Under Business and Professions Code Section 7028.15, when preparing a cost-plus contract bid in California, what is the maximum markup percentage allowed on the cost of materials, equipment, and subcontractor work?
Correct Answer
C) No statutory limit on markup percentages
Business and Professions Code Section 7028.15 does not establish statutory limits on markup percentages for cost-plus contracts. However, markups must be reasonable and disclosed to the owner. The markup percentage should reflect actual overhead and profit, and excessive markups could be considered fraudulent under other provisions.
Why This Is the Correct Answer
Business and Professions Code § 7028.15 does not set a statutory cap on markup percentages for cost-plus contracts. Contractors may charge whatever markup reflects their actual overhead and profit, provided the markup is disclosed to the owner and is reasonable in context. The statute focuses on licensing compliance and truthful disclosure, not on regulating specific markup percentages. However, markups that are unreasonably excessive could potentially be challenged under fraud or misrepresentation provisions elsewhere in the law.
Why the Other Options Are Wrong
Option A: 15% markup maximum on materials, no limit on labor
BPC § 7028.15 does not create a 15%-materials/no-limit-on-labor split. No such bifurcated markup rule exists in California contractor law. This option is a plausible-sounding distractor that tests whether candidates know the statute contains no percentage caps at all.
Option B: 20% markup maximum on materials and subcontractor work
A 20% cap on materials and subcontractor work is not found in BPC § 7028.15 or any other California contractor licensing statute. While some owners may negotiate a 20% markup cap into their cost-plus contract, this is a contractual term, not a legal maximum.
Option D: 10% markup maximum on all costs
A blanket 10% cap on all costs is not mandated by BPC § 7028.15. This figure may be confused with the 10% retention cap under Civil Code § 8832, or with a commonly negotiated (but not legally required) cost-plus overhead rate. No statutory provision in California contractor licensing law sets a universal 10% markup ceiling.
Memory Technique
Remember: 'No Statutory Cap on Markup.' BPC § 7028.15 is about keeping your license by being honest, not about capping your profit. Think of it as the 'disclosure rule, not the discount rule.' Contractors are free to price their overhead and profit — they just can't hide how they calculated it.
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