CCA Construction Billing and Payment Verification 1 — Questions and Answers
Question 1: A Schedule of Values (SOV) is primarily used in construction billing to:
- Define subcontractor warranty obligations
- Allocate the contract sum among work components for progress payment purposes (Correct answer)
- Set labor wage rates
- Track equipment depreciation
Correct answer: Allocate the contract sum among work components for progress payment purposes
The SOV breaks the total contract price into line items corresponding to work components, forming the basis for calculating progress payment amounts.
Question 2: When auditing a contractor's pay application, which document is most critical for verifying that work-in-place percentages are accurate?
- Contractor's financial statements
- Field inspector's or owner's representative's progress report (Correct answer)
- Subcontractor's invoice
- Insurance binder
Correct answer: Field inspector's or owner's representative's progress report
Independent field verification by the owner's representative confirms actual work-in-place quantities against the contractor's claimed completion percentages.
Question 3: Overbilling on a construction project most commonly occurs when a contractor:
- Bills for work not yet performed or materials not yet incorporated (Correct answer)
- Uses a lump-sum contract
- Submits pay applications on time
- Provides detailed cost breakdowns
Correct answer: Bills for work not yet performed or materials not yet incorporated
Front-loading or billing for work or materials ahead of actual installation is the most prevalent form of overbilling in construction.
Question 4: What is the purpose of a stored materials provision in a construction contract's payment clause?
- To allow payment for materials delivered to the site or approved off-site storage before installation (Correct answer)
- To limit the contractor's profit on material purchases
- To require materials to be pre-inspected by regulators
- To set the maximum retainage percentage
Correct answer: To allow payment for materials delivered to the site or approved off-site storage before installation
Stored materials provisions permit progress payments for materials that have been delivered and properly documented but not yet incorporated into the work.
Question 5: Which auditor procedure best detects duplicate billing of a single invoice across multiple pay applications?
- Reviewing the contractor's safety plan
- Cross-referencing invoice numbers across all pay applications (Correct answer)
- Inspecting subcontractor credentials
- Verifying labor classifications
Correct answer: Cross-referencing invoice numbers across all pay applications
Maintaining a log of invoice numbers and cross-checking them across all pay applications identifies instances where the same cost has been billed more than once.
Question 6: Retainage in a construction contract serves primarily to:
- Compensate the contractor for mobilization costs
- Provide the owner financial leverage to ensure project completion and defect correction (Correct answer)
- Fund the contractor's insurance premiums
- Cover material price escalation
Correct answer: Provide the owner financial leverage to ensure project completion and defect correction
Retainage withholds a percentage of each progress payment, giving the owner financial security that the contractor will complete all work and remedy deficiencies.
CCA Construction Billing and Payment Verification 1
A Schedule of Values (SOV) is primarily used in construction billing to: