Practice Management

ARE Exams Practice Management Flashcards

What are the three levels of a corporation?

Officers → Directors → Shareholders (Owners)

What does general liability insurance cover?

Third-party bodily injury and property damage arising from business operations; it can include premises and operations claims.

What does professional liability insurance cover?

Claims alleging professional errors, omissions, or negligent design services; commonly called errors-and-omissions coverage.

What does workers’ compensation insurance cover?

Employee work-related injuries or illnesses, including medical costs and wage replacement.

What does automobile liability insurance cover?

Liability arising from owned, hired, or non-owned vehicles used for business, as specified by the policy.

What does employers’ liability insurance cover?

Certain employer liability claims related to employee workplace injuries that fall outside workers’ compensation benefits.

What does employment-practices liability insurance cover?

Claims such as wrongful termination, discrimination, harassment, and other employment-related practices.

What does intellectual-property insurance cover?

Certain claims involving infringement of copyrights, trademarks, patents, or other protected intellectual property.

What are the four basic components of an insurance policy?

Aggregate limit, premium, deductible, and claim.

What is an insurance aggregate limit?

The maximum amount an insurer will pay during the policy period for covered claims.

What is an insurance premium?

The amount paid to maintain the insurance policy, usually monthly or annually.

What is an insurance deductible?

The amount the insured must pay before the insurer begins paying covered costs.

What is an insurance claim?

A formal request to the insurer for coverage or payment under the policy.

What is tail insurance?

Extended reporting-period coverage that allows claims to be reported after a claims-made policy ends, for work performed during the covered period.

Why might a retiring architect need tail coverage?

To protect against later-reported claims arising from professional services performed before retirement or policy termination.

What is a claims-made professional liability policy?

Coverage generally applies when the claim is first made and reported during the policy period, subject to the retroactive date and policy terms.

What is a deductible in a professional liability policy?

The amount the firm pays toward a covered claim before insurance contributes.

What is subrogation in an insurance agreement?

The insurer’s right, after paying a claim, to pursue recovery from the party responsible for the loss.

What is the standard of care for an architect?

The level of skill and care ordinarily exercised by reasonably competent architects under similar circumstances; it is not a guarantee of perfection.

What is the ethical complaint process for an architect under the AIA?

A complaint is filed with the AIA National Ethics Council; an advisory board is selected; the matter proceeds through a confidential review and decision process.

Who are the most common complainants in architectural ethics matters?

Other architects and homeowners/clients.

Does an architect owe a fiduciary duty to a client?

Generally, the architect owes contractual and professional duties; a fiduciary duty is not automatically created by every architect-client relationship.

What is a project retainer?

An advance payment or fee arrangement that secures services or availability; its treatment depends on the contract and applicable law.

What are the owner’s typical responsibilities under an architect-owner agreement?

Provide site and project information, establish the budget and schedule, make timely decisions, pay the architect and consultants, and furnish required approvals.

What are typical architect responsibilities to the owner?

Provide the agreed professional services, coordinate design disciplines, communicate project information, and perform services consistent with the standard of care.

Are architects employees of the owner?

No. Architects are typically independent professional service providers engaged through an agreement.

What is the architect’s role during construction?

Provide only the construction-phase services included in the agreement, such as site visits, submittal review, payment certification, and interpretation of contract documents.

Who is responsible for construction means and methods?

The contractor is responsible for construction means, methods, techniques, sequences, procedures, and site safety.

Who is responsible for coordinating subcontractors?

The general contractor, not the architect.

Who is responsible for jobsite safety?

The contractor, including its construction means, methods, and safety programs.

What does ‘perfection in construction’ mean for the architect?

The architect is not required to guarantee flawless construction; the architect must perform services consistent with the applicable standard of care.

What are the owner’s typical responsibilities for change orders?

Review and authorize changes, approve associated cost or time adjustments, and pay for authorized changes under the contract.

What is MasterFormat?

A specification organization system that groups construction work into divisions, commonly organized by materials.

What is UniFormat?

A classification system organized around building systems and elements, such as substructure, shell, interiors, and services.

What is the purpose of AIA B101?

The standard owner-architect agreement for a typical building design project; it defines services, compensation, responsibilities, and terms.

What is the purpose of AIA A201?

General Conditions of the Contract for Construction; it establishes the rights, responsibilities, and relationships of the owner, contractor, and architect.

What is the purpose of AIA A701?

Instructions to Bidders; it standardizes bidding procedures and provides information to prospective contractors.

What is the purpose of AIA C401?

Architect-consultant agreement; it establishes the contractual relationship between the architect and a consultant.

What is the purpose of AIA G701?

Change Order; it formally documents an agreed change to the contract sum, contract time, or scope.

What is the purpose of AIA G702?

Application and Certificate for Payment; the contractor requests payment and the architect certifies the amount due.

What is the purpose of AIA G704?

Certificate of Substantial Completion; it documents substantial completion and identifies responsibilities and remaining work.

Who signs the owner-contractor agreement?

The owner and contractor.

Who signs the owner-architect agreement?

The owner and architect.

Is the owner-architect agreement normally provided to the contractor?

No. It is a separate agreement between owner and architect; the contractor generally does not receive it as a contract document.

What are the four common project delivery methods?

Design-bid-build, design-build, construction manager as adviser (CMa), and construction manager as constructor (CMc/CM-at-risk).

How does design-bid-build work?

The owner contracts separately with the architect and contractor; design is substantially completed before contractors bid and construction begins.

What is a key advantage of design-bid-build?

The owner receives competitive bids based on a completed design and has a clear separation between design and construction responsibilities.

What is a key disadvantage of design-bid-build?

The sequential process can lengthen the schedule, and the architect and contractor may have limited collaboration during design.

How does design-build work?

The owner contracts with one design-build entity that is responsible for both design and construction.

What is a key advantage of design-build?

Overlapping design and construction can shorten the schedule and create a single point of responsibility for the owner.

What is a key risk of design-build for the owner?

The owner has less direct control over the separate designer relationship and must clearly define performance requirements and expectations.

How does construction manager as adviser (CMa) work?

The owner holds separate contracts with the architect and contractors; the construction manager advises the owner on cost, schedule, constructability, and coordination.

How does construction manager as constructor (CMc) work?

The owner contracts with the construction manager, who provides preconstruction services and later holds the construction trade contracts, often with a guaranteed maximum price.

What is a guaranteed maximum price (GMP)?

A contractual cap on the owner’s cost for defined construction work, subject to contract terms, allowances, contingencies, and approved changes.

What is integrated project delivery (IPD)?

A collaborative delivery approach that aligns key participants through shared goals, early involvement, and often shared risk/reward arrangements.

What is a benefit of an integrated project team?

Earlier collaboration can improve coordination, constructability, cost control, and shared decision-making.

What is a negotiated bid?

The owner selects a contractor and negotiates price and terms, rather than selecting solely through competitive low bidding.

What is a competitive bid?

Contractors submit bids in response to common documents and requirements; the owner evaluates them under the stated selection criteria.

What is an invited bid?

A bid process in which a selected group of qualified contractors is invited to submit proposals.

What is a proposed bid?

A bid or proposal submitted by a contractor in response to the owner’s solicitation.

What is a performance bond?

A surety bond that protects the owner if the contractor fails to perform the construction contract.

What is a payment bond?

A surety bond that helps ensure subcontractors and suppliers are paid for labor and materials.

What is a bid bond?

A surety bond that provides financial assurance that the bidder will enter the contract and provide required bonds if selected.

What is a contractor’s license bond?

A bond that may protect the public or government entity if a licensed contractor violates applicable licensing requirements.

How long does a contractor’s warranty typically last?

The standard correction period under AIA A201 is generally one year after substantial completion, but contract terms and applicable law may differ.

Does the contractor’s warranty end all contractor liability after one year?

No. The one-year correction period does not necessarily eliminate other contractual or legal liability.

What is substantial completion?

The stage when the work is sufficiently complete, under the contract, for the owner to use or occupy it for its intended purpose.

What is final completion?

Completion of all remaining contract work and closeout requirements, after which final payment may be due.

What is a punch list?

A list of incomplete or deficient items identified near substantial completion that must be corrected or completed.

What is a construction delay caused by an excusable event?

A delay outside the contractor’s control that may entitle the contractor to a time extension under the contract.

What are common causes of construction delays?

Unusually severe weather, owner- or architect-directed changes, differing site conditions, labor or material disruptions, and contractor performance issues.

What is liquidated damages?

A pre-agreed amount payable for specified contract breaches, commonly failure to achieve completion by the required date.

What is a consequential damage?

An indirect loss resulting from a breach, such as lost revenue or business interruption, subject to contract limitations.

What is a claim in a construction contract?

A demand or assertion by a party seeking additional time, money, or other relief under the contract.

What is mediation?

A nonbinding dispute-resolution process in which a neutral mediator helps parties negotiate a settlement.

What is arbitration?

A dispute-resolution process in which a neutral arbitrator hears the matter and issues a decision that may be binding.

What is litigation?

Resolving a dispute through the court system.

What is a strategic alliance?

A cooperative relationship between separate firms to pursue shared opportunities while remaining independent entities.

What is a joint venture?

A business arrangement in which two or more parties combine resources for a specific project or purpose and share agreed risks and rewards.

What is a limited liability company (LLC)?

A business entity that generally separates owners’ personal assets from company liabilities while allowing flexible management and tax treatment.

What is a sole proprietorship?

A business owned by one individual, with no separate legal entity; the owner is personally responsible for business liabilities.

What is a general partnership?

A business owned by two or more partners who generally share management and personal liability for partnership obligations.

What is a limited partnership?

A partnership with at least one general partner who manages and bears greater liability, and limited partners whose liability is generally limited to their investment.

What is an S corporation?

A corporation that elects pass-through federal tax treatment, subject to eligibility and shareholder restrictions.

What is a C corporation?

A separate legal entity that is generally taxed at the corporate level, with potential additional taxation on shareholder distributions.

What is equity in a firm?

The owners’ residual interest in the business: assets minus liabilities.

What is profit?

Revenue remaining after expenses are subtracted.

What is revenue?

Income earned by the firm from providing services or other business activities before expenses.

What is an asset?

A resource owned or controlled by a business that has economic value.

What is a liability?

A financial obligation or amount the business owes to another party.

What is a balance sheet?

A financial statement showing assets, liabilities, and equity at a specific point in time.

What is the basic accounting equation?

Assets = Liabilities + Equity.

What is an income statement?

A financial statement showing revenue, expenses, and profit or loss over a period of time.

What is a cash flow statement?

A statement showing cash entering and leaving the business through operating, investing, and financing activities.

What is the difference between cash-basis and accrual-basis accounting?

Cash basis records income and expenses when cash changes hands; accrual basis records them when earned or incurred.

What is net revenue per employee?

Net revenue divided by the number of employees; it indicates how much net service revenue each employee generates.

What is net operating revenue (NOR)?

Revenue available after reimbursable expenses and other pass-through costs are removed; it is used to evaluate the firm’s operating performance.

What is utilization rate?

The percentage of an employee’s or firm’s available time spent on billable project work.

How is utilization rate calculated?

Billable hours ÷ total available work hours × 100%.

What is the direct salary expense multiplier?

Net operating revenue divided by direct labor cost; it indicates how much revenue is generated for each dollar of direct labor.