Practice Management

Question 1

What are the levels of a corporation?

Answer 1

Stakeholders
directors
Officers

Question 2

AIA B101 requires which insurances? And for what?

Answer 2

1 - General liability- covers the office space.
2 - professional liability - covers errors and omissions.
3 - Workers’ Compensation Insurance- covers employee injuries or illness - medical care and lost wages.
4 - automobile liability - covers company vehicles and personal cars used for business purposes
5 - Employer’s Liability - Covers employers if they get sued for causing a workplace injury - settlements, court costs, legal fees

Question 3

Standard of care

Answer 3

Expected quality of service for architect by area. The standard of care often decides whether architect is at fault when Architect made an error or omission

Question 4

Format types for specifications

Answer 4

Master format: classifies by material: concrete, masonry, metals, etc. (older formate, more commonly used)

Uniformat: classified by system: substructure, shell interiors, etc. (Newer format, better for BIM)

Question 5

Employment Practice liability insurance
Intellectual property insurance

Answer 5

Employment Practice liability insurance = insurance to protect from wrongful termination

Intellectual property insurance = insurance to cover claims based on copyright / intellectual property infringement

Question 6

The owner is responsible for…

Answer 6

-Pre-existing site conditions (geological, hazardous materials, surveying)
- paying contractor
- paying over’s consultants
- charge orders
- with or without cause hiring and firing of Architect

Question 7

Aggregate limit, premium, deductible, claim

Answer 7

Aggregate limit- total coverage amount

Premium-monthly/yearly bill

Deductible- maximum paid by you, prior to coverage kicking in and paying

Claim - you think you experienced a covered event and demand payment from the insurance company

Question 8

Tail insurance

Answer 8

Covers the architect’s projects and the architect’s retirement

The insurance is liability y insurance for the projects the architect has alreavely done prior to retirement which are still within the relevant statues of limitations /repose - so that should there be a problem resulting in a lawsuit, the retired architect is still covered. Tail insurance is much cheaper than the insurance carried by a professional, practicing architect, because the risks are more defined and limited for the insurer - since the architect has retired, no new projects will be being built, and all of the projects that need to be covered by the tail insurance are known.

Question 9

What is the process to file an ethical complaint against an architect?

Answer 9

1 - file the complaint through AIA National (National Ethics Council) within a year of the alleged violation (can be longer if there’s a good cause for delay)

2 - Advisory board and chair will be chosen

3 - Pre-hearing, hearing, start, claim, defense, end, judgement *
*Confidential, no counter-claims, can’t fine or enforce behavior, but can admonish/suspend

Question 10

Who are the most common ethics complainants

Answer 10

Other architects

Homeowners

Question 11

Does the architect have a fiduciary duty to the client: a legal obligation to act in the owner’s best financial interest?

Answer 11

No, architects do not serve as an owner’s fiduciary.

Fiduciary duty: the obligation a professional has to act in the best interests of their client

Generally, the term is used for professions who protect the financich interest of the people they represent.
Certified financial planners (CFPs) can’t recommend a particular investment of they do so because of CFP gets a higher commission from the brokerage if that particular investment is purchased; lawyers or accountants can’t advise their client to more forward with a deal because the lawyer or accountant owns the property being sold; and a corporate director can’t steer the company to sign a worse deal because the person on the other side ofthe deal is her brother-in-law. (Of course, if the brother -in-law really has the bust corporate travel agency and charges the company the lowest fees, it is probably not a breach of fiduciary duty.)

Why isn’t an architect held to a fiduciary standard? Perhaps because me protect the health, safety, and welfare of the public.

Question 12

Retainer

Answer 12

Retainer: regular service for a fixed fee, more efficient than hourly over the long term . . . like if a university is regularly updating rooms as small projects (adding A/V equipment, accessibility ramps, upgrading outdated bathrooms) Th university might hire an architect on retainer. The architect them can bill the university for the work immpleted, without having to create a new contract for each door that i replaced.

Question 13

Are architects agents of the owner?

Answer 13

The agent creates a legally bonding relationship between third party and principal, for instance in a CM as Agent project, the principal is the client and the Contractor is the third party.

Architects are NOT agents of the owner ( unless the owner would like term to be and a formal agreement is drawn up). That means, the architect can’t, while walking the site, claim to speak for the owner when talking to the contractor.

Question 14

Who contracts directly under the Architect and who contracts under the Owner?

Answer 14

Architect: MEP, Lighting Consultant, Civil Engineer, (utilities, land contouring, and all things related to the improvement to the land with the new building), Landscape Architect/Engineer, Cost Estimator, Code Consultant

Owner: Zoning, Traffic, Site, Geotechnical (underground), Surveyor,Civil Engineer (for duties related to permitting, and documenting the existing condition of the site) ‘

Question 15

The Architect is responsible for. . .

Answer 15

• the project being on tome and on budget
• the instruments of service
• the standard of care and protecting the health, safety, and wellness of the public
• coordination and administration of project team and processes
• enforcement of contract terms (as able)
• adherence to applicable codes

NOT means and methods of construction, existing site conditions, safety on the job site, anything outside the contract (additional services)

Question 16

Fair labor standards act
Davis bacon act

Answer 16

Fair labor standards act: regulates minimum wage, overtime pay, and child labor.

Davis Bacon Act: contractors working on federal construction projects must pay workers no less than the locally prevailing wages.

Question 17

General liability insurance

Answer 17

Covers the physical property of the firm, usually has a limit to total claims
*landlords can require

Question 18

Professional liability insurance

Answer 18

Covers the cost of mistakes made by the Architect, a well as disciplinary, regulatory, and administrative expenses (e.g. if OSHA is violated in the Architect’s office)
*Also called “errors and omissions” insurance

Question 19

Mechanic’s lien

Answer 19

Mechanic’s lien: A claim placed against owner’s property due to unpaid debts. Used when the contractor fails to pay sub-contractors but can also be used when the owner desks not pay the Architect. The land and building can be sold to settle the debts if the owner can’t pay cash.

If the owner owes money to the contractor, or the owner owes money to the architect, the owner can’t or won’t pay her debts, a court can order the property to be sold to raise the cash to pay the debts. But the property can also be used to make unpaid subcontractors whole. If the contractor owes money to the subcontractors, and the contractor skips town, the subs on go after the owner. If the owner can’t pay, a ”Lien” is put on the project and a court can force the owner to sell to square up with the subs. This is one of the reasons that the owner confirms that the contractor pays their subs throughout the process… the owner doesn’t want to be on the hook later for the contractor’s unpaid bills.

Question 20

OSHA

Answer 20

Occupational Safety and Health Administration (OSHA):
Enforces workplaces safety regulations for things like construction falls, exposure to dangerous construction solvents, potentially elengeroos power tools, and requirements for neon safety vests, glasses,& hardhats on site. OSHA considers office workplaces, like architects’ offices, to be low-hazard but requires reporting of workplace deaths or multiple simultaneous workplace hospitalizations, even in offices.

Question 21

The contractor is responsible for…

Answer 21

“Pefection” in construction
-Nothing outside the contract
-Paying and coordinating sub-contractors
-Providing owner with operational manuals
- some design of specific systems (delegated design) for things like curtain wall details, concrete formwork, and steel fabricator shop drawings.

Question 22

Common types of small business taxes

Answer 22

Federal l and state income tax

Self-employment tax

Personal property tax

Question 23

Post-occupancy evaluation

Answer 23

Post-occupancy evaluation:
Surveys used to see now well a building is performing, usually administered at least a year after occupancy.
* very important! Employees are the major expense for Amy business, so knowing now design affects their performance is key.

Question 24

Contractual liability insured

Answer 24

Contractual liability insurance: covers you when something goes wrong and you, by virtue of a contract you signed, are held responsible for it
Contractual liability coverage typically is included in your genera liability insurance (the one that covers your business for non-professional incidents, like a slip-and-fall or dog bite at the office).

Architects sign many kinds of contracts in the course of day-to-day business: leases, purchase orders, agreements to engage an accountant, etc. (professional liability protection from errors and omissions claims falls in a separate category of insurance). Contractual liability insurance covers you when one of the signed contracts puts the burden of a problem on the architect.

For example, Lauren, and employee of your firm, tours a quarry with a client to slick stone for an office building courtyard. In order to tour the quarry, Lauren signed a common release form, the type you sign all the time, indemnifying the quarry should something go wrong. Something did go wrong on the tour and Lauren was injured. Because she signed the release form holding the quarry harmless, your firm, rather than the responsibility of the quarry, is held responsible. And because you have contractual liability insurance as part of your general liability insurance policy, your coverage for Lauren’s injury.

Question 25

Subrogation

Answer 25

Subrogation: process of the insurance company assuming agency for an insured party in order to sue another party.

For example, an electrical subcontractor error triggers a fire. The contractor’s insurance company, Amber Insurance, pays the contractor promptly for the damage, which is the type of prompt service the contractor has been paying for over the years in its monthly premiums.
In the policy, the contractor has given permission ahead of time for Amber Insurance to pursue reimbursement from the electrical subcontractor (or the sub’s insurance policy).

Question 26

Utilization rate

Revenue factor

Answer 26

Utilization rate (also known as the billable or chargeable rate) = Direct Salary Expense/Base Salary.

If an employee, Amber,earns $100,000 per year, and 70% of her hours are charged to the client, we say that she has a utilization rate of 70% ( which is a healthy, but realistically healthy, rate).

Revenue Factor = Utilization Rate x Direct Salary Expense Ratio

If your firm charges the client $3 for each dollar it pays Amber for her time, then we have charged the client $210,000 for Amber’s time. We say our firm’s Direct Salary Expense Ratio is 3.0

Question 27

How do we decide how much to charge a client?

Answer 27

Value pricing- based on quality

Effort pricing- based on time spent (this is the ARE’s assumption in the exams).

% cost pricing- based on percentage of total construction cost.

Fixed fee pricing- fixed cost to client typically derived based on triangulating estimates of the other three models.

Question 28

Risky contract language

Answer 28

Warranty

Guarantee

Indemnify/indemnification

“Highest” standard of care

As required/ as necessary

Hold harmless

*anything that passes liability to the Architect

Question 29

AIA Documents: A701; C401; A305; G701; G702; G704

Answer 29

A701- instructions to bidders

C401- architect-consultant agreement

A305- contractor’s qualification statement

G701- change order

G702 - application and certificate of payment

G704- certificate of substantial completion

Question 30

1- Net profit

2- Net billing

3- profit earnings ratio

4-prospect/suspect

Answer 30

1- Net profit : profit before tax and distributions to firm owners, but after paying wages and bills.

2- Net billing:billing that only covers fees for architect’s
Labor.

3- profit earnings ratio = profit/ net operating revenue (defines the health of the business).

4-prospect and suspect: potential projects with a >51% (prospect) or <50% (suspect) chance of income generation

Question 31

What types of damages can be pursued in litigation? Which are called for in AIA B101?

Consequential vs liquidated vs direct damages 

Answer 31

Consequential damages – estimated cost of lost owner profit due to project delays ( planned potential profit had my lemonade stand been opening time for the summer rush). The contracts prohibit all parties from recovering consequential damages.

Liquidated damages - per day penalty for a delayed construction project completion, Agreed-upon at the beginning. The A101 Owner-Contractor allows for liquidated damages (which in construction are almost always related to per day late penalties); The B101 Owner-Architect Agreement, section 11.10.2.2, States that the owner cannot deduct or withhold any amount of money from the architects compensation as a penalty or liquidated damages without the architects agreement or a binding dispute resolution process. Additionally the owner cannot withhold any amount of money from the architects compensation to cover the cost of damages made to the work by contractors unless the architect has agreed to it or has been found liable for costs in the dispute resolution proceeding.

Question 32

Current earnings

Answer 32

Current earnings: profit left over after taxes and expenses are deducted from income

Gross revenue - all the money the firm collects in fees.

Net operating revenue: after the consultants are paid

Profits before taxes: after the employees and rent are paid

Current earnings: profit after taxes. What the firm pays its owners or reinvests in its business.

Question 33

Base ve direct indirect salary

Answer 33

Base salary: total annual compensation (base salary in $/year = hourly rate * 40hrs/week*52 weeks/yr)

Direct salary: salary derived from billable hours(cost of employees time charged to client for, say, code analysis)

Indirect salary: salary from non-billable hours (cost of employee’s time spent fighting of a jammed copier for 30 minutes

Question 34

Balance shots

Answer 34

At the scale of ash individual, your paycheck tells you how much you are making (your income) and your bank account describes what you’ve saved (your wealth).

Similarly, at the scale of your firm, its profit-loss statement keys out what the firm is making in profit its income) and the balance sheet describes what the firm owns (its wealth).

The balance sheet includes:

Solvency: current assets/current liabilities
Liquidity: immediate assets I current liabilities
Leverage: liabilities/equity
Return on equity= profit/equity

*Remember that

Assets - things your company owns ( computers, plotters,
Office furniture, dollar valueof intellectual property your company has generated, dollar valve of your company’s reputation in the community, cash in the bank).

Liabilities= what your company owes (total owed in business leans, total owed in montage payments for the office building your purchased, total owed on a company car purchased last year, total owed to your employees for the last weeks worth of work because we are in between
paydays).

Equity = the net worth of the business, were it to be gold today; tally up all your firm’s assets and subtract all of your firm’s liabilities… that’s your firm’s equity.

Profit=how much money your firm is making this month or year. This is different than equity, which describes how much money your firm is worth.