The Construction Finance Lingo, Explained

Construction finance has its own vocabulary. Most of it comes from three places: the Ontario Construction Act, the Canadian accounting standards (ASPE 3400 and IFRS 15), and CRA guidance. The trouble is that a lot of these words get used interchangeably on jobsites, in project meetings, and sometimes even in accounting software — when they actually mean specific things.

This month, a short reference guide. Ten terms you will hear most often, followed by three pairs that trip up even the veterans.

Ten Terms You Will Hear Every Week

Holdback.   Statutory 10% retention required by the Ontario Construction Act, held by the owner and released after the lien period.   

Retention.   A contractual withholding (typically 5–10%) separate from statutory holdback, released on final acceptance.  

WIP Schedule.   Report reconciling contract value, cost-to-date, revenue earned, and amounts billed across all active projects.   

CSP (Certificate of Substantial Performance).   Written certification under the Construction Act that starts the 60-day lien period.  

Mobilization.   Costs to establish the site (setup, hoarding, insurance, bonds) before productive work begins; often billed as an early draw. 

T&M (Time and Materials).   Contractor bills actual labour hours plus material at cost, typically with an added markup.   

POC (Percentage of Completion).   Revenue recognition method that recognizes contract revenue in proportion to cost incurred versus total estimated cost.   

Unbilled Revenue.   Revenue earned but not yet invoiced. Sits as "costs and earned income in excess of billings." 

Change Order.   Written contract amendment modifying scope, price, or schedule. Must be authorized in writing before the affected work is performed. 

Contingency.   A budgeted allowance for unforeseen costs within the contract value, typically 5–10% of construction cost.  

Three Pairs That Get Confused

Same-sounding words with legally and financially different meanings. Getting them mixed up shows up in the books before it shows up in a conversation.

Retention  vs.  Holdback

Same idea in spirit, different in law. Holdback is statutory (Ontario Construction Act, 10%, released after the lien period). Retention is contractual (usually 5–10%, released on the terms of your specific contract, often at final acceptance). A project can carry both at the same time. If your books combine them into one liability account, your total withholding number is right but the release timing is not — and that is where cash flow surprises come from.

WIP  vs.  Unbilled Revenue

WIP is the schedule — the reconciliation tool that lines up cost, revenue, and billings across all active jobs. Unbilled revenue is one output that comes out of that schedule (the earned-but-not-invoiced number). Every accurate WIP produces an unbilled revenue figure. Unbilled revenue on the balance sheet without a WIP behind it is a guess.

Change Order  vs.  Contingency

Change orders modify the contract. Contingency stays inside it. If the scope changes, it should go to a change order and increase the contract value. If an existing scope runs over, it draws from contingency and leaves the contract value alone. Charging change-order work against contingency (or the other way around) is one of the most common ways real margin gets lost silently.

A QUICK SANITY CHECK

Three questions to see if the vocabulary is landing on your team:

1.  Can your PM explain the difference between holdback and retention without opening a contract?

2.  Can you find your unbilled revenue on last month's balance sheet?

3.  Is your last change order in writing, or was it a verbal agreement in the field?

Small vocabulary, big consequences.

Getting the vocabulary right is one of those things that seems small until it prevents a dispute or a bookkeeping mess. It also makes conversations with your accountant, your surety, and your project owner faster and cleaner. If you would like a printable version of this glossary for the team's shared drive or the site trailer wall, reply to this email or call the office.