Starting Your Own Architectural Practice - notes from panel discussion

These re-constructed notes are from a few of my comments as a member of a three-architect panel presentation at the AIA/SCV on July 22, 2011 for the members of the Young Architects Forum that are considering starting their own architectural firms.

Question:  What is the most important advice you can give us regarding starting our own architectural practices.

EB:  Cutting straight to the chase, I would say that starting out, the most important thing is to keep your overhead low.   Business is a simple equation of cash-in and cash-out.  It’s called cash flow, and it’s like breathing for your business.  It’s always “cash in and cash out”.  If you can learn to manage cash flow and you can continue to get work, you can maintain your business.  That doesn’t mean that you will be successful, or get wealthy, it just means that you can usually stay in business if you can maintain the cash flow.  Now the other part of that equation is that you need to continue to get work.  But if you have really low overhead, you can survive lean times and times when you don’t have much work.  You have probably heard stories about businesses that start up anticipating a steady or increasing revenue stream.  So there is a tendency to establish a steady and increasing rate at which they take on monthly fixed overhead expenses.   Things like leased office equipment, office rent, monthly advertising costs like yellow pages ads, company cars, insurance, telephone and internet are all fixed monthly overhead that you are under contract to pay whether you have any income or not.   Now, if and when you are ready to get employees, you will really be crossing over into a whole other level of fixed expenses.

Question:  Some of those things you might be required to have like telephone and rent, would you not?

EB:  You might need to pay for a telephone and internet line, but let’s say you’ve been laid off and are out of work and have one or two small projects under contract starting out, then I would advise you to work out of your house.  Basically, starting out on small projects clients don’t really care if you have a fancy office, they know that you are just starting out and are probably hiring you because they either know you or because they consider you a bargain.  But in any case they believe that you can solve their problem and that’s the important thing.

Question:  You said that the other part of the equation was continuing to get work.   What advice can you give the group on getting new business?  What are the best sources, and do you use advertising?

EB:  If indeed you are going to maintain monthly expenses, then you are going to need a pretty steady source of work to support the cash flow needed to meet those monthly expenses.  Balancing cash flow is always important.  But balancing workflow when you have employees becomes critical.

So, the sources for getting work vary with each individual and by the type of work you are seeking.  If your expertise is in multifamily, then your clients are going to be largely developers.  If your expertise and focus is in single-family homes, then you are dealing with a broader audience.  In any case, I have found that word of mouth referrals is far and away the best and most commonly used way of finding new clients.  As far as advertising, it doesn’t work in my experience.  Don’t get locked into expensive yellow pages advertising.  It might work for attorneys, but you can probably tell by the lack of ads placed by architects that their main use of the yellow pages is just to provide a way for people to find them.

Question:  Is there a type of client or project that you would advise to stay clear of?

EB:  I would say that you should only take on projects that you know that you can handle.  Don’t get in over your head.  If you cannot provide good service, then your client will not be happy and your reputation will suffer.  It’s when the they expect more than they are getting that problems arise, so you need to manage expectations.  Make sure that they are realistic.  It can take a lifetime to build up a good reputation, and only one disgruntled client to tear it all down.

Choosing good clients and not settling for bad ones is probably as important as any other thing you could do for your business success.  Good clients expect to pay a fair price for a good product, and are not interested in combative or litigious relationships.  Bad clients can be tough to deal with and can sometimes be slow payers, or not pay at all.  Most commonly it’s the last payment that they will dispute.  It’s because the project is to the point that they don’t need you anymore and you no longer have leverage.  Don’t wait until the end to send large invoices.  As a professor of mine said, “bill early and often”.  It’s a lot easier for the client to make many small payments and it keeps even out the cash flow.  

Beware of those clients who want to use you.  Let me preface that by saying that everyone in the building industry, and even private clients, know that we are all hungry right now.  So sometimes people will be looking for the cheapest service they can get.  Or they will be looking for someone that they can intimidate and extract more services from than the scope of work in the contract.  These types of people seem to come out of the woodwork during economic down times.  In real estate they are called bottom feeders, and they are looking to leverage you or use you to their advantage.  The other thing to be aware of is the carrot on the stick deal.  If a potential client asks you to give them a deal on your fees for their first project, hinting or promising, that they will use you on their following projects, then you should probably run the other way.  But being hungry and hopeful, which we all are, I know that sometimes it’s irresistible. 

As far as liability is concerned in all situations, you need to learn to practice defensively.  Learn to sense and know the things that might incur a liability risk and deal with them.  Most of that will be gained by experience, but you should educate yourself about what issues come up the most.  For instance return construction submittals within the time specified in the contract or you could be blamed for a construction delay.  Know the AIA contracts, especially the General Conditions for Construction, or the contracts that are being used on your project.

Question:   Are there tools that you recommend to track cash flow? 

EB:  I use QuickBooks Pro, but in any case you need to be using some form of computerized accounting system.

Question:    As far as the actual project itself what is the most important thing to starting and maintaining a practice?

EB:  Make the client happy.   Make sure that they have realistic expectations.  If their expectations match what their perception of their experience is, they will be happy.  Whatever you do don’t make promises that you don’t deliver on, and even if you have so say you are behind schedule or are having issues return all calls promptly.  It lets the client know that you respect their time and their concerns and gives them an opportunity to adjust their expectations.  Happy clients will refer you.  For me, I look for repeat clients.  I like to find a good client and keep them happy for life.

Question:  What should my budget be for starting a new business?

EB:  It depends.  The basic concept of the Profit and Loss Statement is income minus expenses leaves net income, or what you get to keep.  If you know and can realistically anticipate the income, and you know what you need to live, you can work the equation to show you what expenses you can justify.  Likewise, if you know how much you need to make and know what your expenses are then you can project how much you will need as gross income to get to where you want to be.  

Bidding vs. Design Build

Design/ Build for most small projects is where the general contractor is providing the design, engineering and permit submittal drawings.  It is marketed as an expedited way through a construction process.  The claim is that communication is simpler, there is one point of responsibility, and the whole process is faster and more streamlined.   This is true to some extent.  However in my 34 years of experience, I have found that for most small to medium sized projects, the advantages of design/build are substantially more beneficial to the contractor rather than to the owner.  Here is why.  In most small to medium construction companies, there is no full time dedicated architect or even a drafter; that is too much overhead to maintain.  They may market themselves as a design/build general contractor.  But what you will find is that they offer design build services because they have a deal with an architect, engineer, designer or draftsman to work with them for the design phase of their work.  And, in most cases they will have the subcontractors produce the mechanical electrical and plumbing drawings.  I have experienced disasters in trying to submit sketchy sub-contractor drawings that the building department rejected.  So if the design/build contractor says he’ll save you the cost of the design, be assured that somewhere, he will be building it into the cost of construction.  Nobody works for free, and if they do you’ll be getting what you pay for.  So, typically the designer, working with the design/build contractor, will come up with some designs to review with the owner.  

This is where the design process gets short circuited; the designer will not be learning the owner’s needs and suggesting creative options.  Instead the emphasis will be to expedite the process, come up with a design quickly that the owner will accept and the contractor feels that they can build economically and with speed.  The contractor will have factored into his price a fixed amount for the design.  Remember, a contractor will have given the owner a price for the construction and will be under contract with the owner before he starts spending money for his designer to start work.  The contract may have a range of prices or have a base price plus some options.  But lets say for example, the owner wants to build a mezzanine in his warehouse.  He’s not used to thinking about the details of construction, he’s looking at the big picture and is anxious to start business in this space.  The contractor gives the owner a very appealing number to start but there is never any discussion regarding the mezzanine railings.  The contractor figures for a wood stud and sheetrock railing that is 42” minimum height to meet code.  However, during construction the owner realizes that the railings will be solid and says that he had always anticipated open railings, so he could see better into the space below.  The contractor says, “this is the way it’s always done” and that he just figured that was the way the owner wanted it, the cheapest possible.  Now what does the owner do?  The contractor says that if the owner wants wrought iron railings it will be an extra to the contract but he offers to get a quote from his wrought iron company.  The quote comes back and it seems awfully high to the owner.  The owner doesn’t know if the number is fair or not.  He certainly doesn’t want to stop the construction process; he’s too deep into his contractor to fire him and start over, so he agrees to the extra cost.   Believe me, when a contractor has your building or house torn up, you are largely at their mercy.  The owner always feels like they have power and leverage until after the contract is signed and construction starts.

In the case of the railings above, if the owner has a design professional who is working for their best interests, they would immediately request or help you get comparative quotes for the steel railing.  Even if a change order were justified, would the owner have thought to have the contractor subtract out the cost of the wood stud railings he had originally budgeted for?  He’s not going to do that work now, so the materials and labor for the original railing system needs to be subtracted from the additional cost of the steel railings. 

There is a reason that the architect’s drawings, specifications, and the 8 ½ x 11 written agreement with the general contractor are called the contract documents.  They form the contract between the owner and general contractor.  Those big sheets of paper that the architect produces are part of the contract.  It just happens to use drawings more than words.  The more clear and detailed those drawings are, the tighter the contract is and the less the owner has to rely on the word of the contractor.  With a design/build contract you will be signing the contract prepared, executed and interpreted by the design/build contractor.  In the case of a disagreement, there is nobody to stand between you and your contractor.

In a design/build scenario the less detail that is included in the drawings the more it can work in favor of the contractor.  It leaves it open to interpretation and the contractor will be the one interpreting them.

In a design/build scenario for instance, if the contractor has billed and been paid for three quarters of the work and only half of the work is done, then if anything should happen to him, including insolvency, injury, abandonment, or death, the owner is out of luck.  In traditional design/ bid/ build contracts where the architect is doing construction observation, payments will not go out to the contractor until after the work is done and the architect has certified payment based on the percentage of work complete minus a 10% retainage.

Questions the owner might ask when offered a design/build contract to sign: does the contract include a date for completion, and a per day penalty if that time is exceeded?  Okay maybe the contractor told you that those contract clauses were not enforceable in this state.  True, but if there is a commensurate amount of reward incentive for everyday he is early, then it is enforceable.  Does the contract call for a 10% retainage to make sure that the project gets completed as the traditional AIA contracts do?  Does the contract include a schedule of values and a payments schedule?

I advise owners that the traditional way is almost always the best way for our small projects.  Owners will be well served to start by defining the contract as clearly and as completely as you can through a quality set of construction documents from someone that is your agent and works for you.  There will be less uncertainty and the bids that you do receive will be more competitive.  I tell clients that the amount of money you spend on upfront design fees you should save by getting more competitive bids.  You will also have more control of the project and another seasoned professional to represent your interests.

Certainly I’m not suggesting here that all design/build contracts or contractors are bad; I just think it’s not in the owner’s interest in most cases for small to mid sized projects.  There are some owners who have an in-house development team, a construction manager, or who are repeating a familiar building type, and are seasoned construction professionals for whom design/ build can work well.  But for those owners who are embarking on their first construction and development project, this advice applies. 

Be savvy when it comes to bid allowances.  If the contractor puts an allowance number in the contract, say $2,000 for light fixtures, you should have some realistic idea of how much light fixtures will actually cost and the quality that you will be getting.  If the actual fixtures cost $10,000 then the allowance may have been used to make the design/build contract price seem less than a competitors’.  But in any case, it gives the owner a budgeting shock.

And one last word of warning, don’t be seduced by a low initial design/build contract price.  You need to look at all of the ways that cost increases can be built into the contract.  Usually, the first price number is the lowest one you will see.


Comic Credit: ceilingsystems.net

Second Story House Additions

I am frequently approached by clients who need more living space and during the initial conversation toss out the possibility of doing a second story addition.  Having done two second story additions for myself, acting as architect, owner, and general contractor, I feel that I have some unique perspectives on this issue.   

To determine whether a second story is feasible or not you need to look at all of the impacts of constructing a second story as opposed to ground story.  Applying a simple cost per square foot for the new construction will not work here.  The ground floor will need to be upgraded to carry the upper floor loads, both gravity loads and seismic loads.  Invariably some of the footings will need to be enlarged to carry the upper floor loads.  The method for doing this is called underpinning.  It is accomplished by digging under the existing concrete footings and increasing the effective size by pouring a new larger footing under the existing footing.  If the house has a slab floor this can be trickier as often some interior footings are required within the interior portion of the house as well as the perimeter.  

The other thing that needs to be considered is the location of the stairs that will be required to connect the two floors.  Stairs can take up almost as much ground floor space as a small bedroom.  So, while you are adding space upstairs you may be subtracting 100 square feet or so from the ground floor.  Also the location of those stairs is critical to a functional circulation pattern on both floors. There are some other drivers of additional costs like marrying the roof forms together and likely the necessary cost of doing some of the construction work from scaffolding.   

However, the most important thing to consider is how much the ground floor is being impacted.  It is easy to underestimate.  For instance if you move a wall between two rooms you will need to patch the ceiling, trim, and floor finishes in two rooms, as well as paint and add electrical in the wall.  And, if you are relocating the kitchen and remodeling a downstairs bathroom, as well as adding the stairs, plus new footings, you will be quickly approaching the cost of a tear down and rebuild.   

So my best advice is this: if you can accomplish your goals with an extension on the ground floor, it will cost considerably less than a second story addition.  If your situation will not allow for this, and you are required to go to a second story configuration, go into it with realistic expectations, and anticipate moving out for a period of time.  You can check out my second story remodel on my website: www.edwinbruce.com/Bruce1.html  

We actually lived on the property except for three nights when the plumbing was out of service.  The construction time was 15 months.  

If after reading this you have questions and feel that I can help, please don’t hesitate to contact me.  I’m happy to answer questions informally.

A Very Brief Explanation of ADA Requirements and Hardship Exemptions

Small commercial remodels often trigger the requirements to make their facilities accessible for the disabled. Commonly known as ADA access, this is from the Americans with Disabilities Act, federal civil rights law. Simply put, the ADA is the law that the “wheelchair activists” use to sue owners and tenants. There is also the California Building Code, which requires accessibility features for the disabled. The Building Code requirements are applied to your project when you apply for a building permit.
I can’t tell you how many times we’ve had to tell clients that their tiny, tiny, remodel will trigger accessibility upgrades, and how disappointed they’ve been to learn that the project will require some reasonable accommodation.

However, in the building code, there is such a thing as a Hardship Exemption. The rule is this: you will be required to spend a maximum of 20% of your construction budget on accessible features listed in an order of priority, unless the total valuation of your project exceeds $132,536 ( for 2011). This number comes from a formula that increases every year. If it is above this number, you’ll be required to provide a minimum of 20% for accessibility and possibly more. How much more is at the discretion of the building agency to determine how much over this 20% constitutes a hardship upon reviewing the particular circumstances involved. They ultimately want to see buildings become completely compliant. So if your total construction valuation is substantially above this and you have out of date toilet rooms that don’t meet code, there is a good chance that you’ll have to bite the bullet and upgrade them.

The order of priority in accessibility features start from access to the building, through the building, accessible toilet rooms, and then on to other features such as drinking fountains. And on that note, I was just talking to one of our general contractors yesterday, he was saying that the costs for an accessible single occupancy toilet room for his project was around $21,000. Expect that number to vary with site conditions. This is something tenants need to negotiate with their landlords before they sign the lease. Negotiate for them to contribute to accessible upgrades if they are required, and clarify in writing who will be responsible for exterior compliance if there is a shared parking lot and sidewalks.

Construction with or without Building Permits? – an Architect’s View

The state of construction in Silicon Valley is still awfully slow but it is very gradually picking up. This is my observation as an architect who has been in private practice in the area for the last 26 years. The office phone is starting to ring with owners calling about small projects and T.I. projects that they need right away.

Not uncommon normally, but particularly noticeable in today’s market are owners attempting to fly under the radar without building permits. Owners and sometimes tenants, initiate minor, and some not so minor, building alterations without permits. This has always occurred to some degree, but perhaps because of our tight economic conditions I’m seeing it more and more. I’m not suggesting that this is something that an owner should do, but it is a fact of real life in the real estate world. More so than in previous recoveries, we’re getting calls from owner’s who have started or completed a project without permits and have gotten caught and need help getting them permitted retroactively. I don’t know if the building departments are attempting to create more work or not, but it seems odd that we are getting so many red-tagged projects, considering how the local building departments are short staffed.

We recently helped an owner who had remodeled the upper floor of his Santa Clara office building eliminating the hallways and adding that area to the tenant spaces so he had more leasable square footage. On the surface, this might sound like a good idea from a business perspective, however from an exiting perspective, it created serious life safety violations of the City building code, and when discovered, the building Department gave them a deadline to correct the conditions. The process that was necessary to obtain permits was to draw the building and site plan as if we were submitting it for the first time with the hallways shown in a legal configuration. This was almost exactly as it was before the alteration was done. Of course this brought up the issue of building accessibility for disabled persons. Fortunately, the project was so small that we were able to avoid an entire remodeling of the toilet rooms. We were only required to stripe an accessible parking space and van aisle and create a curb ramp.

And on that note, I was just talking to one of our general contractors recently; he was telling me about a 10 unit R&D building that had some un-permitted changes in one unit. The Building Department was going to make them upgrade all 10 toilet rooms. I guess it took weeks of email barrages quoting code sections and face to face negotiations to make them drop the requirement back to upgrading the one toilet room in the unit that had changed.

On another project done without permits, we just recently had a meeting with an inspector from the City of San Jose at an apartment building that had a parking space that had been enclosed to create a leasing office and another space that had been enclosed for storage. The changes were done decades ago and even by the prior owner, but the City did not care, they were discovered and needed to get permits. San Jose has a code enforcement division dedicated to this sort of thing. Fortunately in this case, the apartments had enough parking spaces that parking count was not an issue. This made it much easier to obtain approval from the Planning Department, which is the first step whenever you are dealing with exterior changes. For building permit submittal we will only need to provide some drawings showing what was built. We will have to open one wall to make changes, and we’ll show one door opening filled in from the office to the manager’s apartment. The inspector was actually quite helpful.

We also were recently involved with a home remodel in Los Gatos where some relatively minor interior work had been done without permits and they had been red-tagged. They were on a dead end street in the foothills with only five houses beyond them. The problem was that they piled their construction debris in the front yard for weeks. Either an annoyed neighbor called the Town, or a building inspector drove by and shut them down, so take note of construction debris. Again, we had to meet with the Chief Building Official, prepare plans as if the changes were new, submit for a permit, and have the work inspected by the building inspector.

In summary, as an architect I would advise you to follow the straight and narrow and to go through the permit process. You’ll sleep better at night. But if you do decide to do work without permits, my best advice to owners that are contemplating an attempt to fly under the radar on a residential alteration or a commercial interior T.I. alteration without permits is this. If you don’t want the cost or can’t afford the delay that permitting invariably entails, still make sure you do the improvements to code. If you should have the misfortune to be red tagged or be sued by a tenant or a disabled person, having done the improvements with the required legal exiting, accessible path of travel and other requirements will save you having to tear the whole thing out, get permits and start over – not a good option. Life safety issues are at the heart of the building code and is the area that the enforcing agencies stress the most. However, in this day and age, you’d better have the disabled (ADA) accessibility requirements covered also. So, if you are going to fly under the radar and are doing it to avoid a serious code issue you are doing so at your own peril. But in any case, make it safe and build it to code. It’s safer for you, your tenants and guests, and eliminates a big liability for you if you ever decide to sell the building. So be particularly careful when changing anything that could be considered a path of travel to an exit, and watch out for changes in buildings equipped with fire sprinklers. New walls can change the spray pattern and coverage of the sprinkler heads and can get the attention of the Fire Marshal as well as the Building Department.

Best of luck . . .and keep it safe!