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Chapter 2
Construction Contracts
Review Questions:
1. Why is it essential that a project manager fully understand the requirements and
procedures specified in the contract documents?
2. What types of information would you find in each of the following contract documents?
3. What is the difference between contract addenda and a contract change order?
4. Why might an owner decide to include a special conditions section in a construction
contract?
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5. Name and describe the four types of technical specifications.
The four types of technical specifications are: (1) descriptive specifications that detail
6. What type of construction materials are covered in division 03 of the technical
specifications of a construction contract?
7. What type of construction materials are covered in division 09 of the technical
specifications of a construction contract?
8. What is the difference between a lump-sum and a unit-price contract?
9. Under what conditions might an owner decide to use a unit-price contract?
10. What is the difference between a lump-sum and a cost-plus construction contract?
11. What is the difference between the bid and the negotiated methods of contract
procurement?
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12. On what basis is the successful contractor selected in a bid method of contract
procurement?
13. On what basis is the successful contractor selected in a negotiated method of contract
procurement?
14. What does contractor prequalification mean in the context of a construction contract
procurement strategy?
15. What are the four types of bonds used in construction? Why do owners require them?
16. What is the difference between builder’s risk and general liability insurance?
17. What is the difference between named-peril and all-risk builder’s risk insurance?
18. What contractor’s risk is covered by worker’s compensation insurance?
19. What are five potential risks that a contractor might face on a construction project?
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20. What are four alternative risk response strategies that a contractor might consider in
developing a risk management plan?
1. What requirements might be included in the special conditions of a contract for the
construction of a major addition to an operational hospital in a major metropolitan
area? What impacts would these requirements have on the scheduled completion and
cost of the project?
2. What information might an owner require contractors to submit for the owner’s review
during the prequalification process, if the owner wants to identify the best-qualified
contractors for negotiating a design-build contract for the construction of a major
manufacturing plant?
3. What criteria might an owner use when negotiating a lump-sum contract for the
construction of a shopping complex that they desire be completed prior to the start of the
Christmas shopping season?
4. Calculate a contractor’s cost for performance and labor and material payment bonds
using the rate schedule shown in Figure 2.15 for each of the following projects:
a. A construction project with an estimated cost of $750,000
b. A construction project with an estimated cost of $25 million
What is the calculated bond fee (bond cost as a percentage of the construction cost) for
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each project? How does the bond fee vary as the project cost is increased?
5. What risks does a contractor face when bidding on a construction project located in a
city in which she has never had a previous project?
6. What criteria should a contractor use in deciding which projects to submit bids on?