Licensed Electrical Contractor Business and Law Practices 3 — Questions and Answers
Question 1: A contractor receives a change order that increases the project scope. The contractor should:
- Proceed with the work and bill extra at project completion
- Refuse all change orders not in the original contract
- Execute a written change order signed by both parties before starting the additional work (Correct answer)
- Notify OSHA before proceeding with any scope change
Correct answer: Execute a written change order signed by both parties before starting the additional work
All scope changes should be documented with a signed written change order before work begins to protect both parties and ensure proper payment.
Question 2: Under IRS rules, which factor most strongly indicates a worker is an employee rather than an independent contractor?
- The worker uses their own tools
- The business controls how and when the work is performed (Correct answer)
- The worker invoices the company monthly
- The worker works for multiple clients simultaneously
Correct answer: The business controls how and when the work is performed
The IRS 'behavioral control' test focuses on whether the company controls how and when work is done — a key indicator of employee status.
Question 3: Which lien release form confirms that a contractor has received partial payment and waives lien rights only for the amount paid to date?
- Unconditional final lien waiver
- Conditional partial lien waiver
- Unconditional partial lien waiver (Correct answer)
- Final lien release and indemnity
Correct answer: Unconditional partial lien waiver
An unconditional partial lien waiver confirms receipt of a specific partial payment and permanently waives lien rights for that amount.
Question 4: When calculating a project bid, 'overhead' typically includes which of the following?
- The cost of wire and conduit for the specific job
- Wages paid to electricians working directly on the project
- Office rent, insurance premiums, and administrative salaries (Correct answer)
- Permit fees charged for the specific project
Correct answer: Office rent, insurance premiums, and administrative salaries
Overhead includes indirect costs of running the business — rent, insurance, admin staff — not direct job costs like materials or field labor.
Question 5: A contractor who discovers a latent defect in an existing structure that creates a safety hazard should first:
- Continue work and document the defect in the project file
- Immediately notify the owner and stop work in the affected area if necessary (Correct answer)
- File a complaint with the state contractor licensing board
- Require the owner to sign a liability waiver before proceeding
Correct answer: Immediately notify the owner and stop work in the affected area if necessary
Discovering a latent safety defect requires immediate notification to the owner and potentially stopping work to prevent harm.
Question 6: What is the primary purpose of a certificate of occupancy (CO) in relation to an electrical contractor's work?
- It authorizes the contractor to begin electrical installations
- It confirms the building meets all code requirements and is safe for occupancy (Correct answer)
- It substitutes for a final inspection by the electrical inspector
- It transfers liability for defects from the contractor to the owner
Correct answer: It confirms the building meets all code requirements and is safe for occupancy
A certificate of occupancy is issued by the authority having jurisdiction (AHJ) confirming the building complies with codes and is safe to occupy.
Question 7: A sole proprietorship differs from a corporation primarily in that:
- Sole proprietors cannot hire employees
- The owner has unlimited personal liability for business debts (Correct answer)
- Sole proprietors cannot obtain business licenses
- Taxes are filed using a corporate return (Form 1120)
Correct answer: The owner has unlimited personal liability for business debts
In a sole proprietorship, the owner and business are legally the same entity, meaning the owner has unlimited personal liability for all business debts and obligations.
Licensed Electrical Contractor Business and Law Practices 3
A contractor receives a change order that increases the project scope.
The contractor should: