General Contractor License Contracts, Laws, and Agreements 4 — Questions and Answers
Question 1: What is a 'pay-if-paid' clause and how does it differ from a 'pay-when-paid' clause?
- They are legally identical terms used interchangeably
- Pay-if-paid makes subcontractor payment contingent on owner payment; pay-when-paid only delays timing (Correct answer)
- Pay-when-paid shifts all risk to subcontractors; pay-if-paid protects them
- Pay-if-paid applies to suppliers; pay-when-paid applies to subcontractors
Correct answer: Pay-if-paid makes subcontractor payment contingent on owner payment; pay-when-paid only delays timing
A pay-if-paid clause transfers the risk of owner nonpayment to the subcontractor, while a pay-when-paid clause only temporarily delays the GC's payment obligation.
Question 2: Under the Davis-Bacon Act, which workers on federal construction contracts must be paid prevailing wages?
- Only federal employees working on the site
- All laborers and mechanics employed on the project (Correct answer)
- Only union workers on federal projects
- Contractors with more than 50 employees
Correct answer: All laborers and mechanics employed on the project
The Davis-Bacon Act requires all laborers and mechanics (including subcontractor employees) on covered federal construction contracts to be paid locally prevailing wages.
Question 3: A contractor discovers unforeseen subsurface conditions (rock instead of soil) that significantly increase excavation costs. Which contract clause would most likely entitle the contractor to additional compensation?
- Force majeure clause
- Differing site conditions clause (Correct answer)
- Substantial completion clause
- Indemnification clause
Correct answer: Differing site conditions clause
A differing site conditions clause entitles contractors to additional compensation when actual subsurface or latent conditions differ materially from what was represented in the contract documents.
Question 4: What is the legal effect of a contractor obtaining a surety bond?
- It eliminates the contractor's personal liability for project defects
- A third party (surety) guarantees the contractor's performance or payment obligations (Correct answer)
- It replaces the need for contractor licensing in most states
- It automatically increases the contractor's bonding capacity each year
Correct answer: A third party (surety) guarantees the contractor's performance or payment obligations
A surety bond creates a three-party agreement where the surety guarantees that the principal (contractor) will fulfill its obligations to the obligee (owner or public).
Question 5: An owner wants to use a design-build contract instead of a traditional design-bid-build approach. What is the main legal difference for the contractor?
- The contractor is not responsible for any design errors
- The contractor assumes responsibility for both design and construction (Correct answer)
- The owner retains design liability but transfers construction liability
- The contractor must be licensed as an architect in the state
Correct answer: The contractor assumes responsibility for both design and construction
In design-build, the single entity (contractor or design-builder) is responsible for both the design and construction, consolidating liability and eliminating the traditional separation between designer and builder.
Question 6: Under OSHA regulations, when a general contractor is cited for a subcontractor's safety violation on a multi-employer worksite, this is known as what type of citation?
- Creating employer citation
- Controlling employer citation (Correct answer)
- Correcting employer citation
- Exposing employer citation
Correct answer: Controlling employer citation
OSHA's multi-employer worksite doctrine allows a controlling employer (GC) to be cited if it has the authority to correct hazards created by subcontractors on the site.
Question 7: What is the legal significance of the 'substantial completion' date in a construction contract?
- It triggers final payment and releases all retainage immediately
- It starts the statute of limitations period and shifts insurance risk to the owner (Correct answer)
- It eliminates the contractor's warranty obligations
- It requires the owner to accept all work including known defects
Correct answer: It starts the statute of limitations period and shifts insurance risk to the owner
Substantial completion typically starts the running of statutes of limitation on warranty claims, triggers the owner's duty to occupy and insure, and often triggers final payment minus punch-list retainage.
General Contractor License Contracts, Laws, and Agreements 4
What is a 'pay-if-paid' clause and how does it differ from a 'pay-when-paid' clause?