fully cover the amount the insured owes on the vehicle’s financing or lease agreement. This situation arises when the balance owed on a car loan is greater than the book value of the vehicle. Gap insurance may also refer to other certain insurance coverage which a Contractor may attempt to charge for, while not required per the Contract, or specifically covered in the OCIP.
General Agreement of Indemnity: See, General Indemnity Agreement.
General Conditions (contract provisions): A written portion of the contract documents set forth by the Owner stipulating the contractor’s minimum acceptable performance requirements including the rights, responsibilities and relationships of the parties involved in the performance of the contract. General conditions are usually included in the book of specifications but are sometimes found in the architectural drawings.
General Conditions (project overhead/labor): Field-related tasks required to execute a contract. Common general condition cost components include: Labor supervision, temporary facilities, including trailers, portable toilets and temporary plants, personal protective equipment, travel and per diem, permits, sales and labor taxes, insurance and bonds. General condition costs can be estimated as a percentage of direct project cost. General condition cost percentages tend to be higher for small projects and smaller for large projects. Also known as “indirect costs”.
General Indemnity Agreement: An agreement whereby the Principal and individual indemnitors agree to make a reimbursement to the surety for any loss the surety may incur under the bond. These agreements usually contain provisions allowing the surety certain controls over disputes and access to information and collateral. They may provide for the posting of collateral in the event of an imminent default. They usually contain a grant of a security interest in addition to the equitable rights the surety may already have in job receivables, equipment, work in process, etc. These agreements are to a surety what loan agreements, security agreements, personal guaranties, and financing statements are to a banker.
General Partner: General partners are liable for all of their partnership’s debts.
General Requirements: Division 1 of the Project Specifications.
General-purpose Financial Statements: The financial reports intended for use by a variety of external groups; they include the balance sheet, the income statement, and the statement of cash flows.
Goals: Specific objectives of specific systems and may be otherwise referred to as operating or program objectives or goals, operating standards, performance levels, targets, or expected results. These acts are not dependent upon the application of threat of violence or of physical force. Frauds are perpetrated by individuals and organizations to obtain money, property, or services; to avoid payment or loss of services; or to secure personal or business advantage.
Going Concern: The idea that an accounting entity will have a continuing existence for the foreseeable future.
Goodwill: An intangible asset that exists when a business is valued at more than the fair market value of its net assets, usually due to strategic location, reputation, good customer relations, or similar factors; equal to the excess of the purchase price over the fair market value (FMV) of the net assets purchased.
Governance Process: Procedures utilized by the representatives of the organization’s stakeholders (e.g., shareholders, etc.) to provide oversight of risk and control processes administered by management.
Government Accounting Standards Board (GASB 34): GASB34 is a financial reporting standard developed over the past two decades by the Government Accounting Standards Board in the United States. GASB34 was implemented prior to 2005. One of two available options requires governments and their agencies to base their financial reporting for fixed assets on the condition of the asset. Both the carrying value of the assets and related depreciation costs will be based on the assessed condition, which must be supported by data.
Gross Income: The taxable portion of a taxpayer’s gross receipts.
Gross Margin Method: A procedure for estimating the amount of ending inventory; the historical relationship of cost of goods sold to sales revenue is used in computing ending inventory.
Gross Margin: The excess of net sales revenue over the cost of goods sold.
Gross Sales: Total recorded sales before deducting any sales discounts or sales returns and allowances.
Gross Tax Liability: The amount of tax computed by multiplying the tax base (taxable income) by the appropriate tax rates.
Guaranteed Maximum Price (GMP, GMAX): Method of compensation in which compensation is made for actual costs, plus a fee with an agreed maximum price. This is sometimes called an upset price contract. Costs beyond the predetermined maximum are borne by a party under direct contract to the Owner. If actual costs are below the maximum, then the Owner may share the savings with the other contracting party according to terms of the contract. A Change Order can adjust the Guaranteed Maximum Price (GMP).
Guaranty Fund: A fund, derived from assessments against solvent insurance companies, to absorb losses of claimants against insolvent insurance companies.
Guidelines: are suitable means of meeting the General and Specific Standards for the Professional Practice of Internal Auditing.
Hazardous Materials: a) Any substance or mixture of substances that is toxic, corrosive, an irritant, a strong sensitizer, pyrophoric, flammable, ignitable, combustible, radioactive, explosive, reactive, and/or that generates pressure through decomposition, heat, or other means; b) Any substance or mixture of substances that may cause personal injury or illness during, or as a proximate result of, any customary or reasonable foreseeable handling or use; or c) Any substance or mixture of substances that is regulated as hazardous under United States Department of Transportation regulations, international transportation regulations developed based on United Nation recommendations, or under any other applicable EHS Laws including, but not limited to, dangerous goods, hazardous substances, toxic substances, hazardous wastes, carcinogens, reproductive toxins and the like.
Held-to-Maturity Securities: Debt securities purchased by an investor with the intent of holding the securities until they mature.
High-Low Arbitration: The parties agree privately without informing the arbitrator that the arbitrator’s final award will be adjusted to a bounded range. Example: P wants $200,000. D is willing to pay $70,000. Their high-low agreement would provide that if the award is below $70,000, D will pay at least $70,000; if the award exceeds $200,000, the payment will be reduced to $200,000. If the award is within the range, the parties are bound by the figure in the award.
Historical Cost: The dollar amount originally exchanged in an arm’s-length transaction; an amount assumed to reflect the fair market value (FMV) of an item at the transaction date.
Historical Exchange Rate: The exchange rate that existed on the date of a transaction.
Hold Harmless Agreement: An agreement to pay certain claims that might come up against another person.
Horizontal Analysis of Financial Statements: A technique for analyzing the percentage change in individual income statement or balance sheet items from one year to the next.
Illegal Acts: Refers to violations of laws and governmental regulations.
Impairments: Individual objectivity and organizational independence may include personal conflicts of interest, scope limitations, restrictions on access to records, personnel, and properties, and resource limitations (funding) and may be identified as impairments.
Implied Contract: A contract with existence and terms determined by the actions of the persons involved, not by their words.
Implied Warranty: An unstated promise, imposed on a seller, that what is sold is fit for normal use, or, if the merchant knows what the buyer wants the thing for, that it is fit for that particular purpose. Unless these implied warranties are expressly excluded (for example, by clearly labeling the thing sold “as is”), a seller will be held to them
Impossibility of Performance: In contracts in which the performance depends on the continued existence of a given person or thing, an implied condition is that the perishing of the person or thing shall excuse performance. One is not excused from performance merely because performance becomes more expensive than originally contemplated. Mere unforeseen difficulty or expense does not constitute impossibility and is not ordinarily an excuse.
Imprest Petty Cash Fund: A petty cash fund in which all expenditures are documented by vouchers or vendors’ receipts or invoices, the total of the vouchers and cash in the fund should equal the established balance.
Incentive Clause: A contractual provision which provides payments beyond the stated amount in the contract if completion is ahead of schedule or if other objectives are reached which may involve cost savings, safety, quality or absence of disputes.
Income Statement (statement of earnings): The financial statement that summarizes the revenues generated and the expenses incurred by an entity during a period of time.
Income Taxes Payable: The amount expected to be paid to the federal and state governments based on the income before taxes reported on the income statement.
Indefinite Delivery Contract: Indefinite-Delivery Contracts: There are three types of indefinite-delivery contracts, i.e., definite quantity contracts, indefinite quantity, and replacements contracts. (a) A definite quantity contract provides for delivery of a definite quantity of supplies or services for a fixed period, with deliveries to be scheduled at designated locations upon order. (b) An indefinite quantity contract provides for an indefinite quantity, within stated limits, of specific supplies or services to be furnished during a fixed period with deliveries to be scheduled by placing orders with the contractor. The contract shall require the government to order and the contractor to furnish at least a stated minimum quantity of supplies or services and, if ordered, the contractor to furnish any additional quantities not to exceed a stated minimum. Indefinite quantity contracts are sometimes referred to as task order and delivery order contracts. A task order contract means a contract for services that does not procure or specify a firm quantity of services (other than a minimum or maximum quantity) and that provides for issuance of orders for the performance of tasks during the period of the contract. A delivery order contract means a contract for a supply that does not procure or specify a firm quantity of supplies (other than a minimum or maximum quantity) and that provides for the issuance of orders for the delivery of supplies during the period of the contract. © A requirements contract provides for filling all purchase requirements of designated government activities for supplies or services during a specified contract period, with deliveries to be scheduled by placing orders with the contractor.
Indemnify: To save another harmless from loss or damage, such as a contractor agreeing to indemnify an owner against a loss.
Indemnitor: An entity or person who enters into an agreement with a surety to hold the surety harmless from loss incurred as a result of issuing a contract bond to an applicant who falls just short of acceptability. If the principal defaults, the indemnitor, rather than the surety, assumes the obligation.
Indemnity Clause: There are typically three parts to an indemnity clause. One party agrees to (1): indemnify, (2): defend, and (3): hold harmless the other party. By “indemnifying” the first party is agreeing to reimburse the second party for its losses after those losses have been determined by litigation, arbitration, or settlement. By “defending,” the first party is agreeing to pay for the second party’s legal expenses as it defends the claim brought by some third party. By agreeing to “hold harmless” the second party, the first party agrees to protect the second party against harm from suits by third parties. Indemnity clauses fall into three groupings. These are commonly called “broad form,” “intermediate form,” and “narrow form.” Broad form indemnity, as its name implies, requires the first party to indemnify the second party for all damages arising out of the project whether caused by the first party, a third party, or even the second party. Intermediate form indemnity also shifts much risk to the consultant – but not as drastically as does the broad form. It may state, for example, that the consultant will indemnify the client for all damages caused “in whole or in part” by the consultant. This language can be deceptively subtle. Courts interpret it to mean that if the consultant contributed even just a little bit to causing the damages, it will be required to indemnify the client for ALL of the damages, including those caused by the client’s negligence. Narrow form indemnity requires the first party to indemnify the second party only for those damages caused by the first party’s negligence.
Independence: allows internal auditors to carry out their work freely and objectively. This concept requires that internal auditors be independent of the activities they audit. Independence is achieved through organizational status and objectivity. Information is data the internal auditor obtains during an audit to provide a sound basis for audit findings and recommendations. Information should be sufficient, competent, relevant, and useful.
Independent Checks: Procedures for continual internal verification of other controls.
Independent Contractor: One who contracts to perform certain functions or deliver goods by his own methods and without being subject to the control of another party except as to the results. Many obligations are attached to an employer that is not present when the same work is performed by an independent contractor.
Independent Cost Estimate (ICE): A “bottoms-up” documented, independent cost estimate that has the express purpose of serving as an analytical tool to validate, crosscheck, or analyze cost estimates developed by project proponents.
Independent Cost Review (ICR): An essential project management tool used to analyze and validate an estimate of project costs. An independent cost review is typically conducted on all projects at the point of baseline approval. An ICR may be performed by an independent internal or external organization.
Independent Evaluation (Review): An evaluation, made outside the normal advocacy chain, of a project’s status or condition. In the project management system, the Office of Program/Project Management in its role of independent monitoring makes it. It will consist of independent evaluation of all pertinent factors in order to provide a condition rating or detailed analysis of the project or system situation.
Independent Review (IR): Independent Reviews are critical in assessing the performance and health of projects, providing the opportunity to identify potential problems and risks, and formulate plans to correct problems. A non-proponent of the project conducts an IR. The IR may be a science-based or engineering-oriented peer review, a review of the project management structure and interrelationships between key organizational components, a review targeted to a specific issue such as cost or budget, a review covering safety, or a combination thereof. Independent reviews may be combined for efficiency, as appropriate.
Indirect Method: A method of reporting net cash flow from operations that involves converting accrual-basis net income to a cash basis.
Inflation: An increase in the general price level of goods and services; alternatively, a decrease in purchasing power of the dollar.
Initial Operating Capability (IOC): The point at which a project is sufficiently complete and its performance has been demonstrated and it has met the technical threshold criteria in the APB. It is not reaching full, steady state operations.
Initiation: A term coined to define the time period in a project’s life cycle i.e., activities and actions prior to pre-acquisition planning/preconceptual design.
Intangible Assets: Long-lived assets without physical substance that are used in business, such as licenses, patents, franchises, and goodwill.
Integrated Project Team (IPT): An IPT is a cross-functional group of individuals organized by Development Program Management. Team members are representative of all competencies that influence the project’s overall performance, safety/quality, scope, schedule, or cost. The IPT should be committed to a common purpose and approach for which they hold themselves mutually accountable. Team members are trained by their home departments/organizations to execute standard processes and exercise technical and/or business judgment within established policies in support of the assigned project. Members of an IPT represent technical, manufacturing, business, contracting and support functions and organizations that are critical to developing, procuring and supporting the product. Depending upon the project needs, the typical IPT membership could include Internal Audit, legal, quality, safety, environmental, and technical personnel. In all cases, however, the IPT should include a representative from the contracting function. All IPT actions and activities are performed under the direction of the PM. If possible, IPT members may be assigned for the length of time required to complete their IPT assignments. Therefore, depending upon the relative impact of a team competency, team membership may be either full-time or part-time. IPTs are the means through which the acquisition process is implemented. The IPT is the overall project support team having responsibility for pre-project, project development, design/engineering, and construction/remediation activities as appropriate. As a project progresses from Initiation to Transition/Closeout completion, the IPT membership may change in both members and capabilities to remain responsive to project needs and requirements. This flexibility allows the PM to adapt the IPT to meet constantly changing project needs.
Integrated Safety Management (ISM): The application of the integrated safety management system (ISMS) to a project or activity. The fundamental premise of ISM is that accidents are preventable through early and close attention to safety, design, and operation, and with substantial stakeholder involvement in teams that plan and execute the project, based on appropriate standards.
Integrated Safety Management System (ISMS): An overall management system designed to ensure that environmental protection; worker and public safety is appropriately addressed in the planning, design, and performance of any task.
Intellectual Property: Any invention, improvement, development, concept, discovery or other proprietary information owned by an identified party, or in which that party has an interest.
Intercompany Transaction: A transaction between a parent company and a subsidiary company.
Interest Rate: The cost of using money, usually expressed as an annual percentage.
Interest: The payment (cost) for the use of money.
Intermediate Form Indemnity: See, Indemnity Clauses.
Internal Auditing Department: Any unit or activity within an organization, which performs internal auditing functions.
Internal Auditing: A department, division, team of consultants, or other practitioner(s) that provides independent, objective assurance and consulting services designed to add value and improve an organization’s operations. The internal audit activity helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.
Internal Auditor: An individual within an organization’s internal auditing department who is assigned the responsibility of performing internal auditing functions.
Internal Auditors: An independent group of experts in controls, accounting, and operations, who monitor operating results and financial records, evaluate internal controls, assist with increasing the efficiency and effectiveness of operations, and detect fraud.
Internal Control Structure: Safeguards in the form of policies and procedures established to provide management with reasonable assurance that the objectives of an entity will be achieved.
Internal Control: is a process within an organization designed to provide reasonable assurance regarding the achievement of the following primary objectives: The reliability and integrity of information Compliance with policies, plans, procedures, laws, and regulations; the safeguarding of assets; the economical and efficient use of resources; the accomplishment of established objectives and goals for operations or programs.
Internal Replanning: Replanning actions for remaining work scope. A normal program control process accomplished within the scope, schedule, and cost objectives of the program.
International Financial Reporting Standards (IFRS): International Financial Reporting Standards (IFRS) is a set of accounting standards, developed by the International Accounting Standards Board (IASB) that is becoming the global standard for the preparation of public company financial statements.
The Institute of Internal Auditors International Standards for the Professional Practice of Internal Auditing: The recognized standards for the Internal Audit Profession, and the referenced standards included in audit engagement contracts.
Inventory Cutoff: The determination of which items should be included in the year-end inventory balance.
Inventory Turnover Ratio: A measure of the efficiency with which inventory is managed. It is computed by dividing cost of goods sold by average inventory for a period.
Inventory: Goods held for resale.
Investing Activities: Transactions and events that involve the purchase and sale of securities (excluding cash equivalents), property, plant, equipment, and other assets not generally held for resale, and the making and collecting of loans.
Irregularity refers to the intentional misstatement or omission of significant information in accounting records, financial statements, other reports, documents or records. Irregularities include (a) fraudulent financial reporting which renders financial statements misleading and (b) misappropriation of assets. Irregularities involve: Falsification or alteration of accounting or other records and supporting documents; Intentional misapplication of accounting principles; Misrepresentation or intentional omission of events, transactions, or other significant information.
Irrevocable Letter of Credit: See also, Letters of Credit. Irrevocable credits may not be modified or canceled by the customer. The customer’s issuing bank must follow through with payment to the seller so long as the drawer complies with the conditions listed in the letter of credit. Changes in the credit must be approved by both the customer and the drawer. If the documentary letter of credit does not mention whether it is revocable or irrevocable, it automatically defaults to irrevocable.
Issued Stock: Authorized stock originally issued to stockholders; it may or may not still be outstanding.
Itemized Deduction: Amounts paid by an individual taxpayer for personal and quasi-business expenses that can be deducted in computing taxable income, such as medical expenses, property and income taxes, mortgage and investment interest, charitable contributions, moving expenses, casualty and theft losses, and certain miscellaneous expenses.
JIT (just-in-time) Inventory: An inventory system that allows for the elimination of inventory stockpiles and inefficiency and waste; raw materials arrive “just in time” for production and finished goods “just in time” for sale.
Job Order Contracting: A construction delivery method for contracting for the minor repair, rehabilitation, or construction of a project when the work is of a recurring nature but the delivery times, type, and quantities of work required are indefinite.
Joint and Several Liability: Liability of more than one person for which each person may be sued for the entire amount of damage done or owed by all.
Joint Control: Control of the handling of project funds by both the Surety (bonding company) and the principal. Funds are kept in joint accounts, and disbursements made only with both signatures so the Surety can assure itself that the affairs of the project are being handled properly
Joint Venture: A “one-shot” grouping together of two or more persons in a business. If they have a continuing relationship, it may be a partnership.
Journal Entry: A recording of a transaction where debits equal credits; usually includes a date and an explanation of the transaction.
Journal: An accounting record in which transactions are first entered; provides a chronological record of all business activities.
Junk Bonds: Bonds issued by companies in weak financial condition with large amounts of debt already outstanding; these bonds yield high rates of return because of the high risk.
Jurat: That part of an affidavit where the officer certifies that the same was "sworn" before him. The jurat is usually in the following form: 'Sworn and subscribed before me, on the ___ day of ___, Year, (signature of Notary Public)'
Just-in-Time (JIT) Inventory: An inventory system that allows for the elimination of inventory stockpiles and inefficiency and waste; raw materials arrive “just in time” for production and finished goods “just in time” for sale.
Key Cost Parameters (KCP): Identify the total cost of the project (TPC), and in general include direct costs such as research and development, test, construction, remediation, procurement, fabrication, services, transition, and startup. Costs of quality, environment, safety, occupational health as well as the cost of acquisition items procured with operations and maintenance funds and also included, as well as indirect costs not directly attributable to the project but resulting from the project such as infrastructure costs. At a minimum, the TPC and the TEC are a KCP and a KPP, respectively.
Key Performance Indicators (KPI): KPI’s define relevant minimum performance scores which reflect business driven service levels; each assessment criteria being weighted to reflect their relative contribution to core business objectives.
Key Performance Parameters (KPP): A vital characteristic of a project or facility mission. A characteristic, function, requirement, or design basis, that if changed, would have a major impact on the facility or system performance, scope, schedule, cost and/or risk, or the ability of an interfacing project to meet its mission requirements. Thus, a KPP may be a performance, design or interface requirement. Parameters that are appropriate for KPPs are those that express performance in terms of accuracy, capacity, throughput, quantity, processing rate, purity, or others that define how well a system, facility or other project will perform.
Key Personnel: Designated individuals holding key positions on the staff of a party under direct contract to the Development Program Management Authority, or the Owner.
Key Schedule Parameters (KSP): Decision points, major milestones, deliverables, initial operation and other critical system events. Mandatory schedule parameters include all phases of the project, major decision points, and initial operation. Schedule parameters are established through an interactive process that proceeds integrally with the technical and cost processes. Critical path activities, events, milestones and resources are developed using a disciplined approach and are properly integrated with all other appropriate events.
Labor & Material Payment Bond: See, Payment Bond. Bonds covering faithful performance of the Contract and payment of obligations related to labor and material(s) arising hereunder.
Lapping: A procedure used to conceal the theft of cash by crediting the payment from one customer to another customer’s account on a delayed basis.
Latent Defects: Defects or deficiencies that are not patent and obvious from reasonable inspection of the Work but may exist at the time of or develop after Final Acceptance.
LCM (Lower of Cost or Market): A basis for valuing certain assets at the lower of original cost or current market value.
Lease: A contract that specifies the terms under which the owner of an asset (the lessor) agrees to transfer the right to use the asset to another party (the lessee).
Ledger: A book of accounts in which data from transactions recorded in journals are posted and thereby classified and summarized.
LEED: The Leadership in Energy and Environmental Design (LEED) Green Building Rating System, developed by the U.S. Green Building Council (USGBC), provides a suite of standards for environmentally sustainable construction.
Legal Capital: The amount of contributed capital not available for dividends; usually equal to the par or stated value of outstanding capital stock.
Lessee: The party that is granted the right to use property under the terms of a lease.
Lessor: The owner of property that is rented (leased) to another party.
Letter of Credit: There are many types of letters of credit. The type used to guarantee a contractor’s performance is a “standby” letter of credit in which a bank stands ready to pay over the amount of the letter to the Owner of the project (obligee) in the event of default. A letter of credit differs significantly from a surety bond and one is not a substitute for the other. The Miller Act which applies to federal construction recognizes this fact and does not permit the use of a letter of credit to guarantee performance of such contracts.
Letter of Intent: During the course of negotiating a construction contract or subcontract, the parties may wish to begin performance before there has been final agreement. A letter of intent is often issued as a directive to commence work with an agreement to pay for that work if a final agreement is not reached.
Level of Effort (LOE): Effort of a general or supportive nature usually without a deliverable end product. An activity (e.g., vendor or owner liaison) that does not readily lend itself to measurement of discrete accomplishment. It is generally characterized by a uniform rate of activity over a specific period of time. Examples are supervision, program administration, and contract administration. Level of Effort tasks receive budgeted cost for work performed, based upon the passage of time, not measured output.
Liabilities: Obligations measurable in monetary terms that represent amounts owed to creditors, governments, employees, and other parties.
Liability Insurance: Insurance covering the policyholder’s legal liability resulting from injuries to other persons or damage to their property.
License & Permit Bonds: A term used to refer to bonds which are required to obtain a license or permit in any city, county or state. These bonds guarantee whatever the underlying statute, state law, municipal ordinance or regulation requires. They may be required for a number of reasons, for example the payment of certain taxes and fees and providing consumer protection as a condition to granting licenses related to selling real estate or motor vehicles and contracting services.
License: The right to perform certain activities, generally granted by a governmental agency.
Lien (also Mechanic’s Lien or Material Man’s Lien): A charge or claim, encumbrance, or charge against the Owner’s real property brought by a party authorized by state statutes, including, but not limited to, design professionals, surveyors, contractors, subcontractors, suppliers and persons providing labor to a project to secure payment of some unpaid debt or obligation for work or material furnished to the Owner’s construction project. A property right which remains attached to an object that has been sold, but not totally paid for, until complete payment has been made. It may involve possession of the object until the debt is paid or it may be registered against the object (especially if the object is real estate). Ultimately, a lien can be enforced by a court sale of the property to which it attached and then the debt is paid off from the proceeds of the sale.
Lien Foreclosure (also Lien Claim): A lawsuit brought by the claimant to foreclosure on the lien on the Owner’s property similar to foreclosure of a mortgage on real property. It is initiated by either a) communicating formal written notice of claim to the Owner, or b) filing of a formal written complaint, a copy of which is served on the Owner.
Lien Release (also Lien Waiver and Release): A written document from the contractor to the Owner that releases the Lien, Mechanic’s or Material following its satisfaction. A document executed by a contractor, design professional, the party with whom the entity has directly contracted has paid subcontractor or suppliers affirming and acknowledging payment for services and/or materials provided. Lien Release and Waivers may be Conditional or Unconditional. “Conditional” lien release applies to work in progress and becomes effective (i.e. is conditioned upon) receipt of progress payment for the furnished materials and services at issue or may be subject to pending claims or disputes. “Unconditional” lien releases assume the work has been completed and payment for all furnished materials and services has been made in full.
Lien Release Bond: A bond to release a recorded mechanic’s lien.
Lien Waiver: A written document from a contractor, subcontractor, material supplier or other construction professional(s), having lien rights against an owner’s property, relinquishes all or part of those rights. Lien waivers are generally used for processing progress payments to prime or main or subcontractors as follows: Conditional Lien Waiver, Unconditional Lien Waiver, and Final Lien Waiver
Life Cycle Cost (LCC): The sum total of the direct, indirect, recurring, nonrecurring, and other related costs incurred or estimated to be incurred in the design, development, production, operation, maintenance, support, and final disposition of a major system over its anticipated useful life span. Where system or project planning anticipates use of existing sites or facilities, restoration, and refurbishment costs should be included.
Lifecycle Cost Analysis (LCA): The concept of including acquisition, operating, and disposal costs when evaluating various alternatives. Review of the long-term (or lifecycle) costs involved in maintaining building components and renewing building components. Lifecycle Cost Analysis is an economic evaluation tool for choosing between alternative building investments and operating strategies over a given time period in equivalent economic terms.
Lifecycle Management: Lifecycle Management is the business science associated with the optimization of functional capability, design cost, operating cost, maintenance cost, renewal cost and theoretical life of an asset. This is a comprehensive business process which often transcends business management lines (i.e. Operations, Engineering, Maintenance, Finance) and which is very difficult to manage in current business systems (i.e. Maintenance Management, Design Package, General Ledgers, Purchasing, Inventory, etc.)
Lifecycle: Lifecycle of an asset is defined as the period of time between the initial conceptual design through design, construction, operation, maintenance, renewal and ultimate replacement of an asset. There are many activities associated with the lifecycle of an asset, and the ability to recreate these activities as part of a lifecycle analysis is key to effective lifecycle management.
LIFO (last-in, first-out): An inventory cost flow whereby the last goods purchased are assumed to be the first goods sold so that the ending inventory consists of the first goods purchased.
Limited Liability Corporation, (L.L.C.): An LLC is a hybrid between a partnership and a Corporation in that it combines the “pass-through” treatment of a partnership with the limited liability accorded to corporate shareholders. LLC members are not personally liable for the LLC’s debts and obligations. The LLC limited liability umbrella does not, however, protect members from every type of liability that could rain down on them. LLC members may still be personally liable for LLC debts if they personally guarantee those debts. They are also still personally liable for their own negligence. But the liability exposure that remains after an LLC is formed does not prevent LLC’s from being an attractive business entity. LLC members are liable only up to the amount of their capital contributions and the amount they agree to contribute to the firm’s capital.
Limited Liability: The legal protection given stockholders whereby they are responsible for the debts and obligations of a corporation only to the extent of their capital contributions.
Limited Partner: An owner in a limited partnership who’s liable only up to the amount of money invested.
Limited Partnership: A partnership with two kinds of partners: limited partners, who provide financial backing and have little role in management and no personal liability, and general partners, who are responsible for managing the entity and have unlimited personal liability for its debts.
Line of Credit: Financial institutions offer this to some customers. It allows the customer to borrow up to a certain amount of money without applying for another loan.
Liquidated Damages: In a construction context, liquidated damages are damages specified in a contract to be paid in the event of an unexcused delay. Liquidated damage clauses, to be enforceable, must not be written to penalize, but as a reasonable approximation of the probable loss that will be caused by delayed performance. An additional requirement is that the actual damages caused by delay would be difficult or impossible to determine. An amount of money established in a construction contract, usually a fixed sum per day, as the measure of damages suffered by the Owner due to failure of a party under direct contract to the Owner to complete the work within a stated time. The amount is not a penalty but is a reasonable assessment of costs that cannot be readily calculated.
Liquidation: The process of dissolving a business by selling the assets, paying the debts, and distributing the remaining equity to the owners.
Liquidity: A company’s ability to meet current obligations with cash or other assets that can be quickly converted to cash.
Long-Lead Procurement Items: Those items of equipment and/or construction materials that require an order date prior to the estimated physical construction start to assure availability at the time needed to avoid delaying the construction performance.
Long-term Liabilities: Debts or other obligations that will not be paid within one year.
[* Loss Expense- Unallocated: *] Salaries and other expenses incurred in connection with the operation of a claim department of an insurance carrier which cannot be charged to individual claims.
Loss Expense-Allocated: Handling expenses, such as legal or independent adjuster fees, paid by an insurance company in settling a claim which can be definitely charged to that particular claim.
Loss Per Share: The amount of net loss related to each share of stock. It is computed by dividing net loss by a number of shares of common stock outstanding during the period.
Loss Ratio: Fraction calculated by dividing the amount of surety losses by the amount of surety premiums, expressed as a percentage of the premiums. Various bases are used in calculating the loss ratio.
Losses: Costs that provide no benefit to an organization.
Lower of Cost or Market (LCM): A basis for valuing certain assets at the lower of original cost or current market value.
LSS: Life Safety System.
Lump Sum / Stipulated Lump Sum: Method of compensation in which a party under direct contract to the Owner is paid a fixed price for completed Scope of Work (SOW), regardless of cost to the party under direct contract to the Owner. The Lump Sum is established through bidding and can be adjusted by Change Order.
MACRS (Modified Accelerated Cost Recovery System): IRS regulations that allocate the cost of an asset according to predefined recovery periods and percentages.
Maintenance Bond: Bonds that provide for the upkeep of the project for a specified period of time after the project is completed. These bonds guarantee against defective workmanship or materials. These bonds may occasionally include a guarantee of “efficient or successful operation” or other obligations. Two years is a common term for a construction bond.
Maker: A person (entity) who signs a note to borrow money and who assumes responsibility to pay the note at maturity.
Management Accounting: The area of accounting concerned with providing internal financial reports to assist management in making decisions.
Management Reserve: An amount of the total allocated budget withheld for management control purposes, rather than assigned for the accomplishment of a specific task or set of tasks. It is not a part of the Performance Measurement Baseline.
Management: Those individuals with responsibilities for setting and/or achieving the organization’s objectives.
Manual Rate: The premium rate developed for a group’s insurance coverage from The Owner’s standard rate tables normally referred to as its rate manual or underwriting manual.
Market Adjustment-Trading Securities Account: An account used to track the difference between the historical cost and the market value of a company’s portfolio of trading securities.
Master Schedule: A summary-level schedule that identifies the major activities and key milestones. See also MILESTONE SCHEDULE.
Matching Principle: The concept that all costs and expenses incurred in generating revenues must be recognized in the same reporting period as the related revenues.
Material Inappropriate Charge: An audit item that deviates 0.5% or more from the billing of a party under direct contract to the Owner. Defined in the General Conditions.
Materialman: A person who supplies building materials for a construction or repair project. A more general word is “supplier.”
Matrix Organization: Any organizational structure, which defines the manner in which project and functional organizations exist and their reporting relationships.
Maturity Date: The date on which a note or other obligation becomes due.
Maturity Value: The amount of an obligation to be collected or paid at maturity; equal to principal plus any interest.
Measured Mile Analysis: A “measured mile” analysis compares the productivity of a period that has been impacted by a negative condition or event to the productivity of similar work under normal, un-impacted conditions. The theory is that the difference between a contractor’s actual inefficient productivity and an identified normal productivity is the amount of excess cost to the contractor as a direct result of labor inefficiencies and loss of productivity.
Mechanic’s Lien: A legal claim placed on real estate by someone who is owed money for labor, services or supplies contributed to the property for the purpose of improving it. Typical lien claimants are general contractors, subcontractors and suppliers of building materials. A mechanics’ lien claimant can sue to have the real estate sold at auction and recover the debt from the proceeds. Because property with a lien on it cannot be easily sold until the lien is satisfied (paid off), owners have a great incentive to pay their bills.
Mediation: The most popular form of alternative dispute resolution (ADR), mediation involves the appointment of a mediator who acts as a facilitator assisting the parties in communicating, essentially negotiating a settlement. The mediator does not adjudicate the issues in dispute or to force a compromise; only the parties, of their own volition, can shift their position in order to achieve a settlement. The result of a successful mediation is called a “settlement.” Compare with arbitration.
Mediator’s Proposal: A good mediator will not let the parties simply walk away without trying to come up with some alternatives. At the point of impasse, the mediator may make a proposal to settle the case. The proposal would be presented confidentially to each side and only the mediator would know whether it has been accepted by all parties. That way, neither side is punished for making a big move at the end. One side will only know the other made the move if the case settles.
Merger: The acquisition of one company by another company whereby the companies combine as one legal entity, with the acquired company going out of existence.
Milestone Schedule: A summary-level schedule that identifies the major milestones. See also MASTER SCHEDULE.
Milestone(s): The significant key point(s) in the progress of a Project that is definite and well understood. Milestones are used in measuring progress against project schedule. A schedule event marking the due date for accomplishment of a specified effort (work scope) or objective. A milestone may mark the start, an interim step, or the end of one or more activities.
Minority Interest: The interest owned in a subsidiary by stockholders other than those of the parent company; occurs when the acquiring company has less than a 100 percent ownership interest.
Mitigation: Taking steps to lessen risk by lowering the probability of a risk event’s occurrence or reducing its effect should it occur.
Modified Accelerated Cost Recovery System (MACRS): Internal Revenue (IRS) regulations that allocate the cost of an asset according to predefined recovery periods and percentages.
Modified Total Cost Method: A method of proving damages that focuses on the impacted work activities and adjusts the original estimate to remove mistakes, inaccuracies, and work items not affected.
Monetary Measurement: The idea that money, as the common medium of exchange, is the accounting unit of measurement, and that only economic activity measurable in monetary terms are included in the accounting model.
Monitoring: Encompasses supervising, observing, and testing activities and appropriately reporting to responsible individuals. Monitoring provides an ongoing verification of progress toward achievement of objectives and goals.
Monte Carlo Analysis: A schedule risk assessment technique that performs a project simulation many times in order to calculate a distribution of likely results.
Mortgage Amortization Schedule: A schedule that shows the breakdown between interest and principal for each payment over the life of a mortgage.
Mortgage Payable: A written promise to pay a stated amount of money at one or more specified future dates; a mortgage is secured by the pledging of certain assets, usually real estate, as collateral.
Moving Average: A perpetual inventory cost flow alternative whereby the cost of goods sold and the cost of ending inventory are determined by using a weighted-average cost of all merchandise on hand after each purchase.
Multi-Prime Contract: One of multiple prime Contracts between the Owner and another contracting party such as an AE, Contractor, DB, CMA, CM, or Consultant, each referred to as “Prime Contractor”, under direct contract for performance of Work and/or Services or designated portion thereof. The multi-prime delivery model is used most often in lieu of the standard General Contractor (Single Prime) with subcontractor delivery model.
Mutual Agency: The right of all partners in a partnership to act as agents for the normal business operations of the partnership, with the authority to bind it to business agreements.
Narrow Form indemnity: See, Indemnity Clauses.
Natural Resources: Assets that are physically consumed or waste away, such as oil, minerals, gravel, and timber.
Near Critical Activity: An activity that has low total float.
Negligence: Not only are people responsible for the intentional harm they cause, but their failure to act as a reasonable person would be expected to act in similar circumstances (i.e. “negligence”) will also give rise to compensation. Negligence, if it causes injury to another, can give rise to liability under tort. Negligence is usually assessed having regards to the circumstances and to the standard of care, which would reasonably be expected of a person in similar circumstances. Everybody has a duty to ensure that their actions do not cause harm to others. Between negligence and the intentional act there lies yet another, more serious type of negligence which is called gross negligence. Gross negligence is any action or an omission in reckless disregard of the consequences to the safety or property of another. See also contributory negligence and comparative negligence
Negotiation: Process where parties directly exchange ideas, views, promises, and problems surrounding a dispute. Positional bargaining tends to focus on demands, and counter-demands of disputing parties, sometimes leading to a bargaining process where parties trade concessions and demands. Interest-based negotiations focus on the interests underlying one’s position on an issue. The parties explore their needs, concerns, and eventually work on developing mutually acceptable solutions that meet as many of the disputants’ interests as possible.
Net Assets (owners’ equity): The ownership interest in the assets of an entity; equal total assets minus total liabilities.
Net Income (or net loss): A measure of the overall performance of a business entity; equal to revenues minus expenses for the period.
Net Proceeds: The difference between maturity value and discount when a note receivable is discounted.
Net Quick Assets: The difference between allowable current assets and changeable current liabilities. This figure is referred to as the working capital. A contractor must have adequate working capital in order to be bonded.
Net Realizable Value (NRV): The selling price of an item less reasonable selling costs.
Net Realizable Value of Accounts Receivable: The net amount that would be received if all receivables considered collectible were collected; equal to total accounts receivable less the allowance for uncollectible accounts; also called the book value of accounts receivable.
Net Sales: Gross sales less sales discounts and sales returns and allowances.
Net Tax Liability: The amount of tax computed by subtracting tax credits from the gross tax liability.
Network Schedule: A schedule format in which the activities and milestones are represented along with the interdependencies between activities. It expresses the logic (how the program will be accomplished) and the timeframes (when). Network schedules are the basis for critical path analysis, a method for identification and assessment of schedule priorities and impacts.
No Damage for Delay Clause: A contract clause that provides that, in the event of a delay, the delayed party will be compensated only with an extension of time, but no monetary compensation.
No Reassignment: Provision defined in the “Key Personnel” paragraph, controlling reassignment of Key Personnel of a party under direct contract to the Owner.
Nominal Accounts: Accounts that are closed to a zero balance at the end of each accounting period; temporary accounts generally appearing on the income statement.
Noncash Items: Items included in the determination of net income on an accrual basis that do not affect cash; examples are depreciation and amortization.
Noncash Transactions: Investing and financing activities that do not affect cash; if significant, they are disclosed below the statement of cash flows or in the notes to the financial statements.
Nonconforming Work: Work not in accordance with the Construction Documents or not suited for Project’s intended purpose.
Nonoperating Assets: Investment and other assets not used in a business but held to earn a return separate from operations.
Nonprofit Organization: An entity without a profit objective, oriented toward providing services efficiently and effectively.
No-par Stock: Stock that does not have a par value printed on the face of the stock certificate.
Note Payable: A debt owed to a creditor, evidenced by an unconditional written promise to pay a certain sum of money on or before a specified future date.
Note Receivable: A claim against a debtor, evidenced by an unconditional written promise to pay a certain sum of money on or before a specified future date.
Notes to Financial Statements: Explanatory information considered an integral part of the financial statements.
NSF (Non-Sufficient Funds) Check: A check that is not honored by a bank because of insufficient cash in the customer’s account.
Number of Days Invested in Working Capital: An alternative measure of the amount of working capital used in generating the sales of a period. It is computed by dividing 365 days by the working capital turnover.
Number of Days of Inventory on Hand: An alternative measure of how well inventory is being managed. It is computed by dividing 365 days by the inventory turnover ratio.
Number of Days Sales in Receivables: A measure of the average number of days it takes to collect a credit sale. It is computed by dividing 365 days by the accounts receivable turnover.
Objective Value: That dollar value desired by the user and which The Owner is contracting for or otherwise attempting to obtain.
Objectives: The broadest statement of what the organization or individual intends to accomplish.
Objectivity: The unbiased mental attitude which requires internal auditors to perform audits in such a manner that they have an honest belief in their work product and that no significant quality compromises are made. Objectivity requires internal auditors not to subordinate their judgment on audit matters to that of others.
Obligee: The person who is to receive the benefit of someone else’s obligation; that “someone else” being the obligor. Also called a “promisee.” In the surety context, this is the person or entity (often, the Owner) to whom the principal (the obligor contactor) and the surety (the bonding company) owe their obligations.
Obligor: See, Principal. The party primarily bound by the obligation.
Occurrence policy: A liability insurance policy that covers claims arising out of occurrences that take place during the policy period, regardless of when the claim is filed.
Off Site Work: Portions of the Work, which occur, or are performed away from the Project site, such as off-site prefabrication of system elements or improvements to public infrastructure.
Offset: A deduction; a counterclaim; a contrary claim by which a given claim may be reduced or cancelled.
Open Transaction: A transaction that is not completed at the end of the accounting period; a purchase that has not yet been paid for or a sale where payment is yet to be collected when the accounting period ends.
Operating Activities: Transactions and events that enter into the determination of net income.
Operating agreement: An agreement among limited liability company (“LLC”) Members governing the LLC’s business, and Member’s financial and managerial rights and duties. No state requires an LLC to have an Operating Agreement. LLCs operating without an Operating Agreement are governed by the State’s default rules contained in the relevant statute and developed through state court decisions. An Operating Agreement is similar in function to corporate by-laws, or analogous to a partnership agreement in multi member LLC’s. In single member LLCs, an operating agreement is a declaration of the structure that the member has chosen for the Owner and sometimes used to prove in court that the LLC structure is separate from that of the individual owner and thus necessary so that the Owner has documentation to prove that he or she is indeed separate from the entity itself. An Operating Agreement is used to override default rules imposed by a state’s LLC Act. Operating Agreements generally addresses: how profits and losses will be allocated; how the LLC will be managed; rules for holding meetings and taking votes; the members’ percentage interests in the LLC; the members’ rights and responsibilities; the members’ voting powers; buyout, or buy-sell, provisions, which determine what happens when a member wants to sell his or her interest, dies, or becomes disabled.
Operating Assets: Long-term, or noncurrent, assets acquired for use in the business rather than for resale; includes property, plant, and equipment; intangible assets; and natural resources.
Operating Lease: A simple rental agreement.
Operating Leverage: The extent to which fixed costs are part of a company’s cost structure; the higher the proportion of fixed costs, the faster income increases or decreases with sales volumes.
Operating Maintenance: Work needed to preserve asset components to allow their continued use. This definition encompasses any actions intended to prevent failure or inefficient operation, and includes housekeeping and custodial work. Operating maintenance expenditures are generally done under the O&M budget. Operating Maintenance does not necessarily prolong the design service life of the property of equipment, nor does it add to the asset’s value. However, lack of maintenance can reduce an asset’s value by leading to equipment breakdown, premature failure of a building’s subsystems and shortening of the asset’s useful service lifetime.
Operating Performance Ratio: An overall measure of the efficiency of operations during a period. It is computed by dividing net income by net sales.
Operations: Refers to the recurring activities of an organization directed toward producing a product or rendering a service. Such activities may include, but are not limited to, marketing, sales, production, purchasing, human resources, finance and accounting, and governmental assistance.
Organization Structure: The hierarchical arrangement for the management organization for a program, graphically depicting the reporting relationships. The organizational structure will be by work team, function, or any organization units that are used by The Owner.
Organizational Breakdown Structure (OBS): A depiction of the project organization arranged to indicate the line reporting relationships within the project context.
Organizational Planning: Identifying, documenting, and assigning project roles, responsibilities, and reporting relationships.
Organizational Structure: Lines of authority and responsibility.
Other Project Costs (OPC): Costs related to engineering, development, startup, and operations. These activities/costs and allowances are essential for project execution, but are not considered part of the normal capital system/facility acquisition cost. They are operating/expense funded.
Other Revenues and Expenses: Items incurred or earned from activities that are outside, or peripheral to, the normal operations of a firm.
Outstanding Stock: Issued stock that is still being held by investors.
Overpayment Defense: Improper payment of contract funds by the obligee is a defense which rarely allows the surety to obtain a full discharge but which often allows the surety to reduce pro tango the cost of its performance obligation. Under most types of bonds, the surety’s obligation to perform is conditioned upon the obligee having fully performed its obligations under the bonded contract. One of the obligee’s primary obligations is to release payments to the principal in accordance with the terms of the contract. To the extent that the obligee fails to fulfill its contractual obligations by improperly releasing payments to the principal, the surety is entitled to be partially discharged. The extent of the surety’s discharge may depend upon the surety’s ability to demonstrate an actual injury as a result of the obligee’s overpayment.
Owner (Director): The Director in charge of the program will normally delegate management responsibility and authority for specific programs. The Director’s functions of program management includes planning and developing the overall program; establishing broad priorities; providing policy and broad program direction; preparing and defending the budget; establishing the technical performance, scope, schedule, and cost requirements for projects; controlling the Owner milestones; integrating all components of the program; providing public and private sector policy liaison; expediting The Director’s interface activities and follow-up actions; and retaining overall accountability for program success. The field function includes implementing these program activities, controlling field-level milestones, and providing major support to the Director’s programming budgeting and processes.
Owner Controlled Insurance program (OCIP): Some companies benefit from an OCIP in many ways which include; cost savings, more efficient project management and administration, more effective safety and loss control programs, more opportunities for MBE/WBE/DBE/SBE contractors and subcontractors, having direct control of insurance coverage exclusions, obtaining higher insurance limits and mitigating claim disputes. The primary advantage of an OCIP is increased control. Other factors include obtaining a lower cost of risk, resulting from cost reductions and protection from catastrophic loss by obtaining higher limits of liability insurance coverage.
Owners’ Equity (net assets): The ownership interest in the assets of an entity; equal total assets minus total liabilities.
P/E (price earnings) Ratio: A measure of growth potential, earnings stability, and management capabilities. It is computed by dividing market price per share by earnings per share.
Panel: A list of persons, arbitrators, or judges selected to decide a specific case; a list of potential neutrals from which a selection is to be made
Parameter: A determining factor or characteristic. Usually related to performance in developing a system.
Parametric Estimating: An estimating technique that uses a statistical relationship between historical data and other variables (e.g., square footage in construction, lines of code in software development) to calculate an estimate.
Parent Company: A company that owns or maintains control over other companies, known as subsidiaries, which are themselves separate legal entities; control generally refers to more than 50 percent ownership of the stock of another company.
Pareto Diagram: A histogram, ordered by frequency of occurrence, that shows how many results were generated by each identified cause.
Partnering: Partnering is a construction industry dispute avoidance technique that attempts to establish a working relationship among all team members based on cooperation and teamwork and achievement of mutual goals and objectives. Partnering is a concept that every contract has an implied covenant of good faith and fair dealing and through the exercise of that agreement, the stakeholders strive to create a synergy of purpose to solve problems for the good of the project.
Partnership Agreement: A legal agreement between partners; it usually specifies, among other things, the capital contributions to be made by each partner, the ratios in which partnership earnings and losses will be distributed, the management responsibilities of the partners, and the partners’ rights to transfer or sell their individual interests.
Partnership (1): A business organization in which two or more persons carry on a business together. Partners are each fully liable for all the debts of the enterprise but they also share the profits exclusively. Many states have laws which regulate partnerships and may, for example, require some form of registration and allow partnership agreements. One of the basic advantages of partnerships is that they tend to allow business losses to be deducted from personal income for tax purposes.
Partnership (2): An association of two or more individuals or organizations to carry on economic activity.
Par-Value Stock: Stock that has a nominal value assigned to it in the corporation’s charter and printed on the face of each share of stock.
Patent: An exclusive right granted for 17 years by the federal government to manufacture and sell an invention.
Pay If Paid Clause: See, Contingent Payment Clause.
Pay When Paid Clause: General contractors sometimes use pay-when-paid clauses in an attempt to avoid the cash flow problems that can arise when they’re forced to pay subcontractors before receiving payment from the Owner. Under such a clause, the subcontractor agrees not to be paid for his or her work until the contractor is paid by the Owner (e.g., “Subcontractor shall be paid within seven (7) business days after General receives payment from Owner for Subcontractor’s work”). Unless the contract expressly states otherwise, most courts interpret pay-when-paid clauses only to restrict the timing of payment to the subcontractor, and not to prevent payment altogether. (If the Owner fails to pay, the clause will most likely be interpreted to require payment of the subcontractor within a “reasonable time.”) Generally, a pay-when-paid clause does not prevent payment unless it clearly states that payment by the Owner is a “condition precedent” to payment of the subcontractor. This type of provision is sometimes called a “pay-if-paid clause.”
Payee: The person (entity) to whom payment on a note is to be made.
Payment Bond: A bond to assure payment of a contractor’s obligations to its subcontractors and suppliers. Payment bonds are usually required on public works projects and often required on private projects. The principal’s and surety’s obligations under the bonds may be determined by statute (“statutory bonds”) or by the wording of the bond itself (“common law bonds”).
Penal Sum: The face amount of a performance or payment bond, usually an amount equal to the amount of the underlying contract. If there are separate performance and payment bonds, there are two penal sums available. This is the maximum amount the surety would be required to pay in the event of a default. Also called the bond “penalty”
Pension Plan: A contract between a company and its employees whereby the company agrees to pay benefits to employees after their retirement.
Percent Complete (PC): An estimate, expressed as a percent, of the amount of work that has been completed on an activity or group of activities.
Performance Bond: A performance bond guarantees the Owner that the principal will complete the contract according to its terms including price and time. the Owner is the obligee of a performance bond, and may sue the principal and the surety on the bond. If the principal defaults, or is terminated for default by the Owner, the Owner may call upon the surety to complete the contract. Many performance bonds give the surety three choices: completing the contract itself through a completion contractor (taking up the contract); selecting a new contractor to contract directly with the Owner; or allowing the Owner to complete the work with the surety paying the costs. The penal sum of the performance bond usually is the amount of the prime construction contract, and often is increased when change orders are issued. The penal sum in the bond usually is the upward limit of liability on a performance bond. However, if the surety chooses to complete the work itself through a completing contractor to take up the contract then the penal sum in the bond may not be the limit of its liability. The surety may take the same risk as a contractor in performing the contract.
Performance Specifications: The written material containing the minimum acceptable standards and actions, as may be necessary to complete a project. Including the minimum acceptable quality standards and aesthetic values expected upon completion of the project.
Periodic Inventory Method: A system of accounting for inventory in which cost of goods sold is determined and inventory is adjusted at the end of the accounting period, not when merchandise is purchased or sold.
Perpetual Inventory Method: A system of accounting for inventory in which detailed records of the number of units and the cost of each purchase and sales transactions are prepared throughout the accounting period.
Personal Indemnification: If the principal is a closely held corporation or partnership, the individual owners and their spouses may be asked to personally indemnify the bond. Personal indemnification demonstrates the principal’s personal commitment to the business entity and to the surety company.
Personal Surety: A person who acts as surety for another, who may or may not charge a fee for his or her guarantee. Personal sureties are generally not subject to licensing requirements like corporate sureties, but may be subject to some minimum regulation.
Petty Cash Fund: A small amount of cash kept on hand for making miscellaneous payments.
Physical Construction Start: For purposes of reporting construction progress, the date on which work at the site physically starts, including work on site preparation, temporary construction, and any earth moving. The start date of construction of permanent facilities should also be indicated.
Physical Safeguards: Physical precautions used to protect assets and records, such as locks on doors, fireproof vaults, password verification, and security guards.
Planned Finish Date: See SCHEDULED FINISH DATE.
Planned Start Date: See SCHEDULED START DATE.
Planning Package: A logical aggregate of work, usually future efforts that can be identified and budgeted, but which is not yet planned in detail at the work package or task level.
Post-closing Trial Balance: A listing of all real account balances after the closing process has been completed; provides a means of testing whether total debits equal total credits for all real accounts prior to beginning a new accounting cycle.
Posting: The process of transferring amounts from the journal to the ledger.
Power of Attorney: An instrument authorizing another to act as one’s agent or on one’s behalf. The person authorized need not be a lawyer, but is referred to as an “attorney in fact.”
Preconstruction Services: A range of activities performed by a contractor prior to execution of construction, including value engineering, constructability, cost and schedule studies, procurement of long lead time items, and staffing requirements.
Pre-Design Phase: The phase of a Project in which the Owner’s program, financial and schedule requirements and the general scope of the Project are established. The Pre-Design Phase is generally the first formal phase of a Project.
Pre-dispute ADR Contract Clause: A clause included in the parties’ business agreement to specify a method for resolving disputes that may arise under that agreement. It may refer to one or more ADR techniques, even naming the third party that will serve as an arbitrator or mediator in the case. Pre-dispute agreements requiring arbitration of consumer disputes, or entered into as a condition of employment, have generated substantial backlash lately from people who argue that these clauses are adhesion contracts.
Preemptive Right: The right of current stockholders to purchase additional shares of stock in order to maintain their same percentage of ownership if new shares are issued.
Preferred Stock: A class of stock that usually provides dividend and liquidation references over common stock.
Preliminary Design: Continues the design effort utilizing the conceptual design and the project design criteria as a basis for project development. Preliminary design develops topographical and subsurface data and determines the requirements and criteria that will govern the definitive design. Tasks include preparation of preliminary planning and engineering studies, preliminary drawings and outline specifications, life cycle cost analysis, preliminary cost estimates, and scheduling for project completion. Preliminary design provides identification of long-lead procurement items and analysis of risks associated with continued project development.
Premium on Stock: The excess of the issuance (market) price of stock over its par or stated value.
Prepaid Expenses: Payments made in advance for items normally charged to expense.
Pre-qualification of prospective bidders: A screening process wherein the Owner or his/her appointed representative gathers background information from a contractor or construction professional for selection purposes. Qualifying considerations include competence, integrity, dependability, responsiveness, bonding rate, bonding capacity, work on hand, similar project experience, and other specific owner requirements.
Prequalification: A rigorous review performed by the surety to certify that a contractor is capable of performing the work in accordance with the terms and conditions of the contract.
Present Value of $(1): The value today of $1 to be received or paid at some future date given a specified interest rate.
Present Value of an Annuity: The value today of a series of equally spaced, equal-amount payments to be made or received in the future given a specified interest rate.
Preventive Controls: Actions taken to deter undesirable events form occurring.
Price Earnings (P/E) Ratio: A measure of growth potential, earnings stability, and management capabilities. It is computed by dividing market price per share by earnings per share.
Primary Financial Statements: The balance sheet, income statement, and statement of cash flows, used by external groups to assess a company’s economic standing.
Prime Contract: A Contract between the Owner and another contracting party such as an AE, Contractor, DB, CMA, CM, or Consultant, each referred to as “Prime Contractor”, under direct contract for performance of Work and/or Services or designated portion thereof.
Principal (face value or maturity value): The amount that will be paid on a bond at a maturity date.
Principal on a Note: The face amount of a note; the amount (excluding interest) that the maker agrees to pay the payee.
Prior-period Adjustments: Adjustments made directly to Retained Earnings in order to correct errors in the financial statements of prior periods.
Privity of Contract: A direct contractual relationship between two or more parties. (I.e. the relationship between the Owner and a party under direct contract to the Owner or between a party under direct contract to the Owner and its subcontractors). Privity of contract is required in the U.S. and common law countries in order for a claimant to sue for breach of contract. Privity of contract exists among those persons who actually took part in making the deal. These persons have special rights and duties because of their privity, including the right to enforce the contract. For example, a manufacturer and a seller may be “in privity,” but not the manufacturer and an ultimate buyer.
Pro Forma Income Statement: A statement of revenue and expenses that includes some hypothetical values. It shows what could be expected to happen if a corporation decided to go through with a takeover, for example.
Pro Rata: A term describing an allocation that is based on a proportionate distribution of the total.
Product Data: Illustrations, standard schedules, performance charts, instructions, brochures, diagrams or other information furnished by the Contractor, CM, CMA, or Design-Builder to illustrate materials or equipment for some portion of the Work.
Proficiency: The ability to apply knowledge to situations likely to be encountered and to deal with them without extensive recourse to technical research and assistance.
Profitability: A company’s ability to generate revenues in excess of the costs incurred in producing those revenues.
Program Evaluation: A determination of program condition based on a review of cost, scope, schedule, technical status, and performance in relation to mission area assignments, program objectives, approved strategy, and milestones. Evaluations made by the responsible line program organization and outside the advocacy chain by the Office of Program/Project Management. In all cases, program evaluations are to be based on knowledge of the actual program status, performance, problems, and significant development in approval; review; and environment, safety, health, and quality assurance processes.
Program Management Office (PMO): The Headquarters and organizational element responsible for managing a program.
Program Manager: An individual who has been assigned responsibility for accomplishing a specifically designated unit of work effort, or group of closely related efforts, established to achieve stated or designated objectives, defined tasks, or other units of related effort on a schedule, funded as part of the project. The Program Manager is responsible for the planning, controlling, and reporting of the project, and for the management of a specific function or functions, budget formulation, and execution of the approved budget. The Program Manager receives an approved funding program from the Director and or the Owner (Capital Project Expenditure Request) identifying program dollars available to accomplish the assigned function.
Program Objectives: A statement or set of statements defining the purposes and goals to be achieved during performance of a program to fulfill the Owner’s goals including the technical capabilities, cost, and schedule goals.
Program: An organized set of activities directed toward a common purpose or goal undertaken or proposed in support of an assigned mission area. A program is characterized by a strategy for accomplishing a definite objective(s), which identifies the means of accomplishment, particularly in quantitative terms, with respect to manpower, materials, and facilities requirements. Programs usually include an element of ongoing activity and are typically made up of technology based activities, projects, and supporting operations. See ACQUISITION PROGRAM/PROJECT
Programs: Refer to special purpose activities of an organization. such activities include, but are not limited to, the raising of capital, sale of a facility, fund-raising campaigns, new product or service introduction campaigns, capital expenditures, and special purpose government grants.
Project Assurance: An objective examination and independent assessment of a Capital Investment (Portfolio, Program, and/or Project) risks, controls, processes, and governance. Focus areas may include risk, financial, performance, compliance, system security, due diligence and/or dispute resolution engagements. Mega-Project Assurance would be specific to (Portfolios, Program, and/or Projects) that exceed $1 Billion in estimated investment value.
Project Charter: A document issued by senior management that provides the Program Manager with the authority to apply organizational resources to project activities.
Project Design Criteria: Those technical data and other project information identified during the project initiation and definition (conceptual design, and/or preliminary design phases). They define the project scope, construction features and requirements, and design parameters; applicable design codes, standards, and regulations; applicable health, safety, fire protection, safeguards, security, energy conservation, and quality assurance requirements; and other requirements. The project design criteria are normally consolidated into a document, which provides the technical base for any further design performed after the criteria are developed.
Project Engineering and Design (PED): A design fund established for program/project use on preliminary design and final baseline development, and/or a statement of work/ request for proposal for a design/build contract. PED funding begins with submission for funds during the pre-project phase and continues through final design completion. PED funds are not to be used for implementation, development, construction, long-lead procurements or major items of equipment. PED fund requirements are developed from historical data or parametric estimates. The objectives for the use of PED funds are to improve the probability of an accurate Performance Baseline for the project; establish the APB after the Preliminary Design is completed; and improve the Owner’s Planning, Programming & Budgeting process for the acquisition of capital capabilities. Completed conceptual design is a prerequisite for allocation of PED funds.
Project Execution Plan (PEP): The PEP is the primary agreement on project planning and objectives between the Program Office and the Field, which establishes roles and responsibilities and defines how the project will be executed. The PEP, once approved, becomes a significant tool for the PM through the life of the project. The PMO or Field program manager and/or the project manager initiates PEP. The prime contractor or M&O/M&I can start development of the preliminary PEP at the same time as development of the AS or shortly after. The two plans should be synchronized. If the approved AS indicates that the M&O/M&I contractor has a role in the acquisition of the project as prime contractor/integrator, the M&O/M&I contractor may participate with the Owner in development of the final PEP.
Project Interface: A point forming a common boundary between a project and any other project or non-project entity, activity, or service. An interface provides a means or a point of interaction/communication between a project’s systems, disciplines and organizations, and those of all other systems, disciplines, and organizations.
Project Life Cycle: A collection of generally sequential project phases whose name and number are determined by the control needs of the organization or organizations involved in the project.
Project Management: A management approach in which authority and responsibility for execution are vested in a single individual, at a level below the general manager, to provide focus on the planning, organizing, directing, and controlling of all activities within the project. PM requires the skillful application of knowledge, skills, tools, and techniques to project activities in order to meet or exceed stakeholder needs and expectations from a project. In general terms, project management functions include assisting the program manager in preparing documents and establishing key milestones and overall schedules. Other activities include developing and maintaining the project management plan; managing project resources; establishing and implementing management systems, including performance measurement systems; and approving and implementing changes to project baselines.
Project Manager (PM): An official who has been assigned responsibility for accomplishing a specifically designated unit of work effort, or group of closely related efforts, established to achieve stated or designated objectives, defined tasks, or other units of related effort on a schedule, funded as part of the project. The PM is responsible for the planning, controlling, and reporting of the project. In construction, the PM is the individual identified in the General Conditions who are also referred to as the representative of either the Owner or a party under direct contract to the Owner, with duties and qualifications described in the General Conditions
Project Organization: Any organizational structure in which the PM has full authority to assign priorities and direct the work of individuals assigned to the project.
Project Release: Written instrument whereby the Work or Services, or portions thereof, are formally described and authorized by the Owner.
Project Schedule (Programme): The Schedule referred to in the Contract or Project Release, showing the order of sequence and time for the performance of Work.
Project Services: Contracted Project-related services provided to the Owner by AE or Consultant in accordance with the terms of their respective Agreements.
Project Team: Core Project group consisting of representatives of, including but not limited to, the Owner, parties under direct contract to the Owner and any specialty professionals, including Quantity Surveyor and other the Owner designated parties as defined in the Project Release(s).
Project: In general, a unique effort that supports a program mission, having defined start and end points, undertaken to create a product, facility, or system, and containing interdependent activities planned to meet a common objective or mission. A project is a basic building block in relation to a program that is individually planned, approved, and managed. A project is not constrained to any specific element of the budget structure (e.g., operating expense or plant and capital equipment). Construction, if required, is part of the total project. Authorized, and at least partially appropriated, projects will be divided into two categories: major system projects and other projects. Projects include planning and execution of construction, renovation, modification, environmental restoration, decontamination and decommissioning efforts, and large capital equipment or technology development activities. Tasks that do not include the above elements, such as basic research, grants, ordinary repairs, maintenance of facilities, and operations are not considered projects. See ACQUISITION PROGRAM/PROJECT.
Promissory Estoppel: The principle that when Person A makes a promise and expects Person B to do something in reliance upon that promise, then Person B does act in reliance upon that promise, the law will usually help Person B enforce the promise because Person B has relied upon the promise to his or her detriment. Person A is “estopped” from breaking the promise even when there is no consideration to make the promise binding as part of a contract.
Prompt Payment Act: A law enacted in order to ensure that companies transacting business with the Government, or who are involved in the construction process, are paid in a timely manner.
Proper Authorization: Policy regarding either a general class of transactions such as inventory or a specific transaction to achieve control objectives.
Property Dividend: The distribution to shareholders of assets other than cash.
Property, Plant, and Equipment Turnover: A measure of how well property, plant, and equipment are being utilized in generating a period’s sales. It is computed by dividing net sales by average property, plant and equipment.
Property, Plant, and Equipment: Tangible, long-lived assets acquired for use in business operations; includes land, buildings, machinery, equipment, and furniture.
Proprietorship: A business owned by one person.
Public Companies: Entities whose stock is publicly traded.
Punch list: The list of Work and Rework submitted by Contractor, CM, CMA, or Design-Builder and approved by the Owner that remains to be completed to accomplish Final Completion. The Punch list shall only include those items of Work and Rework: (a) that do not preclude the operation or functioning of the Project as it was designed and intended to operate; (b) the absence of which does not create any occupational hazard or hazard to the Work; and © the completion of which will not unreasonably interrupt or interfere with the operation of the Project.
Punitive Damages: Special and highly exceptional damages ordered by a court against a defendant where the act or omission which caused the suit, was of a particularly heinous, malicious or highhanded nature. Where awarded, they are an exception to the rule that damages are to compensate not to punish. The exact threshold of punitive damages varies from jurisdiction to jurisdiction. In some countries, and in certain circumstances, punitive damages might even be available for breach of contract cases but, again, only for the exceptional cases where the court wants to give a strong message to the community that similar conduct will be severely punished.
Purchase Discount: A reduction in the purchase price, allowed if payment is made within a specified period.
Purchase Method: A method used to prepare consolidated financial statements when one company has acquired a controlling interest in another company with similar activities by exchanging cash or other assets for more than 50 percent of the acquired company’s outstanding voting stock.
Purchase Returns and Allowances: A contra-purchase account used for recording the return of, or allowances for, previously purchased merchandise.
Purchases Account: An account in which all inventory purchases are recorded; used with the periodic inventory method.
Purchases Journal: A special journal in which credit purchases are recorded.
Purpose Statements: in audit reports describe the audit objectives and may, where necessary, inform the reader why the audit was conducted and what it was expected to achieve.
Qualified Opinion: Opinion issues when the work of the auditor has been limited in scope or the entity has failed to follow GAAP.
Quality Assurance (IA) is a program by which the director of internal auditing evaluates the operations of the internal auditing department. The purpose of the quality assurance program is to provide reasonable assurance that internal auditing work conforms with the Standards for the Professional Practice of Internal Auditing, the internal auditing department’s charter, and other applicable standards. The quality assurance program should include the following elements: Supervision; Internal reviews; External reviews.
Quality Assurance (QA): (1): The process of evaluating the overall project’s performance on a regular basis to provide confidence that the project will satisfy the relevant quality standards. (2): The organizational unit that is assigned responsibility for QA. All the planned and systematic actions necessary to provide adequate confidence that a facility, structure, system, or component will perform satisfactorily in service. QA includes quality control, which comprises all those actions necessary to control and verify the features and characteristics of a material, process, product, or service to specified requirements.
Quality Control (QC): (1): The process of monitoring specific project results to determine if they comply with relevant quality standards and identifying ways to eliminate causes of unsatisfactory performance. (2): The organizational unit that is assigned responsibility for quality control.
Quality Planning: Identifying which quality standards is relevant to the project and determining how to satisfy them.
Quantity Surveyor: Professional Consultant hired by the Owner to perform detailed analyses and listing of items of labor and material necessary to construct a project. A quantity surveyor (QS) or cost engineer is a professional person working within the construction industry. The role of the QS is, in general terms, to manage and control costs within construction projects and may involve the use of a range of management procedures and technical tools to achieve this goal. The profession is largely engaged in construction outside of the United States. The professional institution with which most English-speaking quantity surveyors are affiliated is the UK based Royal Institution of Chartered Surveyors (RICS), Quantity Surveyors International (QSi) and Institution of Civil Engineering Surveyors (ICES).
Quia Timet: Quia Timet is an equitable proceeding used to guard against possible or prospective injuries and the preserve the means by which existing rights are protected from future or contingent violations. It differs from an injunction, which corrects past and present – or imminent and certain – injuries. This type of action might be filed by a surety to protect its interests in advance of an actual default.
Ratification Agreement: As soon as the surety begins to seriously entertain selection of the takeover option, it will take steps to protect against inflating completion costs. In many instances, most of the bonded work will actually be performed by subcontractors and a significant portion of the overall contract price will relate to materials furnished by suppliers. The surety will negotiate agreements with the subcontractors and suppliers to the bonded principal, offering prompt payment in return for a commitment to continue performance at the prices originally offered to the principal. This practice has been termed as the “ratification process.” Essentially, the surety binds itself to make payment to a given subcontractor or supplier in consideration for that supplier’s separate agreement to perform its portion of the bonded work in accordance with its prior agreement with the principal. the ratification agreement typically provides for the surety’s right to assign the agreement to a replacement contractor. Similarly, termination provisions are usually included should the surety elect not to complete the work. Finally, the agreement will provide for an assignment to the surety of all of the subcontractor’s or supplier’s claims against the principal, to the extent of the consideration given by the surety under the agreement.
Ratio Analysis: is the study of financial condition and performance through ratios derived from items in the financial statements or from other financial or non-financial information.
Real Accounts: Accounts that are not closed to a zero balance at the end of each accounting period; permanent accounts appearing on the balance sheet.
Real Estate Life-Cycle: The complete life-cycle of a real estate asset measured in terms cost events from concept to planning and design to construction to occupancy to maintenance and operations to demolition and salvage. Individual building components are compared for their total life-cycle cost to establish highest value of the life versus original investment only.
Real Property: Land and/or improvements including interests therein, except public domain land.
Realized Gains and Losses: Gains and losses resulting from the sale of securities in an arm’s length transaction.
Reasonableness Test: A comparison of an estimated amount, calculated by the use of relevant financial and non-financial information, with a recorded amount.
Receivables: Claims for money, goods, or services.
Recommendations: Actions the internal auditor believes necessary to correct existing conditions or improve operations.
Record Drawings: Drawings prepared for the Owner by the AE from the Red-Line Drawings to reflect the Project as constructed, based on, among other things, drawings and other data furnished by the Prime Contractor(s), Consultants, Subcontractors, and from input gathered from AE’s on site reviews and physical verifications of the actual installed (as-constructed) Work in place.
Recourse: The right to seek payment on a discounted note from the payee if the maker defaults.
Recovery Period: The time period designated by Congress for depreciating business assets.
Redemption Value: The price, stated in the contract, to be paid by a company to repurchase preferred stock.
Redline Drawings: Notwithstanding current Computer Aided Design technologies, “Redlines” are the original contract drawings that have been marked up by the Contractor, CM, or Design-Builder and its Subcontractor(s) during the course of the Work to reflect corrections, clarifications, Change Orders, and actual field conditions. At the completion of the Work the Red-Line Drawings should reflect the actual installed (as-constructed) work in place.
Registered Bonds: Bonds for which the names and addresses of the bondholders are kept on file by the issuing company.
Regression Analysis: A mathematical procedure, which is used to determine and measure the predictive relationship between one variable (dependent variable) and one or more other variables (independent variables).
Reinsurance: Acceptance by one insurer (the reinsurer) of all or part of the risk or loss underwritten by another insurer (the ceding insurer).
Relative Fair Market Value Method: A way of allocating a lump-sum or “basket” purchase price to the individual assets acquired based on their respective market values.
Release: A document by which a claim or right is relinquished. It is prudent to get a release in exchange for making final payment to a contractor.
Reliability Centered Design: Reliability Centered Design focuses on ensuring that appropriate levels of design, quality of manufacture, operating envelopes and maintenance are defined before an asset is put into service. This is critical if life cycles are to be maximized, operating costs are to be minimized, and maintenance programs are to optimized and theoretical lives extended.
Reliability Centered Maintenance (RCM): Reliability Centered Maintenance (RCM) is a very detailed maintenance management process which bases maintenance inspection frequencies, rebuild requirements and component replacement intervals on theoretical lives, condition based assessment and probability of failure data. Having established the inspection and repair requirements of this type of maintenance activity, expenditures can then be classified as being expense (i.e. keep the component operating with minimal deterioration to the overall lifecycle) or Capital (extending the lifecycle or capacity of a component) in nature, and where appropriate recorded as part of a Lifecycle program.
Remaining Duration: The time needed to complete an activity.
Repair: Repair is the restoration of equipment or components to such condition that they may be effectively utilized for their designated purpose by overhaul, reprocessing or replacement of constituent parts that have deteriorated by action of the elements or usage.
Replacement: An exchange or substitution of one fixed asset by another having the capacity to perform the same function. Replacement may arise from normal use, obsolescence, premature service failure or destruction through exposure to fire or other hazard. In contrast to repair, replacement generally involves a complete identifiable item of investment.
Representatives: The individuals identified in the General Conditions who are also referred to as the Project Managers of the Owner or the parties under direct contract to the Owner, with duties described in the General Conditions
Request for Quotation (RFQ) – See also “Request for Proposal (RFP)”
Residual Income: The amount of net income an investment center is able to earn above a specified minimum rate of return on assets.
Resource Leveling: Any form of network analysis in which scheduling decisions (start and finish dates) are driven by resource management concerns (e.g., limited resource availability or difficult-to-manage changes in resource levels).
Resource Loaded Schedule: A schedule in which various parts of the Work are shown with their respective resource requirements.
Resource-Limited Schedule: A project schedules whose start and finish dates reflect expected resource availability. The final project schedule should always be resource-limited.
Responsibility Assignment Matrix (RAM): A structure that relates the project organization structure to the work breakdown structure to help ensure that each element of the project’s scope of work is assigned to a responsible individual.
Retail Inventory Method: A procedure for estimating the dollar amount of ending inventory; the ending inventory at retail prices is converted to a cost basis by using a ratio of the cost and the retail prices of goods available for sale.
Retainage: Funds that are earned by the contractor but not paid until some agreed upon date, such as the completion of the job. These funds, usually 5 to 10% of the contract amount are retained for a variety of reasons; as an incentive to complete the job in a timely manner, or as a fund for the benefit of suppliers and subcontractors.
Retained Earnings: The portion of a corporation’s owners’ equity that has been earned from profitable operations and not distributed to stockholders.
Retention Period: Time period during which a party under direct contract to GSCH shall maintain all of its Project records and documents relating to its Contract (including copies of all original documents delivered to the Owner).
Return on Investment (ROI): A measure of operating performance and efficiency in utilizing assets computed in its simplest form by dividing net income by average total assets.
Return on Sales Revenue: A measure of operating performance. It is computed by dividing net income by total sales revenue.
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The Mega Project Assurance Series provides effective tools, guidance and instruction for professional accounting, audit, construction, design, engineering, finance, infrastructure, legal, project management and operations practitioners. The purpose of this series is to outline how project assurance professionals mitigate risk, disputes, and generate cost recovery -- real results. The material contained in this series is field tested under actual conditions, on publicly and privately funded mega projects. However, it should be noted that each mega project is unique. Each has its own unique system, time, resources, people, organization, language, design, geography, culture, politics, and economic constraints. This series is designed to accommodate the practitioner’s needs and their actual conditions. Volume One addresses the terminology used throughout the Mega Project Assurance Series and is a useful reference for practicing professionals and students. The content is broken down into three sections: Project Accounting & Audit; Project Finance, and Construction & Technology.