FCC Estimating, Bidding & Financial Management 3 — Questions and Answers
Question 1: What is the purpose of a 'contingency' line item in a construction estimate?
- To cover the contractor's profit margin
- To account for unforeseen conditions and scope uncertainties (Correct answer)
- To pay for design changes requested by the owner
- To fund the contractor's overhead expenses
Correct answer: To account for unforeseen conditions and scope uncertainties
A contingency reserve covers unpredictable costs such as unknown site conditions, minor scope gaps, or estimating inaccuracies.
Question 2: On a cost-plus-fee contract, the contractor's fee is BEST described as:
- A percentage of the contractor's overhead only
- Compensation for profit and sometimes overhead above direct project costs (Correct answer)
- Reimbursement for all project expenses
- A fixed lump sum unrelated to actual costs
Correct answer: Compensation for profit and sometimes overhead above direct project costs
The fee in a cost-plus contract represents the contractor's profit (and sometimes overhead) earned above direct reimbursable project costs.
Question 3: Which financial statement shows a contractor's assets, liabilities, and net worth at a specific point in time?
- Income statement
- Cash flow statement
- Balance sheet (Correct answer)
- Work-in-progress schedule
Correct answer: Balance sheet
The balance sheet (statement of financial position) presents assets, liabilities, and equity as of a single date.
Question 4: A contractor's work-in-progress (WIP) schedule shows 'overbilling.' This means the contractor has:
- Billed less than the cost of work completed
- Billed more than the value of work actually completed (Correct answer)
- Earned more profit than estimated
- Completed more work than scheduled
Correct answer: Billed more than the value of work actually completed
Overbilling (billings in excess of costs) occurs when the contractor has invoiced the owner for more than the percentage of work actually performed.
Question 5: Florida's Prompt Payment Act requires that a general contractor pay a subcontractor within how many days of receiving payment from the owner?
- 7 days
- 10 days (Correct answer)
- 14 days
- 30 days
Correct answer: 10 days
Florida Statute 715.12 (Prompt Payment Act) requires general contractors to pay subcontractors within 10 days of receiving owner payment for that work.
Question 6: What is 'quantity takeoff' in the estimating process?
- Calculating the contractor's profit percentage
- Measuring and listing all materials and work items from project drawings (Correct answer)
- Obtaining subcontractor bids for specialized work
- Reviewing the owner's budget for accuracy
Correct answer: Measuring and listing all materials and work items from project drawings
Quantity takeoff is the systematic measurement of all materials, labor hours, and work items directly from construction documents.
Question 7: A contractor's current ratio is calculated as current assets divided by current liabilities. A ratio below 1.0 indicates:
- The contractor is highly profitable
- The contractor may have difficulty meeting short-term obligations (Correct answer)
- The contractor has no long-term debt
- The contractor's backlog is insufficient
Correct answer: The contractor may have difficulty meeting short-term obligations
A current ratio below 1.0 means current liabilities exceed current assets, signaling potential liquidity problems in the near term.
FCC Estimating, Bidding & Financial Management 3
What is the purpose of a 'contingency' line item in a construction estimate?