Construction Contract Types and Risk Management Flashcards
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Read the first 7 Construction Contract Types and Risk Management flashcards as text
Under an Indefinite Delivery/Indefinite Quantity (IDIQ) contract, what is the owner's primary obligation to the contractor?
Answer: Guarantee a minimum quantity of work over the contract term
IDIQ contracts obligate the owner to order at least a guaranteed minimum quantity of work, beyond which the contractor must perform all ordered work up to the contract maximum.
What is 'force majeure' in the context of a construction contract?
Answer: A provision excusing performance delays caused by unforeseeable events beyond the parties' control
Force majeure clauses excuse delays or non-performance caused by extraordinary events such as natural disasters, wars, or pandemics that are beyond either party's control.
When auditing subcontractor invoices under a cost-plus prime contract, which cost is most commonly found to be unallowable?
Answer: Subcontractor home office overhead allocated to the project
Subcontractor home office overhead is frequently disallowed because it duplicates overhead already included in the prime contractor's fee or markup on subcontract costs.
A construction contract's 'notice requirement' for claims is important because:
Answer: Failure to provide timely notice can waive or bar the contractor's right to additional compensation
Most contracts require prompt written notice of claim conditions so the owner can investigate; failing to give timely notice typically waives the contractor's right to pursue that claim.
Which risk management tool assigns numerical probabilities to potential project risks and calculates an expected monetary value for each?
Answer: Quantitative risk analysis (Monte Carlo simulation)
Quantitative risk analysis techniques like Monte Carlo simulation use probability distributions and thousands of iterations to produce a range of possible cost and schedule outcomes.
In a 'turnkey' construction contract, the contractor's responsibility ends when:
Answer: The facility is fully operational and handed over ready for use
Turnkey contracts require the contractor to deliver a fully complete, operational facility—'key ready'—before contractual obligations are fulfilled.
Which type of contract clause protects a contractor from absorbing the full cost of extraordinary material price escalation on long-duration projects?
Answer: Price escalation or material cost adjustment clause
Escalation clauses allow contract price adjustments when specified material costs (such as steel, fuel, or copper) change beyond agreed thresholds, protecting the contractor from market volatility.