BCM Construction Law and Contracts 2 — Questions and Answers
Question 1: A Notice to Proceed (NTP) in construction contracts signals:
- The official authorization for the contractor to begin work on a specific date (Correct answer)
- Completion of the design phase
- Approval of the contractor's schedule by the owner
- Issuance of the certificate of substantial completion
Correct answer: The official authorization for the contractor to begin work on a specific date
An NTP is the formal written authorization from the owner to the contractor to commence work, starting the contract time clock.
Question 2: Indemnification clauses in construction contracts typically require one party to:
- Hold the other party harmless from specified losses, claims, or liabilities (Correct answer)
- Pay subcontractors directly on behalf of the general contractor
- Carry a minimum level of liability insurance
- Submit all disputes to mandatory arbitration
Correct answer: Hold the other party harmless from specified losses, claims, or liabilities
Indemnification provisions shift legal and financial responsibility for certain claims or losses from one party to another.
Question 3: Substantial completion in construction law is typically defined as the point when:
- The project is sufficiently complete for the owner to use it for its intended purpose (Correct answer)
- All punch list items have been corrected
- The final payment application is submitted
- The certificate of occupancy is issued by the municipality
Correct answer: The project is sufficiently complete for the owner to use it for its intended purpose
Substantial completion marks when the owner can occupy and use the project, even if minor items remain, triggering important contractual milestone payments.
Question 4: A subcontractor's 'pay-when-paid' clause in a construction contract means:
- The GC is not obligated to pay the sub until the GC receives payment from the owner (Correct answer)
- Subcontractors must be paid within 7 days of invoice
- Payment is made based on percentage of work completed
- The sub receives payment directly from the project owner
Correct answer: The GC is not obligated to pay the sub until the GC receives payment from the owner
Pay-when-paid clauses condition the GC's obligation to pay subs on receipt of owner payment, shifting some payment risk downstream.
Question 5: The Spearin Doctrine in US construction law holds that:
- Owners impliedly warrant the adequacy of the plans and specifications they provide to contractors (Correct answer)
- Contractors are solely responsible for all design errors
- Subcontractors must follow GC instructions regardless of design errors
- Owners are not liable for differing site conditions
Correct answer: Owners impliedly warrant the adequacy of the plans and specifications they provide to contractors
Under Spearin v. U.S. (1918), the Supreme Court established that an owner who furnishes plans warrants their sufficiency, protecting contractors who follow defective plans.
Question 6: A payment bond primarily protects:
- Subcontractors and suppliers who have not been paid for labor or materials (Correct answer)
- The owner from contractor non-performance
- The surety company from contractor bankruptcy
- The lender financing the construction project
Correct answer: Subcontractors and suppliers who have not been paid for labor or materials
A payment bond guarantees that subcontractors, laborers, and material suppliers will be paid even if the prime contractor defaults.
BCM Construction Law and Contracts 2
A Notice to Proceed (NTP) in construction contracts signals: