Practice Management (PcM)

Question 1

Business Organization

Answer 1

the legal structure of an architectural firm

Types:
Sole Proprietorship
General Partnership / Limited Partnership
Corporation (C vs. S)
Limited Liability Company / Limited Liability Partnership
Joint Venture

Question 2

Office Organization

Answer 2

the way the firm organizes to complete its work

work organization
support staff
regulations governing architectural practice

Question 3

Work Organization

Answer 3

Departmental Organization - also called horizontal or flat organization

Studio Organization - also called vertical or tall organization:

smaller firms can work more informally and divide work as needed

Outsourcing:
contracting with another company to do some of the work needed for a project (ex: renderings)

Support Staff:
employees other than the professional staff and senior management (admins, IT, etc.)

Question 4

Departmental Organization

Answer 4

also called horizontal or flat organization

staff is organized into departments, each specializing in a different function (marketing, design, etc.)

very efficient with a standardized process of moving a project through different departments, makes use of many specialists, and
creates economies of scale

can also make a business inflexible/resistant to innovation and change, tough to communicate, lack of shared knowledge

Question 5

Studio Organization

Answer 5

also called vertical or tall organization

organized around studios with each completing a project start to finish without the need for outside assistance

encourages communication among the team

can be combined with other departments such as those that provide specification writing

Question 6

Ethical Standards

Answer 6

the accepted principles of correct professional conduct

Question 7

Human Resources

Answer 7

the practices and legal responsibilities pertaining to employing others

Question 8

Business Development

Answer 8

the use of marketing and public relations to increase business

Question 9

Sole Proprietorship

Answer 9

Business is owned by an individual.

Advantages: ease of setup, total management control by the owner, and possible tax advantages to the owner because business
expenses and losses may be deducted from the gross income of the business

Disadvantages: owner is personally liable for the company’s debts and losses (owner’s personal income, personal property, and
other assets can be seized to pay any judgments in a lawsuit), raising capital and establishing credit depends entirely on the
owner’s personal credit rating and assets

When the owner stops practicing, the firm ceases to exist.

Question 10

Partnerships:

General vs. Limited

Answer 10

General Partnership:
Two or more people share in the management, profits, and risks of the business.
Income is shared among these partners and is reported on personal tax forms.
Each partner is personally liable for business debts and liabilities.

Limited Partnership:
At least one general partner and at least one limited partner.
General partners invest in the business, manage it, and are financially responsible for it.
Limited partners are investors - receive a share of profits, but have no “general” roles like listed above. They are also only liable to
the extent of their investment.

Disadvantages: all the partners are responsible and liable for the actions of the others, personal assets are vulnerable (like w/ sole
proprietorship), income is taxed at individual rates, and if one partner withdraws then the business is usually dissolved

Question 11

(C) Corporation

Answer 11

an association of individuals that exists as a legal entity apart from its members

can be created by formal articles of incorporation (drawn up by an attorney and then properly filed w/ the state)

shareholders: owners of the corporation in proportion to the # of shares they own; they elect directors; only financially responsible
for the amount of money he or she invests

directors: must act in the best interests of the shareholders with broad policy decisions; they elect officers
officers: carry out the day-to-day management of the corporation

Advantages: easy to raise capital through sales of stock in corporation, taxed at lower rates than individuals, reduced liability

Disadvantages: corporation is taxed on profits and shareholders are taxed on dividends (taxed twice), initial cost to start the
business, continuing paperwork and formal requirements to maintain it

Question 12

(S) Corporation

Answer 12

similar to a C Corporation, but allocates its income and losses directly to shareholders in proportion to their holdings. Shareholders
then report this on their own tax returns and are taxed at individual rates (avoiding the tax on the corporation)

offers all the advantages of a C Corporation

can only exist as a domestic company with no more than 100 shareholders (along with other restrictions)

Question 13

Professional Corporation

Answer 13

similar to other corporations, but liability for malpractice is usually limited to the person responsible for the act

Question 14

Limited Liability Companies & Limited Liability Partnerships

Answer 14

combines the advantages of a partnership or sole proprietorship with the limited liability of a corporation

formed like a partnership with investors (members) and managers; it is possible for a non-member to be a manager

Advantages: liability is limited to a member’s investment with no personal liability, the business is not taxed, easier to setup and
operate than a corporation

Disadvantages: members must report profits and losses on personal tax returns, members are “self-employed” and pay taxes to
Social Security and Medicare

Question 15

Joint Venture

Answer 15

a temporary association of two or more persons or firms for the purpose of completing a specific project or goal that is typically
dissolved when project or goal is complete/reached

based on a formal, written agreement describing the duties and responsibilities of each party involved, how profits will be divided,
and how the work will be completed

a “teaming agreement” or “memorandum of understanding” is developed which defines roles, responsibilities, and contractual
relationships that will be established if the joint venture is formed. The teaming agreement is not a formal business organization,
but is used to market the teams and forms the basis of the joint venture.

treated like a partnership (not a legal entity in itself separate from members and cannot be sued like a corporation)

profits are taxed according to the state in which the joint venture operates

Question 16

Standard of Care

Answer 16

a legal concept, defined as the level of skill and diligence that a reasonably prudent architect would exercise in the same
community, in the same time frame (at the time the project is designed or built), and given the same or similar facts and
circumstances (budget, scheduling, complexity of the project, etc.)

Question 17

Business License

Answer 17

allows the business to practice and usually serves as the basis for taxation

corporations have tax identification numbers

a certificate of authorizations (COA) is sometimes required in order to offer services to the public

Question 18

Taxes

Answer 18

all businesses are required to pay taxes

businesses with employees must:
withhold taxes for each employee to be forwarded to the IRS
fill out a IRS Form SS-4 - Application for Employer Identification Number (EIN)
collect a copy of a Form W-4 - Employee’s Withholding Allowance Certificate from each employee
supply employees with Form W-2 - Wage and Tax Statement

for sole proprietorships and some partnerships:
federal and state income tax must be filed as estimated taxes every quarter
must pay self-employment tax to cover Social Security and Medicare taxes

some states apply a use tax on goods purchased from out of state and architect have to file a use tax certificate and pay what
amounts to a sales tax

some states charge a personal property tax on furniture and equipment used by the business

some cities have additional income, employment, occupational privilege, and use taxes

property taxes (if firm owns it’s own property)

Question 19

Professional Licensing and Regulation

Answer 19

architects must have a license to practice and renew it annually or biannually

a min. # of continuing educational credits must be completed to maintain their license

to obtain license, a candidate must pass the Architect Registration Examination (ARE) given by the National Council of Architectural
Registration Boards (NCARB); states may require individual exams as well; a candidate must also have a bachelor or masters
degree from university accredited by the National Architectural Accrediting Board (NAAB); most states also require completion of
the Architectural Experience Program (AXP)

architects can apply to be licensed in other states by applying for a reciprocal licensure and submitting documentation of
education, experience, and exam status to the state’s licensing board; the architect must meet that state’s continuing education
requirements and take any additional tests that state requires

Question 20

Ethical Standards

Answer 20

architect must abide by all federal, state, provincial, and local laws as well as any state laws governing the practice of architecture

main source of ethical standards for architects is from the American Institute of Architects (AIA) “Code of Ethics & Professional
Conduct” which provides min. standards of conduct, procedures for enforcement, and sanctions against AIA members who
violate the standards

AIA members who violate the AIA code can receive: non-public admonishment, censure (including a published description of the
violation in the AIA periodical), suspension of membership, or termination of membership

the AIA Code of Ethics is in three tiers - canons (broad principles of conduct), ethical standards (specific goas toward which
members should aspire), and rules of conduct (specific, mandatory statements that members must follow)

Question 21

AIA Canon I, General Obligations

what members should do

Answer 21

maintain and improve their knowledge and skill

seek to raise architectural standards in aesthetics, education, research, training, and practice

respect and seek to improve society and the environment

exercise learned professional judgment

uphold human rights

not discriminate on the basis of race, religion, national origin, age, disability or sexual orientation

Question 22

AIA Canon II, Obligations to the Public

what members should do

Answer 22

uphold the law

never try to influence a public official with a payment

never accept payments intended to influence their judgment

never help a client with anything fraudulent of illegal

promote and serve the public interest

render pro bono services

be involved in civic activities

strive to improve public appreciation of architecture

Question 23

AIA Canon III, Obligations to the Client

what members should do

Answer 23

serve their clients competently and professionally

exercise unbiased judgment

not accept projects beyond their professional capacity

avoid conflicts of interest

be truthful in professional communications

keep clients informed about their projects

maintain client confidentiality

Question 24

AIA Canon IV, Obligations to the Profession

what members should do

Answer 24

uphold the integrity and dignity of the profession

practice with honesty and fairness

not sign and seal documents for which they do not have responsible control

not knowingly make false statements

be honest about their qualifications and about the work they claim credit for

Question 25

AIA Canon V, Obligations to Colleagues | what members should do

Answer 25

respect the rights of their colleagues and acknowledge their professional contributions provide associates and employees with suitable working conditions and fair compensation nurture fellow professionals through their education, internships, and careers give credit to others for their professional work

Question 26

AIA Canon VI, Obligations to the Environment | what members should do

Answer 26

be environmentally responsible promote sustainable design in their professional work advocate sustainable buildings and site design use sustainable practices within their firms and encourage clients to do the same

Question 27

Human Resources

Answer 27

known as "human resource management" or "personnel management" involves the entire range of hiring, compensating, managing and terminating employees, along with any legal responsibilities

Question 28

Compensation (examples of)

Answer 28

``` flextime flexible benefit packages office-sponsored events floating holidays sabbaticals flexible days off compensation alternatives (educational reimbursements, paid travel for seminars, etc.) annual performance bonuses profit sharing wellness (gym memberships) company cars community involvement (time off for volunteering) professional dues (AIA cost, payment for ARE exams, etc.) office amenities continuing education family and medical leave ```

Question 29

National Labor Relations Act (Wagner Act)

Answer 29

allows private sector employees to organize into trade unions and protects union employees from unfair practices by employers

Question 30

Equal Pay Act

Answer 30

requires equal pay for employees who have the same work duties, responsibilities, and experience

Question 31

Employee Eligibility Verification

Answer 31

requires employers to verify the employee's right to work in the US by maintaining an employee's I-9 form for at least 3 years as well as for 1 year after termination

Question 32

Wages and Fair Labor Standards Act (FLSA)

Answer 32

establishes minimum wage, overtime, pay, recordkeeping, and child labor standards in both the private sector and in government employment

Question 33

Occupational Safety and Health Act of 1970 (OSHA)

Answer 33

requires employers to provide a safe work environment (first aid kits, posted material safety data sheets, fire extinguishers, etc.)

Question 34

Health Insurance Portability and Accountability Act of 1996 (HIPAA)

Answer 34

protects the privacy of individually identifiable health information

Question 35

Employee Retirement Income Security Act (ERISA)

Answer 35

sets minimum standards for pension plans in the private sector for those employees who have a pension plan program

Question 36

Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) - over 20 employees

Answer 36

requires employers to continue group medical coverage if employment is terminated, working hours are reduced, employment is changes, or in the event of death, divorce, or other significant life events

Question 37

Civil Rights Act of 1991 | - over 15 employees

Answer 37

prohibits discrimination on the basis of sex, race, color, religion, or national origin

Question 38

Age Discrimination in Employment Act of 1967 (ADEA) | - over 15 employees

Answer 38

prohibits age discrimination in employment for persons age 40 or over, including hiring, firing, segregation in the workplace, and reducing wages or salary

Question 39

Family and Medical Leave Act of 1993 (FMLA) | - over 50 employees

Answer 39

requires that companies give an employee up to 12 weeks of unpaid leave for child, spousal, or parental care, without initiating retribution or jeopardizing the employee's job also applies to an employee with a serious health condition firms that do any work for the federal or state government must comply with additional regulations

Question 40

general ledger accounting

Answer 40

day-to-day operations banking taxes auditing provides firm-wide statements about the overall financial status of the business

Question 41

project cost accounting

Answer 41

revenue expenses profit by individual projects can help managers decide how to allocate resources, manage projects, and develop accurate proposals for new work

Question 42

accounts payable

Answer 42

amounts owed to the suppliers of goods and services that have not yet been paid

Question 43

accounts receivable

Answer 43

money that others owe to the business through invoices for services

Question 44

assets

Answer 44

any type of tangible of intangible resource that can be measured in monetary terms, including current assets, fixed assets, and other assets

Question 45

chart of accounts

Answer 45

a list of the various accounts a business uses to keep track of money, along with corresponding account numbers used for data processing

Question 46

chart of accounts

Answer 46

a list of the various accounts a business uses to keep track of money, along with corresponding account numbers used for data processing

Question 47

current assets

Answer 47

resources of a business that are converted into cash within one year

Question 48

direct labor

Answer 48

all labor of technical staff, principals, and support staff that is directly chargeable to projects

Question 49

direct personnel expense

Answer 49

the expense of employee salaries plus the cost of mandatory and discretionary expenses and benefits such as payroll taxes jand health insurance

Question 50

discretionary distribution

Answer 50

voluntary distribution of profits to owners and nonowners, such as performance bonuses, profit sharing, and incentive compensation

Question 51

fixed assets

Answer 51

resources that the firm uses and retains for a long period of time, such as equipment and property

Question 52

gross revenue

Answer 52

all the revenue generated by a business during a stated period of time

Question 53

indirect labor

Answer 53

all labor not charged to a specific project or revenue-producing account, such as administration, general office time, and marketing

Question 54

liabilities

Answer 54

claims by people outside the business and claims by the owners of the business against the total assets of the business

Question 55

net operating revenue (net revenue)

Answer 55

the money that remains from billing after deducting fees and expenses, reimbursable expenses, and non-reimbursable project-related expenses

Question 56

other assets

Answer 56

miscellaneous resources such as securities and copyrights

Question 57

overhead

Answer 57

expenses incurred to keep a business operating whether or not any revenue is being generated, such as rent, software leases, and fees for power and telephone service

Question 58

cash accounting

Answer 58

revenue and expenses are recognized at the time the business receives the cash or pays a bill better at tracking actual cash flow simple and often used for single-person or small businesses revenue and expenses are grouped into individual accounts for the purposes of auditing, review, tax preparation, management, and analysis

Question 59

accrual accounting

Answer 59

revenue and expenses are recognized at the time they are earned or incurred, whether or not cash changes hands gives a better picture of a business' long-term financial status and provides information that is important for active financial management businesses above a certain size or that maintain inventory are required by the IRS to use accrual accounting revenue and expenses are grouped into individual accounts for the purposes of auditing, review, tax preparation, management, and analysis uses double-entry bookkeeping

Question 60

modified accrual basis (accounting method)

Answer 60

a slight variation of the accrual method records fee revenue, expenses billed to the client, and invoices to the firm by outside consultants it does not include the amounts of fees that have been earned but not yet billed to the client

Question 61

double-entry bookkeeping

Answer 61

all transactions are listed chronologically in a journal, then posted to a ledger, where transactions are grouped into individual accounts

Question 62

``` balance sheet (type of accounting report) ```

Answer 62

summarizes all assets and liabilities and shows the financial position of a business all the assets listed must exactly equal all the liabilities listed

Question 63

net worth

Answer 63

= the total assets - the total liabilities

Question 64

owner's equity

Answer 64

the money invested in a business by the owners or stockholders the total assets = the total liabilities + the net worth (or) owner's equity

Question 65

profit and loss statement (or income statement)

Answer 65

shows actual inflows and outflows of cash (money, checks, etc.) or cash equivalents (short-term investments that can be quickly converted into cash, such as short-term certificates of deposit)

Question 66

financial management

Answer 66

includes active planning, monitoring, and controlling of financial information as well as acting on that information revenue = profit + expenses

Question 67

project progress report

Answer 67

shows the hours and labor costs for each phase of a project, both for the current reporting period and the total to date, and compares these numbers with the estimated hours and costs shows direct costs, such as for consultants, overhead allocations, and reimbursable expenses

Question 68

office earnings report

Answer 68

summarizes each of the firm's projects in terms of the amount of revenue it has generated, the expenses it has incurred, unbilled services, percentage of completion, and profit or loss to date

Question 69

aged accounts receivable report

Answer 69

shows the status of all invoices for all projects, whether or not they have been paid and the "age" of each invoice, which is the time from the invoice date to the payment date (or to the current date if still unpaid)

Question 70

time analysis report

Answer 70

lists each employee along with the number of hours he/she has spent on direct labor, indirect labor (including marketing and professional development), vacation time, sick leave, and holidays shows the chargeable ratio

Question 71

chargeable ratio (utilization rate)

Answer 71

the percentage of time (sometimes calculated as percentage of dollars) spent on direct labor, divided by the total tim (or dollars spent on direct and indirect labor, vacation, holiday, and sick leave

Question 72

current ratio

Answer 72

current ratio = total current assets / total current liabilities a measure of a firm's ability to meet current obligations (generally the higher the ratio, the better) 1. 5 is generally good 1. 0 is acceptable

Question 73

net profit before tax

Answer 73

the percentage of profit based on net revenue net profit before tax = the total annual revenue - consultants' fees and reimbursable expenses

Question 74

overhead rate

Answer 74

overhead rate = total office overhead (or indirect expenses) / total direct labor 1.3 to 1.5 is normal when used to calculate fees, this ratio is then multiplied by the estimated cost of direct labor and the resulting product is added to the direct labor amount

Question 75

quick ratio

Answer 75

a more conservative measure than current ratio because it includes only the most liquid assets quick ratio = [cash and cash equivalents + accounts receivable + revenue earned but not billed] / total current liabilities

Question 76

revenue per technical staff

Answer 76

the amount of revenue produced per technical staff member or those staff members most directly involved with charging direct time and producing jobs can be used to estimate the required net operating revenue for future budgets can be used to estimate staffing levels (if a firm's operating revenue is known)

Question 77

revenue per total staff

Answer 77

amount of net revenue produced per staff member per year, including principals and part-time employees revenue per total staff = the annual net operating revenue / the total number of employees

Question 78

billing rate

Answer 78

hourly rate per staff member charged to a project which they are working on billing rate = employee's salary + cost for that employee's fringe benefits + cost of office overhead + an allowance for profit

Question 79

net multiplier

Answer 79

net multiplier = net revenue of the firm (excluding consultants' fees and reimbursables) / cost of direct labor

Question 80

break-even rate

Answer 80

break-even rate = the total cost of operations / total money spent on direct labor this rate accounts for the salary of the employee along with the amount of overhead attributed to the employee

Question 81

direct personnel expense (DPE)

Answer 81

the costs of providing taxes, benefits, etc. are included with the employee's base salary, then the multiplier is calculated to account for indirect labor and profit

Question 82

4 basic steps to collecting accounts receivable

Answer 82

contract terms: basis for the fee, when invoices will be sent and in what form, when payment is due, and any penalties for late payment (such as intertest charges after "x" amount of days, provisions for nonpayment (including stopping work) timely billing: invoices should be sent as soon as possible after the payroll period (avoid lump sum payments after phases of a project are completed - this could take months) complete invoices: legibility and clear name and address of the client, project name and number, a reference to a contract, detailed breakdown of the work performed, billing associated with each item, reimbursable expenses with backup documentation regular procedures for tracking accounts: follow up a couple weeks after invoices are sent out (can get questions answered and expedite payment), past due notices after "x" amount of days, making personal calls and/or visits after an additional amount of time, taking legal action is account is overdue for a longer period of time; any and all steps taken should be documented when collecting

Question 83

agency

Answer 83

one person, the agent (architect), acts on behalf of another, the principal (owner or client), in deals with another, the third party (contractor) architects must be careful to act on the owner's behalf and to keep the owner informed of progress or issues

Question 84

vendor

Answer 84

(contractor) who supplies a specific product for a fixed price act primarily in their own interest

Question 85

duties

Answer 85

defined by the law as what one person "owes" another in particular relations, such as contracts important in the construction industry because of the many formal (contractual) and informal relationships involved for architects, 3 ways that duty is established: the terms of a contract, such as those outlined in the AIA contracts legislative enactment, such as by means of building codes and architectural licensing laws the architect's conduct (implied duties), sometimes being held liable for either action or inaction implied duties include: cooperating with contractors not interfering with the contractor's work giving relevant information to contractors assisting the owner in coordinating work

Question 86

liability

Answer 86

the legal responsibility for injury to another person or damage to property

Question 87

negligence

Answer 87

the failure to use due care to avoid harming another person or damaging property to be found negligent, 3 conditions must be met: there must be a legal duty established between the parties it must be shown that the architect breached that duty it must be shown that the breach of duty was the cause of the damage/injury suffered by the other party

Question 88

betterment

Answer 88

can apply to claims of omission by the architect example: a finish is agreed to by the client, but the architect shows a cheaper finish in the final work, resulting in a change order. The architect can argue that the client would have had to pay for the first finish (a "betterment" to the project) and the architect should only be held liable for the cost of labor to change the work, no the overall cost of labor and materials for the first finish

Question 89

statute of limitations

Answer 89

sets a time limit within which a claim can be made, after this, the claim is permanently barred this time period typically begins with the date of substantial completion

Question 90

statute of repose

Answer 90

similar to a statute of limitations, except that the time limit is usually much shorter and does not begin until the problem is first discovered and typically has a second time limit within which any claim can be made

Question 91

risk management

Answer 91

strategies for mitigating risk: know the client use well-written contracts and follow them thoroughly make sure the appropriate employees are assigned to each project maintain an active quality control program maintain thorough documentation be very careful about last-minute changes and substitutions carry liability insurance

Question 92

privity

Answer 92

(in theory) protects architects from claims by parties with whom they have no direct contractual relationship ways to minimize liability: - don't include language in the contract that expressly states or implies responsibility to provide management, supervision, coordination, or planning of construction, unless those services are specifically being provided - don't give directions concerning methods of construction (may imply that the architects' responsibility extends to portions of the work beyond what the contract requires) - point out obvious construction safety problems to contractors and follow up in writing with both the contractors and owners. If problems are not corrected, suggest to the owners that construction be stopped until they are corrected

Question 93

indemnification clause

Answer 93

holds harmless both owners and architects for any damages, claims, or losses resulting from the performance of any work on the project, whether by contractors or others with whom the architects have no contractual relationship

Question 94

copyright

Answer 94

1st category includes: copyright for the drawings, specifications, and other pictorial or graphic representations of an architect's work 2nd category includes: the building itself (established under The Architectural Works Copyright Protection Act, applying to buildings after 12/1/90)

Question 95

professional liability insurance | or malpractice insurance or errors and omissions insurance

Answer 95

protects architects in case one of their actions causes bodily injury, property damage, or other damage covers problems resulting from incorrect specifications, mistakes on drawings, and negligence excludes intentional wrongful acts, claims for cost estimates being exceeded, and claims arising from express warranties

Question 96

general liability insurance

Answer 96

protects against claims of property damage, liability and personal injury caused by architects or their employees, consultants, or other people hired by the architects

Question 97

property insurance

Answer 97

protects the architects' building and the building's contents against disasters such as fire, theft, and flood

Question 98

personal injury protection

Answer 98

protects against charges of slander, libel, defamation of character, misrepresentation, and other torts (a civil wrong)

Question 99

automobile insurance

Answer 99

covers liability and property damage to vehicles owned and used by the business (can also include protection against claims made by employees who use their own cars while on company business)

Question 100

workers' compensation

Answer 100

mandatory in all states and protects employees in the event of injuries caused by work-related activities

Question 101

owner's insurance

Answer 101

owner is required to carry boiler and machinery insurance, liability insurance, and property insurance for the full insurable value of the work insures against physical loss or damage caused by fire, theft, vandalism, collapse, earthquake, flood, windstorm, and malicious mischief provides for reasonable compensation for architect and contractor services and expenses that may be needed as a result of insured losses policy must be the "all risk" type (much broader and includes all hazards except those that are specifically excluded by the policy) rather than the "specified peril" type

Question 102

contractor's insurance

Answer 102

must carry insurance that protects from the following: workers' compensation damages because of bodily injury, occupational sickness, or death of employees personal injury, including slander, libel, false arrest, etc. damages other than to the work because of destruction of tangible property, including loss of use resulting from damages damages relating to use of motor vehicles bodily injury or property damage arising when an injury occurs after the job is complete and contractor has left the site contractual liability insurance

Question 103

dispute resolution - binding & non-binding

Answer 103

mediation/negotiation is a non-binding resolution where you have a 3rd party listen to both sides and gives a prediction of what the court outcome might be, given the information both sides have provided, then tries to have both sides come to a resolution - two types of mediation: evaluative and facilitative lawsuits and arbitration are binding resolutions - lawsuits are expensive for both sides - arbitration must have been previously written into a contract - both must come to a legal decision (through courts or arbitration panel)

Question 104

contract

Answer 104

an agreement between two or more parties and is enforceable under law establishes predictability oral contract expressed or implied contract quazi contract (implied by law) bilateral contract - mutual obligations by both parties unilateral contract - only one side has an obligation