Construction Contract Types and Risk Management Flashcards

When auditing a unit price contract, which risk is most important to monitor as the project progresses?

Answer: Quantity overruns that significantly increase the total contract value

Unit price contracts pay per unit of work completed, so quantity overruns can drive total project cost far above the engineer's estimate, creating budget exposure for the owner.

Under the Spearin Doctrine, an owner who provides defective plans and specifications to a contractor is responsible for:

Answer: Losses resulting from contractor reliance on those defective documents

The Spearin Doctrine holds that when an owner supplies design documents, it impliedly warrants their adequacy, making the owner liable for damages caused by defects in those documents.

In a Construction Manager at Risk (CMAR) contract, the construction manager typically provides a Guaranteed Maximum Price at which project phase?

Answer: Completion of design development or construction documents

The CM at Risk typically provides a GMP once design is sufficiently complete (usually at 60-100% construction documents) to accurately price the work.

Which insurance type protects an owner against losses arising from contractor-caused property damage during construction?

Answer: Contractor's general liability insurance

Commercial general liability insurance covers third-party bodily injury and property damage caused by the contractor's operations, protecting the owner from those claims.

What is the purpose of a liquidated damages (LD) clause in a construction contract?

Answer: Pre-establish the daily monetary damages for late project completion

Liquidated damages clauses establish a predetermined daily rate for late delivery, avoiding the difficulty of proving actual damages from project delays.

A construction auditor reviewing contract modifications should verify that all change orders include which critical elements?

Answer: Scope description, cost impact, schedule impact, and proper authorization signatures

Valid change orders must document what work changed, how much it costs, how it affects the schedule, and be signed by authorized parties to be enforceable.

Which risk allocation strategy involves transferring a specific project risk to the party best able to control or manage it?

Answer: Optimal risk allocation

Optimal risk allocation assigns each risk to the party with the most control, knowledge, and capacity to manage it, resulting in the lowest overall project cost.