NASCLA Contractors Guide to Business: Questions and Answers, Exams of Law

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NASCLA Contractors Guide to Business questions

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Elements of a Business Plan CORRECT ANSWER Cover Page, Executive Summary, Company Summary, Products & Services, Market Analysis, Marketing Strategy, and Financial Plan Sole Proprietorships CORRECT ANSWER Adv: Min legal restrictions, simple ownership form, low startup costs, sole ownership of profits, freedom in decision making process. Disadv: Unlimited personal liability, less available capital, possible difficulty in obtaining long-term financing, dissolution of the business in the event of the owner's death. *SOLE PROPRIETORSHIP THE EASIEST TO SET UP Partnerships CORRECT ANSWER -Can be formed through an oral agreement. -General Partners own the assets of the company. -Limited partnership consists of one or more general partners and one or more limited partners. -Limited partners have limited liability in the company. -If a general partner leaves the company, the partnership dissolves -All owners in a general partnership have personal and unlimited liability for all actions undertaken in the name of the business, including all debts -Limited Partners have no personal liability for the business. *GENERAL PARNERSHIPS EXIST AS LONG AS PARTNERS REMAIN *EACH PARTNER IS TOTALLY LIABLE FOR ACTS IN THE PARTNERSHIP C Corporations CORRECT ANSWER -Incorporation gives your business a legal existence that goes beyond the life of its shareholders die.

-The owners of the corp - known as stockholders - are not personally liable for the losses of the business. S Corporations CORRECT ANSWER -Can avoid double federal taxation by electing to be treated as an S Corp -S Corp passes its items of income, loss, deduction, and credits through to its shareholders to be included on their separate returns. Limited Liability Corporation (LLC) CORRECT ANSWER -Shares characteristics of both sole proprietorship and corporate identities

• Ownership in the LLC is invested in memberships rather than shares of stock -Offers some protection from liability for actions taken by your company, but does not protect from liability for personal actions. -Like an S Corp, federal income taxes are paid only on income distributed to members as ordinary income. An LLC with more than 1 owner may elect to be taxed as a partnership or as a corporate entity. NC Licensing Board for General Contractors CORRECT ANSWER LICENSING BOARD TO PROTECT THE PUBLIC Commercial General Liability (CGL) CORRECT ANSWER CGL Insurance offers basic liability coverage. Covers 4 types of injuries:

1. bodily injury for individuals who are NOT employees
2. damage or loss to property NOT belonging to the business
3. personal injury, including slander or damage to rep
4. advertising injury

Business Owner's Policies (BOPs) CORRECT ANSWER BOPs bundle property and liability coverage together. Can eliminate gaps between separate property and liability policies. Workers' Compensation Insurance CORRECT ANSWER Provides coverage for employees for are injured on the job. Purchased by the employer...no part of it should be paid by the employee. Certificate of Insurance CORRECT ANSWER A certificate of insurance (COI) is issued by an insurance company or broker. The COI verifies the existence of an insurance policy and summarizes the key aspects and conditions of the policy. When hiring subs, you should verify their insurance coverage to ensure it is adequate enough to cover any lability arising from their work. PARTIES OF A BOND AGREEMENT CORRECT ANSWER A surety bond is a risk transfer mechanism between a surety, the contractor, and the project owner. The agreement binds the contractor to comply with the terms and conditions of a contract. If the contractor cannot perform the task, the surety assumes the contractor's responsibilities and ensures that the project is completed. BOND TYPES CORRECT ANSWER Performance Bond - guarantees that the contractor will complete a contract within its time frame and conditions Payment Bond - guarantees subs and suppliers that they will be paid for work if they perform properly Maintenance Bond - guarantees that for a stated period, no defective workmanship will appear in the completed projected Completion Bond - provides assurance to the financial backers that project will be completed on time Fidelity Bond - covers business owners for losses due to dishonest acts by their employees

Lien Bond - guarantees that liens cannot be placed against the owner's property by contractors for payment of services. Miller Act CORRECT ANSWER Law governing bonding of federal construction projects. The Miller Act - as as result of the high failure rate for completion of publics construction projects, the Heard Act was enacted in 1894, allowing the use of surety bonds for federally funded projects. In 1935, the Miller Act replaced the Heard Act. The Miller Act is the current law requiring performance and payment bonds on all federal construction projects valued at greater than $100K. GOOD LOGO DESIGN CORRECT ANSWER 1. Simple and easy to remember

2. Attractive in color and black and white
3. limited to one or two colors
4. representative of your company identity
5. scalable up or down and attractive in any size ITEMS TO CONSIDER BEFORE BIDDING A PROJECT CORRECT ANSWER
6. Does our company have the resources and is this project consistent with type of work we do?
7. Are there any special site considerations that we need to consider?
8. How can we do the work efficiently and in the most cost effective manner?
9. What are the risks and how will we manage them?
10. What is our profit margin on this work? Ethics in Bidding - Bid Rigging CORRECT ANSWER Bid rigging is a form of collusion where contractors coordinate their bids to fix the award outcome of a project.

FORMULA USED TO DETERMINE LABOR COST CORRECT ANSWER

Required Labor Hours per Task x Labor Rate = Labor Cost per Task. Labor Burden (i.e. taxes, insurance) add approximately 30% to labor cost and must be factored into your total labor cost. EQUIPMENT IS A DIRECT COST CORRECT ANSWER but, small tools and pickup trucks are considered an indirect cost and not part of project equipment. Project Overhead CORRECT ANSWER Items that are necessary to complete the project but are not directly associated with labor and materials. (Bonds, temp storage and office, security guard, utilities, dumpsters, and toilets) Company Overhead CORRECT ANSWER Cost of doing business...these expenses are necessary to keeping the operation running. (office, rent, accounting fees, taxes, telephone, legal fees, and admin labor). Estimating Cost Method - QUANTITY TAKEOFF METHOD MOST ACCURATE CORRECT ANSWER Quantity take-offs (QTO) are a detailed measurement of materials and labor needed to complete a construction project. They are developed by an estimator during the pre-construction phase. This process includes breaking the project down into smaller and more manageable units that are easier to measure or estimate. COST CONTROL CORRECT ANSWER A job cost recording system provides many benefits:

1. Current project are monitored more closely with a cost tracking system
2. Info from this system helps with future estimates
3. Many analytical reports can be generated from cost data to review performance by project

What's the main purpose of a contract? CORRECT ANSWER The main purpose of contracts is to prevent disputes between parties entering into an agreement What are the required elements of a contract? CORRECT ANSWER (1) Offer and Acceptance (2) Consideration - both parties must give up something of value to have consideration. (3) Competent Parties - the parties in agreement should have legal capacity to enter into a contract (4) Legal Purpose - contracts must be possible to perform, not intended to harm anyone, and cannot require any illegal activity Offer Checklist CORRECT ANSWER Your offer should contain certain components because if accepted, you are contractually bound to it:

1. Date of Offer
2. Names/contact info
3. Name of project/location
4. Description of the work
5. contract time or start and completion date
6. Payment Terms
7. Conditions for schedule days
8. List of contract documents
9. Contract Sum
10. Expiration date of offer RETAINAGE CORRECT ANSWER Used by the owner to ensure completion of the construction project and provide protection against liens, claims, and defaults.

It is calculated as a percentage (generally 10%) withheld from each progress payment. MATERIAL BREACH OF CONTRACT CORRECT ANSWER ...a serious violation of the contract. (refuses to perform the contract, performs an act prohibited by the contract, prevents the other party from performing its obligations) Contract Provisions - Supplemental Conditions CORRECT ANSWER The supplemental conditions modify the general conditions of the contract and are often prepared in a separate document. They are tailored specifically to each project. They may outline items such as specific insurance requirements, project procedures, and local law requirements. Provisions to Limit Risk CORRECT ANSWER Indemnification - absolves the indemnified party from any payment for losses and damages incurred by a third party. Simply put, it is a way to shift payment or lability for any loss for damage that has occurred. Warranties - define the contractor's responsibility for the repair of defects to the construction project after the completion of work. Warranties are often set forth for a defined period of time. Alternative Dispute Resolution (ADR) CORRECT ANSWER Negotiation Mediation Collaborative Law Arbitration Bid Documents CORRECT ANSWER Invitation to Bid Bid Instructions Bid Forms

Supplements Addenda Legal Interpretation CORRECT ANSWER Clarity of language and meaning is most important in avoiding disputes and interpreting contracts. If a dispute arise, the contract will be interpreted using the plain meaning of the words in the contract FLOAT TIME CORRECT ANSWER ...the remaining time after a task is complete and before the next task begins. The amount of time an activity can be delayed without impacting the early start of the next activity is called free float time. Total float time refers to the amount of leeway allowed in starting or completing an activity without delaying the project completion time. Activities with zero float are considered critical activities. Scheduling CORRECT ANSWER Calendar Scheduling - simple method, can be done on a desk calendar Bar Chart Scheduling - shows the the activity duration and sequence of tasks to be completed. Main weakness of this and calendar scheduling is that they do not show the interdependencies of activities. Critical Path Method - illustrates the interdependent relationship of tasks Daily Reports CORRECT ANSWER Personal comments should not be made in the daily report, only factual information. Just-In-Time CORRECT ANSWER Just-In-Time deliveries will keep your inventory cost low. The process allows you to time deliveries to arrive as you need the materials in the construction process.

Fair Labor Standards Act CORRECT ANSWER *Prescribes standards for the basic minimum wage and overtime pay, affects most private and public employment. It applies to employers who have one or more employees. *Restricts the hours that children under age 16 can work *Some employees are exempt from OT provisions and min wage under FLSA (i.e. executives, professionals) *A workweek is a period of 168 hours during 7 consecutive 24 hour periods *FLSA does not require vacation, holiday, severance or sick pay, meal, premium pay for weekend work, pay raises, or reason for discharge FLSA Penalties CORRECT ANSWER $1,000 FINE FOR VIOLATING FLSA OVERTIME REQUIREMENT Immigration and Nationality Act CORRECT ANSWER The employment and eligibility provisions of the immigration and nationality act require employers to verify the employment eligibility of all individuals hired. Immigration and Naturalization Service Forms (I-9) must be kept on file for at lest 3 years after the date of hire or for one year after the date employment ends, whichever is later. I- Forms must be completed with required documentation within 3 days of hire. The law does not require businesses to obtain I-9 documentation for independent contracts and their employees. Americans with Disabilities Act (ADA) CORRECT ANSWER 1. Equal opportunity in hiring qualified applicants

2. Job accommodation for workers with disabilities when such accommodations would not impose "undue hardship"
3. Equal opportunity in promotions and benefits

Family Medical Leave Act (FMLA) CORRECT ANSWER entitles eligible employees to take up to 12 weeks of unpaid job-protected leave each year for the birth of a child or care of a sick parent OSHA Recordkeeping CORRECT ANSWER Exposure records must be maintained for 30 years and medical records for the duration of employment + 30 years If a death occurs within 30 days of an incident, employers must report it within 8 hours National Pollutant Discharge Elimination System (NPDES) CORRECT ANSWER The EPA issued regulations authorizing the creation of a NPDES permitting system for stormwater discharges from a select group, including construction activities disturbing 5 or more acres (Phase 1) In Phase 2 (1999), the EPA expanded this program to include construction sites that disturb one acre but less than 5 acres with possible exceptions allowing a waiver Asbestos CORRECT ANSWER If you are working with asbestos, you should have your site inspected by a certified asbestos inspector prior to construction. You must submit a written notice of intent 10 working days prior to starting construction activities. Lead Abatement CORRECT ANSWER Work designed to permanently eliminate lead-based paint hazards is considered lead abatement and is not subject to the guidelines under Lead PRE Lead PRE CORRECT ANSWER Lead-Based Paint Renovation, Repair, and Painting Program Rule that imposes additional lead-based paint regulations. Under this rule only certified contractors can perform renovation, repair, and painting project that disturb lead-based paint in homes. Exemptions - the rule applies to

nearly all remodeling with the exception...minor repair and maintenance that disturb two square feet or less of paint per component Lead Penalty CORRECT ANSWER Failure to comply with regulations concerning lead can lead to fines up to $37,500 per day for each violation. FINDING SUBCONTRACTORS CORRECT ANSWER Sources for referrals include:

1. subs in a different field who have worked with other subs
2. other contractors in your field
3. members of your local trade association
4. suppliers
5. architects and engineers. Source Documents CORRECT ANSWER Cash Receipts, credit card receipts, customer invoices, purchase orders, material invoices, deposit slips, and time cards. OPERATING ACTIVITIES ARE PART OF CASH FLOW CORRECT ANSWER QUICK RATIO CORRECT ANSWER (Current Assets - Inventory) / Current Liabilities COMPLETED CONTRACT METHOD CORRECT ANSWER Income or loss is reported in the year the contract is completed. Adv - achieves max deferral of taxes

Percentage of Completion Method CORRECT ANSWER Recognizes income as it earned during the construction project avd - does a better job of matching matching rev to expenses. Disadv - relies on estimates Depreciation Methods CORRECT ANSWER Straight line, accelerated, MACRS Payment Terms CORRECT ANSWER Net 30: Payment is due 30 days after receiving the invoice Medicare Tax CORRECT ANSWER calculated at the rate of 1.45 percent of gross pay. Employers must pay in an equal amount of Medicare tax but cannot deduct that amount from the employee's payroll. Employer Identification Number (EIN) CORRECT ANSWER USE IRS FORM SS4 TO APPLY FOR FEDERAL ID, EIN 9 DIGIT NUMBER Tax Recordkeeping CORRECT ANSWER Keep all records of employment taxes for at least 4 years SOCIAL SECURITY RATE - 6.2%, MEDICARE RATE 1.45%, DURING FIRST YEAR MAKE MONTHLY S/S PAYMENTS CORRECT ANSWER Form 940 CORRECT ANSWER Report FUTA taxes on Form 940 Form 941 CORRECT ANSWER If you report less than $2500 tax liability for the quarter, you can use IRS Form 941

Tax Penalties CORRECT ANSWER Information Returns - 1099-MISC CORRECT ANSWER FORM 1099 TO REPORT SUB PAYMENTS. This form may be used to report payments of $ or more to independent contractors. Must be filed by 1/31. Form 1096 is used to transmit 1099 forms to the IRS (due by 2/28). Tax Calendar CORRECT ANSWER CONTRACTORS PAY SALES TAX ON ALL MATERIALS CORRECT ANSWER Lien Facts CORRECT ANSWER LIENS USED TO SECURE SUBS AND SUPPLIERS ARE PAID LIENS PREVENT OWNERS FROM PAYING TWICE HAVE SUBCONTRACTORS SIGN LIEN WAIVERS MORTGAGE HAS PRIORITY OVER LABOR LIEN BECAUSE OF DATE