Professional Practice Flashcards
sole proprietorship
the business is owned by an individual
pros: easy setup, total management control by the owner, possible tax advantages
cons: owner is personally liable, raising capital is dependent on owner’s credit rating & assets
general partnership
two or more people share in management, profits, and risk of the business
main disadvantage: all partners are responsible and liable for the actions of the others
limited partnershp
atleast one general partner and one limited partner. Limited partners are investors who receive a portion of the profits but who have no say in the management of the company and are liable only to the extent of their investment
main disadvantage: all partners are responsible and liable for the actions of the others
corporation or C corporation
an association of individuals that exists as a legal entity apart from its members
three levels of participants:
stockholders - owners of the corporation in proportion to how many shared they own
directors - elected by the stockholders, have fiduciary duty to act in the best interest for the stockholders and are responsible for broad policy decisions
officers - elected by the directors, carry out day to day management
advantages: personal assets of stockholders are not at risk, has continuity that is independent of any changes of personnel, taxed at a lower rate,
disadvantages: initial cost to establish the business, shareholders are taxed twice
S corporation
chooses to allocate its income and losses directly to shareholders in proportion to their holdings. limited to small business corporations (domestic companies with less than 100 shareholders
advantages: avoids corporate income tax
limited liability companies (LLC) and limited liability partnership (LLP)
formed like a partnership
advantage: liability is limited to a member’s investment / no personal liability, the business itself is not taxed, easier to set up and operate than a corporation
joint venture
temporary association of two or more persons or firms for the purpose of completing a specific project
used by architectural firms when a project is too large or complex to be completed by one firm alone, or when one form needs the expertise in a particular area that another firm can offer
standard of care
level of skill and diligence that a reasonably prudent architect would exercise in the same community, in the same time frame, and given the same or similar facts & circumstances
beware of raising the standard of care with phrases in the contract with phrases like “with the highest standard”, promising certain results, or taking on responsibilities that are not part of the contract
cash basis accounting
Revenue and expenses are recognized at the time that are RECEIVED or incurred. Used most frequently by Sole Proprietors; can be tracked easily without a checking account.
accrual accounting
Revenue and expenses are recognized at the time they are EARNED or incurred, whether or not cash exchanges hands. This provides a better picture of long-term firm health, and is ideal for large corporations. Required by the IRS over a certain firm size.
double entry book-keeping
Used in accrual accounting. Keeps track of transactions chronologically in a journal, which is then posted to a ledger and grouped by accounts.
modified accrual accounting
A combination of both cash-basis and accrual accounting. Most typically used by architecture firms. Revenue is based only on invoiced fees and expense amounts billed or invoiced, as opposed to earned.
cash flow statement
depicts inflows and outflows of cash. Necessary in order to ensure that payroll can be paid.
project progress report
shows the sum of direct labor hours and labor costs for each phase of a project for the current reporting period and the total costs to date in order to compare with estimated project labor costs
office earnings report
summarizes each of a firm’s projects with respect to revenue generated, expenses incurred, percent complete, and profit or loss to date
time analysis report
lists each employee with number of hours spent on direct labor, indirect labor, vacation time, sick leave, and holidays. Used to calculate an employees Utilization Rate
revenue
Income before expenses. Use salaries, utilization rates, and the target multiplier to set typical billing rate.
direct labor
Labor that is involved in the production of services and is billed to a project. Use salaries and target utilization rate to project direct labor expenses
indirect labor
labor that is NOT involved in the productio of services for a project. Use salaries and target utilization rate to project indirect labor expenses
Mattox Format (of profit & loss statement)
lists income and expenses of a business for a period of time (month, year) in a format for easy understanding of firm financial health
4 components:
revenue, direct labor, indirect expenses, misc. revenue and expenses
7 indicators:
utilization rate, overhead rate, break even rate, net multiplier, profit to earnings ratio, net revenue per employee, aged accounts receivable
addendum
changes made to construction drawings after they went out to bid, but before a contractor is selected (basically, changes during bidding)
allowance
an amount for the cost of items for which a party cannot determine with certainty when a bid or proposal is submitted
Change order
A written instrument prepared by the Architect and signed by the Owner, Contractor, and Architect stating their agreement upon all of the following: 1) the change in the Work; 2) the amount of the adjustment, if any, in the Contract Sum; and 3) the extent of the adjustment, if any, in the Contract Time
Construction change directive
a command to a contractor to change their work on the project. When a contractor is given a change directive, it is essentially an order: The contractor must follow the changes without any input. Change directives are also known as “force account work
In design bid build, responsibilities for each party are:
Contractor - responsible for everything in the contract and nothing that isn’t in the contract
Owner - responsible for everything needed that is NOT in the contract, even if the architect overlooked something (change order, condition of site before const.)
Architect - instruments of service (drawing, specs, models), being on time, being on budget, coordinating everything
professional liability insurance
Errors and omissions insurance
Provides protection if someone accuses you of not doing your job correctly
Violation of ADA, OSHA, fair housing
general liability insurance
Basic insurance that covers property damage and injury claims against the firm
Covers both legit claims and fraudulent ones
Usually have dollar limits on claims or an aggregate limit
who owns the drawings?
the architect always owns the drawings and specs, but gives the owner & contractor limited license to use them during construction
Gross Area
the total area within the walls of a building structure, including the walls themselves and unlivable space.
Net Floor Area
the actual occupied area not including unoccupied accessory areas such as corridors, stairways, toilet rooms, mechanical rooms and closets (programmable area, doesn’t include circ)
Net to Gross Ratio
net area / gross area
For a university building may be 65%, warehouse could be 90%
Grossing factor
rentable area / usable area (number above 1, the higher the less efficient)
Overhead rate
total overhead (inlu. Indirect salary) / total direct salary
Break even multiplier
(direct salaries + total overhead) / direct salaries
Always is overhead rate + 1
Direct salary expense multiplier
total direct salary + total overhead + profit target / direct salary
Utilization rate
total direct salary / total base salary
Revenue factor
utilization rate x direct salary expense multiplier
Good measure of profitability
Higher number the better, 2 is good
Negotiated select team project
Subcategory of design/bid/build
Bring in contractor early in design process
Portions of project that are difficult to fabricate can begin earlier
Better quality, faster
Negotiated bid
Select a GC you want to work with and negotiate the price of the work (no bidding). better quality
Competitive bid
provide specifications of the work to several GCs. Each responds with a bid indicating how much they will charge if selected,
lower construction cost
Invited bid
good if special qualification needed for program’
Cost plus fixed fee
a cost-reimbursement contract that provides for payment to the contractor of a negotiated fee that is fixed at the inception of the contract. The fixed fee does not vary with actual cost, but may be adjusted as a result of changes in the work to be performed under the contract
regardless of scope of final project
Disincentivizes contractor from allowing construction costs to balloon
Gives lots of flexibility for change of program or issues come up on site
Construction manager as agent
manages and administers the contracts b/w architect & contractor
Good for inexperienced client who doesn’t want to be super involved
Construction manager as constructor (construction manager at risk)
Takes place of contractor in the triangle diagram
Owner engages architect and construction manager at the same time
Integrated project delivery
All 3 join together as a single entity
Share info with eachother without fear of litigation
Share benefits and risks of the project
Everyone profits if the project comes out ahead
what are owners responsible for?
pre-existing site conditions (geological, haz mat, surveying)
Paying contractor
Paying Owner’s subs
Change orders
With or without cause hiring & firing architect
… also anything not in contract
Scheduled performance index
earned value (at percent of project completed) / planned value (at percent of project completed)
phased bid
Fast track construction
portions of construction will be bid on piece meal
Design and fabricate parts before plans are finalized
negotiated bid
Contractor works with architect from beginning of project
Final bid is between contractor and the owner
Increases the quality at higher cost because the contractor is working with the architect in real time
invited bid
Design bid build
Pre selected contractors are given opportunity to bid
Bid bond
An agreement that is the low bidder cannot follow through the work and the bid bond should pay the difference of low bidder’s bid and the next lowersst bid
Performance bond
The third party offers to pay for the project to be completed if the contractor defaults
Contractor’s warranty / continuing warranty
Usually for 12 months after substantial completion
If a quality issues appears in that 12 months, the contractor has to fix it and the warranty period restarts
Ends when statute of limitation expires is also correct
Doesn’t cover improper operation or normal wear
when is a project late?
when substantial completion is late
what does the contractors application for payment include?
Change order summary
The amount of money needed to complete the project
The amount of current retainage for the work-in-place
The amount of current retainage for stored materials
Certification that the contractor’s subs have been paid
retainage
a percentage (agreed upon in contract) of money owed to contractor but intentionally not paid yet, is paid at end of project. Ensures that contractor stays till end of project
Net operating revenue
total firm revenue minus reimbursable (pass-through) expenses, such as project-related consultants and miscellaneous project-related expenses (whats coming in vs whats going out)
Current earnings
whats left over after all stocks and taxes are paid
Net profit - calculator before taxes and distributions (the left over after you’ve paid everyone who works for you & your bills and before you’ve paid taxes and distributions)
profit/earnings ratio
divide profit by net operating revenue, key measure of firm health and worth
Utilization rate
percentage of an employee’s time that is billed to a project
Accounts receivable
an invoice that is out but not paid yet
types of firms
Efficiency based - faster and cheaper, more routine projects, repeatable elements, one sector of market, lots of junior staff
Experience based - most common, more complex routine projects, selling points are knowledge and experience, challenge is matching project and pay
Expertise based - pritzker winners, passivhaus architects, architectural acousticians, deep knowledge or exceptional talent in their field, mostly senior staff, minimal or no junior staff
AIA B101
(Owner Architect Agreement)
Obliges that the architect has to be on time and under budget (or no more than 10% over
To get a cost estimate after SD DD and CD
excuses the architect from mistakes associated with work by consultants hired by the owner
Obliges the architect to visit the site one year after substantial completion
Owner can fire the architect for convenience
claims must be brought before 10 years
Allows for liquidated damages if there is a claim
fast track project
Common in commercial and institutional projects
Pose significant risks for architects
Owners want to monomixe loan interest costs
Architect must maintain a coherent design
May include phased bidding
- Schedule must be worked out ahead of time
- Agree on milestones
- Hours and fees for architect
- Bill reflect scope and ac celebrated schedule
3 levels of corporation
stockholders - owners of the corporation in proportion to how many shared they own
directors - elected by the stockholders, have fiduciary duty to act in the best interest for the stockholders and are responsible for broad policy decisions
officers - elected by the directors, carry out day to day management
AIA requires which insurances? And for what?
1 - General Liability - covers the physical office space
2 - Professional Liability - Covers errors and omissions
3 - Worker’s Compensation Insurance - Covers employee injuries or illness, medical care and lost wages
4 - Automobiles 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
Format types for specifications
Masterformat - developed first, list be material, more commonly used
Uniformat - list by system (newer, better for BIM)
employment practice liability insurance
Intellectual property insurance
Intellectual property insurance - covers claims based on copyright/intellectual property infringement
Employment practice liability insurance - protects from wrongful termination
aggregate limit
total coverage amount
premium (in insurance)
monthly/yearly bill
deductible (in insurance)
(in insurance)maximum paid by you, prior to coverage kicking in and paying
claim (in insurance)
you think you experienced a covered event and demand payment from the insurance company
tail insurance
liability insurance for projects the architect did prior to retirement which are still within the relevant statures of limitations/repose
fiduciary duty (and do architects have it to client?)
the obligation a professional has to act in the best interests of their client
& no
who contracts under architect vs owner?
architect: MEP, lighting, civil (related to new work), landscape, cost estimator, code consultant
owner: zoning, traffic, site, geotechnical, surveyor, civil (related to existing site)
what is the contractor responsible for?
“perfection” in construction
nothing outside the contract
paying and coordinating subs
providing owner with operation manuals
some design of specific systems for things like curtain wall details, concrete formwork, and steel shop drawings
what is the architect responsible for?
the project being on time and on budget
instruments of service
standard of care
coordination of project team
enforcement of contract terms
NOT means & methods, existing site, job site safety, anything outside contract
professional liability insurance
covers the cost of mistakes made by the architect as well as disciplinary, regulatory, and administrative expenses
(also called errors and omissions insurance)
common types of small business taxes
federal & state income tax
self-employment tax
personal property tax
contractual liability insurance
covers you when something goes wrong and you, due to the contract, are held responsible for it
typically included in general liability insurance
subrogation
process of the insurance company assuming agency for an insured party in order to sue another party
(there are in depth examples of this in PcM flashcard #25)
revenue factor
utilization rate * direct salary expense ratio
profit earnings ratio
= profit / net operating revenue (defines the health of the business
net billing
billing that only covers fees for architects labor
What types of damages can be pursues in litigation?
What are called for in AIA B101?
consequential damages - estimated cost of lost owner profit due to project delays (AIA prohibits all parties from this)
liquidated damaged - per-day penalty for a delayed construction project completion, agreed upon at the beginning (A101 allows for this, B101 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)
direct damages - actual cost of fixing unacceptable work (max allowed is the architect’s fee)
types of bonds
municipal bonds - loans made by investors to a government in order to build a public good (ex. firehouse)
revenue bonds - municipal bonds issued to finance facilities for revenue producing public enterprises (ex. toll booth, stadium)
corporate bond - private company issues bond to borrow money for construction projects
architects basic services
instruments of design
SD, DD, Bid, CD, CA, cost estimation , and coordination
budget & schedule management
codes & utilities
MEP & Structural
types of bids
competitive - lowest immediate cost
negotiatied - owner selects a single trusted constractor and they negotiate a price, greater speed and quality but more expensive
invited - competitive bid with specifically qualified contractors
proposed - owner negotiates for best quality out of the lowest 4 bids
A B and C of AIA contracts
A - Owner Contractor
B - Owner Architect
C - Architect Consultant
Construction contingency
money set aside, by the owner, in the budget, to cover unexpected buildings costs that inevitably arise throughout a project
who’s responsible for preparing the punch list?
typically the contractor
who is typically the initial decision maker?
the architect
if the design is over budget, who pays the consultants to redesign?
no one, they do it for free per typical contract
what is included in the contract?
construction drawings
specs
addenda
change orders
amendments to the contract
minor changes to the work
construction change directives
bidding documents
what is an ASI
Architects Supplemental Instruction
used to resolve minor changes in the work, interpret drawings, or offer additional instructions
what equipment is the architect required to design, select, or specify?
the equipment that is attached and integral to the building
(fume hoods, counters, sprinklers, dishwashers, ovens, elevators, chillers, power generators)
What level of specs do you need for each design phase?
SD - narrative specifications
DD - “outline specifications”
CD - “specifications”
Design assist services
architect who prepares the RFP, selects the site, establishes deadlines & budgets. Pairs well with design build, can become bridging consultant
Accessory occupancies
small spaces (total area of which is less than 10% of the floor area they are serving) that serve the main occupancy and require classification as different occupancy groups but do not require fire separation from the main occupancy
If the owner suspends the project, the architect can
Suspend work, require payment for work to date, require payment for delay caused expenses, submit a new schedule
What is AIA B101 SP
B101 but with a focus on sustainability.
Owner must provide drawings, manuals, and building operational costs, appeal for certifications, ensure design its sustainable guidelines, and comply with authorities on ownership & operations
guaranteed maximum price
like a cost plus fixed fee, but if the project is delayed or the price of materials goes up beyond a total project cost, the contractor has to complete the project and eat the extra cost
Stipulated (lump) sum
owner pays contractor one price to build everything in the contract
if the contractor requests info from the owner, how many days does the architect have to get it to the contractor?
7
AIA C401 Architect Consultant Agreement
the consultant is not responsible for other consultants’ work but still has the same duty to say something when errors appear. The consultant only report to the architect, then the architect reports to the owner and contractor
ADA clear floor space
30” x 48”
what is in a project manual
bidding requirements
contracts
general & supplemental conditions
specifications
Electrical engineer provides services for what parts of the building?
Data & telephone, power system & specs, signal systems, lighting systems
total working capital
firm’s current assets (cash + accounts receivable
who certifies substantial completion?
architect
When can a contractor terminate ?
After 30 days of owner stopped work
If the architect refuses to pay without reason
Owner is delinquent in paying
If work is stopped due to court order
Instrument of service
any tangible or intangible work by the architect or consultants, including drawings, specifications, sketches, models, notes, and surveys
Closeout project notebook
Summary of costs, certificate of substantial completion, summary of fee expenditure, comments on completed work
what types of tax might an architecture firm expect 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.
What info does A305 Contractor’s Qualification Statement require?
financial statement, references, business model
Minimum slope for a flat roof
1/4” per foot
