GCC Lien Laws & Construction Finance

Question 1

What is a mechanics lien in the context of construction?

Accepted Answer

A legal claim filed against real property by unpaid contractors, subcontractors, or suppliers

Answer

A permit required before starting excavation on a construction site

Answer

An insurance policy protecting the owner against construction defects

Answer

A contract clause that limits a contractor's liability for delays

Question 2

Under the Miller Act, what bonds are required on federal construction contracts exceeding $150,000?

Accepted Answer

Both a performance bond and a payment bond

Answer

Only a performance bond

Answer

Only a payment bond

Answer

A bid bond and a performance bond

Question 3

What is the primary purpose of a preliminary notice (pre-lien notice) in construction?

Accepted Answer

To preserve the right to file a mechanics lien by notifying the property owner of the claimant's involvement

Answer

To formally request an extension of time for project completion

Answer

To notify the contractor that a change order has been approved

Answer

To begin the contract termination process for non-payment

Question 4

What is retainage in a construction contract?

Accepted Answer

A percentage of each progress payment withheld by the owner until substantial or final completion

Answer

A fee charged by the contractor to reserve availability for a future project

Answer

A surety bond premium held in escrow during construction

Answer

A penalty assessed against the contractor for schedule overruns

Question 5

What does a payment bond primarily protect against on a construction project?

Accepted Answer

Non-payment to subcontractors, laborers, and material suppliers when liens on the property are unavailable

Answer

Property damage caused by contractor negligence during construction

Answer

Cost overruns that exceed the original contract amount

Answer

Delays caused by subcontractor default

Question 6

What document formally releases a recorded mechanics lien from a property?

Accepted Answer

A lien release or lien waiver signed by the claimant

Answer

A certificate of occupancy issued by the building department

Answer

A notice of commencement filed by the owner

Answer

A final inspection report signed by the architect

Question 7

What distinguishes an unconditional lien waiver from a conditional lien waiver?

Accepted Answer

An unconditional waiver releases lien rights immediately upon signing, while a conditional waiver only takes effect after the specified payment actually clears

Answer

A conditional waiver is court-ordered while an unconditional waiver is voluntary

Answer

An unconditional waiver covers all future work while a conditional waiver covers only past work

Answer

A conditional waiver requires notarization while an unconditional waiver does not