CSLB Contract Law and Dispute Resolution 2 — Questions and Answers
Question 1: Under the California Right to Repair Act (SB 800), a homeowner with a construction defect must first:
- File a lawsuit immediately
- Notify the contractor and allow an opportunity to repair (Correct answer)
- Contact CSLB to file a complaint
- Hire an independent inspector
Correct answer: Notify the contractor and allow an opportunity to repair
SB 800 requires homeowners to provide written notice to the builder and give them a statutory opportunity to inspect and repair before filing a lawsuit for construction defects.
Question 2: What is 'liquidated damages' in a construction contract?
- The contractor's profit margin on a project
- A pre-agreed daily penalty for late project completion (Correct answer)
- Damages paid when a project exceeds budget
- Insurance proceeds from a site accident
Correct answer: A pre-agreed daily penalty for late project completion
Liquidated damages are a pre-agreed, fixed amount per day charged to a contractor for each day a project extends beyond the contractual completion date.
Question 3: A 'time is of the essence' clause in a construction contract means:
- The contractor must work overtime to finish early
- Completing the work on time is a material contractual obligation (Correct answer)
- The project must begin within 30 days of signing
- Only applies to federal projects
Correct answer: Completing the work on time is a material contractual obligation
A 'time is of the essence' clause makes the completion date a material term of the contract, so that late completion may constitute a material breach.
Question 4: California's prompt payment penalty for public works projects requires the public agency to pay the prime contractor within how many days of receiving a valid invoice?
- 20 days
- 30 days (Correct answer)
- 45 days
- 60 days
Correct answer: 30 days
California Public Contract Code §20104.50 requires public agencies to pay undisputed invoices within 30 days of receipt.
Question 5: An 'indemnification clause' in a construction contract typically requires:
- The contractor to guarantee the lowest price
- One party to defend and hold harmless another party from specified claims (Correct answer)
- The owner to pay for all permits
- The contractor to post additional bonding
Correct answer: One party to defend and hold harmless another party from specified claims
An indemnification clause obligates one party (usually the contractor) to defend, indemnify, and hold harmless another party from losses arising from specified events such as the contractor's own negligence.
Question 6: In California, a contractor's claim for extra compensation on a public works project is typically barred if the contractor fails to provide:
- A performance bond increase
- Timely written notice of the claim as required by the contract (Correct answer)
- An updated insurance certificate
- A revised project schedule
Correct answer: Timely written notice of the claim as required by the contract
Most public works contracts require contractors to provide timely written notice of claims for extra compensation — failure to do so typically bars recovery of those additional costs.
CSLB Contract Law and Dispute Resolution 2
Under the California Right to Repair Act (SB 800), a homeowner with a construction defect must first: