FCC Estimating, Bidding & Financial Management 5 — Questions and Answers
Question 1: Florida Statute 489 requires licensed contractors to maintain what type of financial records to demonstrate solvency?
- Only tax returns filed with the IRS
- Business financial statements sufficient to demonstrate fiscal integrity (Correct answer)
- Monthly bank statements certified by a CPA
- A minimum cash balance of $50,000 at all times
Correct answer: Business financial statements sufficient to demonstrate fiscal integrity
F.S. 489 requires contractors to maintain business financial records demonstrating fiscal integrity as a condition of licensure.
Question 2: A payment bond on a Florida public construction project protects:
- The owner against contractor default on schedule
- Subcontractors and suppliers who are not paid by the general contractor (Correct answer)
- The surety company against losses from the contractor
- The contractor against owner nonpayment
Correct answer: Subcontractors and suppliers who are not paid by the general contractor
A payment bond guarantees that subcontractors and material suppliers will be paid even if the GC fails to pay them, protecting those without lien rights on public property.
Question 3: What is 'retainage' in a construction contract?
- A fee charged for storing materials on-site
- A percentage of each progress payment withheld until project completion (Correct answer)
- The contractor's security deposit paid to the owner
- Interest charged on late invoices
Correct answer: A percentage of each progress payment withheld until project completion
Retainage is a holdback (commonly 5–10%) from each progress payment, released upon substantial completion or final acceptance to ensure the contractor finishes the work.
Question 4: When estimating labor costs, 'labor burden' refers to:
- The base hourly wage paid directly to the worker
- Additional employer costs such as FICA, insurance, and benefits on top of base wages (Correct answer)
- Overtime premium paid for weekend work
- The cost of training new employees
Correct answer: Additional employer costs such as FICA, insurance, and benefits on top of base wages
Labor burden includes payroll taxes (FICA), workers' compensation insurance, unemployment insurance, health benefits, and similar employer-paid costs beyond base wages.
Question 5: A contractor has a backlog of $2.4 million and an average monthly revenue of $200,000. The contractor's backlog represents approximately how many months of work?
- 6 months
- 8 months
- 12 months (Correct answer)
- 24 months
Correct answer: 12 months
$2,400,000 ÷ $200,000/month = 12 months of work in the backlog.
Question 6: Which of the following BEST describes 'value engineering' in the bidding phase?
- Reducing the contractor's profit to win a bid
- Proposing alternative materials or methods that maintain function while lowering cost (Correct answer)
- Inflating the estimate to allow room for negotiation
- Eliminating safety measures to reduce material costs
Correct answer: Proposing alternative materials or methods that maintain function while lowering cost
Value engineering involves suggesting cost-saving alternatives (different materials, methods, or sequences) that achieve the same performance at lower cost.
Question 7: A contractor's 'Days Sales Outstanding' (DSO) measures:
- How many days it takes to complete a typical project
- The average number of days it takes to collect payment after invoicing (Correct answer)
- The number of calendar days in the project schedule
- How many days of overhead are covered by cash on hand
Correct answer: The average number of days it takes to collect payment after invoicing
DSO = (Accounts Receivable ÷ Annual Revenue) × 365, indicating how quickly the contractor converts billed work into collected cash.
FCC Estimating, Bidding & Financial Management 5
Florida Statute 489 requires licensed contractors to maintain what type of financial records to demonstrate solvency?