Contract Law and Lien Rights Flashcards

What does 'indemnification' mean in a construction contract?

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.

What is a 'liquidated damages' clause in a construction contract?

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.

What is the difference between a 'fixed-price' and a 'cost-plus' contract?

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.

What is a 'change order' in a construction contract?

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.

What does 'substantial completion' mean in construction law?

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.

Which document protects a property owner from paying twice if the general contractor fails to pay subcontractors?

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.