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AFSB 152 - The

Institutes

Practice Exam

Questions with

100% correct

answers

Lansing Construction Company completed major jobs including road grading, bridges, and base and paving work. Which one of the following types of contractors is Lansing? · Heavy and highway construction · General Engineering contractor · General Building contractor · Design/build contractor - answer Heavy and highway construction

The project owner for a new shopping plaza being built in Highville is the Highville Municipal Property Company. The role of the project owner at the beginning of any construction project is to · Engage consultants in fields in which it lacks the expertise necessary for the project · Define a need for a facility and engage an architect or an engineer · Furnish an estimated project cost that may be used to negotiate financing for the project · Design the facility and prepare the plans and specifications for its construction - answer Define a need for a facility and engage an architect or an engineer In construction contracts, the critical path method · Ensures that, during mobilization, the crew moves big equipment from one location to another following the shortest route, in terms of mileage · Ensures that, during mobilization, the crew moves big equipment from one location to

another on less-used roads and during times when traffic is minimal · Ensures that work is completed in a logical sequence and that the project is completed within the time budget specified in the contract terms · Ensures that all minor finishing tasks, identified in a punch list, are completed before the project reaches substantial completion - answer Ensures that work is completed in a logical sequence and that the project is completed within the time budget specified in the contract terms The party that directly benefits from the additional security of knowing that the contractor has satisfied the surety's comprehensive prequalification review is the · Suppliers · Laborers · Project Owners · Architect or engineer - answer Project Owners

Private work is not bid as tightly as public work because all bidders usually understand that a fair markup of a contractor's work is expected and that

• Numerous, unexpected change orders would become a nuisance
• The owner, architect, and contractor are likely to collaborate on a private project
• The quality of work on private projects is expected to meet only the specific standards
• When the contractor begins to seek extras, owners and architects believe they are being mistreated - answer Numerous, unexpected change orders would become a nuisance Due to the scope of the project, Cortland Company and May Contracting agreed to a cost-plus construction contract. Which one of the following accurately describes a cost-plus construction contract?
• A cost-plus contract includes cost of work and a fee for overhead and profit.
• A cost-plus contract is a fixed-price contract with a changes clause.

• A cost-plus contract includes costs of materials plus labor costs.
• A cost-plus contract includes work costs agreed to in advance plus cost overruns. - answer A cost-plus contract includes cost of work and a fee for overhead and profit. Which one of the following correctly describes the right of an owner or a contractor to terminate a contract?
• An owner or a contractor can terminate a contract at any time for any reasonable cause.
• Without a termination clause, an owner or a contractor can terminate a contract only for a material breach of contract.
• Without a termination clause, an owner can terminate a contract, but a contractor cannot.
• Without a termination clause, an owner or a contractor cannot terminate a contract for any reason. - answer Without a termination clause, an owner or a contractor can terminate a contract only for a material breach of contract.

A limited liability company is most similar to a:

• Subchapter S corporation.
• Subchapter C corporation.
• Joint venture.
• General partnership. - answer Subchapter S corporation:
• Tax liability is passed through to the individual members similar to the way tax liability is passed to shareholders in S Corps. Mediation has become a favored form of dispute resolution. Which one of the following statements is true regarding mediation?
• Mediation is the most time-consuming form of dispute resolution.
• Mediation encourages parties to make offers and counteroffers.
• Mediation develops a solution which is final and binding.

• Mediation often results in shock verdicts. - answer Mediation encourages parties to make offers and counteroffers. Which one of the following is correct regarding the statute of limitations for filing a lawsuit regarding a claim under the Miller Act?
• The statute of limitations is one year.
• The statute of limitations is 90 days.
• There is no statute of limitations.
• The statute of limitations is determined by state law. - answer The statute of limitations is one year. Contractor Marshall has been presented with a unit-priced contract from project owner Grayson Properties. A unit-price contract is used
• For most construction contracts.
• To provide a sharing agreement.
• To provide a maximum guaranteed price.
• When the quantity of work cannot be determined in advance. - answer When the

quantity of work cannot be determined in advance. Which one of the following is true regarding joint ventures?

• All partners must participate equally in a joint venture.
• All partners are always fully responsible for the entire project.
• In a silent joint venture, the silent partner has limited responsibility.
• A limited joint venture can be formed to limit an individual's participation. - answer A limited joint venture can be formed to limit an individual's participation. Which one of the following correctly describes those who must give notice to the prime contractor under the Miller Act?
• Only second-tier claimants are required to give notice to the prime contractor.
• No one filing a claim under the Miller Act is required to give notice to the prime contractor.

• Only first-tier claimants are required to give notice to the prime contractor.
• All claimants are required to give notice to the prime contractor. - answer Only second- tier claimants are required to give notice to the prime contractor. Ewing General Contracting (EGC) entered a contract to complete a major renovation for Ralph's Restaurant. Because Ralph's is located in a tourist town, it was important that the construction work be completed by May 1. The construction contract included a provision that stated that if the job was not completed by May 1, EGC would be assessed $500 a day for each day of delay in completing the project. These damages to be paid by EGC are known as
• Direct damages.
• Consequential damages.
• Liquidated damages.
• Actual damages. - answer Liquidated damages.

The costliest method of contract dispute resolution is typically

• Contract termination.
• Mediation.
• Arbitration.
• Litigation. - answer Litigation. A proprietor of a sole proprietorship is
• Entitled to all the profits and responsible for a portion of liabilities.
• Entitled to all the profits and is not responsible for any liability.
• Entitled to a portion of the profits and responsible for all liabilities.
• Entitled to all the profits and responsible for all liabilities. - answer Entitled to all the profits and responsible for all liabilities. Which one of the following correctly describes a state mechanic's lien law?
• A state mechanic's lien law allows a laborer to file a lien against a contractor or subcontractor.

• A state mechanic's lien law allows a contractor to file a lien against the state government.
• A state mechanic's lien law allows a subcontractor to file a lien against the primary contractor.
• A state mechanic's lien law allows a supplier of labor or materials to file a lien against the property owner's real estate. - answer A state mechanic's lien law allows a supplier of labor or materials to file a lien against the property owner's real estate. The construction industry most commonly uses the
• Cost-plus contract.
• Unit-price contract.
• Guaranteed maximum price contract.
• Fixed-price contract. - answer Fixed-price contract. Which one of the following correctly describes the employer-employee relationship in the construction industry?

• The National Labor Relations Act determines all aspects of the employer- employee relationship in the construction industry.
• The employer-employee relationship in the construction industry is the same as in most other industries.
• There are typically employees of different employers, some of whom may be union members, in the construction industry.
• The employer-employee relationship in the construction industry is always influenced by unions. - answer There are typically employees of different employers, some of whom may be union members, in the construction industry. Which one of the following correctly describes a contractor's responsibility for workmanship or materials after completion of a contract?
• The contractor has no responsibility for workmanship or materials after a contract is completed.
• The contractor under implied warranty is responsible for workmanship or materials for

a reasonable time after a contract has been completed.

• The contractor, unless there is an express warranty with a time limit, is responsible indefinitely for workmanship or materials after a contract has been completed.
• The contractor is responsible for workmanship or materials after a contract is completed only if there is an express warranty clause. - answer The contractor under implied warranty is responsible for workmanship or materials for a reasonable time after a contract has been completed. If a general indemnity agreement covers joint ventures,
• The surety's rights are limited to the indemnity agreement's parties.
• The surety's rights extend to all parties to the joint venture.
• The agreement automatically extends to the surety's reinsurers.
• Each surety can rely on its general indemnity agreements. - answer The surety's

rights are limited to the indemnity agreement's parties. Lido Roofing's work is generally subject to an implied warranty. Which one of the following statements is correct regarding an implied warranty for a roofing contractor?

• It typically applies for a 20-year period.
• It begins with the purchase of the materials.
• It does not begin until installation is completed.
• It includes coverage for excessive wear and tear. - answer It does not begin until installation is completed. Which one of the following is correct regarding the contractor's risk in a cost-plus contract?
• The contractor's risk in a cost-plus contract is higher than it would be in a fixed-price contract.
• There is more risk in a cost-plus contract than in a unit-price contract.

• Cost-plus contracts expose the contractor to little or no risk because costs are reimbursed.
• The "plus" in a cost-plus contract is a fixed amount and is not related to the contractor's risk. - answer Cost-plus contracts expose the contractor to little or no risk because costs are reimbursed. KB Contracting entered a firm fixed-price contract to build a new location for Mullen Markets. The construction contract includes a bonus clause. Under this arrangement, KB Contracting will most likely earn an incentive if it does which one of the following?
• Completes the job at a cost at least 5% below the original bid price.
• Completes the job with exceptional savings in both cost and time.
• Completes the work with exemplary quality.
• Completes the work within the prescribed period of time. - answer Completes the work within the prescribed period of time.

Wilson Contracting was awarded a large federal construction project. The Miller Act requires a contractor on a federal project to post

• A performance bond and a labor and material payment bond.
• A labor and material payment bond only.
• A performance bond only.
• A bond covering state liens. - answer A performance bond and a labor and material payment bond. When estimating the costs for labor, in addition to the capabilities of the available labor force, the estimator must be familiar with
• Union and local regulations that might affect what work a particular subcontractor can perform
• The subcontractor's hours of operation and overtime guidelines
• Any union labor limitations for specialized laborers who work on private construction projects

• The profit margins that are customary for similar types of jobs in the market - answer Union and local regulations that might affect what work a particular subcontractor can perform Which one of these statements most accurately describes the laws and regulations with which architects must comply?
• A. Architects must comply with all federal, state, and local laws, regulations, ordinances, requirements, and codes that apply to construction projects
• Architects must comply with all federal, state, and local laws, regulations, ordinances, requirements, and codes, as well as with regulations and licensing requirements of the architectural profession
• Architects must comply with regulations and licensing requirements of the architectural profession, along with regulations and licensing requirements for the construction firms
• Architects must comply with regulations and licensing requirements of the architectural profession, which takes

precedence over all other regulations and ordinances - answer Architects must comply with all federal, state, and local laws, regulations, ordinances, requirements, and codes, as well as with regulations and licensing requirements of the architectural profession When contract documents specifically request two or more alternative quotes (such as one with and one without some feature), the contractor

• Should investigate the advantages and disadvantages of the alternatives and include them in separate bids for each alternative
• Can choose to bid on only one of the quotes but must explain why only one quote is furnished
• Should include any qualifying conditions for the alternatives, which could ensure the contractor's responsiveness
• Must clearly furnish each of the requested quotes, or the bid might be judged nonresponsive - answer Must clearly furnish each of the requested quotes, or the bid might be judged nonresponsive

One of the purposes of bid bonds is

• To assure the owner of completion of the project in the least amount of time possible
• To save the owner the expense of hiring a second contractor to complete the contract
• To eliminate unqualified or irresponsible contractors from competitive bidding
• To ensure that the contractor can get the materials needed to complete the project at the lowest price possible - answer To eliminate unqualified or irresponsible contractors from competitive bidding The kind of mistake that was made determines whether contractors can obtain relief for the mistake. Relief for mistakes is usually granted in cases for which a mistake involves
• Errors in interpretation of the drawings or specifications and errors in judgment
• Clerical errors and errors in interpretation of the drawings or specifications

• Errors in judgment, transposition of amounts from worksheets, and computation errors
• Clerical errors, transposition of amounts from worksheets, and computation errors - answer Clerical errors, transposition of amounts from worksheets, and computation errors Which one of the following statements regarding bid-amount disclosure is accurate?
• All public and private project bids are always disclosed publicly
• Private project bids are never disclosed to the public
• Public project bids and private project bids (at the owners' discretion) are disclosed publicly
• Only private project bids are always disclosed to the public - answer Public project bids and private project bids (at the owners' discretion) are disclosed publicly When estimating costs of a project, the estimator

• Can set the price for the subcontractors' contracts, including detailed breakdowns of all costs
• Should include the costs of performance and payment bonds in the bids of every subcontractor that the estimator/contractor might consider for the project
• May not be able to obtain a contract from the desired contractor, because the subcontractor chooses general contractors having practices that meet their needs
• Can expect to get timely bids from subcontractors, which will allow time for negotiation to reduce the subcontractor's price - answer May not be able to obtain a contract from the desired contractor, because the subcontractor chooses general contractors having practices that meet their needs The Westville Dam will be a federal public works project. Bid bonds used in federal projects such as this one have
• "Little Miller Act" bond forms
• Manuscripted bond forms supplied by the obligee

• Standard Miller Act bond forms
• Standard American Institute of Architects (AIA) bond forms - answer Standard Miller Act bond forms Joel, Kurt, and Ramon have been friends since high school and have wanted to engage in some business efforts together. As they are now partners in a joint venture, which one of the following best describes this arrangement?
• Each partner is jointly and severally liable for completing the entire project
• Partners have limited liability for the venture's debts and obligations
• Each partner is liable for its percentage of participation toward completing the project
• Each partner has an equal share of liability for the entire project - answer Each partner is jointly and severally liable for completing the entire project Jack is the owner of Jack's Contracting and has just met with his financial team and new bonding company to discuss his company's

financial reporting. Which one of the following is a disadvantage of the percentage-of-completion method of financial reporting?

• It is not favored by the reader of a financial statement
• It provides a different final gross profit than do other methods
• It is the most easily manipulated of all the methods to produce a certain outcome
• It is not the easiest and most flexible accounting method - answer It is not the easiest and most flexible accounting method The management team at Kennon Construction has supplied a presentation of information in financial-statement format to its surety company. This type of information is known as a(n)
• Audit
• Compilation
• Preparation
• Review - answer Compilation

Interim financial statements should

• Always be prepared by a certified public accountant
• Be submitted to the Internal Revenue Service
• Be prepared monthly
• Follow the format of the annual statement - answer Follow the format of the annual statement Holley Surety's new analyst Walter is familiarizing himself with some of the financial statements and reports from contractors he will soon be reviewing on a more regular basis. Which one of the following will Walter find that measures the contractor's financial results over a period of time?
• Independent auditors' report
• Income statement
• Statement of changes in stockholders' equity
• Statement of cash flows - answer Income statement

Under the cost-to-cost method, if costs incurred to date are $600,000 and estimated total cost is $1 million, what is the percentage of completion of the contract?

• 30%
• 50%
  • 60%
• 100% - answer 60% Riley Construction & Supply (RCS) is a contractor building homes and office buildings in a growing midwestern state. Its financial team, in agreement with its surety company, prefers an accounting method that best measures RCS's financial condition at a point in time and results achieved on the work actually performed during the year. Which one of the following is their chosen method?
• Percentage-of-completion method
• Simple accrual method
• Cash method