GCC Lien Laws & Construction Finance 2

Question 1

In a construction surety bond, which party is the 'obligee'?

Accepted Answer

The party who requires and benefits from the bond, typically the project owner or government agency

Answer

The surety company that issues and backs the bond

Answer

The contractor whose performance or payment is guaranteed

Answer

The insurance broker who arranges the bond on behalf of the contractor

Question 2

What is the primary purpose of prompt payment laws in construction?

Accepted Answer

To require timely payment down the contracting chain and impose interest penalties on parties who pay late

Answer

To mandate that contractors submit invoices within 30 days of completing each phase

Answer

To limit the amount of retainage an owner may withhold

Answer

To require that all subcontractors be paid before the general contractor receives final payment

Question 3

What is a 'stop notice' (stop payment notice) in construction law?

Accepted Answer

A legal remedy requiring the owner or construction lender to withhold funds from the contractor until a disputed payment claim is resolved

Answer

An official notice to halt all work on a project due to a safety violation

Answer

A formal demand from the owner to stop issuing change orders

Answer

A notice that a contractor's license has been suspended by the state licensing board

Question 4

What is the primary benefit of a joint check agreement for a material supplier?

Accepted Answer

It ensures the supplier is paid directly by requiring checks to be made payable to both the general contractor and the supplier jointly

Answer

It guarantees the supplier priority over other creditors in bankruptcy

Answer

It allows the supplier to file a lien on behalf of the general contractor

Answer

It requires the owner to pay the supplier directly, bypassing the general contractor

Question 5

Under most U.S. state lien statutes, when does the deadline to file a mechanics lien typically begin to run?

Accepted Answer

From the date the claimant last furnished labor or materials to the project

Answer

From the date the construction contract was originally signed

Answer

From the date the building permit was issued by the municipality

Answer

From the date the owner made the last payment to the general contractor

Question 6

What does a contractor's 'bonding capacity' represent?

Accepted Answer

The maximum aggregate dollar value of bonded projects a surety will support for a given contractor at one time

Answer

The number of individual bonds a contractor may have outstanding simultaneously

Answer

The highest single contract value a contractor may legally bid

Answer

The maximum retainage percentage a bonded contractor must accept

Question 7

What is a performance bond designed to protect against in construction?

Accepted Answer

Contractor default, ensuring the project is completed according to the contract terms even if the contractor fails

Answer

Non-payment to subcontractors and material suppliers by the general contractor

Answer

Defective workmanship discovered after the project warranty period expires

Answer

Cost overruns caused by owner-directed changes to the scope of work