An XRef or External Reference is a marker to an external drawing which is displayed in the current drawing but does not form part of it unless it is specifically "bound" to the current drawing.
The advantage of an XRef is that it may be modified and updated independantly and simultaneously with the current drawing by another user, in other words, by using XRefs on a project, each detailing a specific part of the project, multiple draughtpersons and designer may work on the project simultaneously, each on their own drawing, which can then be viewed as a backdrop in other drawings.
For instance, if we look at a residential development, the base layout can be used by the roads designer as an XRef in the roads layout drawing. If the basic cadastral layout changes in the XRef the roads designer's drawing will be updated the next time he opens it, as the XRef reads the latest version of the cadastral drawing.
Similarly, the stormwater designer may use the cadastral drawing and the roads layout as XRefs in his drawing, and so on.
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