Tennessee Contractor License Exam — All Questions

In Tennessee, a contractor must hold a license from the Board for Licensing Contractors before bidding or contracting when the total cost of a general building project reaches at least what amount?

• a.$10,000
• b.$3,000
• c.$25,000✓
• d.$50,000

Tennessee requires a contractor's license when the total cost of the work is $25,000 or more for general building projects. The license (with the proper classification and monetary limit) must be in place before the contractor even bids, not just before it starts work.T.C.A. §62-6-103 (license required)

How does the Tennessee Board for Licensing Contractors set a contractor's monetary limit (the largest project the license allows)?

• a.It equals the lesser of ten times the contractor's net worth or ten times its working capital✓
• b.It is unlimited for every licensee
• c.It always equals the contractor's bond amount
• d.It equals five times gross annual revenue

Tennessee sets the monetary limit at the lesser of 10 times net worth or 10 times working capital, as shown on the required financial statement. The rule keeps a contractor's project size tied to its demonstrated financial capacity.T.C.A. §62-6-111; Board financial rules (monetary limit)

Which Tennessee contractor licensing rule is stated correctly?

• a.A contractor must hold the license before bidding, and general building work triggers licensing at $25,000 or more✓
• b.Electrical, plumbing, and mechanical work never require a state license in Tennessee
• c.General building work requires a license only above $100,000
• d.A contractor may submit a bid first and obtain the license afterward

In Tennessee the contractor's license must be obtained BEFORE bidding, and general building work triggers licensing at $25,000 or more (T.C.A. §62-6-103). Lower-dollar trade work is handled through separate limited-license tiers rather than being exempt.T.C.A. §62-6-103

A Tennessee contractor applies for a monetary limit above $1,500,000. What kind of financial statement must accompany the application?

• a.A reviewed or audited financial statement prepared by a licensed CPA✓
• b.A one-page printout of the business bank balance
• c.No financial statement is required above that amount
• d.A verbal statement of the contractor's assets

When the requested monetary limit exceeds $1,500,000, Tennessee requires a reviewed or audited financial statement prepared by a CPA. Lower limits can be supported by a compiled statement, but the larger the limit, the higher the assurance the Board demands.Board financial-statement rule (reviewed/audited statement above $1,500,000 limit)

A Tennessee contractor's balance sheet shows total assets of $900,000 and total liabilities of $520,000. What is the owner's equity (net worth)?

• a.$380,000✓
• b.$900,000
• c.$1,420,000
• d.$520,000

Owner's equity = assets - liabilities = $900,000 - $520,000 = $380,000. Because the monetary limit is based on net worth, an accurate balance sheet directly affects how large a project the contractor may take.Accounting equation: Assets = Liabilities + Owner's Equity

Tennessee bases part of the monetary limit on working capital. Working capital is defined as:

• a.Total assets minus total liabilities
• b.The cash on hand at year end only
• c.Gross revenue minus all expenses
• d.Current assets minus current liabilities✓

Working capital = current assets - current liabilities. It measures the short-term liquidity a contractor can put toward a job. Net worth (total assets minus total liabilities) is a different, broader measure; Tennessee uses the lesser of ten times each.Working capital = current assets - current liabilities

A Tennessee contractor's job costs $60,000, and she wants a 25% margin on the selling price. What is the correct bid price?

• a.$80,000✓
• b.$48,000
• c.$72,000
• d.$75,000

For a target margin, divide cost by (1 - margin): $60,000 / (1 - 0.25) = $60,000 / 0.75 = $80,000. Multiplying cost by 1.25 gives $75,000, which is only a 20% margin - the recurring markup-vs-margin trap.Margin: price = cost / (1 - margin)

Tennessee's bidding statute requires that a bid on a project requiring a license disclose what about the bidder (for many bids, on the outside of the bid envelope)?

• a.The owner's most recent tax return
• b.The bidder's license number, the classification, and the expiration date of the license✓
• c.Nothing; Tennessee bids are anonymous
• d.The bidder's Social Security number

Under Tennessee's bid law, a bid must include the contractor's license number, the classification allowing the work, and (for many public bids) that information on the bid envelope. A bid that omits it can be thrown out, because the contractor must be licensed to bid at all.T.C.A. §62-6-119 (bid law: license information required)

How many cubic yards of concrete are needed for a slab 20 ft by 30 ft, poured 6 inches thick (before any waste factor)?

• a.100 cy
• b.11.1 cy✓
• c.22.2 cy
• d.33.3 cy

Convert thickness to feet (6 / 12 = 0.5 ft), then cubic yards = (length x width x thickness) / 27 = (20 x 30 x 0.5) / 27 = 300 / 27 = about 11.1 cy. There are 27 cubic feet in a cubic yard.Quantity takeoff: cubic yards = (L x W x thickness in ft) / 27

Under Tennessee's mechanics' and materialmen's lien law, a prime (general) contractor who contracts directly with the owner generally must enforce the lien by filing suit within what period after the work is completed?

• a.Within one year after completion of the work✓
• b.Within 30 days after completion
• c.Within five years after completion
• d.There is no time limit once work stops

A prime contractor's lien in Tennessee continues for one year after the work is completed or abandoned, and suit to enforce it must be filed within that year. Missing the one-year deadline extinguishes the lien, leaving only ordinary contract remedies.T.C.A. §66-11-106, §66-11-115 (prime contractor's lien)

Two chains of work must both finish before final inspection. Chain A totals 4 + 6 + 5 = 15 days; Chain B totals 4 + 3 + 3 = 10 days. How much float does Chain B carry?

• a.0 days
• b.5 days✓
• c.10 days
• d.15 days

Chain A is the longer (critical) path at 15 days; Chain B totals 10 days. Float on the non-critical chain equals the difference: 15 - 10 = 5 days. Chain B can slip up to five days before it would delay completion.CPM scheduling (float = critical path duration - path duration)

On Tennessee construction contracts, the amount of retainage that may be withheld from progress payments is capped by statute at what percentage, and the retained funds must be deposited where?

• a.10%, held by the owner
• b.5%, deposited into a separate, interest-bearing escrow account✓
• c.15%, held by the general contractor
• d.There is no cap; the contract controls

Tennessee caps retainage at 5% of the amount of each progress payment and requires the retained funds to be deposited into a separate, interest-bearing escrow account. The cap protects the contractor's cash flow, and improper withholding carries penalties.T.C.A. §66-34-104 (retainage cap and escrow)

Extra work outside the original Tennessee contract scope should be authorized by:

• a.A signed written change order stating the added scope, price, and time✓
• b.Recording a mechanic's lien
• c.Pulling a new building permit
• d.A verbal 'go ahead' from the owner only

Added or changed scope should be authorized by a written change order signed by both parties that sets out the added work, its price, and any schedule impact. Relying on verbal approvals is a leading cause of unpaid extras and disputes.Construction contract administration (change orders)

Which contract document is the 'rulebook' that defines notice, claims, changes, payment, and dispute-resolution provisions and is referenced by the owner-contractor agreement?

• a.A W-9 tax form
• b.G703 - Continuation Sheet
• c.A201 - General Conditions of the Contract for Construction✓
• d.A701 - Instructions to Bidders

A201 (current edition A201-2017) is the general conditions - the rulebook for owner, contractor, and architect covering notice, claims, changes, payments, and disputes. A701 governs bidding, and G703 is payment-application backup.AIA A201-2017 General Conditions

Which statement about Tennessee state income tax is correct as it affects a contractor's payroll?

• a.Tennessee has no state income tax on wages; the Hall income tax on certain investment income was fully repealed effective 2021✓
• b.Tennessee imposes a flat 6% tax on all wages
• c.Tennessee imposes a graduated income tax up to 9%
• d.Tennessee taxes only overtime wages

Tennessee does not tax wage income, and the Hall tax (which had applied to some interest and dividend income) was fully repealed effective January 1, 2021. So there is no Tennessee income-tax withholding on payroll, though federal withholding still applies.Tennessee has no state income tax on wages (Hall income tax repealed 2021)

When a Tennessee contractor buys materials that will be permanently installed into real property under a lump-sum contract, who generally owes sales or use tax on those materials?

• a.The owner pays sales tax on the full contract price
• b.Materials for real property are always exempt from tax
• c.The contractor, as the consumer of the materials✓
• d.The material supplier absorbs the tax and no one pays it

A lump-sum real-property contractor is treated as the consumer of the materials and owes sales or use tax on the cost of those materials, rather than collecting tax from the owner like a retailer. The tax is a cost the contractor builds into the bid.Tennessee sales and use tax (contractor as consumer of materials)

In Tennessee's construction industry, at how many employees does workers' compensation coverage generally become mandatory (stricter than the five-employee threshold for most other industries)?

• a.At one or more employees✓
• b.At five or more employees
• c.At ten or more employees
• d.Only at 25 or more employees

Tennessee's construction industry is the strict case: employers providing construction services must carry workers' compensation coverage even with a single employee. Most non-construction Tennessee employers are not required to carry coverage until they have five or more.T.C.A. §50-6-902 (construction services providers)

What do the federal Form I-9 and Form W-4 each accomplish for a new hire?

• a.The I-9 reports year-end wages; the W-4 reports nonemployee compensation
• b.The I-9 sets federal income-tax withholding; the W-4 verifies work eligibility
• c.The I-9 verifies the worker's identity and authorization to work; the W-4 tells the employer how much federal income tax to withhold✓
• d.Both forms are filed with the IRS at the time of hire

Form I-9 verifies a new hire's identity and work authorization (and is retained, not filed). Form W-4 tells the employer how much federal income tax to withhold. Tennessee has no state income tax, so there is no state withholding form.USCIS Form I-9 / M-274; IRS Form W-4

Construction workplace safety in Tennessee is enforced by which agency?

• a.The Board for Licensing Contractors
• b.There is no workplace-safety enforcement in Tennessee
• c.TOSHA (Tennessee OSHA), an OSHA-approved state plan within the Department of Labor and Workforce Development✓
• d.The Internal Revenue Service

Tennessee operates its own OSHA-approved state plan, TOSHA, within the Department of Labor and Workforce Development. It enforces safety standards at least as effective as federal OSHA, so Tennessee contractors answer to TOSHA on the jobsite.T.C.A. Title 50, Ch. 3 (TOSHA state plan)

A work-related fatality on a Tennessee jobsite must be reported to the OSHA authority within how many hours?

• a.72 hours
• b.48 hours
• c.24 hours
• d.8 hours✓

A work-related fatality must be reported within 8 hours of the employer learning of it. An in-patient hospitalization, amputation, or loss of an eye carries a 24-hour clock. The 8-hour fatality deadline is the one the exam most often tests.29 CFR 1904.39 (severe-injury reporting), applied through TOSHA

On a project with the three standard construction bonds, which bond protects subcontractors and suppliers if the general contractor fails to pay them?

• a.The bid bond
• b.The performance bond
• c.The license bond
• d.The payment bond✓

The payment bond guarantees that the contractor pays its subcontractors and suppliers, so it protects them. A bid bond protects the owner against a low bidder that backs out; a performance bond protects the owner by assuring completion.Surety bonds (payment bond protects subs and suppliers)

Which insurance covers a building under construction against losses such as fire, wind, and theft of materials during the project?

• a.Group health insurance
• b.Commercial auto liability insurance
• c.Workers' compensation insurance
• d.Builder's risk insurance✓

Builder's risk (course-of-construction) insurance covers the structure and materials while the project is being built, against perils such as fire, wind, and theft. Workers' compensation covers employee injuries, and auto liability covers vehicles - different risks entirely.Property/casualty insurance (builder's risk)