Chapter 4 Exercises — Construction Contracts

Work these with the chapter open. Selected answers appear in Appendix J; calculation items show their numeric answers here in a <details> block so you can check your arithmetic without reading the reasoning.

Difficulty legend: ⭐ basic · ⭐⭐ applied · ⭐⭐⭐ judgment and analysis · ⭐⭐⭐⭐ extension

Part A — Conceptual Understanding ⭐

A1. In one sentence, state what a construction contract is, using the framing from §4.1. Then explain why deleting a differing site conditions clause tends to raise bids rather than lower the owner's cost.

A2. List the seven components of the contract documents. For each, name one kind of money problem that hides there.

A3. A guaranteed maximum price guarantees whose exposure? Write the sentence you would say out loud to an owner who has just said "so this is the most we'll pay."

A4. Define, in plain English: substantial completion, final completion, liquidated damages, contract time, and the difference between calendar days and work days. State which unit governs liquidated damages on Northgate and why.

A5. Name the three contingencies that can exist on a single project, say whose money each one is, and say who authorizes a draw from each.

A6. Explain the difference between pay-when-paid and pay-if-paid in two sentences. Then state the one qualification you must always attach when you explain it to somebody.

A7. Describe, by function only, what each of these does: AIA A101, AIA A102, AIA A133, AIA A201, AIA G702/G703, ConsensusDocs, EJCDC. Do not quote clause text.

A8. What is the difference between a liquidated damages provision and a penalty, and why does the distinction matter to enforceability?

A9. Name the four "escape valves" inside a fixed-price contract. For each, name one way it gets abused.

A10. Why is a percentage fee a structurally bad idea for an owner? Answer in terms of incentives, not ethics.

A11. A GMP build-up shows a $1,320,000 construction contingency and a 75/25 savings split. If the contingency is never touched, how much does the owner actually get back, and what did the owner ultimately pay for carrying that reserve? State in one sentence what the owner bought with that money.

A12. Explain why an escalation allowance is calculated as a percentage of commodity-exposed scope rather than as a percentage of the contract sum. Use Northgate's numbers, and state both percentages.

A13. A contractor tells an owner: "The differing site conditions clause protects you as much as it protects me." Explain what the contractor means. Is it true?

Part B — Applied Analysis ⭐⭐

B1. A private developer has a complete, permitted, 100% construction document set for a 60,000 SF warehouse. Four qualified general contractors want the job and the market is soft. Which pricing structure, and why? Name the one condition that would change your answer.

B2. A hospital wants to start foundations in ninety days. The design is at 45%. The owner has a three-person capital projects team including a former estimator. Recommend a structure, and identify the two things that must be true for it to work.

B3. A state DOT is replacing a bridge. Borings are limited, rock depth is uncertain, and the work is repetitive and measurable. Which structure, and which specific risk is the DOT choosing to keep?

B4. An owner proposes a GMP with a 2.5% fee — well below market — and asks to delete the savings split entirely, keeping 100% of unused contingency. Evaluate this offer from the contractor's side. What does the contractor lose, and what should it ask for in exchange?

B5. Read this clause summary: "The Contractor's sole remedy for any delay, from any cause, shall be an extension of the Contract Time." You are bidding a $9,000,000 school with field general conditions of $720,000 over 400 calendar days. Estimate the exposure this clause creates for a plausible 25-day owner-caused delay, and describe two ways to respond other than refusing to bid.

B6. Meridian's auditor rejects four items on a Kestrel invoice: (a) overtime during a contractor-caused schedule recovery; (b) re-pouring a deck where Kestrel's crew misplaced embeds; (c) the corporate safety director's site visits; (d) a rented tower crane. Which rejections are correct, and what would Kestrel have needed in the contract to change any of the outcomes?

B7. An owner carries six allowances totaling $1,800,000 on a $12,000,000 contract. What does that tell you about the design, and what three questions would you ask before bidding?

B8. A contractor bids a unit-price job and prices "36-inch drilled shaft" at $484.00/LF when its honest cost view supports $412.00/LF, because it believes the agency's quantity is understated. Classify this conduct using the three-position framework in §4.9, and identify the single fact that would move it from one category to another.

B9. A subcontractor is handed a subcontract containing a clearly drafted pay-if-paid provision, a flow-down of a 7-day notice requirement from the prime contract, and a retention rate of 10% with no reduction at 50% completion. The work is $840,000 over eleven months on a private commercial job. Describe the three distinct exposures this creates, estimate the carrying cost of the retention at 9% annual, and name the one item you would push hardest to change and what you would offer for it.

B10. Two contractors bid the same GMP opportunity. Contractor A proposes a 3.25% fee with a 2% contingency. Contractor B proposes a 4.0% fee with a 4% contingency and a 75/25 savings split. The subtotal cost in both cases is $22,000,000. Compute both GMPs. Then explain, in terms of risk rather than price, why the higher number might be the better offer — and what one question you would ask Contractor A before accepting the lower one.

B11. An owner's standard form defines liquidated damages at $9,000 per calendar day on a $14,000,000 elementary school, with no supporting calculation anywhere in the documents. The owner has no lease exposure, no revenue at stake, and the school year starts three months after the contract completion date. Identify the legal problem, the practical problem, and the question you would ask in writing during the bid period.

Part C — Calculations & Deliverables ⭐⭐–⭐⭐⭐

C1. Build a GMP. A contractor's estimate for a $6,400,000 project shows: direct cost of work $5,180,000; general conditions $470,000; insurance and bonds $155,000. Build the GMP using a 3.5% construction contingency and a 4.25% fee (fee applied to the subtotal after contingency). Show every step.

C2. Derive an extended general-conditions rate. Using C1's general conditions of $470,000 and a contract time of 330 calendar days, compute the daily general-conditions rate. Then, if the project's liquidated damages are $2,400/CD, state the total daily exposure to a slipped substantial completion, and compute the cost of a 19-day unexcused delay.

C3. Price one scope four ways. A site package has a direct cost of the work of $980,000, field general conditions of $74,000, and insurance and bond of $26,000. Produce:

(a) a lump sum using a 4% risk contingency and 6.5% overhead and profit; (b) a GMP using a 3% contingency and a 4% fee; (c) a cost-plus fixed fee total, with the fee set at 5% of the estimated cost; (d) a cost-plus percentage fee at 5%.

Then state what the owner pays under each if the actual cost of the work comes in at $1,110,000 (all other lines unchanged), and who absorbed the difference.

C4. Unbalance a bid, then measure it. Using the Cottonwood Creek items — structural excavation (est. 14,200 CY), Class A concrete (est. 2,850 CY), reinforcing steel (est. 486,000 LB), and 36-inch drilled shaft (est. 3,240 LF) at balanced unit prices of $38.50/CY, $685.00/CY, $1.42/LB, and $412.00/LF — construct your own unbalanced bid that lands within $2,000 of the balanced total. Assume actual quantities of 11,100 CY, 2,880 CY, 494,000 LB, and 3,910 LF, and compute how much more your unbalanced bid collects. Then write two sentences explaining why an agency would reject it.

C5. Reconcile an allowance. A contract carries a $285,000 unsuitable-soils allowance covering 3,800 CY at $75.00/CY. Actual undercut and replacement is 5,140 CY. Compute the change to the contract sum. Then compute it again assuming the contract allows a 10% combined overhead and profit markup on the overrun quantity, and state which reading a contractor will argue for.

C6. Price escalation exposure. A $28,000,000 GMP has commodity-exposed scope of: structural steel $5,100,000; aluminum curtain wall $2,400,000; copper wiring $1,300,000; PVC and insulation $700,000. Compute the escalation allowance you would carry at 3.5% of exposed scope, and express it as a percentage of the total GMP. Then explain in one sentence why those two percentages differ so much and which one belongs in a conversation with the owner.

C7. Cost-plus, with and without controls. A nine-month renovation runs cost-plus with a 12% percentage fee. Monthly cost of the work billed is: $84,000 · $196,000 · $241,000 · $318,000 · $402,000 · $355,000 · $288,000 · $214,000 · $131,000. Build a table showing cost, fee, monthly total, and cumulative total. Then compute what the owner would have paid if the fee had been a fixed $171,600 instead, and state how much the percentage structure cost the owner purely as a consequence of the job going badly.

C8. Extended general conditions, honestly. A contractor's $840,000 general-conditions budget over 420 calendar days breaks down as $402,000 of project staff, $118,000 of trailers and temporary utilities (70% time-related), $96,000 of hoisting (fully time-related), $134,000 of cleaning (production-related), $52,000 of small tools (production-related), and $38,000 of permits and mobilization (fixed). Compute (a) the simple GC-budget-divided-by-days rate and (b) a defensible time-related-only daily rate. Explain in two sentences why a contractor proposes (a) and an owner's counsel argues for (b), and what each side can trade to close the gap.

C9. Build the risk map. Take any lump-sum contract you can obtain — your own project, a public agency's standard front-end available online, or the Willow Street package in Appendix K. Produce a five-row risk map: clause, plain-English translation, dollar exposure with arithmetic, negotiate-or-accept, and what you would trade for it. This is the same deliverable as the chapter's Project Checkpoint, scaled down — do it here first if the full ten rows feel like too much.

Part D — Judgment & Ethics ⭐⭐⭐

D1. You are the estimator on a hard-bid job. You notice the owner's quantity for "rock excavation" is roughly 40% higher than what your geotechnical read supports. Nothing prevents you from bidding a low unit price on rock and recovering it elsewhere. Describe three courses of action and their consequences, including the consequence of doing nothing and saying nothing. Which do you choose, and what would change your answer?

D2. Your CFO asks you to shift $180,000 of value from closeout activities into mobilization and foundations on a $6,800,000 schedule of values, "just to get us through the first quarter." Every line remains individually defensible. Write the two-paragraph response you would send. Then write the one you would send if the CFO were also the company owner and had already told the bank the cash was coming.

D3. An owner's representative asks you, off the record and before award, what your subcontractor pricing looks like on the mechanical scope so she can "sanity check" a competitor's number. Identify every problem with answering, and describe what you can say instead that is genuinely helpful.

D4. Your GMP contract's contingency-use provision is silent on whether the contingency may cover rework caused by your own subcontractors. Your project has $310,000 of contingency remaining and a $90,000 rework event caused by a sub who has since gone out of business. Argue both sides. Then say what you would actually do, and what you would tell the owner.

D5. A no-damage-for-delay clause appears in the supplementary conditions of a job you badly want. Your firm has one competitor who you suspect will not read it. Do you (a) bid with the clause priced, (b) bid with it unpriced and hope, (c) submit a bid with an exception noted, or (d) request clarification during the bid period? Argue for one, and name what you are risking.

D6. You are the project manager on a GMP job. Your superintendent tells you the owner's rep gave a verbal go-ahead on Thursday for work that will cost roughly $180,000, and your assistant superintendent wants to start Monday because the crane window closes. You have no written directive. List, in order, the four things you do before Monday morning — and say what you do if the owner's rep does not return your calls before the crew shows up. This is change order #14 as a decision, not as a post-mortem.

D7. Your firm's estimating department carries an undisclosed 4% contingency in every lump-sum bid. An owner's representative asks you directly during a negotiation: "Is there contingency in this number, and how much?" You are not legally obligated to answer. What do you say, and what does your answer cost or buy you? Consider both a one-off public bid and a private client you want to work for again.

Part M — Mixed / Interleaved Practice ⭐⭐–⭐⭐⭐

M1. (Ch 3 + Ch 4.) Your client wants CM at Risk delivery but insists on a stipulated-sum contract executed before schematic design is complete. Explain, using the "delivery method and contract type are one decision" principle from Chapter 3, why this combination will not do what the client thinks it will. Propose the two combinations that would.

M2. (Ch 2 + Ch 4.) Using the industry margin picture from Chapter 2, compute how much additional revenue a contractor with a 2% net margin must win to erase a $310,000 loss on a single job. Then explain what that number implies about how aggressively a firm should price a no-damage-for-delay clause, and about the real cost of a "small" scope gap.

M3. (Ch 1 + Ch 4.) In Chapter 1 you met $10,650 per calendar day. Reconstruct both halves from first principles: derive $5,150/CD from Northgate's general conditions and contract time, and explain where Meridian's $5,500/CD in liquidated damages came from. Then state what changes about the acceleration decision in the steel delay if the LDs had been $1,500/CD instead.

M4. (Ch 3 + Ch 4 + forward to Ch 6.) Build a two-column table: in the left column, list the six risks a GMP leaves with the owner; in the right column, for each, name the management action an owner can take that is better than transferring the risk to the contractor. This is the bridge into Chapter 6.

M5. (Ch 4 + forward to Ch 31 and 33.) Change order #14 settled at $142,750 against $186,400 of actual cost, with 4 of 9 claimed calendar days granted. Working only from Chapter 4's material, identify which contract clause governed each of the following: whether Kestrel was entitled to anything at all; whether it could proceed before price agreement; whether its notice was timely; and how the time extension was evaluated. Then predict which of the four will be hardest to win, and why.

M6. (Ch 4, integrative.) Take the Willow Street Community Center and re-imagine it as a CM at Risk GMP rather than a design-bid-build lump sum. Rebuild the price: assume the same $6,800,000 as a starting point, strip out a 6% hidden contingency and 8% markup, then rebuild with a 3% construction contingency and a 4% fee. State the resulting GMP, and say — with reasons — whether the City of Rivermont Parks & Recreation should prefer it.

Part E — Research & Extension ⭐⭐⭐⭐

E1. Find a real front end. Most public agencies publish their standard general conditions and instructions to bidders. Find one for a state DOT, a school district, or a municipality in your jurisdiction. Locate and read: the changes clause, the differing site conditions clause, the notice requirement, the delay clause, and the retention provision. Write a two-page memo identifying the three provisions that most shift risk to the contractor and what you would price for each. Do not quote extensively — paraphrase and cite the document by name and date.

E2. Map your state's rules. For your own state, research and summarize the current position on: (a) enforceability of pay-if-paid clauses; (b) statutory retention limits on public and private work; (c) prompt-payment deadlines; (d) anti-indemnity limitations. Use primary sources — the statute itself, or a state agency's published guidance — and note the date you checked. These rules change. Record when you looked. Then write one paragraph on what you would do differently as a subcontractor in your state versus a neighboring one.

E3. Interview a practitioner. Find a project manager, estimator, or owner's representative with at least ten years of experience and ask three questions: What contract clause has cost you the most money? What is the first thing you read when a new contract lands on your desk? What is one thing you now insist on that you did not know to ask for early in your career? Write up the conversation in one page, and compare their answers to §4.8. Where they disagree with the chapter, say who you think is right and why.