B3 - FInancial Considerations - Lt #4

Question 1

What is a progress payment?

Answer 1

Payments that are made to the contractor when certain stages of construction have been completed.

Question 2

Why are holdbacks used?

Answer 2

Give the the owner time to ensure that all subs and suppliers have been paid or to cover unfinished or defective work.

Question 3

How long is the holdback period and how long does an unpaid party have to file under the Builder’s Lien Act?

Answer 3

The holdback period is usually 55 days, after substantial completion. Builders Lien Act allows 45 days.

Question 4

Why are allowances used in a contract?

Answer 4

Cash allowances are used where precise details of certain portions of the work are unknown at the time of bidding.

Question 5

Why is it important to have a clear scope of work for each allowance?

Answer 5

So that no overlap occurs between the allowance and the rest of the contract.

Question 6

What is a contingency allowance used for?

Answer 6

Cover work that is unforeseen and unpredictable

Question 7

Describe the three types of bonding required for a construction project.

Answer 7

1)Bid bond for entering into a contract
2)labor & material bond payment bond for covering payment to contractors & suppliers
3) Performance bond to make sure the job is completed.

Question 8

How can contractors protect themselves since they purchase materials in a job?

Answer 8

Contractors request payment for materials in advance as a down payment or once the materials have been delivered to the job site.

Question 9

What is the 10% holdback at the end of the project for?

Answer 9

A 55-day holdback at the end of the contract is to give the owner time to confirm that all suppliers and subcontractors have been paid.

Question 10

Small claims court can be used for claims less than:

Answer 10

25,000

Question 11

What are allowances often used for in a contract?

Answer 11

Flooring, cabinets, and light fixtures. Contract allowances do not include taxes.

Question 12

If the actual cost of the work equals or is less than the allowance:

Answer 12

no overhead or profit is added to the cost of the work. If the cost of work exceeds the allowance, then the contractor can add on overhead and profit to the amount that exceeds the allowance.

Question 13

During the project, when actual costs become known for each allowance, the price of the contract is amended with:

Answer 13

Change order

Question 14

It is very important to define the scope of work for each allowance why?

Answer 14

No overlap occurs between the allowance and the rest of the contract.

Question 15

What is a contingency used for

Answer 15

To pad a contract bid price to cover missed items.

A contingency allowance is built into contracts for larger projects to cover work that is unforeseen and unpredictable.

Question 16

What is bonding?

Answer 16

Insurance for a specific use and is paid for in a lump sum.

Question 17

What size jobs require bonding?

Answer 17

Larger jobs, in the hundreds of thousands of dollars, often millions.

Question 18

The company that issues the bond is called the:

Answer 18

Surety in the contract documents.

Question 19

What is a bid bond?

Answer 19

Usually, 10% of the bid price, must accompany the bid. Guarantee that the contractor will actually take the job if they are the low bidder.

Question 20

What is the labor and material bond?

Answer 20

Used to protect the owner from the liability of the wages and material costs should the contractor go broke.

Question 21

What is the performance bond?

Answer 21

To protect the owner in case the contractor cant finish the job. Usually in the amount of 50% to 100% of the bid price for the job.

Question 22

When bonds are in place, the owner is:

Answer 22

Well and protected, should the contractor not be able to fulfill the contract. Even with the bonding in place, the owner hires a PM to ensure the contractor is meeting goals.