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MT General Contractor practice questions

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Question 1Business Organization and Licensing

Under Montana law, a contractor who performs work on a project valued at more than $2,500 for a property owner must generally hold which of the following?

  1. A Montana architect stamp for all structural work
  2. A federal general building permit issued by OSHA
  3. A Montana real estate salesperson license
  4. A Montana contractor license appropriate to the work being performed Correct answer.

Explanation

Montana requires persons who contract to do construction work on projects exceeding the statutory threshold to be licensed by the Department of Labor and Industry. The license must match the type and scope of the work, such as general building, specialty, or a related category. Real estate, OSHA, and architecture credentials do not substitute for a contractor license.

Question 2Business Organization and Licensing

A Montana general contractor license applicant must demonstrate experience and pass an examination covering which area?

  1. Only architectural drafting and design standards
  2. Construction business practices, laws, and project management Correct answer.
  3. Only federal tax filing procedures for construction firms
  4. Exclusively heavy equipment operation and safety

Explanation

Montana's contractor examination tests knowledge of business practices, Montana contractor law, and general construction management rather than trade-specific craft skills alone. The exam is intended to confirm the applicant understands contracts, licensing obligations, and running a construction business. Trade competence is generally established separately through experience.

Question 3Business Organization and Licensing

Which entity administers contractor licensing and registration in Montana?

  1. The Montana Department of Transportation
  2. The Montana Board of Realty Regulation
  3. The Montana Department of Labor and Industry Correct answer.
  4. The Montana Secretary of State's business services division

Explanation

The Montana Department of Labor and Industry administers contractor registration and licensing, including application review and enforcement. The Secretary of State handles business entity filings, not contractor credentials. Realty regulation and transportation deal with unrelated industries.

Question 4Business Organization and Licensing

A Montana contractor's license is generally issued for a defined period and must be renewed. What is the typical renewal cycle for a Montana contractor license?

  1. Every year
  2. Every five years
  3. Every two years Correct answer.
  4. Every three years

Explanation

Montana contractor licenses are typically renewed on a two-year cycle, with the renewal period tied to the license anniversary. Contractors should track expiration to avoid working on an expired credential. The other intervals do not match Montana's standard renewal schedule.

Question 5Business Organization and Licensing

A Montana contractor business changes its legal name and adds a new partner. What is the appropriate action regarding the contractor license?

  1. Surrender the license and stop all work permanently
  2. Continue operating under the old license until the next renewal
  3. Notify the department and update the license to reflect the ownership change Correct answer.
  4. Rely on the new partner's individual license for all company work

Explanation

Changes in business name or ownership structure must be reported to the licensing authority so the license reflects the current entity. Operating under an outdated license after an ownership change can create compliance problems. The license is not automatically void, but it must be updated.

Question 6Business Organization and Licensing

A Montana contractor license is generally issued to which of the following?

  1. To individuals and, where permitted, to business entities through a qualifying party Correct answer.
  2. Only to corporations with more than ten employees
  3. Only to contractors who are Montana residents
  4. Only to individuals, never to business entities

Explanation

Montana allows licensing of both individuals and business entities, provided a qualifying party meets the experience and examination requirements. The qualifying party ties the entity to demonstrated competence. Residency and employee count are not general prerequisites.

Question 7Business Organization and Licensing

A Montana contractor's license lapses while the contractor is mid-project. What is the most accurate statement about continuing work?

  1. The contractor may continue for up to one year without renewal
  2. The contractor may continue if the client signs a waiver
  3. The contractor may finish the current project because the contract predates expiration
  4. The contractor must stop contracting work until the license is reinstated Correct answer.

Explanation

Performing construction work without a valid license can expose the contractor to penalties and undermine the ability to enforce the contract. A preexisting contract does not authorize unlicensed activity after expiration. The contractor should reinstate the license before continuing.

Question 8Business Organization and Licensing

Which of the following best describes the purpose of Montana's contractor licensing requirement?

  1. To set maximum prices contractors may charge
  2. To limit competition by restricting the number of contractors
  3. To guarantee that every project is completed on schedule
  4. To protect the public by ensuring contractors meet minimum competence and business standards Correct answer.

Explanation

Licensing exists to protect consumers and the public by verifying that contractors meet minimum standards of experience, knowledge, and business practice. It is not a competition-limiting or price-control mechanism. Schedule performance is a contractual matter, not a licensing function.

Question 9Business Organization and Licensing

A contractor working in Montana advertises services in a local newspaper. Which statement about advertising and licensing is correct?

  1. Advertising requires no reference to licensing
  2. Advertising requires a separate advertising permit from the state
  3. Advertising is prohibited for specialty contractors
  4. Advertising is permitted only after the contractor license number is displayed in the advertisement as required Correct answer.

Explanation

Montana requires licensed contractors to include their license number in advertising as a consumer protection measure. This allows the public to verify the contractor's credential. A separate advertising permit is not part of the contractor licensing scheme.

Question 10Business Organization and Licensing

A Montana contractor is cited for working without a license. Which consequence is most consistent with Montana law?

  1. Automatic criminal felony conviction for a first offense
  2. Loss of the client's property title
  3. Only a verbal warning with no record
  4. Civil penalties and possible inability to collect on the contract Correct answer.

Explanation

Unlicensed contracting can result in civil penalties and can impair the contractor's ability to enforce or collect under the contract. Montana law treats unlicensed practice as a serious compliance issue. Criminal felony treatment and property title consequences are not the standard result.

Question 11Business Organization and Licensing

Which of the following is a typical requirement for a Montana contractor license applicant?

  1. Membership in a statewide trade association
  2. A minimum amount of construction experience plus passage of the required exam Correct answer.
  3. Proof of at least one year of general business management experience only
  4. A college degree in construction engineering

Explanation

Montana generally requires documented construction experience and successful completion of the contractor examination. The experience requirement ensures practical familiarity with construction work. A degree or trade association membership is not a standard licensing prerequisite.

Question 12Business Organization and Licensing

A Montana contractor wants to expand from residential remodeling into commercial building construction. What should the contractor do first?

  1. Verify whether the current license classification covers commercial building and upgrade if needed Correct answer.
  2. Ask the client to obtain the contractor license for the project
  3. Begin bidding commercial work immediately under the existing license
  4. Register with the Secretary of State as a commercial builder

Explanation

Montana licenses contractors by classification or scope, and work outside the licensed scope requires an appropriate license upgrade or additional classification. Bidding outside the license scope creates compliance risk. Clients cannot carry the contractor's licensing obligation, and the Secretary of State does not issue contractor classifications.

Question 13Business Organization and Licensing

A Montana contractor operates as a sole proprietor. Which statement about licensing is correct?

  1. The sole proprietor must hold a contractor license in the business name to contract legally Correct answer.
  2. Only the sole proprietor's employees need licenses
  3. A sole proprietor may use a relative's license with verbal permission
  4. A sole proprietor is exempt from contractor licensing

Explanation

Business structure does not exempt a contractor from licensing; a sole proprietorship must be licensed in the business name to contract legally. Employees do not satisfy the entity's licensing obligation. Using another person's license without proper qualification is not permitted.

Question 14Business Organization and Licensing

Which record should a Montana contractor retain to demonstrate compliance with licensing and project requirements?

  1. Contracts, permits, license records, and project documentation Correct answer.
  2. Only the client's contact information
  3. Only marketing materials
  4. Only the final invoice

Explanation

Contractors should maintain contracts, permits, license documentation, and project records to demonstrate compliance and support dispute resolution. Retaining only invoices or marketing materials is insufficient. Good records also support renewal and audit responses.

Question 15Business Organization and Licensing

A Montana contractor hires subcontractors for a project. Which statement about subcontractor licensing is correct?

  1. Subcontractors are exempt because the general contractor holds the license
  2. Subcontractors are licensed by the general contractor
  3. The general contractor should verify that subcontractors hold required licenses for their scope Correct answer.
  4. Subcontractors may work unlicensed if the project is under $2,500

Explanation

Each contractor, including subcontractors, must hold the license required for its scope of work. The general contractor should verify subcontractor credentials to avoid compliance problems on the project. A general contractor's license does not cover unlicensed subcontractors.

Question 16Business Organization and Licensing

What is the primary role of the qualifying party for a Montana contractor business entity?

  1. To meet the experience and examination requirements on behalf of the licensed entity Correct answer.
  2. To supervise only office administration
  3. To provide financing for the business
  4. To serve as the company's attorney

Explanation

The qualifying party is the individual whose experience and exam results support the entity's license. This person links the business to demonstrated contractor competence. The role is not about financing, clerical supervision, or legal representation.

Question 17Business Organization and Licensing

A Montana contractor's license is suspended for failure to maintain required insurance. What is the best course of action?

  1. Transfer the license to another company
  2. Cure the insurance deficiency and seek reinstatement before resuming work Correct answer.
  3. Wait for the suspension to expire automatically
  4. Continue working while disputing the suspension

Explanation

Suspensions for insurance lapses are typically resolved by providing proof of compliant coverage and requesting reinstatement. Working during suspension compounds the violation. Licenses cannot be transferred to evade a suspension.

Question 18Business Organization and Licensing

Which of the following best distinguishes a Montana contractor license from a building permit?

  1. The license is project-specific; the permit is held by the contractor indefinitely
  2. They are the same document issued by different agencies
  3. The license authorizes the contractor to do business; the permit authorizes a specific project Correct answer.
  4. The permit is issued by the contractor to the owner

Explanation

A contractor license grants the legal authority to offer and perform contracting services, while a building permit authorizes work on a specific project under local code requirements. The license is not project-specific, and permits are issued by authorities, not contractors.

Question 19Business Organization and Licensing

A Montana contractor is offered a project that spans two years and crosses the license renewal date. What should the contractor plan for?

  1. No action, because the contract locks in the license for its full term
  2. Transfer of the project to an unlicensed employee
  3. Automatic extension of the license until project completion
  4. Timely renewal so the license remains valid throughout the project Correct answer.

Explanation

A contractor license must remain valid for the duration of contracting activity, regardless of project length. The contractor should calendar the renewal and complete it before expiration. Contracts do not extend the license, and work cannot be shifted to unlicensed personnel.

Question 20Business Organization and Licensing

A Montana contractor discovers that a competitor is advertising and performing work without a license. What is the most appropriate response?

  1. Ignore it because licensing is voluntary
  2. Refuse to bid against the competitor in writing
  3. Post accusations on social media without evidence
  4. Report the unlicensed activity to the Montana Department of Labor and Industry Correct answer.

Explanation

Unlicensed contracting can be reported to the Department of Labor and Industry, which enforces contractor licensing. Reporting through the proper channel allows the agency to investigate and act. Public accusations and informal boycotts are not appropriate enforcement methods.

Question 21Business Organization and Licensing

Which statement about a Montana contractor's obligation to display or provide license information to clients is most accurate?

  1. Disclosure is required only after a dispute arises
  2. Contractors may keep the license number confidential from clients
  3. Only publicly traded contractors must disclose license numbers
  4. Contractors must provide their license number on contracts and advertising as required by law Correct answer.

Explanation

Montana requires contractors to include their license number in contracts and advertising so clients can verify the credential. Disclosure is a proactive consumer protection requirement. Confidentiality, corporate status, and disputes do not change the obligation.

Question 22Business Organization and Licensing

A Montana contractor wants to use a trade name that differs from the licensed legal name. What should the contractor do?

  1. Use the trade name without notifying anyone
  2. Abandon the legal name entirely
  3. Register the trade name and ensure the license records reflect the name used in contracting Correct answer.
  4. Ask clients to sign a name-change waiver

Explanation

Contractors using an assumed or trade name should register it as required and ensure licensing records are consistent with the name used in contracts and advertising. Unreported name use can create confusion and compliance issues. Client waivers do not substitute for proper registration.

Question 23Business Organization and Licensing

Which of the following activities generally requires a Montana contractor license?

  1. Selling construction materials at retail
  2. Constructing or altering a building for compensation Correct answer.
  3. Preparing a feasibility study for a future building
  4. Providing legal advice about a construction contract

Explanation

Contractor licensing covers persons who contract to construct, alter, or repair buildings and structures for compensation. Feasibility studies, legal advice, and retail material sales fall outside the contractor licensing scope. The key trigger is performing construction work for hire.

Question 24Business Organization and Licensing

A Montana contractor's license application is denied. Which option best describes a proper next step?

  1. Use another contractor's license temporarily
  2. Perform work anyway while the denial is pending
  3. Assume denial is permanent and never reapply
  4. Review the stated reason and pursue the available appeal or reapplication process Correct answer.

Explanation

A denied applicant should review the department's stated basis and use the appeal or reapplication process available under Montana law. Working without a license during the denial is unlawful. Borrowing another's license is not permitted, and denial is not necessarily permanent.

Question 25Business Organization and Licensing

Which statement best describes continuing education or exam-related obligations for maintaining a Montana contractor license?

  1. Contractors must retake the full licensing exam every year
  2. Contractors must complete a new apprenticeship each renewal
  3. No further obligations exist after the initial license is issued
  4. Contractors must comply with renewal requirements, including any required fees and updated information Correct answer.

Explanation

Maintaining a license requires timely renewal, payment of required fees, and updated business information. Montana does not require annual re-examination or a new apprenticeship at each renewal. The obligation is ongoing compliance, not repeating initial qualifications.

Question 26Business Organization and Licensing

In Montana, a contractor's license is issued to a business and requires a designated individual who is responsible for the work performed under that license. What is this individual commonly called?

  1. The project superintendent
  2. The bonding agent
  3. The registered agent
  4. The qualifying party Correct answer.

Explanation

Montana contractor licenses are issued to the business entity, and the license must be tied to a qualifying party who meets the experience and examination requirements and is responsible for the contractor's regulated work. The registered agent handles service of process, and a project superintendent or bonding agent serves different roles that do not satisfy the licensing requirement.

Question 27Business Organization and Licensing

A Montana contractor corporation has its license in good standing. The individual who qualified the license leaves the company and takes a position elsewhere. What is the most accurate statement about the company's license?

  1. The license automatically converts to a sole proprietorship license for the remaining owners.
  2. The company must notify the department and secure a new qualifying party to keep the license valid. Correct answer.
  3. The license is void immediately and cannot be reinstated under any circumstances.
  4. The license remains fully valid until the next scheduled renewal, regardless of who is employed.

Explanation

Because the license is tied to a qualifying party, losing that individual means the business no longer meets a core licensing requirement. The contractor must notify the department and replace the qualifier, typically within a limited period, or the license can be suspended or otherwise affected.

Question 28Business Organization and Licensing

A Montana contractor applies for a license and the department denies the application. Which step is most consistent with Montana administrative procedure?

  1. Reapply immediately with the same information until the application is approved.
  2. File a lawsuit directly in district court within ten days of the denial.
  3. Ask the local building official to override the department's decision.
  4. Request a hearing through the department's contested case process within the time stated in the notice. Correct answer.

Explanation

When a licensing agency denies an application, the applicant's remedy is generally an administrative hearing or appeal under the Montana Administrative Procedure Act, following the deadlines and instructions in the denial notice. Going straight to district court skips the required exhaustion of administrative remedies.

Question 29Business Organization and Licensing

A Montana contractor is licensed as a sole proprietor under the name 'Ridgeline Builders.' The contractor wants to operate and advertise under the different name 'Big Sky Renovations.' What is the most appropriate action?

  1. Obtain a separate building permit for each project under the new name.
  2. Register the trade name and update the contractor's license records to reflect it. Correct answer.
  3. Use the new name only on written contracts and keep the licensed name off signage.
  4. Begin using the new name at once, because trade names are unregulated in Montana.

Explanation

A contractor may use a trade name, but the name must be properly registered and disclosed to the licensing authority so the public and the department can connect the advertised name to the licensed business. Operating under an unlisted name creates a mismatch between the license record and the contractor's public identity.

Question 30Business Organization and Licensing

A Montana contractor is reviewing its compliance program before bidding public work. Which combination best reflects the categories of records a licensed contractor should maintain to demonstrate ongoing compliance?

  1. Only employee payroll records for the most recent calendar year.
  2. Only financial statements and tax returns filed with the state.
  3. Only the licenses and permits posted at the job site during active construction.
  4. License and registration documents, insurance and bond certificates, contracts and change orders, and project completion records. Correct answer.

Explanation

A defensible compliance file links the license record to insurance and bonding, the written contract and any changes, and documentation of project completion. Those records let the contractor show the department, an owner, or a surety that licensing and contractual obligations were met throughout the project.

Question 31Contracting Law and Contracts

A subcontractor signs a written agreement with a general contractor to supply and install structural steel for a fixed price of $480,000. The subcontract states that the sub must begin within 10 days after the general contractor gives written notice to proceed. Under standard common-law contract principles, what is the subcontractor's obligation before receiving that notice?

  1. It may begin at any time it chooses and the notice is merely informational
  2. It has no binding contract at all until the notice is issued
  3. It is obligated to mobilize immediately because the fixed price implies an immediate start
  4. It is obligated to begin only after the written notice is issued, since the notice is a condition precedent to the duty to start Correct answer.

Explanation

A condition precedent is an event that must occur before a party's duty to perform becomes enforceable. Because the subcontract makes written notice to proceed the trigger for the start obligation, the subcontractor's duty to begin arises only when that notice is given. The agreement is already binding; the notice controls timing, not formation.

Question 32Contracting Law and Contracts

A general contractor and an owner execute a stipulated-sum contract that incorporates AIA A201 General Conditions. During construction, the owner orally directs the contractor to add a skylight, and the contractor performs the work. The contract requires written change orders. Which statement best describes the contractor's position?

  1. The contractor must sue the architect, who issued the directive
  2. The contractor automatically forfeits all payment for the entire contract
  3. The oral directive is unenforceable because written change orders are mandatory
  4. The contractor may recover because an owner's actual or constructive direction to perform extra work can waive the written-change-order requirement Correct answer.

Explanation

Written change-order clauses protect owners from unauthorized extras, but courts generally hold that an owner who directly orders or knowingly accepts extra work may waive the writing requirement. The contractor should document the directive promptly and pursue a written confirmation. The clause is not an absolute bar where the owner itself caused the extra.

Question 33Contracting Law and Contracts

Under a typical AIA A201-based contract, the architect issues a decision on a contractor's claim. The contractor disagrees. What is the usual next procedural step before litigation?

  1. The contractor must arbitrate before any mediation can occur
  2. The contractor must submit a written appeal or demand for mediation as the contract specifies, often within a stated period Correct answer.
  3. The contractor must stop all work until the dispute is resolved
  4. The contractor must immediately file suit, because the architect's decision is final

Explanation

AIA A201 makes the architect's initial decision a condition precedent to further dispute resolution, and the claimant must typically demand mediation within a set period (commonly 30 days) before arbitration or litigation. Skipping that step can bar the claim. The decision is not self-executing as a final judgment.

Question 34Contracting Law and Contracts

A general contractor signs a contract with an owner that contains a clause stating: 'The contractor shall be liable for all damages of any kind arising from performance, including the owner's lost profits and consequential damages.' The contractor later negligently delays completion by six weeks. Which principle governs the enforceability of the consequential-damages clause?

  1. Parties may contractually allocate risk, and an express clause assuming consequential damages is generally enforceable unless unconscionable or barred by law Correct answer.
  2. Only courts may award lost profits, so the clause is void
  3. The clause is enforceable only if the delay was intentional
  4. Consequential damages are never recoverable in construction contracts

Explanation

Freedom of contract allows parties to allocate risk, including shifting consequential damages that would otherwise be limited by the rule in Hadley v. Baxendale. An express, negotiated assumption of that exposure is generally enforced. Courts will not enforce such a clause only where it is unconscionable or prohibited by statute.

Question 35Contracting Law and Contracts

A general contractor is reviewing a subcontract that includes an indemnity provision requiring the subcontractor to indemnify the GC for claims 'caused in whole or in part by any act or omission of the subcontractor, its employees, or its lower-tier subcontractors.' What type of indemnity does this language create?

  1. A hold-harmless agreement with no indemnity obligation
  2. Limited-form indemnity covering only the subcontractor's own negligence Correct answer.
  3. Broad-form indemnity covering the GC's own negligence
  4. Intermediate-form indemnity covering the subcontractor's negligence and the GC's passive negligence

Explanation

Limited-form indemnity obligates the indemnitor only for losses caused by its own acts or omissions. Intermediate form extends to the indemnitee's passive negligence, and broad form reaches the indemnitee's active negligence. The quoted language ties recovery to the subcontractor's acts, which is the limited form.

Question 36Contracting Law and Contracts

Which bond guarantees that a contractor will perform the contract according to its terms and protects the owner if the contractor defaults?

  1. Performance bond Correct answer.
  2. Payment bond
  3. Maintenance bond
  4. Bid bond

Explanation

A performance bond secures the contractor's obligation to complete the work per the contract and gives the surety options such as completing the work or paying the owner's damages on default. A bid bond assures the owner that a bidder will enter the contract if awarded. Payment and maintenance bonds serve different functions.

Question 37Contracting Law and Contracts

A general contractor and a subcontractor are negotiating a subcontract. The subcontractor sends a written offer on Monday. On Tuesday the GC mails a signed acceptance that differs in one term: it changes the retainage from 5% to 10%. Under common-law contract rules, what is the effect of the GC's response?

  1. It has no effect until the subcontractor signs a formal agreement
  2. It forms a contract on the original terms because acceptance was mailed
  3. It forms a contract on the modified terms because the change is minor
  4. It is a counteroffer that rejects the original offer and requires acceptance by the subcontractor Correct answer.

Explanation

Under the common-law mirror-image rule, an acceptance that varies a material term operates as a counteroffer rather than an acceptance. Retainage is a material economic term, so the GC's response rejects the original offer and creates a new one. The subcontractor must accept the counteroffer for a contract to form on those terms.

Question 38Contracting Law and Contracts

A construction contract contains a clause requiring the contractor to 'furnish a performance bond in the amount of 100% of the contract sum within 10 days after execution of the agreement.' The contractor fails to provide the bond, and the owner terminates. Which is the strongest basis for termination?

  1. The contractor's failure to provide the bond is a material breach of an express condition of the contract Correct answer.
  2. The owner has no remedy because bonds are optional
  3. The owner may terminate only after the project is complete
  4. The owner may terminate only if the contractor is insolvent

Explanation

Furnishing the performance bond was an express contractual requirement, and failure to satisfy a material condition can justify termination. The owner should follow any notice and cure provisions before terminating. The bond requirement is not optional when the contract states it.

Question 39Contracting Law and Contracts

A general contractor's superintendent signs a change order on the owner's behalf without authority. The owner later accepts the benefit of the extra work and pays part of the invoice. What doctrine most likely binds the owner to the change?

  1. Ratification Correct answer.
  2. Promissory estoppel
  3. Apparent authority only
  4. Statute of frauds

Explanation

Ratification occurs when a principal, with knowledge of the facts, accepts the benefit of an unauthorized act, thereby adopting it. Accepting the extra work and paying part of the invoice is strong evidence of ratification. Apparent authority concerns third-party reliance on the agent's appearance, which is a different theory.

Question 40Contracting Law and Contracts

Which contract delivery method transfers the greatest design risk to the contractor?

  1. Construction manager at risk
  2. Cost-plus with a guaranteed maximum price
  3. Design-build Correct answer.
  4. Design-bid-build

Explanation

In design-build, a single entity is responsible for both design and construction, so design errors are generally the design-builder's risk. Design-bid-build separates design from construction and leaves design risk with the owner. CMAR and cost-plus arrangements do not inherently shift design responsibility to the contractor.

Question 41Contracting Law and Contracts

A subcontractor submits a pay application to the general contractor. The GC's payment to the sub is conditioned on the owner paying the GC. The owner has not paid the GC, but the GC has not submitted a proper pay application to the owner. What is the subcontractor's best argument against the pay-when-paid defense?

  1. Pay-when-paid clauses are always void
  2. The owner's nonpayment is irrelevant to the sub
  3. The GC failed to take reasonable steps to obtain payment from the owner, so the condition should be excused Correct answer.
  4. The subcontractor has no privity with the owner

Explanation

Courts often treat pay-when-paid clauses as timing provisions and require the GC to make reasonable efforts to collect from the owner. If the GC's own failure caused the nonpayment, the condition may be excused. The subcontractor's lack of privity with the owner is generally true but does not itself defeat the clause.

Question 42Contracting Law and Contracts

A general contractor submits a bid to a public owner. After bid opening, the GC discovers a clerical error in its bid that would cause a $200,000 loss. Under the typical rule for public bidding, when may the GC withdraw its bid without forfeiting its bid bond?

  1. Whenever the contractor decides the price is too low
  2. Only after the contract is awarded and signed
  3. When the error is a material, clerical mistake of which the owner had or should have had notice and withdrawal would not prejudice the owner Correct answer.
  4. Never, because bids are irrevocable once submitted

Explanation

Public bidding rules generally allow withdrawal for a material clerical error where the owner knew or should have known of the mistake and the owner is not prejudiced, such as where other bidders are unaffected. Mere dislike of the price is not a ground. Bids are irrevocable only within the period the solicitation specifies and subject to these exceptions.

Question 43Contracting Law and Contracts

A contract clause states that 'time is of the essence.' What is the primary legal effect of this clause?

  1. It shifts all delay risk to the owner
  2. It makes timely performance a material term, so late performance is a breach that may excuse the other party Correct answer.
  3. It makes the schedule a non-binding guideline
  4. It eliminates the need for written notice of delay

Explanation

A time-is-of-the-essence clause elevates timely performance to a material term, so failure to meet the schedule can be treated as a breach supporting damages or termination. It does not shift delay risk to the owner or dispense with notice requirements. It makes the schedule enforceable rather than advisory.

Question 44Contracting Law and Contracts

A general contractor is sued for defective workmanship six years after substantial completion. The applicable statute of limitations for written contracts is six years, and the statute of repose for construction defects is ten years. Which statement is correct?

  1. Neither statute applies to construction defects
  2. The claim may proceed because the statute of repose has not expired, though the limitations period may bar it depending on when the cause accrued Correct answer.
  3. The statute of repose bars the claim immediately
  4. The claim is barred because the limitations period has run

Explanation

A statute of limitations runs from when the claim accrues, while a statute of repose sets an outer limit from a defined event such as substantial completion. If the claim accrued late, the limitations period may not yet have run even though six years have passed since completion. The ten-year repose period has not expired, so it does not bar the claim.

Question 45Contracting Law and Contracts

Which of the following best describes the purpose of a liquidated damages clause in a construction contract?

  1. To punish the contractor for late completion
  2. To pre-estimate damages for delay that are difficult to calculate, provided the amount is a reasonable forecast and not a penalty Correct answer.
  3. To guarantee the contractor will finish on time
  4. To replace all other remedies, including termination

Explanation

Liquidated damages are an agreed pre-estimate of damages for a specified breach, typically delay, where actual damages are hard to quantify. Courts enforce them only if the amount is a reasonable forecast at the time of contracting and not a penalty. They compensate rather than punish.

Question 46Contracting Law and Contracts

A general contractor enters a contract with an owner who is a minor. The contractor completes the work, and the minor refuses to pay. What is the contractor's most likely position under common-law contract rules?

  1. The minor is liable only if a parent co-signed
  2. The contract is voidable by the minor, but the contractor may recover under quasi-contract for the reasonable value of benefits conferred Correct answer.
  3. The contract is fully enforceable against the minor
  4. The contract is void and the contractor has no remedy

Explanation

Contracts with minors are generally voidable at the minor's election, not automatically void. Where the minor disaffirms, the contractor may still recover in quasi-contract for the reasonable value of necessaries or benefits conferred, depending on jurisdiction. Full enforcement against the minor is generally unavailable.

Question 47Contracting Law and Contracts

A general contractor includes a clause in its subcontract requiring the subcontractor to waive all liens against the owner's property. Under many state mechanics' lien statutes, what is the likely effect of this clause?

  1. It may be unenforceable as against public policy, and lien waivers are often regulated as to timing and form Correct answer.
  2. It is fully enforceable because parties may waive any right
  3. It automatically voids the entire subcontract
  4. It applies only to federal projects

Explanation

Mechanics' lien rights are created by statute and are often protected by rules limiting advance waivers, especially before payment is received. Many states treat broad prospective lien waivers as void against public policy or enforce them only in statutory form. The subcontract itself is not voided by an invalid waiver.

Question 48Contracting Law and Contracts

A general contractor and owner agree to a guaranteed maximum price (GMP) contract with a shared savings clause. The project finishes under the GMP. Who typically receives the savings, and under what condition?

  1. The owner receives all savings automatically
  2. The contractor and owner share the savings according to the contract formula, often after the owner's contingency is reconciled Correct answer.
  3. The contractor keeps all savings with no sharing
  4. Savings are returned to the surety

Explanation

A shared savings clause allocates cost underruns between owner and contractor per a stated formula, frequently after reconciling the owner's contingency and allowable costs. The owner does not automatically receive all savings, and the contractor rarely keeps them all. The surety has no claim to project savings.

Question 49Contracting Law and Contracts

A general contractor discovers a differing site condition: subsurface rock that was not indicated in the geotechnical baseline report incorporated into the contract. The contract contains a differing site condition clause. What must the contractor generally do to preserve a claim?

  1. Proceed silently and include the cost in the next pay application
  2. Wait until final completion to raise the issue
  3. Stop work permanently and sue immediately
  4. Give prompt written notice, document the condition, and follow the contract's claim procedure before disturbing the condition where practicable Correct answer.

Explanation

Differing site condition clauses typically require prompt written notice and documentation so the owner can investigate, often before the condition is disturbed. Following the contractual claim procedure is a condition precedent to recovery. Silent absorption into a pay application or waiting until completion usually waives the claim.

Question 50Contracting Law and Contracts

Which of the following is the best example of a constructive change?

  1. A written change order signed by both parties
  2. A subcontractor's voluntary upgrade of materials
  3. A contractor performing extra work because the owner's interpretation of ambiguous specifications required it Correct answer.
  4. An owner's written directive to add scope

Explanation

A constructive change arises without a formal change order when one party's conduct, such as an unreasonable interpretation of specifications or a directive to perform extra work, effectively alters the contract. The contractor may be entitled to an equitable adjustment. Written change orders and directives are express changes, and voluntary upgrades are not changes at all.