CPC Contract Administration & Legal Issues 3 — Questions and Answers
Question 1: The Spearin Doctrine holds that when an owner provides design specifications, the owner implicitly warrants that:
- The contractor will complete work within budget
- Following the specifications will produce a satisfactory result (Correct answer)
- The architect has reviewed all shop drawings
- The contractor bears all risk of design errors
Correct answer: Following the specifications will produce a satisfactory result
The Spearin Doctrine (U.S. v. Spearin, 1918) establishes that owners impliedly warrant that if a contractor follows provided specifications, the result will be fit for its intended purpose.
Question 2: In construction contract law, 'liquidated damages' are distinguished from penalties because they must be:
- Imposed for every day of delay without exception
- A reasonable pre-estimate of actual damages at the time of contracting (Correct answer)
- Approved by the owner's legal counsel before insertion
- Tied to a specific financial loss the owner has documented
Correct answer: A reasonable pre-estimate of actual damages at the time of contracting
Liquidated damages are enforceable only when they represent a reasonable forecast of actual harm at contract formation, not a penalty for breach.
Question 3: A subcontractor's 'pay-when-paid' clause differs from a 'pay-if-paid' clause in that pay-when-paid:
- Permanently relieves the general contractor from paying if the owner defaults
- Creates only a timing mechanism, not a condition that eliminates the payment obligation (Correct answer)
- Is unenforceable in all U.S. jurisdictions
- Requires the sub to pursue the owner directly before payment is due
Correct answer: Creates only a timing mechanism, not a condition that eliminates the payment obligation
Pay-when-paid clauses delay payment timing but do not eliminate the GC's obligation to pay the sub; pay-if-paid clauses can eliminate the obligation entirely.
Question 4: Which legal remedy allows a subcontractor to file a claim against the owner's property when the prime contractor fails to pay?
- Mechanic's lien (Correct answer)
- Surety bond claim
- Unjust enrichment claim
- Quantum meruit action
Correct answer: Mechanic's lien
Mechanic's liens (also called construction liens or materialmen's liens) give unpaid subcontractors and suppliers a security interest in the improved property.
Question 5: During contract performance, the contractor discovers that following the owner-supplied design specifications will result in a code violation. The contractor's best course of action is to:
- Proceed as specified and document the issue in the as-built drawings
- Stop work immediately and wait for written direction
- Notify the owner and architect in writing and request clarification before proceeding (Correct answer)
- Substitute compliant materials at the contractor's own cost
Correct answer: Notify the owner and architect in writing and request clarification before proceeding
Contractors must promptly notify the owner and architect of code conflicts in the specifications and seek written direction rather than proceeding or unilaterally substituting.
Question 6: The concept of 'constructive acceleration' arises when an owner:
- Directs the contractor to finish ahead of schedule to earn a bonus
- Denies a valid time extension request and demands on-time completion (Correct answer)
- Reduces the project scope to help the contractor finish faster
- Issues a change order requiring additional work in less time
Correct answer: Denies a valid time extension request and demands on-time completion
Constructive acceleration occurs when the owner denies a legitimate time extension, forcing the contractor to speed up work to avoid liquidated damages.
Question 7: Under the AIA A201, a contractor's right to stop work for nonpayment requires the owner to be in default for at least:
- 7 days
- 14 days (Correct answer)
- 21 days
- 30 days
Correct answer: 14 days
AIA A201 Section 14.1.1 allows the contractor to stop work if the owner fails to pay certified amounts within 14 days of the date payment is due.
CPC Contract Administration & Legal Issues 3
The Spearin Doctrine holds that when an owner provides design specifications, the owner implicitly warrants that: