Oregon Construction Contractors (CCB) Practice Test

Who is responsible for paying for cost overruns in a construction contract?

1. The contractor

2. The property owner

3. The subcontractors

4. All involved parties

The correct answer is: The contractor

In a construction contract, the responsibility for paying for cost overruns typically falls on the contractor. This stems from the fundamental understanding of a fixed contract price, where the contractor agrees to complete a project for a specified amount. If unexpected costs arise, it is the contractor's responsibility to manage those costs and absorb any overruns unless there are specific clauses in the contract that allow for adjustments based on unforeseen circumstances. For example, if the project scope or conditions change in a way that generates additional costs, the contractor may have grounds to request a change order. However, in the absence of such changes and without contractual provisions for cost overruns, the contractor bears the financial risk associated with staying within the agreed-upon budget. Knowing this is crucial for contractors, as it emphasizes the importance of thorough project planning and accurate cost estimation. It also highlights the need for clear communication with the property owner regarding expectations for managing potential cost increases. Thus, understanding the contractor's liability for cost overruns is vital in construction project management and contract negotiation.