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Section 5 of 7

CSLB Payments Practice Questions

10 free practice questions on payments, part of the Contract Requirements and Execution section (about 21% of the exam). Try each one, then open the answer: every choice is explained and the law is quoted.

Questions and answers

  1. Contract Requirements and Execution

    1. A home improvement contract price is $8,500. The contractor has no bond that exempts it from the down payment rule. What is the largest down payment the contractor may charge?

    • A. $500
    • B. $850
    • C. $1,000
    • D. $1,700
    Show answer

    Correct answer: B

    • A. $500

      $500 is not part of the rule. The down payment limit is $1,000 or 10 percent of the contract amount, whichever is less, which is $850 here.

    • B. $850

      Correct answer

      10 percent of $8,500 is $850, which is less than $1,000. Since the down payment may not exceed the lesser of the two amounts, $850 is the most the contractor may charge.

    • C. $1,000

      $1,000 is the limit only when 10 percent of the contract is more than $1,000. Here 10 percent is $850, which is less, so $850 controls.

    • D. $1,700

      $1,700 uses 20 percent of the contract price instead of 10 percent. It is also more than the $1,000 cap.

    Explanation

    Business and Professions Code section 7159.5 says a down payment may not exceed $1,000 or 10 percent of the contract amount, whichever is less. Step 1: 10 percent of $8,500 is $8,500 x 0.10 = $850. Step 2: Compare $850 with $1,000. Step 3: The lesser amount is $850, so that is the most the contractor may charge. $1,000 is the limit only when 10 percent is more than $1,000. $1,700 uses 20 percent, and $500 is not part of the rule.

    Source

  2. Contract Requirements and Execution

    2. A private owner wrongfully withholds a $20,000 progress payment from the direct contractor for 3 months. Under Civil Code section 8800, what penalty does the owner owe the contractor?

    • A. $120
    • B. $400
    • C. $1,200
    • D. $4,800
    Show answer

    Correct answer: C

    • A. $120

      $120 uses 0.2 percent instead of 2 percent per month. At 2 percent, the penalty is $400 a month, or $1,200 for 3 months.

    • B. $400

      $400 counts only one month of penalty. The payment was withheld for 3 months, so the penalty is $400 x 3 = $1,200.

    • C. $1,200

      Correct answer

      The penalty is 2 percent per month on the amount wrongfully withheld. $20,000 x 0.02 = $400 per month, and $400 x 3 months = $1,200.

    • D. $4,800

      $4,800 counts 12 months instead of 3. For 3 months at $400 a month, the penalty is $1,200.

    Explanation

    Civil Code section 8800 says an owner who violates the section owes a penalty of 2 percent per month on the amount wrongfully withheld, in place of interest. Step 1: One month of penalty is $20,000 x 0.02 = $400. Step 2: For 3 months, $400 x 3 = $1,200. $400 counts only one month. $4,800 counts 12 months instead of 3. $120 comes from using 0.2 percent instead of 2 percent.

    Source

  3. Contract Requirements and Execution

    3. A public agency withholds retention from a contractor's progress payments. Under Public Contract Code section 22300, what may the contractor do?

    • A. Refuse to let the agency withhold any retention at all
    • B. Deposit equal securities with the agency or an escrow bank instead
    • C. Ask the agency to pay the retention to a subcontractor
    • D. Have its surety pay the retention to the agency each month
    Show answer

    Correct answer: B

    • A. Refuse to let the agency withhold any retention at all

      The contractor cannot simply refuse all retention. Section 22300 instead lets it substitute securities for the money withheld.

    • B. Deposit equal securities with the agency or an escrow bank instead

      Correct answer

      Correct. At the contractor's request and expense, securities equal to the amount withheld are deposited with the agency or with a bank acting as escrow agent, and the withheld money is then paid to the contractor.

    • C. Ask the agency to pay the retention to a subcontractor

      Under section 22300 the withheld money is paid to the contractor after it deposits securities, not to a subcontractor.

    • D. Have its surety pay the retention to the agency each month

      This is not what section 22300 offers. The section lets the contractor deposit securities equal to the amount withheld, and the contractor also receives the interest on those securities.

    Explanation

    Section 22300 requires bid and contract documents to allow the substitution of securities for money withheld as retention. At the contractor's request and expense, securities equal to the amount withheld are deposited with the agency or with a bank acting as escrow agent. The withheld money is then paid to the contractor, who also receives the interest on the securities. The contractor cannot simply refuse all retention.

    Source

  4. Contract Requirements and Execution

    4. On a public works project, the original contractor receives retention from the public entity. It pays a subcontractor's share of the retention late. There is no dispute. Under Public Contract Code section 7107, what does the original contractor owe on the late amount?

    • A. A charge of 2 percent per month, instead of interest
    • B. Interest at the legal rate, but no added monthly charge
    • C. A charge of 10 percent of the amount, one time
    • D. Nothing, because the charge applies only to public entities
    Show answer

    Correct answer: A

    • A. A charge of 2 percent per month, instead of interest

      Correct answer

      Correct. When retention is paid late, the original contractor withholding it is subject to a charge of 2 percent per month on the improperly withheld amount, in place of any interest otherwise due.

    • B. Interest at the legal rate, but no added monthly charge

      Wrong. The 2 percent monthly charge replaces any interest otherwise due, so legal-rate interest is not what is owed.

    • C. A charge of 10 percent of the amount, one time

      Wrong. The charge is 2 percent per month on the withheld amount, not a one-time 10 percent charge.

    • D. Nothing, because the charge applies only to public entities

      Wrong. The charge applies to the public entity or the original contractor withholding the money, so the original contractor is covered.

    Explanation

    Public Contract Code section 7107 says that when retention payments are not made on time, the public entity or original contractor holding the money is subject to a charge of 2 percent per month on the amount improperly withheld. This charge is in place of (instead of) any interest otherwise due. The rule covers the original contractor, not only public entities. It is a monthly charge, not a one-time 10 percent charge or interest at the legal rate.

    Source

  5. Contract Requirements and Execution

    5. A home improvement contract will require payments before the work is finished, in addition to the down payment. Under Business and Professions Code section 7159.5, how must the contract show these payments?

    • A. As percentages of the contract price, each linked to a calendar date
    • B. As percentages of the contract price, each linked to work and materials
    • C. In dollars and cents, each linked to a calendar date
    • D. In dollars and cents, each linked to work and materials
    Show answer

    Correct answer: D

    • A. As percentages of the contract price, each linked to a calendar date

      Percentages do not meet the dollars-and-cents rule, and a calendar date does not show what work or materials the payment covers.

    • B. As percentages of the contract price, each linked to work and materials

      Linking payments to work and materials is right, but percentages of the price do not meet the dollars-and-cents rule.

    • C. In dollars and cents, each linked to a calendar date

      Dollars and cents is right, but a payment tied only to a calendar date does not show what work it pays for.

    • D. In dollars and cents, each linked to work and materials

      Correct answer

      The payment schedule must be in dollars and cents, and each payment must refer to the work or services to be done and the materials and equipment to be supplied.

    Explanation

    Business and Professions Code section 7159.5 says that if payments besides the down payment are due before completion, the contract must include a schedule of payments in dollars and cents. Each payment must specifically refer to the work or services to be done and the materials and equipment to be supplied. Percentages of the price do not meet the dollars-and-cents rule. A payment tied only to a calendar date does not show what work it pays for.

    Source

  6. Contract Requirements and Execution

    6. A contractor on a public works job deposits securities with an escrow bank in place of the retention the agency would withhold. The securities earn interest. Under Public Contract Code section 22300, who receives the interest?

    • A. The contractor, as the beneficial owner of the securities
    • B. The public agency, because it is the owner of the project
    • C. The escrow bank, because it holds and manages the securities
    • D. The agency and the contractor, because they share the escrow
    Show answer

    Correct answer: A

    • A. The contractor, as the beneficial owner of the securities

      Correct answer

      Correct. Section 22300 says the contractor is the beneficial owner of any securities substituted for money withheld and receives any interest on them.

    • B. The public agency, because it is the owner of the project

      Owning the project does not give the agency the interest. Section 22300 gives the interest to the contractor as beneficial owner of the securities.

    • C. The escrow bank, because it holds and manages the securities

      The escrow bank does not keep the interest just because it holds the securities. Section 22300 says the contractor receives any interest.

    • D. The agency and the contractor, because they share the escrow

      The law does not split the interest between the agency and the contractor. Section 22300 gives all of it to the contractor as beneficial owner.

    Explanation

    Public Contract Code section 22300 says the contractor is the beneficial owner of any securities substituted for money withheld, and the contractor receives any interest on them. The public agency does not get the interest just because it owns the project. The escrow bank does not keep the interest, and the law does not split the interest between the agency and the contractor.

    Source

  7. Contract Requirements and Execution

    7. A licensed contractor hires an authorized dump truck carrier to haul dirt during June. The carrier submits its charges, with all needed documents, on July 12. There is no other written agreement and no dispute. Does Business and Professions Code section 7108.6 require the contractor to pay by July 20?

    • A. Yes, because all dump truck charges are due by the 20th
    • B. No, because the charges were not submitted by July 5
    • C. Yes, because the charges were submitted before July 20
    • D. No, because that law allows 30 days after the charges arrive
    Show answer

    Correct answer: B

    • A. Yes, because all dump truck charges are due by the 20th

      Section 7108.6 has no rule that all dump truck charges are due by the 20th. The 20th-day deadline applies only if the charges and documents are submitted by the fifth day after the hauling month.

    • B. No, because the charges were not submitted by July 5

      Correct answer

      Correct. The 20th-day deadline applies only if the charges are submitted by the fifth day after the hauling month, which here is July 5. The charges came on July 12, so the July 20 deadline in this law does not apply.

    • C. Yes, because the charges were submitted before July 20

      Submitting before the 20th is not enough. The charges had to be submitted by July 5, the fifth day after the hauling month, and July 12 misses that.

    • D. No, because that law allows 30 days after the charges arrive

      Section 7108.6 does not set a 30-day rule. Its deadline is the 20th day after the hauling month, and only if the charges are submitted by the fifth day.

    Explanation

    Business and Professions Code section 7108.6 sets the deadline of the 20th day after the hauling month only if the charges and documents are "submitted by the fifth day following the last day of the calendar month in which the transportation was performed." The hauling was in June, so the charges had to be submitted by July 5. They came on July 12, so the July 20 deadline in this law does not apply. Submitting before the 20th is not enough, and section 7108.6 does not set a 30-day rule.

    Source

  8. Contract Requirements and Execution

    8. A home improvement contractor wants approval of a blanket performance and payment bond (one bond that covers many jobs). Such a bond lets it take payments before the work is done. Under Business and Professions Code section 7159.5, how long must it be licensed in active status before it applies?

    • A. At least 1 year
    • B. At least 2 years
    • C. At least 3 years
    • D. At least 5 years
    Show answer

    Correct answer: B

    • A. At least 1 year

      One year is too short. Section 7159.5(a)(8) requires active status in this state for not less than two years before applying.

    • B. At least 2 years

      Correct answer

      Correct. Section 7159.5(a)(8) says a licensee must be licensed in this state in an active status for not less than two years before applying for approval of a blanket performance and payment bond.

    • C. At least 3 years

      Three years is more than the law requires. The minimum is two years of active-status licensure before applying.

    • D. At least 5 years

      Five years is more than the law requires. The minimum is two years of active-status licensure before applying.

    Explanation

    Business and Professions Code section 7159.5(a)(8) says a licensee must be "licensed in this state in an active status for not less than two years" before applying for approval of a blanket performance and payment bond. A contractor that furnishes an approved bond covering full performance and payment may accept payment before completion. One year is too short, and three or five years are more than the law requires.

    Source

  9. Contract Requirements and Execution

    9. On a private project, the contract does not set a different payment time. The direct contractor gives the owner notice demanding a progress payment, and there is no good faith dispute. How soon must the owner pay?

    • A. Within 7 days after the notice is given
    • B. Within 10 days after the notice is given
    • C. Within 30 days after the notice is given
    • D. Within 45 days after the notice is given
    Show answer

    Correct answer: C

    • A. Within 7 days after the notice is given

      7 days is the time a contractor has to pay its subcontractors, not the owner's deadline. The owner must pay an undisputed progress payment within 30 days after notice demanding payment is given.

    • B. Within 10 days after the notice is given

      10 days is too short. Under section 8800, the owner must pay an undisputed progress payment within 30 days after notice demanding payment is given.

    • C. Within 30 days after the notice is given

      Correct answer

      Unless the owner and direct contractor agree otherwise in writing, the owner must pay an undisputed progress payment within 30 days after notice demanding payment is given.

    • D. Within 45 days after the notice is given

      45 days is the time an owner has to pay a retention after completion, not a progress payment. An undisputed progress payment is due within 30 days after the notice.

    Explanation

    Civil Code section 8800 says that, unless the owner and direct contractor agree otherwise in writing, the owner must pay an undisputed progress payment within 30 days after notice demanding payment is given. The 7-day period is the time a contractor has to pay its subcontractors. The 45-day period is the time an owner has to pay a retention after completion.

    Source

  10. Contract Requirements and Execution

    10. Other than the down payment, may a home improvement contractor accept a payment that is more than the value of the work done and materials delivered so far?

    • A. Yes, if the owner agrees to it in writing
    • B. No, not even as an advance from the owner's lender
    • C. Yes, if the money is used to order materials
    • D. No, unless the job is already more than half finished
    Show answer

    Correct answer: B

    • A. Yes, if the owner agrees to it in writing

      The owner's written agreement does not create an exception. Except for the down payment, the contractor may neither request nor accept payment that exceeds the value of the work performed or material delivered.

    • B. No, not even as an advance from the owner's lender

      Correct answer

      Except for the down payment, the contractor may neither request nor accept payment that exceeds the value of the work performed or material delivered. The ban also extends to advance payments from any lender or financier.

    • C. Yes, if the money is used to order materials

      Using the money to order materials does not change the rule. Payment still may not exceed the value of the work performed or material delivered.

    • D. No, unless the job is already more than half finished

      Being half finished does not create an exception. Payment still may not exceed the value of the work performed or material delivered so far.

    Explanation

    Business and Professions Code section 7159.5 says that, except for the down payment, the contractor shall neither request nor accept payment that exceeds the value of the work performed or material delivered. The rule also covers advance payments from any lender or financier. The owner's written agreement does not create an exception. Using the money to order materials or being half finished does not change the rule either.

    Source

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