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AR General Contractor practice questions

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Question 1Business and Law

Under Arkansas law, a contractor that plans to bid on a project that requires a contractor's license must:

  1. obtain a license within 30 days after being awarded the work
  2. hold a license only if the project value exceeds $100,000
  3. hold a valid license before submitting its bid Correct answer.
  4. be licensed when the contract is signed, but may bid while unlicensed

Explanation

Arkansas requires a contractor to hold a valid license before bidding or contracting on work that requires licensure. Bidding while unlicensed exposes the contractor to disciplinary action by the Contractors Licensing Board and can jeopardize the contract and the right to be paid. A later application does not cure a bid submitted without a license.

Question 2Business and Law

An unlicensed Arkansas contractor completes work on a project that legally required a license and then sues the owner for the unpaid contract balance. The most likely result is:

  1. the contractor will automatically recover the reasonable value of the work performed
  2. the court will dismiss the claim because the unlicensed contract is unenforceable Correct answer.
  3. the contractor will recover the contract price plus a statutory penalty
  4. the claim will be stayed until the contractor obtains a license and pays a late fee

Explanation

Arkansas courts refuse to enforce construction contracts made by contractors who were required to be licensed but were not, because the agreement violates the licensing statute. Courts have generally also denied quasi-contract recovery for the value of the work, so the contractor can lose both the contract price and any equitable remedy.

Question 3Business and Law

An owner receives a contractor's written proposal and mails back a signed acceptance that changes the completion date. Which statement is correct?

  1. A contract was formed on the original terms because the owner signed the document
  2. A contract was formed because the change was minor and did not affect price
  3. The owner's response is an effective acceptance that binds both parties
  4. The owner's response is a counteroffer, and no contract exists unless the contractor accepts it Correct answer.

Explanation

At common law, an acceptance must match the offer exactly; a response that varies the terms is not an acceptance but a counteroffer. The counteroffer operates as a rejection of the original offer and creates a contract only when the original offeror accepts it. Changing a term as significant as the completion date prevents formation on the original proposal.

Question 4Business and Law

Which of the following is sufficient consideration to support a construction contract?

  1. A promise to do something the promisor is already legally obligated to do
  2. A promise to pay a stated price in exchange for a promise to build Correct answer.
  3. Notarization of the parties' signatures by a public official
  4. A recital in the contract stating that it is binding and enforceable

Explanation

Consideration is a bargained-for exchange of value, such as a promise to pay in return for a promise to perform the work. Each party gives up something it was not previously obliged to give. Recitals, signatures, and notarization affect proof or formality, not the existence of consideration.

Question 5Business and Law

Which contract must be in writing to be enforceable under the statute of frauds?

  1. A construction contract that cannot be completed within one year of the date it is made Correct answer.
  2. A subcontract that the parties expect to finish in four months
  3. An oral change order worth $1,200 on an existing project
  4. A purchase order for $750 of lumber to be delivered next week

Explanation

The statute of frauds requires a signed writing for any agreement that by its terms cannot be performed within one year of its making. The test is whether performance is theoretically possible within a year, not whether the parties expect it to take longer. Short-term purchase orders and change orders on an existing contract generally fall outside the rule.

Question 6Business and Law

A mechanic's lien is best described as:

  1. an automatic judgment entered by the court when a bill goes unpaid
  2. a claim against the contractor's payment bond
  3. a contractual right that exists only if the owner agrees to it in writing
  4. a statutory claim against the improved property securing payment for labor or materials furnished Correct answer.

Explanation

Mechanic's lien rights are created by statute and give those who furnish labor or materials a security interest in the property they improved. The lien arises by operation of law, not by agreement, and must be perfected by following statutory notice, filing, and enforcement steps. It is not a judgment and does not depend on the owner's consent.

Question 7Business and Law

The primary purpose of a bid bond is to:

  1. guarantee the quality of the completed work for one year
  2. insure the contractor's equipment against loss during the project
  3. assure the owner that the successful bidder will execute the contract and furnish the required bonds Correct answer.
  4. pay subcontractors if the contractor fails to pay them

Explanation

A bid bond backs the bidder's promise to enter into the contract and to provide the required performance and payment bonds if awarded the work. If the bidder fails to do so, the surety is liable up to the bond penalty, usually a percentage of the bid. It does not secure payment of subcontractors or warrant the finished work.

Question 8Business and Law

Retainage in a construction contract is:

  1. the amount the owner keeps in escrow to pay the architect's fees
  2. a percentage of each progress payment withheld by the owner until the work is accepted Correct answer.
  3. a penalty charged for each day the project is late
  4. a bonus paid to the contractor for early completion

Explanation

Retainage is a portion of progress payments held back to protect the owner until the work is complete and accepted and to provide leverage for correcting defects. It is released according to the contract and applicable statutes after substantial or final completion. It is not a bonus, a design fee fund, or a delay penalty.

Question 9Business and Law

Substantial completion of a project generally occurs when:

  1. the contractor's crews have left the site and every punch list item is finished
  2. the owner obtains a certificate of occupancy for the entire building
  3. the contractor submits its final application for payment
  4. the work is sufficiently complete that the owner can use it for its intended purpose, with only minor items remaining Correct answer.

Explanation

Substantial completion marks the point at which the work is complete enough for its intended use, even though minor or punch list items remain. It commonly triggers the start of warranty periods, the release of retainage, and the shift of risk of loss to the owner. Final completion, by contrast, occurs when all remaining items are done.

Question 10Business and Law

A subcontractor sends written notice that it will not perform its remaining work, two months before its scheduled start date. The general contractor may:

  1. treat the notice as a breach only if it is signed by an officer of the subcontractor
  2. treat the notice as an anticipatory repudiation and pursue its remedies immediately Correct answer.
  3. do nothing until the scheduled start date, because no breach has occurred yet
  4. only suspend its own performance and wait for the subcontractor to change its mind

Explanation

An unequivocal statement that a party will not perform before the performance date is an anticipatory repudiation, which gives the non-breaching party the immediate right to treat the contract as breached. The general contractor may cover by hiring a replacement and pursue damages without waiting for the start date. Delay would only increase the loss.

Question 11Business and Law

A lien waiver that states it becomes effective only when the identified check has actually cleared the bank is:

  1. an unconditional waiver
  2. a conditional waiver Correct answer.
  3. a no-lien agreement
  4. a release of retainage

Explanation

A conditional waiver is tied to the actual receipt of the payment it describes and is not effective if the check fails to clear. An unconditional waiver, by contrast, is effective on its face whether or not payment is later received. The distinction protects claimants who sign a waiver at the time they are handed a check.

Question 12Business and Law

On a public construction project, an unpaid subcontractor is typically protected by:

  1. the design professional's errors and omissions insurance
  2. the owner's performance bond
  3. a mechanic's lien against the public building
  4. the payment bond required by the state's Little Miller Act Correct answer.

Explanation

Public property is generally immune from mechanic's liens, so the legislature substitutes a statutory payment bond for the protection of subcontractors and suppliers. The Little Miller Act requires the prime contractor to furnish that bond on covered public contracts. Claimants must follow the statute's notice and suit deadlines.

Question 13Business and Law

The general contractor on a bonded project abandons the job. Under a performance bond, the surety is obligated to:

  1. pay only the subcontractors who have not been paid
  2. pay the owner the full contract amount with no further obligation
  3. take steps to complete the contract or pay the owner the cost of completion, up to the bond penalty Correct answer.
  4. refund the premium and cancel the bond

Explanation

When the principal defaults, the performance bond surety must remedy the default, typically by financing or arranging completion or by paying the owner the cost to complete. The surety's exposure is capped by the penal sum of the bond. Paying the full contract amount would overcompensate an owner who has not paid for uncompleted work.

Question 14Business and Law

The contract requires all change orders to be in writing and signed by the owner. The owner's representative orally directs the contractor to add a retaining wall, and the contractor builds it. The contractor's strongest position is that:

  1. the contractor will automatically recover the full cost plus overhead and profit
  2. the oral directive may support a claim if the contractor can show the owner authorized and benefited from the work Correct answer.
  3. the contractor has no claim under any circumstances
  4. the oral directive converts the entire contract into a cost-plus agreement

Explanation

Written change order clauses are enforced, but courts and boards often allow recovery where the owner's authorized representative directed the work and the owner accepted its benefit, particularly to avoid unjust enrichment. The contractor should document the directive, give written notice, and confirm the cost promptly. Recovery is not automatic and the contract does not convert to another pricing basis.

Question 15Business and Law

A contractor encounters a rock formation materially different from the subsurface conditions shown in the contract documents. This is best classified as:

  1. a constructive change
  2. a suspension of work
  3. a Type I differing site condition Correct answer.
  4. a cardinal change

Explanation

A Type I differing site condition exists when actual conditions differ materially from those indicated in the contract documents. A Type II condition, by contrast, is one that is unusual and differs from what a reasonable contractor would expect given the site's general character. The distinction matters because notice and claim requirements often differ.

Question 16Business and Law

When an owner terminates a contract for convenience, the contractor is typically entitled to:

  1. nothing, because the owner may terminate without any obligation
  2. lost profits on the work that was never performed
  3. the full unpaid contract balance without deduction
  4. payment for work performed and reasonable costs incurred in closing out the contract Correct answer.

Explanation

A termination for convenience ends the work without a default but requires the owner to pay for the work already performed and for reasonable costs of demobilization and closeout. Anticipated profit on unperformed work is generally not recoverable, although the contract may allow a small settlement percentage. This allocation reflects that the contractor did nothing wrong.

Question 17Business and Law

The implied warranty of workmanlike construction means that the contractor:

  1. must repair damage caused by the owner after completion
  2. promises to perform the work in a good and workmanlike manner consistent with industry standards Correct answer.
  3. warrants that materials will be free of defects for one year
  4. guarantees the work will last for the life of the building

Explanation

The implied warranty of workmanlike performance is a common-law obligation to build using reasonable skill and recognized industry standards, regardless of whether the contract says so. It does not create a lifetime guarantee and does not shift responsibility for owner-caused damage. Express warranties and statutes of limitation or repose control the duration of the contractor's exposure.

Question 18Business and Law

Workers' compensation is generally the exclusive remedy for a covered employee's on-the-job injury, meaning the employee:

  1. may sue the employer for negligence in addition to collecting benefits
  2. may not file a workers' compensation claim if a coworker also was at fault
  3. may not sue the employer in tort for the injury, except in limited circumstances such as intentional harm Correct answer.
  4. may sue the employer only if the employer carried insurance

Explanation

In exchange for providing no-fault benefits, workers' compensation bars the employee from suing the employer in tort over the injury. Courts recognize narrow exceptions, most notably intentional injury by the employer. Fault of a coworker does not defeat the claim; it may instead give rise to a claim against the coworker.

Question 19Business and Law

Under OSHA's General Duty Clause, an employer must:

  1. furnish a workplace free from recognized hazards likely to cause death or serious physical harm Correct answer.
  2. provide fall protection at all heights above six feet
  3. comply only with standards that specifically mention its type of work
  4. post the General Duty Clause at every job site entrance

Explanation

The General Duty Clause imposes a broad obligation to protect employees from recognized serious hazards even when no specific standard applies. It is used when a hazard is known in the industry and feasible means of abatement exist. Specific standards, such as the fall protection rules, apply independently on top of this general duty.

Question 20Business and Law

A contract requires the contractor to give written notice of any claim within 10 days of the event giving rise to it. The contractor misses the deadline. The likely effect is:

  1. the claim may be barred, although late notice is sometimes excused when the owner was not prejudiced Correct answer.
  2. the contractor may assert the claim only at final completion
  3. the claim is automatically preserved because notice provisions are advisory
  4. the entire contract becomes void

Explanation

Notice and claim provisions are enforceable conditions of the contract and are routinely applied to bar stale claims. However, courts and boards may excuse a late notice where the owner had actual knowledge and suffered no prejudice, or where the owner's conduct caused the delay. The contractor should therefore give notice immediately and document any excuse.

Question 21Business and Law

How does a surety bond differ from an insurance policy?

  1. The surety normally expects reimbursement from the bonded principal, and the bond is a three-party guarantee rather than a transfer of risk Correct answer.
  2. A surety bond transfers the risk of loss to the surety with no right of recovery against the principal
  3. A surety bond provides coverage for a fixed annual premium in the same way a general liability policy does
  4. A surety bond is issued only to individuals, while insurance is issued only to businesses

Explanation

A surety bond is a three-party instrument in which the surety guarantees the principal's obligation to the obligee and relies on the principal's indemnity if it must pay. Insurance, by contrast, pools risk and transfers it to the insurer in exchange for a premium, with no expectation of repayment by the insured. This difference explains why sureties underwrite the principal's financial strength so closely.

Question 22Business and Law

A subcontract requires the subcontractor to indemnify the general contractor for all claims arising out of the work, including claims caused by the general contractor's own negligence. This clause is known as:

  1. a waiver of subrogation
  2. an intermediate-form indemnity agreement
  3. a limited-form indemnity agreement
  4. a broad-form indemnity agreement Correct answer.

Explanation

Indemnity clauses are classified by whose negligence they cover. A broad-form clause reaches the indemnitee's own negligence, a limited-form clause covers only the indemnitor's negligence, and an intermediate-form clause covers the indemnitee's passive negligence but not its sole or active negligence. Many states, including Arkansas for construction agreements, restrict broad-form clauses by statute.

Question 23Business and Law

A subcontract clause stating that the subcontractor will be paid only if and when the owner pays the general contractor is:

  1. a pay-if-paid clause that shifts the risk of owner nonpayment to the subcontractor and is enforceable only if clearly and unambiguously stated Correct answer.
  2. the same thing as a pay-when-paid clause, which merely sets the timing of payment
  3. a retainage provision
  4. unenforceable in every state as a matter of public policy

Explanation

A pay-if-paid clause makes the owner's payment an express condition precedent to the general contractor's duty to pay, shifting the credit risk of owner insolvency to the subcontractor. Because the effect is severe, courts require clear and unequivocal language and construe ambiguity against the drafter. A pay-when-paid clause, by contrast, only regulates timing and does not permanently excuse payment.

Question 24Business and Law

A site superintendent has routinely ordered minor changes that the owner paid for without objection. The superintendent orders another change, and the owner later refuses to pay, saying the superintendent had no authority. A court will most likely:

  1. hold the owner bound only if the superintendent had written authority
  2. declare the entire original contract void
  3. hold the contractor liable because superintendents are never authorized to order changes
  4. hold the owner bound under the doctrine of apparent authority Correct answer.

Explanation

Apparent authority arises when a principal's conduct leads a reasonable third party to believe that an agent has authority to act. A course of dealing in which the superintendent ordered changes that the owner paid without objection creates exactly that impression. The contractor must still show it reasonably relied on the appearance of authority.

Question 25Business and Law

After bid opening, a contractor discovers it omitted a major cost item from its lump-sum bid. To withdraw the bid, the contractor generally must show that:

  1. the error exceeded 10 percent of the bid price
  2. the error was clerical, notice was prompt, and enforcement of the bid would be unconscionable Correct answer.
  3. the bid was the low bid on the project
  4. the owner had not yet signed the contract, regardless of the nature of the error

Explanation

Relief from an erroneous bid generally requires a clerical rather than judgmental mistake, prompt notice after discovery, and a showing that enforcement would be unconscionable. The bid is then rejected rather than corrected, and the owner cannot hold the bidder to the mistaken price. A unilateral mistake that the bidder should have caught is ordinarily binding.

Question 26Business and Law

Which element is essential to form a legally enforceable construction contract?

  1. Mutual assent between the parties Correct answer.
  2. Approval of the contract by the owner's lender
  3. Notarized signatures from both parties
  4. A performance bond covering the full contract value

Explanation

A valid contract requires offer and acceptance (mutual assent), consideration, capacity, and legality. Notarization, lender approval, and bonds may be required by statute or by the contract, but they are not universal formation requirements.

Question 27Business and Law

Under the statute of frauds, a construction contract generally must be in writing if it:

  1. is awarded through competitive bidding
  2. exceeds $500 in total value
  3. involves any subcontractor
  4. cannot be completed within one year Correct answer.

Explanation

The statute of frauds requires certain contracts, including those that cannot be performed within one year, to be in writing and signed. Dollar thresholds and the bidding method do not by themselves trigger the writing requirement.

Question 28Business and Law

A project superintendent employed by the general contractor generally has actual authority to:

  1. Direct the day-to-day work and reject defective work Correct answer.
  2. Execute change orders that increase the contract price
  3. Bind the owner to a settlement of a lien claim
  4. Waive the owner's right to enforce the specifications

Explanation

A superintendent's authority is typically limited to field supervision, including directing work and rejecting nonconforming work. Authority to change price, waive specifications, or settle claims usually requires express authorization.

Question 29Business and Law

A preliminary notice (notice to owner) in a mechanic's lien context is used to:

  1. Guarantee payment from the owner's lender
  2. Preserve lien rights by informing the owner of a potential claim Correct answer.
  3. Transfer title of the project to the claimant
  4. Start the statute of limitations for a defect claim

Explanation

Preliminary notice puts the owner and sometimes the lender on notice that a party is furnishing labor or materials, preserving that party's ability to assert a lien later. It does not transfer title, guarantee payment, or set a defect limitations period.

Question 30Business and Law

OSHA requires an employer to report the death of an employee from a work-related incident within how many hours?

  1. 24 hours
  2. 8 hours Correct answer.
  3. 48 hours
  4. 72 hours

Explanation

OSHA requires reporting of work-related fatalities within 8 hours. In-patient hospitalizations, amputations, and losses of an eye must be reported within 24 hours.

Question 31Business and Law

In a cost-plus-fee contract, the contractor's compensation is:

  1. The lower of the bid price or the actual cost
  2. Actual allowable costs plus an agreed fee Correct answer.
  3. A percentage of the owner's financing costs
  4. A fixed amount agreed before work begins

Explanation

Cost-plus contracts reimburse the contractor for actual allowable costs and add a fee, which may be fixed or percentage-based. This differs from a lump-sum contract, where the price is set in advance.

Question 32Business and Law

A contractor who performs licensed work in Arkansas without the required license may:

  1. Avoid all liability because the contract is automatically void
  2. Lose the right to use the project's plans
  3. Enforce the contract but pay a small filing fee
  4. Face civil penalties and difficulty enforcing the contract Correct answer.

Explanation

Unlicensed contracting can result in civil penalties and can limit the contractor's ability to recover payment in court. Licensing statutes are regulatory and enforced by the state licensing board.

Question 33Business and Law

Commercial general liability (CGL) insurance primarily covers:

  1. Third-party bodily injury and property damage claims Correct answer.
  2. The cost of correcting defective work itself
  3. The contractor's own employees' medical expenses
  4. Damage to the contractor's own equipment

Explanation

CGL provides coverage for liability to third parties for bodily injury and property damage. Workers' compensation covers employees, property insurance covers the contractor's own property, and the cost of correcting the contractor's own defective work is generally excluded.

Question 34Business and Law

The most important factor in determining whether a worker is an employee or an independent contractor is generally:

  1. Whether the worker has a written agreement
  2. The degree of control the hiring party exercises over the work Correct answer.
  3. The worker's job title on the project
  4. Whether the worker is paid hourly or weekly

Explanation

Courts and agencies focus on the right to control the manner and means of performing the work. Written labels and pay method are relevant but not controlling.

Question 35Business and Law

When a fully integrated written contract conflicts with an earlier oral promise, a court will most likely:

  1. Reform the contract to include the oral promise
  2. Submit the dispute to the licensing board
  3. Void the contract for uncertainty
  4. Apply the parol evidence rule and enforce the writing Correct answer.

Explanation

The parol evidence rule generally bars prior or contemporaneous oral agreements that contradict a fully integrated written contract. The court enforces the writing rather than adding the inconsistent oral promise.

Question 36Business and Law

An owner's request for bids on a construction project is generally treated in contract law as:

  1. A unilateral promise to award the contract
  2. An invitation to make an offer Correct answer.
  3. A binding offer to contract
  4. An acceptance of the lowest bid

Explanation

A solicitation for bids is an invitation to negotiate. The contractor's bid is the offer, which the owner may accept or reject according to the bid documents.

Question 37Business and Law

The implied duty of good faith and fair dealing requires contracting parties to:

  1. Act honestly and not defeat the other party's contract rights Correct answer.
  2. Approve every change order requested
  3. Complete work before the contract deadline
  4. Guarantee a profit for both parties

Explanation

Every contract includes an implied covenant of good faith and fair dealing, which prohibits conduct that unfairly interferes with the other party's right to receive the contract benefits. It does not create new obligations such as guaranteed profit.

Question 38Business and Law

If an owner terminates a contractor for default and the contractor believes it was not in default, the contractor should generally:

  1. File a lien against the owner's lender
  2. Challenge the termination and pursue recovery for breach Correct answer.
  3. Accept the termination and waive all claims
  4. Continue working without owner authorization

Explanation

A wrongful termination for default is a breach by the owner, and the contractor may dispute the default and seek damages. Continuing work without authorization can worsen the dispute.

Question 39Business and Law

A binding arbitration clause in a construction contract generally means the parties:

  1. May litigate any dispute in court first
  2. Waive court litigation for disputes covered by the clause Correct answer.
  3. Must arbitrate only after a jury verdict
  4. Give the arbitrator authority to rewrite the contract

Explanation

Arbitration is a contractual substitute for litigation, and courts generally enforce the clause and compel arbitration of covered disputes. The arbitrator decides the dispute under the contract rather than rewriting it.

Question 40Business and Law

An indemnification clause in a construction contract allocates:

  1. Insurance premium costs between the parties
  2. Scheduling responsibility to the owner
  3. Ownership of the completed improvements
  4. Responsibility for specified losses to the indemnitor Correct answer.

Explanation

Indemnity is a promise by one party to hold another harmless for specified losses, shifting risk to the indemnitor. It does not transfer ownership or set scheduling duties.

Question 41Business and Law

A flow-down clause in a subcontract typically:

  1. Allows the subcontractor to avoid the prime contract's terms
  2. Requires the owner to approve all subcontractors
  3. Incorporates the prime contract's obligations into the subcontract Correct answer.
  4. Transfers the owner's payment obligation to the subcontractor

Explanation

Flow-down provisions bind the subcontractor to applicable prime contract terms, such as change procedures, claims notice, and dispute resolution. They do not transfer the owner's payment obligation.

Question 42Business and Law

A constructive change occurs when:

  1. The contractor voluntarily performs work outside the scope
  2. The owner's conduct requires extra work without a formal change order Correct answer.
  3. A subcontractor substitutes equal materials for specified materials
  4. The owner rejects a nonconforming work item

Explanation

A constructive change arises when the owner directs or requires work beyond the contract without issuing a formal change order, often through interpretation or altered site conditions. Voluntary extra work and material substitutions are handled differently.

Question 43Business and Law

A lien waiver signed in exchange for a progress payment generally waives:

  1. All lien rights for the entire project
  2. Lien rights for the work covered by that payment Correct answer.
  3. The claimant's contract rights to future work
  4. The right to file a claim for later retainage only

Explanation

Progress lien waivers are typically limited to labor and materials furnished through the date or payment amount identified in the waiver. They do not waive future rights unless expressly stated.

Question 44Business and Law

A payment bond on a construction project protects:

  1. The contractor against weather delays
  2. The owner against defective design
  3. Subcontractors and suppliers who are not paid Correct answer.
  4. The surety against all project losses

Explanation

Payment bonds guarantee payment to subcontractors and suppliers for labor and materials. Performance bonds address completion, and design and weather risks are handled elsewhere.

Question 45Business and Law

Under OSHA's multi-employer worksite policy, a general contractor controlling a site may be cited when it:

  1. Merely shares the site with other employers
  2. Knew or should have known of a hazard and could correct it Correct answer.
  3. Delegated all safety duties in writing
  4. Has no employees on the site

Explanation

The multi-employer policy allows citation of an employer that controls the site or the hazard, such as a general contractor that knew or should have known of a violation and had authority to correct it. Delegation or sharing the site does not automatically eliminate exposure.

Question 46Business and Law

A liquidated damages clause in a construction contract is enforceable when:

  1. The owner actually proves the exact amount of its loss
  2. Damages were hard to estimate and the amount is a reasonable forecast Correct answer.
  3. The amount is set high enough to punish late completion
  4. The contractor agrees to the clause after the delay occurs

Explanation

Courts enforce liquidated damages if damages were difficult to estimate at contract formation and the stipulated amount is a reasonable forecast, not a penalty. Actual proof of loss is not required.

Question 47Business and Law

A no-damages-for-delay clause generally:

  1. Applies only to delays caused by subcontractors
  2. Extends the contract completion date automatically
  3. Bars the contractor from recovering owner-caused delay damages Correct answer.
  4. Requires the owner to pay delay costs on demand

Explanation

These clauses shift the risk of owner-caused delay to the contractor by barring delay damages, though courts may not enforce them for delays not contemplated by the parties or for bad faith. They do not automatically extend time unless the contract says so.

Question 48Business and Law

Under the economic loss rule, a contractor generally cannot recover in tort for:

  1. Purely economic loss from defects in the project itself Correct answer.
  2. Fraud committed by the owner during bidding
  3. Property damage to a third party's building
  4. Bodily injury caused by a site accident

Explanation

The economic loss rule limits tort recovery when the loss is purely economic and arises from the contract subject matter, leaving the parties to their contract remedies. Personal injury, third-party property damage, and fraud are outside the rule.

Question 49Business and Law

Under the Spearin doctrine, an owner that furnishes plans and specifications warrants that:

  1. The contractor has verified all site conditions
  2. The contractor will complete the work on schedule
  3. The plans and specifications are adequate for their intended purpose Correct answer.
  4. The contract price will cover all unforeseen costs

Explanation

Spearin holds that an owner impliedly warrants the adequacy of plans and specifications it furnishes, so a contractor is not liable for defects caused by following them. The doctrine does not shift site verification or scheduling duties to the owner.

Question 50Business and Law

A cardinal change is best described as:

  1. A minor field adjustment approved by the superintendent
  2. A change required by a building code update
  3. A change order that alters only the completion date
  4. A change so substantial it exceeds the contract's scope Correct answer.

Explanation

A cardinal change goes beyond the scope of the contract and may constitute a breach rather than a change the owner can order under the changes clause. It can support a claim for damages.