Chapter 5 Exercises — Construction Law

Work these with your contract, your state's statutes, and a phone. Several deliberately require you to look something up rather than recall it — that is the skill this chapter is actually teaching. Selected answers appear in Appendix J.

A standing caution for every exercise below: construction law varies by jurisdiction and changes over time, and nothing here is legal advice. Where an exercise asks for a deadline, a cap, or an enforceability conclusion, the correct answer always includes where you looked it up and when.

Difficulty legend: ⭐ basic · ⭐⭐ applied · ⭐⭐⭐ advanced judgment · ⭐⭐⭐⭐ research and extension

Part A — Conceptual Understanding ⭐

A1. Name the four sources of construction law from §5.1. For each, state who can change the rule and whether you have any negotiating leverage over it.

A2. In one sentence each, explain why a mechanic's lien exists and why it generally cannot be filed against public property. Then name the substitute the law provides on public work.

A3. Draw the three-deadline structure of a typical lien statute from memory: what triggers each deadline, roughly what the typical window looks like, and what happens if you miss it. Then write, in your own words, the sentence you would say to a supplier who tells you "we can file whenever, they still owe us the money."

A4. Explain the difference between a conditional and an unconditional lien waiver, and between a progress and a final waiver. Which combination should you never sign before a check has cleared, and why?

A5. A surety is not an insurer. Give three specific differences, and explain what a General Indemnity Agreement means for the contractor who signed one.

A6. What are the surety's "three C's," and which one do underwriters generally consider most predictive?

A7. A subcontractor sends you a certificate of insurance naming your company as "certificate holder," with a note in the description box reading "additional insured as required by written contract." State precisely what you now know, what you do not know, and what document you must obtain.

A8. Define broad-form, intermediate-form, and limited-form indemnity in one sentence each. Which one is most often restricted or voided by anti-indemnity statutes?

A9. What is a waiver of subrogation, and what specific bad outcome does it prevent on a jobsite where a subcontractor's employee is injured?

A10. Name the six rungs of the dispute escalation ladder in order, and state which rungs are the only ones where you still control the outcome.

A11. Explain the implied warranty of the plans and specifications — commonly called the Spearin doctrine — in two sentences. Then state how the allocation changes under design-build, and which insurance policy becomes the backstop when it does.

A12. Your contract requires notice "within 14 days, in writing, to the Owner, with a copy to the Architect, by certified mail or hand delivery." List every separate element of that requirement that a claimant could fail, and say which one contractors most often get wrong.

Part B — Applied Analysis ⭐⭐

B1. A preliminary lien notice arrives from a company you have never heard of, addressed to your owner, copied to you. Your project executive's first instinct is to call the subcontractor and demand to know why they let this happen. Write the three actions you would take instead, in order, and explain in two sentences why the letter is more useful than threatening.

B2. Your drywall subcontract is $2,100,000. Your company's subcontractor bonding threshold is $2,000,000. The subcontractor's bond will add roughly 1.4% to its price. The project manager wants to waive the requirement because "we've used them for six years." Write the memo you would send to your VP of Operations recommending a position. Include what you would require instead if the bond is waived.

B3. Read the certificate-of-insurance walkthrough in §5.4.3 again. Then write a rejection email to the subcontractor's broker that (a) lists each deficiency specifically, (b) states exactly what document or endorsement will cure it, (c) states the consequence of not curing it before the mobilization date, and (d) is professional enough that the broker will actually help you.

B4. Your project is enrolled in an owner-controlled insurance program (OCIP). A subcontractor submits a bid of $840,000 and tells you it has "already taken out the insurance." What questions do you ask before you accept that statement, and what specific coverages should you confirm the sub still carries on its own?

B5. A public agency's bid documents require a 5% bid bond, 100% performance and payment bonds, prevailing wage with weekly certified payrolls, and a 12% DBE participation goal. Identify which of these are statutory requirements the agency cannot waive and which are contractual terms it might negotiate — and explain how you would find out.

B6. On a renovation of a 1971 office building, your demolition subcontractor opens an interior wall and finds pipe insulation that looks suspicious. Three trades are working on the floor. Write the sequence of actions for the next 60 minutes, in order, and identify who has authority to restart work.

B7. Your contract requires written notice of a claim for additional cost within 14 days, and written notice of a claim for additional time within 7 days. Explain why the two clocks are different, what practical failure this arrangement causes on real projects, and one procedural control that prevents it.

B8. Compare a subcontractor default handled through a performance bond with one handled through SDI. For each, state who decides, how long it takes, who absorbs the first dollars of loss, and what the general contractor must be capable of doing for the approach to work.

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

C1 — Bond premium. Using the illustrative sliding scale from §5.3.3 (first $500,000 at 2.500%; next $2,000,000 at 1.500%; next $2,500,000 at 1.000%; next $2,500,000 at 0.875%; balance over $7,500,000 at 0.750%), calculate the payment-and-performance bond premium and the effective rate for each of the following:

Then answer: what is the effective rate difference between (a) and (d), and what does that mean for a small contractor competing on small public work?

C2 — The waiver matrix. Build the lien-waiver exchange table for Willow Street pay application #7, period ending the 25th of month 7. Given:

• Your masonry subcontractor bills $148,000 for the period; retention is 5%.
• The masonry sub has one supplier that served a preliminary notice (a block and mortar supplier, $52,000 of the current billing) and one labor-only sub-subcontractor.
• The City pays 30 days after the application.

Produce: (i) the net payable to the masonry sub; (ii) a dated table showing every waiver that must change hands, from whom to whom, conditional or unconditional, and through what date; (iii) a one-sentence statement of what you do if the supplier's conditional waiver does not arrive with the pay application.

C3 — The one-page notice sheet. Using an actual construction contract you can obtain (your employer's, a public agency's posted bid documents, or a published standard form), build the one-page notice-and-claim sheet described in §5.8.2. Columns: claim type · trigger event · days allowed · notice to whom · copy to whom · delivery method · required content · contract article. Include at least five claim types. Identify every place where two claim types run on different clocks.

C4 — The certificate matrix. Build the insurance certificate matrix from the Project Checkpoint for five Willow Street subcontractors of your choosing (see Appendix K). Populate it with the limits your subcontract would require, then write the three columns at the right — Received, Verified, Expires — and describe in two sentences the weekly routine that keeps the expiration column current.

C5 — The Vantage default arithmetic. A curtain-wall subcontractor with a $6,400,000 subcontract has been paid $4,050,000. You assess work in place at $3,720,000. A replacement contractor will complete the remaining scope for $2,900,000. Calculate: (a) the amount overbilled; (b) the remaining contract balance; (c) the excess completion cost the surety owes; (d) what Kestrel's exposure would have been with no bond in place. Then state, in one sentence, which of those four numbers is the earliest warning sign and why.

C6 — Deadline research. For your state (or the state where you would most likely work), find and record with sources: (1) whether a preliminary notice is required for lien rights and from which tiers; (2) the deadline to record a lien; (3) the deadline to foreclose; (4) the notice and suit deadlines for a claim on a public payment bond under your state's Little Miller Act; (5) the prompt-payment periods for public owner-to-prime and prime-to-subcontractor; (6) whether pay-if-paid clauses are enforceable. For each: cite where you found it and the date you checked. Mark anything you could not confirm as unresolved — confirm with counsel. Do not guess.

C7 — The bond-around calculation. A supplier records a lien for $86,000 against your private project. Your state requires a bond of 1.5× the lien amount to release the property, and the surety's premium for a lien-release bond is 2.0% of the bond penal sum. Calculate the bond amount and the premium. Then calculate your total cash exposure if you also pay the supplier the $86,000 directly to resolve the underlying claim, and state which sequence of actions minimizes total cost.

Part D — Judgment & Ethics ⭐⭐⭐

D1. Your subcontractor asks you to sign an unconditional final waiver on Friday so it can close its books for the fiscal year, promising payment the following Wednesday. You have worked with them for eight years and they have never missed a payment. What do you do, and what exactly do you say? Now reverse the roles: your general contractor asks you for the same thing. Has your answer changed, and should it have?

D2. Your project accountant flags an unbudgeted $38,000 in a cost code. Your project manager says a change order is "being worked." The contractual notice deadline is in two days. You are the project executive. Describe the conversation you have, what you require before the end of the day, and what you change in your company's procedures so this does not recur.

D3. A subcontractor's certificate shows a 34-day workers' compensation coverage gap that overlaps with work already performed on your site. No one was hurt. The subcontractor is 90% complete and has been a reliable partner. What do you do about the past 34 days, what do you do going forward, and what do you tell your own risk manager? Explain the reasoning behind each decision.

D4. You are bidding public work against a competitor you believe is misclassifying its workforce as independent contractors, which lets it underbid you by roughly 8%. You have no proof, only a pattern. What are your legitimate options, what would be improper, and where exactly is the line? Consider both the procurement process and the wage-enforcement process.

D5. Your general contractor's final unconditional waiver form releases, in the same paragraph as the lien release, "all claims of any kind arising from the Project." You are the subcontractor, and you have an unresolved $94,000 delay claim that both parties have been discussing for four months. The GC's project manager says it is "the standard form, everyone signs it, we'll handle your claim separately." Final payment of $61,000 is contingent on the signed waiver. Describe what you do, what you propose in writing, and what you do if the GC refuses to modify the form. Then argue the GC's side: is there a legitimate reason to want a broad release at final payment?

D6. Your contract requires notice of a claim within 7 days. Your company's policy is to issue notice on nearly every deviation, which has produced 41 notice letters in nine months on a job where 6 became claims. The owner's representative tells you privately that the volume is damaging the relationship and that her director now treats your letters as noise. Is your policy correct? Defend a position, then propose a revised policy that preserves your rights without producing noise.

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

M1 (with Chapter 3 and Chapter 4). For each delivery method — design-bid-build, CM at Risk with a GMP, and design-build — state (a) who owns design error, (b) which insurance policy is the backstop for that risk, and (c) one contract clause you would negotiate hardest as the contractor. Present it as a three-column table and defend your clause choices in a paragraph each.

M2 (with Chapter 4). Northgate carries liquidated damages of $5,500/CD and extended general conditions of $5,150/CD. A subcontractor default costs you 9 calendar days of slip that you fully absorb without missing substantial completion. Calculate the cost of those 9 days. Then explain why the answer is not 9 × $10,650, and what would have to be true for it to be.

M3 (with Chapter 2). Rivermont Elementary School #12 is public, hard-bid, and bonded; the Northgate Outpatient Pavilion is private, negotiated, and CM at Risk. Build a comparison table showing how the payment-security system, the dispute path, and the procurement rules differ between them, and write two sentences on what that means for how you staff each job.

M4 (with CO #14, canon §2.3-C, and Chapter 31). CO #14 cost $186,400, of which $121,000 was substantiated; the settlement was $142,750. Identify the five documents that, had they existed, would most likely have closed the $65,400 documentation gap. For each, say who would have created it, on what day, and in under two minutes of effort.

M5 (with Chapter 6, looking forward). Take five items from your Chapter 5 Legal-Framework Checklist and convert each into a row of a risk register: risk statement, probability, impact in dollars, owner, response strategy, and contingency amount. Then say which of the five you would not put on the register, and why some compliance items are not risks.

M6 (with Chapter 32, looking forward). A subcontractor's cumulative billings are 62% of its subcontract value while your superintendent assesses installed work at 51%. State three legitimate explanations, three worrying ones, and the exact question you would ask on this month's pay application to distinguish between them.

Part E — Research & Extension ⭐⭐⭐⭐

E1 — Your jurisdiction's lien statute, read in the original. Find your state's mechanic's lien statute and read it — not a summary, the statute. Produce a two-page brief covering: who has lien rights and to what tier; every notice required and its deadline and delivery method; the recording deadline and its trigger; the foreclosure deadline; whether advance waivers are permitted; whether statutory waiver forms are prescribed; and the penalties for an overstated lien. Cite section numbers exactly as written and note the date you accessed the text. If any question is genuinely unclear from the statute alone, say so — recognizing ambiguity is part of the exercise.

E2 — A real certificate of insurance. Obtain a real, current certificate of insurance (your employer's, a vendor's, or one included in a public agency's posted contract file — with permission, and redact identifying details before submitting). Audit it against the ten-point mobilization checklist in the Chapter Summary. Write up every deficiency, what document would cure it, and what the exposure would be if a loss occurred tomorrow. Then request one additional-insured endorsement form and read it: compare what the endorsement actually grants against what the certificate's description box claimed.

E3 — A live public procurement. Find a currently advertised public construction project in your area and download the complete bid documents. Extract and summarize: the bid bond requirement; the performance and payment bond requirements; the prequalification or responsible-bidder criteria; the prevailing-wage determination and certified-payroll process; any DBE/MBE/WBE goal and what "good-faith effort" documentation the agency requires; the bid protest procedure and its filing deadline; and the notice-and-claim provisions of the general conditions. Write one page on which single requirement would most affect your bid price, and by roughly how much.