CME CME Municipal Finance & Contract Administration 2 — Questions and Answers
Question 1: What does a performance bond guarantee on a public construction contract?
- Payment of subcontractors and material suppliers
- Completion of the project according to contract terms if the contractor defaults (Correct answer)
- Correction of warranty defects for one year
- Worker safety on the project site
Correct answer: Completion of the project according to contract terms if the contractor defaults
A performance bond provides the municipality with financial assurance that the project will be completed per contract terms even if the prime contractor defaults or becomes insolvent.
Question 2: What is a payment bond on public construction projects and why is it required?
- A bond guaranteeing the owner's payment to the general contractor
- A surety bond protecting subcontractors and material suppliers from nonpayment by the prime contractor (Correct answer)
- An insurance policy for worker injuries
- A financial guarantee for retainage release
Correct answer: A surety bond protecting subcontractors and material suppliers from nonpayment by the prime contractor
A payment bond (required by the Miller Act on federal projects) ensures that subcontractors and suppliers are paid, preventing mechanics' liens on public property.
Question 3: What is the purpose of 'retainage' in public construction contracts?
- A fee charged to the contractor for using municipal equipment
- A percentage of progress payments withheld to ensure contract completion and quality (Correct answer)
- Insurance premium held in escrow
- A bonus paid for early completion
Correct answer: A percentage of progress payments withheld to ensure contract completion and quality
Retainage (typically 5–10%) is withheld from progress payments and released upon substantial completion, providing leverage to ensure the contractor finishes all work and corrects defects.
Question 4: What is a 'change order' in the context of public construction contract administration?
- A request from the contractor to change project managers
- A written agreement modifying the contract scope, price, or schedule for work additions, deletions, or unforeseen conditions (Correct answer)
- A municipal instruction to change design standards
- A permit modification
Correct answer: A written agreement modifying the contract scope, price, or schedule for work additions, deletions, or unforeseen conditions
Change orders are formal contract amendments executed by the owner and contractor to authorize and compensate for changes in scope, differing site conditions, or other contract modifications.
Question 5: What is 'design-build' project delivery and its primary advantage for municipalities?
- Municipality designs the project and hires a separate builder
- A single entity is responsible for both design and construction, providing single-point accountability and often faster delivery (Correct answer)
- A federal program for small municipalities
- A design process using BIM only
Correct answer: A single entity is responsible for both design and construction, providing single-point accountability and often faster delivery
Design-build contracts one firm for both design and construction, reducing coordination gaps, shortening schedules through overlapping phases, and providing single-point responsibility.
Question 6: What is a 'differing site conditions' (DSC) clause in public construction contracts?
- A provision allowing the contractor to change work location
- A contract provision allowing the contractor to seek additional compensation when actual subsurface conditions differ materially from contract representations (Correct answer)
- An environmental mitigation requirement
- A clause requiring soil testing before bid
Correct answer: A contract provision allowing the contractor to seek additional compensation when actual subsurface conditions differ materially from contract representations
DSC clauses protect contractors from absorbing costs when actual subsurface conditions are materially different from those indicated in contract documents, encouraging realistic bids.
CME CME Municipal Finance & Contract Administration 2
What does a performance bond guarantee on a public construction contract?