APPENDIX A: GLOSSARY

Available Bidding Capacity

The amount of bidding capacity left after subtracting the current ongoing contract value from the bidding capacity.

Bankrupt

Declared in law to be unable to meet its current obligations. To qualify for bankruptcy, a corporation or individual would have to: (1) be insolvent; and (2) have a current ratio that is less than one.⁽⁶⁶⁾

Bidding Capacity

The maximum amount of work a given contractor can bid on if it has no other ongoing obligations.

Capacity to Pay

A measure of the contractor’s liquidity and solvency over the duration of a project (minimum of 1 year to a maximum of 5 years).

Current Assets

Assets that one can reasonably expect to convert into cash, sell, or consume in operations within a single operating cycle, a single construction contract in this case, or within a year if more than one cycle is completed each year.⁽⁶⁶⁾

Current Liabilities

Obligations that need to be retired within one year and thus are expected to require the use current assets to retire them.⁽⁶⁶⁾

Current Ongoing Contracts Value

The value of work the contractor is currently committed to for all public and/or private owners with whom it has an active construction contract.

Final Contractor Financial Capacity

The result of the Capacity to Pay multiplied by the infraction factor.

Financial Factor

A factor based on the performance modifier that alters a contractor’s bidding capacity.

Income

Revenues less expenditures. Revenues include revenues from operations and revenues from investment transactions; expenditures include operating expenditures, debt service, and depreciation.⁽⁶⁶⁾

Infraction Factor

A factor that reflects if a contractor has had any major contract breaches or incidents such as default, illegal activity, ignored warranty call back, etc.

Liquidity (Net Current Assets)

Indicator of a contractor’s ability to make unexpected payments in the short run = Current Assets - Current Liabilities.

Net Worth

Assets less liabilities, also known as Equity.⁽⁶⁶⁾

Operating Income

Revenues from operations less operating expenses and depreciation. This focuses on the results of ongoing operations of the business and excludes the impacts of other investment activities.⁽⁶⁶⁾

Performance-Based Prequalification

A set of procedures and backup documents that need to be followed by a construction contractor to qualify to submit a bid on a construction project based on quality, past performance, safety, specialized technical capability, project-specific work experience, key personnel, and other factors. This information may be provided on a project-by-project basis or on a specified periodic basis. The project could be delivered using traditional design-bid-build or alternative project delivery methods, such as design-build, construction manager/general contractor, or any other method.⁽¹⁷⁾

Performance Bond

A promise from a surety that monetary compensation or contract completion services will be provided to the owner if the contractor fails to complete all the services required under the construction contract, which insulates the State transportation department from potential damages due to contractor default. It is like credit in that the surety provides a bond with the expectation of no loss.

Performance Modifier

A calculation of an overall performance rating for a contractor based on the most recent three years, with a heavier weighting of more recent years.

Where:

PR1 = Average of all performance ratings for most recent year (year one).

PR2 = Average of all performance ratings for next most recent year (year two).

PR3 = Average of all performance ratings for oldest year (year three).

Performance Rating

The ratings that result from the project contractor performance evaluations.