PcM/PjM_PPI/HYPER Flashcards
The Seven Key Indicators for the Accrual P/L Statement
- Utilization Rate
- Overhead Rate
- Break-Even Rate
- Net Multiplier
- Profit-to-Earnings Ratio
- Net Revenue Per Employee
- Aged Accounts Receivable
managing your firm’s finances is a relatively simple process consisting of three tasks:
- Measuring the variances between your year-to-date actual financial activity and your year-to-date budget
- Understanding why these variances have occurred
- Taking prompt, corrective action, as necessary
Utilization Rate
- Formula: Direct labor (project-related hours) / Total hours worked × 100
- Targets: All staff: 60 to 65 percent; professional/technical staff (incl. principals): 75 to 85 percent
- Measures: Overall efficiency and effective use of labor; not a measure of productivity.
- Utilization Rate also can’t account for the efficiency of the actual work (productivity)
- So 1:4 is a ratio and it’s equivalent to saying 25%.
Overhead Rate
- Formula: Total indirect expenses / Direct labor
- Target: 1.5 to 1.75 (or 150 to 175 percent) of direct labor
- Measures: The cost of operating your business that cannot be attributed directly to projects. This is the most critical indicator; if unknown or calculated incorrectly, profitability cannot be measured
Break-Even Rate
- Formula: Overhead rate + 1.0
- Target: 2.5 to 2.75 (or 250 to 275 percent) of direct labor
- Measures: Your total cost of doing business for every dollar spent on direct labor. When developing project fee budgets, calculate this indicator for every team member. Add desired profit to determine billing rates.
Net Multiplier
- Formula: (net operating revenue / total direct labor)
(break-even rate / inverse of profit) - Target: 2.75 to 3.25 or better
- Measures: The revenue generated for every dollar spent on direct labor. Compare with the break-even rate to determine if profit is being generated.
Aged Accounts Receivable
- Formula: Annual average accounts receivable / (net operating revenue / 365 days)
- Target: 45 to 60 days or less
- Measures: Average time interval between invoice date and date payment is received- For example, if you have an annual average accounts receivable of $125,000 per month and annual net operating revenue of $1,000,000, then your aged accounts receivable is 125,000 ÷ (1,000,000 ÷ 365), which is equal to 45.6 days.
Profit to Earnings (P/E) Ratio
- Formula: (profit before distributions and taxes / net operating revenue)
- Target: Equal to or greater than the anticipated profit in the annual profit plan
- Measures: The firm’s effectiveness in completing projects profitably.
- Profit is what remains after all expenses, including salaries, have been accounted for, and before non-salary distributions are made to shareholders and employees and income taxes for the firm are paid.
- The P/E ratio indicates the firm’s effectiveness in completing projects profitably. The higher the number, the more profitable the firm is.
Net revenue per employee
- Formula: Annual net operating revenue / the number of employees
- Target: As high as possible.
- Measures: Revenue earnings per employee. Helps establish a realistic target for the net operating revenue in the budget for the coming year
High Performing Firms
- minimum 20 percent Operating Profit Rate and minimum 3.00 Net Revenue Multiplier
- total utilization ratio of about 60%
- From AHPP, target for the entire firm is 60%-65% and for principals and architects it
should be above 75%.
General Liability
- General Liability is the baseline for all business insurance
- if you’re interacting with clients face to face (at their place of work or at yours) you risk the chance of them getting injured, which could lead to a lawsuit.
- This type of coverage offers protection against any third-party lawsuits arising from bodily injury, property damage (caused by you or an employee), rental property damage, financial loss, etc.
COVERAGE IS HIGHLY SPECIFIC
- A general liability policy provides coverage for claims against the named insured involving third-party legal liability, but it doesn’t cover professional, automobile, and workers’ compensation exposures.
- general liability policy covers only the named insured; it does not protect employees, unless specifically endorsed to provide for such an extension of coverage.
LIABILITY LIMITS ARE BASED ON OCCURRENCE COVERAGE
(1) the dollar amount of the claim for each occurrence or accident and
(2) the aggregate dollar amount for all claims
CONTRACTUAL LIABILITY COVERAGE SHOULD BE INCLUDED
- the design professional can encounter a variety of business contracts, including office leases, purchase orders, service agreements, and the like any of which may contain a hold-harmless provision that will contractually transfer another’s legal liability to the design professional.
- When these are found, the design professional should obtain a coverage extension if the general liability policy does not already have one.
Professional Liability (Errors & Omissions)
- Professional liability insurance will protect you and your company against any claims made by a client regarding negligence, and will cover defense costs and settlement payments (up to policy limits) for any allegation that your work or advice was inadequate
- While not a contractual obligation, this coverage protects you and your company from any damage perceived to result from your services.
Workers’ Compensation
- in most states workers’ compensation insurance is a requirement for businesses with one or more employees.
- It will cover any injury that occurs at the workplace or at any location where the employee is acting in the “course and scope” of employment.
- having workers’ compensation may be a wise purchase, given that it will help cover all medical expenses and loss of wages.
PROFESSIONAL LIABILITY INSURANCE IS CLAIMS-MADE
- traditional insurance method
- the coverage had to be in effect when the negligence occurred and the policy must provide coverage at the time the claim is made against the professional—even though this can be years after services are performed and projects are completed
- Claims-made policies are common to professional liability insurance and should not be confused with occurrence policies common to general liability insurance.
- Under a claims-made policy, all coverage ceases when the policy is canceled or not renewed (by the firm or the insurer), even though the design professional may have been insured when the services were rendered
- The claims-made basis is used for professional liability insurance coverage because it makes costs to insurers more predictable.
- So if professional liability insurance were sold on an occurrence basis, the premium would have to be calculated for allegations of negligence for many years or even many decades
- If a firm switches carriers, prior acts coverage, as described below, usually is available to cover the risks from the earlier period.
occurrence policy
- a claim filed after policy cancellation or renewal will be covered if the policy was in force when the incident that caused the claim occurred, regardless of whether the insured was covered when the claim was made
Tail coverage / prior acts coverage
- to cover claims occurred between transition from one insurance to another.
Broad policies
- Broad policies insure not only the firm as the “named insured” but also any partner, executive officer, director, stockholder, or employee of the insured firm when that individual is acting within the scope of professional duties.
- This includes former employees for their actions while at the insured firm
preclude
prevent from happening; make impossible.
Exclusions
- Exclusions are sometimes added to preclude coverage for identifiable risks
- This can be done to reduce the cost of the policy (or allow coverage in situations where risks cannot be determined).
Endorsements
- Endorsements expand coverage and can carry an additional premium cost
- sometimes they are included automatically at no extra cost
- Endorsements may include, for example, first-dollar defense, special project additional limits, expanded equity interest, and design/build coverage.
How much insurance a firm buys
- a function of its financial needs (including those of its principals)
- its tolerance for risk
- its confidence in risk management abilities
- the demands of clients
- Minimum per-claim and annual aggregate limits of liability for errors and omissions insurance are usually set at $100,000, with maximum limits running as high as $25 million
Aggregate
- limits of liability are available to pay for claims and associated legal expenses in a policy term
- The costs of claims and legal expenses that exceed the limits must be absorbed by the firm
- With most policies, the firm receives a new limit each policy year
- Some insurance programs permit their policyholders to buy excess limits for specific projects or to buy “split limits” with one limit for each claim and another for the aggregate claims in a year that are eroded by each claim payment
Deductibles
- Deductibles as low as $1,000 can be available, but many firms increase their deductibles to lower their premium costs
- As with most insurance, the higher the level of risk retained by the insured, the higher the deductible and the lower the premium cost.
premium
- Each firm’s premium is calculated individually, based on such factors as the firm’s practice, project mix, claims experience, coverage needs, and resulting risks to the insurer.
- the more specific and unambiguous the information provided, the more likely the premium will be minimized.
POLICIES COVER SERVICES, NOT CONTRACTUAL LIABILITY
- Professional liability insurance companies provide coverage only for the insured firm’s negligence in performing or furnishing professional services.
- The firm has a duty to meet the standard of care for the services it has undertaken
- Coverage for express warranties and guarantees is excluded under most policies
indemnification
- Most professional service agreements published by the AIA and Engineers Joint Contract Documents Committee (EJCDC) do not include any specific indemnity provision protecting the client; the documents rely on common law rather than a contractual commitment
- Many states have “anti-indemnity” statutes to regulate the use of indemnification clauses in construction contracts
- some states prohibit these clauses completely if the provision requires one party to pay on behalf of the other party’s negligence
- A promise to indemnify may fall within the scope of professional liability insurance coverage if it is based on harm actually caused by the failure of the professional to meet the standard of care for the services performed, but care should be taken to avoid overly broad wording that cannot be covered by insurance.
vicarious
- experienced in the imagination through the feelings or actions of another person.
- secondary, secondhand
CONSULTANTS AND VICARIOUS LIABILITY
- A design professional routinely retains consultants. This relationship means that the design professional also has vicarious liability for any damage caused by the consultant’s negligence.
- Insured design professionals will want to review their consultant’s insurance status
PROJECT-SPECIFIC PROFESSIONAL LIABILITY INSURANCE
- Project insurance covers the design team participants—even those who are otherwise uninsured.
- Project insurance is intended to cover only one project and is usually paid for by the owner who wants coverage beyond that normally carried by the firms.
- Such coverage is sometimes limited in availability, and when offered on larger projects it can be very expensive.
JOINT VENTURES INSURANCE
- From a legal standpoint, a joint venture is quite similar to a partnership, ; the main difference is that a joint venture normally has a more limited scope or purpose
- Broad policies provide automatic joint venture coverage
- Some insurers exclude joint ventures from the basic policy; coverage for joint ventures with other design professionals may be available by special endorsement for specific situations. This endorsement extends the coverage under the basic policy to provide.
- However, coverage for other participating firms in the joint venture is not provided by
this endorsement - it is more equitable if the policies are all with the same carrier with the limits and deductibles in similar amounts for all firms
- The joint venture might be capable of obtaining a project policy.
- This is especially helpful if the joint venture is organized as a separate business operation, such as a limited liability partnership or corporation
- A project policy covers a prime professional and all other professional participants for a specific period of time.
STRATEGIC ALLIANCES NEED SPECIAL ATTENTION OF INSURANCE
- Strategic alliances are business ventures
- Clients, or other parties, claiming harm from the actions of a strategic alliance may be able to recover from any member of the alliance
- the insurance concerns of a strategic alliance should be the equivalent of any joint venture or partnership.
- Firms often rely on their practice policies of professional liability insurance to protect and defend them in loosely structured business combinations
AIA-2017 B101 is the Owner-Architect Agreement. Article 2 Section 5 requires the following insurance types
» Commercial General Liability
» Automobile Liability
» Workers Compensation
» Employers Liability
» Professional Liability
AUTOMOBILE / AIRCRAFT / WATERCRAFT INSURANCE
- While all auto insurance policies are similarly structured, there are important distinctions between personal and commercial vehicle coverage. Typically, commercial coverage carries higher liability limits and includes special provisions for rented and other non-owned vehicles, including employees’ cars driven for company business
Employer’s Liability insurance
- As an employer, the design professional can be subjected to claims by employees for job-related injuries. In most instances, these claims are covered by workers’ compensation rather than being treated as common-law actions.
- Situations may exist in which an employee’s injury isn’t covered under workers’ compensation. In these instances, the employee may attempt to sue the employer. Employee suits are excluded both under general liability and workers’ compensation policies, and a potential coverage gap exists
Foundation sinks because Geotechnical report listed incorrect soil bearing capacity.
How insurance works?
- Geotechnical report is provided by the owner and the Architect is allowed to rely on the
owner to provide accurate information.
Foundation cracks because PE provided incorrect rebar size and space for architect to use in drawings and specs. How insurance works?
ARCHITECT’S PROFESSIONAL LIABILITY…then insurance company may try to recoup cost
from PE
allegation
- a claim or assertion that someone has done something illegal or wrong, typically one made without proof.
- claim, statement
Insurances that most states require
- workers’ compensation insurance
- unemployment insurance
- state disability insurance
CYBER LIABILITY INSURANCE
- Firms are also subject to providing legally required notices and meeting other regulatory obligations. Firms may face breach of contract, confidentiality, and other legal challenges as well.
- In addition, other costs will include up-front investigation, data restoration, business interruption, and public relations
rectify
put right; correct.
extortion
- the practice of obtaining something, especially money, through force or threats.
- blackmail
COMMERCIAL PROPERTY INSURANCE
- Property insurance covers everything related to the loss and damage of company property due to a wide variety of events, such as fire, smoke, wind and hail storms, civil disobedience, and vandalism
- “property” is broad and often includes lost income, business interruption, buildings, computers, company papers, and money
- Property insurance policies come in two basic forms
- all-risk policies covering a wide range of incidents and perils except those noted in the policy; and
- peril-specific policies that cover losses from only those perils listed in the policy.
EXCESS (UMBRELLA) LIABILITY INSURANCE
- This policy will provide higher limits in conjunction with underlying general liability, automobile, and employer’s liability policies
- the cost of an umbrella liability policy is not significant.
- Professional liability is not commonly included
DESIGN PROFESSIONAL’S PROPERTY INSURANCE
- The design professional’s office building or the leasehold improvements where the design professional is a tenant should be insured by a standard policy covering named perils or by a broader all-physical-loss form, which is generally available.
OFFICE CONTENTS INSURANCE
- The design professional’s office contents can be insured by a standard policy covering fire, windstorm, and other extended coverage perils.
- Portable equipment that may be used outside the office can be insured under an all-risk floater policy. Money, securities, checks, travel tickets, and other negotiable instruments can be insured under a blanket crime or similar policy.
VALUABLE DOCUMENTS INSURANCE
- This insurance is one of the most important property coverages sought by design professionals. It covers the total value of documents lost or destroyed by any of the means described in the policy and is generally an “all-risk” coverage.
BUSINESS INTERRUPTION INSURANCE
- Business interruption insurance reimburses the design professional for continuing fixed expenses and for loss of profits in the event fire or other casualty interrupts normal business operations.
- This insurance can be written to cover fire, windstorm, extended coverage perils, computer crashes, and other hazards.
FIDELITY BONDS AND CRIMINAL LOSS INSURANCE
- all persons involved with authorization of payments to subconsultants or others, purchasing, and other activities requiring liability for the misuse of funds of others should be bonded
- Money, securities, checks, and other negotiable paper may be insured both inside and outside the insured’s premises under a broad-form money and securities policy to include loss by robbery, burglary, theft, and disappearance or destruction by fire or other causes.
- Comprehensive bonds or blanket crime policies are available.
disbursement
- the payment of money from a fund.
DIRECTORS AND OFFICERS LIABILITY INSURANCE
- With corporations that means the firm not only has to meet the legal requirements set out by state law, but also protect those who owe a duty to the business entity.
- Directors and Officers (D&O) coverage provides protection for leaders of a firm established as a corporation against claims alleging breach of duty, negligence, error, or misrepresentation.
- Directors and officers are responsible for knowing how the firm is operating and making policy and managerial decisions that are intended to benefit the shareholders
FIDUCIARY LIABILITY INSURANCE
- The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for pension plans in private industry.
- ERISA generally defines a fiduciary as anyone who exercises discretionary authority or control over a plan’s management or assets, including anyone who provides investment advice to the plan.
- This liability insurance provides protection for fiduciaries against liabilities that arise from their administration and oversight of any employee benefit or pension plan.
HR MANAGEMENT / HR OUTSOURCING / PEO
- HR functions are time consuming and may force your architectural firm to stop designing to spend time administering
- A Professional Employer Organization (PEO) can help you to manage critical HR administration and ever-changing regulatory issues along with every aspect of the employee life-cycle including payroll, benefits administration, human resources tasks such as hiring and training, workers’ compensation, compliance, and 401K administration.
The three tiers of the AIA Code of Ethics
- Canons : broad principles of conduct.
- Ethical Standards (E.S) : more specific goals toward which Members should aspire in professional performance and behavior
- Rules of Conduct : mandatory, violation of a Rule is grounds for disciplinary action by the Institute. In some instances, implement more than one Canon or Ethical Standard.
The six canons of the code of ethics
» General Obligations
» Obligations to the Public
» Obligations to the Client
» Obligations to the Profession
» Obligations to Colleagues
» Obligations to the Environment
The Model Rules of Conduct are NCARBs ethical standards. What those are?
» Competence
» Conflict of Interest
» Full Disclosure
» Compliance with Laws
» Signing and Sealing Documents
The following practices are not, in themselves, unethical, unprofessional
(1) submitting, at any time, competitive bids or price quotations, including in circumstances where price is the sole or principal consideration in the selection of an architect;
(2) providing discounts; or
(3) providing free services.
CANON I General Obligations
- Members shall demonstrate a consistent pattern of reasonable care and competence, and shall apply the technical knowledge and skill which is ordinarily applied by architects of good standing practicing in the same locality.
- Standards of Excellence: Members should continually seek to raise the standards of aesthetic excellence
- Knowledge and Skill: Members should strive to improve their professional knowledge and skill.
- Natural and Cultural Heritage: Members should respect and help conserve their natural and cultural heritage
- Human Rights: Members should uphold human rights
- Members shall not engage in harassment or discrimination in their professional activities on the basis of race, religion, national origin, age, disability, caregiver status, gender, gender identity, or sexual orientation.
- Members shall not engage in conduct involving wanton disregard of the rights of others.
- Design for Human Dignity and the Health, Safety, and Welfare of the Public:
- Allied Arts and Industries: Members should promote allied arts and contribute to the knowledge and capability of the building industries as a whole.
wanton
(of a cruel or violent action) deliberate and unprovoked
deliberate
done consciously and intentionally.
“a careful and deliberate worker”
provoke
stimulate or give rise to (a reaction or emotion, typically a strong or unwelcome one) in someone.
unprovoked
(of an attack, or a display of aggression or emotion) not caused by anything done or said.
CANON II Obligations to the Public
- Members shall not knowingly violate the law.
- Members shall neither offer nor make any payment or gift to a public official with the intent of influencing the official’s judgment in connection with an existing or prospective project in which the Members are interested.
-
the Members become aware of a decision taken by their employer or client which violates any law and which will materially affect adversely the safety to the public, the Members shall:
(a) advise their employer or client against the decision,
(b) refuse to consent to the decision, and
(c) report the decision to the local building inspector charged with the enforcement of the applicable laws unless the Members are able to resolve by other means. - Public Interest Services: Members should render public interest professional services, including pro bono services, and encourage their employees to render such services.
- Civic Responsibility: Members should be involved in civic activities as citizens and professionals, and should strive to improve public appreciation and understanding of architecture and the functions and responsibilities of architects.
- Members making public statements on architectural issues shall disclose when they are being compensated for making such statements or when they have an economic interest in the issue
- When performing professional services, Members shall make reasonable efforts to inform their clients of the potential environmental impact
CANON III Obligations to the Client
- Competence: Members should serve their clients in a timely and competent manner.
- In performing professional services, Members shall take into account applicable laws and regulations. Members may rely on the advice of other qualified persons as to the intent and meaning of such regulations.
- Members shall not materially alter the scope or objectives of a project without the client’s consent.
- A Member shall not render professional services if the Member’s professional judgment could be affected by responsibilities to another project or person, or by the Member’s own interests, unless all those who rely on the Member’s judgment consent after full disclosure.
- When acting by agreement of the parties as the independent interpreter of building contract documents and the judge of contract performance, Members shall render decisions impartially.
- Members shall not intentionally or recklessly mislead existing or prospective clients about the results that can be achieved through the use of the Members’ services, nor shall the Members state that they can achieve results by means that violate applicable
law or this Code.
candor (candid)
- the quality of being open and honest in expression; frankness.
- “a man of refreshing candor”
CANON IV Obligations to the Profession
- Members having substantial information which leads to a reasonable belief that another Member has committed a violation of this Code which raises a serious question as to that Member’s honesty, trustworthiness, or fitness as a Member, shall file a complaint with the National Ethics Council.
- Members shall not sign or seal drawings, specifications, reports, or other professional work for which they do not have responsible control.
- Members speaking in their professional capacity shall not knowingly make false statements of material fact.
- Members shall not make misleading, deceptive, or false statements or claims about their professional qualifications, experience, or performance and shall accurately state the scope and nature of their responsibilities in connection with work for which they are claiming credit.
- Members shall make reasonable efforts to ensure that those over whom they have supervisory authority conform their conduct to this Code.
Responsible control
Responsible control means the degree of knowledge and supervision ordinarily required by the professional standard of care. With respect to the work of licensed consultants, Members may sign or seal such work if they have reviewed it, coordinated its preparation, or intend to be responsible for its adequacy.
CANON V Obligations to Colleagues
- Professional Environment: Members should provide their colleagues and employees with a fair and equitable working environment, compensate them fairly, and facilitate their professional development.
- Members who have agreed to work with individuals engaged in an architectural internship program or an experience requirement for licensure shall reasonably assist in proper and timely documentation in accordance with that program.
- Members shall recognize and respect the professional contributions of their employees, employers, professional colleagues, and business associates.
- Members leaving a firm shall not, without the permission of their employer or partner, take designs, drawings, data, reports, notes, or other materials relating to the firm’s work, whether or not performed by the Member.
CANON VI Obligations to the Environment
- Energy conservation: Members should set ambitious performance goals for greenhouse gas emission reduction
- Water Use: Members should optimize water conservation in each project to reduce water use and protect water supply,
- Building Materials: Members should select and use building materials to minimize exposure to toxins and pollutants in the environment to promote environmental and human health
- Members shall consider with their clients the environmental effects of their project decisions.
Code of Ethics and Professional Conduct Enforcement
(1) Enforcement of the Code is administered through a National Ethics Council, appointed by the AIA Board of Directors.
(2) Formal charges are filed directly with the National Ethics Council by Members, components, or anyone directly aggrieved by the conduct of the Members.
(3) Penalties that may be imposed by the National Ethics Council are:
(a) Admonition
(b) Censure
(c) Suspension of membership for a period of time
(d) Termination of membership.
(4) Appeal procedures are available.
(5) All proceedings are confidential, as is the imposition of an admonishment; however, all other penalties shall be made public.
admonition
an act or action of admonishing; authoritative counsel or warning.
“the old judge’s admonition to the jury on this point was particularly weighty”
admonish
warn or reprimand someone firmly.
“she admonished me for appearing at breakfast unshaven”
reprimand
a rebuke, especially an official one.
“the golfer received a reprimand for a breach of rules”
rebuke
express sharp disapproval or criticism of (someone) because of their behavior or actions.
“she had rebuked him for drinking too much”
promulgate
promote or make widely known (an idea or cause).
“these objectives have to be promulgated within the organization”
subsequently
after a particular thing has happened; afterward.
“Mel’s offhand remark subsequently became their rallying cry”
substance
a particular kind of matter with uniform properties.
“a steel tube coated with a waxy substance”
supervene
occur later than a specified or implied event or action, typically in such a way as to change the situation.
“he had appendicitis and as complications supervened, refrained from work for months”
NCARB rules of conduct five areas
- competence
- conflict of interest
- full disclosure
- compliance with laws
- signing and sealing documents.
irrespective
not taking (something) into account; regardless of.
“child benefit is paid irrespective of income levels”
vigorously
in a way that involves physical strength, effort, or energy; strenuously.
“she shook her head vigorously”
MODEL RULES OF CONDUCT
RULE 1 COMPETENCE
- an architect’s primary duty is to protect the public’s health, safety, and welfare
- In designing a project, an architect shall take into account the applicable federal, state, and local building laws and regulations
- An architect shall perform professional services only when the architect has the necessary knowledge and skill in the specific technical areas involved.
- An architect shall not be permitted to practice architecture if the architect’s professional competence is substantially impaired
MODEL RULES OF CONDUCT
RULE 2 CONFLICT OF INTEREST
- An architect shall not accept compensation in connection with services from more than one party on a project unless the circumstances are fully disclosed and waived in writing
by all parties. - An architect shall not solicit or accept compensation from material or equipment suppliers for specifying or endorsing their products in connection with a project
- An architect shall not perform professional services in the face of a conflict of interest that is not fully disclosed and waived in writing by all parties. An architect has a conflict
of interest when:
(a) the architect has or may acquire a financial or other interest in the project, someone participating in it, or any component of it; or
(b) the architect’s judgment may be adversely affected by a relationship with another party. - An architect, when acting by agreement of the parties as the independent interpreter of building contract documents or as the judge of contract performance, shall render decisions impartially.
- An architect serving as an AXP Supervisor for a candidate for licensure shall not have, nor enter into, any relationship with the candidate that would interfere with the objectivity of the AXP Supervisor’s certification of the candidate’s experience
MODEL RULES OF CONDUCT
RULE 3 FULL DISCLOSURE
- An architect shall not make statements that are misleading, deceptive, or false.
- An architect making public statements on architectural matters shall disclose if the architect is being compensated for making such statements or has an economic interest
in the issue. - An architect shall not misrepresent the architect’s qualifications, capabilities, and experience or that of the architect’s firm.
- An architect shall not misrepresent or overstate the scope of the architect’s responsibility in connection with work for which the architect or the architect’s firm is
claiming credit. - the architect becomes aware of a decision made by the architect’s employer or client, against the architect’s advice, which violates applicable federal, state, or local building laws and regulations and which will, in the architect’s judgment, materially and adversely affect the health and safety of the public, the architect shall
(a) refuse to consent to the decision, and
(b) report the decision to the official charged with enforcement of building laws and regulations, and
(c) in circumstances where the architect reasonably believes that other such decisions will be taken notwithstanding the architect’s objection, terminate the provision of services with reference to the project unless the architect is able to cause the
matter to be resolved by other means. - An architect shall not knowingly sign any verification document related to licensure that contains false or misleading information
- An architect possessing knowledge of a violation of the jurisdiction’s laws or rules governing the practice of architecture by another shall report such knowledge to the Board. It is the professional duty of the architect to do so.
notwithstanding
in spite of.
“notwithstanding the evidence, the consensus is that the jury will not reach a verdict”
MODEL RULES OF CONDUCT
RULE 4 COMPLIANCE WITH LAWS
- An architect shall not violate the law of the United States or any U.S. jurisdiction that in any material way relates to the conduct of the architect’s practice.
- An architect shall not engage in conduct involving fraud or deliberate disregard of the rights of others.
- An architect may be subject to disciplinary action if the architect is disciplined in any
other U.S. jurisdiction - U.S. jurisdiction protecting the rights of persons working for the employer, such as those pertaining to harassment, discrimination, and unfair compensation, shall be subject to discipline.
tribunal
a court of justice.
“an international war crimes tribunal”
MODEL RULES OF CONDUCT
RULE 5 SIGNING AND SEALING DOCUMENTS
- An architect shall sign and seal only those technical submissions that were prepared under the architect’s responsible control
- An architect of record may sign and seal technical submissions not required by law to be prepared by an architect including information supplied by manufacturers when that information is intended to be incorporated into the architect of record’s technical submissions
- An architect of record may sign and seal prototypical building documents prepared by an architect licensed in any U.S. jurisdiction, but only if the architect of record determines that such documents are in compliance with the requirements of the project’s jurisdiction
A homeowner hires a building designer to prepare drawings for a new home. The building designer gets a licensed architect (AIA member) to stamp the drawings for permits. 18 months after the permit was received there are constructability problems and there are code issues that can’t pass inspection. What rules or ethics has the architect breached and what recourse does the owner have?
In the scenario given, the homeowner could file a complaint with the AIA. The 18 month timeline means the owner has missed the one-year time limit for complaints to the AIA (from the time the plans were stamped). If they could show good cause for the delay they could make a claim against the architect. This seems likely because the project is still ongoing. Possible violations of AIA Rules of Conduct include:
4.102 - Signing and Sealing Drawings (this is the big one) They could also make a case with
2.101 - Knowingly Violate the Law
3.101 - Local Laws and Regulations and maybe
4.202 - Supervisory Authority
This scenario also violates the NCARB Rules of Conduct 5.1
Standard of care
- what a reasonably prudent architect would do in the same general locale, in the same time frame, given similar facts and circumstances.
For a negligence claim against an architect the following must be proved
- Duty : The architect actually owed something or had a responsibility to the person making the claim.
- Breach of Duty : there must be a failure on the part of the architect to act or perform its services within the applicable standard of care.
- Damages : there must be actual damages. These damages may be purely, economic, or they may involve personal injury or property damage. Without damages, even though there is a violation of the standard of care, there is no harm, no foul, and no liability.
- Failure of Standard of Care : The architect did not meet their standard of care AND this directly led to the actual damages.
trier of fact.
- Who determines if architect’s negligence caused duty, breach of duty, damages and failure of standard of care.
- The trier of fact may be an arbitrator, a judge, or a jury.
- The trier of fact is charged with the obligation of evaluating the testimony of the fact witnesses, documentary evidence, and expert testimony; determining the facts; and rendering an award or judgment
Fact witnesses
- those that participated in the matter and have actual knowledge of the relevant events testify to their recollection of what transpired
Owner sells plans to neighbor to build identical house
Obvious copyright infringement
Owner doesn’t hire architect for CA, then fires the contractor and provides the drawings to a new contractor in order to receive a bid
This is OK per the B101
Owner gives permitted plans to 2nd architect to construct an addition on the building under a separate contract after the initial building is complete
This is OK per the B101
Owner reproduces floor plans for use in a book about the process of designing and constructing the building
This is not specifically permitted in the B101
Instruments of Service
- drawings, specifications, schedules, sketches, renderings, etc
- Section 7.2 clearly states that the Architect retains ownership of the Instruments of Service
- Section 7.3 grants the owner a non-exclusive license to use the Instruments of Service for the project in question. This means the owner can not use the same plans to build 10 copies of the
building - if owner wants to use instruments of services, owner needs to indemnify architect
- owner could get rights of instruments of service if architect fail to conduct their service
Cash-basis
Cash-basis tracks actual cash in and cash out. Because money isn’t usually received at the same time money is paid (salaries, etc) there is no time component to this method
Accrual-basis
Accrual-basis is used by most firms larger than sole proprietorships. This tracks invoices and expenses, not the actual movement of cash. So when you bill a client, it goes on the report, not when you get paid
Profit-Loss Statement
- The Revenue component of the Profit-Loss Statement is the most basic accounting of expected money in and out
- This sets the baseline for the rest of the report as well. All the percentages you see in the chart are based on the value at Line A being 100%. (Net Operating Revenue)
Balance Sheet
- Assets = Liabilities + Shareholders’ Equity
- balance sheet shows my financial position for a specific moment in time. Like a snapshot of my firm’s financial health, it identifies my firm’s assets such as cash, inventory, property owned, etc. and it’s liabilities, which are my debt, accounts payable, etc.
- On a balance sheet your Assets should always equal your Liabilities and Equity.
- Basically what you have (assets) is supposed to equal what you owe (liabilities) and what you paid to get it (equity)
- such as buying a car for $10,000. In this case, you might use a $5,000 loan (debt), and $5,000 cash (equity) to purchase it. Your assets are worth $10,000 total, while your debt is $5,000 and equity is $5,000. In this example, assets equal debt plus equity.
For P/L Statement
- Overhead rate: Total Indirect Expenses/Total Direct Labor (TDL)
- Break-Even rate: Overhead Rate + 1.0 (Unit Cost for Salaries)
- Utilization rate: TDL/Total Labor
- Net Multiplier: Net Operating Revenue (NOR)/TDL)
- Aged Accounts Receivable (AR): Avg. Annual AR/NOR/ 365 (Days in Year)
- Profit-to-Earnings Ratio (P/E): Net Profit/NOR
- Net Revenue per Employee: NOR/Total No. of F-T Employees
For Balance sheet
- Current Ratio (SOLVENCY): Total Current Assets/Total Current Liabilities (Ability to pay current debt)
- Quick Ratio (LIQUIDITY): Cash+A/R’s+WIP/Total Current Liabilities (Ability to convert current assets to cash)
- Debt-to-Equity (LEVERAGE): Total Liabilities/Total Equity (Ability to manage debt effectively)
- Return on Equity (ROE): Net Profit/Total Equity (Total Cum. Net Profit (Retained) relative to the investment made)
TDL to NOR
TDL/NOR. This metric will indicate the balance between revenue being earned and the number of FTE’s. The optimum ratio is: a range of 28%-32%.
Outside Consultant’s (O-C) Fees Billed/Total Fees Billed
The optimum ratio for this metric is: a range of 25%-30%. Keep in mind that every dollar of revenue or expense paid out is a dollar less profit.
Cash Flow
No Formula. Represents the available dollars for the firm to use to pay its salaries, taxes and all overhead expenses.
Proposals Pending
No Formula. Represents those Proposals that have been sent and are still waiting for a decision to be made. Proposals Pending are comprised of two types of proposals:
- Prospects: Those proposals with a 50% or better chance of becoming a real project.
- Suspects: Those proposals with less than a 50% chance
Backlog Volume
Represents the unbilled portion of existing contracts.
Censure
the expression of formal disapproval.
double entry
- a method of bookkeeping that recognizes both sides of a business transaction by debiting the amount of the transaction to one account and crediting it to another account so the total debits equal the total credits
- you decided to sell your car for $10,000. In this case, your asset account will decrease by $10,000 while your cash account, or accounts receivable, will increase by $10,000 so that everything continues to balance.
asset
Assets are the first of three major categories on the balance sheet. Current assets represent the value of all assets that can reasonably expect to be converted into cash within one year and are used to fund ongoing operations and pay current expenses. Some examples of current assets include:
- Cash and cash equivalents
- Accounts receivable
- Prepaid expenses
- Inventory
- Marketable securities
Noncurrent assets
company’s long-term investments or any asset not classified as current. Both fixed assets, like plant and equipment, and intangible assets, like trademarks, fall under noncurrent assets. Some examples of noncurrent assets are:
- Land
- Property, plant, and equipment
- Trademarks
- Long-term investments and even goodwill
Liabilities
Current liabilities are short-term liabilities that are due within one year and include:
- Accounts payable are a short-term debt owed to suppliers.
- Accrued expenses are expenses that have yet to be paid, but have a high probability of being paid.
Noncurrent liabilities
Noncurrent liabilities are also listed on the balance sheet and are included in the calculation of a company’s total liabilities. Noncurrent liabilities are long-term debts or obligations and unlike current liabilities, a company does not expect to repay its non-current liabilities within a year. Some examples of noncurrent liabilities include:
- Long-term lease obligations
- Long-term debt like bonds payable
Retained earnings
‘Retained earnings’ is money held by a company to either reinvest in the business or pay down debt. ‘Retained earnings’ are also earnings that have not been paid to shareholders via dividends
Shareholders’ equity
- Shareholders’ equity is the net of a company’s total assets and its total liabilities. Shareholders’ equity represents the net worth of a company and helps to determine its financial health.
- Shareholders’ equity is the amount of money that would be left over if the company paid off all liabilities such as debt in the event of a liquidation
What are the four greatest risk factors?
-
AVOID RISK
: Select project types that fit with firms experience and expertise
: Work with clients that have good reputations -
TRANSFER RISK
: Contract transfers risk away from the architect, either back to client or down to consultants
: Insurance transfers risk away from the architecture firm -
ASSUME RISK
: Accept work within the firm’s capabilities and maintain enough money to keep insurance paid -
CONTROL RISK
: Adopt best practices and consistent procedures.
: Train employees
: Hire lawyers when necessary
The four general categories of risk factors are
- Negotiations and Contracts
- Selecting the Client
- Project Team Capabilities
- Communications.
Biggest Risk Factors for each Category
- Negotiations and Contracts
- Client Selection
- Project Team Capabilities
- Communications
- Negotiations and Contracts
1. Unclear or Inappropriate Scope of Service (38%)
2. Did not formally evaluate risks (16%)
3. Contract not in place before work started (12%) - Client Selection
1. Client inexperienced in design issues (43%)
2. Client has history of claims/litigation (21%) - Project Team Capabilities
1. Inexperienced Design Staff (50%)
2. Inexperienced on-site staff (20%)
3. Inexperienced project manager (18%) - Communications
1. Lack of Procedures to Identify Conflicts, E&O (51%)
2. Project issues & disputes not handled correctly (20%)
3. Scope of services not explained to client (13%)
risk management process
- Identification
- Quantification
- Probability
- Impact
- Mitigation
Risk identification
Many businesses prefer to identify and record risks in what is termed a ‘risk catalogue’. This provides a summary of the various exposures and offers a starting point for discussion at operational and management level.
Risk Quantification/Probability/Impact
- One popular way of recording risk is to use a traffic light matrix system, where high probability exposures which are likely to have a high financial cost (quantum) and high impact on the organisation, are recorded as red (and attract the most scrutiny), whilst those with lower probability, quantum and impact are recorded as amber or green.
- It is also possible to combine such an approach with a simple scoring system to assist in determining the category. For example, taking a simple scoring system where red = 3 points, amber = 2 points and green = 0 points;
Risk Mitigation
Once the risks have been identified and coded it is possible (a) to see which need to be tackled with the greatest urgency and (b) to discuss and adopt strategies designed to mitigate them.
* Accept: The risk and the associated exposure is accepted as a business risk, and action is taken to monitor and manage it.
* Transfer: Risk transfer may be achieved contractually, by sub-contracting or mitigated by way of insurance. The degree to which this last strategy, which involves transferring exposure to an insurer for a known financial cost in the form of premium should be applied, depends on the risk bearing capacity of the organization involved.
* Reduce: By modifying the way in which a process or procedure operates it might be possible to reduce the exposure by a greater or lesser degree.
* Eliminate: By ceasing an activity it might be possible to eliminate the exposure entirely.
* Decline: The risk is simply not taken. For example, you might choose not to enter into a particular contract or appointment.
Risk takes many forms. Common examples include
- Financial
- Operational
- Legal and regulatory
- Strategic
- Reputational
- Health & Safety
- Political risk/exposure
- Environmental risk
- Ethical policy
Typically the stages for a risk review will be as follows:
- Bid review
- Formal bid
- Contract
- Mid-contract review
- Contract closure
- Lessons learned/feedback
Managing risk
- What’s the problem?
- Talk to your clients
- Use the agreement as an interview tool
- Define the project first, then the agreement
- Establish a pattern of communication
- Balancing the risk
- Identifying the ins, the outs, and the maybes
- Tailoring the services and compensation
Minimizing risk for Negotiations and Contracts
» Do NOT work without a contract. This can prevent you from being paid AND increase your exposure to liability.
» Avoid accepting a heightened standard of care.
» Avoid indemnifying the client. This exposes you to risk from claims by third parties.
» Stay out of construction Means & Methods. This is the GCs responsibility
» Avoid guarantees. This goes along with heightened standard of care
» Have a clear scope of work (and make sure it’s explained to the client)
» Use Standard forms of Agreement…like the AIA docs.
Design-bid-build
PROS
-Competitive bidding
-Traditional method
- Division of responsibilities
- Architect can be owner’s agent
CONS
- Riskier
- Adversarial
- Costs unknown for longer
- Cost plus fixed fee, or cost-plus, is a way of controlling some of the costs of a project if the contractor needs to be selected before the design is finished
- The owner will pay the contractor actual cost of labor and materials and a fixed fee for the contractors profit. This removes the link between a contractor’s profit and the
cost of the design - Owners will select this method if cost is the primary factor in their decision. Risk is also
considered but is secondary to cost.
DESIGN - BUILD
PROS
- Single point of responsibility
- Mitigates conflict between architect and contractor*
- Earlier known costs
CONS
- Not bid competitively
- Less transparency
- No agent for owner
- An example would be a large company that has their own architect and builder.
- In practice this is often a contractor who subcontracts out the design work.
- Owners will select this method if risk is the primary concern. As above, there is less risk when one entity is responsible for design and construction.
- This can come at the cost of increased… cost.
- Bridging is a tool owners may use to ensure they enter into an agreement that will result in the quality they want.
- The owner will hire a third party to provide the design-build entity with the program and the project requirements. The owner would use this method if they were unable to create this information themselves or were not able to communicate it to the Design-Build Entity prior to sending them information about the project.
CONSTRUCTION MANAGER AS ADVISOR
PROS
- Less management work for owner
- Earlier estimate of cost
CONS
- Added cost of CM-A
- Later known costs
- Construction Manager as Advisor is very similar to Design-Bid-Build delivery method with the exception that the Construction Manager acts as the owner’s advisor and not necessarily the builder.
- The CM-Advisor will work for a fixed fee and pass on savings and cost overruns to the
owners - CM-Advisor delivery method can actually be used with any of the other delivery methods
- CM-Agent is very similar, but has the addition of an agency relationship between the Owner and the CM.
CONSTRUCTION MANAGER AT RISK
PROS
- Early known costs
- Less management work for owner
- Architect remains as agent
- GMP
CONS
- GC and Owner interests may conflict
- Additional cost of CM
- CM-C will advise the owner and coordinate with the architect in the early design stages to get an idea of the project price
- At some point the CM will sign a contract for construction with a Guaranteed Maximum Price (GMP).
- Owners like this because they have a set price in the contract and the Contractor takes on the risk of getting the project delivered on budget.
- This can lead to problems because the Contractor’s goals may not always match up with the owner’s..
- This method is used if minimizing time is the most important factor.
General Firm Organization
The Project Coordination Matrix
- a simple chart showing responsibilities for general tasks. It quickly identifies points that require coordinated input.
Net Service Revenue
- Net fee determined by subtracting consultant fee from the gross fee for the project
- It’s the money you get to keep from the total project fee which can be used to do the work of the project, and make a profit
- . If your design fee is $100,000 and you owe the structural engineer $20,000 your Net Service Revenue is $80,000
A Gantt chart
- a bar graph of project tasks and durations. It’s a good way to see start and end dates as well as overlap between tasks. You can also use a Gantt chart to represent the Critical Path for a project.
Critical Path Method
- Critical Path Method lists or graphically represents the project tasks in order of when they can begin. Milestones are shown in circles
- A CPM diagram is an easy display of which tasks can begin once a milestone is reached. The actual Critical Path is the combined longest set of tasks between each
milestone - All tasks that can be completed in less time than the Critical Path have Float. This means the projected time to complete these tasks can slip a little and not delay the overall project
Sketch the relationships between Owner, Architect and Contractor for a Design-Build
project in which the Design-Build entity does not have in-house design or construction teams. List the contracts that should be used. Make sure to include consultants and subcontractors.
