Chapter 4 Quiz — Construction Contracts

B. The GMP caps what the contractor can charge for the scope defined when the GMP was set. It does not cap the owner's total cost — scope changes, design errors, differing site conditions, and allowance overruns all move the number. And it does not protect the fee: on Northgate, if the defined scope cost $48,900,000 to build, the overrun eats the $1,804,800 fee before it touches the owner.

C. Productivity risk sits with the contractor on lump sum, on GMP (up to the cap), and on unit price. It moves to the owner only under cost-plus, where the owner reimburses whatever the labor actually costs.

B. $2,900,000 ÷ 565 CD = $5,132.74/CD, and the contract sets the agreed extended-GC rate at $5,150/CD. $5,500/CD is the liquidated damages figure; $10,650/CD is the two combined — the total daily exposure to a slipped substantial completion. $2,560/CD is roughly the staffing-only portion.

C. Self-inflicted rework is never reimbursable under any of the standard forms. It is the first thing an owner's auditor looks for, which is why you code it separately from day one — so you can prove you did not bill it.

C. $2,150,000 × 5% = $107,500, up $12,500. The contractor earned more because the job cost more. That is the perverse incentive at the heart of the percentage fee, and it is why a fee stated in dollars is almost always the better structure for the owner.

C. Time only. On Northgate a 30-day owner-caused delay is worth $154,500 in extended general conditions at $5,150/CD — and a no-damage-for-delay clause reduces that to zero. Courts in many jurisdictions recognize exceptions (active interference, bad faith, abandonment, fraud) and some states limit the clause by statute on public work, but enforceability and exceptions vary significantly by state. Price the clause; do not rely on the exceptions.

B. Unit price pays for actual measured quantities at the bid unit price. That is the whole point: the owner keeps quantity risk. Note that most unit-price contracts also contain a variation clause allowing either party to request renegotiation of the unit price when a major item swings beyond a stated percentage — 15% and 25% are both common — because the contractor's fixed setup costs were spread over the estimated quantity.

B. LDs must be a reasonable pre-estimate of actual loss, made at the time of contracting, when actual damages would be difficult to determine precisely. A provision that functions as a penalty is unenforceable in most U.S. jurisdictions, and the specific test varies by state. That is why Meridian's $5,500/CD traces to a build-up: interim clinic lease, duplicated staffing, deferred clinical margin, and financing carry.

C. This is the most common owner misunderstanding in the industry. The GMP contingency covers cost growth within the defined scope — subcontractor default, buyout shortfall, coordination gaps. Scope changes come from the owner's own contingency, held outside the construction contract. The owner who carried none is the owner value-engineering the lobby in month fourteen.

B. Money was shifted out of an item the bidder believed was overstated (structural excavation) into one it believed was understated (drilled shaft). Front-loading is the related sin on a lump-sum job — moving value into early activities so billings run ahead of costs. Both are visible to an experienced reviewer, and public agencies reserve the right to reject a materially unbalanced bid.

C. An allowance is reconciled against actual cost — the contract sum moves up or down by the difference. The one thing the contract must state and usually doesn't: whether the allowance includes overhead, profit, and general conditions. On a $150,000 allowance that ambiguity is worth a few thousand dollars; on a $2,000,000 allowance it is worth $200,000 and a mediation.

A. Lump sum: the owner verifies progress and quality and pays. GMP requires auditing an open book and policing the contingency; cost-plus requires approving costs and controlling scope month by month; unit price requires measuring and certifying every quantity. The structure that transfers the most risk to the contractor demands the least owner work — and costs the most in priced contingency.

False. It usually carries a smaller premium — in the chapter's worked example the GMP was $2,053,490 against a lump sum of $2,113,300, a $59,810 difference — but the owner buys that saving with administrative burden and by accepting that the cap covers only the defined scope. If the job runs clean and the owner has no staff to administer the book, lump sum can easily be the better deal.

False, and this matters. It sits inside the GMP, so the owner has already agreed to pay it, and it is drawn to cover cost growth within the defined scope. What happens to the unused portion is set by the savings split — 75% owner / 25% contractor on Northgate. Neither party owns it outright.

True. This clause voids more valid claims than any other. The condition can be real, the entitlement clear, and the damages proven, and you still lose because you noticed on day 22 of a 21-day requirement. Calendar every notice deadline the day the contract is executed.

True, as to the fee — but incomplete. A fixed fee neutralizes the direct incentive that a percentage fee creates. It does not create a positive incentive to reduce cost, and it does not supply the owner with cost visibility. That is why a fixed fee is only one of four controls; you also need a written definition of the cost of the work, a control budget with monthly cost-to-complete forecasting, and a written authorization threshold.

False. Substantial completion is when the owner can occupy and use the work for its intended purpose — LDs stop, retention is typically reduced, warranties usually start, and the punch list issues. Final completion comes after: punch closed, closeout documents delivered, remaining retention released. On Northgate they are sixty days apart — September 18 to November 17, Year 2.

False. Enforceability varies significantly by state: some jurisdictions enforce clear condition-precedent language, some void it as against public policy, and some require specific wording. Never assume. And if you are the subcontractor, understand what you agreed to — you may have just accepted the owner's credit risk.

Something close to: "The guarantee caps what we can charge you for the building drawn in the documents we priced. Three things move it: you changing your mind, the documents being wrong, and the ground being different than the report said. What we guaranteed is that if we build that scope and it costs us more than the number, we pay the difference — not you. That's why you also carry your own contingency, separate from ours." The essential elements are: naming what is capped (our price for a defined scope), naming the three movers, and stating the real promise plainly.

Cost of the work is what becomes the building or directly produces it: subcontracts, direct labor, incorporated material, rented equipment, freight, permits. General conditions are project-specific costs that support the work without becoming it: site staff, field office, temporary utilities, hoisting, cleanup, safety program, small tools. The fee covers home-office overhead — executives, corporate rent, accounting, marketing, estimating for other pursuits — plus profit, and is not reimbursed. The rule of thumb: if it would exist whether or not this project existed, it is fee.

A classic argument: a home-office accountant who processes this job's payables. Project-specific work performed at the home office sits in the gray zone, and the answer is a written percentage allocation. Without one, you argue about it every month.

Estimated cost: $1,960,000 + $132,000 + $48,000 = $2,140,000

(a) Lump sum Contingency @ 4%: $85,600 → subtotal $2,225,600 → OH&P @ 6%: $133,536 → lump sum = $2,359,136

(b) GMP Contingency @ 3%: $64,200 → subtotal $2,204,200 → fee @ 4%: $88,168 → GMP = $2,292,368

Direct cost 10% high: $1,960,000 × 1.10 = $2,156,000, so actual total cost = $2,156,000 + $132,000 + $48,000 = $2,336,000

Who absorbed it: the contractor, under both. Quantity risk on a fixed-price or capped contract sits with the contractor unless the overrun is caused by a scope change, a design error, or a differing site condition — in which case it is a change order and the owner pays. Which of those two stories is true is decided by documentation, not by arithmetic.