Business Organization and Operations Flashcards

Which of the following best describes 'bonding capacity' for a construction company?

Answer: The maximum dollar amount of work a surety company will bond for a contractor at one time

Bonding capacity is the maximum aggregate project value that a surety company will guarantee for a contractor, based on the contractor's financial strength, experience, and management.

What is a 'prequalification' process in construction procurement?

Answer: An owner's evaluation of a contractor's qualifications, financial stability, and experience before allowing them to bid

Prequalification is a process where owners evaluate contractors on financial strength, bonding capacity, experience, safety record, and references before permitting them to submit bids.

What is the primary purpose of maintaining accurate payroll records in construction?

Answer: To comply with wage and hour laws, workers' comp audits, prevailing wage requirements, and tax obligations

Accurate payroll records are required for compliance with wage and hour laws, workers' compensation premium audits, prevailing wage certifications, unemployment insurance, and IRS reporting.

A contractor's 'markup' on a project covers which of the following?

Answer: Overhead expenses and profit added to direct costs to determine the contract price

Markup is the percentage added to direct project costs to cover the contractor's overhead expenses and desired profit margin, resulting in the final contract price.

Which of the following is a key advantage of using a written subcontract agreement?

Answer: It clearly defines scope, payment, schedule, and responsibilities, reducing disputes

Written subcontract agreements reduce disputes by clearly defining scope of work, payment terms, schedule, insurance requirements, indemnification, and dispute resolution procedures.

What does 'FICA' stand for, and what does it fund?

Answer: Federal Insurance Contributions Act — funds Social Security and Medicare

FICA stands for the Federal Insurance Contributions Act, requiring both employees and employers to contribute to Social Security (6.2%) and Medicare (1.45%) through payroll taxes.