Contracts, Insurance, and Risk Management
Contract types and delivery
Candidates must compare lump sum, unit price, cost plus fixed fee, cost plus percentage, GMP with shared savings, and design-build versus design-bid-build. Know where risk sits in each: lump sum pushes quantity risk to the contractor; unit price shares it; cost-plus leaves it with the owner. Understand the prime contract, subcontract flow-down clauses, and the difference between a change order, a construction change directive, and a minor change.
Key clauses
Study payment terms (progress payments, retainage, pay-when-paid versus pay-if-paid), liquidated damages versus penalties, no-damage-for-delay clauses, differing site conditions (Type I versus Type II), suspension of work, termination for cause versus convenience, and warranty versus guarantee periods. Time is of the essence language affects notice deadlines.
Insurance and bonds
Distinguish CGL, builder's risk, professional liability, workers' compensation, and umbrella coverage. Know that builder's risk covers the work in place during construction and typically names the owner and contractor as insureds. Bonds are three-party: performance, payment, and bid. A surety bond is not insurance; it is a credit instrument.
Risk management practice
Risk register, risk allocation matrix, indemnity and additional-insured endorsements, and lien rights all matter. Traps: assuming a waiver of subrogation is automatic, confusing an indemnity clause with insurance, and missing that certificates of insurance do not create coverage.
Worked example
A contract has $2,000 per day liquidated damages and a 30-day owner-caused delay. If the contractor's float was 10 days, the delay consumed float plus 20 days of contract time. If the owner grants a 30-day time extension, no damages accrue; if it grants only 10 days, 20 days of exposure remains.
Rule of thumb
Read notice provisions first; missing a notice deadline can waive an otherwise valid claim.