PcM Mix Flashcards
utilization rate
effective use of labor (direct billable labor/total labor hours)
(how many hours can you actually bill that were dedicated to a specific job - divided by - the total amount of hours worked for a set time)
too high and too low is not good
(best rate is 80% - 90%)
The percentage of an employee’s time that is billable to clients. Calculated using the formula: (billable time/total time) x 100.
claims type insurance
covers claims made during the time of the policy
tail insurance
one time purchased policy that provides continued coverage claims type insurance after the policy has ended. tail insurance is for practitioner no longer practicing who gets a job for a firm where he no longer needs coverage.
prior acts coverage (nose coverage)
type of insurance that will cover the cost of claims that occurred before the policy was in place.
umbrella policy
extra (excess) liability insurance policy that goes beyond the limits of the general policy
cash method accounting
records income and expenses when cash is exchanged
includes profit-loss statement that indicates only the income received and the amounts paid out for expenses that establishes the firms cash-flow management effectiveness, tax liability, and actual receipt or payment of any money
accrual method accounting
records income when services are rendered regardless of when money is actually received (large companies use this method)
includes a profit-loss statement which establishes the net profit of the firm
architects general services
project documentation - (drawings, specifications, program characteristics, construction cost estimate, and illustrative materials).
administering the project- retain most of the professionals involved in a design a forms a single cohesive team, thereby administering the project.
consult regularly with owner.
attend meetings.
private clients
more room to profit.
less turnover.
can receive tax incentives for providing sustainable resources or affordable housing.
more opportunity to for architect and client to come to the table equally during contract negotiation
don’t answer to voting members of the community
can establish a normal designer-client relationship and architect can selectively choose what they would like to present to the clients company, staff, and community.
public clients
have to answer to voting members of a community (answer to constituents)
voters more involved because taxpayers , rather than banks, provide funding
often have predetermined contracts legislatively approved
turn-over is a concern is a concern because of elections and limited terms. little control who comes into office next (may oppose project)
benefits of diversifying beyond traditional architectural services
collaboration with different kinds of designers
additional streams of revenue
opportunity to deliver a more holistic solution to clients
construction type firm with most billings on average
institutional (53%)
commercial (27%)
residential (14%)
true or false?
architects perform supervision of construction work?
false
it would open the architect up to liability they are not insured for
true or false?
providing a list of services not included helps to provide a clear understanding of what the architects is responsible for and what the owner is paying for
true
true or false?
providing language in an agreement to clarify ownership and use of documents is important to protect intellectual property of the architect
true
true or false?
Architectural services should be delivered with the utmost standard of care
false
not utmost, not highest
(see standard of care)
true or false?
description of proposed scope, fees, and payment terms are standard agreement items
true
key categories to consider when discussing the perception of competing firms
services they offer
office location to identify their markets and ability to attract clients
key clients and projects to help form a marketing and business strategy, staffing, and organizations to join
markets they work in
AIA B101
standard agreement between owner and architect
services are divided into basic, supplemental, and additional
always get a signed agreement prior to starting work- otherwise the architect has no recourse if there is non-payment
AIA B101 SP
standard agreement between owner and architect for use on a Sustainable Project
AIA B214
standard form of architects services: LEED Certification
An ethical practice includes four categories, what are they
character based ethics (virtue)
(i.e.- develop a diversity culture within the firm)
contract based ethics (social contract)
duty based ethics (deontology -rule based)
results based ethics (consequentialism)
net operating revenue equation
total operating revenue - minus - operating expenses
account for backlog if stated in question
schedule -c
as a sole proprietor, you file your business income on schedule c along with form 1040, AND you’re taxed on your personal tax rate
form 1040
this is the form you file your personal taxes on
form w-2
this form is used by employers to report their employees wages
form 1099
this form is for an independent contractor
entities that have a “flow through” tax structure
partnership
sole proprietor
s-corp
(income flows directly to business owner. entities above are not taxed on losses or income. income is treated as owners personal income or loss)
(also called “pass-through entities)
true or false?
if you are in a partnership with other architects and are sued and judged to be found at fault and must pay a monetary judgement, each partner is required to pay as much of the judgement as his/her personal assets allow.
true
each partner is responsible for the firms actions. if the judgement exceeds the amount the firm can pay and other partners can pay, the partner with assets is liable for the remaining judgement regardless of what his/hers ownership percentage is.
which project delivery method results in lower architectural fees?
Design-Bid-Build
architect has the most control and smoothest workflow.
this method also gives the contractor least control
purposes of a good, highly evolved, professional training and development program
ensures employees are kept well informed of changing trends and regulations in the field
attracts and retains the high quality talent who strive to keep their skills up to date
helps enhance and advance an employees career
project insurance
insurance the architect should get for larger projects.
benefits of changing from sole proprietorship to corporation or partnership
shared responsibility, risk, and reward
financial stability
more growth opportunities and more opportunity for staff to be identified and promoted
operational ineffectiveness
when revenues rise and so do expenses, this indicates a problem with operations. working harder to make less money.
(ideally when revenue rises, expenses should stay relatively flat so that the firm can realize their profits)
bottom up analysis
this analysis considers the efforts associated with each task during each phase of the project and includes the efforts to resolve risks. It tends to be higher than other methods are because ALL efforts and risks are considered
top down analysis
this approach starts out with an idea of what the total fee should be. It can be based on experience with similar types of projects/clients, specific market, or competition, or it can be a percentage based on construction costs. Once the total fee has been established, it is divided among consultants and contingencies, resulting in a net fee for architectural services.
staff analysis
staff analysis considers the duration’s and staffing requirements necessary to complete each phase. For example, it may take two staff members four weeks to complete the schematic-design phase, which can be used in comparison with the bottom-up and top-down methods
practical ways to manage quality
in house third party reviews
self checking
peer reviews
to develop stronger leadership skills, consider focusing on……..
credibility
leadership corresponds with people choosing to follow another. Credibility is at the heart of leadership. In order to follow, people expect leaders to be competent, honest, have vision, and be able to inspire.
types of commercial insurance provided under an architects professional liability coverage
intellectual property insurance- protects against copyright, trademark, or patent infringement
workers comp- insurance providing wage replacement and benefits to employees injured at work in exchange for mandatory relinquishment of the employee’s right to sue the employer for negligence.
employment-practices liability coverage- helps protect against claims brought by employees, such as discrimination, sexual harassment, and wrongful termination.
fidelity bonds- a blanket form of bond covers all employees for the theft of funds. It involves all persons with the custody or disbursement of funds, management of the firm’s finances, authorization of payments, purchasing, and other activities requiring the use of funds
two key issues for the architect in contract agreements are……
profitability- commisions
insurability- agreeing to take on responsibilities excluded by a firm’s professional-liability insurance policy could leave a firm uninsured when claims arise or even out of business.
FICA
tax both employees and employers pay that funds medicare and social security
SECA
the self employed version of the FICA tax
one concern with Integrated Project Delivery
unsupported insurance policies- integrated project delivery encourages team members to collaborate, which blurs lines of roles and responsibilities. Blurring these lines presents opportunities for liabilities.
possible client risk issues
the client’s dreams exceed the reality of his or her funding
the client’s expectations of error-free, nearly perfect drawings
the client’s expectations of error-free, nearly perfect drawings
four characteristics stipulated or lump sum contract
client must have the total fee before starting the project
client has extensive experience in the project type
hotel, hospital, or other project consisting of many similar units
well-defined project scope
possible consequential damage examples
the value of the project is less than anticipated due to non-conforming work
the contractor incurs added overhead and insurance costs when the owner delays the project by 30 days, halfway through construction
(other examples could be lost income, lost productivity, rents, and profits resulting from a construction defect)
NOT reimbursables
architect basic services
submittals
schematic design phase
competitive bidding
main categories to manage risk
control risk- adopt best practices and educate staff. Seek good counsel to prevent or reduce losses when claims emerge
assume risk- accept appropriate work but maintain enough cash to satisfy insurance deductibles responsibly
avoid risk- select project types that fit with prior experiences, and work with clients with excellent reputations
transfer risk- contracts appropriately transfer risk to the client or downward to a consultant. Insurance transfers risk to a financial business partner.
examples of reimbursable expenses
renderings requested by the owner
out of town travel
architects consultant expenses
taxes on reimbursable expenses
printing
true or false?
an unreasonably high standard of care may render professional liability insurance void
true
professional liability and the standard of care are linked
form 1120S
form used to report income, losses, and diveidends of an s-corp
(remember- 1120 (S)- the S reminds you of the s-corp)
schedule K-1
s-corporation provides this form to report each shareholders share of income, losses, and deductions and credits
construction manager delivery method
in a construction manager project delivery system, the construction manager is brought in early, sometimes even before the architect. This project delivery method is usually cost-plus accompanied with a guaranteed maximum price (GMP) which means the owner pays for the cost of the work, plus an agreed upon fee. Any cost overruns are the responsibility of the construction manager. This method gives the owner an ‘open book’ on project costs and procurement, meaning they can audit the project at any time. Since the contractor is brought in early and is able to advise on costs from the beginning, a CM GMP project delivery is good for when costs are an important consideration
the first step to resolving a dispute
negotiation- the most informal form of dispute resolution
mediation is the second most informal form
(then arbitration)
(final is litigation)
best way to improve firm finances
increase revenues without increasing expenses
common limitations an architect should consider are …..
limiting the architect’s liability for the accuracy of its cost estimates to redesigning at the architect’s expense- the architect should not be required to redesign continually at his or her own expense.
disclaiming responsibility for an owner’s decision made without the architect’s approval- the architect cannot be responsible for items the owner has selected or approved without the architect’s input or review.
disclaiming the architect’s responsibility for the contractor’s means and methods of construction- the architect should never get involved in means and methods of construction
disclaiming responsibility for hazardous materials unless stated otherwise in the agreement- an architect should always refuse liability against hazardous materials in the field.
a stipulated sum should include…….
profit
consultant services
overhead
best way to market an architecture firm is….
word of mouth
the most important advantage to structuring a firm as a corporation is…..
personal liability- as a shareholder of a corporation that practices architecture, you have the advantage of generally not being personally liable for the obligations of the corporation, except for any negligence in work performed by you or any person under your direct supervision and control
the industry benchmark for the profitability rate for a small firm is…..
13%-
industry benchmarks are published by the AIA and others. A 13% profitability rate (net revenue divided by net… ) is the industry benchmark for a small firm
what defines a professional?
adding to and improving the wealth of knowledge on a subject - professionals must do more than just engage in a transaction; they must add to and improve knowledge on a subject
Engaging in mentorship- mentoring youth is an important aspect of a profession.
Combining and applying theory and knowledge - being a professional means that answers are not always readily apparent. Professionals use knowledge and theory to make informed judgments.
Meeting a required level of education- professions set strict education standards to meet.
(note- professionals do not need to be members of a club and they do not need to be registered with the state)
how often do sole proprietors pay estimated income tax?
quarterly
note- taxes need to be paid annually, but estimated payments must be made quarterly
important things to look for in a non-AIA agreement are…
Scope of work- in order to avoid scope creep and potential additional services, both parties need to understand the scope of work involved
Payment method- knowing how much you will get paid is as important as know how you will get paid. It’s possible to list the fee and forget to list the payment method. This could lead a potential dispute over a misunderstanding of the payment terms.
Consultant responsibilities- in some scenarios the owner will hire all the consultants, and sometimes the architect hires some of them. Knowing which consultants are under the architect and which are under the owner will affect your fee / scope of work.
Fee- it is imperative for the client to understand, upfront, how much they will be paying you for services rendered.
Ensuring a LEED rating - this is dependent on not only the contractor, but the architect, subs, and the owner as well. It does not have a permit, though there are fees involved
Ensuring substantial Completion- while the architect can list the date of Substantial Completion and state when it is met, he has no control over the construction delays or the construction process.
Paying for the building permit- the contractor is responsible for securing and paying for the building permit
important logs for an architect to keep record
Phone log- submittal logs help the manager keep track of the progress of the project and provides a recording and communication tool for team members.
Submittal log- submittal logs help the manager keep track of the progress of the project and provides a recording and communication tool for team members
a sole proprietorship’s limit of business and professional liability is….
There is no limit- a sole proprietor’s liability for both business liabilities and errors and omissions is unlimited. In the event of a claim against an architect, the E and O insurance provider will pay damages to a certain extent, but the sole proprietor would be personally liable after that
liquidated damages
If the contract contains liquidated damages clause, it is usually for an amount of money to be given to the owner for a breach of contract resulting in loss of revenue from the delay of an anticipated opening date. Liquidated damages aren’t popular, however, because contractor’s will pad their bids when they see them
strategies for managing in-house risk
Have the project manager review his or her own contracts in addition to a set person within the firm who is familiar with contracts- this approach is good for familiarizing the project manager with the contract, enabling him or her to provide input on the contract he or she will be managing.
Provide access to signed contracts for the entire team’s review - any member of the team may need to review the contract throughout the project. It is a best practice to keep this visible and accessible to the entire team
Save all contracts to a general office directory of the firm’s contracts- this is good for archived projects whose contracts you may need to reference a few years down the road
actions an architect can take against a client to ensure payment
Provide any required additional information in support of the invoices- owners sometimes require reimbursables, timesheets, receipts, and documents, etc. to provide payment.
Make deliverables contingent upon payment- an architect can hold drawings, shop drawings, and RFIs, etc. until the client makes payment.
Provide a letter from an attorney- a stern letter from an attorney will get the client’s attention and help obtain payment.
Charge interest and insist on the payment- interest stipulated in the AIA contract will get the owner’s attention because it can add up rather quickly.
all risk insurance
a type of property insurance that provides broad coverage
five phases of an architects basic service
schematic design SD 10%
design development DD 25%
construction document CD 40%
bidding (procurement) B 5%
construction administration CA 20%
parties responsible for submitting documentation to LEED administrator for certification
Landscape Architect- the Landscape Architect is responsible for providing LEED credit documents related to site work, vegetation species documentation, and landscape designs
Owner- the owner is responsible for providing ownership documents and authorization signatures throughout the certification documentation submittal process
Contractor- the contractor is responsible for multiple LEED credit compliance submittals.
Commissioning Agent- the Commissioning Agent is responsible for LEED credit documentation and submittals in both Design and Construction phases
architects supplemental services
Commissioning- commissioning, B101-2017 Article 4.1.1.23, is a Supplemental service
LEED Certification Administration- as-constructed record drawings, B101-2017 Article 4.1.1.16, are a Supplemental service
Historic preservation- historic preservation, B101-2017 Article 4.1.1.27, is a Supplemental service
Horizontal department method
This method divides the staff into departments who each complete one portion of the project.
Vertical project method
This method divides the staff into project teams who work on one project beginning to end.
Matrix method
As the matrix method is a mix of the horizontal department method and the vertical project method.
when an unforeseen change in scope happens, the architect should….
Proceed with the changes after signed agreement from the owner
Amend the project contract for this change in the scope of services
Amend the project schedule to allow for this additional scope
SMART goals
Specific Measurable Attainable Relevant Time- Bound
true or false?
Electronic data is covered under professional liability insurance.
false
specific coverage must be purchased for this
Beacon Residential Community vs SOM (2014)
This case demonstrates privity of contract.
Beacon Residential Community Association, an HOA, sued various parties including SOM, alleging construction and design defects in a condominium project. The deficiencies included water intrusion, structural cracking, inadequate fire separation, inadequate windows, and adequate ventilation.
It is a common law rule that only parties to a contract have rights or responsibilities under that contract. This is called privity. However, the idea of privity has been eroding over the years. In this case, the architect was contracted with the developer, not the HOA and the architect claimed that the changes that caused the damage resulted from value engineering changes made by the developer. The architect made the case that they did not have a contract with the owner and that the HOA is unhappy the fault lies with the developer.
The California Supreme Court ruled in favor of the HOA, saying that the architect does have a duty to the homeowners.
United States vs Spearin (1918)
This case, also known as the Spearin Doctrine, says the contractor is not responsible for defects in the documents.
Spearin was a contractor for a project at the Brooklyn Navy Yard. They were contracted to build a dry-dock from plans and specifications provided by the US Navy. Part of the project included moving an existing sewer line that ran through the proposed dry-dock. Spearin moved the sewer line per plans and specs.
Nearly a year later, the city flooded and so did the relocated sewer and the dry-dock site. It was determined that the plans and specifications provided by the US did not show a dam in a nearby sewer, which caused the flooding to occur. This led to a dispute and the US Navy discontinuing their contract with Spearin. The US Navy said Spearin should have known about the site conditions and should therefore be responsible for the damage.
Spearin’s claim was they followed the plans and specifications given, but that the documents were wrong and they should, therefore, not be held liable for the damage. The court ruled in favor of Spearin. The court held the view that the general clauses of the contractor becoming familiar with the site and plans did not overcome the implied warranty.
The result of this case is that the owner of a construction project implicitly warrants the adequacy of design plans and specifications to the contractor. Note that the warranty is not supplied by the architect, but by the owner.
Duncan vs. Missouri Board of Architects (1988)
Duncan vs Missouri Board of Architects was a case that arose out of the collapse of the Kansas City Hyatt Regency catwalks in 1981.
The walkways of the 2nd and 4th floors that crossed the atrium were suspended using a hanging rod system. These walkways collapsed, causing 114 fatalities and several more were injured. This is one of the most destructive structural failures in US history.
The collapse was attributed to a change in the design of the support of the walkways. Where the original design called for the box beams of both the 2nd and 4th floors to be supported by the same 6 continuous vertical rods. A change proposed by the fabricator called for changing the single rod system to a double rod system. Instead of 6 continuous rods, 12 double rods were proposed. This doubled the load on the 4th floor walkway nuts. The engineers approved the changes through the shop drawing process without reviewing the impact of the changes on the loading.
Duncan, the project’s engineer, along with the engineer of record, Jack Gillum, were found to be grossly negligent.
Perini Corp vs. Greate Bay Hotel and Casino (1922)
Perini Corporation v. Greate Bay Hotel and Casino illustrates consequential damages.
Perini was the prime contractor on a hotel and casino project in Atlantic City, New Jersey. Perini finished the work late and the casino claimed that because of this, they lost millions in profit for which the contractor was liable.
An arbitrator ruled in favor of the casino, awarding them 14 million in damages, more than twice the fee that Perini took for the job. Perini appealed all the way to the state supreme court who upheld the arbitrator’s decision.
As a result, the AIA documents include mutual waivers of consequential damages. See AIA A201 Section 15.1.6 and B101 Section 8.1.3.
the three critical terms that must be established in every contract are….
Scope
Timeline
Fees
Asset Purchase
Asset purchase is where the selling firm sells and transfers to the acquiring firm all or a substantial portion of its assets, including office furniture and equipment, the office lease, existing contracts with clients and other third-parties (to the extent transferable), business files, accounts receivable, and cash on hand or in bank accounts.
Buy-Out
a process by which someone purchases a controlling share in a company.
Buy-Sell Agreement
agreement states the terms under which an owner may withdraw from the firm voluntarily, including a transfer of such owner’s interest in the firm back to the firm or the other owners.
