Utah Contractor Practice Exam

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What happens if a bid’s markup is set too low?

Increase in job opportunities
Decrease in potential earnings
Enhancement of project quality
Higher client satisfaction

The correct answer is: Decrease in potential earnings

Setting a bid's markup too low can significantly impact a contractor's potential earnings. When a markup is reduced, the contractor allocates less margin above the direct costs associated with a project, which can lead to insufficient funds to cover overhead, unexpected expenses, or profit. This situation not only jeopardizes the contractor's financial viability on that particular project but can also affect future projects if the contractor is unable to sustain operations due to chronic underbidding. While a low markup might attract more clients or enhance certain aspects of project execution in the short term, these effects are often outweighed by the risks posed to the contractor's overall profitability and sustainability in the long run.