Contracts and Contract Law for the FE Civil Exam
NCEES FE Civil spec: Ethics and Professional Practice, D. Contracts and contract law. FE Reference Handbook: Ethics and Professional Practice chapter, contracts and contract law.
Engineers work under contracts with owners, contractors and subconsultants, so the FE Civil exam expects a working knowledge of contract law: what makes a contract valid, what happens when someone breaches it, and how project delivery methods and compensation types shift risk between the parties.
What the NCEES spec covers
Ethics section D, "Contracts and contract law", covers the elements of a valid contract, breach and remedies, common contract clauses, delivery methods (design-bid-build, design-build, construction management) and payment types. Construction Engineering revisits procurement, so this is useful in two places on the exam.
Key concepts
- Elements of a valid contract: an offer, acceptance of that offer, consideration (something of value exchanged), parties with legal capacity, and a lawful purpose. Some contracts, such as those involving real estate, must also be in writing.
- Breach and remedies. A material breach lets the other party stop performing and seek damages. Remedies include compensatory damages, liquidated damages set in the contract, specific performance and rescission.
- Privity is the direct contractual relationship between two parties. On design-bid-build, the designer and the contractor each contract with the owner, not with each other.
- Key clauses: scope of work, changes and change orders, differing site conditions, indemnification (one party agrees to cover another's losses), limitation of liability, and dispute resolution (negotiation, mediation, arbitration, litigation).
- Delivery methods. Design-bid-build separates design and construction contracts. Design-build gives the owner a single contract for both. Construction manager at risk adds a CM who guarantees a maximum price.
- Compensation types. Lump sum puts cost risk on the contractor or consultant. Unit price pays per measured quantity. Cost-plus pays actual costs plus a fee, which puts cost risk on the owner. A guaranteed maximum price caps it.
Where it is in the FE Reference Handbook
The handbook says little about contract law, so treat this section as concepts to know. The Ethics and Professional Practice chapter's Model Rules do address related conduct, such as not accepting compensation from more than one party for the same work without everyone's informed consent.
Worked example
An owner compares two contracts for a $900,000 building. Contract 1 is a lump sum of $900,000. Contract 2 is cost plus a fixed fee of $60,000 on an estimated cost of $840,000. Both include liquidated damages of $2,000 per day. The job finishes 12 days late and the actual cost is $950,000. What does the owner pay under each?
Liquidated damages (deducted from what the owner pays):
Contract 1, lump sum: the contractor absorbs the overrun.
Contract 2, cost plus fixed fee: the owner pays actual cost plus the fee.
The difference, , shows how compensation type shifts cost risk: under a lump sum the contractor carries it, under cost-plus the owner does. Liquidated damages must be a reasonable estimate of the owner's actual delay losses, not a penalty, to be enforceable.
How it shows up on the exam
Expect definition questions (the elements of a contract, what consideration means, which delivery method uses a single contract), risk allocation questions (who pays for an overrun under each compensation type), and short calculations involving liquidated damages, retainage or unit prices. Read the delivery method carefully: who holds a contract with whom determines who can sue whom for breach. Changes in scope should always go through a written change order that adjusts price and schedule.
Common mistakes
- Forgetting consideration as a required element of a valid contract.
- Thinking the designer and contractor are in privity on a design-bid-build job.
- Mixing up who carries cost risk under lump sum and cost-plus contracts.
- Treating liquidated damages as a penalty rather than a pre-agreed estimate of losses.
- Accepting payment from two parties for the same work without disclosure and consent from both.
Related: professional liability and the FE Construction Engineering topics.
Practice Problems
Try these from the free PolyCalc FE Civil problem bank. Each one has a full worked solution.
- On a design-bid-build project, which parties hold contracts with the owner? See the worked solution or practice the Ethics & Professional Practice deck
- Which project delivery method gives the owner a single contract covering both design and construction? See the worked solution or practice the Construction & Scheduling deck
- An engineer wants to be paid by two different parties for services on the same project. Under the NCEES Model Rules, this is permissible when: See the worked solution or practice the Ethics & Professional Practice deck
- An engineer owns stock in a vendor being evaluated. What is the appropriate action? See the worked solution or practice the Ethics & Professional Practice deck
Related Calculators and Examples
- Professional liability lesson
- FE Construction Engineering topics
- Ethics and professional practice practice deck
- Construction project management practice deck
Frequently Asked Questions
What are the elements of a valid contract?
An offer, acceptance, consideration (something of value exchanged), parties with legal capacity, and a lawful purpose. Some contracts must also be in writing to be enforceable.
Who carries the cost risk in a lump sum contract?
The contractor or consultant. They agree to a fixed price, so overruns reduce their profit. In a cost-plus contract, the owner pays actual costs and carries the risk instead.
What are liquidated damages?
An amount per day or per event agreed in the contract to compensate the owner for delay or other breach. Courts generally enforce them when they are a reasonable estimate of actual losses rather than a penalty.