NASCLA Contracts and Project Documentation 1 — Questions and Answers
Question 1: Which element is NOT required to make a construction contract legally enforceable?
- Offer and acceptance
- Consideration
- Notarization by a public notary (Correct answer)
- Legal capacity of the parties
Correct answer: Notarization by a public notary
Notarization is generally not required for construction contracts to be legally enforceable; the key elements are offer, acceptance, consideration, and legal capacity.
Question 2: A 'change order' in a construction contract is best described as:
- A court order requiring changes to building plans
- A written agreement modifying the original contract scope, cost, or schedule (Correct answer)
- A subcontractor's request to change payment terms
- An architect's directive that overrides the owner's wishes
Correct answer: A written agreement modifying the original contract scope, cost, or schedule
A change order is a written document signed by the owner and contractor that modifies the original contract's scope of work, price, or completion date.
Question 3: What does the term 'liquidated damages' mean in a construction contract?
- Damages awarded for liquid spills on a job site
- A predetermined amount of money paid for each day a project is delayed beyond the completion date (Correct answer)
- Compensation for equipment that is damaged with liquids
- Penalties assessed for substandard material quality
Correct answer: A predetermined amount of money paid for each day a project is delayed beyond the completion date
Liquidated damages are a pre-agreed daily penalty specified in the contract that the contractor must pay for each day the project extends beyond the agreed completion date.
Question 4: Which type of contract places the most financial risk on the contractor?
- Cost-plus contract
- Fixed-price (lump sum) contract (Correct answer)
- Time-and-materials contract
- Unit price contract
Correct answer: Fixed-price (lump sum) contract
A fixed-price contract places the most risk on the contractor because they must complete the work for the agreed price regardless of actual costs incurred.
Question 5: What is the purpose of a 'notice to proceed' in a construction contract?
- It informs the contractor of building code violations
- It is the official written authorization from the owner for the contractor to begin work (Correct answer)
- It notifies the public of upcoming construction
- It is a lien filed before work begins
Correct answer: It is the official written authorization from the owner for the contractor to begin work
A notice to proceed is a formal written document from the owner authorizing the contractor to begin work and typically establishing the official project start date.
Question 6: An 'indemnification clause' in a construction contract requires one party to:
- Indemnify (protect) the other party from certain losses or liabilities (Correct answer)
- Split all project costs equally
- Provide free labor for warranty repairs
- Maintain a separate escrow account for damages
Correct answer: Indemnify (protect) the other party from certain losses or liabilities
An indemnification clause is a contractual promise by one party to compensate the other for specified losses, claims, or damages arising from the project.
NASCLA Contracts and Project Documentation 1
Which element is NOT required to make a construction contract legally enforceable?