3. Construction Contracts

Risk Allocation — Quiz

Test your understanding of risk allocation with 5 practice questions.

Practice Questions

Question 1

A construction contract includes a clause that states the contractor is responsible for obtaining and maintaining all necessary environmental permits. This is an example of allocating which type of risk?

Question 2

In a construction project, if a contract utilizes a Guaranteed Maximum Price (GMP) clause, which party primarily bears the risk of cost overruns beyond the GMP, assuming no change orders?

Question 3

Which of the following best describes the primary function of a performance bond in construction risk allocation?

Question 4

A construction contract includes a clause stating that the owner will provide all necessary permits and licenses for the project. This is an example of allocating which type of risk?

Question 5

In a construction contract, what is the primary purpose of a liquidated damages clause in the context of risk allocation?