A contractor is required to provide a payment bond equal to 100% of the contract value. If the contract amount is $750,000 and the bond premium is 1.2% annually, what is the annual cost of the payment bond?
Correct Answer
A) $9,000
Payment bond cost = Contract amount × Bond percentage × Premium rate = $750,000 × 1.00 × 0.012 = $9,000 annually. The bond amount equals the full contract value at a 1.2% premium rate.
Why This Is the Correct Answer
The correct answer is B ($9,000) because payment bond cost is calculated by multiplying the contract amount by the bond percentage by the premium rate. Since the bond is required at 100% of contract value, we calculate $750,000 × 1.00 × 0.012 = $9,000. The 1.2% premium rate must be converted to decimal form (0.012) for the calculation.
Why the Other Options Are Wrong
Option B: $15,000
Option D ($15,000) represents 2% of the contract value, which would occur if someone doubled the premium rate or confused it with a different type of bond premium.
Option D: $7,500
Option A ($7,500) represents only 1% of the contract value, which would be the result if someone incorrectly used 1% instead of 1.2% as the premium rate.
Memory Technique
Remember 'CPP' - Contract × Percentage × Premium. Always convert percentages to decimals and multiply all three components together.
Reference Hint
Florida Building Construction Standards - Chapter on Bonds and Insurance Requirements, or Business and Finance section covering surety bonds
More Contract Admin Questions
A project experiences a 30-day delay due to unusually severe weather. The contract includes a liquidated damages clause of $1,000 per day for delays. If the weather delay is excusable but not compensable, what liquidated damages apply?
A commercial project requires a total of 12 inspections. The building department charges $85 per inspection for the first 5 inspections, $65 for inspections 6-10, and $45 for any additional inspections. What is the total inspection fee?
What document must be posted at the job site before a Certificate of Occupancy can be issued for a commercial building?
A mixed-use development requires a variance for reduced setbacks. The property is located within 500 feet of a hospital. What additional consideration must be addressed?
A LEED project requires tracking of regional materials. Materials are considered regional if they are extracted, harvested, or recovered, as well as manufactured within what distance of the project site?
An indemnification clause in a construction contract typically requires the contractor to:
A property owner wants to convert a single-family home into a duplex in an area zoned for single-family residential use. The conversion meets all building codes but violates density requirements. What approval is needed?
As-built drawings are typically required to be submitted:
AIA Document A401 is primarily used for:
A general contractor is building a 12,000 square foot commercial warehouse. The building permit fee is calculated at $8.50 per $1,000 of construction value. If the project value is $2,400,000, what is the building permit fee?
People Also Study
Business & Financial Management
120 questions · 70% to pass
Project Management
60 questions · 70% to pass
Related Study Resources
Previous Question
A quality control inspection reveals that concrete strength tests show 2,800 psi when the specification requires 3,000 psi. What should be the first step in the quality control procedure?
Next Question
In assembly-based estimating, what is the primary advantage over detailed quantity takeoff methods?