AHHP PcM

Accrual-basis accounting (modified)

Revenue earned and billed from fees and expenses, including outside project consultant fees and expenses, plus all other direct and indirect expenses incurred. Revenue is based only on invoiced fee and expense amounts sent and/or received. Most firms use this modified accrual-basis for their profit-loss statement and balance sheet development.

Cash-basis accounting

Income received and all salaries and expenses paid (a checkbook approach). Basis most commonly used for filing and paying quarterly and year-end taxes.

Net operating revenue (NOR; aka “net revenue”)

Represents the net dollars remaining after deducting the invoiced consultant’s fees and expenses, and all reimbursable and non-reimbursable project-related expenses.

Direct labor

Same as direct salary. Represents time charged to projects, whether invoiced or not (by everyone, including principals).

Indirect labor

Time charged to non-project-related activities (by everyone, including principals). Note: Indirect labor is included in the calculation of total indirect expenses.

Reimbursable expenses

Project-related expenses that are invoiced to the client in addition to fees. These would also include a markup percentage on those expenses. The markup dollars are a form of revenue and are included in net operating revenue.

Direct expense

Project-related expenses for a firm and its outside consultants that are not reimbursable, plus project-related expenses included in all lump sum fee contracts.

Indirect expense

General and administrative non-project-related operating expenses (total indirect expenses includes indirect labor).

Overhead rate

Total indirect expenses / total direct labor. Measures cost of operation not associated with projects. Target 1.3-1.5.

Break-even rate

The overhead rate plus the unit cost of 1.00 for an hour of salary (example: overhead rate of 1.30 + 1.00 = break-even rate of 2.30). This means for every $1.00 of salary the firm must recapture $2.30 just to break even. Measures total cost of operations for every $ spent on direct labor.

Utilization rate

Measures efficiency and effective use of labor of hrs charged to a project. Direct labor hours / total labor hrs (%). (For individual rates, use hours; for a firm rate, use dollars.) Target 75-80%.

Hourly billing rate

The dollar amount charged to a client relative to one hour of direct labor.

Net multiplier

Net operating revenue (NOR) / total direct labor expenses. The measure of return on every dollar of direct labor. Target 3.0+.

Profit-to-earnings ratio

Net profit (before tax + distributions) / net operative revenue (NOR). Measures effectiveness in generating profit (%). Target 20% or higher.

Net profit

The dollars remaining after deducting all direct and indirect labor and indirect expenses, before any distributions are made or tax is paid.

Net Revenue per employee

Annual net operating revenue / total number of employees. Target excess of $100,000 per employee.

Aged Accounts Receivable

Avg annual accounts receivable / (net operating revenue / 365 days) = ______ calendar days. Target 60-90 calendar days. Measures avg # days between the date of outstanding invoices and payments received.

Current earnings

The net dollar amount after all distributions are made and all applicable taxes have been deducted.

Endorsements/exclusions

Add to/ammend or omit coverage

Indemnify

One party assumes another’s legal liability

Standard of care

What a reasonably prudent architect would do in the same general locale, in the same timeframe, given the same or similar facts and circumstances.

Limitations of Liability

Limits the claims to a certain amount in disputes

Consequential damages

Arrive as an indirect consequence of omissions/acts/ IE rebuilding a part (direct consequence) may mean closing a building/loss in business (indirect consequence).

Vicarious Liability

Being responsible for another parties actions/omissions. IE arch acting as an agent for the owner or consultant. Make sure contracts have protective language.

Statue of Limitations

Date after which claims cannot be filed, based on project completion date for negligence (3-10 yrs in most states).

Statue of Repose

Time clock starts at the time the alleged discretion is discovered, typically shorter than the alternative statue of ____.

Solvency/current ratio

Total current assets / total current liabilities. Measures ability to pay current debt. Target 1.0 to 1.5.

Liquidity/quick ratio

(Cash + accounts receivable + revenue earned but not billed) / (total current liabilities). Ability to convert assets in to cash. Target 1.0 : 1.0

Leverage/debt-to-equity

Total liabilities / total equity x 100 as a %. Ability to manage debt affectively. Target 35%.

Return on equity

(Total NOR - total expenses) / (total equity) x 100 as %. Measures accumulated amount of $ returned on stockholders investments for their risk and efforts. Target 20% or greater.

Current assets

Things easily converted to dollars that the company owns.

Current liabilities

Items that must be paid in the current 12 mo period, these reduce equity.

Long-term liabilities

Must be paid beyond the 12 month period

Equity

Cumulative earnings/loss over life of a firm. Value of shares of stock, invested capital by shareholders, and firms cumulative retained earnings or losses.

Balance/Total Assets

Total liabilities - total equity

Hammer clause

Architect is liable for claims above $ suggested settlement amount proposed by insurer if firm refuses and loses the case. Usually limited to a %.

Commercial General Liability Insurance

Covers all incidents that occur on premises, or that arise from non-professional aspects of the practice. (Ie property damage, bodily injury, etc)

General Liability Coverage

Most basic form of liability insurance. Some landlords require it. Includes injury or property damage claims.

Employment Practices Liability Coverage

Protects against claims by employees (ie discriminations, harassment).

Workers Compensation

Wage replacement and medical benefits to employees injured on the job.

Intellectual Property Insurance

Protects for copyright, trademark, patent infringement claims.

Business Interruption Insurance

In the event of fire or casualty, covers if the business needs to close.

Fidelity Bond

Blanket form of bond that covers all employees for theft of funds.

Technology Liability Coverage

Claims from acts of negligence in manageing the security of a computer system.

Disciplinary, regulatory, or administrative expense reimbursement

Reimburse architects for legal fees and expenses from disciplinary regulations or administrative actions against the architect.

Mediation

Default first step in dispute management. Involves selecting a third party to facilitate communication and come to a resolution outside of courts.

Arbitration

Third party settlement process also outside the courts. Parties typically don’t communicate directly to one another. 3rd party is neutral and can be more than one person.

Litigation

Default resolution venue - public court system.

“Special Master” Hybrid

Acts as a hybrid of arbitrator, discovery referee, and mediator.

Wavers of subrogation

Client’s property insurance will cover losses in certain cirumstances.

Additional services

Services beyond the standard contractual scope of architect. Should require more fee to perform and be in writing prior to starting the work. Ex. Programming, landscape etc.

Design-Bid-Build

Linear process of designing and documentation, usually the lowest bid wins. Owner typically contracts with architect and contractors bid and are selected at completion of CDs.

Negotiated Select Team

Variation of DBB where the contractor is selected early and certain terms are determined prior to completion of CDs.

Cost Plus Fixed Fee

Variation of DBB. Contractor is selected at completion of CDs and is paid actual labor and material costs PLUS overhead PLUS fixed fee (fee does not fluctuate if construction costs rise).

Construction Manager as Advisor

CM is a consultant to the owner during design and construction but is NOT the builder. Can be applied to DBB and variations of DBB delivery methods.

Construction Manager as Agent (CM-A)

CM is an early consultant and may act on behalf of the owner. Usually paid in a fixed fee and assume no risk for actual construction cost, but pass on both savings and overruns to the owner.

Construction Manager as Contractor (CM-C)

Construction and cost advisor during design and then transitions to being the builder/constructor. Typically use guaranteed maximum price (GMP). The CM-C is at-risk/liable for costs going over. Caution: estimating may be impacted by the potential profit to come during construction.

Design-Build

A single contract between the owner and a design/construction entity. Usually a contractor at the head with architect as a sub-consultant. Fixed prices for design and construction.

Bridged Design-Build

Design architects contract with owner, and the owner also contracts with a design/construction entity (ie production architect and builder).

Efficiency-Based Firms

Firms who specialize in fast and less expensive project delivery. They typically have more production staff than PMs and more PMs than principals.

Expertise-Based Firms

Firms with a deep knowledge and exceptional talent. Founders typically have specialties or are “starchitects”. Think narrow triangle, with mostly principal/senior staff.

Experience-Based Firms

Firms proficient at solving non-routine, complex design problems. Tasks are matched to the pay grade of employee. Typically a balanced triangle of principles, PMs, and interns/drafters.

Sole Priopriotorship

The individual owns the business and is at risk for all liability.

General Partnership

Two or more individuals practicing and are liable for business. Should have a teaming agreement.

Limited Liability Partnership or Professional LLP

Like a general partnership but limits risk or liability and requires government documentation.

C Corporation

Business structure for large and publicly traded businesses. They are double-taxed.

S Corporation

Businesses that can have no more than 100 stockholders. Stockholders may be liable for negligence but are typically protected against other claims.

Professional Corporation

Generally all stockholders must be licensed, and may be held personally liable for negligence but otherwise covered for liability.

Limited Liability Corp

Business in which the members are owners and are protected against liability for business claims. May be taxed as a sole proprietor, partnership or corporation.