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1 Builders (Exam Review for Business Law) > Contracts (Overview) > Flashcards

Contracts (Overview) Flashcards

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1
Q

In order for a contract to become a binding document, it must contain four key elements which are an offer and acceptance, competent parties, legal purpose and:

a: Consideration
b: Evaluation
c: Notary
d: Witnesses

A

a: Consideration

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2
Q

True or False. The term consideration means that both parties to a contract must be exchanging something of value.

A

True

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3
Q

What is the term used to identify changes made to contract documents before the execution of the basic owner contractor agreement?

a: Change orders
b: Modifications
c: Addenda
d: All of the above

A

c: Addenda

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4
Q

True or False. Oral contracts are valid, but are often difficult to enforce.

Note: Michigan requires that all residential construction projects be in writing

A

False

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5
Q

Terms used in a contract that allow the owner to withhold an agreed upon percentage of the contract funds until the project is 100% complete is called:

a: Withholding allowance
b: Retainage
c: Retainer
d: Escrow

A

b: Retainage

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6
Q

Losses paid by the contractor if the project isn’t completed in a specified time frame written into the contract are called:

a: Reimbursement
b: Reparation
c: Deadline compensation
d: Liquidated damages

A

d: Liquidated damages

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7
Q

Changes made to the contract documents after the signing of the basic owner-contractor agreement are called:

a: Addenda
b: Modifications
c: Notary
d: Bulletins

A

b: Modifications

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8
Q

True or False. Change orders are an example of contract modifications.

A

True

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9
Q

When one contractor assumes all design and construction responsibilities this contract is known as:

a: Turn key
b: Design/Build
c: Fast Track
d: Single Prime

A

b: Design/Build

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10
Q

True or False The most important thing for both the contractor and the owner to do before signing a contract is to read and understand the contract.

A

True

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11
Q

These are common contract terms that predetermine how important issues involved in a lawsuit will be addressed, such as attorney’s fees being recouped by the prevailing party in the lawsuit, or agreeing to arbitration as a method of resolving disputes.

a: Recitals
b: Boilerplate provisions
c: Recissions
d: Addenda

A

b: Boilerplate provisions

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12
Q

What type of contract provides the owner with the total price for the project in advance?

a: Unit price
b: Lump sum
c: Best shot
d: Hard shot

A

b: Lump sum

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13
Q

The contractor and the owner agree to set aside a sum of money for electrical fixtures and plumbing fixtures in the contract budget because the actual cost of these items are unknown. The set aside money is called:

a: Escrow
b: Allowance
c: Allocation
d: All of the above

A

b: Allowance

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14
Q

True or False. If the contract specifications require 5/8” OSB to sheath the roof and the contractor used 1/2” OSB to save money, the contractor could be sued for breach of contract.

A

True

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15
Q

True or False. If changes to the original contract occur, it is important to write a “Change Order” and have all parties on the contract sign it before the actual changes are made.

A

True

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16
Q

True or False. The first and most important element in a contract is offer and acceptance.

A

True

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17
Q

True or False. If a contractor finds a handwritten provision on a drawing, he should ignore it and proceed as it was originally directed by the original printed instruction.

A

False

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18
Q

True or False. Retainage is usually paid with the final payment.

A

True

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19
Q

True or False The contract should provide for a schedule as to when progress payments will be disbursed and the amount of money that will be available to the contractor at each payment.

A

True

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20
Q

A ____________ is when the terms of the contract have been violated to the extent that the contract can no longer be valid.

a: Liquidation
b: Material misrepresentation
c: Material breach
d: Immaterial breach

A

c: Material breach

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21
Q

You have a new roof and with the first heavy down pour of rain it’s leaking. There is no written warranty from the contractor, what type of warranty will require the contractor to correct the problem?

Note: Just by the nature of the job itself there is an implied warranty. People reroof their roof so they won’t leak!

a: Limited warranty
b: Special warranty
c: Specific warranty
d: Implied warranty

A

d: Implied warranty

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22
Q

A subcontract is a contract between the subcontractor and which of the following?

Note: Large projects will typically have one contractor who is contracting with the owner, which means it’s a prime contract. All other service providers then contract through the general contractor who is prime.

a: The laborers
b: The material providers
c: The owner
d: The prime contractor

A

d: The prime contractor

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23
Q

Contractors use _______________ to modify the terms of an existing contract when changes are made. This insures that all the new work and the additional expenses will be covered in the contract.

a: Addenda
b: Field orders
c: Change orders
d: Any of the above

A

c: Change orders

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24
Q

A home owner hires one contractor to be in charge of designing and building of the entire project. What is the name of this method of contracting?

a: Turnkey
b: Design/build
c: Fast-track
d: Construction management

A

b: Design/build

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25
Q

If a contractor purchased the land, obtained the financing, designed and built the home for a client, what method of contracting would this represent?

a: Turnkey
b: Design/build
c: Fast-track
d: Construction management

A

a: Turnkey

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26
Q

Contracts entered into that were initiated through a solicitation require the contractor to inform the customer of their right to cancel the contract within 3 days of the signing. The contract itself must have this information in at least _______ point font and in bold print.

a: 6
b: 8
c: 10
d: 12

A

c: 10

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27
Q

True or False. Contracts signed at the contractor’s place of business do not qualify the customer to cancel the contract within 3 days.

A

True

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28
Q

True or False. Contractors who start a project initiated through a solicitation before the customer’s 3 day right to cancel, risk losing their wages, including the materials expended.

A

True

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29
Q

Which of the following is NOT a basic element of a contract?

a: Legal purpose
b: Offer and acceptance
c: Arbitration clause
d: Consideration

A

c: Arbitration clause

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30
Q

The details of the contract regarding who, how, what, how much, how many, when, etc., are called its____________.

a: Provisions or terms
b: Clauses
c: Addenda
d: Stipulations

A

a: Provisions or terms

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31
Q

This method of contracting allows for the project to begin before the project’s entire specifications have been decided upon.

a: Construction management
b: Design Build
c: Fast Track
d: Turnkey

A

c: Fast Track

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32
Q

This method of contracting involves one contract that the owner enters into to build (but not design) the structure with a single contractor.

a: Single prime
b: Turnkey
c: Design-Build
d: Construction Management

A

a: Single prime

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33
Q

In this method of contracting, the owner contracts with a construction manager to schedule and manage construction tasks. The construction manager typically would receive a fee to manage the project from conception to completion.

a: Turnkey
b: Design-Build
c: Construction Management
d: Fast Track

A

c: Construction Management

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34
Q

________ are miscellaneous changes in the contract that predetermine how important issues involved in a lawsuit will be addressed.

a: Modifications
b: Boilerplate Provisions
c: Stipulations
d: None of the above

A

b: Boilerplate Provisions

35
Q

True or False. The term consideration means that both parties to a contract must be exchanging something of value.

A

True

36
Q

Terms used in a contract that allow the owner to withhold an agreed upon percentage of the contract funds until the project is 100% complete is called:

a: Withholding allowance
b: Retainage
c: Retainer
d: Escrow

A

b: Retainage

37
Q

A ____________ is when the terms of the contract have been violated to the extent that the contract can no longer be valid.

a: Liquidation
b: Material Misrepresentation
c: Material Breach
d: Immaterial Breach

A

c: Material Breach

38
Q

Which of the following usually has a direct contract with the owner?

a: Laborers
b: Material Providers
c: Owner
d: General Contractor

A

d: General Contractor

39
Q

Contractors use _______________ to modify the terms of an existing contract when changes are made. This insures that all the new work and the additional expenses will be covered in the contract.

a: Addenda
b: Field Orders
c: Change Orders
d: Any of the above

A

c: Change Orders

40
Q

This method of contracting is preferred by owners who want to deal with one firm for the entire project. The firm they hire will complete the project from the early design stages to the final completion of the project.

a: Single prime contracting
b: Design build contracting
c: Construction management system
d: Fast track construction

A

b: Design build contracting

41
Q

A _________contract is very similar to the Design-Build, but the contractor also obtains the financing and the land.

a: Fast Track
b: Single Prime
c: Unit Price
d: Turnkey

A

d: Turnkey

42
Q

Which of the following dispute resolution alternatives uses a neutral person to review and render a decision that is binding?

a: Negotiation
b: Collaboration
c: Mediation
d: Arbitration

A

d: Arbitration

43
Q

What defines a successful contract?

A

One that sets forth an understandable agenda that meets the goals of both parties in a well-defined and attainable way.

44
Q

What are the two fundamental parts of a contract that make it legally binding?

A

Offer and Acceptance.

45
Q

What are Key Contact Provisions?

A

Includes identity of the parties, description of the work, time for performance, contract price and payment schedule and lien notice (state law).

46
Q

What are Contract Price and Payment Terms?

A

Periodic payments or partial reimbursements that cover the cost of construction. Retainage is a sum of money withheld from the progress payments to the contractor and later paid in accordance with the terms of the contract. Retainage benefits the owner by withholding some of the contract funds until the project is 100% complete.

47
Q

What are Drawings used for in contracts?

A

They are used to describe the physical aspects of the project and to determine the quantities of materials needed for the contract.
- Contract drawings are prepared by a designer, architect or engineer
- Shop drawings illustrate the specific assembly and installation methods to e employed and are submitted to the architect, construction manager and building official.

48
Q

What are Specifications?

A

Supplement drawings and specify types of materials (mechanical, electrical, etc.)

49
Q

What are Allowances?

A

Fund that may be set aside in the contract budget for items whose actual cost may be unknown, or may change, for example plumbing and lighting fixtures, cabinetry, carpeting.

50
Q

What are Addenda?

A

Changes to the contract documents before execution of the Basic Owner-Contractor Agreement.

51
Q

What are Modifications?

A

Changes to the contract documents after execution of the Basic Owner-Contractor Agreement and generally include:
- Written Change Orders
- Bulletins
- Clarifications
- Interpretations of the architect
- Field Memoranda

52
Q

What are Arbitration Agreements?

A

A common component of construction contracts. Arbitration is an accepted and popular method to resolve disputes between all parties involved in the project. They are generally faster, cheaper, and obviously reduce the burden on the court system.
The general understanding is that all disputes will be settled by an arbitrator. It is important to note, however, that not all arbitration agreements are binding, and under certain circumstances a dispute can end up in the courts, even though an arbitration agreement was included in the original contract.

53
Q

What is a Consideration?

A

In order for a contract to exist, both sides must give a “consideration” or exchange something of value. Both sides have committed to giving up something or doing something, most often this is money.

54
Q

What are Competent Parties?

A

Not just anyone can enter into a contract. In order to make an enforceable contract, people have to be able to understand what they’re doing. This means maturity and mental capacity, usully this just means 18 years old and no mental illness.

55
Q

What is Legal Purpose?

A

An agreement is only legal if the terms and conditions of the contract comply with the law and with public policy. A contract cannot require illegal activity.

56
Q

What is a Lump Sum Contract?

A

The contractor agrees to complete a project for a fixed sum of money. It’s important to recognize that this tpe of contract should only be used when the project can be accurately and completely described, so there are no unforeseen costs.

57
Q

What is a Unit-Price Contract?

A

The contractor agrees to be paid based upon a unit of something that can be measured. For example, when laying block for a basement or foundation, the job is priced at the cost per block laid, rather than for the entire job.

58
Q

What are Cost-Plus-Fee Contracts?

A

The owner agrees to pay actual costs for labor and materials, plus an agreed upon fee for the contractor.

59
Q

In a Cost-Plus-Fee Contract, The prime contractor and owner should pay particular attention to what four different considerations?

A
  1. A definite and mutually agreeable subcontract vetting procedure where the owner and contractor will be fully aware of the agreed upon arrangement with each subcontractor
  2. A clearly understood agreement concerning determination and payment of contracted fees.
  3. A clear understanding of accounting methods to be followed
  4. The owner and the contractor should agree upon a complete list of reimbursable job costs and overhead costs that may be incurred by the contractor
60
Q

What is the Single Prime Contracting Method?

A

The General Contractor will enter into a single contract with the owner for a lump sum amount. This agreement is legally binding and will require signatures from both the owner and contractor. In this agreement, it will usually state that the GC is obligated to accept all the risks to complete the project in a specified amount of time.
In this case, the owner will hire an architect and engineer to do all the design work. The GC will be required to complete their work to the satisfaction of the architect and engineer.

61
Q

What is the Design-Build or (DB) System?

A

A delivery system that has an advantage for owners that wish to use one firm for a complete project. This firm will provide the design and take on the general contractor’s duties. The design team will work with the owner to develop the appropriate design.
The contractor team will be responsible for completing the project. this system can be attractive to owners because it can lead to an early start time as construction can start before the design is complete.

62
Q

What is Construction Management?

A

Another construction delivery method used today. A construction Manager or (CM) will be hired by the owner to manage the project for a fee.

63
Q

What are some of the duties of a CM?

A
  • Preconstruction services
  • Budget assessment
  • Scheduling construction duration
  • Value engineering
  • Assign bid packages and categories
  • Advertise and collect contractor bids
64
Q

What is a Turnkey Contract?

A

It is very similar to a Design-Build, but the contractor also obtains the financing and the land. The construction company is responsible for staying on budget. This type of contract is attractive to an owner as it reduces the risk to the buyer for construction services and provides incentive for the builder to stay on budget.

65
Q

What is Fast Track Construction?

A

This method allows for the project to begin before all of the project specifications have been decided upon.
This speeds up the project by intermingling the tasks of designing and actual building production in the same time frame. With this method, a separate contract can be executed for each phase of the project.

66
Q

What is a Multiple Prime Contract?

A

One in which the owner contracts with all or most of the parties directly, rather than using the more traditional hierarchal method. This form of contradicting requires much more involvement on the part of the owner to coordinate and manage the project on multiple levels.

67
Q

What is Partnering?

A

A collaborative management style between owners, designers, engineers, contractors, and any other parties involved to work together towards the success of the project. Partnering is a management practice aimed at preventing conflict by aligning the various parties involved throughout the life of a project. It prioritizes mutual goals, establishes more open communication, and creates a collaborative atmosphere to improve working relationships.

68
Q

What details are explained in contract provisions?

A

The Who, How, What, How much, How Many, When, etc.
Usually the provisions are designed to protect the interests of both parties by outlining the essential obligations of each.

69
Q

What are 3 key provisions in a contract?

A
  • Progress Payments
  • Retainage
  • Final Payment
70
Q

What are Progress Payments?

A

Installments of a larger payment made as work progresses, based on costs incurred, percentage of work completed, or at specific stages of completion. the number of payments, the amount of the payment, the time between payments, and the date or stage when each payment is made should all be outlined in the contract. Progress payments are essential, first to protect the owner from the risk of full payment before work is completed, and to provide the contractor adequate funds for labor and materials.

71
Q

What is a Retainage?

A

A retained percentage of each progress payment. The owners holds accumulated retainage until the job is 100% complete and the final payment is made. If retainage is part of the contract, the general contractor usually applies retainage to their subcontractor’s payments at the same percentage rate that the owner does to the general contractor.

72
Q

What is the Final Payment?

A

Project closeout occurs when the project, or a specific part of it, is complete enough that the owner can use it for its intended purpose. It is actually a very good practice to outline and document the closeout procedure during the design phase.

73
Q

What documents must be completed and delivered in order to receive the final payment?

A

-The architect documents substantial completion with the owner and the contractor. This may activate certain warranties, depending on the terms of the contract.
- Corrections will be noted on the punch list, and upon acceptance by the owner, the architect will issue a certificate of completion to the contractor with a copy to the owner.
- The contractor documents and delivers all keys, as-built drawings, testing and balancing reports, and any other documents required by the contract.
- The contractor submits all guarantees, warranties, certificates, and bonds required by the contract.
- All operation and maintenance manuals are sent to the owner.
- The contractor must show the owner that all invoices from subcontractors and material suppliers have been paid.
- The architect sends a final certificate of payment to the owner; a copy also goes to the contractor
- The contractor provides the certificate of occupancy that indicates that building officials have approved the structure for use.
- The final payment request, including approved and signed change orders, is submitted by the contractor as a final accounting of the project.
- The owner makes final payment to the contractor.

74
Q

What are the typical obligations for the contractor and the owner?

A

Contractor: Correct licensure, securing permits, ordering materials, furnishing labor, completing work in a timely manner and according to specifications, maintaining a debris free and orderly job site.

Owner: Prompt approval of plans, issuing payments according to schedule, pay for all permits, furnish surveys, and site-related requirements.

75
Q

What are Supplemental or Special Conditions?

A

These are used to tailor the agreement by modifying, changing, adding to or deleting from the provisions in the general conditions. They can include plans, drawings, specifications, addenda, modifications and changes.

76
Q

What are Recitals?

A

These provide background information and the purpose for which the parties are entering into the contract.

77
Q

What are Boilerplate Provisions?

A

These are common contract terms that predetermine how important issues involved in a lawsuit will be addressed, such as attorney’s fees being recouped by the prevailing party in the lawsuit or agreeing on arbitration as a method of resolving disputes.
Boiler plate provisions usually appear at the end of the contract as “miscellaneous” or “general” conditions.

78
Q

Why should you use change orders?

A

to make things clear to your customer about additional costs and what exactly will be changed, this adds professionalism

79
Q

What are warranties and the two types?

A

If warranties are breached then the builder can be held responsible, therefore these are assurances made to the owner.

  • Express and Implied warranties.
80
Q

What do lenders look for when financing new constructions?

A
  • Detailed descriptions (floor plans, cost and profit projects)
  • A timeline
  • An inventory of materials
  • A list of current and past projects with a profits and loss report
  • Where it is located and current market conditions
  • Proof that the borrower can repay the loan
  • Proof of income and outstanding debt
  • Credit scores and cash reserves
81
Q

How are building loans structured?

A

It starts off as a short term loan that will cover the entire cost of the building. Once its built, the borrower will enter into a permanent loan to pay off the short-term loan.
During construction, the funds will be distributed in draws, based on the stage of construction completed and greed upon time frames.

82
Q

What is a Breach of Contract?

A

Failing to preform any term of a contract, written or oral, without a legitimate legal excuse is a breach of contract. This may include not completing a job, not paying in full or on time, failure to deliver all the goods, substituting inferior or significantly different goods, not providing a bond when required, being late without an excuse, or any act which shows the party will not complete the work.

83
Q

What are the examples of Breach of Contract?

A
  • Fraud (knowing misrepresentation)
  • Material misrepresentation (Untrue fact important to the deal)
  • Material Breach (Serious violation)
  • Immaterial Breach (Less serious)
  • Liquidated Damages (losses experienced by the owner and paid by the contractor if not completed within the right time frame)
  • Force Majeure or Acts of God
  • Indemnification (A risk limiting clause written into a contract that holds a party to the contract harmless against an action that the other party took or failed to take that caused a financial loss or a third-party claim.
  • Site Conditions (Unexpected conditions that can cause budget overruns.)
  • Warranties and Guarantees
  • Delays
  • Schedule acceleration and design changes

1 Builders (Exam Review for Business Law) (13 decks)

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