Licensed Electrical Contractor Business and Law Principles 2 — Questions and Answers
Question 1: Under the Davis-Bacon Act, which contractors are required to pay prevailing wages to workers?
- All private commercial contractors
- Contractors on federally funded construction projects over $2,000 (Correct answer)
- Contractors with more than 50 employees
- Contractors working on projects exceeding $100,000
Correct answer: Contractors on federally funded construction projects over $2,000
The Davis-Bacon Act requires contractors on federally funded or assisted construction projects over $2,000 to pay workers locally prevailing wages and benefits.
Question 2: A contractor discovers mid-project that completing the work as specified will require substantially more materials than estimated. The BEST course of action is to:
- Complete the work at a loss to maintain the client relationship
- Stop work immediately until the client pays more
- Issue a formal change order documenting the additional scope and cost (Correct answer)
- Use cheaper substitute materials without notifying the client
Correct answer: Issue a formal change order documenting the additional scope and cost
A formal change order protects both parties by documenting changes to scope, cost, and timeline before additional work proceeds.
Question 3: What is the primary purpose of workers' compensation insurance for an electrical contracting business?
- To protect the business from customer lawsuits
- To cover medical costs and lost wages for employees injured on the job (Correct answer)
- To replace damaged tools and equipment
- To provide retirement benefits for long-term employees
Correct answer: To cover medical costs and lost wages for employees injured on the job
Workers' compensation insurance covers employees' medical expenses and a portion of lost wages when they suffer work-related injuries or illnesses.
Question 4: An electrical contractor operating as a sole proprietor faces which significant financial risk compared to a corporation?
- Higher federal income tax rates
- Unlimited personal liability for business debts and lawsuits (Correct answer)
- Inability to hire employees
- Requirement to pay double Social Security taxes
Correct answer: Unlimited personal liability for business debts and lawsuits
As a sole proprietor, the owner's personal assets are not protected from business liabilities, unlike a corporation where liability is generally limited to business assets.
Question 5: Which contract type places the MOST financial risk on the contractor?
- Cost-plus contract
- Time and materials contract
- Fixed-price (lump sum) contract (Correct answer)
- Unit price contract
Correct answer: Fixed-price (lump sum) contract
A fixed-price contract requires the contractor to complete the work for the agreed sum regardless of actual costs, placing the risk of cost overruns entirely on the contractor.
Question 6: What does the term 'liquidated damages' refer to in a construction contract?
- Compensation for water-damaged materials on a job site
- A pre-agreed daily penalty amount the contractor pays for project delays (Correct answer)
- The cost to liquidate a bankrupt contractor's assets
- Insurance proceeds paid after a covered loss
Correct answer: A pre-agreed daily penalty amount the contractor pays for project delays
Liquidated damages are a pre-agreed amount specified in the contract that the contractor must pay the owner for each day a project is delayed beyond the completion date.
Question 7: A subcontractor on a commercial project has not been paid by the general contractor. Which legal remedy is most commonly available to protect the subcontractor's right to payment?
- Filing a criminal complaint against the general contractor
- Filing a mechanic's lien against the property (Correct answer)
- Suing the property owner's insurance company directly
- Contacting the state labor board for wage theft
Correct answer: Filing a mechanic's lien against the property
A mechanic's lien (also called a construction lien) allows unpaid subcontractors and suppliers to place a legal claim against the property to secure payment.
Licensed Electrical Contractor Business and Law Principles 2
Under the Davis-Bacon Act, which contractors are required to pay prevailing wages to workers?