1 Exam Prep NASCLA Contractors Guide to Business, Law and Project Management Tabs and Highlights

Transcription

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, Florida 1 st Edition Each Tabs sheet has five columns of tabs. Start with the first tab at the first column at the top of the page; proceed down that column, 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. Special Note to our Students: If you are a 1 Exam Prep student, here is how to really get the most from these 1 Exam Prep Tabs. Follow the above instructions, but before placing the tab, find the tab's topic in the outline of your appropriate module. Now locate and highlight several items listed in the outline just before the topic, and just after. See how the topic fits in the outline and how it relates as a concept to the broader concept spelled out in the outline. If you take a few minutes to do this, when you take the test key words in the test questions will remind you of where the information is in the manual! 1 Exam Prep Tab Page # The Plan 1-1 Choosing Your Business Structure 2-1 Becoming a Licensed Contractor 3-1 Managing Risk 4-1 Your Business Toolbox 5-1 Marketing & Sales 6-1 Bidding & Estimating 7-1 Contract Management 8-1 Scheduling & Project Management 9-1 Customer Relations 10-1 Employee Management 11-1 Job Safety & Environmental Factors 12-1 Working with Subcontractors 13-1

2 1 Exam Prep Tab Page # Financial Management 14-1 Tax Basics 15-1 Florida Construction Lien Law 16-1 Appendix A Glossary Appendix B Business Plan Template Appendix C Useful Links Appendix D New Business Checklist Appendix E Corporate Income Tax Appendix F Regulation of Professions & Occupations Appendix G Real & Personal Property: Construction Liens Appendix H Reference Guide to the Fair Labor Standards Act Appendix I Appendix J Sales & Use Tax on Building Contractors General Labor Regulations: Terms & Conds. of Employment Appendix K Workers Comp Information: Florida Employers & Workers This concludes the tabs for this book. Please continue with the highlights on the following page. Florida 1 st Edition. 2

3 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 through where all outcomes are considered. Rewards and Challenges: Rewards of owning your own business include: (5 Bullets) 1-1 & 1-2 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: Many 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: (4 Bullets) 2-1 Advantages of a Sole Proprietorship: (5 Bullets) Disadvantages of a Sole Proprietorship: (4 Bullets) Florida 1 st Edition. 3

4 2-2 Key Characteristics of Partnerships: (4 Bullets) Advantages of a General Partnership: (3 Bullets) Disadvantages of a General Partnership: (5 Bullets) 2-3 Advantages of a C Corporation: (5 Bullets) Disadvantages of a C Corporation: (4 Bullets) Requirements for an S Corporation: (5 Bullets) 2-4 Tax Implications: LLCs 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 venture is a special business arrangement a specific project. 2-8 Final Inspection Becoming a Licensed Contractor 3-1 Purpose of Licensing: A major purpose of contractor licensing is to protect the health, safety, and welfare of the public. Licensing also defines the work that a contractor is allowed to do under a particular license. Managing Risk 4-1 Risk Management Benefits: (3 Bullets) Other risks can be minimized through insurance coverage and bonding, which will be discussed in this chapter. - Insurance - Insurance Defined 4-2 Property Insurance: Property insurance typically covers your business and personal property when damage, theft or loss occurs. 4-3 All-Risk Builders Risk Insurance: This type of insurance typically covers for these items. Florida 1 st Edition. 4

5 4-3 Named Peril Builders Risk Insurance: Typical named peril policies are written for fire terrorism, or earthquake. Inland Marine/Equipment Theft Insurance: Inland marine insurance is a type of property insurance tools and equipment. Equipment Floater Policy: The coverage provided is for direct physical loss temporary locations or jobsites. 4-3 & 4-4 Transportation Floater and Motor Truck Cargo Insurance: A transportation floater policy protects the transporter against damage that occurs to freight during transport. 4-4 Liability Insurance: Liability insurance is designed to protect against third-party claims that arise from negligence resulting in bodily injury or property damage. Umbrella Liability Insurance: The umbrella policy provides additional coverage in the areas that are not covered in the CGL policy. Other Types of Liability Insurance: (5 Bullets) 4-5 Key Man Life Insurance: This type of coverage is beneficial if your company depends on specific individuals for continuing success of your business. 4-6 What is a Bond? A surety bond is a risk transfer mechanism between a surety bonding company, the contractor and the project owner ensures that the project is completed. 4-6 & 4-7 Bond Language: Bonds generally contain four basic requirements: (4 Bullets) 4-7 Types of Bonds 4-7 Qualifying for a Bond: (7 Bullets) 4-8 Miller Act: The Miller Act is the current law requiring performance and payment bonds on all federal construction projects valued at greater than $100,000. Your Business Toolbox Florida 1 st Edition. 5

6 5-2 Business Ethics: Practicing good business ethics is the best way to avoid litigation. 5-3 Small Business Assistance and Loans 5-3 & 5-4 Small Business Administration (SBA): The Small Business Administration s mission is to Website: Service Corps of Retired Executives (SCORE): SCORE is a national volunteer organization of retired executives Website: Marketing and Sales 6-1 Start Off on the Right Foot: Customers may judge your professionalism or reputation on this initial contact. Executing your Marketing Plan: (10 Bullets) 6-2 Public Relations: It is important to build name recognition. In the Public Eye: (6 Bullets) 6-3 Listen Up: Active listening is the golden rule to effective selling (7 Bullets) 6-3 & 6-4 Overcoming No : Handling objections is one of the most difficult parts of the sales process (3 Bullets) 6-4 Communication is Key: Consistent follow-up ensures that you are at the top of your potential customer s mind and gives you an advantage over competitors. Bidding and Estimating 7-1 The jobs you choose should contribute to your long-term goals and the reputation you want your company to have in the market. 7-2 Site Visit: It is important that you go to the actual site and look at any factors that may impact the project. 7-3 Quantity Take-off Method: Using this method, you individually estimate units of materials and labor for each task you listed in your estimating framework the following items are added: (8 Bullets) Florida 1 st Edition. 6

7 7-3 through 7-6 Step 1: Determine Labor Cost for Each Task Step 2: Add Labor Burden Step 3: Determine Materials Cost Step 4: Determine Project Equipment Cost Step 5: Add Subcontractor Fees Step 6: Add Allowances Step 7: Add Contingencies Step 8: Add Project Overhead Step 9: Add Company Overhead Step 10: Add Markup and Determine Profit Margin 7-7 Other Methods of Estimating: (3 Bullets) 7-9 Technology Tools for Estimating: Many computer tools are available to help streamline the estimating process. Contract Management 8-1 Required Contract Elements: (4 Bullets) Offer and Acceptance: All parties must be clear on the essential details and obligations of the contract to have a valid offer. Reasonable time is up to court interpretation and is considered on an individual case basis. 8-2 Consideration: Typically, the contractor provides services and in exchange, the owner provides monetary compensation. Competent Parties: 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. Make it Clear: Provisions are simply clauses that outline the stipulations of the contract. Key Contract Provisions: (4 Bullets) Getting Paid: Payments terms should be very specific and include: (4 Bullets) Florida 1 st Edition. 7

8 8-2 & 8-3 Progress Payments: Requirements for the schedule of progress payments should be clearly outlined in the construction contract including (4 Bullets) 8-3 Final Payment: To receive a final payment, the following documentation should be prepared and delivered to the owner upon completion of the project: (8 Bullets) 8-4 Breach of Contract: A breach of contract occurs when one of the parties involved fails to perform in accordance with any of the terms and conditions of the contract (4 Bullets) A material breach is a serious violation of the contract. The injured party can seek monetary damages for the loss suffered as a result of the breach. Sometimes the damages are written into the contract. These are called liquidated or state damages. An immaterial or partial breach is a less serious violation and usually does not result in termination of the contract. 8-4 & 8-5 Provisions to Limit Risk: (7 Bullets) 8-5 Lump-Sum Contract: In a lump-sum contract, the contractor agrees to complete the project for a predetermined, specified price. 8-6 Contracting Methods: Single Prime: The project owner typically hires an architectural firm to design the project. 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, coordinate, and supervise the construction process from the conceptual development stage through final construction. Turnkey: Under the turnkey model, the construction firm is obligated to complete a project according to pre-specified criteria but with expanded responsibilities and liability. Florida 1 st Edition. 8

9 8-7 A change order is a written agreement between the owner and contractor to change the contract. Common reasons for generating a change order include: (3 Bullets) Claims Procedure: Many times, the contract defers to the architect to initially resolve claims. 8-9 Contract Documents and Project Manual: See Bid Documents (5 Bullets); Contract Provisions (5 Bullets); Supplemental Forms (2 Bullets); and Construction Drawings (7 Bullets) Are Oral Agreements Legally Binding? Under most circumstances, oral agreements are just as binding as written agreements with a few exceptions. Legal Interpretation: The use of plain language is important when establishing intent in a contract. If a dispute arises, the contract will be interpreted using the plain meaning of the words in the contract. If your contract goes to litigation, the judge may not have a background in the construction industry Rather, you should express your intentions in layman terms. Scheduling and Project Management Subcontracting: It is also important to get subcontracts in writing to avoid disputes. 9-1 Scheduling Process: Planning allows you to visualize the project and anticipate potential conflicts and challenges. 9-2 Activity Duration: The duration of each task depends on a few factors: (3 Bullets) Contingency Time Task Time Ranges Float Time 9-2 & 9-3 Calendar Scheduling: Calendar scheduling works for smaller, less complex projects but is not recommended for large ones. 9-3 See Sample Calendar Schedule. Florida 1 st Edition. 9

10 9-4 Bar Chart Scheduling: One of the main weaknesses of the bar chart and calendar scheduling methods is that they do not show the interdependencies of activities. See Schedule Bar Chart for Retail Store Construction. 9-5 Critical Path Method: The following diagram illustrates a simple critical path example. 9-6 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 requires a carefully balanced combination of management skills but must also consider many other factors: (4 Bullets) Who is the Project Manager? (7 Bullets) 9-7 Project Supervisory Team Superintendent: The superintendent is the onsite supervisor responsible for daily operations duties may include: (9 Bullets) Foreman: The foreman assists the supervisor by: (7 Bullets) Materials Expediter: A materials expediter supervises the materials procurement process to ensure accurate and timely delivery of materials. 9-8 Daily Reports: The daily log can list: (9 Bullets) There are specific guidelines you should follow to increase the credibility of the daily report, if a legal dispute arises: (3 Bullets) 9-9 Status Reports: Status reports summarize project highlights These work records include: (9 Bullets) Tracking the Schedule: A good project manager makes sure that deadlines are met on time. 9-9 & 9-10 Budget Tracking: The easiest way to track your budget is to use the cost estimate and a job costs system to determine if you have any cost overruns Detailed Shop Drawings: Shop drawings outline specific details are produced by the material supplier, contractor, subcontractor or manufacturer.

11 Customer Relations 10-1 Communication Opportunities: (5 Bullets) Communication Basics: (6 Bullets) 10-1 & 10-2 Handling Customer Change Orders: You should always apply a few general rules when change orders are made: (5 Bullets) 10-2 Negotiation Basics: When a successful negotiation occurs, both parties are satisfied with the outcome. Employee Management 11-1 Asking Questions: You must convey that you are a fair and nondiscriminatory employer Some questions could lead to legal action and are strictly off-limits, especially the following: (8 Bullets) 11-2 Reporting Requirements: Per Florida Statute , you are required to report all new employees to the Florida New Hire Reporting Program no later than 20 days after an employee is hired or rehired. There are several reporting methods you can use: (5 Bullets) 11-2 & 11-3 Hiring Minors for Construction Work: Working Hours: (3 Bullets) 11-3 Employee Documentation: (7 Bullets) 11-4 Fair Labor Standards Act (FLSA): The Fair Labor Standards Act, which prescribes standards for the basic minimum wage and overtime pay, affects most private and public employment. (See Bullet #1 only) Workweek Defined Under FLSA: A workweek is a period of 168 hours during seven consecutive 24-hour periods. Work Hours Defined Under FLSA: Bona fide mal periods (typically 30 minutes or more) generally need not be compensated as work time & 11-5 Employment Practices Not Covered: FLSA does not require: (5 Bullets)

12 11-5 Required Information: For employees subject to the minimum wage provisions the following records must be kept: (11 Bullets) Penalties: Willful violations of employment under FLSA may be prosecuted criminally, and the violator fined up to $10,000 Employers who willfully or repeatedly violate the minimum wage or overtime pay requirements are subject to a civil money penalty of up to $1,100 for each violation & 11-6 Unlawful Discrimination: Employers may also be ordered to pay civil monetary penalties of $375 to $3,200 per individual and $4,300 to $16,000 per individual discriminated against for subsequent offenses Acceptable Documentation: (5 Bullets) Documents that establish identity include: (4 Bullets) 11-6 & 11-7 Documents that establish employment eligibility include: (5 Bullets) 11-7 Americans with Disabilities Act (ADA): This law prohibits discrimination against person with disabilities and applies to employers with 14 or more employees Other Labor Laws: 15 Bullets The Value of Job Descriptions: Job descriptions benefit employees because they understand your expectation for their performance. It also makes it easier for you to monitor their performance, conduct reviews, and take disciplinary action if necessary & At-Will Employees: At-will employment means that either the employer or the employee may terminate employment at any time without notice or cause. Jobsite Safety and Environmental Factors 12-1 Safety First: (See Bullet #1 only) 12-3 Your Plan of Action: If you have more than 10 employees, your plan must be in writing. If you have fewer than 10 employees, you may communicate the plan orally to employees: (5 Bullets)

13 12-3 The plan should also include the name or job title of the plan administrator. For the Record: Every employer covered by OSHA who has more than 10 employees must maintain three types of OSHA-specified 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. 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 Hospitalizations: When a work-related fatality or incident that requires hospitalization of three or more employees occurs: (2 Bullets) Medical Treatment Defined: (3 Bullets) First Aid Defined: (14 Bullets) 12-5 OSHA Injury Decision Tree 12-7 Employee Rights: The OSH Act grants employees several important rights. Among them are the rights to: (3 Bullets) Retaliation is Prohibited: Employees must notify OSHA within 30 days of the time they learn of the alleged discriminatory action The following table illustrates penalty types, descriptions, and amounts assessed to the employer. Additional violations for which citations and proposed penalties may be issued upon conviction include the following: (3 Bullets) Asbestos: When evaluating whether or not asbestos may be present, you want to note possible asbestos-containing material, such as: (6 Bullets)

14 12-10 Inspections: You must submit a written Notice of Intent 10 working days prior to starting construction activities Exposure Hazards: OSHA regulates the amount of lead that workers can be exposed to most over-exposure occurs in trades such as plumbing, welding, and painting. Working with Subcontractors 13-1 Sources for Finding the Right Subcontractor: Sources for these referrals might include: (5 Bullets) Once you come up with credible referrals, you want to make sure that you take extra steps to organize the process: (5 Bullets) 13-2 Site Rules for Contractors: Listed below are some rules to consider: (7 Bullets) 13-2 & 13-3 Employee or Independent Contractors: IRS Guidelines: - Behavior Control - Financial Control - Type of Relationship Financial Management 14-1 Bookkeeping: Bookkeeping involves the accurate recording of all financial transactions that occur in the business Here are a few tips to maintain accurate and timely bookkeeping: (9 Bullets) 14-1 & 14-2 Step 1: Classify and Record Transactions: Typical journals that companies keep include: (5 Bullets) 14-2 Step 2: Post Transactions: Most companies use five basic types of accounts: (5 Bullets) Step 3: Prepare Trial Balance: Something on the left side is simply a debit and the right side is a credit & 14-3 Step 4: Prepare Adjusted Trial Balance: There are six general types of adjusting entries: (6 Bullets) 14-3 Prepare Financial Statements: (3 Bullets)

15 14-3 Assets are items of value owned by the business. The cash in your bank account and other assets that can be converted into cash in less than one year are considered current assets & 14-5 Income Statement: Liabilities that will mature and must be paid within one year are called current liabilities. Long-term liabilities are debt obligations that extend beyond one year. Current Assets Current Liabilities = Working Capital Income Cost of Goods Sold = Gross Profit Gross Profit Expenses = Net Income - Revenues - Expenses - Direct Costs - Operating Expenses (Selling Expense and Fixed Overhead) - Tax Provision Expenses - Net Profit 14-6 Liquidity Ratio: The Liquidity Ratio is calculated by dividing the current liabilities into the current assets. Quick Ratio: The Quick Ratio is calculated by dividing the current liabilities into the current assets minus inventory Cash Method: Using the cash method of accounting, you report income in the year you receive it and deduct expenses in the year you paid them. Accrual Method: Using the accrual method, you recognize income when the services occur, not when you collect the money. Completed Contract Method: Under the completed contract method, income or loss is reported in the year the contract is completed.

16 14-8 Percentage of Completion Method: The percentage of completion method recognized income as it is earned during the construction project. Cost Comparison Method: A 10 percent deferral election is allowed under the cost comparison method. Cash Flow: Positive cash flow, meaning more cash is coming in than going out to pay expenses, is an important indicator of the health of your business Bad Debts: Bad debts are uncollectible accounts receivable Petty Cash Fund: Small payments may sometimes be made without writing a check. A petty cash fund is used to make these payments. Depreciation Methods: Depreciation is the process of devaluating a fixed asset as a result of aging, wear and tear, or obsolescence. Using straight line depreciation, you simply take the initial cost of the item and subtract the salvage cost. Using the accelerated depreciation method, the asset is depreciated at a higher rate during the early part of its useful life permitting larger tax deductions Payment Terms: 1/10 Net 30: A 1 percent discount is given to payments received within 10 days; otherwise, payment is due 30 days after receiving the invoice Medicare tax is calculated at the rate of 1.45 percent of gross pay. Tax Basics 15-2 See Summary of Federal Tax Forms Social Security and Medicare Taxes (FICA): Social Security and Medicare tax is calculated at the current prevailing rate. The current tax rate is available online at

17 15-4 Federal Income Tax Withholding: A new W-4 form must be completed by February 15 each year from employees claiming a tax withholding exemption. Form W-2 Deposit Schedule: You are a monthly schedule depositor if your total payroll tax liability for the previous four quarters (July to June) was $50,000 or less. If your total payroll tax liability from the previous four quarters (July to June) is greater than $50,000, you are a semiweekly schedule depositor. If your accumulated tax liability is $100,000 or more on any day during a deposit period If you are a monthly schedule depositor and accumulate a $100,000 tax liability on any day, you automatically become a semiweekly depositor & 15-5 Federal Unemployment Tax (FUTA): You are generally liable for both state and federal unemployment taxes, if: (2 Bullets) 15-5 Calculating FUTA: The FUTA tax base and tax rate is calculated at the current prevailing rate. The current tax information is available online at Tax Calendar Appendix B: Business Plan Template Deposit Requirements: See Table Penalties: Penalties may apply if: (3 Bullets). These penalties are as follows: See chart. 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-8 Meals and Entertainment: Keep in mind that the IRS allows you to take only a 50 percent deduction on meals and entertainment.