Financial Acumen for Architects Flashcards

A bid comes in 20% over the owner's construction budget. Under AIA B101, the architect's obligation is to:

Answer: Redesign the project at no additional charge to bring costs within budget, up to one time

AIA B101 requires the architect to modify the design at no additional cost to bring the bid within the owner's budget, provided the budget was reasonable and properly communicated.

Which financial document summarizes all approved changes to the contract sum and contract time throughout construction?

Answer: Change Order log / Contract Summary

A Change Order log (or contract summary) tracks all approved change orders, maintaining a running total of the adjusted contract sum and time.

Retainage in a construction contract is best described as:

Answer: A percentage of each payment withheld until project completion as performance assurance

Retainage—typically 5–10%—is withheld from each progress payment and released upon substantial completion, incentivizing the contractor to finish punch-list items.

An architect performing owner's representative services reviews a Schedule of Values for front-loading. Front-loading is problematic because it:

Answer: Allows the contractor to receive payment exceeding the value of work in place, creating owner risk

Front-loading inflates early line items so the contractor is paid more than work completed, leaving the owner exposed if the contractor defaults mid-project.

A building owner asks an architect to advise on a sale-leaseback arrangement. The primary financial benefit to the owner is:

Answer: Freeing up capital from the building asset while retaining occupancy

A sale-leaseback allows an owner to sell the property and receive cash while leasing it back, converting illiquid real estate equity into working capital.

When advising an owner on tenant improvement (TI) allowances in a commercial lease, an architect should understand that TI allowances are:

Answer: Landlord-provided funds to help tenants build out leased space

TI allowances are contributions from the landlord—typically expressed as dollars per square foot—to offset the tenant's cost of customizing leased space.

Which factor would MOST directly cause an architect's construction cost estimate to become unreliable over time without updates?

Answer: Construction cost inflation and material price escalation

Construction cost escalation—driven by labor, materials, and market demand—erodes estimate accuracy; estimates must be updated regularly to reflect current pricing.