CPE Engineering Economics & Contract Management 4 — Questions and Answers
Question 1: A contractor submits a claim for 'constructive acceleration.' This means:
- The owner directed faster work without a formal order (Correct answer)
- The owner formally issued a written acceleration directive
- Material deliveries arrived ahead of schedule
- The contractor voluntarily sped up work to earn bonuses
Correct answer: The owner directed faster work without a formal order
Constructive acceleration occurs when an owner implicitly demands faster progress (e.g., by denying valid time extensions) without issuing a formal written directive.
Question 2: If a project's NPV is zero, the actual return on investment equals:
- Zero percent
- The inflation rate
- The discount rate used (Correct answer)
- The risk-free rate plus a premium
Correct answer: The discount rate used
When NPV = 0, the project's cash flows exactly recover the investment at the applied discount rate, meaning the actual return equals that discount rate (the IRR).
Question 3: A 'no-damages-for-delay' clause in a contract:
- Eliminates the contractor's right to a time extension
- Limits the contractor's remedy for owner-caused delays to time only (Correct answer)
- Requires the owner to pay double for any delays
- Automatically terminates the contract upon delay
Correct answer: Limits the contractor's remedy for owner-caused delays to time only
A no-damages-for-delay clause restricts the contractor's recovery for owner-caused delays to schedule extensions, barring monetary compensation.
Question 4: The economy of scale concept in engineering economics states that:
- Unit costs increase proportionally with capacity
- Larger facilities typically have lower unit costs than smaller ones (Correct answer)
- Fixed costs always exceed variable costs at high output
- Equipment replacement should occur annually
Correct answer: Larger facilities typically have lower unit costs than smaller ones
Economy of scale occurs because fixed costs are spread over more units and certain efficiencies emerge at larger capacities, reducing per-unit cost.
Question 5: Under a unit-price contract, the owner carries the risk of:
- Unit price increases during construction
- Quantity variations from estimated amounts (Correct answer)
- Contractor inefficiency
- Equipment breakdown costs
Correct answer: Quantity variations from estimated amounts
In a unit-price contract, the owner bears the quantity risk because total payment depends on actual measured quantities, which may differ from bid estimates.
Question 6: The concept of 'break-even analysis' in engineering economics determines:
- The point where total revenue equals total cost (Correct answer)
- The maximum profit achievable
- The optimal discount rate
- The minimum acceptable BCR
Correct answer: The point where total revenue equals total cost
Break-even analysis finds the output level or cost threshold where total revenue exactly covers total costs, resulting in zero profit or loss.
Question 7: A contract's 'differing site conditions' clause (Type I) protects the contractor when:
- Weather conditions are unusually severe
- Site conditions differ materially from those described in the contract documents (Correct answer)
- The contractor encounters unknown local regulations
- Labor productivity is lower than anticipated
Correct answer: Site conditions differ materially from those described in the contract documents
A Type I differing site condition claim applies when actual subsurface or latent physical conditions differ materially from conditions indicated in the contract.
CPE Engineering Economics & Contract Management 4
A contractor submits a claim for 'constructive acceleration.' This means: