CCA Construction Contract Types and Risk Management 2

Question 1

Under a Guaranteed Maximum Price (GMP) contract, what happens when actual project costs fall below the GMP?

Accepted Answer

Savings are typically shared between owner and contractor per a agreed ratio

Answer

GMP contracts commonly include a shared savings clause where cost underruns are split between owner and contractor according to a pre-negotiated percentage.

Question 2

Which contract type is most appropriate when the project scope is well-defined, design is complete, and the owner wants maximum price certainty?

Accepted Answer

Lump sum (fixed price) contract

Answer

Lump sum contracts are ideal when scope is fully defined because the contractor bears cost risk and the owner gains price certainty.

Question 3

A subcontractor 'flow-down' clause in a construction contract serves what primary purpose?

Accepted Answer

Passes prime contract obligations and liabilities down to subcontractors

Answer

Flow-down clauses ensure subcontractors are bound by the same terms and conditions that govern the prime contract, maintaining consistent obligations throughout the project.

Question 4

In construction risk management, what is the primary purpose of a project contingency allowance?

Accepted Answer

To absorb unforeseen costs and uncertainties within the defined scope

Answer

Project contingency is reserved for unknown-unknowns and uncertainties within the existing scope, not for scope additions or contractor profit.

Question 5

Which construction contract delivery method transfers the most design risk to the contractor?

Accepted Answer

Design-Build (DB)

Answer

In Design-Build, the contractor is responsible for both design and construction, bearing design errors, omissions, and coordination risk.

(CCA) Certified Construction Auditor Practice Test

(CCA) Certified Construction Auditor Practice Test

CCA Construction Contract Types and Risk Management 2