Construction Contract Types and Risk Management Flashcards

In a cost-plus-fixed-fee (CPFF) contract, how is the contractor's fee typically affected if costs increase due to scope creep?

Answer: The fixed fee remains constant unless the scope is formally modified

In a CPFF contract, the fee stays fixed for the original scope; only a formal scope change through a contract modification triggers an adjustment to the fee.

What is the primary purpose of a payment bond in construction?

Answer: Ensures subcontractors and material suppliers will be paid

A payment bond protects subcontractors, laborers, and material suppliers by guaranteeing they will receive payment even if the general contractor defaults.

Which contract clause requires the contractor to submit a detailed breakdown of contract costs, often used as the basis for progress payment applications?

Answer: Schedule of values

A schedule of values allocates the total contract sum to individual work items, providing the framework for evaluating progress and calculating each payment application.

A 'Type I' differing site condition claim requires the contractor to show that:

Answer: Actual conditions materially differ from those indicated in the contract documents

Type I differing site conditions occur when actual subsurface or physical conditions differ materially from what was represented in the contract documents.

In evaluating a contractor's overhead markup on change orders, a construction auditor should primarily compare it to:

Answer: The prime contract's stated overhead and profit percentages

The prime contract usually specifies allowable overhead and profit markups for change order work, and auditors should verify the contractor's markups do not exceed those contractual limits.

Which project delivery method allows the owner to overlap design and construction activities to compress the overall schedule?

Answer: Fast-track construction

Fast-track construction begins construction on completed portions of the design while other portions are still being designed, compressing the overall project schedule.

A construction contract's 'retainage' provision serves what primary risk management function for the owner?

Answer: Provides financial leverage to ensure satisfactory project completion and punch list resolution

Retainage withholds a percentage of each payment, giving the owner financial leverage to ensure the contractor completes all work and resolves deficiencies before final release.