Business Management, Contracts, and Financial Responsibility
Domain 3 - Business management, contracts, and financial responsibility
This domain tests the paperwork and money side: contracts that hold up, change orders, lien rights, job costing, insurance, and cash flow.
Contracts
- Put scope, plans and specifications, price, payment schedule, schedule, warranty, and dispute process in writing; include the license number.
- Change orders must be written and signed before extra work proceeds. Verbal changes are the most common source of unpaid invoices.
- For residential work, include required notices and cancellation rights, and identify exclusions exactly (rock excavation, haul-off, permit fees).
Lien rights and payment
Nevada mechanics' lien rights are deadline-driven: preliminary notice runs from first furnishing, and the notice of lien is recorded within a statutory window after completion. Miss it and you become an unsecured creditor. Send lien releases only after the check clears.
Money management
- Estimate labor hours, waste, equipment, and overhead - overhead is a real cost, not a leftover. Price for margin, not just markup.
- Keep job cost records by phase so you can see a job going bad while there is still time to react.
- Carry general liability, commercial auto, workers' compensation for employees, and the required license bond; verify subcontractor licenses and insurance before they mobilize.
- Deposits belong to the job they were collected for; spending them elsewhere is diversion and a discipline issue.
Worked example
A $40,000 job: materials $14,000, labor $16,000, equipment $2,000 = $32,000 direct. Overhead at 12% of the contract is $4,800, leaving $3,200. A two-week weather delay adds $3,000 of crew standby, so the job is nearly break-even. Without the overhead line, the bid would have looked profitable from day one.
Traps
Backdating change orders; ignoring lien deadlines because the owner seems honest; pricing from the last job's numbers; treating regular crew as 1099 contractors.