California Contractor Law and Business Exam

California Contractor Law and Business Exam

Key Concepts

Who is a "contractor." Tree removal, tree pruning, stump removal, and tree or limb cabling or guying make a person a contractor; a nurseryperson doing incidental pruning/guying in routine work and a gardener doing incidental pruning of trees under 15 feet in height after planting are excluded (§ 7026.1). A temporary labor service agency is a contractor under § 7026.1(a)(3) unless a properly licensed contractor supervises per § 7068.1 and is directly responsible for the final results — the qualifying individual need not be present. A "participating tribe" is a federally recognized tribe that formally applies for licensure under § 7065 (§ 7025.1).

Exemptions (§§ 7040–7054.5). Casual/minor work: aggregate contract price under $1,000, no building permit; lost if the person advertises/puts out a sign as a contractor or employs another to perform or assist (§ 7048). Owner-builder new construction using licensees in each trade: no more than four single-family structures intended or offered for sale in a calendar year; that limit doesn't apply if the owner contracts with a general contractor (§ 7044(a)(2)(B)). Home-improvement owner-builder: residence is the principal residence 12 months prior to completion, work performed before sale, and no…

Key Concepts

Accounting cycle and bookkeeping. The cycle runs: classify and record transactions → post transactions → prepare a trial balance → prepare an adjusted trial balance → prepare financial statements → analyze them. The trial balance totals all ledger accounts and is where debits are confirmed to equal credits (NASCLA 14th ed., Ch. 13 – The Accounting Cycle). Expenses increase by debits; liabilities increase by credits; every general ledger entry contains equal debits and credits (Ch. 13 – Understanding Debits and Credits). The cash disbursements journal records cash paid out, including loan payments and payments on vendor invoices; the general journal is for non-cash transactions (Ch. 13 – Journals).

Balance sheet. Working capital = Current Assets − Current Liabilities; licensing agencies may look at working capital to determine license limitations (Ch. 13 – Balance Sheet). Retention is a specified amount, usually 10 percent, withheld from progress payments pending satisfactory completion and final acceptance; it is a current asset (CA Contractors License Law & Reference Book, 2026 ed., Ch. 3 – Assets). Inventory includes all materials, labor, and direct and indirect overhead on jobs in progress. Other assets covers scrap or equipment held for resale and long-term receivables. Accrued…

California Contractor Law and Business Exam

Key Concepts

Hiring, I-9 and new hire reporting - New hire reporting was created by the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996; its purpose is to aid in child support enforcement through the National Directory of New Hires, and it also helps prevent fraudulent unemployment and welfare benefit payments (NASCLA Ch. 10 – New Hire Reporting). - Form I-9: the employee completes and signs Section 1 no later than the first day of employment (but not before accepting a job offer); the employer completes Section 2 within three business days of the employee's first day of work (NASCLA Ch. 10 – Immigration and Nationality Act). - Supplement B (Reverification and Rehire, formerly Section 3) is used for reverification, for rehire within three years of the original Form I-9 date, or for a legal name change (NASCLA Ch. 10 – Form I-9, Supplement B).

Key Concepts

Risk management & insurance - Risk assessment requires determining the probability of loss occurring and the consequences if it occurs (NASCLA Ch. 3 – Risk Management Benefits). - All-risk builder's risk covers direct loss from perils not specifically excluded (theft, vandalism, accidental loss) while construction is in progress; major construction defects such as poor workmanship and faulty design are not covered (NASCLA Ch. 3 – All-Risk Builder's Risk Insurance). - Subrogation: the insurer pays its insured, then sues the negligent third party; builder's risk policies generally contain a subrogation clause, so contracts often include a mutual waiver of the right to sue (same heading). - Equipment floater (inland marine): direct physical loss to mobile equipment on premises, in transit, or at temporary locations/jobsites; endorsement available for rented or leased equipment; normal wear and tear not covered (NASCLA Ch. 3 – Inland Marine/Equipment Theft Insurance). - Transportation floater and motor truck cargo are both inland marine property insurance (NASCLA Ch. 3 – Transportation Floater and Motor Truck Cargo Insurance). - CGL covers bodily injury only to individuals who are not employees; employer's liability supplements workers' comp when the employer is sued for negligence after employee injury or death…

Key Concepts

Estimating and pricing (NASCLA Ch. 6) - A good estimate falls within 1 percent to 2 percent of actual construction costs (Estimate Planning). - Labor burden — workers' comp, state and federal unemployment, Social Security/Medicare, liability insurance, company benefits — adds approximately 30 percent to labor cost (Add Labor Burden). - Project overhead typically accounts for 5 to 10 percent of the total bid; overhead percentages generally average between 5 and 20 percent, so calculate the rates specific to your company (Add Project Overhead; Calculating an Overhead Percentage). - Contingency is based on project risk: a low-risk project might carry a 2 percent contingency markup; projects with more unknowns carry a higher markup (Add Contingencies). - Standard industry markup is 15 percent, applied to direct costs — labor, material, project equipment, project overhead, and subcontractors (Add Markup and Determine Profit Margin). - Ethics: bid shopping = GC seeks lower numbers from subs who did not bid; bid peddling = sub approaches GC after award to lower its bid-day price; bid rigging = collusion to fix the award (Ethics in Bidding). - Job cost code = project number + activity classification code + distribution code (Material = M,…

Key Concepts

Coverage and definitions - All workers employed on public works must be paid not less than the general prevailing rate of per diem wages, except on public works projects of one thousand dollars ($1,000) or less (Manual § 2.1 / Labor Code § 1771). - Labor Code § 1720.2 extends coverage to private construction contracts on privately owned property where more than 50 percent of the assignable square feet is leased to the state or a political subdivision, and either the lease was entered into prior to the construction contract, or before completion of construction if the work followed plans or criteria furnished by the state (Manual § 2.4.2). - Labor Code § 1720.3 covers hauling of refuse from a public works site to an outside disposal location. The Director defines "refuse" as "the worthless or useless part of something" — excavated trench dirt put to a useful purpose (e.g., covering garbage at a landfill) is not refuse (Manual § 2.4.3). - Exclusions from the "maintenance" definition at 8 CCR § 16000: janitorial services of a routine, recurring or usual nature; protection by guards, watchmen or security forces; landscape maintenance at sheltered workshops (Manual §§ 2.8.3–2.8.5). The…

California Contractor Law and Business Exam — Safety

Key Concepts

Injury and Illness Prevention Program (IIPP) - Communication system required; Exception: employers with fewer than 10 employees may communicate and instruct orally in general safe work practices, with specific instructions on hazards unique to job assignments — §3203(a)(3), Exception. - Training documentation (employee name/identifier, training dates, type(s), providers) maintained at least one (1) year — §3203(b)(2). - A labor/management safety and health committee is presumed in substantial compliance if it meets regularly, but not less than quarterly, keeps written meeting records at least one year, reviews inspections and accident investigations, and verifies abatement on Division request — §3203(c)(1)–(7).

Reporting - Labor Code §6409.1(a): report every occupational injury/illness resulting in lost time beyond the date of injury or requiring medical treatment beyond first aid; filed within five days after the employer obtains knowledge. - §6409.1(b): in every case of serious injury or illness, or death, report immediately to the Division of Occupational Safety and Health by telephone or the specified online mechanism (telephone or email until available). - Federal: fatality reported orally to the nearest OSHA Area Office within eight hours; deaths occurring more than 30 days after the incident…