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Question 1. Which entity is primarily responsible for administering the Maryland Home Improvement Commission (MHIC)? A) Maryland Department of Labor B) Maryland Department of Assessments and Taxation C) Maryland Home Improvement Commission itself D) Maryland Attorney General’s Office Answer: C Explanation: The MHIC is a self‑governing agency that administers and enforces the Home Improvement Law; it is not overseen by another department. Question 2. Under Maryland law, a contractor must display which of the following on every home improvement contract? A) Contractor’s Social Security Number B) MHIC telephone number C) Homeowner’s credit score D) Contractor’s personal email address Answer: B Explanation: MHIC requires the commission’s telephone number to be included so homeowners can verify licensure and file complaints. Question 3. The “One‑Third Rule” in Maryland home improvement contracts limits the homeowner’s initial deposit to what percentage of the total contract price? A) 10% B) 25% C) 33.3% D) 50% Answer: C Explanation: Maryland law caps the deposit at one‑third of the total contract price before work begins. Question 4. Which of the following is a prohibited provision in a Maryland home improvement contract?
A) Clause stating the start date of work B) Clause waiving the homeowner’s right to sue the contractor for defects C) Clause requiring a written change order for scope changes D) Clause listing the contractor’s license number Answer: B Explanation: Contracts cannot waive a homeowner’s statutory rights, including the right to sue for breaches. Question 5. The maximum guaranty fund claim per contractor per contract in Maryland is: A) $10, B) $25, C) $50, D) $100, Answer: C Explanation: The MHIC Guaranty Fund limits reimbursement to $50,000 per claim per contractor. Question 6. A contractor who works without a valid Maryland home improvement license is subject to which of the following penalties? A) A warning letter only B) Administrative fine and possible “Stop Work” order C) Mandatory community service D) No penalty if the work is completed satisfactorily Answer: B Explanation: Practicing without a license can result in fines and the MHIC can issue a stop‑work order. Question 7. Which of the following best describes a “subcontractor” license in Maryland? A) Allows the holder to market directly to homeowners B) Allows the holder to perform work only under a licensed contractor’s supervision C) Grants the holder authority to issue MHIC contracts independently
Answer: C Explanation: An LLC shields owners from personal liability and allows income to pass through to personal tax returns. Question 11. In Maryland, a “Doing Business As” (DBA) name must be registered with which agency? A) Maryland Department of Labor B) Maryland Department of Assessments and Taxation (SDAT) C) Maryland Department of Commerce D) Maryland Home Improvement Commission Answer: B Explanation: SDAT handles trade name registrations to ensure public notice of the entity’s operating name. Question 12. Which of the following criteria is NOT used by the IRS to determine whether a worker is an independent contractor? A) Degree of control over how work is performed B) Whether the worker receives a W‑2 at year‑end C) The worker’s investment in equipment D) The worker’s marital status Answer: D Explanation: Marital status is irrelevant to the IRS’ common‑law test for employee vs. contractor classification. Question 13. Maryland workers’ compensation coverage is mandatory for: A) Sole proprietors with no employees B) All owners of an LLC, regardless of employee count C) Employers with one or more employees performing non‑exempt work D) Independent contractors who are paid more than $5,000 annually Answer: C
Explanation: Any employer with at least one employee performing covered work must carry workers’ comp insurance. Question 14. Under the Fair Labor Standards Act (FLSA), the federal overtime threshold is: A) 30 hours per week B) 35 hours per week C) 40 hours per week D) 45 hours per week Answer: C Explanation: Non‑exempt employees must receive overtime pay for hours worked over 40 in a workweek. Question 15. In a quantity take‑off, the contractor must determine: A) The contractor’s personal profit margin B) The exact number of each material needed for the project C) The homeowner’s credit rating D) The number of subcontractors to hire Answer: B Explanation: Quantity take‑offs involve calculating precise material quantities, labor hours, and equipment needs. Question 16. “Markup” on a contractor’s bid is best defined as: A) The difference between selling price and cost expressed as a percentage of cost B) The amount added to cover only overhead expenses C) The profit after all expenses have been deducted D) The total cost of labor and materials combined Answer: A Explanation: Markup = (Selling Price – Cost) / Cost × 100%; it includes overhead and profit. Question 17. Which of the following is a common error that leads to bid losses?
Answer: B Explanation: Lead time is the interval needed for procurement and delivery of materials. Question 21. Lag time in a schedule is best described as: A) The time added to accelerate a project B) A planned delay between successive activities C) The time a contractor spends on marketing D) The period between contract signing and start of work Answer: B Explanation: Lag time intentionally inserts a delay (e.g., curing time) between dependent tasks. Question 22. Which contract type provides the owner with a fixed total price for the entire scope of work? A) Cost‑plus contract B) Unit‑price contract C) Lump‑sum contract D) Time‑and‑materials contract Answer: C Explanation: Lump‑sum contracts set a single, predetermined price for the whole project. Question 23. A “material breach” of a construction contract typically allows the non‑breaching party to: A) Seek a minor price adjustment only B) Terminate the contract and sue for damages C) Continue work without any remedy D) Require the breaching party to perform a goodwill gesture Answer: B Explanation: Material breaches go to the essence of the contract, giving the aggrieved party the right to terminate and claim damages.
Question 24. In a “cost‑plus” contract, the contractor’s profit is usually calculated as: A) A fixed percentage of the total cost B) A fixed dollar amount regardless of cost C) The difference between bid and actual cost only D) None of the above Answer: A Explanation: Cost‑plus contracts typically add a predetermined percentage (or fee) to the reimbursable costs. Question 25. Which financial statement shows a company’s assets, liabilities, and owner’s equity at a specific point in time? A) Income Statement B) Statement of Cash Flows C) Balance Sheet D) Job Cost Report Answer: C Explanation: The balance sheet presents the financial position at a particular date. Question 26. The primary purpose of a cash flow statement for a contractor is to: A) Determine the profitability of each project B) Show the movement of cash in and out of the business over a period C) List all equipment owned by the company D) Record employee vacation balances Answer: B Explanation: Cash flow statements track inflows and outflows, highlighting liquidity. Question 27. Which of the following is NOT a federal tax that a Maryland contractor must withhold from employees’ wages? A) Social Security (FICA) B) Medicare (FICA)
Explanation: OSHA requires the 300 log, summary, and incident report to be kept for five years, but the log itself must be retained for three years after the calendar year. Question 31. Under the EPA’s Renovation, Repair and Painting (RRP) rule, a contractor working on a home built before 1978 must: A) Obtain a lead‑safe work practice certification B) Use only water‑based paints C) Perform all work without any protective equipment D) Provide a lead‑free guarantee to the homeowner Answer: A Explanation: The RRP rule requires contractors to be certified and follow lead‑safe work practices on pre‑1978 structures. Question 32. Maryland’s Department of the Environment (MDE) requires erosion control plans for which of the following situations? A) Interior drywall installation B) Any activity that disturbs more than 500 square feet of soil C) Painting interior walls D) Installing light fixtures Answer: B Explanation: MDE regulations trigger when land disturbance exceeds a threshold (often 500 sq ft) that could cause erosion. Question 33. Which of the following is a permissible method for a contractor to verify a homeowner’s credit before beginning work? A) Publicly posting the homeowner’s credit score on the job site B) Requesting a written credit authorization from the homeowner C) Accessing the credit report without consent D) Using the homeowner’s Social Security number on a public form Answer: B Explanation: Consent via written authorization is required to legally obtain a credit report.
Question 34. A “change order” must be signed by: A) Only the contractor B) Only the homeowner C) Both the contractor and the homeowner D) The subcontractor only Answer: C Explanation: Both parties must sign to acknowledge the revised scope, price, and schedule. Question 35. In Maryland, a contractor who fails to file an annual Guaranty Fund assessment may be: A) Granted a temporary exemption for one year B) Subject to a civil penalty and possible suspension of license C) Allowed to continue operating without notice D) Required only to pay interest on the missed assessment Answer: B Explanation: Non‑payment can lead to fines and license suspension because the fund relies on assessments. Question 36. Which of the following best describes “materiality” in contract law? A) The cost of materials used on a project B) The significance of a breach in affecting the contract’s purpose C) The weight of physical building components D) The amount of profit earned on a job Answer: B Explanation: Materiality refers to whether a breach goes to the heart of the contract, impacting its overall performance. Question 37. The term “overhead” in construction estimating most accurately includes: A) Direct labor wages
Answer: C Explanation: The statute requires contractors to keep contracts for at least three years after completion. Question 41. Which of the following is a valid reason for a contractor to issue a “Stop Work” order? A) The homeowner requests a coffee break B) The contractor discovers a safety violation on site C) The contractor wants to renegotiate the price mid‑project D) The subcontractor is late for lunch Answer: B Explanation: Safety violations give MHIC authority to halt work to protect workers and the public. Question 42. A “unit‑price” contract is most appropriate when: A) The scope of work is fully defined and unchanging B) The quantities of items are uncertain at the time of bidding C) The owner wants a fixed total price regardless of actual quantities D) The contractor prefers a lump‑sum arrangement Answer: B Explanation: Unit‑price contracts price each unit (e.g., per square foot) allowing flexibility when quantities are unknown. Question 43. If a contractor’s license is suspended, which of the following actions is permissible? A) Continuing work under a subcontractor’s license B) Performing emergency repairs without a license C) Advertising the suspension to attract customers D) None of the above; work must cease until reinstated Answer: D Explanation: A suspended license prohibits any home improvement work until reinstated. Question 44. The “Three‑Day Right to Rescind” does NOT apply to contracts signed:
A) At a homeowner’s residence B) At a contractor’s office C) At a public fair booth D) At a homeowner’s place of business Answer: B Explanation: The right applies only to contracts executed away from the contractor’s place of business; contracts signed at the contractor’s office are excluded. Question 45. Which of the following is a required component of an OSHA 300 log entry? A) Employee’s favorite color B) Date of injury or illness C. Homeowner’s phone number D. Contractor’s estimated profit margin Answer: B Explanation: OSHA 300 logs must record the date of each work‑related injury or illness. Question 46. A “contingency” in a construction bid is used to: A) Increase the contractor’s profit beyond market rates B) Cover unexpected costs such as site conditions or code changes C) Reduce the project’s overall cost to the homeowner D) Replace the need for a Guaranty Fund claim Answer: B Explanation: Contingency allowances provide a buffer for unforeseen expenses. Question 47. Under Maryland law, a contractor may not require a homeowner to: A) Provide a written change order for additional work B) Pay the full contract price before any work begins C) Submit a copy of the homeowner’s driver’s license for verification D) Sign a contract that includes the contractor’s license number
A) “The contractor may not be held liable for any damage caused by subcontractors.” B. “The homeowner agrees to submit all disputes to binding arbitration.” C. “The homeowner waives any right to file a claim against the Guaranty Fund.” D. “The contractor must obtain all required permits before starting work.” Answer: C Explanation: Homeowners cannot waive their statutory right to claim against the Guaranty Fund. Question 52. A contractor’s “fixed costs” include all EXCEPT: A. Office rent B. Insurance premiums C. Direct material costs for a specific project D. Utilities for the office Answer: C Explanation: Fixed costs are expenses that do not vary with project volume; direct material costs are variable. Question 53. Which of the following is a primary responsibility of the Maryland Home Improvement Commission regarding contractor discipline? A. Setting interest rates for contractor loans B. Issuing “Stop Work” orders and imposing administrative fines C. Conducting annual tax audits of contractors D. Providing free legal representation to contractors Answer: B Explanation: MHIC enforces compliance through orders and fines. Question 54. In a cost‑plus‑fixed‑fee contract, the contractor’s profit is: A. A percentage of actual costs incurred B. A predetermined fixed dollar amount regardless of costs C. Negotiated after project completion
D. Calculated from the homeowner’s savings Answer: B Explanation: A fixed‑fee contract adds a set fee to reimbursable costs. Question 55. Which of the following statements about Maryland’s “One‑Third Rule” is true? A. The rule applies only to residential projects over $10,000. B. The deposit cannot exceed one‑third of the total contract price, regardless of project size. C. The rule allows a 50% deposit if the homeowner signs a change order. D. The rule is optional and can be waived by mutual agreement. Answer: B Explanation: The law caps the initial deposit at one‑third of the total contract amount for any home improvement job. Question 56. When preparing a balance sheet, which of the following items is classified as a current liability? A. Equipment purchased for $50,000 (paid cash) B. Accounts payable to suppliers due within 30 days C. Owner’s capital contribution D. Accumulated depreciation on machinery Answer: B Explanation: Current liabilities are obligations due within one year, such as accounts payable. Question 57. The Maryland Department of Labor uses which of the following tests to determine if a worker is an employee? A. The “50‑hour rule” B. The “Economic Realities” test C. The “ABC” factor test D. The “IRS Common‑Law” test Answer: D
Question 61. The Maryland Guaranty Fund assessment fee for contractors is typically based on: A. The contractor’s total annual revenue B. The number of employees the contractor has C. A flat annual fee set by the MHIC D. The number of contracts the contractor signs each year Answer: C Explanation: The assessment is a flat fee established by the commission to fund the guaranty program. Question 62. In Maryland, which of the following is required to be included on a contractor’s invoice to a homeowner? A. Contractor’s personal mobile number B. Detailed breakdown of labor, materials, and taxes C. Homeowner’s bank account number D. Contractor’s political affiliation Answer: B Explanation: Invoices must clearly itemize costs, including labor, materials, and any applicable taxes. Question 63. A contractor who wishes to subcontract electrical work must ensure the subcontractor holds: A. A Maryland Home Improvement Contractor license only B. A Maryland Electrical Contractor license C. A general business license from the county D. No license if the work is under $ Answer: B Explanation: Electrical work requires a specific electrical contractor license in Maryland. Question 64. Which of the following best describes “lag time” in a construction schedule? A. The time saved by using fast‑track methods B. The intentional delay between two dependent activities
C. The period a contractor must wait for a permit after application D. The time a worker spends on a lunch break Answer: B Explanation: Lag time is a planned delay inserted between tasks (e.g., curing time). Question 65. The Maryland Home Improvement Commission requires contractors to post the Guaranty Fund notice where? A. Inside the contractor’s office only B. On the homeowner’s front door C. In a conspicuous place at the job site and on the contract D. Only on the contractor’s website Answer: C Explanation: The notice must be visible at the job site and included in the contract documentation. Question 66. Which of the following is a valid reason for a contractor to issue a “stop‑work” notice to a subcontractor? A. The subcontractor requested a higher wage B. The subcontractor failed to provide proof of workers’ compensation coverage C. The subcontractor is late for a coffee break D. The subcontractor prefers a different brand of material Answer: B Explanation: Lack of required insurance can justify a stop‑work order to protect the project and comply with law. Question 67. In Maryland, a “limited partnership” offers limited liability to which partners? A. General partners only B. All partners, regardless of role C. Limited partners only, provided they do not manage the business D. No partners; all have unlimited liability Answer: C
