GCC Construction Contracts and Business Administration 2 — Questions and Answers
Question 1: Under a cost-plus-fee contract, which cost is typically NOT reimbursable to the contractor?
- Labor costs for on-site workers
- Materials purchased for the project
- Equipment rental fees
- Home office overhead unrelated to the project (Correct answer)
Correct answer: Home office overhead unrelated to the project
Home office overhead unrelated to the specific project is generally not reimbursable under cost-plus contracts.
Question 2: A 'no-damages-for-delay' clause in a construction contract means the contractor:
- Cannot sue the owner for any reason
- Is only entitled to time extensions, not money, for owner-caused delays (Correct answer)
- Must complete work regardless of weather events
- Cannot receive liquidated damages
Correct answer: Is only entitled to time extensions, not money, for owner-caused delays
No-damages-for-delay clauses limit the contractor's remedy for owner-caused delays to time extensions only, not monetary compensation.
Question 3: What is the primary purpose of a 'schedule of values' submitted with a payment application?
- To list all subcontractor bids received
- To allocate the contract sum among work items for payment tracking (Correct answer)
- To document change order pricing
- To establish the project critical path
Correct answer: To allocate the contract sum among work items for payment tracking
A schedule of values breaks down the total contract amount by work components so progress payments can be calculated accurately.
Question 4: Which contract document typically takes precedence when there is a conflict between drawings and specifications?
- Drawings always govern over specifications
- Specifications always govern over drawings
- The order of precedence is defined in the contract's general conditions (Correct answer)
- The lower-cost interpretation always governs
Correct answer: The order of precedence is defined in the contract's general conditions
The contract's general conditions establish a specific order of precedence among contract documents, which governs in cases of conflict.
Question 5: A contractor's 'overhead and profit' markup on a change order typically covers:
- Only direct material costs
- Administrative costs and business profit not included in direct costs (Correct answer)
- Subcontractor labor only
- Permit fees and inspection costs
Correct answer: Administrative costs and business profit not included in direct costs
Overhead and profit markups compensate the contractor for indirect business costs and return on investment beyond direct field costs.
Question 6: In construction contracts, 'substantial completion' is best defined as the point when:
- All punch list items are resolved
- The work is sufficiently complete for its intended use (Correct answer)
- The contractor submits final billing
- The owner takes beneficial occupancy
Correct answer: The work is sufficiently complete for its intended use
Substantial completion occurs when the work is complete enough that the owner can use it for its intended purpose, even if minor items remain.
Question 7: Which type of bond protects the owner if the contractor fails to pay subcontractors and material suppliers?
- Bid bond
- Performance bond
- Payment bond (Correct answer)
- Completion bond
Correct answer: Payment bond
A payment bond guarantees that the contractor will pay subcontractors, laborers, and material suppliers, protecting the owner from mechanic's liens.
GCC Construction Contracts and Business Administration 2
Under a cost-plus-fee contract, which cost is typically NOT reimbursable to the contractor?