CBP Contract Administration and Legal 2 — Questions and Answers
Question 1: What is the purpose of a Notice to Proceed (NTP) in construction?
- It formally authorizes the contractor to begin work on a specified date (Correct answer)
- It notifies subcontractors that the bid was accepted
- It informs the owner that the contractor is ready to start
- It grants the contractor permission to submit invoices
Correct answer: It formally authorizes the contractor to begin work on a specified date
A Notice to Proceed is the owner's written authorization for the contractor to begin work, establishing the official project start date.
Question 2: What is retainage in a construction contract?
- A percentage of each payment withheld by the owner until project completion (Correct answer)
- Money held back by the contractor from subcontractors for warranty work
- An upfront deposit paid before work begins
- Funds reserved for contingency costs
Correct answer: A percentage of each payment withheld by the owner until project completion
Retainage is a portion (typically 5–10%) of each progress payment that the owner withholds until the project reaches substantial completion.
Question 3: What type of construction contract pays the contractor for all actual project costs plus an agreed-upon fee or percentage?
- Cost-plus contract (Correct answer)
- Lump sum contract
- Unit price contract
- Guaranteed maximum price contract
Correct answer: Cost-plus contract
A cost-plus contract reimburses the contractor for verified project expenses and adds a fixed fee or percentage markup as profit.
Question 4: What is the primary function of a surety in a construction surety bond?
- To guarantee the contractor's performance or payment obligations to the owner (Correct answer)
- To provide liability insurance for the project
- To inspect work quality on behalf of the lender
- To mediate disputes between owner and contractor
Correct answer: To guarantee the contractor's performance or payment obligations to the owner
The surety is the third-party guarantor that promises to fulfill the contractor's obligations if the contractor defaults.
Question 5: What is the purpose of a Request for Information (RFI) in construction?
- To seek clarification on unclear contract documents or design details (Correct answer)
- To request additional funding from the owner
- To formally notify the owner of a delay
- To submit a change order for additional scope
Correct answer: To seek clarification on unclear contract documents or design details
An RFI is a formal written question submitted by the contractor to the architect or owner to resolve ambiguities or gaps in the project documents.
Question 6: What does an indemnification clause in a construction contract typically require?
- One party to protect and hold harmless another party from specified liabilities or claims (Correct answer)
- The contractor to obtain all required permits
- The owner to provide all necessary site information
- Both parties to carry equal insurance coverage
Correct answer: One party to protect and hold harmless another party from specified liabilities or claims
An indemnification clause obligates one party (usually the contractor) to defend and compensate the other party for claims arising from the indemnifying party's work.
CBP Contract Administration and Legal 2
What is the purpose of a Notice to Proceed (NTP) in construction?