GCC Lien Laws & Construction Finance 3

Question 1

What is the legal effect of an owner recording a 'Notice of Completion' on a construction project?

Accepted Answer

It triggers shorter deadlines for subcontractors and suppliers to file mechanics liens, helping clear the property's title faster

Answer

It transfers all warranty obligations from the contractor to the owner

Answer

It certifies that all required building inspections have been passed

Answer

It releases the contractor from any obligation to return to the site for punch list work

Question 2

What is the primary purpose of a bid bond submitted with a construction bid?

Accepted Answer

To guarantee that the winning bidder will enter into the contract and provide required performance and payment bonds

Answer

To verify that the bidder's cost estimate is mathematically accurate

Answer

To provide mobilization funds to the contractor before the contract is executed

Answer

To insure the owner against losses if the low bidder is improperly disqualified

Question 3

What are 'Little Miller Acts' in construction law?

Accepted Answer

State statutes modeled after the federal Miller Act that require payment and performance bonds on state and local public construction projects above a threshold

Answer

State laws that limit the amount of retainage that can be withheld on private projects

Answer

Local ordinances requiring licensed bonding agents in each county

Answer

State regulations governing the licensing of surety bond brokers

Question 4

What is the AIA G702/G703 form set used for in construction project administration?

Accepted Answer

Submitting an application for payment, showing work completed by line item on the schedule of values

Answer

Documenting a formal change order request from the contractor

Answer

Issuing a certificate of substantial completion for the project

Answer

Recording the contractor's daily site log and workforce count

Question 5

What is the primary function of a construction loan escrow account?

Accepted Answer

To hold construction loan proceeds and disburse them in stages as verified work milestones are completed

Answer

To secure building materials against theft by storing receipts off-site

Answer

To accumulate retainage funds until project final completion

Answer

To collect and remit sales taxes on materials purchased for the project

Question 6

How does Subcontractor Default Insurance (SDI) differ from a traditional subcontractor performance bond?

Accepted Answer

SDI is first-party insurance purchased by the GC that allows faster claims handling, while a bond is a third-party guarantee requiring surety investigation before payment

Answer

SDI covers material defects discovered after project completion while bonds only cover on-site accidents

Answer

SDI is required on public projects while bonds are required on private projects

Answer

SDI pays the defaulting subcontractor's employees while bonds reimburse the owner's damages

Question 7

Under a construction contract, what obligation does a 'pay-if-paid' clause place on a general contractor regarding subcontractors?

Accepted Answer

It makes the GC's duty to pay subcontractors contingent on first receiving payment from the owner, shifting owner credit risk to the subcontractor

Answer

It requires the GC to pay subcontractors within 7 days of each progress payment received

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It obligates the GC to pay subcontractors regardless of whether the owner has paid the GC

Answer

It allows the GC to withhold payment only when the subcontractor's work has been rejected by the architect