Louisiana Contractor Business and Law Practice Exam

Sample Questions

Question 1. A Louisiana commercial contractor is finalizing a lump-sum bid. The estimator has $200,000 in direct job costs. Company policy adds overhead at 12 percent of direct costs. Management also requires a profit equal to 10 percent of the final selling price, not 10 percent of cost. Which bid price meets both requirements?

A. $246,400
B. $244,000
C. $248,889
D. $268,800

Correct Answer: C. $248,889

Answer Explanation:
Overhead and profit are layered onto direct cost in sequence. Overhead of 12 percent on $200,000 equals $24,000, which brings total cost to $224,000. Because profit is defined as a percentage of the selling price, cost must equal 90 percent of the price. The price is therefore $224,000 divided by 0.90, or about $248,889. A quick check confirms it: 10 percent of $248,889 is roughly $24,889, and adding that to $224,000 returns the bid price. Confusing markup with margin is one of the most common estimating errors, and it quietly shrinks profit on every job where it occurs.

Why the Other Options Are Incorrect:
A. $246,400 — Incorrect. This adds 10 percent to cost, which is a markup. The resulting profit is only about 9.1 percent of the selling price.
B. $244,000 — Incorrect. This adds 10 percent of direct cost, or $20,000, and leaves profit well below 10 percent of the price.
D. $268,800 — Incorrect. This applies a 20 percent markup to total cost, which overshoots the stated profit target.

Quick Study Guide:
Markup is a percentage of cost, while margin is a percentage of selling price. To reach a target margin, divide total cost by one minus the margin rather than multiplying by one plus the margin. Always add overhead first, then calculate profit. Practice converting between markup and margin, because exam wording often hides the difference.

Question 2. Marchand & Sons Builders, LLC holds its Louisiana contractor license under that exact legal name, which matches its Secretary of State registration. For marketing, the company uses the brand “Marchand Home Solutions” on trucks and websites. The office manager is preparing a commercial bid package, a contract, and the first invoice. Which practice is consistent with LSLBC licensing requirements?

A. Prepare the bid, contract, and invoice in the exact legal entity name shown on the license.
B. Use the brand name on all documents because customers recognize it.
C. Use either name, provided the license number appears somewhere on the documents.
D. Use the qualifying party’s personal name, since that person passed the examination.

Correct Answer: A. Prepare the bid, contract, and invoice in the exact legal entity name shown on the license.

Answer Explanation:
The LSLBC licenses a legal entity, not a brand. The name on the application becomes the name on the license, and it must be the same legal name registered with the Louisiana Secretary of State. That licensed name is the one to use on bids, estimates, contracts, and invoices so that the party legally responsible for the work is unmistakable. The Board does not treat a trade name or fictitious name as a substitute for the licensed entity. Marketing under a brand is a separate matter. Contract documents are where legal identity matters, because disputes, payment claims, and regulatory reviews all trace back to the named licensed party.

Why the Other Options Are Incorrect:
B. Use the brand name on all documents because customers recognize it — Incorrect. Recognition does not change which entity holds the license, and a brand name does not identify the licensed party.
C. Use either name, provided the license number appears — Incorrect. A license number does not make an unrecognized name acceptable on contract documents.
D. Use the qualifying party’s personal name — Incorrect. The qualifying party satisfies examination requirements for the entity but does not replace the entity’s licensed name.

Quick Study Guide:
A Louisiana contractor license belongs to the legal entity named on the application. Use that exact name on bids, estimates, contracts, and invoices. Brand names and DBAs do not replace it. Keep the Secretary of State registration current and consistent with the license, since a mismatch can create licensing and contract-enforcement problems.

Question 3. A general contractor’s subcontract requires the electrical subcontractor to carry commercial general liability insurance, name the general contractor as an additional insured, and provide coverage on a primary and noncontributory basis. Before mobilization, the subcontractor emails a certificate of insurance showing its policy limits and expiration date. The certificate lists the general contractor only as “certificate holder.” What should the general contractor’s project manager do?

A. Accept the certificate, since a certificate holder has the same rights as an additional insured.
B. Accept it and rely on the general contractor’s own policy for any claim.
C. Waive the requirement because the policy limits meet the contract minimum.
D. Require the actual additional insured endorsement and primary and noncontributory wording before work begins.

Correct Answer: D. Require the actual additional insured endorsement and primary and noncontributory wording before work begins.

Answer Explanation:
A certificate of insurance is evidence that a policy exists on a given date, but it generally does not amend the policy or grant coverage to anyone. Additional insured status is created by an endorsement to the subcontractor’s policy. Primary and noncontributory wording determines whose policy responds first and prevents the general contractor’s own insurance from being drawn into the loss. Listing the general contractor merely as certificate holder confers no coverage rights. The project manager should obtain the endorsements, review them against the subcontract, and hold mobilization until the gap is closed, because discovering the deficiency after a claim is far more expensive.

Why the Other Options Are Incorrect:
A. Accept the certificate, since a certificate holder has the same rights — Incorrect. A certificate holder is only notified of the policy’s existence and receives no insured status.
B. Accept it and rely on the general contractor’s own policy — Incorrect. This defeats the purpose of the risk transfer in the subcontract and may raise the general contractor’s own claim costs.
C. Waive the requirement because limits meet the minimum — Incorrect. Adequate limits do not substitute for the required insured status and coverage priority.

Quick Study Guide:
Certificates prove coverage exists; endorsements create rights. Additional insured status, primary and noncontributory wording, and waivers of subrogation all come from policy endorsements. Verify them against subcontract requirements before mobilization. Track expirations and renewals throughout the job so required coverage does not quietly lapse during construction.

Question 4. A contractor uses the cost-to-cost method to measure progress on a $500,000 contract. The current estimate of total job cost is $400,000. Costs incurred to date are $240,000, and the contractor has billed the owner $330,000 to date. What is the contractor’s position on this job?

A. Underbilled by $30,000
B. Overbilled by $30,000
C. Overbilled by $90,000
D. Underbilled by $60,000

Correct Answer: B. Overbilled by $30,000

Answer Explanation:
Under the cost-to-cost method, percent complete equals costs incurred divided by estimated total cost. Here that is $240,000 divided by $400,000, or 60 percent. Earned revenue is 60 percent of the $500,000 contract, which is $300,000. The contractor has billed $330,000, which exceeds earned revenue by $30,000, so the job is overbilled. Overbilling is a liability on the balance sheet because the contractor has collected or claimed more than it has earned. It improves short-term cash but signals an obligation to perform remaining work, and it deserves attention when estimates change.

Why the Other Options Are Incorrect:
A. Underbilled by $30,000 — Incorrect. The magnitude is right, but the direction is reversed. Billings exceed earned revenue, which means overbilling.
C. Overbilled by $90,000 — Incorrect. This subtracts costs incurred from billings, mixing cost with revenue instead of comparing billings to earned revenue.
D. Underbilled by $60,000 — Incorrect. This subtracts costs from earned revenue, which measures nothing useful for billing position.

Quick Study Guide:
Compute percent complete first, then earned revenue, then compare earned revenue to billings. Billings above earned revenue means overbilled; billings below means underbilled. Never compare billings to cost incurred. Watch how revised cost estimates change percent complete, since a higher estimate can turn an apparent overbilling into an underbilling.

Question 5. On a bonded public project, a material supplier delivered conduit and fittings to the electrical subcontractor. The subcontractor has not paid the supplier, and the project is nearing completion. The supplier asks which instrument most directly provides a source of recovery, assuming the supplier meets all applicable notice and claim requirements. Which answer is correct?

A. The performance bond
B. The bid bond
C. The payment bond
D. The general contractor’s commercial general liability policy

Correct Answer: C. The payment bond

Answer Explanation:
A payment bond guarantees that the contractor will pay those who furnish labor, materials, or equipment for the project. Qualifying unpaid claimants, which can include suppliers and subcontractors depending on their tier and the governing statute, may pursue the surety if they follow the required notice and filing procedures. Missing those deadlines can forfeit the claim, so timing matters as much as entitlement. A performance bond serves a different purpose: it protects the owner if the contractor fails to complete the work. A bid bond protects the owner at the bidding stage and does not address payment disputes on awarded work.

Why the Other Options Are Incorrect:
A. The performance bond — Incorrect. It protects the owner against the contractor’s failure to complete the contract, not suppliers’ payment claims.
B. The bid bond — Incorrect. It secures the bidder’s commitment to sign the contract at the bid price and has no connection to payment for delivered materials.
D. The general contractor’s commercial general liability policy — Incorrect. Liability insurance responds to third-party bodily injury and property damage, not to unpaid invoices.

Quick Study Guide:
Learn what each bond protects. Bid bonds secure the bid, performance bonds secure completion for the owner, and payment bonds secure payment for labor and material claimants. Claimants must follow strict notice and filing deadlines to preserve rights. Verify the applicable Louisiana public works requirements for timing, because a late notice can defeat an otherwise valid claim.