practice management

Question 1

Construction cost methods for CM as Advisor

Answer 1

Lump sum
Cost + Fee with GMP
Cost + Fee without GMP

Question 2

three actions that trigger the beginning of the the architect’s construction administration duties, under the Construction Manager as Constructor project delivery method:

Answer 2

1- Owner accepts contractor’s GMP.
2- Owner approves contractor’s estimate.
3- Written agreement between owner and construction manager

Question 3

Current ratio (solvency)

Answer 3

= total current assets ÷ total current liabilities

Question 4

Quick ratio (liquidity)

Answer 4

= (cash + accounts receivable + revenue earned, not billed) ÷ total current liabilities

Question 5

Net revenue per technical staff uses

Answer 5

used to estimate the required net operating revenue for future budgets and also to estimate staffing levels.

Question 6

Architecture Billings Index (ABI) score

Answer 6

over 50 represents that architecture firms, on average, reported to have increased work activity as compared to the previous month.

Question 7

Architecture Billings Index (ABI) score

Answer 7

over 50 represents that architecture firms, on average, reported to have increased work activity as compared to the previous month.

Question 8

current ratio calculation

Answer 8

The current ratio is the total current assets divided by total current liabilities

Question 9

contractor’s insurance policy to covers….

Answer 9

Damages related to vehicles
Damages due to bodily injury from falling material on site
Bodily injury or property damage after the contractor has left the site
Workers’ compensation

Question 10

Project cost accounting

Answer 10

1. shows the impact of each individual project to the company’s financial health
2. helps in identifying which projects are making money and which are not profitable.
3. The information gathered in project cost reports also helps in allocation of resources, management of projects and creating accurate proposals.

Question 11

general ledger accounting

Answer 11

helpful in making firm-wide decisions and highlighting overall financial standing.

Question 12

typical numbers for: 
current ratio 
net multiplier 
over head rate 
utilization rate

Answer 12

current ratio : 1 - 1.5
net multiplier : over 3
over head rate : 1.3 - 1.5
utilization rate : 0.65

Question 13

What should you do it the current ratio is too low?

should be a minimum of 1-1.5

Answer 13

Work on reducing liabilities and increasing assets.

Even 1.2 is low and indicates that there may be problems ahead in paying salaries

Question 14

7 items in a profit-loss statement

Question 15

With regards to a construction manager as constructor (CMc) method, the following statements are true.

Answer 15

Setting the GMP before the design is fully resolved and completed puts the CMc at risk
The owner-CMc agreements have two phases: a pre-construction and construction phase
The project price is set using either cost of work plus fees or cost of work plus fee with or without GMP

Question 16

The architect and the construction manager are jointly responsible for the following:

Answer 16

Visiting and inspecting the works on site
Certification of payments
Deciding dates for substantial and final completion

Question 17

which cost methods are helpful for client transparency

Answer 17

Cost plus fee with a guaranteed maximum price (GMP) has the advantage of possible savings to client if the construction costs are lower than expected.
The fixed-price method helps the client with being sure of the cost and reduces risk of overruns.
Cost-plus-fee method is more transparent than fixed-price method.

Question 18

owner advantages for having a CMa

Answer 18

Helps with understanding the feasibility of the housing complex
Helps with scheduling and following deadlines for the construction
Helps with keeping the construction within budget with the construction manager’s cost estimates

Question 19

can employers discriminate based on disabilities?

Answer 19

only if they are less than 15 people than the ADA

Question 20

Direct Personnel expense (DPE)

Multiple of direction personnel expense (compensation method)

Answer 20

Direct salaries of all the architect’s personnel engaged on the project and the portion of the cost of their employee benefits related thereto

compensation method: way to charge a client an hourly fee (salary/benefits/overhead + profit) for speculative projects

Question 21

What is net operating revenue?

Answer 21

net funds remaining after deducting the invoiced consultant’s fees and expenses, and all reimbursable and non-reimbursable project-related expenses.

direct salary x net multiplier = billable revenue

Question 22

According to the (NCARB) Rules of Conduct, what must the architect of record do to sign and seal the final drawings that a freelance CAD drafter worked on?

Answer 22

1. The architect must thoroughly examine the drawings prepared by the drafter and incorporate the work into the construction documents.
2. The firm must also retain documentation of communications with the drafter throughout the drafter’s involvement with the project and must keep records of the architect’s coordination of the work for five years.

Question 23

Which types of financial statements should be checked before distributing net profit?

Answer 23

1. cash-basis profit-loss statement (income statement) defines available cash
2. accrual-basis profit-loss statement defines net profit.

Both types of statements will need to be consulted before any decision about the distribution of net profit can be made.

Question 24

characteristics of partnering

Answer 24

A partnering agreement applies only to the project at hand.

Partnering is often used in conjunction with mediation and arbitration to prevent lawsuits.

Partnering can include project participants other than the owner, contractor, and architect.

Project relationships between owners, architects, and contractors may be based on the idea of partnering. Partnering is not a contractual relationship, but is an agreement between the parties to work together toward the common goal of constructing a building. The concept is based on eliminating the adversarial relationship that may develop between project participants. The partnering agreement is a commitment to one another to work together and respect the knowledge each party brings to the project. Potentially, it can result in a lower cost to the owner, a shorter construction period, and less paperwork for everyone, and it may reduce the number of project disputes.

Question 25

cost of allowances, alternates, unit prices

Answer 25

Allowances are fixed numbers written into the contract (if costs go over/under the $ than the Contract Sum will be adjusted by Change Order)
Alternate are ADDITIONS to the base price and not included in the initial cost of the work
Unit Prices is the most accurate way to determine materials + labor per sqft. when the scope of the work is unknown.

In conclusions, allowances are the only way to guarantee that a project will stay on budget.

Question 26

waterproofing strategy for masonry wall

Answer 26

mastic sealant behind the termination bar at the top of the flashing

Question 27

when should the ARCH notify the owner about defects in the work?

Answer 27

the ARCH will keep the owner informed about progress + quality of the work on site and REPORT to the owner about any deviations and defects in the work.

if the arch does not report defects the owner may transfer liability for costs from the contractors errors because the arch did not report the error

the contractor warrants that the work will be free from defects (from sub completion to end of statue of repose - this is independent of the contractors one year correction period after the date of sub completion)

Question 28

Schedules Performance Index (SPI)

Answer 28

Amount paid divided by amount that was supposed to be paid (percentage of completion)

received / expected =
(if it’s less than 1 than you arent getting paid enough)

Question 29

tort

Answer 29

A tort is a civil wrong resulting from negligence as opposed to a criminal act.

Question 30

Design build bridging advantages

Answer 30

Bridging is a specific approach to the design-build model of project delivery that allows an owner to secure an early fixed price and take advantage of the contractor’s knowledge of construction methods and materials and relationships with suppliers. Bridging allows an owner to establish which things he or she wants to control, gives responsibility for details of construction to the contractor, and permits the owner to obtain the advice and participation of an architect.

The primary advantages of bridging are that

a contract price can be obtained more quickly and with a lower up-front cost than with a design-bid-build approach

the contractor bears sole responsibility for the product of construction with the benefit of an architect’s involvement

it is more cost effective

The project is defined by an architect and/or project manager, sometimes called the “criteria architect” or “bridging consultant,” who prepares drawings similar to the traditional product of the design development phase. These are referred to as the contract documents. The consultant obtains bids from prequalified design-build contractors, and the contract is awarded to the low bidder. Then, the design-build contractor develops the construction documents and is the architect of record for the project. The owner’s architect/project manager reviews the construction documents to determine conformance with the original contract documents.

The contractor then builds the facility. The architect/project manager administers the contract for construction. The construction documents are used for construction and permitting, but the contract between the owner and contractor is based on the contract documents.

Question 31

How to decrease overhead rate?

Answer 31

The overhead rate should be in the range of 1.3–1.5. Overhead can be reduced most by decreasing non-billable time. Every hour that can be legitimately charged to a project should be, and the number of non-billable employees should be kept to a minimum. Beyond this, all related expenses should be charged to a job so that administrative personnel, project managers, or whoever is responsible can monitor these costs as well. Fee collection is important for cash flow but does not reduce overhead. A review of telecommunication charges can be made, but any decrease will be fairly insignificant compared to other actions. Since the cost of office space is an ongoing overhead burden, the architect should consider the feasibility of moving to a less expensive office space or one with a lower lease rate, or both. An increase in revenue per technical staff is useful for profitability but does nothing to reduce overhead.

Question 32

builder’s all-risk insurance

Answer 32

American Institute of Architects (AIA) Document A201, General Conditions of the Contract for Construction, Sec. 11.3, requires the owner to purchase and maintain builder’s all-risk or equivalent insurance.

Unlike insurance policies that cover only losses and damages due to causes specifically named in the policy, an all-risk insurance policy covers all losses and damages except those specifically excluded in the policy. Though all-risk policies are not all the same, most of them do not exclude losses due to

fire

vandalism, malicious mischief, or riot

explosions from all causes

water damage

testing and start-up

mechanical or electrical breakdown

theft

collapse

earthquakes, floods, or windstorms

falsework

temporary buildings

debris removal, including demolition occasioned by enforcement of any applicable legal requirements

Some common exclusions are

acts of war

terrorism (although acts of terrorism that meet certain criteria are not excluded based upon the Terrorism Risk Insurance Act of 2002)

nuclear hazards

fraud by the insured

employee theft

inventory shortage or mysterious disappearance

mold

asbestos

Question 33

Architects are responsible for preparing which parts of a Project Manual?

Answer 33

Specifications

Question 34

benefits of having an construction manager (CM) on a project?

Answer 34

The Architect’s Handbook of Professional Practice lists a variety of scenarios in which the use of a construction manager tends to be the most beneficial to the owner.

projects with fast-tracked multiple prime contracts

projects that the CM joins early in the design phase, so that the owner can take advantage of the CM’s construction expertise while building details are being developed, minimizing the risk that major revisions will be needed to the construction documents later in the process

projects in which the owner is willing to deal with multiple professionals

projects in which the CM is sensitive to the relationship between the architect and owner and does not try to come between the two

A CM may act as either an adviser to the owner or as a construction contractor. The difference is significant. In the role of adviser, the CM has no direct financial responsibility for the project. In the role of construction contractor, however, the CM is responsible for delivering a finished product for the agreed-on price.

Bringing an independent construction manager into a project often changes the responsibilities of the architect. The CM may take on many of the construction administration tasks traditionally performed by the architect. In addition, the CM’s suggestions for cost-cutting may involve revisions to the design and contract documents. When a new player is added to a project team, all people involved should reevaluate their lists of responsibilities and proposed fees and clarify who is now responsible for each item.

The American Institute of Architects (AIA) publishes the CM-Adviser family of documents, which are for use when a CM serves as an adviser to the owner. The CM-Constructor family is for use when a CM is financially responsible for delivering the project within the guaranteed price.

Question 35

Accrual-basis accounting

Double-entry accounting

The cash-basis accounting

modified accrual-basis method

Answer 35

Accrual-basis accounting
- required for corporations and other types of business organizations.
- keeps track of revenue and expenses at the time they are incurred, not necessarily when money comes in or when a
bill is paid.
- a superior way to manage the finances of a firm and develop the various financial reports used by management.

Double-entry accounting
- keeps track of transactions with the accrual method.

cash-basis accounting method
- used by sole proprietors or very small businesses, but not with architectural firms. With the cash-basis accounting
method, revenue and expenses are recognized at the time the transaction is made (e.g., revenue and expenses may
be tracked with a basic checking account).

modified accrual-basis method
- Typically used by architectural firms, the
- combines accrual-basis accounting with cash-basis accounting. It includes consultant fees and expenses, plus all
other direct and indirect expenses incurred, so that accurate profit and loss statements and balance sheets can be
generated (as with accrual-basis accounting). Furthermore, revenues are recognized when they become available,
and expenses are recognized when liabilities are incurred (as with cash-basis accounting).

Question 36

projections included in the development of a profit plan

Answer 36

Revenue
Correct. Projected revenue is developed using current or projected salaries, targeted utilization rates, and the hourly billing rates for each employee. This is a component of the profit plan.

Indirect labor
Correct. Projected indirect labor, or indirect salary, is the time charged to non-project-related activities, or time that is non-billable. Projected direct and indirect labor are calculated using the current salaries and utilization rates for each employee. This is a component of the profit plan.

Indirect expenses
Correct. Projected indirect expenses are the most challenging of the four components
to develop because this contains many variable subcategories, such as office expenses, taxes, etc. This is a component of the profit plan.

Direct labor
Correct. Projected direct labor, or direct salary, is time billable to projects. Projected direct and indirect labor are calculated using the current salaries and utilization rates for each employee. This is a component of the profit plan.

Question 37

employee positions are not eligible to receive overtime pay

Answer 37

Administrative employees
Correct. The main duties of an exempt administrative employee must be nonmanual or office work and involve exercise of discretion and independent judgment on significant matters.

Professional employees
Correct. The learned professional exemption applies to employees whose work requires advanced, intellectual learning that is customarily acquired from a prolonged course of specialized instruction and requires the exercise of discretion.

Executive employees
Correct. An exempt executive’s main duties must consist of managing the firm or a specific department of the firm. The executive must regularly supervise at least two full-time workers and have the authority to hire and fire, or have significant input into hiring and firing decisions.

Computer professionals
Correct. This exemption applies to skilled computer professionals like software engineers, systems analysts, and programmers, not to people who merely use computers or repair hardware. Within the architectural practice, these employees may work on adapting or designing a computer system for the specific needs of the architects.

Seasonal employees and Part-time employees are eligible for overtime pay per the FLSA.

Question 38

“nose” insurance

Answer 38

Prior acts coverage is also known as “nose” insurance. This type of insurance will cover the cost of claims that occurred before the policy was in place.

example: A claim arises from a building completed one and a half years ago.

Question 39

how to improve profit while remaining competitive

Answer 39

Increase the hourly billable rate of junior staff
Correct. By increasing the hourly billable rate of junior staff, while maintaining the hourly salary rate, profit can be increased without affecting overhead costs. Example. Raise the billable rate from $75/hour to $80/hour which results in $5/hour profit increase.

Increase the utilization rate of junior staff
Correct. By increasing the utilization rate of junior staff, more billable hours can be assigned to the project. Example: A staff member is currently at 60% utilization, then raise to 70% utilization. This can be balanced by reducing more senior staff’s utilization rates.

Retain an outside consultant to add to project deliverable services
Correct. In some instances, a firm may consider retaining outside consultants to provide specific deliverable services to a project. This action can add value to the firm’s capabilities by delivering more comprehensive services to the client. It does not increase overhead costs since the consultant is independent. Examples of services include energy and daylight modeling, 3D color rendering, building commissioning, audio-visual, lighting, or acoustic specialties. As subconsultants to the firm, additional management fees can increase profit margins.

Question 40

characteristics of the Construction Manager as Adviser – CMa – delivery method?

Answer 40

Owner has a minimum of three individual contractual relationships
CMa can reject work
CMa shares some Construction Administration roles with the architect

Risk (primary) and Quality (secondary) are the main driving factors
AIA 232 - General Conditions of the Contract for Construction, Construction Manager as Adviser Edition is typically used

Question 41

Project manual is comprised of four major parts:

Answer 41

bidding requirements
contract information, including the owner-contractor agreement, bonds, etc. (Option A)
general and supplementary conditions of the contract
specifications

Project manual contains the procurement documents and text based contract documents.

Question 42

3 components of procurement documents

Answer 42

the project manual (bidding requirements contract information, including the owner-contractor agreement, bonds, etc.
general and supplementary conditions of the contract specifications)

the contract drawings

the addenda

Question 43

Architect procurement phase duties

Answer 43

INCLUDED IN THE CONTRACT:

Organize + conduct the PRE BID CONFERENCE
Assist the Owner in obtaining COMPETITIVE bids
Organizing and conducting the OPENING OF THE BIDS
Participating in NEGOTIATIONS with prospective contractors - creating a summary report of the results
Prepare responses to bidders - ADDENDA
participating in INTERVIEWS

NOT INCLUDED:

Facilitating the distribution of Bidding Documents to prospective bidders (ADD SERVICE)
Report to the owner known deviations from the Contract Documents
Choosing the best suited bidder
Substitutions are an ADD service for the arch

Question 44

Vicarious liability

Answer 44

architects may be held liable for errors or omissions of the consultants with whom the architect has a contractual relationship

Question 45

Who keeps contingency at the end of a project

Answer 45

Owner contingency: funds to cover scope increases and unforeseen conditions that are not the fault of the core team.
this contingency is under the owner’s control and only released to the contractor in agreed upon charge orders.

Contractor contingency: Included in the original bid price for the following reasons: incomplete gmp, errors in pricing, dispute resolution, subcontractor failure.

Owner keep the contingency at the end of a project.

Question 46

Contents of the contract docs

Answer 46

A101, General A201, supplementary, and other conditions of the contract and modifications (amendment to contract, minor change, change order, ccd) performance and payment bond, certification
Drawings
Specs

anything to do with bid documents is NOT included

Question 47

Stored materials purchased before they are needed

Answer 47

Before payment is made for stored materials the contractor must provide evidence establishing the owners title to stored materials to safeguard the owners interest in them.
The owner need documentation showing that they have a title to the materials (receipt showing clear title)

Materials may be stored offsite if they are approved in advance by the owner.
Payment for materials includes insurance, storage, transportation

Question 48

When to notify the owner of nonconforming work

Question 49

Mastic on masonry wall

Question 50

foundation section

Question 51

Bid bond : when is it void?

Answer 51

Owner returns the bid security when:
1. contract has been executed and bonds furnished.
2. specified time has elapsed and bids are withdrawn,
3. all bids have been rejected
A bidder may withdraw a bid and have their security returned after a # of days stipulated in the contract.

A310 Bid bond: owner will be reimbursed if the lowest bidder drops out of signing the contractor for the amount of the next lowest bidder
A form of bid security that the bidder and surety that the bidder will enter into a contract within a given amount of time.

Question 52

Record drawings: is the contractor obligated to help produce?

Answer 52

A201 states that the contractor shall mark up record drawings showing field changes and selections made during construction

Question 53

Multi prime contracts: who is to blame for delayed work?

Answer 53

Owner is responsible for coordinating the activities of all separate contractors with those of the contractor.

Owner will cover costs to the Contractor for a separate contractor if they cause delays/damage and will then seek reimbursement from the separate contractor.
The contractors do not have a contractual agreement with each other.

The Contractor is delayed they can ask that the contract TIME may be extended by change order as determined by the architect

Question 54

Contractor warranties end when?

Answer 54

Contract warranties commence at substantial completion and continue through to the statue of limitations or repose, whichever is shorter.

The Contractor warrants that the work will conform to the contract docs and be free of defects.

Warranty that the contractor will correct any nonconforming work starts 1 year after substantial completion.
If the owner fails to notify the contractor of an area that needs correction than he waives the right to require correction. If the contractor does not correct nonconforming work the owner may correct with their own forces (10 days to correct work)

punch list items corrected after sub completion will extend the 1 year correction period for that portion of the work. the one year period shall not be corrected by already corrected work

Question 55

When to notify owner of defects

Answer 55

Arch is to report known deviations and defects/deficiencies

Arch will keep owner informed on the progress and quality of the work completed

Question 56

Contractor can have a TIME extensions are for delays cause by….

Answer 56

• neglect of owner or arch
• owner contractor
• changes in the work
• labor disputes
• fire
• delivery delay
• casualties
• mediation or arbitration

Architect determines the time

Question 57

Bid form

Answer 57

form for bidders to show cost, schedule, unit prices

Question 58

A305 Contractors Qualification statement

Answer 58

licensing info
experience
summary of works to be performed

Question 59

Substitutions

Answer 59

for unavailable products
regulatory changes
prohibitive warranty conditions
if there is an unusual delivery delay

NOT For
longer lead times that anticipated (ALTHOUGH if it is an unusual delivery delay that is outside of their control they are entitled to an extension in the contract time and a substitution (i guess?) A201 8.1.3)
higher cost then bid

Question 60

types of firms to use cash accounting vs accrual

Answer 60

CASH ACCOUNTING: Small firm interested in tracking cash flow

ACCRUAL: A larger firm interested in analyzing long term financial goals OR a firm looking to substantially grow in the near future. For more complex financial situation

Question 61

C-corporation tax items

Answer 61

W-2
EIN (employee identification number)
W-4 (employees withholding allowance certificate)
SS-4 (form for employee to receive an EIN)

NOT INCLUDED
W-9 (for independent contractors)
1040 ( for filing individual taxes)

Question 62

How can a firm grow staff and project types

Answer 62

1. seek out larger projects of the types that the firm already has expertise with
2. eventually hire additional marketing personnel after the firm has increased in size and then expand into new building types

Question 63

organizational entity that is most favorable to the sole proprietor in terms of liability and taxation?

Answer 63

S-CORP is taxed at the same individual rates and the liability of the owner is limited.

an LLC is not a separate entity and its not itself taxed, thus avoiding double taxation , however the rate of taxation is more than for sole proprietorship that is taxed at an individual rate.

C-CORP owner pays a share of the corporate taxes as well as income taxes too.

general partnership: liability to each partner is unlimited, income is shared among general partners and reported on individual tax forms

Question 64

what do you use to determine staffing needs

Answer 64

Net revenue per technical staff

Formula is as follows:
annual net revenue / # staff members

This is often used to estimate the required net operating revenue for future budgets and also to estimate staffing levels.

target: 110k - 130k

Question 65

main characteristics of delivery methods

Answer 65

The following are some of the main characteristics of the design-build delivery method:

Speed of delivery
One single contract
Early accurate pricing
risk of budget overruns are lower than with a DBB

Some common traits of design-bid-build include:

Common and simple method
Coordination problems are usually minimized (drawings are complete before beginning of construction)
Slower delivery time
Linear design sequence

Question 66

Joint Venture vs partnering

Answer 66

Joint venture: a partnership and business entity. temporary arrangement between two firms for the purpose of a specific project, the parties each retain their own organizational structures and the investors’ liabilities are not changed. Joint Ventures pay no income taxes and earn no profits. any profits are tax liabilities.
Contract = C101
Starts as a “teaming agreement” which is an agreement prior to bidding on work that sets forth the roles/responsibilities/costs/terms, then becomes joint venture when the project is awarded. Often made when one firm cannot complete a project due to lack of personnel = so they can pursue a larger project together.

partnering: concept is to eliminate adversarial relationships between project participants, can result in lower cost to the owner, a shorter construction period, and less paperwork, and reduce disputes. not a contractural relationship.

Question 67

“Claims made” professional liability insurance policy

Answer 67

require the policy to be in effect at the time the claim is made, as well as at time services were rendered - the architect cannot allow the policy to lapse, or past projects will not be covered.

if they change insurance providers they should change to a “prior acts” policy to protect previously completed work

Question 68

types of compensation that either incentivize or decentivize contractors

Answer 68

A FIXED FEE IS MORE OF AN INCENTIVE THAN A PERCENTAGE FEE:

Stipulated sum: contractor absorbs the loss OR gets to keep any extra money - benefit: everyone knows cost from the beginning

Cost plus with a fee for overhead and profit based on a percentage of const. cost: for hard and fast deadlines or scope of the work is unknown,

the more time and money it takes to build the project the greater the contractors payment for overhead and profit. Contractor is not incentivized to work quicker because they will not get a cut of the savings

cost plus with fixed fee for overhead and profit: can encourage a contractor to be more efficient. the contractor will still receive the fixed amount due but maybe incur fewer admin costs and therefore a larger share of the amounted allocated for overhead becomes profit.

unit prices: no incentives, price is multiplied by the actual amount incorporated into the project

Question 69

DB Bridging

Answer 69

Price know after design
DB entity responsible for determining details of construction (they are arch of record)
more cost effective than traditional DB -
Design Arch prepares drawings up until design developemnt and then obtains bids from prequalified contractors
Design Arch administers the contract for const.

Risk (Primary) Quality (secondary)

Question 70

CMC

Answer 70

advise owner on schedule, constructability, cost,
After GMP is accepted they are the contractor, GMP is developed while the drawings are still inprogress, design and construction phases overlap

A201 is used

Question 71

how to reduce overhead

Answer 71

monitor/decrease non billable time
require admin personnel to check direct expenses
consider moving to a less expensive office space

should be 1.3-1.5

Question 72

What actions or changes performed by the construction manager ADVISOR should the Architect be involved in or informed of?

Answer 72

changes made to the program
activities of the contractor and subcontractors
change orders and change directives