Oregon Construction Contractors (CCB) Practice Test

What is a contractual relationship where the general contractor and the subcontractor are directly involved?

1. Privity of contract.

2. Joint venture.

3. Indirect agreement.

4. Agency relationship.

The correct answer is: Privity of contract.

A contractual relationship where the general contractor and the subcontractor are directly involved is known as privity of contract. This concept refers to the legal relationship that exists between parties who have entered into a contract with one another. In this case, both the general contractor and the subcontractor have a mutual agreement that establishes responsibilities, obligations, and rights concerning the work to be performed. Privity is crucial in a construction context because it ensures that both parties can hold each other accountable for performance under the contract, resolution of disputes, and claiming damages if necessary. This direct involvement solidifies their relationship, allowing the subcontractor to be considered a party to the agreement that has direct legal standing to consider the terms and fulfill the obligations set forth in the contract with the general contractor. Other options like joint venture, indirect agreement, or agency relationship don't accurately represent the direct, mutual contractual obligations that define privity. A joint venture involves multiple parties collaborating but is broader than a simple contract, while an agency relationship implies one party acts on behalf of another, not necessarily sharing contractual obligations directly. An indirect agreement lacks the direct bond and accountability that privity necessitates.