Texas Contractor Exam — All Questions

On which roofing work does OSHA permit a safety monitoring system to be used alone, with no warning line?

• a.Work on a low-slope roof 50 feet or less in width✓
• b.Any roofing work performed less than 15 feet above a lower level
• c.Roofing work on a steep roof, regardless of the roof's width
• d.Any roofing work where a personal fall arrest system is infeasible

29 CFR 1926.501(b)(10) permits a safety monitoring system by itself only on low-slope roofs 50 feet or less in width; on wider low-slope roofs a monitor may be used only together with a warning line system. On a steep roof, 1926.501(b)(11) allows only guardrails with toeboards, safety nets or personal fall arrest, so a monitor is not an option there at all. Infeasibility opens the door to a written fall protection plan, not to a lone monitor.

Under OSHA's construction standard for accident prevention signs, when may a DANGER sign be used?

• a.Wherever the employer wants to emphasize a site rule
• b.Only to warn against potentially unsafe practices
• c.Only where an immediate hazard exists✓
• d.Only at the entrance to the job site

29 CFR 1926.200(b)(1) restricts danger signs, which carry a red upper panel with a black border and a white lower panel, to places where an immediate hazard exists. Warning against potential hazards or unsafe practices is the caution sign's job, and caution signs are predominantly yellow. Posting DANGER everywhere devalues it, which is precisely why the standard limits it, and it is not an entrance-only sign.

Which of these machines must be equipped with a rollover protective structure under OSHA's construction standards?

• a.A hydraulic truck crane
• b.A self-propelled scissor lift
• c.A truck-mounted concrete boom pump
• d.A rubber-tired front-end loader✓

Subpart W, at 29 CFR 1926.1000(a), covers rubber-tired self-propelled scrapers, rubber-tired front-end loaders, rubber-tired dozers, wheel-type agricultural and industrial tractors, crawler tractors, crawler-type loaders and motor graders, plus compactors and rubber-tired skid-steers manufactured after July 15, 2019. Cranes, aerial and scissor lifts and truck-mounted pumps are governed by other subparts and are not rollover-protection equipment under this rule.

How often does OSHA require a job-site vehicle's brakes, steering, horn, tires, coupling devices, seat belts and safety devices to be checked?

• a.Weekly, by a qualified mechanic, with the result entered in the vehicle log
• b.At the beginning of each shift✓
• c.Monthly, or whenever the vehicle changes operators, whichever comes first
• d.Annually, when the vehicle is presented for its state safety inspection

29 CFR 1926.601(b)(14) requires all vehicles in use to be checked at the beginning of each shift for those parts and accessories, and all defects must be corrected before the vehicle goes into service. The standard sets no weekly, monthly or annual cycle for this check. A state roadworthiness inspection tests different items on a different schedule and does not substitute. The rule also reaches lights, reflectors, wipers, defrosters and fire extinguishers where that equipment is necessary.

A wall 60 feet long and 10 feet high is built of 8 x 8 x 16 concrete block, which lays up at 1.125 blocks per square foot of wall. Ignoring waste and openings, how many blocks are needed?

• a.600
• b.540
• c.675✓
• d.750

The wall is 60 x 10 = 600 square feet, and 600 x 1.125 = 675 blocks. 600 is the square footage mistaken for a block count, which happens whenever the coverage factor is skipped. 540 comes from multiplying by 0.9 instead of 1.125, and 750 comes from using 1.25 blocks per square foot, a rate that matches no standard block size.

A parking lot 100 feet by 30 feet receives 3 inches of compacted asphalt weighing 145 pounds per cubic foot. How many tons should be ordered, before waste?

• a.About 18.1 tons
• b.About 108.8 tons
• c.About 27.2 tons
• d.About 54.4 tons✓

Three inches is 0.25 feet, so 100 x 30 x 0.25 = 750 cubic feet; 750 x 145 = 108,750 pounds; and 108,750 divided by 2,000 pounds per ton is 54.4 tons. 108.8 tons comes from dividing by 1,000 instead of 2,000. 18.1 tons uses 1 inch of thickness instead of 3, and 27.2 tons halves the correct answer.

A room measures 18 feet by 24 feet. Carpet is sold by the square yard. How many square yards cover the floor, before waste?

• a.48✓
• b.144
• c.432
• d.54

The floor is 18 x 24 = 432 square feet, and there are 9 square feet in a square yard, so 432 divided by 9 is 48 square yards. 432 is the area left in square feet. 144 divides by 3, which is the linear conversion rather than the area conversion. 54 would be correct for a 486-square-foot room, not for this one.

A trench is 120 feet long, 3 feet wide and 4 feet deep. How many cubic yards of soil come out of it, measured in place?

• a.1,440
• b.53.3✓
• c.160
• d.40

120 x 3 x 4 = 1,440 cubic feet, and 1,440 divided by 27 cubic feet per cubic yard is 53.3 cubic yards. 1,440 is the volume left in cubic feet. 160 divides by 9, which converts square feet rather than cubic feet, and 40 divides by 36, which converts nothing at all. Swell would be added on top of this figure if the question asked about hauling.

A contractor wants a 30 percent gross profit margin on the selling price. What markup must be added to direct cost to get there?

• a.30.0 percent
• b.42.9 percent✓
• c.70.0 percent
• d.23.1 percent

If profit is 30 percent of the price, cost is 70 percent of it, so price equals cost divided by 0.70, or cost times 1.4286, which is a markup of about 42.9 percent. Adding 30 percent to cost produces only a 23.1 percent margin, which is why the two numbers are never interchangeable. 70 percent is the cost's share of the price rather than the markup, and 23.1 percent is the margin that a 30 percent markup actually delivers.

A unit-price bid item is 2,400 linear feet of storm pipe at $18.50 per foot. The field measures 2,650 linear feet actually installed. What is the contractor paid for that item?

• a.$49,025✓
• b.$44,400
• c.$4,625
• d.$46,712.50

Unit-price items pay for the quantity actually installed: 2,650 x $18.50 = $49,025. $44,400 is 2,400 feet at the unit price, which was only the bid amount and not the payment. $4,625 prices the 250-foot overrun by itself and omits the base quantity, and $46,712.50 averages the two quantities, which no unit-price clause calls for.

An excavator costs $96,000, will be worth $12,000 after 6,000 working hours, and costs $22 an hour to fuel, service and repair. What hourly rate should the estimator carry?

• a.$16
• b.$22
• c.$38
• d.$36✓

Ownership cost is ($96,000 minus $12,000) divided by 6,000 hours, which is $14 per hour; adding the $22 of operating cost gives $36 per hour. $16 spreads the full purchase price over the hours with no credit for salvage and ignores operating cost altogether, and $38 adds operating cost to that same uncredited figure. $22 is the operating cost alone, which charges the job nothing for consuming the machine.

Bids are opened and yours is 18 percent below the next lowest of five bidders, who are clustered within 4 percent of one another. What is the right first move?

• a.Sign the contract quickly, before the owner reconsiders the award
• b.Ask the owner to raise the price to match the other four bidders
• c.Recheck the takeoff and the quotes for an omission✓
• d.Withdraw the bid at once

Four competitors clustered together with one distant outlier almost always means the outlier missed a scope, dropped a quote or transposed a figure. Finding the error first tells you whether the job can be performed and whether a withdrawal is justified. Signing quickly is how a firm buys a loss it cannot finance. Owners do not raise a bid price after opening, and withdrawing before you know whether there is an error can forfeit the bid bond for nothing.

A three-person crew installs 240 square feet of tile per day. A job has 4,320 square feet of tile. How many crew-days should the estimator carry?

• a.6
• b.18✓
• c.54
• d.14.4

4,320 divided by 240 is 18 crew-days, because the crew size is already built into the daily production rate. Multiplying or dividing by the three workers is the standard error: 54 is 18 x 3 and 6 is 18 divided by 3, and neither one is a crew-day. 14.4 comes from using 300 square feet per day instead of the stated 240.

A 20-foot by 30-foot room gets a suspended ceiling using 2-foot by 4-foot lay-in tiles. How many full tiles does the field require, ignoring cut pieces at the walls?

• a.150
• b.60
• c.75✓
• d.37

The room is 600 square feet and each tile covers 8 square feet, so 600 divided by 8 is 75 tiles. 150 divides by 4, which would be right for a 2-by-2 tile. 37 divides by 16, a tile size that does not exist in the standard grid, and 60 comes from a 2-by-5 tile that is not made.

A company carries $180,000 of annual overhead and expects 12,000 direct labor hours this year. A job is estimated at 900 labor hours. How much overhead should the estimate carry for that job?

• a.$13,500✓
• b.$15,000
• c.$16,200
• d.$900

Overhead per labor hour is $180,000 divided by 12,000, or $15, and 900 hours x $15 = $13,500. $15,000 is one month of overhead, which has nothing to do with this job's share. $16,200 applies a 9 percent rate to the overhead total rather than allocating it by hours, and $900 is simply the hour count with a dollar sign attached.

Why does a careful proposal list the work that is specifically excluded from the price?

• a.Because owners are required by law to accept the lowest responsive bid
• b.Because listing exclusions raises the amount the owner will be charged
• c.Because the building department reviews proposals for completeness
• d.Because the price only means something alongside what it excludes✓

Written exclusions, such as permit fees, rock excavation, temporary heat or finish hardware, turn a silent assumption into a term of the deal, and they are where most change-order fights are won or lost. Exclusions do not by themselves change the price; they define what the price bought. Private owners are free to accept any bid or none at all, and building departments review construction documents rather than proposals.

A supplier invoice for $8,000 carries terms of 2/10, net 30. What does the contractor save by paying it on day 9?

• a.$80
• b.$240
• c.$160✓
• d.$800

The terms mean a 2 percent discount if the invoice is paid within 10 days, with the full amount due in 30, so $8,000 x 0.02 = $160. $80 is 1 percent, $240 is 3 percent and $800 is 10 percent, none of which the terms offer. Skipping this discount to hold cash 20 days longer is expensive: 2 percent for 20 days annualizes to well over 30 percent.

Which of these is a FIXED cost for a contracting business?

• a.Job-site concrete
• b.Hourly wages paid to the field crews
• c.Fuel burned by the equipment fleet
• d.The office lease payment✓

A fixed cost does not move with the volume of work performed, and the office lease is owed whether the company builds one house this month or ten. Materials, field wages and fuel all rise and fall with production and are variable costs. The distinction matters because fixed costs must be recovered out of a minimum volume of work, which is exactly what a break-even calculation finds.

A contract is worth $900,000 with an estimated total cost of $720,000. Costs to date are $288,000. Under the percentage-of-completion method, how much revenue has been earned?

• a.$288,000
• b.$360,000✓
• c.$450,000
• d.$540,000

Percent complete measured by cost is $288,000 divided by $720,000, or 40 percent, and 40 percent of the $900,000 contract price is $360,000 of earned revenue. $288,000 is the cost incurred, not the revenue earned on it. $450,000 assumes the job is half finished, which the cost ratio does not support, and $540,000 is the revenue still to come rather than the revenue already earned.

A contracting company earned $72,000 of net income on total assets of $900,000. What is its return on assets?

• a.8 percent✓
• b.12.5 percent
• c.80 percent
• d.1.25 percent

Return on assets is net income divided by total assets: $72,000 divided by $900,000 is 0.08, or 8 percent. The 12.5 figure inverts the ratio and describes dollars of assets per dollar of income, which is not a percentage at all. 80 percent and 1.25 percent misplace the decimal. The measure matters to equipment-heavy contractors because it asks how hard the asset base is working.

A contractor's annual cost of materials and subcontracts is $1,460,000 and accounts payable average $120,000. About how long does the company take to pay its suppliers?

• a.12 days
• b.30 days✓
• c.90 days
• d.121 days

Days payable outstanding is average payables divided by annual cost, times 365: $120,000 divided by $1,460,000 is 0.0822, and 0.0822 x 365 is 30 days. The 12-day figure comes from dividing the annual cost by payables and calling the result days. Ninety or 121 days would each mean the company is stretching suppliers far past normal net-30 terms, which this ratio does not show.

What is the purpose of reconciling the company bank account every month?

• a.To calculate the company's taxable income for the month just ended
• b.To decide how much general overhead to allocate to each open job
• c.To satisfy a requirement of the percentage-of-completion method
• d.To prove the company's cash records and the bank's agree, and to catch errors early✓

A reconciliation matches the ledger balance to the statement balance after adjusting for deposits in transit, outstanding checks and bank charges, and a difference that will not resolve is often the first sign of a posting error or a theft. Taxable income comes off the income statement, overhead allocation is an estimating and job-costing exercise, and percentage-of-completion is a revenue recognition method that imposes no such requirement.

Why should the person who writes the company's checks not also be the person who reconciles the bank statement?

• a.Because one person doing both can conceal an unauthorized payment✓
• b.Because the bank will not accept a reconciliation done by a check signer
• c.Because accounting standards prohibit the arrangement outright
• d.Because performing both tasks would double the bookkeeping cost

Separation of duties is the cheapest internal control a small contractor has: splitting custody of the money, the authority to spend it and the record of what happened means no single person can both take funds and hide the gap. Banks do not police who inside a company performs a reconciliation. Accounting standards describe control objectives rather than banning the arrangement, and splitting the task costs very little.

What does an accounts receivable aging schedule show a contractor?

• a.How much of the work in progress has actually been completed
• b.Profit earned to date on each job
• c.How much is owed and for how long✓
• d.How much depreciation has accumulated on the equipment fleet

An aging sorts receivables into buckets, typically current, 30, 60, 90 days and over, so the owner can see which customers have quietly stopped paying before the cash runs out. Progress on work in place is what the work-in-progress schedule reports, job profit comes from the job cost report, and accumulated depreciation is a balance sheet contra-asset with nothing to do with collections.

A contractor sets up an allowance for doubtful accounts. What is it for?

• a.To set cash aside in a separate account to cover future bad debts
• b.To record the retainage owners are holding on open contracts
• c.To reduce receivables to the amount realistically collectible✓
• d.To defer income tax on invoices that have been billed but not collected

The allowance is a contra-asset estimate rather than money moved anywhere, and it makes the balance sheet honest about receivables that will never arrive. No cash is segregated by setting one up. Retainage is tracked as its own receivable because it is expected to be collected eventually, and the tax treatment of bad debts follows separate rules that a book allowance does not control.

How does double-declining-balance depreciation differ from straight-line depreciation over the life of the same asset?

• a.It shifts more of the expense into the early years, though the lifetime total is the same✓
• b.It expenses more in total over the asset's life than straight line does
• c.It may be used only for real property such as a shop building
• d.It requires the asset to be sold at the end of its depreciable life

An accelerated method front-loads the deduction, which suits a contractor whose new equipment earns most in its early years, but total depreciation can never exceed the depreciable basis under any method. Real property is in fact required to use straight line for tax purposes, the opposite of the claim offered. Nothing about a depreciation method compels a sale at any point.

Which of these belongs in general company overhead rather than in a job's cost?

• a.The site superintendent's wages on that job
• b.The estimator's salary✓
• c.The temporary fence rented for that site
• d.The building permit fee for that job

General overhead is what the company spends to stay in business whether or not any particular job exists, and the estimator is paid to price work that may never be awarded. A superintendent assigned to one job and a fence rented for one site are job overhead, or general conditions, and that job's permit fee is a direct cost. Misfiling these makes every individual job look more profitable than the company actually is.

A contractor borrows $60,000 at 9 percent annual interest and repays it with equal monthly payments over five years. Comparing the first payment with the last, what is true?

• a.The two payments split identically between interest and principal
• b.More of the first payment is principal, because the loan is newest
• c.The first payment is entirely interest and the last is entirely principal
• d.More of the first payment is interest and more of the last is principal✓

Interest each month is charged on the balance still outstanding, which is highest at the start, so early payments are interest-heavy and the split shifts steadily toward principal as the balance falls. The proportions therefore change every single month rather than staying identical. The first payment is not pure interest either: $60,000 at 9 percent produces $450 of interest in month one against a payment of about $1,245, so roughly $795 goes to principal.

How does mediation differ from arbitration in a construction dispute?

• a.A mediator hears the evidence and issues a binding award
• b.Mediation is conducted by a sitting judge, arbitration by a private neutral
• c.Mediation becomes available only after a lawsuit has been filed
• d.A mediator cannot impose a result; the parties must agree✓

Mediation is a facilitated negotiation in which the neutral has no power to decide anything, so a case settles only if both sides agree to settle it. An arbitrator does hear evidence and issue an award, which is typically binding and very difficult to appeal, and that is the description offered for the mediator. Both processes ordinarily use private neutrals, and mediation is commonly a contractual step that must be attempted before any suit is filed.

A subcontractor is asked to sign an unconditional waiver and release in exchange for a progress check. What is the risk?

• a.The waiver applies only to work performed after the date it is signed
• b.The waiver takes effect even if the check never clears✓
• c.The waiver releases the general contractor but not the owner
• d.The waiver cannot be enforced unless it has been notarized

An unconditional waiver gives up lien and claim rights on its own terms, without regard to whether payment was actually received, which is why a conditional waiver, effective only when the check clears, is the safer document to trade for money not yet in the bank. Waivers release rights for work already performed through a stated date, not for future work. They run in favor of the property and the paying parties generally, and notarization is a formality some states require rather than the thing that makes the release dangerous.

A contractor's general liability policy is written on an occurrence basis. What does that mean?

• a.It covers damage occurring during the policy period✓
• b.It covers any claim reported during the policy period, whenever the damage occurred
• c.It covers one occurrence per period
• d.It pays only after the contractor has been found liable at trial

An occurrence policy attaches to the date of the injury or damage, so a roof that leaks years from now because of work done today looks back to today's policy. The description offered for the alternative, coverage triggered by the report date, is a claims-made policy, which needs continuous renewal or tail coverage to remain useful. Policy limits rather than the trigger control how many occurrences are covered, and liability insurers defend and settle without waiting for a verdict.

A general contractor receives a certificate of insurance from a subcontractor naming it as an additional insured. What does the certificate itself accomplish?

• a.It amends the policy to add the general contractor as an insured
• b.It guarantees the coverage will remain in force for the whole project
• c.It is evidence of coverage only, not the coverage itself✓
• d.It shifts the subcontractor's deductible onto the general contractor

A certificate is an informational snapshot issued by a broker and normally says on its face that it confers no rights; the status it describes exists only if the underlying policy carries the endorsement, which is the document actually worth collecting. It amends nothing. Coverage can lapse or be canceled the day after the certificate is issued, which is why status should be reverified, and deductibles stay where the policy puts them.

A contractor is owed $40,000 on a genuinely disputed account, and the owner sends a check for $28,000 marked 'payment in full.' If the contractor deposits it without objection, the likely result is:

• a.The contractor keeps the right to sue for the $12,000 balance in every state
• b.The dispute is settled for $28,000 under an accord and satisfaction✓
• c.The check is void because the notation was added unilaterally
• d.The owner must pay the balance together with interest

Where the debt is genuinely disputed and the tender is clearly conditioned on full settlement, cashing the check accepts the accord and the claim is satisfied, which is why the correct move is to return the check or follow the state's procedure for reserving rights before negotiating it. The notation does not void the instrument. An owner who has settled owes neither the balance nor interest on it. The doctrine turns on a genuine dispute, since a plain undisputed debt is not discharged this way.

How does a statute of repose differ from a statute of limitations for construction defect claims?

• a.Repose applies to contractors and limitations applies to owners
• b.Repose is created by contract and limitations by state statute
• c.Repose runs from completion; limitations runs from discovery✓
• d.Repose reaches only personal injury claims, not property damage

A statute of limitations starts running when the claim accrues, often when the defect is or should have been discovered, so a hidden defect can keep it alive for a long time. A statute of repose sets an outer wall measured from substantial completion and can extinguish a claim before anyone knows there is one. Both are statutory rather than contractual, both are available to whoever is sued, and both reach property damage as well as injury. The length of each is set by each state and differs considerably.

A contractor wants another firm to take over its remaining obligations on a project and wants to be released from them. What does that require?

• a.A novation, consented to by all three parties✓
• b.An assignment, which the contractor may make on its own initiative
• c.A subcontract between the contractor and the incoming firm
• d.A change order signed by the owner and the original contractor

An assignment can transfer benefits but does not by itself relieve the assignor of its duties, so the original contractor would stay on the hook. Only a novation, agreed by the owner, the outgoing contractor and the incoming one, releases the original party and puts the new one in its place. Subcontracting delegates the work while leaving the prime fully responsible, and a change order alters scope, time or price rather than the identity of the party bound.

Two months before the start date, a subcontractor writes that it will not be performing the contract at all. The general contractor may:

• a.Wait until the start date passes and the subcontractor fails to appear
• b.Terminate only after giving the subcontractor a 30-day period to cure
• c.Recover only the deposit that has already been paid to the subcontractor
• d.Treat the contract as breached at once and cover with a replacement subcontractor✓

A clear and unequivocal refusal to perform before performance is due is an anticipatory repudiation, and the non-breaching party may act immediately rather than wait for a failure everyone can already see coming. Waiting can even conflict with the duty to mitigate. A cure period applies only where the contract's termination clause creates one, and damages are the cost of covering, meaning the difference between the replacement price and the original price, not merely a refund of a deposit.

A contract requires written notice of any claim for additional time or money within seven days of the event. The contractor mentions a delay verbally at a weekly meeting but sends nothing. What is the likely consequence?

• a.The meeting minutes automatically satisfy the written notice requirement
• b.Notice provisions of this kind are not enforceable against a contractor
• c.The claim may be waived, however good it was✓
• d.The seven days run from completion

Courts in most states enforce notice provisions, because timely written notice lets the owner investigate, mitigate and budget while the facts are still fresh, and missing it can forfeit an otherwise valid claim. Meeting minutes are not the written notice the clause calls for unless the contract says they are. The clock runs from the event rather than from completion, which is the entire point of a short notice period.

On many private projects a supplier who has no contract with the owner sends a preliminary notice soon after first delivering material. What is its purpose?

• a.To preserve the sender's right to claim a lien later✓
• b.To create a lien against the property as of the date it is delivered
• c.To demand payment of the first invoice within the statutory period
• d.To register the supplier with the building department for that permit

A preliminary notice, sometimes called a notice to owner, tells an owner who would otherwise have no idea that a party several tiers down is contributing to the improvement, and in states that require it, failing to send it forfeits lien rights no matter how good the underlying debt is. It is not itself a lien, since recording a lien claim is a separate later step, and it is not a demand for payment. Building departments have no role in it. Whether it is required at all, and by when, is set by each state's lien statute.

An activity is estimated at 6 days optimistic, 9 days most likely and 18 days pessimistic. Using the PERT weighted average, what duration should the scheduler carry?

• a.9 days
• b.11 days
• c.12 days
• d.10 days✓

PERT weights the most likely estimate four times: (6 + 4 x 9 + 18) divided by 6 is 60 divided by 6, or 10 days. Nine days is the most likely estimate taken alone, which ignores the long tail on the pessimistic side. Eleven days is the simple average of the three, which over-weights the extremes, and 12 days is two-thirds of the pessimistic figure.

A job's earned value is $520,000 while the actual cost of the completed work is $500,000. What is the cost performance index, and what does it say?

• a.0.96, meaning the work is costing more than budgeted
• b.1.04, meaning the work is costing less than budgeted✓
• c.1.04, meaning the work is ahead of schedule
• d.$20,000, meaning the job is $20,000 over budget

The cost performance index is earned value divided by actual cost: $520,000 divided by $500,000 is 1.04, and any figure above 1.0 means the budget is buying more work than planned. The 0.96 figure inverts the ratio. Schedule performance is a separate index built from earned value and planned value, so 1.04 says nothing about the calendar, and $20,000 is the cost variance, a dollar figure and a favorable one rather than an overrun.

The same job shows earned value of $520,000 against a planned value of $650,000 as of today. What is the schedule performance index?

• a.1.25
• b.0.80✓
• c.1.04
• d.$130,000

The schedule performance index is earned value divided by planned value: $520,000 divided by $650,000 is 0.80, meaning only eighty cents of planned work has actually been earned for each dollar scheduled, so the job is behind. The 1.25 figure inverts the ratio. 1.04 is the cost index computed from actual cost rather than planned value, and $130,000 is the size of the schedule variance in dollars, an amount rather than an index.

What is a milestone on a CPM schedule?

• a.The longest single activity in the schedule network
• b.Any activity whose total float has fallen to zero
• c.A payment application date fixed by the contract documents
• d.A zero-duration marker for a significant event✓

Milestones consume no time and no resources; they flag an event such as 'building dried in' so that progress and contractual dates can be tracked against it. The longest activity is simply the longest activity, and zero float identifies a critical activity rather than a milestone. Payment dates are sometimes shown as milestones, but a milestone is a scheduling device generally and not a billing term.

What happens during subcontractor buyout after a general contractor is awarded a project?

• a.The owner purchases the long-lead equipment directly from the manufacturer
• b.The contractor replaces its bid bond with a performance and payment bond
• c.Trade scopes are checked against the estimate, then subcontracts awarded✓
• d.Retainage held by the owner on the previous project is finally released

Buyout is where the bid's assumptions meet reality: every trade quote is checked for gaps and overlaps against the estimate and the contract documents, and then subcontracts are written. A scope gap found here costs far less than the same gap found in the field. Owner-furnished equipment, bonding and retainage on an unrelated project are separate matters that do not define buyout.

What is commissioning on a construction project?

• a.Documented verification that the systems perform as designed✓
• b.The ceremony at which the owner formally takes possession of the building
• c.The percentage fee paid to the construction manager at closeout
• d.The final inspection performed by the building department before occupancy

Commissioning tests and documents the installed systems, usually mechanical, electrical and controls and sometimes the envelope, against the owner's project requirements, typically beginning during design and finishing after occupancy. It is not a handover ceremony, and despite the word it has nothing to do with a commission or a fee. The building official's final inspection asks whether the work meets code, a much narrower question than whether the systems perform as designed.

Why does a general contractor prepare a site logistics plan before mobilizing?

• a.To satisfy the OSHA requirement for a written site safety and health program
• b.To establish the property lines and setbacks for the boundary survey
• c.To document the insurance and bonding the owner requires of the contractor
• d.To lay out access, laydown, crane position, temporary utilities and parking first✓

Congestion, double-handling of material and a crane that cannot reach the far corner all get expensive once work is under way, so the layout is settled on paper while changing it is still cheap. A written safety program, the boundary survey and the owner's insurance requirements are each real obligations, but each is a separate document produced for a different purpose.

An activity carries 10 days of total float, the contractor finishes it a week late, and the owner claims the contractor consumed float that belonged to the owner. What is the general rule in most modern contracts?

• a.Float always belongs to the contractor, who prepared the schedule
• b.Float always belongs to the owner, who is paying for the project
• c.Float belongs to the project, and whoever needs it first may use it✓
• d.Float may not be consumed by either party without a signed change order

Most standard forms and most courts treat float as a project resource consumed on a first-come basis, which is why a delay that eats float without moving the completion date is usually not compensable to anyone. Contracts can and sometimes do allocate float to one party expressly, so an express clause governs where one exists. Treating float as owned by whoever drew the schedule, or as frozen until a change order is signed, does not match how schedules are actually run.

A contracting corporation formed in one state takes a project in a neighboring state. Apart from any contractor license, what must it generally do with the second state's business filing office?

• a.Register there as a foreign corporation✓
• b.Dissolve in the home state and re-incorporate in the new one
• c.Nothing, because a corporation is recognized in all fifty states
• d.Convert itself into a limited liability company in that state

'Foreign' here means out-of-state rather than out-of-country, and qualifying usually requires a certificate of good standing from the home state plus a registered agent in the new one. A company that skips the step may be barred from suing in that state's courts until it cures the omission. Incorporation in one state is recognized elsewhere, but only as to the company's existence and not as permission to do business, and neither dissolution nor conversion is required.

In a contracting corporation, which statement correctly describes who does what?

• a.Shareholders appoint the officers, who in turn elect the board of directors
• b.Shareholders elect directors, directors appoint officers, officers manage✓
• c.The directors own the corporation and the shareholders manage it day to day
• d.The officers own the corporation and hire the directors to advise them

The chain runs from ownership to oversight to management: shareholders own and vote, directors govern and hire, and officers execute. In a small contracting firm one person often fills all three roles, which is exactly why the formalities of separate elections and recorded minutes matter for keeping limited liability intact. Neither directors nor officers own the corporation by virtue of holding their positions.

A contracting LLC ignores its state's annual report for two years. What is the most likely consequence?

• a.Administrative dissolution, which can expose the members personally✓
• b.A federal tax penalty assessed by the IRS against the company
• c.Automatic conversion into a general partnership as of formation
• d.Cancellation of the company's federal employer identification number

Most states revoke or administratively dissolve an entity that stops filing and paying its annual fee, and business done by a dissolved entity is business done without the liability shield; reinstatement usually means back fees and penalties. The annual report is a state filing, so the IRS assesses no penalty for missing it, the EIN is not canceled, and nothing retroactively converts the company into a partnership as of the day it was formed.

An LLC member puts $50,000 into the company. Why does it matter whether that money is documented as a capital contribution or as a loan?

• a.Only a loan is deductible by the company as a business expense
• b.A loan is a debt repaid with interest; a contribution becomes equity✓
• c.Only a contribution obliges the company to issue the member a Form 1099
• d.A loan from a member automatically ends that member's limited liability

The paperwork decides how the money comes back out and where it sits on the balance sheet: a documented loan is a liability the company may repay ahead of any distribution, while a contribution sits in equity behind the creditors. Neither the loan principal nor the contribution is a deductible expense, since only the interest on a genuine loan is. A capital contribution does not trigger a 1099, and lending money to your own company does not forfeit limited liability, though undocumented transfers back and forth do invite veil-piercing arguments.