Contractor License Exam
Construction Law and Contracts Practice Questions
60 practice questions with detailed explanations — aligned to the Contractor License Exam.
Master Construction Law and Contracts to boost your score on the Contractor License Exam. Each question below mirrors the style and difficulty of real exam questions, complete with detailed explanations so you understand the why behind every answer. Work through all 60 questions, review any that trip you up, and use the related topics below to round out your preparation.
Q1.What is a mechanic's lien?
A.A government inspection tag placed on defective workB.A legal claim against real property filed by contractors or suppliers who have not been paid for labor or materialsC.A penalty imposed by OSHA for safety violationsD.A surety bond protecting the project owner from contractor defaultB. A legal claim against real property filed by contractors or suppliers who have not been paid for labor or materialsExplanation: A mechanic's lien (also called a construction lien or materialman's lien) is a legal security interest in the property for unpaid labor or materials. If the debt is not paid, the lienholder can potentially force a sale of the property to satisfy the claim. Deadlines for filing vary by state.
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Q2.What is a performance bond?
A.Insurance covering on-the-job injuries to workersB.A guarantee from a surety company that the contractor will complete the project according to contract termsC.A permit allowing work to proceed before full design approvalD.A deposit paid by the owner to the contractor before work beginsB. A guarantee from a surety company that the contractor will complete the project according to contract termsExplanation: A performance bond is a three-party agreement (owner, contractor, and surety) where the surety company guarantees the contractor will fulfill the contract. If the contractor defaults, the surety company can complete the project or compensate the owner up to the bond amount.
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Q3.Under a lump sum (fixed price) contract, who bears the risk of cost overruns?
A.The project ownerB.The architect or engineerC.The contractorD.The surety companyC. The contractorExplanation: In a lump sum (stipulated sum) contract, the contractor agrees to complete the work for a fixed price. If costs exceed the estimate due to poor estimation or unforeseen conditions not covered by change orders, the contractor absorbs the loss. Lump sum contracts transfer most financial risk to the contractor.
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Q4.What is a retainage in construction contracts?
A.Advance payment made to the contractor before work beginsB.A percentage of each progress payment withheld until project completion to ensure the work is properly finishedC.The contractor's profit margin on materialsD.A penalty deducted for each day a project is delayed beyond the completion dateB. A percentage of each progress payment withheld until project completion to ensure the work is properly finishedExplanation: Retainage (typically 5–10% of each progress payment) is withheld by the owner until the project is substantially complete and all punch list items are resolved. It protects the owner by ensuring the contractor has financial incentive to finish and correct deficiencies.
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Q5.What does the term 'substantial completion' mean in a construction contract?
A.The point when 100% of the work is finished with no outstanding itemsB.The stage when the work is sufficiently complete that the owner can use it for its intended purposeC.When the foundation and structural frame are completeD.When all subcontractors have been paid in fullB. The stage when the work is sufficiently complete that the owner can use it for its intended purposeExplanation: Substantial completion is the date when the project is sufficiently complete for the owner to occupy and use it for its intended purpose, even though minor items (punch list) remain. It typically triggers the start of the warranty period, release of retainage, and the statute of limitations for claims.
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