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1 Exam Prep – NASCLA Contractors Guide to Business, Law and Project Management, Basic 11th Ed. 1

1 Exam Prep

NASCLA Contractors Guide to Business, Law and Project Management

Tabs and Highlights

These 1 Exam Prep Tabs are based on NASCLA Contractors Guide to Business, Law and Project

Management, Basic 11th Edition.

Each Tabs sheet has five rows of tabs. Start with the first tab at the first row at the top of the page; proceed

down that row placing the tabs at the locations listed below. Place each tab in your book setting it down one

notch until you get to the last tab (usually the index or glossary). Then start with the highlights.

1 Exam Prep Tab Page #

Table of Contents iii

The Plan 1-1

Choosing Your Business Structure 2-1

Managing Risk 3-1

Your Business Toolbox 4-1

Marketing and Sales 5-1

Bidding and Estimating 6-1

Contract Management 7-1

Scheduling and Project Management 8-1

Customer Relations 9-1

Employee Management 10-1

Jobsite Safety and Environmental Factors 11-1

OSHA’s Forms 11-19

Working with Subcontractors 12-1

Financial Management 13-1

Tax Basics 14-1

Tax Calendar 14-7


1 Exam Prep Tab Page #

Glossary Appendix A

Business Plan Template Appendix B

Useful Links Appendix C

New Business Checklist Appendix D

This concludes the tabs for this book. Please continue with the highlights on the following page.


Section Highlight

The Plan

1-1 Success Factors: It takes an organized, consistent approach

to….. businesses fail are: (8 Bullets)

Understanding Entrepreneurship: For our purposes, an

entrepreneur is a person engaged in strategic …cash flow

streams.

A calculated risk is a risk that is well-thought where all

outcomes are considered.

1-2 Rewards and Challenges: Rewards of owning your business

include: (5 Bullets)

Entrepreneurship also has many frustrations and challenges,

including: (6 Bullets)

Key Functions: A business plan serves three key functions:

- Planning Tool

- Loan or Investor Document

- Benchmarking Tool

Elements of a Business Plan: (7 Bullets)

1-3 Business Plan Pitfalls: (4 Bullets)

Choosing Your Business Structure

2-1 Getting Started: Man businesses begin as sole proprietorships

because it is the simplest ownership form to set up.

If you are doing significant business, a sole proprietorship

may be a risky …………..the business’ debt.

Key Characteristics of Sole Proprietorships

2-2 Advantages of a Sole Proprietorship: (5 Bullets)

Disadvantages of Sole Proprietorship: (4 Bullets)


Section Highlight

Key Characteristics of Partnerships: (4 Bullets)

Advantages of a General Partnership: (3 Bullets)

Disadvantages of a General Partnership: (5 Bullets)

2-4 Advantage of C Corporation: (5 Bullets)

Disadvantages of a C Corporation: (4 Bullets)

Requirements for an S Corporation: (5 Bullets)

Advantages of Limited Liability Company

Tax Implications: LLC’s are not taxed at an entity level.

Depending on the number of business owners, the LLC is taxed

differently. (2 Bullets)

2-5 Summary of Business Legal Structures

2-6 Complement Your Strengths: A joint ventures is a special

business … a specific project.

Final Inspection

Managing Risk

3-1 Risk Management Benefit: (3 Bullets)

3-2 Other risks can be minimized through insurance coverage and

bonding, which will be discussed in this chapter.

- Insurance

- Insurance Defined

3-3 Property Insurance: Property insurance typically covers your

business and personal property when damage, theft, or occurs.

All-Risk Builders’ Risk Insurance: This type of insurance

typically covers machine … for these items.

3-4 Named Peril Builders’ Risk Insurance: Typical name peril

policies are written for fire …terrorism, or earthquake.

Inland Marine/Equipment Theft Insurance: Inland marine

insurance is a type of property …tools and equipment.


Section Highlight

Equipment Floater Policy: The coverage provided is for direct

physical loss … locations or jobsites.

Transportation Floater and Motor Truck Cargo Insurance:

A transportation floater policy protects the transporter against

damage that occurs to freight during transport.

Liability Insurance: Liability insurance is designed to protect

against third-party … or property damage.

Umbrella Liability Insurance: The umbrella policy provides

additional coverage in the areas that are not covered in CGL

policy.

3-5 Other Types of Liability Insurance

Key Man Life Insurance: This type of coverage is beneficial if

your company … of your business.

3-7 What is a Bond? A surety bond is a risk transfer mechanism

between a surety … project is completed.

Bond Language: Bonds generally contain four basic

requirements : (4 Bullets)

3-8 Types of Bonds

Qualifying for a Bond: (7 Bullets)

3-9 Law Governing bonds of Federal Construction Projects

Miller Act: The Miller Act is the current law requiring

… greater than $100,000. (5 Bullets)

Your Business Toolbox

4-2 Business Ethics: Practicing good business ethics,

when dealing … to avoid litigation.

4-4 Small Business Assistance and Loans

Small Business Administration (SBA):

The Small Business Administration’s missing is to

… Website: www.sba.gov


Section Highlight

Service Corps of Retired Executives (SCORE)

SCORE is a national volunteer organization of retired executive

… Website: www.score.org

Marketing and Sales

5-1 Start Off on the Right Foot: Customers may judge your

professionalism or reputation on this initial contact.

Executing Your Marketing Plan: Maximize Your Marketing

Potential. (4 Bullets)

5-2 Public Relations

In the Public Eye: (6 Bullets)

5-3 Effective Selling Skills

Listen Up: Active listening is the gold rule to effective selling.

5-4 Overcoming “No:” Handling objections is one of the most

difficult parts of the sale process.

Communication Is Key: Consistent follow-up ensures that you

are at the top of your …advantage over competitors.

Bidding and Estimating

The jobs you choose should contribute to your long-term

goals and the reputation you … in the market.

6-3 Site Visit: It is important that you go to the actual site

…impact the project.

6-4 Quantity Take-Off Method: Using this method, you

individually estimate units … your estimating framework.

(8 Bullets)

Step 1: Determine Labor Cost for Each Task

Step 2: Add Labor Burden

Step 3: Determine Materials Cost

Step 4: Determine Project Equipment Costs

Step 5: Add Subcontractor Fees

Step 6: Add Allowances

http://www.score.org/


Section Highlight

Step 7: Add Contingencies

Step 8: Add Projector Overhead

Step 9: Add Company Overhead

- Overhead percentages generally average …

Step 10: Add Markup and Determine Profit Margin

- The standard industry markup is 15 perfect …

6-8 Other Methods of Estimating

6-10 Technology tools for Estimating: Many computer tools are

available to help streamline the estimating process…(3 Bullets)

Contract Management

7-1 Required Contract Elements: (4 Bullets)

All parties must be clear on the essential details and

obligation of the contract to have a valid offer.

7-2 Reasonable time is up to court interpretation and is

considered on an individual case basis.

Consideration: Typically, the contractor provides services and

in exchange the owner provides monetary compensation.

Competent Parties: Legal Capacity: The parties in agreement

should have the legal capacity to enter into a contract.

Legal Purpose: Contracts must be possible to perform, not

intended to harm anyone, and cannot require any illegal activity.

Contract Provisions: Make it clear: Provisions are simply

clauses that outline the stipulations of the contract.

7-3 Key Contract Provisions: Contracts are full of provisions, but

a few key ones you will want to include: (4 Bullets)

Contract Price and Payment Terms: Payment terms should be

very specific and include: (4 Bullets)

Requirements for the schedule of progress payments should be

early outlined in the construction contract including: (4 Bullets)


Section Highlight

To received a final payment, the following documentation

should be prepared and delivered to the owner upon completion

of the project: (8 Bullets)

7-4 Breach of Contract: A breach of contract occurs when one of

the … when a party. (3 Bullets)

A material breach is a serious violation of the contract.

The injured party can seek monetary damages for the loss

… or stated damages.

7-5 An immaterial or partial breach is a less serious violations

…of the damages.

Provisions to Limit Risk: (7 Bullets)

7-6 Lump-Sum Contract: In a lump-sum contract, the contractor

agrees to complete the project for a predetermined, specified

price.

Unit-Price Contract

Cost-Plus Contract

Contracting Methods

Single Prime: The project owner typically hires and

architectural firm to design the project.

7-7 Design/Build: Using the design/build method of construction,

the owner contracts with one company to complete the process

from start to finish.

Construction Management: The construction manager

generally receives a fee to manage …through final construction.

Turnkey: Under the turnkey model, the construction firm is

obligated to complete……..responsibilities and liability.

7-8 Making Changes to the Contract: A change order is written

agreement between the owner and contractor to change the

contract.


Section Highlight

Common reasons for generating a change order include:

(3 Bullets)

Resolving Claims: Claims Procedure: Many times, the contract

defers to the architect to initially resolve claims.

7-10 Contract Documents and Project Manual

Are Oral Agreements Legally Binding? Under most

circumstances, oral agreements are just as…a few exceptions.

7-11 Legal Interpretation: The use of plain language is important

when establishing intent…the construction industry.

Rather, you should express your intentions in layman terms.

… in your favor.

7-11 Subcontracting: It is also important to get subcontracts in

writing to avoid disputes.

Scheduling Project Management

8-1 Scheduling Process: Planning allows you to visualize the

project anticipate potential conflicts and challenges.

8-2 The duration of each task depends on a few factors: (3 Bullets)

Contingency Time

Task Time Ranges

Float Time

Scheduling Methods: (3 Bullets)

8-3 Calendar scheduling works for smaller, less complex projects

but is not recommended for large ones.

See Sample Calendar Schedule

8-4 Bar Chart Scheduling: One of the main weaknesses of the bar

chart and…interdependencies of activities.

See Schedule Bar Chart For Retail Store Construction

8-5 Critical Path Method (See Critical Path Example)


Section Highlight

8-6 Scheduling and Cash Management: Working capital refers to

the amount of cash available after the liabilities or debts are

paid.

What is Project Management? It involves a carefully

balanced combination of management……..many other factors:

(4 Bullets)

Who is the Project Manager? (7 Bullets)

8-7 Superintendent: The superintendent is the onsite supervisor

responsible for daily operations. (9 Bullets)

Foreman: The foreman assists the superintendent with daily

project operations … areas by trade. (7 Bullets)

8-8 Materials Expediter: A materials expediter supervises the

materials procurement process to ensure accurate and timely

delivery of materials.

8-9 Tracking the Progress of the Project: The daily log can list:

(9 Bullets)

There are specific guidelines you should follow to increase the

credibility of the daily report: (3 Bullets)

Status Reports: Status reports summarize project highlights,

addressing items…work records include: (9 Bullets)

Tracking the Schedule: A good project manager makes sure

that deadlines are met on time.

8-10 Budget Tracking: The easiest way to track budget is to use any

cost overruns.

Detailed Shop Drawings: Show drawings outline specific

details … subcontractor, or manufacturer.

Customer Relations

9-1 Communication Opportunities: (5 Bullets)

Communication Basics: (6 Bullets)


Section Highlight

9-2 Handling Customer Change Orders: You should always

apply a few general rules when change orders arise: (5 Bullets)

Negotiation Basics: When a successful negotiation occurs,

both parties are satisfied …questions will help: (4 Bullets)

Employee Management

10-1 Interviewing and Hiring Employees: Asking Questions: You

must convey that you are … especially the following:

(8 Bullets)

10-2 New Hire Reporting: Reporting Requirements: This

legislation created the requirement for employers in all 50 states

to report their new hires and rehires to a state directory.

Hiring Minors for Construction Work: Working Hours:

(3 Bullets)

Prohibited Tasks: They are prohibited from performing certain

job … warehousing and storage.

10-3 Employee Documentation: (7 Bullets)

10-4 Fair Labor Standards Act (FLSA): The Fair Labor Standards

Acts, which prescribes…and public employment.

(See Bullet # 1 Only)

Workweek Defined under FLSA: A workweek is a period of

168 hours during seven…by the employer.

Bona fide meal periods (typically 30 minutes or more) generally

need not be compensated as work time.

Employment Practices Not Covered: FLSA does not require:

(5 Bullets)

10-5 Recordkeeping under the FLSA

Required Information: For employees subject to the min. was

provisions ….must be kept: (9 Bullets)

Penalties: Willful violations of employment under FLSA may

be prosecuted criminally … for each violation.


Section Highlight

Immigration and Nationality Act: Employers may also be

ordered to pay civil…for subsequent offenses.

10-6 Acceptable Documentation: (5 Bullets)

10-7 Documents that establish identity include: (4 Bullets)

Documents that establish employment eligibility include:

(5 Bullets)

Americans with Disabilities Act (ADA): This law prohibits

discrimination against person with disabilities and applies

to employers with 15 or more employees.

10-8 Other Labor Law: (15 Bullets)

10-11 The Value of Job Descriptions: Job descriptions benefit

employees because they…action if necessary.

10-14 At-Will Employees: At-will employment means that either the

employer…notice or cause.

Jobsite Safety and Environmental Factors

11-1 Safety First: Workplace injuries and illnesses … safety and

health programs.

11-3 Your plan of action: If you have more than 10 employees …

communicate the plan orally to the employees. (5 Bullets)

The plan should also include the name or job title of the plan

administrator.

11-4 For the Record: Every employer covered by OSHA … records

of job-related injuries and illnesses. (3 Bullets)

Who Needs to Complete the Forms?: Employers with 10 or

fewer employees are exempt from maintaining these records.

Timeframe to Retain Records: OSHA records must be kept by

the employer for five years following the year to which they

pertain.


Section Highlight

Exposure Records and Medical Records: Exposure records

must be maintained for 30 years and medical records for the

duration of employment plus 30 years.

Reporting Fatalities and Hospitalization: When a work-

related fatality or incident that requires hospitalization of three

or more employees occurs, (2 Bullets)

11-5 Medical Treatment Defined: (3 Bullets)

First Aid Defined: (14 Bullets)

11-6 OSHA Injury Decision Tree

11-8 The OSH Act grants employees several important rights.

Among them are the rights to: (3 Bullets)

Retaliation is Prohibited: Employees must notify OSHA …

alleged discriminatory action.

11-9 See Tables

Additional violations for which citations and proposed penalties

may be issued upon conviction include the following:

(3 Bullets)

11-11 Asbestos

11-12 Inspections: You must submit a written Notice of Intent 10

working days prior to starting construction activities.

11-14 Exposure Hazards: OSHA regulates the amount of lead …

such as plumbing, welding, and painting.

Working with Subcontractors

12-1 Sources for Finding the Right Subcontractor: Sources for

these referrals might include: (5 Bullets)

12-2 Once you come up with credible referrals, you want to make

sure that you take extra steps to organize the process: (5 Bullets)

Site Rules for Contractors: Listed below are some rules to

consider: (7 Bullets)


Section Highlight

Behavior Control

12-3 Financial Control

Type of Relationship

Financial Management

13-1 Bookkeeping: Bookkeeping involves the accurate record of all

financial transactions that occur in the business. (9 Bullets)

13-2 Step 1: Classify and Record Transactions

-Cash receipts

-General journal

Step 2: Post Transactions

-Most companies use five basic types of accounts: (5 Bullets)

The chart of accounts is a numbering system that organizes

these account types.

13-3 Step 3: Prepare Trial Balance

-Sometimes on the left side is simply a debit and the right side is

a credit.

Step 4: Prepare Adjust Trial Balance

Step 5: Prepare Financial Statements: (3 Bullets)

Assets are items of value … are considered current assets.

Your company may also own intangible assets.

13-4 Liabilities: Liabilities that will mature and must be paid within

one year are called current liabilities.

Long-term liabilities: Long-term liabilities are debt obligations

that extend beyond one year.

Current Assets – Current Liabilities = Working Capital

13-5 Income – Cost of Goods Sold = Gross Profit

Gross Profit – Expenses = Net Income


Section Highlight

-Revenues

-Expenses

-Direct Costs

-Operating Costs

-Selling Expenses

-Fixed Overhead

-Tax Provision Expenses

-Net Profit

13-7 The Liquidity Ratio: The Liquidity Ratio … liabilities into

current assets.

Quick Ratio: The Quick ratio … current assets minus

inventory.

13-8 Cash Method: Using the cash method of accounting … year

you paid them.

Accrual Method: Using the accrual method, you recognize

income when the services occur, not when you collect the

money.

13-9 Completed Contract Method: Under the completed contract

method, income or loss is reported in the year the contract is

completed.

Percentage of Completion Method: The percentage of

completion method recognizes income as it is earned during the

construction project.

13-10 Cost Comparison Method: A 10% deferral election is allowed

under the cost comparison method.

Cash Flow: Positive cash flow … health of your business.

13-11 Bad Debts: Bad debts are uncollectible accounts receivable.

13-12 Petty Cash Fund: A petty cash fund is used to make these

payments.

Depreciation Method: Depreciation is the process of devaluing

a fixed asset as a result of aging, wear and tear, or obsolescence.


Section Highlight

Using straight line depreciation, you simply take the initial

cost of the item and subtract the salvage cost.

Using the accelerated depreciation method … larger tax

deductions.

13-13 1/10 Net 30 … 30 days after receiving the invoice.

13-16 Medicare tax is calculated at the rate of 1.45% of gross pay.

Tax Basics

14-2 See Table

14-4 Social Security and Medicare Taxes (FICA): The withholding

rate for social security … 1.45% of gross pay.

Federal Income Tax Withholding: A new W-4 for must be

completed by February 15th each year from employees.

Form W-2

Deposit Schedule: You are a monthly schedule depositor …

If your total payroll tax liability … you are a semiweekly

schedule depositor.

14-5 If your accumulated tax liability … automatically become a

semiweekly depositor.

Federal Unemployment Tax (FUTA): You are generally liable

for both state and federal unemployment taxes if: (2 Bullets)

Calculating FUTA: The FUTA tax rate … 6.2% minus 5.4%

credit.

See Table

Penalties: Penalties may apply if: (3 Bullets)

14-6 These penalties are as follows: See Table

14-7 Tax Calendar


Section Highlight

Appendix B: Business Plan Template

B-5 Cost of Goods Sold (COGS): Cost of goods sold shows the

cost of materials and production of the goods a business sells.

B-9 Meals and Entertainment: Keep in mind that the IRS allows

you to take only a 50% deduction on meals and entertainment.