CEP Contract Documentation & Legal Considerations 2 — Questions and Answers
Question 1: Which contract clause establishes the priority order when conflicts exist between different contract documents?
- Order of precedence clause (Correct answer)
- Integration clause
- Severability clause
- Force majeure clause
Correct answer: Order of precedence clause
An order of precedence clause specifies which contract document governs when contradictions exist between drawings, specifications, and other documents.
Question 2: A 'no damages for delay' clause in a construction contract typically means the contractor:
- Can only recover extended overhead costs
- Can only recover time, not additional money, for owner-caused delays (Correct answer)
- Cannot recover anything for any delay regardless of cause
- Can terminate the contract after 30 days of delay
Correct answer: Can only recover time, not additional money, for owner-caused delays
A no-damages-for-delay clause limits the contractor's remedy for owner-caused delays to a time extension only, not additional compensation.
Question 3: What is the primary purpose of a 'liquidated damages' provision in a contract?
- To penalize the contractor for poor quality
- To provide a predetermined compensation amount for specific breaches such as schedule delays (Correct answer)
- To cap the owner's total liability
- To establish the contractor's profit margin
Correct answer: To provide a predetermined compensation amount for specific breaches such as schedule delays
Liquidated damages clauses establish a pre-agreed daily or weekly amount the contractor owes the owner for failure to complete by the contract completion date.
Question 4: Under the Miller Act, payment bonds on federal construction projects are required when the contract value exceeds:
- $25,000
- $100,000
- $150,000 (Correct answer)
- $500,000
Correct answer: $150,000
The Miller Act requires performance and payment bonds on federal construction contracts exceeding $150,000.
Question 5: A 'cardinal change' to a construction contract is best described as:
- A change order exceeding 10% of the contract value
- A modification so substantial it fundamentally alters the scope of the original contract (Correct answer)
- Any change issued after 50% project completion
- A change requiring congressional approval on public projects
Correct answer: A modification so substantial it fundamentally alters the scope of the original contract
A cardinal change is one so drastic that it cannot be considered part of the original contract, potentially allowing the contractor to treat it as a breach.
Question 6: Which document typically defines the procedures for submitting and resolving contractor claims for additional compensation?
- The project schedule
- General Conditions of the contract (Correct answer)
- The bid instructions
- The subcontract agreement
Correct answer: General Conditions of the contract
General Conditions (e.g., AIA A201 or FAR clauses) establish the formal procedures, notice requirements, and time limits for submitting claims.
Question 7: When an estimator reviews a 'mutual waiver of consequential damages' clause, what risk is being addressed?
- Protection against liens filed by subcontractors
- Limiting recovery for lost profits, loss of use, or business interruption damages by both parties (Correct answer)
- Waiving the right to file arbitration
- Excluding warranties on installed materials
Correct answer: Limiting recovery for lost profits, loss of use, or business interruption damages by both parties
A mutual waiver of consequential damages protects both owner and contractor from claims for indirect losses like lost profits or business interruption beyond direct project costs.
CEP Contract Documentation & Legal Considerations 2
Which contract clause establishes the priority order when conflicts exist between different contract documents?