CRC CRC Business & Financial Management 2 — Questions and Answers
Question 1: A contractor's bid bond protects the project owner in what scenario?
- If the winning bidder refuses to enter into the contract (Correct answer)
- If the contractor fails to complete the work
- If a subcontractor files a mechanic's lien
- If the project exceeds the original budget
Correct answer: If the winning bidder refuses to enter into the contract
A bid bond guarantees the owner that if the contractor wins the bid but declines to sign the contract, the bond will cover the difference between their bid and the next acceptable bid.
Question 2: Which type of contractor's license bond protects clients who suffer financial loss due to contractor fraud or failure to complete work?
- Surety bond (Correct answer)
- Performance bond
- Payment bond
- Liability bond
Correct answer: Surety bond
A surety bond (often a license and permit bond) protects consumers from financial harm caused by a contractor's fraudulent or negligent acts.
Question 3: What is 'retainage' in a residential construction contract?
- A percentage of each progress payment withheld until project completion (Correct answer)
- A deposit paid before work begins
- A fee charged for contract modifications
- A penalty for schedule delays
Correct answer: A percentage of each progress payment withheld until project completion
Retainage is typically 5–10% of each progress payment that the owner holds back as security until the project is substantially complete and all conditions are met.
Question 4: A contractor receives a 'Notice to Owner' (NTO) from a subcontractor. What action should the contractor take?
- Acknowledge it and ensure the subcontractor is paid to protect lien rights (Correct answer)
- Immediately terminate the subcontractor
- File it and take no action
- Notify the building department
Correct answer: Acknowledge it and ensure the subcontractor is paid to protect lien rights
An NTO establishes a subcontractor's right to file a mechanic's lien; the general contractor must ensure payment is made to protect the owner's property from a lien.
Question 5: Which document formally authorizes changes to the scope, cost, or schedule of a construction contract?
- Change order (Correct answer)
- Request for Information (RFI)
- Submittal
- Construction directive
Correct answer: Change order
A change order is a written amendment to the original contract, signed by both parties, that officially modifies the scope, price, or schedule.
Question 6: What is the purpose of a contractor's Workers' Compensation insurance in Florida?
- To cover medical expenses and lost wages for employees injured on the job (Correct answer)
- To protect the contractor against property damage claims
- To cover subcontractors' equipment theft
- To pay penalties assessed by OSHA
Correct answer: To cover medical expenses and lost wages for employees injured on the job
Workers' Compensation provides mandatory coverage for employees who suffer work-related injuries, covering their medical costs and a portion of lost wages regardless of fault.
CRC CRC Business & Financial Management 2
A contractor's bid bond protects the project owner in what scenario?