CC Business and Financial Management 3

Question 1

What is a 'performance bond' in construction?

Accepted Answer

A bond guaranteeing that the contractor will complete the project according to the contract terms

Answer

A performance bond protects the project owner by ensuring that if the contractor fails to complete the work, the surety will step in to finish the project or compensate the owner.

Question 2

What is a 'payment bond' and who does it protect?

Accepted Answer

A bond guaranteeing that subcontractors and suppliers will be paid, protecting them if the GC defaults

Answer

A payment bond ensures that subcontractors, laborers, and material suppliers are paid even if the general contractor becomes insolvent.

Question 3

Why should a contractor maintain separate bank accounts for business and personal finances?

Accepted Answer

To protect the corporate veil and simplify tax reporting and job cost tracking

Answer

Commingling personal and business funds can pierce the corporate veil, exposing personal assets to business liabilities and complicating audits.

Question 4

What is a 'draw schedule' on a construction project?

Accepted Answer

A timeline specifying when and how much the contractor will be paid as work progresses

Answer

A draw schedule outlines the payment milestones (e.g., 10% at foundation, 20% at framing) tied to project progress for releasing funds.

Question 5

What does 'cash flow management' mean for a contractor?

Accepted Answer

Ensuring enough cash is on hand to pay expenses even when client payments are delayed

Answer

Contractors must manage the timing of incoming payments and outgoing expenses to avoid running out of money mid-project, even if they are profitable on paper.

CC - Contractor Certificate Practice Test

CC - Contractor Certificate Practice Test

CC Business and Financial Management 3