CC Contract Law and Lien Rights 2 — Questions and Answers
Question 1: What does 'indemnification' mean in a construction contract?
- One party agrees to compensate another for certain losses or damages (Correct answer)
- A contractor is exempt from taxes
- A subcontractor takes over a project
- A lien is released automatically
Correct answer: One party agrees to compensate another for certain losses or damages
An indemnification clause transfers financial responsibility for specified losses, claims, or damages from one party to another.
Question 2: What is a 'liquidated damages' clause in a construction contract?
- A pre-agreed daily penalty for project delays beyond the contract completion date (Correct answer)
- A bonus for early completion
- A method of paying subcontractors
- A type of contractor insurance
Correct answer: A pre-agreed daily penalty for project delays beyond the contract completion date
Liquidated damages are a pre-estimated, agreed-upon amount charged to the contractor for each day work is not completed by the specified deadline.
Question 3: What is the difference between a 'fixed-price' and a 'cost-plus' contract?
- Fixed-price sets one total amount; cost-plus reimburses actual costs plus a fee (Correct answer)
- Fixed-price changes daily; cost-plus is set at signing
- They are legally identical
- Cost-plus always costs less
Correct answer: Fixed-price sets one total amount; cost-plus reimburses actual costs plus a fee
In a fixed-price contract the contractor bears cost risk, while in cost-plus the owner pays actual expenses plus a predetermined profit margin.
Question 4: What is a 'change order' in a construction contract?
- A written amendment that modifies the original contract scope, cost, or schedule (Correct answer)
- An order to change contractors
- A license renewal form
- A purchase order for materials
Correct answer: A written amendment that modifies the original contract scope, cost, or schedule
A change order is a formal, signed document that alters the originally agreed-upon work, timeline, or price in a construction contract.
Question 5: What does 'substantial completion' mean in construction law?
- The point at which the project is sufficiently complete for its intended use, even if minor items remain (Correct answer)
- When 50% of work is finished
- When the final payment is made
- When the building permit is closed
Correct answer: The point at which the project is sufficiently complete for its intended use, even if minor items remain
Substantial completion is a legal milestone triggering final payment and the start of warranty periods, even if a punch list of minor items remains.
Question 6: Which document protects a property owner from paying twice if the general contractor fails to pay subcontractors?
- A conditional or unconditional lien waiver from the subcontractor (Correct answer)
- A building permit
- An occupancy certificate
- A contractor license copy
Correct answer: A conditional or unconditional lien waiver from the subcontractor
A lien waiver from each subcontractor confirms they were paid and releases their right to lien the property, protecting the owner from double payment.
CC Contract Law and Lien Rights 2
What does 'indemnification' mean in a construction contract?