AFSB 152 EXAM (Chapters 1 - 10) Questions
With Latest Answers
How a typical design process works: - CORRECT ANSWER 1. The design professional
interviews the client and measures current and future needs
2. The design professional reviews existing facilities for potential renovation and for their
ability to handle future growth needs
3. Professionals obtain required zoning approvals and ensures plans comply with
government regulations
4. For new construction, the future owner either acquires an option to acquire the land
or building being renovated
5. The owner obtains a building permit
6. The owner arranges financing before construction
An underwriting concern with reverse flow international bonding is that: - CORRECT
ANSWER The financial strength of many of the international companies resides outside
of the US
A limited liability company is most similar to a: - CORRECT ANSWER Subchapter S
Corporation
What describes the importance of supplementary data in a contractor's financial report?
- CORRECT ANSWER Supplementary data is highly significant in a contractor's
financial report
Courts have created the surety's rights of subrogation by ruling on which one of the
following actions by the surety? - CORRECT ANSWER A surety that pays under its
bond may take over the recovery rights of those persons to whom or on whose behalf
the surety has made payment
Contractor A bid a job at $8 million. Contractor B, Contractor C, and Contractor D bid
the job at $7.1 million, $7.0 million, and $6.9 million. In this case, most sureties would
apply the 10 percent rule to Contractor A's bid and: - CORRECT ANSWER An average
of all of the above bids
What performance bond option is particularly effective in the face of a threat of
"blacklisting" by a public, governmental body obligee? - CORRECT ANSWER To fund
the excess cost of completion and reserve the surety's rights to sue the obligee for
repayment
Analyst's must inquire about any subsequent changes and determine whether they have
material positive or negative effects on the analysis.
The analysis should consider events and conditions in these areas: - CORRECT
ANSWER - Financial performance of contracts: a variety of factors, such as project
,management, weather, and productivity of the labor force can affect financial
performance
- Mix of assets and liabilities that may change the financial structure of the contracting
entity
- Changes in ownership or management of the contracting entity
- Litigation involving the contractor
If a contractor fails to sign a contract after being awarded the bid, and the difference
between the principal's bid and the next lowest bid is more than the bond penalty, then?
- CORRECT ANSWER The contractor is liable for the excess amount
If there is work on a highway project that requires a deep excavation and extensive pile
driving, the contractor should have concerns for? - CORRECT ANSWER Damage to
surrounding structures
Which type of guarantees do underwriters typically consider objectionable? - CORRECT
ANSWER Efficiency guarantees on the finished project that hold the contractor
responsible
What is the reason contractor's are required to provide bid bonds? - CORRECT
ANSWER This is because obligees do not have time to review every single bidder's
qualifications
Benefit of Surety Bonds to Architects or Engineers: - CORRECT ANSWER The bond
provides confidence that, in the surety's judgement, the contractor can translate project
plans into a finished product.
A contractor's ability to acquire, maintain, and successfully manage backlogs is
reflected in which of these income statement results over several accounting periods? -
CORRECT ANSWER Operating Profit
What is a surety bond? - CORRECT ANSWER A written contract that expresses one
partys promise to answer for another partys failure to do something as promised
What is a surety? - CORRECT ANSWER The party to a surety bond that guarantees to
the obligee that the principal will fulfill an obligation or perform as required by the
underlying contract, permit, or law.
What is an obligee? - CORRECT ANSWER The party to a surety bond that receives
the suretys guarantee that the principal will fulfill an obligation or perform as promised
What is a principal? - CORRECT ANSWER The party to a surety bond whose
obligation or performance the surety guarantees
,What is suretyship? - CORRECT ANSWER The obligation of one entity to answer for
the debt, default, or miscarriage of performance of duties by another entity
What is a contract bond? - CORRECT ANSWER A surety bond guaranteeing the
fulfillment of obligations under construction contracts or other types of contracts
How do surety bonds affect lenders confidence in financing a construction project? -
CORRECT ANSWER Lenders are more confident in extending project financing in the
form of construction loans when they know that the construction risk has a surety's
guarantee
What are the two bonds typically required under contract bonds? - CORRECT
ANSWER 1. Performance bond
2. Payment bond
What do performance bonds guarantee? - CORRECT ANSWER That the contractor
will fulfill all terms, specifications, and conditions of a construction contract
What do payment bonds guarantee? - CORRECT ANSWER That the contractor will
pay labor and materials bills associated with the contract | Executed in favor of the
obligee
Are the bond penalties for the performance bond and payment bond exclusive of each
other? - CORRECT ANSWER Yes; thus the construction project owner receives
significant financial assurance beyond the contractor's financial resources
What is a bid bond? - CORRECT ANSWER A contract guaranteeing that a contractor
bidding on a construction or supply contract will enter into the contract and will provide a
performance bond if the bid is accepted
Benefits of Surety Bonds for Owners: - CORRECT ANSWER - Financial assurance that
a contractor will undertake and complete the owners contract once awarded it (bid
bond)
- confidence that all parties involved in the contract will fulfill their duties (performance
bond)
- confidence that the contractor will pay labor and material bills associated with the
contract (payment bond)
- Owner receives significant financial assurance beyond the contractor's financial
resources
- benefit from the additional security knowing the contractor has satisfied the surety's
comprehensive prequalification review.
- could benefit from lower prices from subcontractors and suppliers who would have
charged higher to compensate for credit risks
, - Lenders are more confident to extend project financing when the construction risk has
a surety guarantee therefore owners benefit from increased availability of better
financing --> eases the transition from construction to permanent financing
Benefits of Surety Bonds for Contractors: - CORRECT ANSWER - The suretys rigorous
analysis of the contractors qualifications lends credibility to the contractor and enhanced
competitive position
Benefits of Surety Bonds to laborers, subcontractors, and suppliers: - CORRECT
ANSWER - Assures that they will receive payment for the products and services they
provide on the bonded project (especially significant for public-works projects)
Benefit of Surety Bonds to Taxpayers: - CORRECT ANSWER The contract surety bond
makes an open, competitive bidding system possible, with contracts going to the lowest
responsible bidders, thus saving public funds
What is the Miller Act? - CORRECT ANSWER Requires a 100 percent performance
bond and a 100 percent payment bond on federal public works of $100,000 or more
Role of architects in the design process: - CORRECT ANSWER Architects act as
central coordinators during the design phase: - the architect will prepare preliminary
sketches, including renderings of the new structure
- once approved by the owner, the architect employs engineers
What are civil engineers? - CORRECT ANSWER They determine the size and
consistency of foundations, the need for sheet piling, the design of reinforcing bars
inside concrete foundations, and other similar matters in a construction project
What are electrical engineers? - CORRECT ANSWER Determine the voltage and
amperage loads required by heating, ventilation, and air conditioning units, as well as
lighting requirements. They also consider specialized electrical machinery or equipment.
What are mechanical engineers? - CORRECT ANSWER Deal with heating, ventilating,
and air conditioning, contemplating such factors as the building's use and the type of
equipment to be installed
What is design/build? - CORRECT ANSWER A construction method that offers "one-
stop shopping" to property owners for design and construction services
What is a subcontractor? (specialty contractors) - CORRECT ANSWER An
independent contractor who specializes in a particular kind of work and who is engaged
by a general contractor to perform a particular portion of the general contractors
contract
