Law and Business Test 2 Flashcards
What is the best means to insure that funds are readily available for a job?
Check for cost overruns
What is the best way to choose the right insurance company?
Cost of coverage
What is the best means to check that all phases of a job have been performed?
Create a punch list
The problem of retention is greatest for whom?
Subcontractors who complete their work early in a project.
When a home improvement contract is signed, the contractor must substantially begin work within _____ days of the date specified in the contract?
20 days
Which of the following contracts can be cancelled by a customer?
A. Sub contract
B. Prime construction contract
C. Home solicitation contract which involves fencing, burglar, alarm, carpentry and texture coating.
D. Home improvement contract involving free standing bookcases, rugs and window air conditioner.
Home solicitation contract which involves fencing, burglar alarm, carpentry and texture coating.
Who must sign a joint control addendum to a home improvement contract?
Owner, contractor and joint control officer
Joint Control Addendum is when a third party is involved with the contract
A notice canceling a home solicitation contract becomes effective:
When the written notice is deposited in the mail.
When should a contractor renew his/her license number?
30 days before it expires
Which of the following individuals will be required to obtain a contractors license?
A. A civil service repairman
B. A pool supply company
C. A mill worker who constructs cabinets
D. An individual who repairs or monitors a fire alarm system
An individual who repairs or monitors a fire alarm system.
A license is only needed when working on a fixed structure
If a contractor forgets to renew the contractor’s license on time, then the expired license may be renewed anytime within _____ after its expiration without applying for the license and fulfilling the exam or waiver requirements again.
5 years
How many companies can an RME qualify for at a time?
Only one
However an RME can qualify for more than one company under certain circumstances.
Where must the contractor include the Notice to Owner?
In all home improvement contracts over $500
A Stop Notice is the only single means to force payment on a public-work job; you may not put a lien on the property. In the event a contractor may need to serve a Stop Notice on a public-works job, he should serve it to the…..?
Awarding authority
How old must a worker be to do heavy work in construction?
18 years of age
When is a worker considered an employee rather than an independent contractor?
When the employer has direct control over the work being performed.
A contractor buys a construction firm from a retiring person and there is an existing collective bargaining agreement with a successor clause that is good for three years. Is the contractor bound by the collective bargaining agreement as the new owner?
Yes, the successor clause is binding on a successor for up to 3 years.
If a contractor hires a subcontractor to do clean-up work, then whose responsibility is it that the subcontractor has workers’ compensation for his employees?
The prime contractor
In which of the following situations would the employer be held liable for payment of workers’ compensation benefits to an injured employee?
A. When the worker is injured due to the worker’s own willful misconduct.
B. When the worker is intoxicated at the work site.
C. The employer is always liable unless they can demonstrate that the employee is not eligible for benefits.
D. When the worker is not an employee but an independent contractor.
The employer is always liable unless he can demonstrate that the worker is not eligible for benefits.
Which of the following is not deducted from an employees paycheck? A. Unemployment Tax B. Federal and State Income Tax C. Social Security Tax D. State Disability Tax
Unemployment Tax
Unemployment taxes are paid by the employer only
If a strike shall occur, what would happen to the unpaid wages?
Wages are due and payable on the next regular pay day.
Does a contractor have any recourse if cited by OSHA?
Yes, the contractor can go to the Appeals Board
What is the most common source of start-up capital for a small contracting business?
Equity Funds
Funds obtained from owners and shareholders
What is the most common carcinogen found on a construction and demolition site?
Asbestos
Which of the following would be the best decision when starting a new business?
A. Hire a professional bookkeeper to handle the books.
B. Maintain your own books
C. Have anyone other than yourself handle the books.
D. None of the above
Hire a professional bookkeeper to handle the books.
Which of the following is a tangible asset? A. Notes due B. Rent C. Materials D. Mortgage
Materials
What is the minimum length of time that a contractor must keep a building report on file?
5 years
What will be the result if a figure is entered by mistake on the asset side of the balance sheet instead of the liability side?
The error will be twice as large
What is the best way to know what inventory you have at the job site?
Call the superintendent and have it checked
When may an employer obtain a temporary variance from OSHA?
A. The employer has just purchased a new business and finds that there are violations that will take a certain time to correct.
B. If the employer cannot comply with a new California standard that applies prior to the effective date of the standard.
C. If the employer has developed a new process or has new machinery and finds it is in violation and needs extra time to bring the new process or equipment into compliance.
D. All of the above
All of the above
The best way for a contractor to insure that he will have sufficient operating capital to meet his expenses for the first year, is to…?
Establish a line of credit before he starts to do business and draw on it as necessary.
If an owner/builder decides to hire a person to help with building a house, who is responsible for workers’ compensation?
The owner/builder
Which is not required on a home improvement contract?
A. The name and home address of all personnel listed on the license.
B. A notice, in at least 10 point print, in close proximity to the signature, and a statement that the owner has a right to require a performance and payment bond.
C. A description of the work to be done and materials and equipment to be used or installed.
D. An approximate date when work will begin and be substantially completed.
A. The name and home address of all personnel on the license is not needed.
What should you do if a supplier that you have ordered the material from goes on strike, and as a result you are unable to obtain the material you need for a job?
Buy from another supplier
The Contractor's State License Board will not accept \_\_\_\_\_\_\_\_\_\_\_\_\_\_ as an alternative to filing a license bond. A. Certified deposit B. Blue-Chip stocks C. U.S. Government bearer-bond D. Cash deposit
B. Blue-Chip stocks are unacceptable
Which of the following best describes the correct practice when making amendments to an existing contract?
A. Write to your customer and indicate the changes you are making and what the cost will be.
B. After the project is complete you should invoice the customer.
C. As a contractor, you cannot make any changes to an existing contract without the owner’s approval and/or signature.
D. The owner’s signature is not required if contractor and owner orally agreed on changes.
As a contractor you cannot make any changes to an existing contract without the owner’s approval and/or signature.
When must a contractor obtain workers’ compensation insurance?
When a contractor hires one or more employees
An employee that works with a contractor meets with a customer and negotiates a $432 verbal contract. He tells his employer about the contract, but the employer thinks that the contract is underestimated and does not want to perform the job. The Contractor’s License Law states:
The contractor is required by law to abide by the verbal agreement since verbal home improvement contracts under $500 are valid (binding)
For most contractors, the required bond needed to obtain a contractor’s license is:
$12,500
If your employee has reached his limit of FICA contributions, then what should you do as the employer?
Stop deduction for FICA
Before calling for final inspection, the contractor should walk through the project with the owner using a punch list to ensure:
The work is complete and the owner is satisfied.
If you are working in a potentially dangerous area, then you should:
Proceed with caution, making sure you take all responsible measures necessary to make the area safe, including the supervisor.
The major reason contractor’s go out of business is:
A. Poor scheduling and taking too many jobs
B. Financing one job by using money from another job.
C. Having many big bank loans
D. All of the above
All of the above
Which of the following is not a recommended billing practice?
A. Insist on cash for service calls
B. Encourage timely payments if the customer has good credit.
C. Consult an attorney if you are having collections problems.
D. Bill in a timely manner on a simple, itemized form and require payments in 30 days.
Encourage timely payments if the customer has good credit.
Which of the following is true regarding the Preliminary Notice?
A. A copy of the Notice is sent to the owner, prime, and the lender.
B. All subcontractors must use the Notice on all jobs
C. The Notice must include the dollar amount of the subcontractor’s portion of the job.
D. All of the above
All of the above
Who will not benefit from a contractor’s bond?
A. Any subcontractor damaged due to an accident
B. Any client damaged as a result of regulation violations by the contractor.
C. Any person damaged due to fraud on the part of the contractor.
D. Any employee damaged by the contractor’s failure to pay wages.
Any subcontractor damaged due to an accident is not covered by the prime contractor’s bond.
What color is used to mark an excavation area?
White
If a contractor needs capital when starting a business, then what is the best way for the contractor to get capital that is needed?
Get a conventional loan from the bank and make monthly payments.
You should ________ before you initiate the inspection process with the building department.
Inspect the job
When is an employer required to provide health care for employers?
Never, it is up to the employer to offer or not to offer benefits.
Which of the following is one of the major reasons for business failures? A. Lack of profit B. Lack of cash flow C. Slow expansion D. Lack of credit
Lack of cash flow
If the total amount of wages is under $100, then where and when should contractors pay FUTA?
Yearly to the IRS
If James and Bob have done business as a licensed partnership and Bob is a general partner but not a qualifier, then what should he do to get an individual license?
If Bob was listed as a partner on the license and was actively engaged in the business for at least five of the past seven years, he may apply for a waiver to the exam.
If an owner cancels a home solicitation contract, then in how many days should the contractor return the down payment?
In ten days
Home owner must return any goods or materials received within twenty days
A contractor is forced to lay off some of his employees due to a bad economy. If the contractor issues final paychecks which are returned by the bank for insufficient funds, then the employer is:
Liable for up to 30 days additional wages
Which of the following does not correctly match the type of fire with the hazardous material? A. Class A - Chemical Fire B. Type B - Flammable Liquid C. Type C - Electric D. Type D - Metal Fires
Class A is for fires consisting of ordinary combustibles such as wood or paper fires.
If a banker is reviewing your application for a short-term business loan, then which statement is most important to the bank?
The current ratio and/or quick ratio for repaying loans.
If a contractor hires only one employee, then where should he obtain a workers’ compensation insurance coverage?
Obtain coverage from a licensed insurance carrier and/or be self insured with permission.
Which of the following is the least effective way to handle change orders?
A. Have a clear and concise original written agreement
B. Bill the customer for changes only after the entire job is completed
C. All changes must be in written form
D. All of the above
Bill the customer for changes only after the entire job is completed.
What is the advantage of using cost cards?
They save time and expenses
Which of the following is the best way that contractors could control their job costs?
A. By properly coordinating all job activities
B. By spending less time supervising on the job
C. By working on several jobs simultaneously
D. By hiring inexperienced employees who will work for less money
By properly coordinating all job activities
If a subcontractor were to serve the owner with a Stop Notice, then the most likely reason would be to:
Inform the owner that the subcontractor has not been paid by the prime contractor.
Where is a mechanics’ lien filed?
At the County Recorder in the county where the private property is located.
If an employer or a contractor files a complaint with DOSH due to safety violations at the workplace and a DOSH inspector arrives for an unannounced visit to investigate the employer:
Must allow the inspector to enter the workplace since DOSH has a legal right to inspect any place of employment.
What type of spray gun can be used with toxic chemicals?
You cannot use spray guns with toxic chemicals
Direct costs are $7,200. Overhead is 12%. Profit is 10%. What is the selling price of the contract?
$9,230.77
Bid price = direct cost + overhead cost + profit
You are in the process of hiring new employees for your company and you ask applicants for their social security number. If an applicant knows his social security number but does not have an actual card, then the practice of relying on memorized social security numbers is:
Unacceptable, because actual social security cards must be inspected.
To whom do contractors report and pay sales tax?
Board of Equalization
The employer should ____________ when a CAL/OSHA inspector comes by the work place.
Inform employees that an inspector will be on the premises and to cooperate with his/her requests.
What is a fixed asset?
Assets which will not be sold for at least one year.
An applicant informs his prospective employer during the interview, that he cannot work on Saturdays due to his religious beliefs. The employer tells the applicant that the work sometimes occurs on Saturday. What best describes the appropriate legal response of the employer?
After trying to accommodate the applicant’s religious obligations, the employer may choose not to hire him.
A budget allows you to keep control over your expenses and it shows you what you need to do to make your business successful. What is an accurate statement regarding a budget and its purpose?
A budget sets goals that the company should work toward.
Depreciation is shown on the balance sheet in the:
Fixed asset section
Only fixed assets can be depreciated
An emergency job was contracted between the owner and a contractor. If the job was cancelled, but the materials have already been purchased for the job, then who is responsible for the materials?
The owner
It is quite common in the construction industry for an owner to withhold a percentage of the total payments due to a contractor to insure that the contractor completes the job and pays his subcontractors and suppliers. Retentions are normally paid when?
Upon completion and expiration of the lien period
If you are advertising, then in which of the following locations is your license number required? A. Bus stop benches B. Billboards C. Yellow Page D. All of the above
All of the above
When is the best time to order materials?
After going over the plans and specs
If James owns a small construction company with 4 employees and in addition, his wife Brittany works three days a week as an office helper, then in this situation, which of the following is not subject to FUTA tax deduction? A. The wife's salary B. Severance and vacation pay C. Sick pay D. Commission and bonuses
The wife’s salary
Wife is considered co-owner of the company, therefore FUTA tax is not necessary
Clothing contaminated with asbestos:
Should be specially laundered separately or discarded
Which of the following statements is true with respect to employee complaints for alleged safety violations?
A. The name of the employee who files the complaint with DOSH will remain confidential
B. If DOSH determines that no violation exists, then the employee may not refuse to work in the area.
C. The employer may not discipline an employee who files a complaint for an unsafe practice.
D. All of the above
All of the above
If your bid on the job was accepted, but you inadvertently left out a part of that job, then what should you do?
The contractor is responsible to complete the work
When bidding on a home improvement contract, a contract should include material costs, labor costs, direct costs, permits, profits, and _______?
Overhead costs
During the course of construction, James notices that one of his employees is working with an unsafe piece of equipment. What should James do?
Immediately stop the employee and have the equipment repaired or replaced.
Why are depreciation figures important for a contractor?
Depreciation is treated as an expense and it reduces taxable income.
Depreciation is shown on the income statement as:
An expense statement
What would be the reason for a business to fail? A. Lack of business knowledge B. Business expands to rapidly C. Contractor takes on to much work D. All of the above
All of the above
If you owe money on charge accounts you call these…?
Accounts payable
Where is depreciation listed? A. In the profit and loss statement B. In the income and expenses statement C. In the balance sheet D. All of the above
All of the above
James hires John to act as a subcontractor on a project and the subcontractor confirms that he has workers’ compensation. James asks John for a copy of his certificate of insurance. A few days later work begins, but John has not yet given James a copy of his certificate. If James is worried that he might be liable for any injuries in case John does not have insurance, then he should…?
Fire John and replace him with a subcontractor who has the insurance.
Which of the following hiring practices are not acceptable?
A. Refusing to hire the spouse of one of its present employees because they would work together.
B. Refusing to hire a weak woman because the job required heavy manual labor.
C. Refusing to hire a physically handicapped person because the work would endanger his or her health.
D. Refusing to hire a person with cancer as the employer’s health insurance rates would substantially increase.
Refusing to hire a person with cancer as the employer’s health insurance rates would substantially increase.
When must you obtain a surety bond?
When you are obtaining a contractor’s license number.
A consumer may cancel a home solicitation contract at any time prior to midnight of the ______ business day after the date of the transaction.
3rd business day
7th business day in the case of a natural disaster
When a joint-control addendum is used, which of the following does not have to be included in a home improvement contract? A. Schedule of payments B. Owner's signature C. Notice to owner D. License number of the contractor
Schedule of payments
A customer says that you have failed to complete the remodeling job in a satisfactory manner and refuses to pay. If an arbitration clause does not appear in the original contract, then:
The only way to arbitrate is for both parties to agree to arbitrate.
If retention is withheld until substantial completion of the entire job, the subcontractors that worked on the early stages of the project can be put at a financial disadvantage. What is the best way to remedy this situation?
Tie the release of proportional retentions to the completion of the subcontractor’s work rather than the entire job.
The owner calls a contractor to fix a door that fell. The contractor agrees to re-hang the door. After the contractor places the door, the owner asks the contractor to paint out the scratches on the door made by the owner’s dog. What should the contractor do?
Prepare a change order
What is the best procedure when ordering materials for a job that is in progress?
Consult with the job supervisor before ordering
Which of the following is the best way to establish labor costs?
A. Ask the accountant to set costs
B. Use your best judgment based on previous jobs
C. Take the hours from the detailed time cards
D. Use the average costs over the past year
Take the hours from the detailed time cards
A customer wants to accept a bid, but does not have enough money. A wise contract decision would be to:
Stick close to your bid even if it means losing the job.
If during excavation, you unearth human remains or burial artifacts at a construction site, what should you do?
Stop working immediately at the site, and notify the Coroner
Which of the following would you not include in a bid? A. Labor and material B. Profit C. Anticipated legal fees D. Cost of a performance bond
Anticipated legal fees
Which of the following is the best reason for standardized bidding?
A. It allows you to always make profit
B. It allows the company to grow
C. It assures the accuracy of cost estimates
D. It saves your bookkeeper time and money
It assures the accuracy of cost estimates
What is a common pitfall in bidding?
Bidding against the competition and not the job
If a general contractor fails to pay a subcontractor and the general files for bankruptcy, then:
The subcontractor would probably be awarded a portion of his claim.
Taxes for businesses are calculated:
Depending on the organizational structure
If a contractor has written a contract based on “time and material,” what should be done to cover an increase in overhead costs?
There is nothing he can do to recover the additional costs.
What agency can give you direction and information pertaining to local building codes and regulations?
The issuing department or agency
Contractor’s income taxes are based on:
Net Profit
Which of the following is covered by a standard contractor’s insurance policy?
A. Employers’ tools
B. Damage from fire, storm, theft, and vandalism
C. Job materials
D. All of the above
All of the above
Whose signature must appear on the application for a building permit?
Contractor
Builder
If you realize after completion of a job that one of your subcontractor’s performed poor workmanship, then who is responsible?
The prime contractor
When you are bidding on a job, what is the best way to “access the job?”
Inspect the job personally
If James, a prime contractor, fails to obtain a building permit prior to starting a job, then he is subject to…?
Double the permit fee and suspension of his contractor’s license.
A contractor is looking for an insurance policy to cover the high degree of exposure to risk. Which of the following insurance policies would be best for this purpose? A. Builder's risk B. Property C. Umbrella D. General liability
Umbrella policy
Additional amount not picked up by original insurance policy will be covered by the Umbrella Policy
A contractor is bidding on a project for a homeowner. The owner has included several extra items upon which to bid. After receiving the bid, the homeowner says it is too high and asks the contractor to lower the price. What should the contractor do?
Negotiate with the owner to reduce the scope of the work.
