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Chapter 1: Understanding Contract Surety Bond Suretyship
Terms in this set (82)
a written contract that expresses one party's promise to answer for another party's failure to do something as promised
the party (usually an insurer) to a surety bond that guarantees to the obligee that the principal will fulfill an obligation or perform as required by the underlying contract, permit, or law
the party to a surety bond that receives the surety's guarantee that the principal will fulfill an obligation or perform as promised
the party to a surety whose obligation or performance the surety guarantees
a surety bond guaranteeing the fulfillment of obligations under construction contracts or other types of contracts
a contract bond guaranteeing that a contractor bidding on a construction or supply contract will enter into the contract and will provide a performance bond if the bid is accepted
a construction method that offers "one-stop shopping" to property owners for design and construction services
Subcontractor (specialty contractor)
an independent contractor who specializes in a particular kind of work and who is engaged by a general contractor to perform a particular portion of the general contractor's contract
the process before construction begins that involves activities to facilitate a construction process, such as moving equipment and a field office onto the job site and installing temporary utilities
Critical path method (CPM)
a process that identifies every major element of the construction project, as well as a time estimate for each element, and assembles these elements into one master schedule
a list of small finishing tasks that must be accomplished for completion
General building contractor
an independent contractor who obtains the primary contract for a project and either completes all the work or subcontracts portions (or all) of the work to other independent contractors who specialize in such work
General engineering contractor
a contractor that constructs locks and dams, power plants, large bridges, sewage and water treatment plants, or similar projects for public and private owners
Heavy and highway construction
a type of construction used for highways, bridges, dams, roads, railroad beds, and similar projects
manufacture or distributor that sells materials and equipment
the written consent from the architect and owner that modifies the construction in price and substance
Bond penalties for performance and payment bond are (exclusive/unexclusive) of each other
What is the evolution of the Miller Act
1894 Heard Act
1935 Miller Act
The Construction Industry Payment Protection Act of 1999 (CIPP)
1894 Miller Act required contractors on public works to...
execute the usual penal bond, with good and sufficient sureties, with the additional obligations that such contractor or contractors shall promptly make payments to all persons supplying him or them labor and materials
1935 Miller Act: payment bond cannot exceed X% of contract price with a max of $X
50% and $2.5M
Design process: who often acts as the control coordinators?
Design process: who hires the engineers?
When is construction management typically hired?
during the feasibility study or the design process
Main benefits of design/build method
reduces cost and planning time
many design/build method contractors are...
joint ventures consisting of a contractor and an insured design professional
What are the two types of project financing for owners
construction mortgage and permanent mortgage
a loan that provides financing during the construction period
a loan that provides financing after construction is complete
What is the largest risk to a lender
What are the two main ways owners select contractors
negotiating with several firms
advertising for competitive bids
Negotiating with several firms for bids works best when...
the owner has prequalified the contractor and a has a high level of trust
Advertising for competitive bids works best when...
the design professional has prepared plans and specifications that are accurate, complete, and thoroughly understood by prospective bidders
Prequalification requirements often appear in...
advertisements for bids
What/who determines quantities and costs needed to pay for material, labor, transportation, and other items
A subcontractor may vary its prices to general contractors based on its experience with each general contractor's...
payment policies, quality of supervision, and job coordination
Union general contractors usually get (higher/lower) bid prices from subcontractors than nonunion contractors
What/who selects material suppliers and subcontractors and converts bids into written contracts or purchase orders
Steps in the construction process
Provide required bonds
Obtain delivery dates and schedules from suppliers and subcontractors
Obtain building and utility permits if necessary
Clear the property and evacuate, build foundations and footers, and erect the structural walls (for new construction)
Specialty items are undertaken
Complete various inspections if applicable (during and on completion of the project)
When does a maintenance period begin
when a project is substantially completed
Types of general building contractors
commercial, industrial, residential, public work
What are general building contractors responsible for
the coordination and construction of the entire project
Performance and payment bond generally not required for which type of general building contractors
Municipality may require a developer to post a subdivision bond guaranteeing that...
roads, water and sewer lines, and sidewalks will be installed according to plans filed with the municipality
Who are the major customers for general engineering contractors
public bodies requiring bonds and utilities
What are the types of heavy and highway construction contractors
street and road, highway, underground
Most heavy and highway construction contracts are awarded through...
being the lowest bidder
Subcontractors schedule is tied directly to...
the general contractor's work
Design/Build Contractors are mostly in...
private-sector commercial and industrial construction
What do set-aside programs require
a certain percentage of contracts or subcontractors be set aside for minority, disadvantaged, or women owned businesses
Who gives the owner an estimate of the project cost before bid forms go out
Where/who are bids delivered to
Bids should include a profit and...
an amount for contingencies
Change orders modify the contract in...
price, time, and substance
Who approves a contractors payment request
Contractor must pay subs and suppliers when...
it receives payment
Common reasons for contract failure
new types of sectors of construction
Other factors for contract failure
nonpayment by owner/obligee
What is the most common reason for contract failure
When does project-size increase usually occur
Project size relative to the size of a company's usual projects bears (no/significant/some) direct relationship to profitability
Contractors usually pursue large jobs when...
their backlog and local demand for construction projects dries up
What is the second most common reason for contract failure
Main risk when contractors try to diversify sectors
underestimate entry cost (learning period)
Small contractors usually start with (private/public) work
Owner, architect, and contractor are much more likely to collaborate on a (private/public) project
Change orders more common on (private/public) jobs
Bids usually lower on (private/public) jobs
Key-personnel primary functions include:
Producing estimates and sales (getting the work)
Completing construction operations (doing the work)
Providing administration and accounting (managing the work)
Managerial maturity refers to...
the need for a contractor's managerial abilities to develop along with the business
Combination of X or more of the main risks will generally lead to contract failure
Overextension is when...
a contractor takes on too many jobs
When does overextension usually occure
when there is an abundant amount of work available
Financial overextension begins when...
a contractor must put cash into projects at a higher rate than that at which cash is being generated
Financial overextension can result from...
from timing or job-profit problems, disputes with owners, or a combination of factors
Subcontractor failure can...
jeopardize financial integrity of the prime contractor
Sureties often require contractors to bond their...
What events can result in nonpayment from owner?
Failure of the bank making the construction loan
Failure in the contractor's performance
Disputes between owner and contractor
Significant change orders
Failure of the owner
Unclear contract specifications
Insufficient project financing
What/who interviews the client, measures the current and future structure needs, reviews existing facilities for potential renovation, and employs various professional engineers that contribute to the specifications
Private work is not bid as tightly as public work because all bidders usually understand that a fair markup of a contractor's work is expected and that...
numerous, unexpected change orders would become a nuisance
To prevent problems when contracting work outside of the contractor's usual geographic area, the contractor may need to...
recruit local help or acquire a joint-venture partner to facilitate the project
__________ offers alternative designs to minimize construction costs; may assist in preparing the specifications; advertises for and reviews bids; awards contracts; manages the work; and approves monthly requisitions, billings, and final payments
The construction manager
The role of the project owner at the beginning of any construction project is to...
define a need for a facility and engage an architect or an engineer
Sets found in the same folder
Chapter 5: Using Financial Statements
Chapter 6: Analyzing Work in Progress
Chapter 7: Analyzing Contractors' Financial Statem…
Chapter 8: Using Trend Analysis and Forecasting
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