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The Real Estate Game - Part 1


The Real Estate Game


Any understanding of the legal issues involved with real estate and mortgages must begin with the land as well as how real estate is owned. Real estate in the United States follows the allodial system of property ownership. This system recognizes the right of individuals to own a parcel of property. This system originated from Europe from the Feudal system which meant that all lands are owned by the sovereign ruler, who then gives certain ownership or usage rights to his subjects, who then may allow peasants and other workers to lease land for farming or other use. This was the predominant system in Europe for much of the Common Era.


The American-English legal theory has 3 elements of land, real property, real estate and associated rights, such as air, mineral and water rights. Real estate comprises of three parts:


1.  Land. The ground surface and the natural elements below and above it.

2.  Real Estate. Land and any improvements on it.

3.  Real Property. Real estate and the different "rights" involved with it.




In the real estate industry, the legal concept of land encompasses more than just the ground that we see or that comprises a parcel of property. Land includes everything natural beneath and above the surface like surface ground, subsurface soil and water, and permanently attached natural. The land can contain both real property and personal property. Ownership of land can also be further divided have separate uses and manners of possession. Ae mining company that purchases the mineral rights is allowed to mine for it, within strict limits, while the land owner is free to continue with her operations.


Real Estate


The term "real estate" starts with the land, but then includes all improvements made to that land.


Real Property


The term "real property" is the legal concept of property ownership. In our system of property law, there are different elements to ownership. What you own is not as important as how you own it. These elements or facets of property ownership are often grouped into a "bundle of rights" that include the following five elements: Possession, the right to occupy the property. Enjoyment, the right to possess the property without interference. Control, the owner's right to determine how the property may be used. Disposition. The owner's right to give, sell or transfer the property (either in whole or in separate "rights") to another individual. Exclusion, the owner's right to restrict other individuals from accessing or using the owner's property. Trespassing laws arise from this right.


In America ownership is never infinite or unlimited. The government reserves the right to "take" any or all of the ownership elements from any private individual. However, the government must justify any such "taking" as being for the public good and the owner must be compensated the fair market value of the property taken. As long as the government meets these two conditions and follows due process, the property owner cannot prevent such a taking.


Real estate is land and included rights and anything permanently attached to that land. Personal property is legally called "chattel.”  Attachment is the permanency of an item's attachment to the real estate and determines whether it is real or personal property. To transfer real property is with a deed; personal property is transferred with a bill of sale. In home purchases, the deed transfers the land and house, while the bill of sale handles the transfer of the washer and dryer. Title ownership is a concept; it is not a piece of paper. Documents can confirm the title. The car's title registration or your property's title abstract is not the title. They are evidence of title. The deed is tangible. The written deed is used to convey title to real property. If you want to convey ownership of personal property you use a "bill of sale" or other similar instrument.


An easement is the right of an individual or group to use or limit the use of the property owned by another landowner. Technically, the easement's use is for a special purpose. The property owner gives up control—one of the bundle of ownership rights property owners normally possess—of a portion of his or her property.


In most cities, the most common type of easement is the sidewalk. The sidewalk cuts across the property of homeowners and allows the general public to walk through the property. The sidewalk technically belongs to the property owner but the community has an easement through the owner's property.


Foreclosure is a proceeding which begins with a default on mortgaged obligations.


A lease agreement is to a leasehold estate as a deed is to a freehold estate. A lease conveys property just like a deed and the lease is also a contract and its conveyance is limited and temporary. For rent payments, the landlord transfers a limited ownership interest in the property.


Building and Zoning Restrictions


Local governments, through their police powers, are allowed to establish rules and regulations that limit what and how the owner may improve the property. These rules and regulations are often general statutes that are not specifically recorded against individual titles. These zoning laws and building restrictions are common practice, especially in cities, towns and developing areas.


Occasionally, these regulations are recorded on a property's title as a specific encumbrance, usually in the form of a covenant or restriction. More often than not, however, these restrictions are recorded by developers and current property owners.






The developer is a private firm. He/She is either retained by a client, a private group or solo, to develop the project. The developer will be paid a fee and a property management interest to develop the site. In return the owner will be paid a monthly fee as the ground lessor. The developer is responsible for all project related financing, construction and management. Their motivation is profit and thus survival.


The construction development process requires that the following activities be conducted:




Pre Leasing








Grand Opening




A team must be assembled, these actors are:






Construction Manager



Leasing Agent


Competing actors are:



The Community

The Site

The Owner




Construction Manager



Leasing Agent


Environmental scanning is necessary to forming the proper solution set to any landscape. It is important to note that your team may occupy either side of the fence with regard to a projects success. Actors have designated roles and functional roles. The success of a project demands that all variable resolve to a final solution set which is the completion of each step of the development process. For example the first step, concept, must be approved by the owner. The construction of the site will rely heavily on what’s permitted by 4 levels of government local, civil, county and state guidelines as well as a bevy of authorities which have purview over what is constructed but the owners design criteria must be managed throughout project completion. What kind of actors are on the board. Are your clients hostile or goal oriented. What kind of actors are on the board are they amenable, pesky, overly meticulous, greedy or lazy. Are there conflicts of interest among its members and does the developer have the capacity to manage the effort. The optimal solution set will require complexity overall by simple application on a per situation basis.


The first concept meeting should include the following items a preliminary budget, design, agreement with stated goals. As the developer you play the role of quarterback. The preliminary budget contains the project cost the owner’s distribution a 7% developer’s fee and a 4% management fee. Also, the team should be introduced at this point with the introduction of the primary point of contact. Scan the environment. The group members are of various types, the flirt, the technician, the gopher the leader and the swing man. There is always a silent leader or the power behind the thrown, identify him or her immediately as threat or friend and there are no friends.


The questions will tell the true intent of the parties. Pure design questions in preliminary meeting are non sense at this stage, but engage the question and give them an opportunity to feel you out. How are you going to’s are rhetorical questions because if you can ask, you already know the answer. These questions are an opportunity to affirm a bias toward or against you. The person who asks when the project will be complete will more than likely be the person who leads the charge against you. Answer the question with contingencies which lay responsibility right at the feet of the client. Here is a perfect affirmative nothing answer that passively deflects pressure back at the owner. As soon as we formalize an agreement and finalize concept design the project should be completed relatively quickly. The only way to win with clients is to lay all owner issues at their feet and keep the pressure on and work your ass off.


The design professional capacity to visually articulate the concept will make or break a project. He is fee based most of the time and doesn’t expect to bear any of the risks associated with the design process. The fee structure must be economical. The designs must be accurate and he or she must have the capacity to perform or oversee changes and revisions quickly and accurately. The architect goes to institution to become certified to perform deign services. The owner approves the design criteria, the developer or owner pays, the government official approves, the contractor buys the job, and tradesman performs the work but the risk of anyone of these steps falls on the developer. Even if the developer is certified in every activity involved in the project he could not correct all the concurrent issues associated with an architect with low or no capacity to recognize, correct and adapt to all of these actors who affect the developer’s bottom line.


The modern day contractor is for all practical purposes a broker. The old days of the builder craftsman are as dead as the Edsil. The contractor knows that as soon as he mobilizes the owner and developer will have an extremely difficult time removing him. From his perspective the job is the entire development budget obscured by building criteria, detailed construction docs, the construction agreement and the weight of the states contractor and labor laws. The only defense against this actor is an architect or a developer/contractor.


The attorney, you get what you pay for. The best legal consultation cannot save a poorly conceived project. But hell hath no scorn like working with an incompetent, lazy, or novice attorney. The good construction, retail, land use, leasing or arbitration and mediation attorney can identify issues before hand and document infractions of the apposing party and that’s everybody. He or she is the referee that will score the fight win the judge’s rule. He is not a friend, he is an ally.


The Construction manager can be helpful. He is on the site every day and is aware of the politics on the site. This important because the active site takes on a universe of its own. A project when handed off to the contractor is owned by the contractor there isn’t a force on earth that stop this actor from occupying, likening and impeding the projects completion. The construction manager can be an excellent hostage negotiator, representative and advisor when things go wrong and they will. But most of the time they drink a lot of coffee and get really weird computer viruses from visiting porn sites during work hours,


The accountant is the starships engineer, I can’t push her anymore captain. He reads the tea leaves and offers sage advice when the project waters are stormy. He can read the westerly winds and plot a course. The numbers tell a story of the present the future and the past. The accountant is only obsessed with an accurate account of the financial vitals of the project. If he is dumb you are fucked.


The finance partner is a cop. He wants to hear your side of the story. He wants to know how everything is going and wishes you the best especially if finds a reason to cut your money off. He wants no bad news so don’t divulge too much. Any negatives will be held against you and he will take any excuse to hold you under his thumb. Be courteous but not too nice. Succinct but not curt and get the hell out of there before you say something stupid in his presence. Every project is beset with stops, starts, perils and obstacles, it’s your job to be ever optimistic and keep that lipstick on the pig.


The leasing agent has a thumb on the pulse of the market. His motivation is a commission and there commission is based on closings. He knows the true square foot cost of your project because his valuations are based not on ancillary data like tax rolls and historic projects but the most recent closings near your project. The offers that he returns will predict whether your project concept is too audacious or humble. He is profit driven and yet another actor who can help the effort if given proper guidance.


After the first concept meeting you roll out your team. There are project meetings and arguments. It is important that the development team take control of the team. The development team will have many actors and the developer not unlike a screen producer is responsible for orchestrating the scores, the tempo and the tone of the project development continuum. You will have to find of attacks from team members both internally and externally, debating people regarding competing methods can be difficult especially if they are right. Right is not the sole goal but right for the project. Understand the fallacies of debate, nonsequiters, insubordination and seditious activities. Be weary of praise and resist senses of wellbeing. Projects are by nature troublesome so if there is no trouble, you are simply ignorant.


Once the project first team meeting is complete its time to take the team on the road. The road is a perilous journey beset on all sides by robbers, thieves and false profits. Your project playbook established in the first team meeting must stand the scrutiny of the tri government and there sub committees, community boards and the owners team. Amazing complexity and rippling landscapes. The project producer must dance with rippling landscape. The developer will present his project to various interests modifying it and selling those changes to the owner or whoever will budge enough to give room compromise with another. The goal of the developer is to maintain the owner’s vision against the onslaught of various interests of apposing actors.


The government’s purpose is to serve the will of the people by enforcing the laws to maintain the public. What this means is that people and there frailties will be empowered to stop your project or make it impossible to complete with very little resource, at least without great expense. Every aspect of your project make up, mass, features and even color can be controlled by a government agent. The developer can combat this by hiring a good lobbyist and an expeditor. It also wouldn’t hurt to know a politician or two or three and so on.  



The politician’s role is to reign in the governments control by insuring that an elected official elected by the people heads our governmental bodies. This is accomplished by the position being given s team of its choosing to run the various bodies of the government. In truth, the politician’s main job is reelection and being challenged by the people, the administration, and that ridiculous salary makes this a never ending challenge. To do this job the positions must become a soulless campaigning robot beholding to special interest and cowering under big pockets which may or may not care about the good of the people. To deal with politicians you need to remember the bear in the woods scenario. You cannot out run the bear but you may out run your friend. You also need money.



The Community is your customers, they are the fabric of society and they deserve the very best but groups of people are cruel, dumb and volatile. Community meeting will bring some of the most poignant, ridiculous, raucous and inspiring interaction of the projects development. The presentation in front of the community is always a pass and review committee. You must understand the customs and elders of the group so do your homework. The bigger the pictures the better and make sure to kiss as many grand moms and babies that you get your hands on. The heckler, the brute and the elder will demand the stage but you must be courteous, clear and never


The site is like a box of chocolates. There are both physical and constructive issues associated with a site. Physically a site many construction issues from poor grade soil to ancient grave site. You never know for certain until you take a look. The constructive issues include easements and title problems. Site related issues are solved by a lot of preliminary studies, testing, research and luck. The unknown is the issue and you can’t know everything. There is no preparation for unknown issues and every prospective project assumes a level of usability. Remediation, constructive notice and project redesign takes time and money so researches a sight diligently and draft agreements that mitigate these types of risks.



The Owner must be educated about what role they play in the development effort. Projects fail often because the owner are not educated enough to decide not to proceed without the developer. They must know and understand the wisdom of contracting out the development activity. They should understand the risks and the reward of not having the activity in-house because development is hard. I am like running for office or going into surgery or producing a movie because the mistakes can be embarrassing, fatal and last forever and rerun for perpetuity. It is in the owner’s interest and the groups going concern to contract this work out because success will come at two steep a cost and failure could be devastating to the owner. Subcontracting the work balances the risk and reward paradigm within palatable range of expectation.





Mortgage bankers, mortgage brokers, or mortgage companies are primarily representatives of the ultimate sources of money, such as life insurance companies, savings banks, trust or pension funds, or private parties. They are essentially money brokers who may or may not service the loans they originate. These entities are not thrift institutions, nor are they depository institutions, but they do assist by bringing the borrower together with a lender and charge a fee for this service.




Investment bankers – Investment bankers make a market for both new and seasoned mortgage–backed securities. These firms, called securities dealers, buy and sell securities from lenders and investors. Mortgage bankers, savings banks, pension funds, insurance companies, and mutual funds generally conduct their secondary market transactions with investment bankers.


Mortgage loan brokers are in the business of locating borrowers and lenders, and arranging loans between them. As such the loan broker takes no risk of loss. Another distinction between a mortgage banker and a mortgage (or loan) broker is that mortgage bankers service the loans of the lenders that they represent, whereas loan brokers usually do not.


Mortgage bankers differ from mortgage brokers in that the former generally are not third parties to a loan. They generally fund the loan with their own funds.


Mortgage bankers are generally incorporated businesses that can make loans with their own funds or through a line of credit. The mortgage banker originates, finances “funds”, and closes loans secured by real estate and sells them to Institutional investors for whom the loans are thereafter serviced.  While at times a mortgage banker might act in a broker capacity, particularly if the loan is for an amount beyond the capacity of the mortgage banker to fund, this would be the exception rather than the rule.


Many of the loans made by mortgage bankers are made for particular investors such as other lenders and pension plans. They will make the loans to meet the lending criteria desired by these particular investors. Much of their activities deal with out–of-state lenders and investors who desire to make long–term loans secured by California real estate. Because of the size of our real estate market, California mortgage bankers can assemble packages of trust deeds of significant value.




The realtor is a real estate professional charged with managing specific real estate transaction for public or private use. There are all types of real estate transactions from business brokerage or acquisition to listing properties for sell or property valuation. This is a licenses activity and is very lucrative profession.




A loan can be repaid in various ways – all at once, in equal installments, or by some other method. In most cases there will be interest as well as principal to be repaid.





A loan which is amortized will have equal periodic payments, which are calculated to pay off the loan in full at the end of the term. Level payment plan is another name for an amortized loan. Monthly payments include both principal and interest. Interest is computed on the unpaid principal balance.


A borrows $5,000 from B to be repaid over 5 years, at 14% interest with monthly payments to include both principal and interest on a fully amortized basis. Monthly payments of $116.35 (from amortization table or financial calculator) will be made for

60 months or 5 years, at which time the loan and interest will be fully paid.


monthly payment months paid                                    $116.35

principal & interest                                            $6,981

principal                                                      -$5.000

total interest paid                                             $1,981



Loan Term – The length of the loan can vary, typically from 3 to 30 years. For the same amount of money, the longer the term of the amortization, the smaller the amount of each periodic payment, although terms beyond 30-years provide very little reduction in payments.


Many borrowers now are opting for 15–year amortization periods–a plan which greatly reduces total interest costs.




Compare the results of a $150,000 loan amortized over 30– and 15–year periods at the same 10% interest rate.


Term  Monthly Payment   Total of Payments Total Interest

30 years    $1,316.36   $473,889    $323,889

15 years    $1,611.91   $290,143    $140,143





Also referred to as a “balloon payment” loan. Monthly payments cover interest and some of the principal, but are not large enough to repay all of the principal during the term of the loan.


Balloon  Payment – In a partially amortized loan, the last payment calls for all the remaining principal balance due (balloon payment). The California Real Estate law, where applicable, defines a balloon payment as one “greater than twice the amount of the smallest installment.”


Interest – Interest is computed on the unpaid balance.





Also refereed to as “interest only.” Only the interest is paid during the life of the note. The entire principal is due at the end of the loan term. The dreaded “mortgage” of old– fashioned melodrama was a straight note.




A borrows $2,000 from B for a two–year period. The interest rate is 12% per annum, payable quarterly, with the entire principal due and payable at the end of the two– year term.


Payments would be made as follows:


1st Year          2nd Year   

end 1st qtr.      $60   end 1st qtr.      $60

end 2nd qtr.      $60   end 2nd qtr.      $60

end 3rd qtr.      $60   end 3rd qtr.      $60

end 4th qtr.      $60   end 4th qtr.      $2,060




The largest and most obvious cost of a loan is interest. In addition to interest, a real estate loan will involve various administrative costs, deposits, and additional fees.




Interest is money paid to a lender for use of the lender's money. It is usually defined as a percentage of the amount borrowed.




Simple interest is the percentage charged on the unpaid principal.


Compound interest is interest on principal and accrued interest. The nominal rate (percentage) is specified in the promissory note.


Forces Influencing Interest Rates – Interest rates fluctuate depending upon demand and availability of the money supply and other factors. Interest rates are limited by law for some government programs.





The formula for interest calculations is:


Interest = Principal x Time x Rate or  I = P x R x T





How much interest will be paid in 2 years on a straight loan of $100,000 at 10% for 3 years?


I = P x R x T = $100,000 x .10 x 2 = $20,000




What is the annual rate of interest on a straight note with a principal amount of $1,200 on which $240 interest has been paid over a 2 years?


R = I / P x T = $240 / 1200 x 2 = .10 or 10%




Most lenders require these initial fees to set up loan accounts. One point equals 1% of the loan amount, a nonrecurring cost (one time charge).





This is a reserve account for taxes and insurance, generally set up by the lender as a convenience for the borrower and a protection against the possibility that a buyer might default on property taxes or neglect to have the property covered by fire insurance.


The impound account is considered a trust fund. California law requires impound accounts with banks and savings and loans, on loans secured by one– to four–family residences, to pay interest at the rate of at least 2% simple interest per annum.




An additional fee on certain loans is charged by a lender to offset the difference between the loan interest rate and the current discount rate (the percentage subtracted from a loan to increase the profit to a purchaser of the loan), to make the loan competitive in the secondary market. The greater the demand in the secondary money market, the higher the discount points will be. One discount point is roughly equivalent to adding 1/8% of prepaid interest to the nominal rate of 30 year period loan (based on a so–called “average” 8–year payoff of a loan). Discount points may also be paid to buy down interest rates or to buy down the terms of an adjustable rate mortgage.




Loans made by mortgage bankers are customarily resold to other lenders and investors in the resale market known as the secondary market.


The purpose of the secondary market is to shift funds from capital surplus areas to capital short areas. One method involves lenders selling loans to each other. Lenders also sell participating interests in blocks of loans to other lenders. Mortgage–backed securities are another tool used to obtain money from the capital market. There are securities backed by FHA and DVA loans and others backed by conventional loans.


When lenders speak about the secondary mortgage market, they are not referring to second mortgages or deeds of trust. They are talking about a market where existing loans are bought and sold.





When a lender makes a loan directly to a borrower, that action takes place in the primary mortgage market. Later, that loan may be sold to a bank, pension fund, or some other investor. The sale of that loan takes place in the secondary market. For example, if a savings bank makes a loan directly to a borrower, it is involved in the primary market. If the loan is subsequently sold to the Federal Home loan Mortgage Corporation, that sale takes place in the secondary market.


The secondary mortgage market consists of private and Institutional lenders, investors, and government agencies that buy and sell mortgages to each other. In the secondary market, discounts are used constantly. Buyers and sellers of mortgages negotiate on the basis of yield. Discounts are used to adjust yields so agreements can be reached and sales made.


Mortgage loan bankers are engaged in the primary mortgage market when making the loan and in the secondary mortgage market in the sale of the loan.


In secondary market:

The purchasing and selling of existing mortgages and deeds of trust Lenders selling loans to other lenders and investors.





The main purpose of the secondary market is to shift money from areas where there is a surplus to areas where there is a shortage.


In the early 1970s, depository institutions sold only a small portion of the loans they originated. They were able to rely on their savings inflow to finance the loans they made. During this time, interest rates and the flow of deposits were relatively stable. As the 1970s progressed, the institutions were forced to sell more loans in the secondary market because loan volume had increased greatly. A slow rate of new deposits, typically referred to as “rate of savings inflow,” was not sufficient to take care of the higher demand for loans.


In the 1980s, institutions found their cost of acquiring deposits increasing dramatically. They also experienced a major outflow of deposits due to higher rates offered by competing investments, such as mutual funds and certain bonds. With less money to support the demand for loans, the institutions have increasingly turned to the secondary market for funds.


One industry that has always operated in the secondary mortgage market is mortgage banking. Mortgage bankers do not have deposits to lend; therefore, they have to sell the loans they make to other investors. They operate as a conduit between the primary market and the secondary market. In the 1990s, almost all mortgage lenders operated in the secondary market to maintain liquidity and to stabilize the supply and demand for mortgage money.



The Construction Product


One advance of note to building design is the adaptation of operations research, or systems design, developed around the middle of the twentieth century and originally applied with noteworthy results to design of machines and electronic equipment. In the past, design of a new building was mainly an imitation of the design of an existing building. Innovations were often developed fortuitously and by intuition and were rare occurrences. In contrast, systems design encourages innovation. It is a precise procedure that guides creativity toward the best decisions. As a result, it can play a significant role in meeting the challenges posed by increasing building complexity and costs. The basic principles of systems design are presented in this section.





A building is an assemblage that is firmly attached to the ground and that provides total or nearly total shelter for machines, processing equipment, performance of human activities, storage of human possessions, or any combination of these.


Building design is the process of providing all information necessary for construction of a building that will meet its owner’s requirements and also satisfy public health, welfare, and safety requirements. Architecture is the art and science of building design. Building construction is the process of assembling materials to form a building.


Building design may be legally executed only by persons deemed competent to do so by the state in which the building is to be constructed. Competency is determined on the basis of education, experience, and ability to pass a written test of design skills.


Architects are persons legally permitted to practice architecture. Engineers are experts in specific scientific disciplines and are legally permitted to design parts of buildings; in some cases, complete buildings. In some states, persons licensed as building designers are permitted to design certain types of buildings.


Building construction is generally performed by laborers and craftspeople engaged for the purpose by an individual or organization, called a contractor. The contractor signs an agreement, or contract, with the building owner under which the contractor agrees to construct a specific building on a specified site and the owner agrees to pay for the materials and services provided.

In the design of a building, architects should be guided by the following principles:


1.  The building should be constructed to serve purposes specified by the client.

2.  The design should be constructable by known techniques and with available labor and equipment, within an acceptable time.

3.  The building should be capable of withstanding the elements and normal usage for a period of time specified by the client.

4.  Both inside and outside, the building should be visually pleasing.

5.  No  part  of the  building  should  pose  a hazard  to  the  safety  or health  of its occupants under normal usage, and the building should provide for safe evacuation or refuge in emergencies.

6.  The building  should provide the degree of shelter from the elements and of control of the interior environment—air, temperature, humidity, light, and acoustics—specified by the client and not less than the minimums required for safety and health of the occupants.

7.  The building should be constructed to minimize adverse impact on the environment.

8.  Operation of the building should consume a minimum of energy while permitting the structure to serve its purposes.

9.  The sum of costs of construction, operation, maintenance, repair, and anticipated future alterations should be kept within the limit specified by the client.


The ultimate objective of design is to provide all the information necessary for the construction of a building. This objective is achieved by the production of drawings, or plans, showing what is to be constructed, specifications stating what materials and equipment are to be incorporated in the building, and a construction contract between the client and a contractor. Designers also should observe construction of the building while it is in process. This should be done not only to assist the client in ensuring that the building is being constructed in accordance with plans and specifications but also to obtain information that will be useful in design of future buildings.


Systems design comprises a logical series of steps that leads to the best decision for a given set of conditions. The procedure requires:

Analysis of a building as a system. Synthesis, or selection of components, to form a system  that meets specific objectives while subject to constraints, or variables controllable by designers.


Appraisal of system performance, including comparisons with alternative systems. Feedback to analysis and synthesis of information obtained in system evaluation, to improve the design.


The prime advantage of the procedure is that, through comparisons of alternatives and data feedback  to the design process,  systems  design converges  on an optimum, or best, system for the given conditions. Another advantage is that the procedure enables designers to clarify the requirements for the building being designed. Still another advantage is that the procedure provides a common basis of understanding and promotes cooperation between the specialists in various aspects of building design. For a building to be treated as a system, as required in systems design, it is necessary to know what a system is and what its basic characteristic are.


A system is an assemblage formed to satisfy specific objectives and subject to constraints and restrictions and consisting of two or more components that are interrelated and compatible, each component being essential to the required performance of the system. Because the components are required to be interrelated, operation, or even the mere existence, of one component affects in some way the performance of other components. Also, the required performance of the system as a whole, as well as the constraints on the system, imposes restrictions on each component. A building meets the preceding requirements. By definition, it is an assemblage (Art. 1.1). It is constructed to serve specific purposes. It is subject to constraints

while  doing  so, inasmuch  as designers  can control properties  of the system by selection  of components  (Art. 1.9). Building components, such as walls, floors, roofs, windows, and doors, are interrelated and compatible with each other. The existence of any of thee components affects to some extent the performance of the others. And the required performance of the building as a whole imposes restrictions on the components. Consequently, a  building  has  the  basic  characteristics  of a system, and systems-design procedures should be applicable to it.


Systems Analysis.    A group of components of a system may also be a system. Such a group is called a subsystem. It, too, may be designed as a system, but its goal must be to assist the system of which it is a component to meet its objectives. Similarly, a group of components of a subsystem may also be a system. That group is called a subsubsystem. For brevity, the major subsystems of a building are referred to as systems in this book.

In a complex system, such as a building, subsystems and other components may be combined in a variety of ways to form different systems. For the purposes of building design, the major systems are usually defined in accordance with the construction trades that will assemble them, for example, structural framing, plumbing, electrical systems, and heating, ventilation, and air conditioning.


In systems analysis, a system is resolved into its basic components. Subsystems are determined. Then, the system is investigated to determine the nature, interaction, and performance of the system as a whole. The investigation should answer such questions as:


What does each component (or subsystem) do? What does the component do it to?

How does the component serve its function? What else does the component do?

Why does the component do the things it does? What must the component really do? Can it be eliminated because it is not essential or because another component can assume its tasks?




Systems design of buildings requires a different approach to design and construction than that used in traditional design (Art. 1.9). Because traditional design and construction procedures are still widely used, however, it is desirable to incorporate as much of those procedures in systems design as is feasible without destroying its effectiveness. This will make the transition from traditional design to systems design easier. Also, those trained in systems design of buildings will then be capable of practicing in traditional ways, if necessary.


There are several variations of traditional design and construction. These are described throughout this book. For the purpose of illustrating how they may be modified for systems design, however, one widely used variation, which will be called basic traditional design and construction, is described in the following and in Art. 1.4.


In the basic traditional design procedure, design usually starts when a client recognizes the need for and economic feasibility of a building and engages an architect, a professional with a broad background in building design. The architect, in turn, engages consulting engineers and other consultants.


For most buildings, structural, mechanical, and electrical consulting engineers are required. A structural engineer is a specialist trained in the application of scientific principles to the design of load-bearing walls, floors, roofs, foundations, and skeleton framing needed for the support of buildings and building components. A mechanical engineer is a specialist trained in the application of scientific principles to the design of plumbing, elevators, escalators, horizontal walkways, dumbwaiters, conveyors, installed machinery, and heating, ventilation, and air conditioning. An electrical engineer is a specialist trained in the application of scientific principles to the design of electric circuits, electric controls and safety devices, electric motors and generators, electric lighting, and other electric equipment.


For buildings on a large site, the architect may engage a landscape architect as a consultant. For a concert hall, an acoustics consultant may be engaged; for a hospital, a hospital specialist; for a school, a school specialist.


The architect does the overall planning of the building and incorporates the output of the consultants into the contract documents. The architect determines what internal and external spaces the client needs, the sizes of these spaces, their relative locations, and their interconnections. The results of this planning are shown in floor plans, which also diagram the internal flow, or circulation, of people and supplies. Major responsibilities of the architect are enhancement of the appearance inside and outside of the building and keeping adverse environmental impact of the structure to a minimum. The exterior of the building is shown in drawings, called elevations. The location and orientation of the building is shown in a site plan. The architect also prepares the specifications for the building. These describe in detail the materials and equipment to be installed in the structure. In addition, the architect, usually with the aid of an attorney engaged by the client, prepares the construction contract.


The basic traditional design procedure is executed in several stages. In the first stage, the architect develops a program, or list of the client’s requirements. In the next stage, the schematic or conceptual phase, the architect translates requirements into spaces, relates the spaces and makes sketches, called schematics, to illustrate the concepts. When sufficient information is obtained on the size and general construction of the building, a rough estimate is made of construction cost. If this cost does not exceed the cost budgeted by the client for construction, the next stage, design development, proceeds. In this stage, the architect and consultants work out more details and show the results in preliminary construction drawings and outline specifications. A preliminary cost estimate utilizing the greater amount of information on the building now available is then prepared. If this cost does not exceed the client’s budget, the final stage, the contract documents phase, starts. It culminates  in production  of working,  or construction,  drawings  and specifications, which are incorporated in the contract between the client and a builder and therefore become legal documents. Before the documents are completed, however, a final cost estimate  is prepared.  If the cost  exceeds  the client’s  budget,  the design  is revised to achieve the necessary cost reduction.


In the traditional design procedure, after the estimated cost is brought within the budget and the client has approved the contract documents, the architect helps the owner in obtaining bids from contractors or in negotiating a construction price with a qualified contractor. For private work, construction not performed for a governmental agency, the owner generally awards the construction contract to a contractor, called a general contractor. Assigned the responsibility for construction of the building, this contractor may perform some, all, or none of the work. Usually, much of the work is let out to specialists, called subcontractors. For public work, there may be a legal requirement  that bids be taken and the contract awarded to the lowest responsible bidder. Sometimes also, separate contracts have to be awarded for the major specialists, such as mechanical and electrical trades, and to a general contractor, who is assigned responsibility for coordinating the work of the trades and performance of the work.

Building design should provide for both normal and emergency conditions. The latter includes fire, explosion, power cutoffs, hurricanes, and earthquakes. The design should include access and facilities for disabled persons.





As mentioned in Art. 1.3, construction under the traditional construction procedure is performed by contractors. While they would like to satisfy the owner and the building designers, contractors have the main objective of making a profit. Hence, their initial task is to prepare a bid price based on an accurate estimate of construction costs. This requires development of a concept for performance of the work and a construction time schedule. After a contract has been awarded, contractors must furnish and pay for all materials, equipment, power, labor, and supervision required for construction. The owner compensates the contractors for construction costs and services.


A general contractor assumes overall responsibility for construction of a building. The contractor engages subcontractors who take responsibility for the work of the various trades required for construction. For example, a plumbing contractor installs the plumbing, an electrical contractor installs the electrical system, a steel erector structural steel, and an elevator contractor installs elevators. Their contracts are with the general contractor, and they are paid by the general contractor.

Sometimes, in addition to a general contractor, the owners contracts separately with specialty contractors, such as electrical and mechanical contractors, who perform a substantial amount of the work required for a building. Such contractors are called prime contractors. Their work is scheduled and coordinated by the general contractor, but they are paid directly by the owner.


Sometimes also, the owner may use the design-build method and award a contract to an organization for both the design and construction of a building. Such organizations are called design-build contractors. One variation of this type of contract is employed by developers of groups of one-family homes or low-rise apartment buildings. The homebuilder designs and constructs the dwellings, but the design is substantially completed before owners purchase the homes.


Administration of the construction procedure often is difficult. Consequently, some owners seek assistance from an expert, called a professional construction manager, with extensive construction experience, who receives a fee. The construction manager negotiates with general contractors and helps select one to construct the building. Managers usually also supervise selection of subcontractors. During construction, they help control costs, expedite equipment and material deliveries, and keep the work on schedule. In some cases, instead, the owner may prefer to engage a construction program manager, to assist in administrating both design and construction.


Construction contractors employ labor that may or may not be unionized. Unionized  craftspeople  are  members  of  unions  that  are  organized  by  construction trades, such as carpenter, plumber, and electrician unions. Union members will perform only the work assigned to their trade. On the job, groups of workers are supervised by crew supervisors, all of whom report to a superintendent.


During construction, all work should be inspected. For this purpose, the owner, often through the architect and consultants, engages inspectors. The field inspectors may be placed under the control of an owner’s representative, who may be titled clerk of the works, architect’s superintendent, engineer’s superintendent, or resident engineer. The inspectors have the responsibility of ensuring that construction meets the requirements of the contract documents and is performed under safe conditions. Such inspections may be made at frequent intervals.


In addition, inspections also are made by representatives of one or more governmental agencies. They have the responsibility of ensuring that construction meets legal requirements and have little or no concern with detailed conformance with the contract documents. Such legal inspections are made periodically or at the end of certain stages of construction. One agency that will make frequent inspections is the local or state building department, whichever has jurisdiction. The purpose of these inspections is to ensure conformance with the local or state building code.



During construction, standards, regulations, and procedures of the Occupational Safety and Health Administration should be observed. These are given in detail in Construction Industry. OSHA Safety and Health Standards (29CFR1926 / 1910), Government Printing Office, Washington, DC 20402.

Following is a description of the basic traditional construction procedure for a multistory building:


After the award of a construction contract to a general contractor, the owner may ask the contractor to start a portion of the work before signing of the contract by giving the contractor a letter of intent or after signing of the contract by issuing a written notice to proceed. The contractor then obtains construction permits, as required, from governmental agencies, such as the local building, water, sewer, and highway departments.


The general contractor plans and schedules construction operations in detail and mobilizes equipment and personnel for the project. Subcontractors are notified of the contract award and issued letters of intent or awarded subcontracts, then are given, at appropriate times, notices to proceed.

Before construction starts, the general contractor orders a survey to be made of adjacent structures and terrain, both for the record and to become knowledgeable of local conditions. A survey is then made to lay out construction.


Field offices for the contractor are erected on or near the site. If desirable for safety reasons to protect passersby, the contractor erects a fence around the site and an overhead protective cover, called a bridge. Structures required to be removed from the site are demolished and the debris is carted away.


Next, the site is prepared to receive the building. This work may involve grading the top surface to bring it to the proper elevations, excavating to required depths for basement and foundations, and shifting of utility piping. For deep excavations, earth sides are braced and the bottom is drained.

Major construction starts with the placement of foundations, on which the building rests.  This is followed by the erection of load-bearing walls and structural framing. Depending on the height of the building, ladders, stairs, or elevators may be installed to enable construction personnel to travel from floor to floor and eventually to the roof. Also, hoists may be installed to lift materials to upper levels. If needed, temporary flooring may be placed for use of personnel.


As the building rises, pipes, ducts, and electric conduit and wiring are installed. Then, permanent floors, exterior walls, and windows are constructed. At the appropriate time, permanent elevators are installed. If required, fireproofing is placed for steel framing.  Next, fixed partitions are built and the roof and its covering, or roofing, are put in place.


Finishing operations follow. These include installation of the following: ceilings; tile; wallboard; wall paneling; plumbing fixtures; heating furnaces; air-conditioning equipment; heating and cooling devices for rooms; escalators; floor coverings; window glass; movable partitions; doors; finishing hardware; electrical equipment and apparatus, including lighting fixtures, switches, outlets, transformers, and controls; and other items called for in the drawings and specifications. Field offices, fences, bridges, and other temporary construction must be removed from the site. Utilities, such as gas, electricity, and water, are hooked up to the building. The site is landscaped and paved. Finally, the building interior is painted and cleaned. The owner’s representatives then give the building a final inspection. If they find that the structure conforms with the contract documents, the owner accepts the project and gives the general contractor final payment on issuance by the building department of a certificate of occupancy, which indicates that the completed building meets building-code requirements.




Article 1.4 points out that administration of building construction is difficult, as a result of which some clients, or owners, engage a construction manager or construction program manager to act as the owner’s authorizing agent and project overseer. The reasons for the complexity of construction administration can be seen from an examination of the owner’s role before and during construction.


After the owner recognizes the need for a new building, the owner establishes project goals and determines the economic feasibility of the project. If it appears to be feasible, the owner develops a building program (list of requirements), budget, and time schedule for construction. Next, preliminary arrangements are made to finance construction. Then, the owner selects a construction program manager or an architect for design of the building. Later, a construction manager may be chosen, if desired.


The architect may seek from the owner approval of the various consultants that will be needed for design. If a site for the building has not been obtained at this stage, the architect can assist in site selection. When a suitable site has been found, the owner purchases it and arranges for surveys and subsurface  explorations to provide information for locating the building, access, foundation design and construction, and landscaping. It is advisable at this stage for the owner to start developing harmonious relations with the community in which the building will be erected.


During design, the owner assists with critical design decisions; approves schematic drawings, rough cost estimates, preliminary drawings, outline specifications, preliminary cost estimates, contract documents, and final cost estimate; pays designers’ fees in installments as design progresses; and obtains a construction loan. Then, the owner awards the general contract for construction and orders construction to start. Also, the owner takes out liability, property, and other desirable insurance. At the start of construction, the owner arranges for construction permits.


As construction proceeds, the owner’s representatives inspect the work to ensure compliance with the contract documents. Also, the owner pays contractors in accordance with the terms of the contract. Finally, the owner approves and accepts the completed project. One variation of the preceding procedure is useful when time available for construction is short. It is called phase, or fast-track, construction. In this variation, the owner engages a construction manager and a general contractor before design has been completed, to get an early start on construction. Work then proceeds on some parts of the building while other parts are still being designed. For example, excavation and foundation construction are carried out while design of the structural framing is being finished. The structural framing is erected, while heating, ventilation, and air conditioning, electrical, plumbing, wall, and finishing details are being developed. For tall buildings, the lower portion can be constructed while the upper part is still being designed. For large, low-rise buildings, one section can be

built while another is under design.





Construction cost of a building usually is a dominant design concern. One reason is that if construction cost exceeds the owner’s budget, the owner may cancel the project. Another reason is that costs, such as property taxes and insurance, that occur after completion of the building often are proportional to the initial cost. Hence, owners usually try to keep that cost low. Designing a building to minimize construction  cost, however,  may not be in the owner’s best interests. There are many other costs that the owner incurs during the anticipated life of the building that should be taken into account.


Before construction of a building starts, the owner generally has to make a sizable investment in the project. The major portion of this expenditure usually goes for purchase of the site and building design. Remaining preconstruction costs include those for feasibility studies, site selection and evaluation, surveys, and program definition.


The major portion of the construction cost is the sum of the payments to the general contractor and prime contractors. Remaining construction costs usually consist of interest on the construction loan, permit fees, and costs of materials, equipment, and labor not covered by the construction contracts.

The initial cost to the owner is the sum of preconstruction, construction, and occupancy costs. The latter covers costs of moving possessions into the building and start-up of utility services, such as water, gas, electricity, and telephone.


After the building is occupied, the owner incurs costs for operation and maintenance of the buildings. Such costs are a consequence of decisions made during building design. Often, preconstruction costs are permitted to be high so that initial costs can be kept low. For example, operating the building may be expensive because the design makes artificial lighting necessary when daylight could have been made available or because extra heating and air conditioning are necessary because of inadequate insulation of walls and roof. As another example, maintenance may be expensive because of the difficulty of changing electric lamps or because cleaning the building is time-consuming and laborious. In addition, frequent repairs may be needed because of poor choice of materials during design. Hence, operation and maintenance costs over a specific period of time, say 10 or 20 years, should be taken into account in optimizing the design of a building.


Life-cycle cost is the sum of initial, operating, and maintenance costs. Generally, it is life-cycle cost that should be minimized in building design rather than construction cost. This would enable the owner to receive the greatest return on the investment in the building. ASTM has promulgated a standard method for calculating life-cycle costs of buildings.


Nevertheless, a client usually establishes a construction budget independent of life-cycle cost. This often is necessary because the client does not have adequate capital for an optimum building and places too low a limit on construction cost. The client hopes to have sufficient capital later to pay for the higher operating and maintenance costs or for replacement of undesirable building materials and installed equipment. Sometimes, the client establishes a low construction budget because the client’s goal is a quick profit on early sale of the building, in which case the client has little or no concern with future high operating and maintenance costs for the building. For these reasons, construction cost frequently is a dominant concern in design.





The simplest building system consists of only two components. One component is a floor, a flat, horizontal surface on which human activities can take place. The other component is an enclosure that extends over the floor and generally also around it to provide shelter from the weather for human activities.


The ground may serve as the floor in primitive buildings. In better buildings, however, the floor may be a structural deck laid on the ground or supported above ground on structural members, such as the joist and walls in Fig. 1.1. Use of a deck and structural members adds at least two different types of components, or two subsystems, to the simplest building system. Also, often, the enclosure over the floor requires supports, such as the rafter and walls in Fig. 1.1, and the walls, in turn, are seated on foundations in the ground. Additionally, footings are required at the base of the foundations to spread the load over a large area of the ground, to prevent the building from sinking (Fig. 1.2a). Consequently, even slight improvements in a primitive building introduce numerous additional components, or subsystems, into a building.


More advanced buildings consist of numerous subsystems, which are referred to as systems in this book when they are major components. Major subsystems generally include structural framing and foundations, enclosure systems, plumbing, lighting, acoustics, safety systems, vertical-circulation elements, electric power and signal systems, and heating, ventilation, and air conditioning (HVAC).


Structural System.


The portion of a building that extends above the ground level outside it is called the superstructure. The portion below the outside ground level is called the substructure. The parts of the substructure that distribute building loads to the ground are known as foundations. Foundations may take the form of walls. When the ground under the building is excavated for a cellar, or basement, the foundation walls have the additional task of retaining the earth along the outside of the building (Fig. 1.1). The superstructure in such cases is erected atop the foundation walls.





Since the beginning of time, mankind has been involved in the business of building. Technology and construction methods continually evolve: from the Egyptian post and lintel system, the Greek pediment, the Roman arch and dome, the Byzantine basilica, and the new Renaissance perspective to the School of the Bauhaus and the International Style leading us into modern times and the new millennium. Over time, societies change, construction methods change, clients change, and the architect’s tools change; however, the excitement and energy inherent in the building process does not change, because of one factor only—the process itself. To begin this process, two elements are necessary: an idea and a client. Creative minds then carry the process forward. With the idea comes the development of a building concept. A sketch or drawing, created through personal interaction with the client, develops the vocabulary for the physical construction of the concept. A builder and labor force turn the concept into reality.


Many processes have been used to manage this interaction. Continual evolution of the management process has turned it into an independent discipline which, coupled with the computer, is a major focus of the building industry today. From the beginning, individuals generating the concepts, preparing drawings, and building the project were considered part of what we now call the ‘‘service industry.’’ This section outlines the various complex components and professionals involved in the building process with respect primarily to the architectural profession. Despite the changes that have occurred, the basics of the building team and the building process remain unchanged.





Management of the building process is best performed by the individuals educated and trained in the profession, that is, architects and engineers. While the laws of various states and foreign countries differ, they are consistent relative to the registration requirements for practicing architecture. No individual may legally indicate to the public that he or she is entitled to practice as an architect without a professional certificate of registration as an architect registered in the locale in which the project is to be constructed. This individual is the registered architect. In addition to the requirements for individual practice of architecture, most states and countries require a certificate of registration for a single practitioner and a certificate of authorization for an entity such as a corporation or partnership to conduct business in that locale.


An architect is a person who is qualified by education, training, experience, and examination and who is registered under the laws of the locale to practice architecture there. The practice of architecture within the meaning and intent of the law includes:


Offering or furnishing of professional services such as environmental analysis, feasibility studies, programming, planning, and aesthetic and structural design Preparation of construction documents, consisting of drawings and specifications, and other documents required in the construction process Administration of construction contracts and project representation in connection with the construction of building projects or addition to, alteration of, or restoration of buildings or parts of building


All documents intended for use in construction are required to be prepared and administered in accordance with the standards of reasonable skill and diligence of the profession. Care must be taken to reflect the requirements of country and state statutes and county and municipal building ordinances. Inasmuch as architects are licensed for the protection of the public health, safety, and welfare, documents prepared by architects must be of such quality and scope and be so administered as to conform to professional standards.


Nothing contained in the law is intended to prevent drafters, students, project representatives, and other employees of those lawfully practicing as registered architects from acting under the instruction, control, or supervision of their employers, or to prevent employment of project representatives from acting under the immediate personal supervision of the registered architect who prepared the construction documents.





Building types, time schedules, building attitudes, and legal and economic conditions affect relations with the four major client types for whom an architect may provide services. These are known as the traditional, developer, turnkey, and design/ build client base.


Traditional client is usually an individual or organization building a one-time project with no in-house building expertise.  The client, however, possesses the innate excitement for the process of witnessing the transformation of plans into the built environment and seeks an architect to assert control of the process. In most cases, this includes the architect’s definition of the client’s space needs, program and physical plant requirements. A more sophisticated traditional client might be a large corporation, university or other institutional entity that may or may not have an architect on staff, but still looks to a selected architect to guide the development process. In this case, the client may have more input into the client’s program definition based on the in-house capabilities. In both cases, the architect plays the lead role in the management process and normally provides programming, design, construction documents, bidding, and characteristic administration in the role of the traditional architect.


Developer client offers building process management that reduces some of the architect’s management role in managing the overall project and provides alternative methods for approaching design and construction. Development processes such as scope documentation, fast track, and bid packages are construction methodologies resulting from the developer client’s need to accelerate the total process due to fluctuating interest rates and the need to be first in providing space in the marketplace. Through this client base the acceptance of a construction consultant as a necessary part of the design team evolved. The construction consultant enables accelerated schedules to be met, provides for the compression of time, and allows a contractor to be selected by the client to build while the architect is still designing.

Turnkey client is interchangeable with the design / build client in concept. Both are based on a complete project being turned over to the owner by a single entity that is responsible for designing and constructing the project. The owner has little input in the process until it is turned over. The turnkey developer or contractor employs the services of an architect, or has an on-staff registered architect, who designs the project in accordance with the owner’s program requirements. Bids are usually taken on turnkey developer designs and cost proposals to meet these requirements. Once a turnkey developer is selected, the owner may sell the property to the developer or authorize its purchase from a third party under option. From this point forward the owner has little or no participation in the project; the developer is the turnkey client of an externally employed architect. The architect is then working on the developer team and is not an independent voice for the real owner. All decisions are then made by the turnkey developer relative to the architect’s services.


Design / build client also has the architect on the developer team and not performing services for the owner. Designers / builders offer to design and construct a facility for a fixed lump-sum price. They bid competitively to provide this service or provide free design services prior to commitment to the project and as a basis for negotiation. Their design work is not primarily aimed at cost-performance tradeoffs, but at reduced cost for acceptable quality.


The design / build approach to facilities is best employed when the owner requires a relatively straightforward building and does not want to participate in detailed decision making regarding the various building systems and materials. This does not mean that the owner has no control over these items. On the contrary, the owner is often permitted a wide range of selection. But the range of choices is affected by the fixed-cost restraints imposed by the designer / builder and accepted by the owner. When the facilities required are within the range of relatively standard industry-wide prototypes, this restriction may have little significance.


A common misconception regarding design / build is that poor-quality work inevitably results. While there is a general benefit to the builder for reductions in material and labor costs, the more reputable designer / builder may be relied on to deliver a building within acceptable  industry  standards.  Facilities where higher quality systems, more sensitive design needs, or atypical technical requirements occur deserve the services of an independent design professional.




Usually when the term ‘‘program definition’’ is used relative to an architect, it is understood to mean the client’s program for physical space requirements in a building. With the decline in the office market in the late 1980s came the loss of, or minimum use of, the traditional developer and construction management / construction consultant roles. As an outgrowth of the developer client era, certain developers and construction consultants turned their emphasis to ‘‘program management.’’ In this process, a firm is engaged by the client to manage the total development process, acting as the client’s agent throughout the total process. The program management approach expanded the meaning of the word ‘‘program’’ beyond that normally associated  with only  the  physical  space  program  requirements.  The term ‘‘program’’ in this new context defines the process of organizing and executing a project from inception to completion. This process takes into account legal, financial, funding, land acquisition, architecture, engineering, specialist consulting, design administration, insurance, construction administration, and facilities operation and / or management. The client, instead of managing portions of the process as in the traditional client and developer client scenarios, looks to one firm for managing the total process.




Architecture is a process involving multidisciplinary input by many professionals. Comprehensive design services in the professional disciplines of planning, architecture, landscape architecture, interior design, and civil, structural, mechanical, electrical, plumbing, and fire protection engineering are offered within one organization by some large architect-engineer (A / E) and engineer-architect (E / A) firms. Smaller architectural firms retain these services by contract with consultants. Single source design responsibility, coordinated via a common, integrated management structure, is a requirement in either case for successful development of a project.


In the performance of professional A / E services on any project, a design team charged with successful completion of the project in a dedicated professional manner is essential. This team provides continuous service to the project from start to finish, establishing and maintaining the quality and integrity of each design.  A project leader should be selected to coordinate and manage all the professional disciplines and consultants involved in the project and to act as liaison with the client. This leader should work closely with the client to provide policy direction and set goals and objectives for the professional team. Day-to-day management and direction of the project’s technical development should be provided by an individual, usually identified as the architect’s project manager, who performs the key administrative duties, establishes and maintains design services budgets and schedules, and  coordinates  the  entire  A / E  effort.  A senior designer supervises daily organization and progress of design development and directs the design efforts of the project team.  As a project’s specific needs or schedule require, additional

architects, planners, engineers, interior architects, and consultants are involved in the project to augment the team or to provide specialized consultation.



Architects and Engineering Consultants



The major distinctions between architects and engineers run along generalist and specialist lines. The generalists are ultimately responsible for the overall planning. It is for this reason that an architect is generally employed as the prime professional by a client. On some special projects, such as dams, power plants, wastewater treatment, and research or industrial installations, where one of the engineering specialties becomes the predominant feature, a client may select an engineering professional or an E / A firm to assume responsibility for design and construction and taken on the lead role. On certain projects, it is the unique and imaginative contribution of the engineer that may make the most significant total impact on the architectural design. The overall strength of a dynamic, exposed structure, the sophistication of complex lighting systems, or the quiet efficiency of a well-designed mechanical system may prove to be the major source of the client’s pride in a facility. In any circumstance, the responsibilities of the professional engineer for competence and contribution are just as important to the project as those of the architect. Engineers, for example, play a major role in intelligent building system design, which involves mechanical-electrical systems. However, a building’s intelligence is also measured by the way it responds to people, both on the inside and outside. The systems of the building must meet the functional needs of the occupants as well as respect the human response to temperature, humidity, airflow, noise, light, and air quality. To achieve the multifaceted goals, an intelligent building requires an intelligent design process with respect to design and system formulation as well as efficient and coordinated execution of design and technical documentation within the management structure.


An intelligent building begins with intelligent architecture—the shape, the building enclosure, and the way the building appears and functions. Optimal building solutions can be achieved through a design process that explores and compares varying architectural and engineering options in concert. Sophisticated visualization and analytical tools using three-dimensional computer modeling techniques permit architects and engineers to rapidly evaluate numerous alternatives. Options can be carefully studied both visually and from a performance standpoint, identifying energy and life-cycle cost impact. This enables visualization and technical evaluation of multiple schemes early in the design phase, setting the basis for an intelligent building.


In all cases, the architect’s or engineer’s legal responsibilities to the client remain firm. The prime professional is fully responsible for the services delivered. The consultants, in turn, are responsible to the architect or engineer with whom they contract. Following this principle, the architect or engineer is responsible to clients for performance of each consultant. Consequently, it is wise for architects and engineers to evaluate their expertise in supervising others before retaining consultants in other areas of responsibility.



Other Consultants


A building team may require the assistance of specialists. These specialty consultants provide skills and expertise not normally found in an architectural or engineering firm. The prime professional should define the consultants required and assist the client in selecting those consultants.  The architect or engineer should define and manage their services even if the specialty consultant contracts directly with the client for liability purposes, with the understanding that the client has the ultimate say in decision making.


While several consultants may be required, depending on the complexity of the project, the cost for each may be minimal since their services are provided over short periods of time during the development process, and all consultants are usually not servicing the project at the same time. The following consultant services, most of which are not normally provided by architects and engineers, are provided by various firms:




• Acoustical

• Audiovisual

• Communications

• Exterior wall maintenance

• Fire and life safety

• Food service

• Geotechnical engineering and subsurface exploration

• Graphics

• Space-usage operations

• Independent research and testing

• Landscaping

• Marketing and leasing

• Materials handling

• Parking

• Preconstruction survey

• Schedule

• Security

• Site surveyor

• Special foundation systems

• Special structures

• Specialty lighting

• Telecommunications

• Traffic

• Vertical transportation

• Water features

• Wind tunnel testing






Although verbal contracts can be considered legal, a formal written document is the preferred way to contract for professional services to be provided by an architect. Purchase orders are not an acceptable means, since they are not applicable to a service arrangement but rather only provide a financial accounting system for purchasing a product, which is normally required internally by a client. A purchase order should not be used as a client-A / E agreement.


Most professionals use the AIA Standard Form of Agreement for Architect and Owner (client). Some larger firms, however,  have their own form of agreement which augments or further defines that of the AIA. The basic elements of the agreement establish the definition and identification of project phases and define the specific scope and compensation for the architect’s basic services. Flexibility is built into this agreement to accommodate supplementary services that may be considered. In addition, the agreement should define the understandings of the two parties as well as of any third parties that may be involved in the process and stipulate how the third parties are to be managed and compensated.


Furthermore, the client-A / E agreement should define items considered as direct costs that may be reimbursed under the agreement. Other items also to be addressed include project terminology, project terms and definitions, and the architect’s status as it relates to the profession such that the standard of care is clearly understood. The definition of additional services, changes, and compensation for such services, as well as the method and timing of payment, reimbursable expenses, taxes, the responsibility for client-furnished information, project budgets, ownership of documents, confidentiality provisions, the use of project databases, insurance requirements, termination provisions by either party, and dispute resolution may also be addressed. A / E agreements may also define the documents to be delivered at the conclusion of each development phase and, in certain cases, the time estimated for completion of each phase of service.


Compensation for Professional Services. A major concern of an architect is to arrive at an accurate assessment of the scope of services to be performed. The nature of the project, the degree of professional involvement, and the skills required should be considered in arriving at an equitable fee arrangement. Types of fees that may be used are


• Percentage of the construction cost of the project

• Cost plus fee

• Multiple of direct personnel expense

• Multiple of technical personnel hourly rates

• Stipulated or lump sum

• Billing rates for personnel classification


For a project requiring what could be described as standard services, the percentage-of-construction-cost fee is a safe standard. Years of experience with the relationship between the scope of architectural services required for various sizes of standard construction contracts provide a basis for such rule-of-thumb fee agreements.


For projects where atypical services are required, other arrangements are more suitable. For example, for projects where the scope of service is indefinite, a cost plus fee is often best. It permits services to proceed on an as-authorized basis, without undue gambling for either party to the agreement. Under such an arrangement, the architect is reimbursed for costs and also receives an agreed-on fee for each unit of effort the architect expended on the project. Special studies, consultations, investigations, and unusual design services are often performed under such an arrangement.



For projects where the scope can be clearly defined, a lump-sum fee is often appropriate. In such cases, however, architects should know their own costs and be able to accurately project the scope of service required to accomplish fixed tasks. Architects should take care, for the protection of their own, their staff’s, and the client’s interests, that fees cover the costs adequately. Otherwise, the client’s interests will suffer, and the architect’s own financial stability may be undermined.

Fee and payment agreements should be accompanied by a well-defined understanding  in the form of a written agreement  for services between architect and client. The method of payment should also be defined in the agreement. Certain clients may desire a billing and payment schedule while monthly billing and payment is preferred by the architect.





Architecture and engineering firms normally maintain professional liability insurance. This requires payment of annual premiums based on the coverage provided. Architects and engineers should maintain coverage in connection with their foreign operations as well as with their domestic operations. Various types of insurance usually carried by architects and engineers are listed in Table 2.1.



 ‘‘Services’’ vs. ‘‘Work’’


The building industry generally recognizes that the professional architect, engineer, or design consultant provides service, whereas the contractor, subcontractor, or material supplier provides work. In providing work, the contractor delivers a product and then warrants or guarantees the work. These distinctions are important to understand with respect to insurance. In the architect’s case, professional liability insurance provides coverage for the judgment the professional provides while using reasonable care and therefore does not normally have liquidated damages provisions. Professional liability insurance does not cover the work itself or items undertaken by the contractor in pursuit of the work but does cover negligent errors and omissions of the architect or engineer. This insurance is a means of managing the risk associated with the architect’s judgment; it is not product-related. Most



Types of Architect and Engineer Insurance


Type of insurance Coverage


Commercial general liability  According to occurrence and aggregate Commercial automobile liability   Bodily injury and property damage Workers’ compensation     Statutory limits Employer’s liability    Medical care and time lost as a result of injuries incurred during the performance of the services Professional liability      Errors and omissions

Valuable papers   Loss of drawings, models, computer-produced data, etc.

Umbrella liability Provides coverage in excess of professional liability coverage claims against professionals in the building industry are made by clients. Fewer claims are made by contractors and workers.



Risk Management


So that the architect’s or engineer’s business goals can be accomplished, professional liability insurance is offered through various underwriters and managed by professionals. Such professionals should not dictate or limit architectural practice, but rather should support it; neither should they tell architects to turn away from risk, but instead they should help manage it.


Insurance allows the architect or engineer to transfer the risk of financial uncertainty to an insurance company for a known premium. The professional should calculate how much risk to assume. The risk the individual retains is the deductible. The risk the insurance company accrues is the limit of liability over and above the deductible. By choosing a higher deductible, the professional retains more risk but pays a lower premium.

Professional liability protection for the architectural and engineering profession has been designed with the help of the American Institute of Architects (AIA) and the National Society of Professional Engineers (NSPE) / Professional Engineers in Private Practice (PEPP). In addition to errors and omissions coverage, the protection incorporates liability coverage for on-time performance, cost estimating, interior design, asbestos, and pollution.

Liability programs vary widely from company to company. In general, the insurance industry recommends that architects and engineers:


• Select a program with flexible limits of liability and deductible options

• Carefully review the insurance coverage

• Compare competitive costs

• Consider the insurance company’s experience

• Examine the insurance company’s criteria for accepting risk

• Compare loss prevention services

• Assure that the company shares its loss information


The AIA and NSPE / PEPP can also provide architects and engineers with valuable information on what to look for in a professional liability insurance program.



Project Insurance


Project insurance permits the architect to be responsive to the client who has particular insurance demands. Suppose, for example, that the client wants 3 times the coverage the architect carries. Project insurance can respond to this requirement. Project insurance costs are often reimbursable costs and considered a common element of the construction cost, similar to the cost of the contractor’s insurance coverage and performance bonds. Project insurance can sometimes reduce the architect’s policy costs because project billings are not included in the architect’s billings when the architect’s practice policy premium is calculated. Project insurance may provide long-term coverage guarantees to the day of substantial or final completion and up to 5 years thereafter with no annual renewals. Project insurance permits clients to take control in the design of an insurance package to protect their investment and provides clients with stability, security, and risk management.




The definition of the various phases of development for a particular project from initial studies through post construction should be understood by the client and outlined thoroughly in the client-A / E agreement. The most-often-used phases of development include the following:


Feasibility Studies.    To assist the client in determining the scope of the project and the extent of services to be performed by various parties, the architect may enter into an interim agreement for services relating to feasibility studies, environmental impact studies or reports, master planning, site selection, site analysis, code and zoning review, programming, and other predesign services.


Environmental Impact Studies.   Determination of environmental studies and reports required for a project and preparation of such reports, special drawings, or other documents that may be required for governmental approvals are normally performed under separate agreements. Attention should be given to zoning, soils, and the potential of hazardous materials in any form. If any impermissible hazardous materials are encountered, clients should be advised so that they can obtain the services of a specialty consultant to determine what course of action to take.


Programming.   If the architect is required to prepare the program of space requirements for a project, the program should be developed in consultation with the client to help the client recognize particular needs. Space requirements, interrelationships of spaces and project components, organization subdivision of usage, special provision and systems, flexibility, constraints, future expansion, phasing, site requirements, budgetary and scheduling limitations, and other pertinent data should all be addressed.


Conceptual Design.    During this phase of development, the architect evaluates the client’s program requirements and develops alternatives for design of the project and overall site development.  A master plan may also be developed during this phase. The plan serves as the guide and philosophy for the remainder of the development of the project or for phasing, should the project be constructed in various phases or of different components.


Schematic Design.   During this phase the project team, including all specialty consultants, prepares schematic design documents based on the conceptual design alternative selected by the client. Included are schematic drawings, a written description of the project, and other documents that can establish the general extent and scope of the project and the interrelationships of the various project components, sufficient for a preliminary estimate of probable construction costs to be prepared. Renderings and finished scale models may also be prepared at this time for promotional and marketing purposes.


Design Development.    After client approval of the schematic design, the architect and the specialty consultants prepare design development documents to define further the size and character of the project. Included are applicable architectural, civil, structural, mechanical, and electrical systems, materials, specialty systems, interior development, and other such project components that can be used as a basis for working drawing development.


Construction Documents.    After approval of the design development documents, the architectural-engineering team, together with the applicable specialty consultants, prepares construction documents, consisting of working drawings and technical specifications for the project components. These include architectural, structural, mechanical, electrical, hydraulic, and civil work, together with general and supplementary conditions of the construction contract for use in preparing a final detailed estimate of construction costs and for bidding purposes.


Construction Phase Services.    Diligent construction phase services are essential to translate design into a finished project. The A / E team continues with the development process by issuing clarifications of the bid documents and assisting in contractor selection (Art. 2.20). Also, during the construction period, the team reviews shop drawings, contractor payment requests, change-order requests, and visits the construction site to observe the overall progress and quality of the work. Architect and engineer personnel involved in the design of the project should be available during construction to provide continuity in the design thought process until project completion and occupancy.


Post construction Services.    Follow-up with the client after construction completion is essential to good client relations. Periodic visits to the project by the architect through the contractor’s warranty period is considered good business.




The effective coordination of any project relies on management’s ability to organize the project into a series of discreet efforts, with deadlines and milestones identified in advance. The interdependence of these milestones should be clearly understood by the client and the project team so that the project can be structured yet still be flexible to respond to changes and unforeseen delays without suffering in overall coordination and completion.





Various statutory codes, regulations, statutes, laws, and guidelines affect design and construction of projects. In most jurisdictions, the architect and engineer are required by law to design to applicable building codes and regulations, which vary from one jurisdiction to another and can vary between codes. Some jurisdictions that do not have sophisticated codes usually follow recognized national or international codes, which should be agreed on at the onset of a project so that the client and architect understand the rules for design and construction. All codes are intended for the health, welfare, and safety of the public and occupants of buildings.



Affirmative Action Program.    The objective of equal employment opportunity and affirmative-action programs should be to ensure that individuals are recruited, hired, and promoted for all job classifications without regard to race, color, religion, national origin, sex, age, handicap, or veteran status. Employment decisions should be based solely on an individual’s qualifications for the position for which the individual is considered.


Affirmative action means more than equal employment opportunity. It means making a concentrated effort to inform the community of the architect’s desire to foster equal employment opportunity. It also means making a special effort to attract individuals to the profession and to engage them in a program of professional development. Furthermore, architects should be committed to a meaningful minority business enterprise (MBE) and women business enterprise (WBE) participation program. Initial contact with local MBE / WBE firms should be pursued for each applicable project to respond to this important requirement. Architects should be prepared to review this requirement with clients to achieve participation targets consistent with client goals and objectives.






Most jurisdictions require a building permit for construction or remodeling. The building permit, for which a fee is paid by the contractor or client, is an indication that drawings showing the work to be done have been prepared by a registered professional and submitted to the governing authority have jurisdiction over design and construction of the project. Furthermore, it is an indication that this authority stipulates that the documents meet the intent of the applicable building codes and regulations. Issuance of a permit, however, does not relieve the governing agency of the right to inspect the project during and after construction and to require minor modifications. In addition, while most locales do not provide for a written permit by the fire department, this agency is involved in the review process relative to life safety provisions. It also has the right to inspect the project when constructed and to require modifications if they are considered appropriate to meet the intent of the code or the department’s specific requirements. Major items reviewed by both the permit-issuing agencies relate to occupancy classifications, building population, fire separations, exiting requirements, travel paths for exiting, areas of refuse, and other general life safety and public health issues.


Occupancy Permits.   


Many jurisdictions require that a permit be obtained by the client or tenant of a multitenant building indicating that the building or tenant space has been reviewed by the applicable agency and fire department. This permit indicates that the building meets the requirements of the building codes and is appropriate for occupancy for the intended use and classification for which the building or space was designed and constructed.


In addition, elevator usage certificates are issued by certain building authorities. These certificates indicate that the elevators have been inspected and found to be acceptable for use based on the size, loading, and number of occupants posted on the certificate.

Furthermore, certain spaces within a project may have a maximum-occupancy limitation for which a notice is posted in those spaces by the applicable building authority. Examples of this type of usage include restaurants, ballrooms, convention centers, and indoor sports facilities where a large number of occupants might be gathered for the intended use.





In response to the national need for energy conservation and in recognition of the high consumption of energy in buildings, the U.S. Department of Energy gave a grant to the American Society of Heating, Refrigeration, and Air-Conditioning Engineers (ASHRAE) for development of a national energy conservation standard for new buildings. The resulting standard, ASHRAE 90-75, establishes thermal design requirements for exterior walls and roofs. It is incorporated in some building codes.




Specifications for a building project are written descriptions, and the drawings are a diagrammatic presentation of the construction work required for that project. The drawings and specifications are complementary.

Specifications are addressed to the prime contractor. Presenting a written description of the project in an orderly and logical manner, they are organized into divisions and sections representing, in the opinion of the specification writer, the trades that will be involved in construction. Proper organization of the specifications facilitates cost estimating and aids in preparation of bids. The architect should coordinate the specification terminology with that shown on the drawings.



Content of Specifications


It is not practical for an architect or engineer to include sufficient notes on the drawings to describe in complete detail all of the products and methods required of a construction project. Detailed descriptions should be incorporated in specifications. For example, workmanship required should be stated in the specifications. Contractors study specifications to determine details or materials required, sequence of work, quality of workmanship, and appearance of the end product. From this information, contractors can estimate costs of the various skills and labor required.


If workmanship is not determined properly, unrealistic costs will result and quality  will  suffer. Good  specifications expand  or clarify  drawing  notes,  define quality of materials and workmanship, establish the scope of the work, and describe the responsibilities of the contractor. The terms of the contract documents should obligate each contractor to guarantee to the client and the architect or engineer that all labor and materials furnished and the work performed are in accordance with the requirements of the contract documents. In addition, a guarantee should also provide that if any defects develop from use of inferior materials, equipment, or workmanship during the guarantee period (1 year or more from the date of final completion of the contract or final occupancy of the building by the client, whichever is earlier), the contractor must, as required by the contract, restore all unsatisfactory work to a satisfactory condition or replace it with acceptable materials. Also, the contractor should repair or replace any damage resulting from the inferior work and should restore any work or equipment or contents disturbed in fulfilling the guarantee.


Difficult and time-consuming to prepare, technical specifications supply a written description of the project, lacking only a portrayal of its physical shape and its dimensions. The specifications describe in detail the material, whether concealed or exposed, in the project and fixed equipment needed for the normal functioning of the project. If they are properly prepared, well-organized, comprehensive, and indexed, the applicable requirements for any type of work, kind of material, or piece of equipment in a project can be easily located.


The technical specifications cover the major types of work—architectural, civil, structural, mechanical, and electrical. Each of these types is further divided and subdivided in the technical specifications and given a general title that describes work performed by specific building trades or technicians, such as plasterers, tile setters, plumbers, carpenters, masons, and sheet-metal workers, to name a few.


The prime contractor has the responsibility to perform all work, to furnish all materials, and to complete the project within a schedule. The contractor, therefore, has the right to select subcontractors or perform the work with the contractor’s own forces. In recognition of this, each specification should contain a statement either in the General Conditions or in the Special Conditions, that, regardless of the subdivision of the technical specifications, the contractor shall be responsible for allocation of the work to avoid delays due to conflict with local customs, rules, and union jurisdictional regulations and decisions.


Standard forms for technical specifications can be obtained from the Construction Specifications Institute (CSI). The CSI publishes a Master List of Section Titles and Numbers, which is the generally accepted industry standard. In it, technical specifications are organized into 16 divisions, each with titles that identify a major class of work. Each division contains basic units of work, called sections, related to the work described by the division title. Following is the division format developed by CSI:


1.  General Requirements

2.  Site Work

3.  Concrete

4.  Masonry

5.  Metals

6.  Woods and Plastics

7.  Thermal and Moisture Protection

8.  Doors and Windows



9.  Finishes

10.  Specialties

11.  Equipment

12.  Furnishings

13.  Special Construction

14.  Conveying Systems

15.  Mechanical

16.  Electrical


Language should be clear and concise. Good specifications contain as few words as necessary to describe the materials and the work. The architect or engineer should use the term ‘‘shall’’ when specifying the contractor’s duties and responsibilities under the contract and use the term ‘‘will’’ to specify the client’s or architect’s responsibilities. Phrases such as ‘‘as directed by the architect,’’ ‘‘. . . to the satisfaction of the architect,’’ or ‘‘. . . approved by the architect’’ should be avoided. The specification should be comprehensive and adequate in scope to eliminate the necessity of using these phrases. ‘‘Approved by the architect’’ may be used, however, if it is accompanied by a specification that indicates what the architect would consider in a professional evaluation. The term ‘‘by others’’ is not clear or definite and, when used, can result in extra costs to the client. The word ‘‘any’’ should not be used when ‘‘all’’ is meant.





The contract documents prepared by the architect, engineer, or client’s legal counsel include the contract between the client and contractor; the bidding requirements, which contain the invitation to bid, instruction to bidders, general information, bid forms, and bid bond; the contract forms, which may include the agreement (contract) format between the client and contractor, performance bond, and payment bond and certificates; the contract conditions identified as the general and supplementary conditions; the list of technical specifications; drawings; addenda; and contract modifications. The bidding requirements, contract forms, and contract conditions are sometimes referred to as the upfront documents.


Bidding Requirements.   These explain the procedures bidders are to follow in preparing and submitting their bid. They assist all bidders in following established guidelines so that bids can be submitted for comparative purposes and not be disqualified because of technicalities. The bidding requirements address all prospective bidders, whereas the final contract documents address only the successful bidder, who, after signing the client-contractor agreement, becomes the contractor.


Contract Forms.    The agreement (contract) is the written document, signed by the client and contractor, which is the legal instrument binding the two parties. This contract defines the relationships and obligations that exist between the client and contractor. It incorporates other contract documents by reference.


The contract may require a construction performance bond for financial protection of the client in the event the contractor is unable to complete the work in accordance with the contract. Not all clients require performance bonds, but the architect should review its necessity with the client and prepare the bidding documents in accordance with the client’s decision.


The contract usually requires a contractor payment bond from the contractor to ensure that a surety will pay the labor force and material suppliers should the contractor fail to pay them. The use of this bond precludes the need for the labor force or suppliers to seek payment directly from the client, through liens or otherwise, because of nonpayment by the contractor.

Certificates include those project forms that may be required for insurance, certificate of compliance, guarantees or  warranties,  or  compliance  with  applicable laws and regulations. Contract forms vary, depending on the type and usage of the project.


Contract Conditions.    These define the rights, responsibilities, and relationships of the various parties involved in the construction process. Two types of contract conditions exist, General Conditions and Supplementary Conditions.


The General Conditions have general clauses that establish how the project is to be administered. They normally contain provisions that are common practice. Definitions of project terms, temporary provisions, site security, management process required, and warranties and guarantees are among those items addressed in the General Conditions.

The Supplementary Conditions modify or supplement the general conditions to provide for requirements unique to a specific project and not normally found in standard General Conditions.




Competitive bidding is one method of determining the least cost for performing work defined by the construction documents. The bid states the price that the bidder will contract for to perform the work based on the work shown and described in the bidding documents. Bids are prepared in confidence by each bidder. They are usually sealed when submitted to the client (or, in the case of subcontractors, to the bidding contractors). At a specified time and date, all bids are opened, competitively examined, and compared. Unless there are compelling reasons to do otherwise, the client (contractor in the case of subcontractors) usually enters into an agreement to have the work performed by the bidder submitting the lowest price.

Before bids may be received, prospective bidders need to be identified and made aware of the project. Sufficient data should be furnished to potential bidders to allow preparation of their  bids.  The client may or may not wish to prequalify bidders. In those cases where prequalification is required, the architect can have meaningful input in the process based on past experience with potential bidders. The terms bid and proposal are synonymous. Although proposal may imply an opportunity for more consideration and discussion with the client, architect, or engineer, bid, bidder, and bid form are preferable, to prevent misunderstanding by the bidders.


After client approval of the construction documents and selection of a construction bidding method, the architect may assist in the selection of contractors to bid the work; preparation of bid forms; issuance of bidding documents for competitive bidding; answering inquiries from bidders; and preparing and issuing any necessary addenda to the bidding documents. Furthermore, the architect may assist in analyzing bid proposals and making recommendations to the client as to the award of the construction contract.


The architect can also assist in preparation of the construction contract. Bidders may elect to change their bid on the basis of certain conditions, such as errors in the bid, changes in product cost, changes in labor rates, or nonavailability of labor because of other work or strikes. Each bidder is responsible for providing for any eventuality during the period the bid is open for acceptance. Unless provided for otherwise, bidders may withdraw their bid before acceptance by the client, unless the client consents to a later withdrawal. If all conditions of the instructions to bidders have been met, then after the bids have been opened, the bids should be evaluated. The low bid especially should be analyzed to ensure that it reflects accurately the cost of the work required by the contract documents. The bids may be compared with the architect’s construction cost estimate that was prepared on completion of the contract documents. The client can accept a bid and award the contract to the selected bidder, who then becomes the contractor for the work.





Normally, a client asks the architect for an estimate of the construction time for the project. The client can then incorporate this estimate in the overall development schedule.


The contractor should prepare a detailed construction schedule for use in administering the work of subcontractors and the contractor’s own forces. The contractor should be requested to submit the schedule to the architect and the client within 30 days of contract award. The schedule will also form the basis for the contractor’s development of a shop drawing schedule.


A construction schedule can consist simply of a bar chart for each item of work or a breakdown for the major trades on the project. Alternatively, the schedule can be highly detailed; for example, a critical-path-method (CPM) schedule. This is recommended for large projects for monitoring the critical-path item at any point in time, since the critical path can change, depending on actual construction conditions. The contractor should monitor and update the schedule monthly during the construction phase so that the anticipated completion and move-in date can be verified or adjusted. If the completion date cannot be adjusted and the schedule appears to be of concern, more work time (overtime) may be required to maintain the nonadjusted schedule. This could have an impact on cost, depending on how the client-contract agreement was structured.


The construction schedule is an extremely meaningful tool in monitoring the construction process. It can assist the architect’s ongoing role in quality control during the construction phase, when the management of the building process is transferred to, and becomes the responsibility of, the contractor. The schedule also is a meaningful tool for use by all trades involved in the building process. The schedule affects trades in different ways, depending on the size of the labor force, availability of material and personnel hoisting equipment, access to the work, coordination of subcontractors’ work with material suppliers, material testing agencies involved, preparation of mock-ups, shop-drawing submittals, and general overall construction coordination issues.





After the construction contract is awarded, the contractor should submit a proposed schedule for submission of shop drawings to meet the construction schedule. This permits the architect to anticipate submissions and plan manpower requirements accordingly, based on the number and complexity of each submission.


As an ongoing part of quality control, the architect should review the shop drawings, product literature, and samples and observe material and mock-up testing. This is considered part of the shop drawing submittal process. The architect should be an independent agent and side neither with the client nor the contractor in acceptance or rejection of a submittal. Rather, based on professional judgment, the architect should render a decision as to whether the submittal is in general accordance with the construction documents and design intent. All submittals should be properly identified and recorded when received by the architect, as part of document control. The architect should review the submittal expeditiously and return it to the contractor with the appropriate action.


The architect’s action shown on the submittal usually records that the contractor can proceed, proceed as noted, or not proceed. A copy of the proceed and proceed as-noted submittal should be maintained in the architect’s and contractor’s site office for reference. The client should also be provided with the transmittal associated with submittals. This helps keep the client informed regarding the progress of the work relative to the schedule for submission of shop drawings.




After award of the construction contract, the architect or engineer generally continues to assist the client in relations with the contractor.


Site Observation


As part of their ongoing services during construction, and depending on the scale and complexity of the project, architects and engineers may make periodic site visits or maintain full-time representation on site during a portion or all of the construction period. The professional’s role is to expedite day-to-day communication and decision making by having on-site personnel available to respond to required drawing and specification clarifications.


Site-observation requirements for the project should be discussed with the client at the onset of the project and be outlined in the architect-client agreement. Many clients prefer periodic or regularly scheduled site visits by the design professional. A provision for additional or full-time on-site representation, however, can be addressed in the agreement, and compensation for this additional service can be outlined in the agreement for discussion with the client later in the development process or during the construction phase. The client and the architect and engineer should agree on the appropriate amount of site visitation provided in the architect’s basic services to allow adequate site-observation services based on specific project conditions.


If periodic site observations are made, the architect should report such observations to the client in written form. This should call attention to items observed that do not meet the intent of the construction documents. It is normally left to the client to reject or replace work unless such defective  work involves life safety, health, or welfare of the building occupants or is a defect involving structural integrity. If the architect provides full-time site observation services, daily or weekly reports should be issued to the client outlining items observed that are not in accordance with the construction documents or design intent.



Site Record Keeping


Depending on contractual requirements for service during the construction phase, the architect may establish a field office. In this event, dual record keeping is suggested between the site and architect’s office so that records required for daily administration of construction are readily accessible on site. Contractor correspondence, field reports, testing and balancing reports, shop drawings, record documents, contractor payment requests, change orders, bulletin issues, field meeting minutes, and schedules are used continually during construction. Computer systems and electronic mail make the communication process somewhat easy to control.



Inspection and Testing


Technical specifications require testing and inspection of various material and building systems during construction to verify that the intent of the design and construction documents is being fulfilled under field conditions. Testing is required where visual observations cannot verify actual conditions. Subsurface conditions, concrete and steel testing, welding, air infiltration, and air and water balancing of mechanical systems are such building elements that require inspection and testing services. Normally, these services are performed by an independent testing agency employed directly by the client so that third-party evaluation can be obtained.

Although the architect does not become involved in the conduct of work or determine the means or methods of construction, the architect has the general responsibility to the client to see that the work is installed in general accordance with the contract documents.


Other areas of inspection and testing involve establishing and checking benchmarks for horizontal and vertical alignment, examining soils and backfill material, compaction testing, examining subsurface retention systems, inspecting connections to public utilities, verifying subsoil drainage, verifying structural column centerlines and base-plate locations (if applicable), checking alignment and bracing of concrete formwork, verifying concrete strength and quality, and other similar items.



Payment Requests


The contractor normally submits a consolidated payment request monthly to the architect and client for review and certification. The payment request should be subdivided by trade and compared with the schedule of values for each trade that would have been submitted with the subcontractor bid if required by the instructions to bidders and bid form. The architect should review the payment request with respect to the percentage of completion of the pertinent work item or trade.


Some clients or lending institutions require that a partial waiver of lien be submitted for each work item or trade with each payment request. This partial waiver of lien can either be for the prior monthly request, which will indicate that the prior month’s payment has been received, or in certain cases for the current monthly request. If the latter procedure is followed, the waiver may require revision, depending on the architect’s review, if a work-item or trade-payment request is modified. The architect is not expected to audit the payment request or check the mathematical calculations for accuracy.



Change Orders


Contractor’s change-order requests require the input of the architect, engineer, and client and are usually acted on as part of the payment request procedure. A change order is the instrument for amending the original contract amount and schedule, as submitted  with  the  bid  and  agreed  on in the  client-contractor  contract. Change orders can result from departures from the contract documents ordered during construction, by the architect, engineer, or client; errors or omissions; field conditions; unforeseen subsoil; or other similar conditions.


A change order outlines the nature of the change and the effect, if any, on the contract amount and construction schedule. Change orders can occur with both a zero cost and zero schedule change. Nevertheless, they should be documented in writing and approved by the contractor, architect, and client to acknowledge that the changes were made, with no impact. Change orders are also used to permit a material substitution when a material or system not included in the contract documents is found acceptable by the client and architect. For material substitutions proposed by the contractor, schedule revisions are not normally recognized as a valid change.


The sum of the change-order amounts is added or deducted from the original contract amount. Then, the revised contract amount is carried forward on the contractor’s consolidated application for payment after the change orders have been signed by all parties. The normal contractor payment request procedure is then followed, on the basis of the new contract amount.  If the schedule is changed because of a change order, the subsequent issue of the construction schedule should indicate the revised completion or move-in date, or both, that result from the approved change.



Project Closeout


Project closeout involves all parties, including subcontractors and material suppliers. It should be addressed early in the construction phase so that the closeout can be expedited and documented in an organized and meaningful manner. At this point in the construction process, the attention of the contractor and architect is focused on accomplishing the necessary paperwork and administrative functions required for final acceptance of the work and issuance of the contractor’s final consolidated application for payment and final waiver of lien.

The normal project closeout proceeds as follows:


1. The contractor formally notifies the architect and the client that the contracted work is substantially complete.

2. From on-site observations and representations made by the contractor, the architect documents substantial completion with the client and the contractor. In some cases, this may trigger the start of certain guarantees or warranties, depending on the provisions of the general and supplementary conditions of the contract.

3.  For some projects that are phased, some but not all the building systems may be recognized by the architect and the client as being substantially complete. This  should  be  well-documented,  since  start  dates  for  warranty  and  guarantee periods for various building systems or equipment may vary.

4. On-site visits are made by the architect and representatives of the client, sometimes called a walk-through, and a final punchlist is developed by the architect to document items requiring remedial work or replacement to meet the requirement of the construction documents.

5.  A complete keying schedule, with master, submaster, room, and specialty keys, is documented by the contractor and delivered to the client.

6.  The contractor submits all record drawings, as-builts, testing and balancing reports, and other administrative paperwork required by the contract documents.

7.  The contractor should submit all required guarantees, warranties, certificates, and bonds required by the general and supplementary conditions of the contract or technical specifications for each work item or trade outlined in the breakdown of the contractor’s consolidated final payment request.

8.  The contractor corrects all work noted on the punchlist. A final observation of the corrected work may then be made by the architect and client.

9.  If the client accepts the work, the architect sends a certificate of completion to the contractor with a copy to the client. The certificate documents that final completion of the work has occurred. All required operating manuals and maintenance instructions are given to the architect for document control and forwarding to the client.

10. The contractor submits final waivers of lien from each subcontractor or material supplier. Also provided is an affidavit stating that all invoices have been paid, with the exception of those amounts shown on the final waiver of lien. With these documents, the contractor submits the final consolidated payment request, including all change orders.

11.  The architect sends a final certificate of payment to the client, with a copy to the contractor.

12.  The contractor provides any required certificate of occupancy, indicating that the building authorities have jurisdiction over the project approve occupancy of the space for the intended use.

13.  The client makes final payment to the contractor and notifies the architect of this.


This process is important inasmuch as it can trigger the transfer of risk from the contractor’s insurance program during construction to the client’s insurance program for the completed project.





It is normal for projects to go through what is known as a shakedown period after final acceptance and occupancy by the client or building tenant. The warranty and guarantee period (normally 1 year) is the contractor’s representation and recognition that certain building elements and systems may need adjustment or slight modification, depending on actual occupancy conditions or normal maintenance and usage of such systems. The heating, ventilating, air conditioning, and systems unique to a project require testing and balancing and potential minor modifications and adjustments during this warranty and guarantee period, even though they were tested and balanced by the contractor’s testing agency prior to project closeout. An independent testing and balancing contractor who was employed prior to final project closeout normally returns on an as-needed, on-call basis to adjust, test, and balance systems during the first year. In addition, the building engineer will become familiar with the systems during this first year of operation and may also adjust and balance systems.




The technical specifications for a building project normally require that sometime be devoted prior to project closeout for instruction and training of the client’s building operating personnel and building engineer, who will be responsible for operating and maintaining the various building systems. Manufacturers’ operating procedures, manuals, and inventory of spare parts and attic stock should be reviewed with the client, building engineer, and the contractor installing the work. The building engineer should thus gain a general understanding of the individual systems and their interaction in the operation of the building.  During the warranty and guarantee period, the contractor or applicable subcontractor may be requested to assist the building engineer further in operation and maintenance of a system, including testing, balancing, and minor adjustment. After the shakedown period and when the engineer thoroughly understands system operation, the client’s personnel assume full responsibility and deal directly with the manufacturers of various building components for maintenance. Or the client may subcontract maintenance, a normal procedure for such systems as elevators and escalators where specialty expertise in maintenance is required.




The normal procedure for submission of record drawings rests primarily with the contractor. These are edited drawings and specifications submitted by the contractor that describe actual installed conditions based on the contractor’s field coordination of the work.


In some instances, the client may request that the architect revise the original construction documents or prepare new drawings to reflect the as-built conditions. This is normally an additional service in the architect-client agreement. It should be made clear to the client that the architect, if brought into this process, is acting only in a drafting role, inasmuch as the as-built documentation, including dimensions and details, is furnished by, and is the responsibility of, the contractor.

As-built and record drawings are helpful to the client in remodeling, maintenance, building-system modification, or making future additions to the project. The client should retain the drawings with maintenance manuals and operations procedures.




Even in the best of relationships, disputes can arise between the client and architect, client and contractor, or architect and contractor, even though the architect and contractor do not normally  have a written  agreement  with each other. Disputes should be quickly addressed and resolved for the well-being of the project and to minimize disruption of the design and building process. If the dispute cannot be resolved by the parties, various methods of resolution are offered that include settlement, mediation, arbitration, and litigation. To maintain insurance coverage and protect appropriate interests, proper notification to insurers or involvement of legal counsel is required.


Settlement of Disputes.    Disputes between two parties should be addressed quickly and, if at all possible, a settlement should be rendered and recorded. Settlement can be in the form of monetary adjustments or payments, free services on behalf of the architect to remedy or correct an error, or such other agreement between the two parties. It is recommended that this method of dispute resolution be used whenever possible to avoid time, cost, and anguish, which can occur as a result of mediation, arbitration, and litigation.


Mediation.   In mediation, the parties in dispute agree on a third independent party to act as a mediator and hear each side’s position in the dispute in an attempt to mediate a resolution. Mediation is not binding on either party but helps resolve certain disputes due to a third party’s focus on, and question of, the issues.


Arbitration.   This is a method of handling disputes in which an arbitrator or arbitration panel, often consisting of three members, is selected to hear the positions of the parties in the dispute and decide on a potential resolution. The resolution is binding on the parties. Cost and time for arbitration is usually, but not always, less than that required for litigation. The arbitrators usually consist of professionals (architects and engineers), lawyers, contractors, or other parties involved in the building industry.


Litigation.    In the event settlement or mediation cannot resolve a dispute and the parties do not wish to arbitrate, the only remaining course of action is to litigate the dispute. This requires that much time and money be expended for depositions, document and other discovery, and preparation for trial. The final results are rendered by a group of individuals (the jury) or judge not involved in the building industry. Therefore, a possession of a thorough knowledge and understanding of issues affecting the architectural and engineering profession and construction industry become the responsibility of each party’s legal counsel to establish a true and accurate picture of each party’s position and the facts in the case.





The American Institute of Architects has formulated the following basic principles for guidance of architects:


Advice and counsel constitute the service of the profession. Given in verbal, written, or graphic form, they are normally rendered in order that buildings with their equipment and the areas about them, in addition to being well suited to their purposes, well planned for health, safety, and efficient operation and economical maintenance, and soundly constructed of materials and by methods most appropriate and economical for their particular uses, shall have a beauty and distinction that lift them above the common place. It is the purpose of the profession of architecture to render such services from the beginning to the completion of a project.


The fulfillment of that purpose is advanced every time architects render the highest quality of service they are capable of giving. In particular, the architect’s drawings, specifications, and other documents should be complete, definite, and clear concerning the architect’s intentions, the scope of the contractor’s work, the materials to be employed, and the conditions under which the construction is to be completed and the work paid for. The relation of architects to their clients depends on good faith. Architects should explain the exact nature and extent of their services and the conditional character of construction cost estimates made before final drawings and specifications are complete.


The contractor depends on the architect to guard the contractor’s interests as well as those of the client. The architect should reject workmanship and materials that are determined not to be in conformity with the contract documents, but it is also the architect’s duty to give reasonable aid toward a complete understanding of those documents so that errors may be avoided. An exchange of information between architects and those who supply and handle building materials should be encouraged.


Architects, in their investments and business relations outside the profession, should avoid financial or personal activities that tend to weaken or discredit their standing as an unprejudiced and honest adviser, free to act in the client’s best interests. Permitting use of free architectural or engineering services to be offered by manufacturers; suppliers of building materials, appliances, and equipment; or contractors may imply an obligation that can become detrimental to the best interest of the client. Architects may offer their services to anyone for commission, salary, or fee as architect, consultant, adviser, or assistant, provided the architect rigidly maintains professional integrity, disinterestedness, and freedom to act.


Architects should work together through their professional organizations to promote the welfare of the physical environment. They should share in the interchange of technical information and experience.

Architects should seek opportunities to be of service in civic affairs. To the best of their ability, they should endeavor to advance the safety, health, and well-being of the community in which they reside by promoting appreciation of good design, good construction, proper placement of facilities, and harmonious development of the areas surrounding the facility.


Architects should take action to advance the interests of their personnel, providing suitable working conditions for them, requiring them to render competent and efficient services, and paying them  adequate  and  just  compensation.  Architects should also encourage and sponsor those who are entering the profession, assisting them to a full understanding of the functions, duties, and responsibilities of the architectural profession.


Every architect should contribute toward justice, courtesy, and sincerity in the profession. In the conduct of their practice, architects should maintain a totally professional attitude toward those served, toward those who assist in the practice, toward fellow architects, and toward the members of other professions. Daily performance should command respect to the extent that the profession will benefit from the example architects set to other professionals and to the public in general







If you are a business student, the first two years of college for both accounting and finance majors are nearly identical. Each requires the basic English, history, math, and general business studies. By the third year of college, however, the two disciplines begin to chart separate courses. While both subjects deal with numbers and money, they are quite different in the way they do so.


The accounting discipline, for example, centers on principles used primarily for bookkeeping purposes and is based on a body of rules referred to as the generally accepted accounting principles (GAAP). Although there is some disagreement by scholars of many of the more advanced rulings, the principles established in GAAP are nevertheless to be firmly applied and adhered to when recording entries. As a general rule, the accounting principles are rigid rules that must be applied for bookkeeping and tax purposes.


The discipline of finance, on the other hand, centers more on the valuation and use of money than on record keeping. Finance is an exploration into the world of micro- and macroeconomic conditions that impact the value of a business’s assets, liabilities, and investments. While there are certainly rules and laws that govern the principles of finance, it is a subject that remains fluid and dynamic. The expansion and contraction of businesses live and die by those who understand these laws and their effect on value.


The goals you establish will directly impact your financing strategies. Three primary financing elements around which all real estate investment activity centers are time, volume, and the type of property. Once you have deter- mined your time horizon, the rate at which you intend to buy and sell, along with the type of real estate you will invest in, the proper financial instruments may then be put in place.



Turnover ratio = 1/1 × 20% = 20% = total return

years 1




Turnover ratio = 3/1 × 8% = 24% = total return

years 1


This simple example illustrates that an investor can accept a lower rate of return on each property bought and sold and earn a higher overall rate of return, provided that the frequency, or turnover rate, is increased.


Investment time horizons typically fall into one of three categories: short term, intermediate term, and long term. Short-term investors are defined as those individuals who buy and sell real estate with a shorter duration.


Increasing the volume, however, can significantly increase your transaction costs, especially if you’re a short-term investor. If, for example, the lender charges you one or two points every time you obtain a loan for a house you’re going to flip, the costs for financing can add up quickly and will significantly increase the annualized rate of interest. Let’s look at an example. Assume you are purchasing a house for $100,000 to rehab and then flip. Let’s also assume that you’re pretty good at doing this and that the average time it takes you to buy, rehab, and sell a property is three months.


Purchase price = $100,000

Interest rate = 6.0%

Loan-origination fee = 1.0% Turnaround time = 3 months

Interest paid = $100,000 × 6.0% ÷ 12 × 3 = $1,500

Loan-origination fee = $100,000 × 1.0% = $1,000

Total interest and fees = $1,500 + $1,000 = $2,500

Effective interest rate = ($2,500 ÷ $100,000) ÷ 3 × 12 = 10.0%


As illustrated in this example, although the stated interest rate of 6.0 percent would be considered a very competitive rate for most investors, the effective rate of 10.0 percent is not nearly as competitive. In fact, in a 6.0 percent interest rate environment, many investors would not walk, but would instead run out of the bank if the lender told them the interest rate would be 10.0 percent.




The type of property an investor purchases is the third primary element that affects an investor’s strategy and the type of financing to be used. Property types that produce income are most commonly classified as single-family, multifamily, or commercial. The type of loan obtained for any real estate property will largely be determined by the type of property being purchased. Financial institutions provide an array of products that are suited for particular investment types.


The term single-family property is a bit misleading, as it actually encompasses all real estate with at least one living unit and not more than four living units. In other words, a house, as well as a duplex, triplex, and fourplex, are all classified as single-family properties as far as lenders are concerned. Because single-family properties are by far the most common of the three types, mortgages are readily available for them from most financial institutions.




The cost of funds is the first of the three secondary financing elements that affect real estate financing and, consequently, real estate value. The cost to borrow funds is expressed in terms of an interest rate and represents the portion of the loan payment that the lender charges for loaning money. Changes in the interest rate charged to purchase income-producing property have a direct effect on the property’s value. In Chapter 8, we explore in great detail the three primary appraisal methods, one of which is the income capitalization method. This appraisal method rests on the premise that a stream of income can be converted into a single capital value. If there is a reduction in the stream of income, the capital value must likewise be reduced. An increase to any degree in the cost of funds borrowed would have a negative effect on an investment property’s income stream and would subsequently reduce its capital value.


The cost of funds, or interest rate, varies widely among lenders. Both banks and mortgage companies tend to be fairly competitive, as do conduit lenders. Banks typically offer loans for shorter durations and price their loans using the prime lending rate as the bench- mark. Mortgage companies, on the other hand, often offer loans for longer durations and price them using an index such as Treasury bills or the London Interbank Offered Rate (LIBOR). Likewise, conduit loans are also benchmarked off Treasury bills. The loan is priced according to a spread, which is added to the term of a Treasury note and which corresponds to the term of the loan. In other words, a loan with a 10-year term is priced by adding a spread to a 10-year Treasury note. Spreads are stated in what is referred to as basis points. A spread of 185 basis points is equivalent to 1.85 per- cent. If the 10-year Treasury is currently priced at 4.30 and the spread is 185 basis points, then the interest rate applied to the loan would be 6.15 percent.


The interest paid on borrowed money represents the cost of funds, so the higher the rate, the greater the amount paid. On a smaller loan of, let’s say, $100,000, a difference of 0.5 percent in the interest rate will have only minimal impact on the viability of an investment opportunity. On a larger loan of $1 million, however, the difference of 0.5 percent is much greater. When applying for a loan, you should make every effort to negotiate the best possible rate, especially on larger loans. I recently met with one of the lenders with whom my company, Symphony Homes, does business to review our financial statements from the previous fiscal year and to plan for the coming year. Since I do several million dollars’ worth of business with this lender each year, I don’t hesitate to ask for better pricing. I reminded him that our company works with several other lenders who are eager to earn more of our business. My expectation is that he will soon be giving me a call with more favorable pricing.

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Hola, is Rosa still alive? No? Well this is not my day. Look at us, crying like a couple of girls on the last day of camp. Great, now I'm gonna smell to high heaven like a tuna melt! Te quiero. English, please. I love you! Great, now I'm late. Perhaps an attic shall I seek.



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