Practice Management Flashcards
A small architectural practice, which a partnership between three architects, is required to pay taxes as a business. Which of the following taxes is this firm most likely to pay?
Self-employment tax, federal and state income tax, and personal property tax on furniture used by the business are some of the types of taxes.
AIA A101
A101 – Standard Form of Agreement Between Owner and Contractor where the basis of payment is a Stipulated Sum
What are three levels of participants in an architecture firm that is a corporation?
stakeholders, directors, and officers
Name some advantages and disadvantages in design bid build
Linear and simple process from inception to completion of the project
Coordination between client,architect and contractor is relatively straightforward
The design must be completely finished before construction can start
Contractors not selected through the negotiation process (such as in a public bid where the lowest bidder is awarded the contract) may have adversarial relationships with the Architect and/or Owner
Chances of of the contractor underestimating to give competitive bid are high
The bid documents need to be well drawn and detailed well for accurate bids
What is an architect’s primary duty?
Protect the public’s health, safety, and welfare
AIA A201
A201 – General Conditions of the Contract for Construction
AIA A701
A701 – Instructions to Bidders
AIA B101
B101 – Standard Form of Agreement Between Owner and Architect
AIA C401
C401 – Standard Form of Agreement Between Architect and Consultant
AIA A305
A305 – Contractor’s Qualification Statement
AIA G701
G701 – Change Order
AIA G702
G702 – Application and Certificate for Payment
AIA G703
G703 – Continuation Sheet
AIA G704
G704 – Certificate of Substantial Completion
Legal concept of agency
The architect is the agent working on behalf of the client and the contractor is referred to as the third party. As the agent, the architect creates a legal relationship between the principal (Owner) and third party (contractor)
Why can IPD be good for complex projects?
Uses BIM that enables multiple aspects to be designed congruently
The risk and responsibility is shared with a varied team
Management can happen in one location enabling fast turnaround
Revisions are minimal
Sole proprietorship pros and cons
Ease of setup
Owner personally liable for debts and losses
General partnership pros and cons
Income is shared , reported on personal taxes
Partners personally responsible for debts and liabilities
All partners responsible for actions of others
S corporation
Allocated profit and loss in proportion to holdings, shareholders report profit and loss on personal taxes
No tax on corporate income
Liability limited to investment
Limited to small businesses—domestic companies w fewer than 100 employees
LLC
Made up of members and managers
LLC not a separate entity- profit and loss to individuals reported on personal tax forms
Members are self employed must pay self employment tax for social security and Medicare
Easier to set up than corporation
Standard of care
Level of skill and diligence that a reasonably prudent architect would exercise in same community at same time in same circumstances
Suggesting or guaranteeing a higher standard of care can increase liability or make work uninsurable
National Labor Relations Act
Allows private sector employees to organize in trade unions
Applies to all employers
Equal Pay Act
Equal pay for employees with same duties, responsibilities and experience
Applies to all employers
Employee Eligibility Verification
Employees must verify workers right to work in US by maintaining I-9 form for three years plus one year after termination
FLSA
Wages and Fair Labor Standards Act
Establishes minimum wage, overtime, pay, record keeping, child labor standards for public and private employment
Applies to all employers
OSHA
Occupation Safety and Health Act
Applies to all employers
HIPAA
Health Insurance Portability and Accountability Act
Protects privacy of individually identifiable health information
Applies to all employers
ERISA
Employee Retirement Income Security Act
Sets minimum standards for pension plans in private sector
Applies to all employers who have a pension plan program
COBRA
Consolidated Omnibus Budget Reconciliation Act
Allows for continuation of group medical coverage
Applies to employers of 20 or more
Civil Rights Act
Applies to employers of 15 or more
ADEA
Age Discrimination in Employment Act
Prohibits age discrimination for persons 40 and over
Applies to employers of 15 or more
FMLA
Family and Medical Leave Act
Require employers to give up to 12 weeks for child spousal or parental care
Applies to employers of 50 or more
General obligation bond
When a state or local government wants to finance the acquisition or construction of public facilities, they issue a general obligation bond. Shareholders (the investors in the bond) are guaranteed to be repaid using future tax revenues.
ABI
“AIA’s monthly Architecture Billings Index (ABI) is a leading economic indicator for nonresidential construction activity, with a lead time of approximately 9–12 months. The index is derived from AIA’s Work-on-the-Boards survey, which has gathered data on shifts in billings from architectural firm leaders for over 20 years.
An Architecture Billings Index (ABI) score of over 50 represents that architecture firms, on average, reported to have increased work activity as compared to the previous month.
Each of the below economic phases will likely have ABI scores in following ranges:
Contraction:40-45
Late contraction: 45-50
Late expansion: 50-55
Early phase recovery: 55-65
Mechanic’s lien
a claim on property by anyone who has furnished material or labor for the construction of a building on that property.
accounts payable
amounts owed to the suppliers of goods or services that have not yet been payed
How often are AIA documents released?
Every ten years on the 7
accounts receivable
money that others owe to the business
assets
any type of tangible or intangible resource that can be measured in monetary terms
chart of accounts
a list of the various accounts a business uses to keep track of money, along with corresponding account numbers
current assets
resources of a business that are converted into cash within one year
direct labor
all labor of technical staff, principals and support staff that is directly chargeable to projects
direct personnel expense
expense of salaries plus cost of mandatory and discretionary expenses and benefits
discretionary distribution
voluntary distribution of profits to owners and non owners
fixed assets
resources that the firm uses and retains for a long period of time such as equipment and property
gross revenue
all revenue generated by a business during a stated period of time
indirect labor
all labor not charged to a specific project or revenue producing account
liabilities
claims by people outside the business and claims by the owners of the business against the total assets of the business
net operating revenue
the money that remains from billing after deducting fees and expenses
cash accounting versus accrual accounting
acrual: revenue and expenses recognized at the time they are earned or incurred
cash: revenue and expenses recognized at time the business receives money or pays a bill
businesses above a certain size are required by IRS to use accrual accounting
balance sheet
summary of all assets and liabilities
total assets must equal total liabilities plus net worth where net worth equals total assets minus total liabilities
profit and loss statements
lists all income and expenses of a business for a certain period of time
cash flow statement
shows actual inflows and outflows of cash or cash equivalents
project progress report
show hours and labor costs for each phase of a project as well as direct costs such as consultants, overhead allocations and reimbursable expenses
office earnings report
summarizes each of the firm’s projects in terms of revenue, expenses incurred, unbilled services, percentage of completion and profit to date
aged accounts receivable report
status of all invoices for all projects and time from invoice date to payment date
time analysis report
lists each employee with hours spent on direct and indirect labor and PTO
chargeable ratio / utilization rate
time spent on direct labor divided by total time (direct plus indirect and PTO)
overall should be 65%, technical staff 75-85%
current ratio
total current assets divided by total current liabilities
net profit before tax
total annual revenue minus expenses
overhead ratio
total office overhead or indirect expenses divided by total direct labor
should be 1.3-1.5
quick ratio
total cash assets plus accounts receivable plus revenue earned but not billed, divided by total current liabilities
revenue per technical staff
total net revenue divided by technical staff (or those providing direct labor)
revenue per total staff
total net revenue divided by all staff (including principals, part time employees)
DPE
direct personnel expense - multiplier for billing rates that includes taxes, benefits, etc along with base salary
three ways duty for architect is established
by contract, written or oral
by legislative enactment such as building code
conduct - implied duties
three conditions for negligence
legal duty must be established
must be shown that architect breached that duty
must be shown that breach of duty was cause of damage or injury
privity
concept by which architects are protected from claims by parties with whom the have no direct contractual relationship
copyright
architect owns copyright for drawings, specs and graphics unless architect is an employee of the building owner of specifically assigns the copyright to the owner
AIA B101 architect’s insurance requirements
professional liability
general liability
automobile liability
workers compensation insurance
AIA A201 contractor’s insurance requirements
workers compensation insurance
damages from bodily injury, sickness or death
bodily injury to people other than employees
damages other than to the work because of destruction of tangible property
damages related to use of motor vehicles
injury or damage occuring after the job is complete and contractor has left the site
contractual liability
personal injury (including slander, libel, false arrest)
early expansion
The time period when the economy is recovering from the most recent economic downturn
statue of repose
There is some mistake or flaw that is in repose (asleep) waiting to be discovered after construction has been completed. If it’s not found in time then the architect and contractor cannot be held liable for it.
revenue bonds (AKA rate-supported) bonds
Revenue bonds are municipal bonds that finance income-producing projects and are secured by a specified revenue source. Typically, revenue bonds can be issued by any government agency or fund that is run in the manner of a business – those entities having both operating revenues and expenses
bridging
Owner hires architect or engineer (AE) to be adviser/project manager
AE puts together documents, owner puts it out for bid, AE reviews final documents
Advantage of competitive bidding, fixed cost, single source responsibility for construction
CMa cost method and pros/cons
Helps with understanding the feasibility of the project
Helps with scheduling and following deadlines for the construction
Helps with keeping the construction within budget with the construction manager’s cost estimates
No competitive bidding of overall project
Cost methods:
Fixed price- stipulated sum or lump sum- owner not responsible for any overruns and doesn’t share in savings
Cost plus fee with GMP- owner pays cost plus agreed fee with guaranteed max- client gets cost savings if any
general obligation bonds
When a state or local government wants to finance the acquisition or construction of public facilities, they issue a general obligation bond. Shareholders (the investors in the bond) are guaranteed to be repaid using future tax revenues.
CMc
CMc usually bases cost estimates on partially completed drawings usually around DD. Setting the GMP before the design is fully resolved and completed puts the CMc at risk
The owner-CMc agreements would have two pre-construction and construction phases
The project price is set using either cost of work plus fees or cost of work plus fee with or without GMP
Restrictive covenant
A restrictive covenant is a provision in a deed limiting the use of the property and prohibiting certain uses
Deed restriction
Deed restrictions are written into a property’s deed and can take the form of conditions, covenants, and restrictions (sometimes called “CCRs”). The property’s past or present owner, developer, builder, neighborhood, or homeowners association usually imposes them.
Design build
The contractors may hire subcontractors to do parts of the work
The client contracts with one party that does the design and construction
The contractor may have in house design team or may hire a designer or architect
Pros:
single source of responsibility
Fixed price given earlier in the project
Often faster and less expensive
Cons:
Owner has less control esp relative to quality
Professional liability insurance typically covers:
negligence
property damage caused by the architect’s actions
erroneous specifications and mistakes in drawings
Three tiers AIA code of ethics
Canons (broad principles of conduct); Ethical standards (more specific goals toward which each should aspire); Rules of conduct (mandatory requirements).
Break even rate
The break-even rate = overhead rate + assigned unit cost of 1.0 for hourly salaries.
CMa arch responsibilities
Arch and CM provide joint CA services
CM schedules and coordinates contractor, prepares change orders and directives
Arch must advise and consult with both owner and CM
Arch decisions are final when consistent with contract docs
Control estimate
Sum of CMc estimate of cost of work plus CM fee. Establishes date of substantial completion
AIA docs series
A - owner contractor B - owner architect C - other D - misc E - exhibits G - CA and project management
Design build requirements for success
Owner must understand or have experience with design build
Owners project criteria must be clearly and completely stated
Owner may hire consultant to analyze needs and develop program - they may put out RFP
Key contractors should be selected early
Contract should allow for adjustments in cost and time
Trust and willingness to work together
Main AIA contract design build
A141 between owner and design builder
IPD
Integrated project delivery- like design build but owner has multiple agreements with different design and construction firms
Phases: Conceptualization Criteria design Implementation documents Agency review buyout Construction Close out
Early phases take more time but later phases take less
SPE
Single purpose entity- independent limited liability company established for a particular project
Market trough
The time period at which the economic output of an economic cycle is at its lowest point
