Construction terms, explained for beginners

Plain-English definitions from official sources · Last reviewed October 12, 2026

A

AGC (Associated General Contractors of America)

A national trade association of construction contractors and related companies, working with state and local chapters (AGC of Utah, AGC New Mexico and so on). On this site you'll see AGC chapters as sponsors of apprenticeships, pre-apprenticeships and contractor courses; each program sets its own requirements. [12]

B

bid

A contractor's offer to do a job for a stated price, usually built from a cost estimate of labor and materials. Owners often compare competing bids. In some states, offering or bidding on work already counts as contracting: Virginia's law, for example, includes anyone who "undertakes to bid upon" construction work, so you need the license before you bid. [33][34]

building code

Also called: model code, model codes

A set of rules for how buildings must be designed and built so they're safe. Building inspectors check that construction meets local and national building codes. Most places don't write their codes from scratch: they adopt a model code, a ready-made code written by an outside group, today usually the International Code Council's I-Codes. The ICC says all 50 states have adopted the I-Codes and that it updates them every three years, so the edition a state or city has adopted matters. [3][4]

building permit

Permission from the local building department, given before work starts, to build, add on to, repair, move or demolish a building, or to install or change its electrical, gas, mechanical or plumbing systems. You apply to the building official, usually with plans, and pay a fee. Under the International Residential Code, a permit becomes invalid if work doesn't start within 180 days. In some states, needing a permit is what makes a job need a licensed contractor: in California, any job that needs a building permit does. [8][13]

business and law exam

Also called: law and business exam, business & law exam, business and law course

An exam many states give contractors on the business and legal side of the work, separate from the trade exam. In California, after the board accepts an application, the qualifier passes a trade exam and/or the Law and Business exam. NASCLA (National Association of State Contractors Licensing Agencies) publishes state versions of its Contractors Guide to Business, Law and Project Management for study, but each state runs its own exam. Some states offer a course instead: Tennessee lets residential contractors working under $125,000 take a Limited License course in place of the exams. [11][19][30][38]

C

CPA (certified public accountant)

An accountant licensed by a state Board of Accountancy after passing a national exam and meeting the state's other requirements. Contractor boards that ask for a formal financial statement may want a CPA to prepare it; South Carolina, for example, requires compiled, reviewed and audited statements to come from a licensed CPA. [31][32]

construction manager

Someone who plans, coordinates, budgets and supervises construction projects from start to finish. The U.S. Bureau of Labor Statistics (BLS) says construction managers are often called general contractors or project managers, and that a construction manager may also advise the owner during the design phase. Many have a bachelor's degree, but people with years of trade experience can also move into the work, often as self-employed general contractors. [1]

corporation

Also called: C corp, S corp

A business that's a legal entity separate from its owners (shareholders): it can make a profit, be taxed and be sued in its own name. Corporations give owners strong protection from personal liability but cost more to form and need more record-keeping. An S corp is a special type of corporation whose profits, and some losses, pass through to the owners' personal income. [28]

D

DBA (doing business as)

Also called: trade name, assumed name, fictitious name

A name you do business under that isn't your own name or your company's legal name, also called a trade name, assumed name or fictitious name. Most states require you to register a DBA with the state, county or city. A DBA doesn't give legal protection on its own the way an LLC (limited liability company) or corporation does. [28]

E

EIN (Employer Identification Number)

Also called: federal tax ID, federal tax ID number

A business's federal tax ID number, issued free by the IRS (Internal Revenue Service). You need it to pay federal taxes, hire employees, open a business bank account and apply for many business licenses and permits. If you're forming an LLC, partnership or corporation, register it with your state first, then get the EIN. Don't pay a website to get one; the IRS application is free. [28][36]

F

financial statement

Also called: reviewed financial statement, audited financial statement, compiled financial statement

A report of a business's finances: what it owns (assets), what it owes (liabilities) and what's left. Some states require one to show you can afford the jobs you'll take on. They come in levels of checking: compiled, reviewed and audited. South Carolina, for example, requires those to be prepared by a licensed CPA, sets each license's group limit by net worth or working capital, and accepts a surety bond instead. [30][31]

G

general contractor

Also called: general building contractor

The contractor who runs a whole construction project, usually one that needs several different trades. The BLS says construction managers are often called general contractors; they plan, budget and supervise projects and choose and schedule subcontractors. States define the license differently. Nevada, for example, says a general building contractor builds or remodels buildings that need more than two unrelated building trades. More on the career: how to become a general contractor. [1][2]

general liability insurance

Also called: liability insurance

Business insurance that protects against financial loss from bodily injury or property damage your business causes, including the cost of defending lawsuits. Some states set a minimum for contractors, and the amounts vary. Pennsylvania, for example, requires registered home improvement contractors to carry at least $50,000 of personal injury liability coverage and $50,000 of property damage coverage. [16][28]

H

handyman exemption

Also called: minor work exemption

Many states let people do small jobs without a contractor license, usually below a dollar limit, and some only for work that doesn't need a building permit. The limit varies a lot. In California, you don't need a license if the job needs no permit, uses no employees and totals less than $1,000 for labor and materials, and you can't split a bigger job into small contracts to get under the limit. Pennsylvania's home improvement registration likewise exempts people who did less than $5,000 of such work the year before. Check your state's page. [13][16]

HIC (home improvement contractor)

A contractor who repairs, remodels or improves homes. Some states have a separate registration or license class for this work. Pennsylvania, for example, requires home improvement contractors to register with the Office of Attorney General, with exceptions such as people who did less than $5,000 of home improvement work in the previous year, and sets minimum insurance requirements. Virginia lists home improvement contracting as one of its contractor specialties. [16][17]

I

ITIN (Individual Taxpayer Identification Number)

A 9-digit tax number the IRS issues to people who need a U.S. taxpayer ID but can't get a Social Security number. It's for federal tax purposes only and doesn't authorize you to work in the U.S. Some license and trainee applications accept either a Social Security number or an ITIN; California, for example, lets a contractor license qualifier use either. [19][37]

inspection

A check by the local building official that permitted work meets the code. The International Residential Code sets inspections at stages: the foundation before concrete is poured, the plumbing, mechanical, gas and electrical "rough-in" before walls are closed, framing, and a final inspection. The inspector either approves that stage or tells the permit holder what fails. Construction and building inspectors also review building plans. [4][8]

IBC (International Building Code)

The ICC's model code for buildings and structures in general. It covers building, altering, repairing and demolishing every building except that detached one- and two-family homes and townhouses up to three stories may follow the International Residential Code instead. In practice that means it covers most buildings other than houses: commercial, industrial and apartment buildings. [3][7]

ICC (International Code Council)

The nonprofit group that writes the International Codes (I-Codes), a family of model codes that includes the International Building Code, International Residential Code, International Plumbing Code and International Mechanical Code. It was founded in 1994 to create one national set of model codes, bringing together three older code groups that had each written their own. The ICC also offers training and certification. [3][5][6]

IRC (International Residential Code)

The ICC's model code for homes: detached one- and two-family houses and townhouses no more than three stories above ground, each with its own way out, plus their garages and sheds. It covers the building itself and its plumbing, mechanical, gas and electrical systems. [8]

L

license classification

Also called: classification, license class

The category of work a contractor license allows. In California, for example, contracting is split into general engineering (A), general building (B), residential remodeling (B-2) and specialty (C) classes, and each class needs a qualifier who passed its exam. Nevada's board also sorts contractors into classifications and limits each license to the work it's classified for. Pick the class that matches the work you plan to do. [2][13][15]

lien

Also called: mechanics lien, mechanic's lien, mechanics' lien

A legal claim against a property. In construction, a mechanics lien is filed by a contractor, subcontractor, laborer or material supplier who wasn't paid for work on a property. Lien rules are set by each state; California's contractor board, for example, explains them and the lien release forms for homeowners. [35]

LLC (limited liability company)

A business form that combines features of a corporation and a partnership. In most cases an LLC keeps the owners' personal assets, such as their house and savings, out of reach if the business goes bankrupt or is sued. You form one by registering with your state. [28][36]

M

MEP (mechanical, electrical and plumbing)

The three building-systems trades: mechanical (heating, ventilation and air conditioning), electrical and plumbing. Contractors and schools often group them together. Hawaii's public schools, for example, list a Mechanical, Electrical, and Plumbing (MEP) Systems pathway in career and technical education. [23]

monetary limit

Also called: license limit, job limit, project limit, bid limit

In some states, the largest contract a license lets you take on. Nevada, for example, sets a monetary limit on each license: the most a contractor may contract for on one site for one client. Tennessee assigns a limit too: a job's contract or permit value may not exceed it, and raising a limited license above $125,000 means passing the exams and filing a reviewed financial statement. Many states have no monetary limit. [2][30]

N

NASCLA (National Association of State Contractors Licensing Agencies)

Also called: NASCLA exam, NASCLA Accredited Examination

An association of the state agencies that license contractors. It runs the NASCLA Accredited Examination for Commercial General Building Contractors. Some states give this exam as their own trade exam, and others accept a passing score in place of their trade exam, so passing it once can help you get licensed in more than one state. It is not a license: you still apply to each state and meet its other requirements. See license reciprocity. [9][10][11]

net worth

What a business owns minus what it owes: total assets minus total liabilities (South Carolina's formula). Some states set a minimum net worth for a license or for each license group, so a bigger license needs a financially stronger business. [31]

O

owner-builder

A property owner who does construction work on their own property. Many states let owner-builders work without a contractor license, with limits. California, for example, exempts owners who do the work themselves or use their own paid employees, and counts owner-builder time as experience for the general building license. [13][19]

P

partnership

A business owned by two or more people. In a general partnership the owners have unlimited personal liability; limited partnerships and limited liability partnerships limit it for some or all partners. [28]

prime contractor

The contractor who has the contract directly with the owner of the project. Nevada's law defines a prime contractor as one who agrees with an owner to provide work, materials or equipment for a project. The prime contractor then hires subcontractors. Often the general contractor is the prime contractor, but a specialty contractor (a roofer, say) is the prime when a homeowner hires them directly. [2]

Q

qualifier

Also called: qualifying agent, qualifying party, qualifying individual, qualified individual, responsible managing employee, responsible managing individual

Many states license the contracting business, and the business qualifies through one person who meets the experience and exam requirements: the qualifier. States use different names. California says "qualifying individual" (an employee qualifier is a "responsible managing employee," or RME), Florida "qualifying agent," Arizona "qualifying party," and Oregon "responsible managing individual" (RMI). The qualifier is usually an owner or employee who supervises the work, and the business must keep a qualifier in place while its license is active (California and Nevada both say so). [13][18][19][20][21][22]

R

recovery fund

Also called: residential recovery fund, guaranty fund, recovery fund assessment

A state fund, paid for by fees on licensed contractors, that can repay homeowners who lose money because a licensed contractor didn't do the work properly. Nevada's Residential Recovery Fund, for example, is paid for by residential contractors through an assessment based on their license's monetary limit, and homeowners are expected to try other routes, such as the contractor's bond, first. Not every state has one. [22][29]

residential vs. commercial

Also called: residential contractor, commercial contractor

Many states split contractor licenses by the kind of building. Residential means homes: houses, townhouses, condominiums. Commercial covers most other construction, including industrial buildings and public works. Arizona, for example, defines residential, commercial and "dual" (both) contractors: its commercial contractor works outside residential property lines, and Arizona treats "commercial builder," "industrial builder" and "public works builder" as the same thing. The codes split the same way: the International Residential Code covers houses and small townhouses, and the International Building Code covers the rest. [7][8][18]

S

sole proprietorship

Also called: sole proprietor, sole owner

A business owned by one person that isn't registered as any other kind of business. It's the simplest way to start, but the owner has unlimited personal liability: business debts and lawsuits can reach the owner's own savings and property. [28]

specialty contractor

Also called: specialty classification, specialty license

A contractor licensed for one specialized trade or craft, such as roofing, concrete, drywall, painting or plumbing, instead of general building work. California's law calls it a contractor whose work requires special skill and whose main business uses specialized building trades or crafts; California's specialty licenses are its many "C" classes, such as C-2 Insulation and Acoustical. [14][15]

subcontractor

A contractor who works for another contractor instead of directly for the property owner. On a house, the general contractor might hire subcontractors for the electrical, plumbing and roofing work. Nevada's law, for example, describes a "lower-tiered subcontractor" as one who agrees with a higher-tiered contractor to provide work, materials or equipment. Being a "sub" doesn't mean you can skip licensing: California, for example, says subcontractors and specialty contractors must be licensed before they bid. [1][2][13]

surety bond

Also called: license bond, contractor bond, contractor's bond, bond

A guarantee bought from a surety company. Many states require a license bond (a kind of commercial bond) before they issue a contractor license; it protects the public against things like fraud. Separate contract bonds are required on some jobs: a bid bond, a payment bond (subcontractors and suppliers get paid) and a performance bond (the job gets finished). Amounts vary widely: Nevada's board sets each contractor's bond between $1,000 and $500,000, and some states let you post a cash deposit instead. [22][24]

T

trade exam

Also called: trade examination

The part of contractor licensing that tests the work of the license class itself. California gives trade exams by class, such as B General Building and C-39 Roofing. Some states accept the NASCLA commercial building exam in place of their own trade exam. [9][39]

U

Uniform Building Code

An older model building code published by the International Conference of Building Officials (ICBO), one of the groups that formed the International Code Council in 1994. ICBO no longer exists, and states that used its codes have moved to the ICC's. Washington, for example, replaced the Uniform Building Code with the International Building Code and International Residential Code by a 2003 law. You may still see the name in older documents. Careful: on carpentry pages, "UBC" usually means the carpenters' union, the United Brotherhood of Carpenters, not this code. [5][6]

W

workers' compensation

Also called: workers' comp, workers’ compensation, workers’ comp

Insurance that pays for medical care and part of lost wages when a worker is hurt or gets sick because of the job, no matter who was at fault; in return, the worker generally can't sue the employer. For private employers it's run by each state, and contractor boards such as Nevada's want proof of coverage, or an exemption if you're not required to carry it, before they issue a license. California requires it of every employer with even one employee, and of roofers even with no employees. [22][25][26][27][28]

working capital

Current assets minus current liabilities (South Carolina's formula): roughly, the cash and near-cash a business has, minus the bills it must pay soon. South Carolina lets you show either enough net worth or enough working capital for the license group you want. [31]