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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



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



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



Occupation Safety and Health Act

Applies to all employers



Health Insurance Portability and Accountability Act

Protects privacy of individually identifiable health information

Applies to all employers



Employee Retirement Income Security Act

Sets minimum standards for pension plans in private sector

Applies to all employers who have a pension plan program



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



Age Discrimination in Employment Act

Prohibits age discrimination for persons 40 and over

Applies to employers of 15 or more



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.



“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:

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



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



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)



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



concept by which architects are protected from claims by parties with whom the have no direct contractual relationship



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



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 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

single source of responsibility
Fixed price given earlier in the project
Often faster and less expensive

Owner has less control esp relative to quality


Professional liability insurance typically covers:

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



Integrated project delivery- like design build but owner has multiple agreements with different design and construction firms

Criteria design
Implementation documents
Agency review buyout
Close out

Early phases take more time but later phases take less



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