Division 1: Practice Management Flashcards
What is business organization?
The legal structure of an architectural firm
What is office organization?
The way a firm organizes to compete its work
What are ethical standards?
The accepted principles of correct professional conduct
What are human resources?
The practices and legal responsibilities pertaining to employing others
What is business development?
The use of marketing and public relations to increase business
What is a sole proprietorship?
A business type in which the business is owned by an individual
Which business type is the simplest?
Sole proprietorship
What is required to set up a sole proprietorship?
Business name, business location, company stationery, electronic communications systems, business licenses required by the local jurisdiction, and (if employees are hired) compliance with state and local requirements
What are some disadvantages of a sole proprietorship?
The owner is personally liable for the company’s debts and losses, establishing credit depends entirely on the owner’s personal credit rating, and it is difficult to sell even a successful sole proprietorship to others (because its success depends mainly on the personal reputation of the current owner)
What are some advantages of a sole proprietorship?
Ease of setup, total management control by the owner, and possible tax advantages (because business expenses and losses may be deducted from the gross income of the business)
What is a general partnership?
A business type in which two or more people, called general partners, share in the management, profits, and risks of the business
What is a limited partnership?
A business type in which there is at least one general partner (who invests in, manages, and is financially responsible for the business) and at least one limited partner (who invests in the business and receives a portion of its profits, but has no say in its management and is only liable to the extent of their investment)
What are some advantages of a general or limited partnership?
Ease of setup and, usually, collaboration between several people with distinct skills for the business
What are some disadvantages of a general or limited partnership?
The partners are personally liable for the company’s debts and losses and are responsible for each other’s actions
What is a c corporation?
An association of individuals that exists as a legal entity apart from its members
What is required to set up a c corporation?
Formal articles of incorporation drawn up by an attorney and filed with the state office
What are the levels of participants in a c corporation?
Shareholders (who own the corporation in proportion to the number of shares they own), directors (who are elected by the shareholders to have the fiduciary duty to act in the best interest of the shareholders and be responsible for broad policy decisions), and officers (who are elected by the directors to carry out day-to-day management)
What are some advantages of a c corporation?
The legal entity is financially and legally independent from its shareholders, each shareholder is financially liable only for the amount of money they invested, the shareholders’ personal assets are not at risk, the continuity of the legal entity is independent from changes in its participants, and capital can be easily raised through the sale of stock
What are some disadvantages of a c corporation?
The legal entity is taxed separately from its shareholders, high costs to establish the legal entity, and continuing paperwork and formal requirements to maintain the legal entity
What is an s corporation?
An association of individuals that exists as a legal entity apart from its members and allocates its income and losses directly to shareholders in proportion to their holdings
What is required to set up an s corporation?
Formal articles of incorporation drawn up by an attorney and filed with the state office
What are the levels of participants in an s corporation?
Shareholders (who own the corporation in proportion to the number of shares they own), directors (who are elected by the shareholders to have the fiduciary duty to act in the best interest of the shareholders and be responsible for broad policy decisions), and officers (who are elected by the directors to carry out day-to-day management)
What are some advantages of an s corporation?
The legal entity is financially and legally independent from its shareholders, each shareholder is financially liable only for the amount of money they invested, the shareholders’ personal assets are not at risk, the continuity of the legal entity is independent from changes in its participants, capital can be easily raised through the sale of stock, and double taxation is avoided
What are some disadvantages of an s corporation?
High costs to establish the legal entity, continuing paperwork and formal requirements to maintain the legal entity, and classification is limited to small business corporations
What is required of a corporation to qualify for s corporation status?
A domestic location and a maximum of 100 shareholders
What is a limited liability company (LLC) or limited liability partnership (LLP)?
A business type that combines the advantages of a partnership or sole proprietorship with the limited liability of a corporation
What are the participants in an LLC or LLP?
Members (who invest in the business) and managers (who manage the business)
Unlike partnerships, LLCs and LLPs allow non-members to be managers. True or false?
True
What are some advantages of an LLC or LLP?
Ease of setup, members are liable only to the extent of their investments, and the business itself is not taxed (because an LLC is not a separate legal entity)
What are some disadvantages of an LLC or LLP?
Some states may tax an LLC despite it not being a separate legal entity and members are considered self-employed and must pay self-employment taxes
What is a joint venture?
A temporary association of two or more persons or firms for the purpose of completing a specific project or goal
Ideally, what is a joint venture based on?
A formal, written agreement that describes the duties and responsibilities of each firm, how profits and losses will be divided, and how the work will be completed
A joint venture is treated as a legal entity independent from its members. True or false?
False
When is a teaming agreement or memorandum of understanding developed?
Before a joint venture is formed, in case the firms involved are awarded the project
What is a teaming agreement or memorandum of understanding?
A document that defines the roles, responsibilities, and contractual relationships that will be established if the firms involved are awarded the project
A teaming agreement or memorandum of understanding is not a formal business organization. True or false?
True
What is standard of care?
A legal concept defined as the level of skill and diligence that a reasonably prudent architect would exercise in the same community, in the same time frame, and given the same or similar facts and circumstances
A reasonably prudent architect designing a building in Florida would incorporate hurricane-resistant detailing. True or false?
True
Regarding standard of care, “in the same time frame” is generally taken to mean at the time of the dispute, not at the time the project is designed or built. True or false?
False
Regarding standard of care, what are some examples of “the same or similar facts and circumstances”?
Budget, scheduling, and project complexity
It is advisable for an architect’s contract to state that the project will be delivered “with the highest standards”. True or false?
False
What is the most traditional work organization structure?
Departmental / horizontal / flat organization
What is departmental / horizontal / flat organization?
Staff is organized into departments, each of which specializes in a different function
What are some advantages of departmental / horizontal / flat organization?
Efficiency, the ability to standardize and fine-tune processes, fully utilizing many types of specialists, and creating economies of scale
What are some disadvantages of departmental / horizontal / flat organization?
The business is inflexible and resistant to innovation and change, open communication between departments can be difficult, and employees may not gain experience or share knowledge outside of their specialties
What is studio / vertical / tall organization?
Employees are organized into groups or studios, each with the responsibility and skills needed for completing an entire project
What are some advantages of studio / vertical / tall organization?
Studios can be created and dissolved as needed and projects can be assigned to studios based on their particular strengths and expertise
What is outsourcing?
Contracting with another company to do some of the work needed for a project
What types of work are most often outsourced?
Construction document production and rendering
What is an advantage of outsourcing?
Fluctuating workloads can be managed without continually hiring and firing employees
What is a disadvantage of outsourcing?
Requiring careful management and coordination
What are support staff?
Employees other than the professional staff and senior management
What are some examples of support staff?
Administrative assistants, receptionists, bookkeepers, marketing people, model builders, and technology assistants
All architectural businesses must conform to local, state, and federal laws and regulations, regardless of their size and organizational structure. True or false?
True
What is the Employer Identification Number (EIN) used for?
Tax filings and correspondence with the IRS
What are some examples of city taxes an architectural firm may be subject to?
City income taxes, employment taxes, occupational privilege taxes, and property taxes
An architectural license can be renewed annually, but not biannually. True or false?
False
What is the test that an architectural candidate must pass to obtain their initial license?
The Architect Registration Examination (ARE)
What group administers the architectural licensing test required for initial licensing?
The National Council of Architectural Registration Boards (NCARB)
What group accredits certain universities in their architectural degrees?
The National Architectural Accrediting Board (NAAB)
In what program do architectural candidates work under the direct supervision of a registered architect to gain diverse experience?
The Architectural Experience Program (AXP)
Through what program can architectural candidates become licensed without a formal degree?
The Broadly Experienced Architect (BEA) program
What is the AIA Code of Ethics & Professional Conduct?
The main source of ethical standards for architects, which details minimum standards of conduct, procedures for enforcement, and sanctions against AIA members who violate the standards
What are some examples of sanctions for AIA members found in violation of the Code of Ethics?
Admonishment, censure, membership suspension, and membership termination
Some prohibitions in the original 1909 Code of Ethics have been dropped so that an architect may do what?
Compete for projects on the basis of fee, advertise (as long as no misleading or false statements are made), replace another architect on a project, be involved with construction, and offer free design services to secure a commission
What are the tiers of statements in the AIA Code of Ethics?
Canons, ethical standards, and rules of conduct
What are canons in the AIA Code of Ethics?
Broad principles of conduct
What are ethical standards in the AIA Code of Ethics?
Specific goals toward which members should aspire
What are rules of conduct in the AIA Code of Ethics?
Specific, mandatory statements that members must follow
What is Canon I in the AIA Code of Ethics?
General Obligations
What should AIA members do according to General Obligations?
Maintain and improve their knowledge and skill;
seek to raise architectural standards in aesthetics, education, research, training, and practice;
respect and seek to improve society and the environment;
exercise learned professional judgement;
uphold human rights;
and not discriminate on the base of race, religion, national origin, age, disability, or sexual orientation
What is Canon II in the AIA Code of Ethics?
Obligations to the Public
What should AIA members do according to Obligations to the Public?
Uphold the law;
never try to influence a public official with a payment;
never accept payments intended to influence their judgement;
never help a client with anything fraudulent or illegal;
promote and serve the public interest;
render pro bono services;
be involved in civic activities;
and strive to improve public appreciation of architecture
What is Canon III in the AIA Code of Ethics?
Obligations to the Client
What should AIA members do according to Obligations to the Client?
Serve their clients competently and professionally;
exercise unbiased judgement;
not accept projects beyond their professional capacity;
avoid conflicts of interest;
be truthful in professional communications;
keep clients informed about their projects;
and maintain client confidentiality
What is Canon IV in the AIA Code of Ethics?
Obligations to the Profession
What should AIA members do according to Obligations to the Profession?
Uphold the integrity and dignity of the profession;
practice with honesty and fairness;
not sign and seal documents for which they do not have responsible control;
not knowingly make false statements;
and be honest about their qualifications and about the work they claim credit for
What is Canon V in the AIA Code of Ethics?
Obligations to Colleagues
What should AIA members do according to Obligations to Colleagues?
Respect the rights of their colleagues and acknowledge their professional contributions;
provide associates and employees with suitable working conditions and fair compensation;
nurture fellow professionals through their education, internships, and careers;
and give credit to others for their professional work
What is Canon VI in the AIA Code of Ethics?
Obligations to the Environment
What should AIA members do according to Obligations to the Environment?
Be environmentally responsible;
promote sustainable design in their professional work;
advocate sustainable building and site design;
and use sustainable practices within their firms and encourage clients to do the same
What does human resource management involve?
Hiring, compensating, managing, and terminating employees and the legal responsibilities of having employees
Equal employment opportunity laws make it illegal for an employer to ask a job candidate about what?
Age, date of birth, marital status, national origin, race, maiden name, sex, religion, and disabilities
If an employer and employee sign a formal employment contract, what should it spell out?
Employee’s responsibilities, work duties, and compensation and the firm’s benefits, work conditions, termination procedures, and policies on moonlighting (accepting work from outside firms)
What might be included in a noncompete clause?
Limits or prohibitions on who the employee may work for during a specified amount of time after leaving the firm, setting up a competing business in the same geographical area, working for the firm’s clients, and passing on confidential information to others
What is employment at will?
Condition in which the employee works without any employment contract, can be terminated at any time without explanation, and can quit at any time without giving a reason
What can a firm avoid by hiring an independent contractor?
Withholding taxes, paying benefits, and establishing an employee-employer relationship
What should a firm do before hiring an independent contractor?
Verify that the independent contractor cannot be classified by the IRS as an employee
What are the broad areas used by the IRS to determine if a worker is an employee or an independent contractor?
Behavioral control, financial control, and the employee-employer relationship
What are the most important requisites for a worker to be considered an independent contractor?
They are hired for a specific project, they control where and how they perform their work, they provide their own supplies and equipment, they receive no benefits from the firm other than payment, and they are free to work for other firms at the same time
What should a firm do before assigning work to an independent contractor?
Establish the payment amount as either a set fee or an hourly fee and verify that the worker is not financially tied to the firm
What is compensation?
Any kind of payment made to employees for their work
What are some examples of benefits a firm might provide its employees?
Flextime, flexible benefit packages, office-sponsored events, floating holidays, sabbaticals, flexible days off, compensation alternatives, annual performance bonuses, profit sharing, wellness, company cars, community involvement, professional dues, office amenities, continuing education, and family / medical leave
What are performance evaluations?
Formal reviews performed by a manager to assess each employee’s performance
How do performance evaluations help a firm?
Help the firm understand the personnel’s strengths and weaknesses, help direct hiring, help protect the firm from employees’ claims, serve as the basis for pay increases / promotions / terminations, and provide a way to direct improved employee work performance
To be useful, performance evaluations should be based on objective, measurable criteria or on goals set jointly by the employer and employee. True or false?
True
What is a quality control circle?
Group of employees who meet regularly among themselves and with management representatives to identify and resolve issues that affect their area of work
A quality control circle is set up in response to an immediate situation. True or false?
False
What is an Employee Stock Ownership Plan (ESOP)?
Method of financially motivating employees by giving them partial ownership in the firm
What are some advantages of an ESOP?
Tax benefits for the firm, financing opportunities for the firm, and increased employee satisfaction
What are some disadvantages of an ESOP?
Difficult to implement in small firms, requires financially and managerially stable firms, potentially complicated and expensive to set up, and requires legal advice and careful planning
What are some examples of unacceptable behavior an employee may be terminated for?
Incompetence, low productivity, absences, negligence, dishonesty, sexual harassment, fraud, misappropriation of company property, insubordination, illegal activity, and noncompliance with company policies
What are some things that an employee cannot be terminated for?
Age
Activities outside of work hours (except moonlighting, if against company policy)
Missing work for required military obligations or jury duty
Reporting company violations of health or safety laws
What is the National Labor Relations Act or Wagner Act?
An act that allows private sector employees to organize into trade unions and protects union employees from unfair labor practices by employers
What is the Equal Pay Act?
An act that requires equal pay for employees who have the same work duties, responsibilities, and experience
What is Employee Eligibility Verification?
A process, required by federal law, in which employers verify the employee’s right to work in the US by maintaining an employee’s I-9 form for at least three years as well as for one year after termination
What is the Wages and Fair Labor Standards Act (FLSA)?
An act that establishes minimum wage, overtime, pay, record-keeping, and child labor standards in both the private sector and in government employment
What is the Occupational Safety and Health Act of 1970 (OSHA)?
An act that requires employers to provide a safe work environment
What is the Health Insurance Portability and Accountability Act of 1996 (HIPAA)?
An act that protects the privacy of individually identifiable health information
What is the Employee Retirement Income Security Act (ERISA)?
An act that sets minimum standards for pension plans in the private sector for those employers who have a pension plan program
What is the Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA)?
An act that requires employers with 20 or more employees to continue group medical coverage if employment is terminated, working hours are reduced, employment is changed, or in the event of death, divorce, and other significant life events
What is the Civil Rights Act of 1991?
An act that prohibits discrimination on the basis of sex, race, color, religion, or national origin
What is the Age Discrimination in Employment Act of 1967 (ADEA)?
An act that prohibits age discrimination in employment for persons age 40 or over, including hiring, firing, segregation in the workplace, and reducing wages or salary
What is the Family and Medical Leave Act of 1993 (FMLA)?
An act that requires that companies give an employee up to 12 weeks of unpaid leave for child, spousal, or parental care, without initiating retribution or jeopardizing the employee’s job
What are some of the first things to identify when creating a sound marketing plan?
The type of work the firm wants to do
The geographical areas the firm wants to work in
The competition
How much work the firm needs
A budget for active marketing and public relations
What are some examples of marketing techniques?
Networking
Corporate Identity
Brochures
Websites
Social Media
Newsletters
PowerPoint Presentations
Advertising
Past Clients
What is public relations?
Professional maintenance of a business’ favorable public image
How does public relations differ from marketing?
???
What is one of the most economical ways to publicize a firm?
Press release
What is a press release?
A short statement about a newsworthy event related to the firm that is sent to appropriate publications with the hopes that editors will use it
What are the two broad categories of accounting in financially managing an architectural firm?
Basic (general ledger) accounting and project cost accounting
What is basic (general ledger) accounting?
Tracking money flowing into and out of the firm
What is project cost accounting?
Tracking revenue, expenses, and profit by individual projects
Which category of accounting helps owners make firm-wide statements about profitability?
Basic (general ledger) accounting
Which category of accounting helps owners allocate resources and develop accurate proposals?
Project cost accounting
What are accounts payable?
Amounts owed to the suppliers of goods or services that have not been paid yet
What are accounts receivable?
Amounts that others owe to the firm through invoices for services
What are assets?
Resources that can be measured monetarily
What is a chart of accounts?
A list of the various accounts a firm uses to keep track of money, along with corresponding account numbers used for data processing
What are current assets?
Resources of a firm that are converted into cash within one year
What is direct labor?
All labor of technical staff, principals, and support staff that is directly billable to projects
What is direct personnel expense (DPE)?
All employee salaries plus the costs of mandatory and discretionary expenses and benefits
What is discretionary distribution?
Voluntary distribution of profits to owners and non-owners, such as performance bonuses, profit sharing, and incentive compensation
What are fixed assets?
Resources that a firm uses and retains for a long period of time, such as equipment or property
What is gross revenue?
All the revenue generated by a business during a stated period of time
What is indirect labor?
All labor not charged to a specific project or revenue producing account, such as administration, general office time, and marketing
What are liabilities?
Claims by people outside the business and claims by the owners of the business against the total assets of the business
What is net operating revenue (net revenue)?
The money that remains from billing after deducting fees and expenses, reimbursable expenses, and non-reimbursable project-related expenses
What is overhead?
Expenses incurred to keep a business running whether or not revenue is generated, such as rent, software leases, and fees for power and phone services
What are the two basic accounting methods?
Cash accounting and accrual accounting
What is the cash accounting method?
Method in which revenue and expenses are recognized at the time the business receives the cash or pays a bill
What is the accrual accounting method?
Method in which revenue and expenses are recognized at the time they are earned or incurred, whether or not cash changes hands
Businesses above a certain size or that maintain inventory are quired by the IRS to use accrual accounting. True or false?
True
What is the modified accrual basis method?
Method which records fee revenue, expenses billed tot he client, and invoices to the firm by outside consultants, but not the amounts of fees that have been earned by not yet billed to the client
What is double-entry bookkeeping in the accrual accounting method?
Tracking transactions chronologically in a journal, then posting them to a ledger that groups transactions into individual accounts
What are three common types of accounting reports?
Balance sheet, profit and loss statement (income statement), and cash flow statement
What is a balance sheet?
A summary of all assets and liabilities that shows the financial position of a business
What is a profit and loss statement (or income statement)?
A list of all the income and expenses of a business for a certain period of time
What is a cash flow statement?
A statement showing the actual inflows and outflows of cash or cash equivalents
What is cash in accounting?
Money, checks, or anything else accepted by banks
What is a cash equivalent in accounting?
A short-term investment that can be quickly converted into cash, such as a short-term certificate of deposit
What is financial management?
Actively planning, monitoring, and controlling financial information and acting on that information
What is the most fundamental equation for financial planning in a profit-oriented business?
Profit + expenses = revenue
What is a project progress report?
A detailed, computer generated chart showing hours and labor costs for each phase of a project, both for the current reporting period and the total to date, and comparisons to the estimated hours and costs
What is an office earnings report?
A summary of the firm’s projects in terms of generated revenue, expenses incurred, unbilled services, completion percentage, and profit or loss to date
What is an aged accounts receivable report?
A list showing the statuses of all invoices of all projects and the age of each invoice
In architectural firms, what is the average collection period for invoices?
60 - 75 days
What does an invoice older than 90 days mean?
The firm is, in effect, lending money to a client without charging interest
What is a time analysis report?
A list of each employee and the number of hours they spend on direct labor, indirect labor, vacation, holiday, and sick leave, culminating in the chargeable ratio (utilization rate)
What is a chargeable ratio (utilization rate)?
Time (or money) spent on direct labor divided by time (or money) spent on direct labor, indirect labor, vacation, holiday, and sick leave
What chargeable ratio is generally thought to be the break-even point for a firm?
65%
In what range should the chargeable ratio be for professional and technical staff?
75% - 85%
Why might the chargeable ratio be expected to be lower for principals than other staff?
Principals devote much of their time to non-chargeable work like promotion, marketing, and management
In financial management, what is the current ratio?
Total current assets divided by total current liabilities
In financial management, what is the minimum acceptable current ratio?
1.0
In financial management, what is considered a healthy current ratio?
1.5
In financial management, what is net profit before tax?
Profit divided by net revenue
What is overhead rate?
Total office overhead divided by total direct labor
In what range should the overhead rate be?
1.3 - 1.5
In financial management, what is a quick ratio?
A refinement of the current ratio which divides the sum of cash, cash equivalents, accounts receivable, and revenue earned but not billed by the total current liabilities
In architectural business, what is the most common method of setting fees?
Charging an hourly rate (billing rate) per staff member working on a project
How are billing rates typically determined?
The sum of salary, fringe benefits, overhead, and an allowance for profit
What is a net multiplier?
A number used to multiply an employee’s hourly rate to determine a billing rate
What is a typical range for a net multiplier?
2.7 - 3.0
In setting fees, what is a break-even rate?
The total cost of operations divided by the total money spent on direct labor
What is the general range for a break-even rate?
2.3 - 2.5
The DPE multiplier tends to be slightly lower than the net multiplier. True or false?
True
The net multiplier is not used as frequently as the DPE multiplier. True or false?
False
In setting fees, what is the immediate step after establishing hourly rates?
Estimating the amount of time it will take to complete a project
In setting fees, what is the immediate step after estimating the time it will take to complete a project?
Deciding which employees will be doing what work
In setting fees, what is the immediate step after decideding which employees do what work?
Hours are multiplied by respective billing rates to get the total estimated fee
In setting fees, what is the immediate step after estimating the total fee?
Adding costs for estimated non-reimbursable direct expenses, consultants’ fees, and a contingency
What are two other bases, other than billing rates, for determining fees?
Square footage or construction cost
What are the four basic steps to collecting accounts receivable?
Contract terms, timely billing, complete invoices, and regular procedures for tracking accounts
In managing accounts receivable, what are some good contract terms to include?
Basis for the fee
When invoices will be sent and in what form
When payment is due
Penalties for late payment
Provisions for nonpayment
In managing accounts receivable, what are some good timely billing practices?
Send out invoices as soon after a payroll period as possible
Limit billing cycles to 30 days at most
Avoid agreeing to lump sum payments at end phases
In managing accounts receivable, what are some good practices for creating complete invoices?
Include the name and address of the client
Include the project name and number
Include a reference to a contract
Include a detailed breakdown of work and associated billing Include reimbursable expenses with backup documentation
Include past due amounts
Include breakdowns of the time each team member spent on the job, their billing rates, and the total cost
Include itemized work phases and work tasks
Have consistent formatting
In managing accounts receivable, what are some good practices for tracking accounts?
Follow up on invoices more than 2 weeks old
Send past-due notices for month-old invoices
Make personal calls or visits for 6- to 8-week old invoices
Take legal action against accounts that are too far overdue
Spell out tracking procedures in the contract or in a standard policy statement for clients
Keep a record of the office’s actions regarding collections
Prioritize collecting on the oldest outstanding account first
Be prepared to file a lien if necessary
What are some ways to reduce overhead?
Reduce non-billable labor
Report significant non-labor direct expenses (travel, CD prints, model supplies, postage and delivery, presentation supplies)
Shop for better prices on phone and internet services
Re-evaluate office space requirements and insurance needs
What is agency?
The legal concept that one person, the agent, acts on behalf of another, the principal, in dealings with another, the third party
Change orders must be signed by both the owner and the architect. True or false?
True
In an agency relationship, who is typically the agent?
Architect
In an agency relationship, who is typically the principal?
Owner
In an agency relationship, who is typically the third party?
Contractor
In a contractual relationship, what is a duty?
Term or requirement that one person owes another
What are three ways in which duties are established?
Terms of a contract
Legislative enactment
Architect’s conduct and implied duties
What are some examples of an architect’s implied duties?
Cooperating with contractors
Not interfering with the contractor’s work
Giving relevant information to contractors
Assisting the owner in coordinating work
What is liability?
The legal responsibility for injury to another person or damage to property
What is negligence?
The failure to use due care to avoid harming another person or damaging property
What 3 conditions must be met for an architect to be found negligent?
There must be a legal duty established between parties
The architect breached that duty
The breach of duty was the cause of damage or injury suffered by the other party
What is standard of care?
The legal expectation that an architect will use the same degree of skill, knowledge, and judgement that is normally used by other professionals in similar circumstances and communities
What are 3 common defenses architects use against negligence claims?
Betterment, statute of limitations, and statute of repose
What is betterment?
A legal argument against claims of omission that argues the resulting changes would improve the project, typically leading to rulings that the owner should pay for the omitted items had they been included and the architect should pay for the difference in project value
What is the statute of limitations?
A set time limit within which a claim can be made, starting at the date of substantial completion and ending between 3 and 10 years later
What is the statute of repose?
A set time limit within which a claim can be made, starting at the time of discovery and ending about 6 years after substantial completion
What are some risk management strategies for limiting exposure to liability?
Know the client
Use well-written contracts and follow them thoroughly
Vake sure the appropriate employees are assigned to each project
Maintain an active quality control program
Maintain thorough documentation
Be very careful about last-minute changes and substitutions
Carry liability insurance
What is privity?
The legal concept that theoretically protects architects from claims by parties with whom they have no direct contractual relationship
Which AlA document contains the indemnification clause?
AIA Document A201, General Conditions of the Contract for Construction
What is the indemnification clause?
A clause that holds harmless both owners and architects for any damages, claims, or losses resulting from the performance of any work on the project, whether by contractors of others with who the architects have no contractual relationship
What are some good practices to reduce exposure to third-party claims?
Don’t include language in the contract that expressly states or implies responsibility to provide management, supervision, coordination, or planning of construction, unless those services are specifically being provided
Don’t give directions concerning methods of construction
Point out obvious construction safety problems to contractors
What are the two categories of copyright protection for architectural work?
Traditional copyright and building copyright
What does traditional copyright protect?
Drawings, specifications, and other pictorial or graphic representations of an architects work
What does building copyright protect?
Graphical representations of the building and its overall form, arrangement, and composition of spaces and elements
What are derivative works?
Buildings designed after the original building that are substantially similar to the original
What is The Architectural Works Copyright Protection Act?
The act that established building copyright protections, applicable to buildings erected after December 1st, 1990
Generally, the architect owns the copyright to their design. True or false?
True
What are 2 examples where the owner owns the copyright to a design?
The architect is an employee of the building owner
The architect specifically assigns the copyright to the owner
What AIA document states that the architect owns the copyright to their design?
AIA Document B101, Standard Form of Agreement Between Owner and Architect
In addition to clearly outlining copyright ownership in the agreement with the owner, what other actions are recommended to protect the architect from future copyright issues?
Make a specific claim of ownership rights to the building copyright
Register the work with the U.S. Copyright Office within 3 months of building completion
If the owner-architect agreement is terminated, can the owner continue using the architect’s design?
Not without paying a licensing fee to the architect
What insurances does AIA Document B101 require architects to maintain?
Professional liability
General liability
Automobile liability
Workers’ compensation insurance
If the owner requires the architect to carry insurance at limits greater than the architect normally does, the owner is responsible for paying the additional cost. True or false?
True
What are two other names for professional liability insurance?
Malpractice insurance
Errors and omissions insurance
What are two other names for malpractice insurance?
Professional liability insurance
Errors and omissions insurance
What are two other names for errors and omissions insurance?
Professional liability insurance
Malpractice insurance
What is professional liability / malpractice / errors and omissions insurance?
Protection for architects in case one of their actions causes bodily injury, property damage, or other damage
What actions by the architect does professional liability / malpractice / errors and omissions insurance cover?
Incorrect specifications
Mistakes on drawings
Negligence
What actions does professional liability / malpractice / errors and omissions insurance not cover?
Intentionally wrongful acts
Claims for cost estimates being exceeded
Claims arising from express warranties
What is general liability insurance?
Protection for architects, their employers, or their consultants against claims of property damage, liability, personal injury, or lack of valid insurance coverage
What is property insurance?
Protection for the architect’s building and the building’s contents against disasters
What is personal injury protection?
Protection for architects against charges of slander, libel, character defamation, misrepresentation, and other torts
What is a tort?
A civil wrong, rather than a criminal act, that causes injury to another person
What is automobile insurance?
Protection for business vehicles against liability and property damage
What is workers’ compensation?
Insurance for employees in case of work-related injuries
Some states do not require an architect to provide workers’ compensation. True or false?
False
What three insurances does AIA Document A201, General Conditions of the Contract for Construction, require the owner to carry?
“All risk” liability insurance
“All risk” property insurance
Boiler and machinery insurance
What is the difference between “all risk” and “specified peril” insurance policies?
All-risk insurance is broader in coverage than specified peril insurance
AIA Document A201, General Conditions of the Contract for Construction, requires contractors to carry insurance that will protect from what types of claims?
Workers’ compensation
Bodily injury, occupational sickness, or death of employees
Bodily injury or death of non-employees
Personal injury, slander, libel, and false arrest
Destruction of tangible property, including loss of use resulting from damages
Damages related to the use of motor vehicles
Bodily injury or property damage when an injury occurs after the job is complete and the contractor has left the size
Contractual liability insurance
What are 5 factors that influence an architect’s decision in accepting or rejecting a project offer?
Current workload
How well the project matches the type of work the firm is qualified to do or wants to do
How flexible the project is
Whether the client’s budget is sufficient to cover construction and professional fees
Reliability and reputation of the client
What can the architect expect if a client insists on using a non-standard contract?
The contract will be written to the client’s benefit
What is project delivery?
The entire sequence of events that is needed to provide an owner with a completed building
What are 5 variables that affect an owner’s or architect’s choice of project delivery method?
Cost
Schedule
Project scope
Building quality
Risk
Which project delivery method do owners traditionally choose in order to achieve the lowest cost?
Design-bid-build
How does bidding put the contractor in the role of adversary to the owner and architect?
The owner’s and architect’s intention to receive a high-quality project completed at the lowest cost conflicts with the contractor’s intention to achieve a low bid while still making a profit on construction
What are 2 adversarial ways in which a contractor might achieve a low bid?
Underestimating the requirements of the project or basing the bid on low-quality materials and labor, then making up costs with change orders
Taking advantage of discrepancies or ambiguities in the construction documents to force change orders that could be considered errors or omissions and may be charged to the architect
Everyone loses when a project is delayed. True or false?
True
What is project scope?
The size and complexity of the project
Which project delivery method is generally best for a low-cost building?
Design-bid-build
Which two project delivery methods are generally best for a higher-quality building?
Construction manager as constructor
Integrated project delivery
Which three project delivery methods generally mitigate adversarial relationships between the architect, owner, and contractor?
Design-build
Construction manager as adviser or constructor
Integrated project delivery
What are the 6 main types of project delivery methods?
Design-bid-build (DBB)
Construction manager as adviser (CMa)
Construction manager as constructor (CMc)
Design-build (DB)
Design-assist contracting
Integrated project delivery (IPD)
What are the 3 basic steps to the design-bid-build (DBB) project delivery method?
The owner contracts with the architect to design the project and prepare construction drawings and specifications
The construction documents are used as the basis for pricing the project and awarding a construction contract to a contractor
The contractor builds the project while the architect provides contract administration services
In design-bid-build (DBB), the owner has separate contracts with both the architect and contractor. True or false?
True
What are 3 advantages of design-bid-build (DBB)?
Work proceeds in a simple, linear fashion
Contractual relationships are straightforward
The owner can be quoted a fixed price before proceeding with construction
What are 2 disadvantages of design-bid-build (DBB)?
The design phase must be completely finished before the construction phase proceeds
Adversarial relationship between the owner and contractor
What are some responsibilities of a construction manager (CM)?
Advising on the constructability of the design as it is developed
Providing early cost estimating and value analysis
Project scheduling
Assisting with contract negotiations
Managing multiple construction contracts
Managing fast-track construction
Making early material purchases
Sometimes, guaranteeing a price and completion date for the owner
What are 2 disadvantages of hiring a construction manager (CM)?
The CM is hired before the design work is finished, so there is no competitive bidding on the cost of building the project
The management structure becomes more complicated
How can the disadvantages of hiring a construction manager (CM) be mitigated?
By having the contractor also act as the CM
When the construction manager acts as an adviser, what are the three common methods of establishing the total construction cost of the project?
Fixed-price / stipulated sum / lump sum method
Cost-plus-fee method
Cost-plus-fee method with a guaranteed maximum price (GMP)
What is the fixed-price / stipulated sum / lump sum method of establishing the total construction cost of a project?
The contractor providing the owner a set price for completing the project
What is the owner’s advantage in the fixed-price / stipulated sum / lump sum method of establishing the total construction cost of a project?
They are not responsible for cost overruns
What is the owner’s disadvantage in the fixed-price / stipulated sum / lump sum method of establishing the total construction cost of a project?
They do not share in any savings that the contractor may realize
What is the cost-plus-fee method of establishing the total construction cost of a project?
The owner paying the actual cost of construction (direct and indirect costs) plus a fee that is agreed upon before construction begins
What is fast-tracking?
Allowing the construction process to begin before the design process is completed
What makes fast-tracking possible?
Architectural and engineering documents being issued in stages (bid packages)
Fast-tracking is most commonly used with which project delivery methods?
Construction manager as adviser (CMa)
Construction manager as constructor (CMc)
Fast-tracking is only compatible with certain project delivery methods. True or false?
False
When a CMa is involved, AIA Document A232 requires both the architect and construction manager to jointly perform what construction administration services?
Visiting sites
Certifying applications for payment
Rejecting work
Reviewing submittals
Investigating concealed / unknown conditions
Determining dates of substantial completion and final completion
Issuing certificates of substantial completion
Deciding matters of performance
Reviewing RFIs from the contractor
When a CMa is involved, what are some of the primary responsibilities of the construction manager?
Scheduling and coordinating the activities of contractors
Facilitating communication between the owner and contractor
Preparing change orders and construction change directives
Keeping the architect informed
When a CMc is involved, what are the only two ways to price the project?
Cost-plus-fee method
Cost-plus-fee method with a guaranteed maximum price (GMP)
When a CMc is involved, the stipulated sum method is not an option. True or false?
True
What is the construction manager at risk (CM@R) project delivery method?
The construction manager as constructor (CMc) method when the guaranteed maximum price (GMP) is established before all details, specifications, and drawings are complete
When a CMc is involved, the architect’s responsibility to provide construction administration services begins when one of three events occurs. What are these three events?
The owner accepts the CMc’s GMP
The owner approves the CMc’s control estimate
The owner issues to the CMc a notice to proceed
When a CMc is involved, what three items are included in the control estimate?
Sum of the construction manager’s estimate of the work plus their fee
Expected date of substantial completion
List of drawings and specifications
Design-build entities are most commonly led by who?
Construction contractor
What are 3 advantages of design-build?
There is a single source of responsibility
The owner receives a fixed price early in the process
Project cost and design time are typically less than in more traditional project delivery approaches
What are X disadvantages of design-build?
The owner has less control over design and construction than in other project delivery approaches
The design-build entity may substitute lower-quality materials to stay within budget
The owner is responsible for developing performance requirements that will act as a program for the designers and constructors
