General Contractor License Contracts, Laws, and Agreements 3 — Questions and Answers
Question 1: A general contractor is hired under a cost-plus contract with a guaranteed maximum price (GMP). If actual costs exceed the GMP, who bears the additional cost?
- The owner, since it is cost-plus
- The contractor, since the GMP is the ceiling (Correct answer)
- Both parties share equally above the GMP
- The subcontractors through back-charges
Correct answer: The contractor, since the GMP is the ceiling
In a GMP contract, the contractor absorbs any costs exceeding the guaranteed maximum price, protecting the owner from cost overruns.
Question 2: What is 'promissory estoppel' in the context of subcontractor bid shopping?
- A legal doctrine preventing general contractors from using sub-bids after award
- A principle that makes a subcontractor's bid binding if the GC reasonably relied on it (Correct answer)
- A clause requiring all bids to be submitted in writing
- A rule prohibiting bid withdrawals after opening
Correct answer: A principle that makes a subcontractor's bid binding if the GC reasonably relied on it
Promissory estoppel can bind a subcontractor to its bid if the general contractor reasonably relied on that bid when submitting its own prime bid.
Question 3: A liquidated damages clause in a construction contract must meet what legal requirement to be enforceable?
- It must be approved by the state licensing board
- The amount must be a reasonable estimate of actual damages, not a penalty (Correct answer)
- It must be at least 10% of the contract value
- It must be approved by both sureties
Correct answer: The amount must be a reasonable estimate of actual damages, not a penalty
Liquidated damages clauses are enforceable only if the amount is a genuine pre-estimate of probable damages, not an unenforceable penalty.
Question 4: Under most state contractor licensing laws, which of the following acts is typically prohibited even if no harm results?
- Hiring unlicensed subcontractors for specialty work
- Using a license number on business cards
- Contracting beyond the monetary limit of your license classification (Correct answer)
- Submitting multiple bids on the same public project
Correct answer: Contracting beyond the monetary limit of your license classification
Contracting for projects that exceed the monetary or scope limits of your license classification is a violation of licensing law regardless of project outcome.
Question 5: What is the primary purpose of a 'no-damages-for-delay' clause in a construction contract?
- To eliminate the contractor's right to a time extension
- To bar the contractor from recovering monetary compensation for owner-caused delays (Correct answer)
- To prevent the owner from assessing liquidated damages
- To require delays to be documented in a project log
Correct answer: To bar the contractor from recovering monetary compensation for owner-caused delays
A no-damages-for-delay clause attempts to limit the contractor's remedy for owner-caused delays to time extensions only, with no additional compensation.
Question 6: When a construction contract requires disputes to go to arbitration, what is the main advantage for contractors?
- Arbitration always results in a higher award than court
- It provides faster, private resolution without a jury trial (Correct answer)
- Arbitration decisions can be appealed more easily than court judgments
- The arbitrator must be a licensed contractor
Correct answer: It provides faster, private resolution without a jury trial
Arbitration typically resolves disputes faster and more privately than litigation, with decisions made by industry-knowledgeable arbitrators rather than juries.
Question 7: A contractor performs extra work at the owner's verbal request but without a written change order. Under a contract requiring written change orders, can the contractor recover payment?
- Yes, always, because the work was done and the owner benefited
- Possibly, under theories of waiver, estoppel, or quantum meruit depending on the state (Correct answer)
- No, written change orders are always strictly enforced in all states
- Yes, but only if the extra work cost less than $5,000
Correct answer: Possibly, under theories of waiver, estoppel, or quantum meruit depending on the state
While written change order requirements are strictly enforced in many states, courts sometimes allow recovery if the owner waived the requirement or under quantum meruit to prevent unjust enrichment.
General Contractor License Contracts, Laws, and Agreements 3
A general contractor is hired under a cost-plus contract with a guaranteed maximum price (GMP).
If actual costs exceed the GMP, who bears the additional cost?