21 terms
The construction arbitrage glossary
Every term you'll meet in this business, defined in plain English - no jargon hiding behind more jargon.
- Arbitrage
- Profiting from the difference between two prices for the same thing. In construction, the gap between the price a client pays for finished work and the lower cost of subcontracting that work.
- Bench
- Your roster of vetted, reliable trades - ideally two or more per discipline - so that one no-show or sick day never stops a job. Redundancy that makes reliability real.
- Contractor tax reporting (CIS / 1099)
- Many countries tax or report payments between contractors and subcontractors specially - the Construction Industry Scheme (CIS) in the UK, 1099 reporting in the US, and similar regimes elsewhere. Get a construction-literate accountant in your country to handle it.
- Day rate
- What a trade charges per day of work. Confirming a sub's day rate in writing before you quote a client is essential to protecting your margin.
- Deposit
- Up-front payment taken on acceptance of a job, typically sized to cover materials and the first stage of labour so you never fund the work from your own cash. Also filters out non-serious clients.
- First fix / Second fix
- Stages of construction. First fix is the work done before walls are closed up (wiring, pipework, framing). Second fix is the finishing work after (sockets, taps, doors). Useful milestones for staged payments.
- General liability insurance
- Insurance covering injury to people or damage to property caused by the work (called public liability in the UK, Australia and similar markets). Both you and every subcontractor you use must carry it.
- Lead
- A potential client who has expressed interest. Leads are won by speed of response and persistent follow-up far more than by price.
- Main contractor
- The party holding the head contract with the client and responsible for delivering the whole job, usually by subcontracting the individual trades. In arbitrage, that's you.
- Margin
- The difference between your price to the client and your cost to deliver. Gross margin is before overheads and tax; it is not your take-home, which is typically closer to half of gross while you're reinvesting in growth.
- Professional indemnity / professional liability
- Insurance covering claims that your advice, design or specification caused a client loss. Relevant if you do more than pure co-ordination.
- Recurring revenue
- Income from ongoing contracts - maintenance and facilities work - that pays every month regardless of new project sales. The most undervalued lever for stabilising and scaling the business.
- Retention
- A percentage of payment held back until work is signed off and snagging complete. You hold a retention on your sub's final payment; clients often hold one on yours.
- Scope creep
- When a job quietly grows beyond what was quoted ("while you're here, could you also…"). Left unpriced, it eats your margin. Controlled with a variations clause.
- Scope of works
- The written definition of exactly what a job includes - and, just as importantly, excludes. Your single best defence against disputes and scope creep.
- Single point of accountability
- The core thing a client buys from you: one company, one contract, one number to call, responsible for the whole result. It's why they pay a margin instead of hiring trades direct.
- Snagging
- The final defects check at the end of a job - the list of small issues to put right before handover and final payment. Your retention is held against it.
- Staged payments
- Breaking a larger job's payment into instalments released at defined milestones, so the client's money for each stage arrives before you owe the trade for it.
- Subcontractor (sub)
- The skilled tradesperson or crew who does the physical work on a job. They contract with you, not with the client, and carry their own insurance and certifications.
- Trade licence / competent-person scheme
- Certification that a tradesperson is qualified to carry out (and often self-certify) regulated work like gas or electrics - a state or provincial licence in the US and Canada, schemes such as Gas Safe or NICEIC in the UK, and national equivalents elsewhere. Always verify it.
- Variation
- A formally priced and approved change to the agreed scope. Every change to a job should be handled as a variation, in writing, rather than absorbed for free.
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