Practice Management Flashcards
Named-peril Insurance policy vs All-risk policy
Named peril insurance covers against a specific scenario while all risk insurance covers any potential problems
Claims-made policy vs Occurrence-based policy
Claims made and occurrence based insurance describes what claims will be covered. A claims made policy covers incidents that are reported at the time of the coverage. Occurrence based policies cover incidents that occur at the time of the coverage but may only be reported after the policy expires.
Policy Limit
The policy limit is the maximum amount a policy will cover. If the policy limit is exceeded, the firm or individual is responsible for the rest of the claim. Insurance premiums are directly related to policy limits.
Advantage of hiring an insurance broker
An insurance broker has specialized knowledge of insurance and can help recommend and manage a firm’s insurance plan. When choosing a broker consider whether they have experience with architects and ask them about their experience and previous clients.
Insurance Deductable, how does it affect when you should file an insurance claim?
A deductible is the portion of a claim a client must pay before the insurance coverage is used. If the claim is only slightly more than the deductible it may be preferable to pay the entire claim to avoid raising premiums.
Betterment
Betterment is a defense against claims of omissions. Instead of paying the full cost of an omission an architect is only responsible for the amount the owner has lost due to the omission, but not the material cost of the items omitted
Waiver of Subrogation
A Waiver of Subrogation is a clause included in some contracts with the client that protects the architect or contractor from claims related to property damage of their previous projects
Professional Liability Insurance coverage?
Professional Liability Insurance covers claims of errors or omissions within the Standard of Care. Does not gross negligence or guarantees that exceed the standard of care.
Statute of Repose and Statute of Limitations
Statutes of limitations and repose are time periods set by the jurisdiction in which a claim can be filed. Statute of Repose is the amount of time after the error or incident occurred that a claim can be filed. A Statute of Limitations is the amount of time after the error or incident occurred that a claim can be filed.
Commercial General Liability Insurance coverage
Commercial General Liability Insurance covers incidents not directly related to professional work and property damage by employees.
Workers Compensation insurance coverage
Workers Compensation Insurance covers injury to workers during their time of employment
Umbrella Coverage Insurance coverage
Umbrella Coverage Insurance provides additional coverage on other insurance types up to a certain amount. Professional Liability Insurance is usually excluded.
Difference between an employee and an independent contractor
Employees pay taxes primarily through paycheck deductions while independent contractors pay directly to the IRS. In general, employers provide benefits and have closer control of employee work, while independent contractors are simply payed to complete specific tasks.
Employment contract
An employment contract is a legally binding agreement for an employee to work for an employer for a specific period of time. It is typically only used for high level positions.
AIA code of ethics structure
The AIA code of ethics is a ethical framework for the practice of AIA members. It is structured in sections (canons) that contain ethical standards and rules. Violation of rules can be punished by termination of AIA membership.
NCARB Model Rules of Conduct
The NCARB Model Rules of Conduct are 5 rules governing architecture practice (competence, conflict of interest, full disclosure, compliance with laws, signing and sealing documents). The purpose of the rules is to ensure architects practice ethically, responsibly, and lawfully. Violation of rules can result in revocation of license.
NCARB Model Law and Regulations
The NCARB Model Law and Regulations is a framework for Architecture Licensure Requirements. The Model law describes the licensing boards responsibilities, while the Model Regulations are proposed rules for the board to consider implementing
Standard of Care?
The Standard of Care is an objective legal standard that forms the basis of legal contracts, insurance, and litigation. It states that an architect will perform the work with a diligence typical of other architects practicing in the same locality under the same circumstances
Why should you not modify the Standard of Care?
The Standard of Care should not be modified because this could lead to loss of insurance and make the architect vulnerable to litigation.
Spearin Gap?
The Spearin Gap is a situation in which failure occurs due to unprecedented circumstances despite both the architect and the contractor performing their work to the standard of care. In these circumstances, the owner is responsible for the repair of any damages.
Efficiency Based Firm Structure
An Efficiency Based firm focusses on producing work efficiently at below market rate. To accomplish this, the firm takes work that is low complexity and consists of more less qualified staff to perform routine tasks
Expertise Based Firm Structure
An Expertise Based firm focusses on producing work that requires unique design solutions. The firm consists of more higher qualified staff since a greater portion of the work is advanced problem solving
Experience Based Firm Structure
An Experience Based Firm Structure relies on the experience of its members to accomplish a range of work. Generally it is somewhere between efficiency based and experience based firms in terms of staffing, pricing, and project complexity and type
Financial Reports relation to Financial Management System
Financial Reports (Profit Loss Statement and Balance Sheet) record a firms current financial situation compared with the Financial Management System (Annual Budget and Profit Plan) which is the firms financial plan.
Profit Loss Statement
The Profit Loss Statement is a record of the firm’s financial health over a specific time (usually a month). It records Revenue, Direct Expenses (value adding), Indirect Expenses (overhead), and other miscellaneous expenses and revenue. All the revenue and expenses are added to find the Net Profit.
Balance Sheet
The Balance Sheet records the company’s current worth (equity). The assets of the firm include current assets (cash in hand or to be paid) and fixed assets (company property, etc). The liabilities of the firm include current liabilities (expenses the company owes) and long term liabilities (loans, etc). The equity is the sum of the firm’s total assets and total liabilities.
Annual Budget
The Annual Budget is the firm’s plan for the Revenue, Expenses, and Profit for the year. It is broken down by month and can be compared to a monthly Profit Loss Statement.
Profit Plan
The Profit Plan provides projections for the Annual Budget. It uses Utilization Rate and Salaries to forecast the firm’s revenue.
Utilization Rate
Utilization Rate is Direct Labor/Total Labor. Direct Labor is labor that is billable to the client. Utilization Rate for an entire firm is typically around 60-65% and must account for admin staff that have a Utilization Rate close to zero
Net Multiplier
The Net Multiplier is the amount the client pays compared to what the firm pays for direct labor in order for the firm to be profitable. A net multiplier of around 3 is typical
Overhead Rate
Overhead Rate is the amount paid in overhead compared to the amount paid for direct labor. Overhead includes indirect labor and operating costs of the firm. Typical overhead rate is 1.3-1.5
Break Even Rate
Breakeven Rate is Direct Labor plus Overhead costs compared to Direct Labor, and it is the net multiplier at which a firm will neither gain nor lose value. Typical is 2.3-2.5
Profit-to-Earnings Ratio
Profit to Earnings Ration is the Net Profit divided by the Net Operating Revenue (total earnings). It is the percentage of the value generated by the firm that is profit. 20% or higher is a good target
Net Revenue per Employee
Net Revenue per Employee is exactly what it sounds like and is the Net Operating Revenue divided by the number of employees
Aged Accounts Receivable
Aged Accounts Receivable is the average time for clients to pay invoices. It is calculated by the amount in accounts receivable divided by the net operating revenue times 365 days. A good Aged Accounts Receivable is 60 – 90 days. A higher Aged Accounts Receivable indicates the clients are not paying for work on time.
Current Ratio
The Current Ratio is the firms ratio of total assets to total liabilities. A good ratio is around 1.5
Quick Ratio
The Quick Ratio is a measure of the firms liquidity or ability to immediately pay debts. It is calculated by the firms cash + accounts receivable + WIP / total liabilities. Anything over 1.0 is financially healthy.
Debt-to-Equity Ratio
Equity is the total assets minus the total liabilities. Debt to Equity Ratio is the Debt divided by the Total Equity. Firms should aim for a ratio below 35%.
Return on Equity
Return on Equity is the amount the firm gains above the amount it invests. A good return on Equity is greater than 20%
Percentage of Construction Cost Fee Structure
Percentage of Construction Cost is a fee structure that specifies a percentage of the construction cost to be paid as an architect fee. The advantages of this structure for architects is that changes to the scope of work are easy to accommodate. The disadvantage to the client is that the architect fee cannot be determined until completion of construction.
Time-Charge Fee Structure
A Time–Charge fee structure is the lowest risk option for the architect in which the client is billed a certain amount per hour of work. This fee structure is appropriate for work where the scope is not clear at the beginning of the project. Sometimes a not to exceed limit is stipulated to ensure the client won’t have to pay more than a certain amount.
Cost per Unit Fee Structure
A Cost per Unit fee structure stipulates a cost per unit such as project square feet or number of rooms. It is typically used in projects with multiple similar parts or interior fit up projects
Stipulated Sum Fee Structure
A Stipulated Sum Fee Structure is a fee that is fixed at the start of a project. Because this structure does not account well for changes or uncertainty it is appropriate for projects with well defined scope, familiarity, and experienced clients.
Top Down Project Fee Estimation
Top-down analysis takes a fee estimate such as percentage of construction cost and breaks it up into fees and costs for the project.
Bottom Up Project Fee Estimation
Bottom-up analysis takes the scope of work and breaks it into phases and staffing requirements.
Staff Analysis Project Fee Estimation
staff analysis takes the time of work and breaks it into phases and staffing requirements.
Client vs Architect Consultant Hiring
As a general rule, the client is responsible for hiring consultants related to the land (geotechnical, surveyors, civil engineers) while the architect is responsible for hiring consultants related to the building (structural, MEP)
B101 Article 1
B101 Article 1 contains a summary of information about the project including program, budget, milestones, delivery method, and owner and architect hired consultants and representatives
B101 Article 2
B101 Article 2 lists the architect’s responsibilities such as licensure in the project jurisdiction, standard of care, conflicts of interest, insurance policy limits
B101 Article 3
B101 Article 3 lists the architect’s basic services including reporting project progress, coordinating with the owners consultants, and work to be completed in each phase of design
B101 Article 4
B101 Article 4 lists supplemental services that can be provided and who is responsible for hiring relevant consultants.
B101 Article 5
B101 Article 5 lists the owners responsibilities including providing a program, schedule, budget, site survey, and geotechnical report
B101 Article 6
B101 Article 6 states the architects responsibility to provide cost of work estimates at every design stage of the project
B101 Article 7
B101 Article 7 states that the architect owns the copyright to the design and the owner may build one instance of it
B101 Article 8
B101 Article 8 describes dispute resolution such as mediation, arbitration, and litigation
B101 Article 9
B101 Article 9 describes the rights of each party to suspend or terminate work
B101 Article 10
B101 Article 10 contains typical miscellaneous provisions
B101 Article 11
B101 Article 11 describes Architect’s compensation including fee structure, reimbursable expenses, and retainer
B101 Article 12
B101 Article 12 lists special terms and conditions
B101 Article 13
B101 Article 13 states that the contract contains the entirety of the owner architect agreement
Best practices to avoid disputes between client and architect
Some ways that architects can avoid disputes with an owner are relationship, overcommunication, and clear expectations, and documentation of communications
Levels of dispute resolution
Dispute resolution should aim to satisfy both parties and be clearly understood and documented. The escalating levels of dispute resolution are non-binding methods of informal, mediation, and binding methods of arbitration or litigation
Copyrights in architectural work
Architectural design work is copyrighted as described in the contract and allows only the owner to build one instance of the design. Copyright notice should be included on drawings as an extra precaution.
Why should Standard of Care, Guarantees, and Means & Methods not be negotiated by the architect?
The Architect should not negotiate the Standard of Care, Guarantees, and Means & Methods because this would expose them to litigation and loss of insurance.
What can the Architect negotiate?
An Architect can negotiate for a design to be used for more than one building or who is responsible for which clients
Considerations before working with a client
Before agreeing to work with a client, an architect should consider their experience, their reputation, the project type, funding source and delivery method to avoid projects with excessive risk
Design-Negotiate-Build
Design-Negotiate-Build is the lowest risk delivery method because it typically involves owners and contrators of established relationship and reputation.
Design-Bid-Build
Design-Bid-Build is a mid level of risk because contracts are often awarded to the lowest bidders who may attempt to make up differences in fee with change orders.
Fast-track with a CM
Fast-track with a CM is the highest level of risk, because of unforeseen design issues that are likely to arise during construction
Methods of gathering client input throughout the design process
Methods of gathering client input include in the contract, through questionnaires, and through design meetings with an agenda and meeting minutes.
Owner vs Architect Project Decisions
The owner is responsible for decisions regarding project design and direction while the architect is responsible for decisions regarding technical issues, constructability, and health, safety and welfare
RFPs, RFQs, and RFSs
A Request for Proposal is a client request for a proposal for a project, a request for qualifications is a request for the architects past relevant work and staffing qualifications, a request for services is a request for the architects services on an ongoing project or a small project.
Sections of an RFP
An RFP might contain these sections: Overview, Site Facts, Site Background, Goals and Considerations, Proposal Contents and Submission, Evaluation Criteria, Proposal Review and Selection, Information Session, and RFP Timeline.
Factors for responding to an RFP
Some factors to consider before responding to an RFP are whether the firm has the adequate size and experience, has a reasonable chance of winning the project, project proximity, and project profitability potential
RFP response best practices
Some good practices in creating RFPs are client research, additional research on project, statement of qualifications, and tailoring the proposal to the needs of the project.
Design-Bid-Build Project Delivery
In Design-Bid-Build Project Delivery the architect coordinates the project with the owner, completes the drawings, and sends to project to contractors to bid on. Often the lowest bidder is selected to complete the work.
Construction Management Project Delivery
Construction Management Project Delivery introduces a construction professional to act as an advisor, agent, or constructor to the owner. Their expertise is used to provide accurate project estimates and smooth construction coordination
Design Build Project Delivery
In Design Build Project Delivery the firm executes both design and construction of a project. In bridged Design Build, a design architect completes early design stages before handing off the project to the design build firm.
B101
B101 is the standard Owner/Architect Agreement
A201
A201 is the General Conditions of the Contract for Construction
C401
C401 is the standard Architect/Consultant Agreement
A101
A101 is the standard Owner/Contractor Agreement
New Consultant Vetting
First, a new consultant’s portfolio of work and owner/architect relationships should be reviewed for past experience and qualifications. Next, the architect should send a scope of work summary to prospective consultants. Finally, the consultant can be interviewed to further determine qualification and clarify expectations
Negotiating the C401
When negotiating the C401 Consultant Contract there are several important steps. The consultant should be provided with the B101 as reference, the consultant’s services should be clarified, clauses of the consultant agreement should be coordinated with any changes to the B101, and finally, the consultant fee should be negotiated.
Evidence Based Design
Evidence Based Design is a process in which design hypotheses are tested through implementation in projects. Observation of the completed project can be used to refine or confirm the initial hypothesis
Appropriate Applications for EBD
Some appropriate environments for Evidence Based Design are Healthcare, Education, Workplace, and Retail
Sole Proprietorship
Sole Proprietorship is the simplest firm structure and does not require any legal registration. Sole Proprietors also carry a high legal risk since there is no separation of personal and business liability
Partnership
A Partnership is operated by two or more partners and can take either of two forms. A General Partnership requires no legal registration and partners are share liability according to a written agreement. A Limited Liability Partnership is a formal business entity in which the partners do not take on personal liability for the firm.
Corporation
Limited liability business entity which is owned by shareholders and operated by directors and officers.
C Corporation
C-Corporation has publicly traded stock and is often owned by external shareholders. Uncommon for architecture firms.
S Corporation
S-Corporation is owned by internal shareholders and not publicly traded. Most architecture firms are S-Corporations.
LLC Corporation
An LLC Corporation is a simplified corporation in which members own the corporation and elect managers to operate it.
Components of a Corporation Agreement
When forming a corporation, members should formally agree on several important items including monetary contributions of partners, profit and loss allocations, ownership termination, confidentiality, and a non-compete clause
Consultant Hiring Considerations
Some considerations before hiring a consultant for a job are whether they have staff available, if they have worked with you or the client previously, if they have completed similar projects, and other project specific requirements
IPD
Integrated Project Delivery is a delivery method in which the owner, architect, and contractor agree to a more integrated collaboration without risk of litigation. IPD projects are characterized by open communication, efficient problem solving, and trusting relationships
