ARE Daily | PcM #23 — Wrap-Up Review I: Business Organization & Ethics

Quick Recall (from #22 — Insurance: Owner's & Contractor's Coverage)

A contractor completes a project and leaves the site. Six months later, a defect in their work causes property damage. Are they covered?

Yes — through completed operations coverage. The contractor's liability doesn't end when they leave the site. This coverage specifically protects against claims arising after project completion that are traceable to the contractor's work.

Today's Content

Three days out from the exam. No new material — just targeted review of the highest-yield concepts from the first half of the course. Work through these actively: cover the answer, recall it, then check.

Business Organization

The liability pattern across all firm structures: the less formal the organization, the more personal exposure the individuals carry. Sole proprietorship → general partnership → limited partnership → corporation/LLC, with personal liability decreasing at each step.

LLC is the dominant structure in contemporary practice: liability limited to investment, pass-through taxation, flexible management. C corporation is right for firms with growth ambitions, complex ownership, or need for continuity — but carries double taxation. S corporation avoids double taxation but caps at 100 shareholders. Joint ventures are temporary, treated as partnerships for liability, and should always be preceded by a teaming agreement.

Standard of care: reasonably prudent architect, same community, same time frame, same circumstances. Evaluated at time of design. Raising the standard (superlatives in contracts, express guarantees) increases liability and can make work uninsurable. The architect is responsible for coordinating consultants — the structural engineer's error is not automatically someone else's problem.

Ethics

Three tiers: canons (broad principles) → ethical standards (aspirational goals) → rules of conduct (mandatory, enforceable). Only rules of conduct trigger discipline. AIA sanctions: admonishment → censure → suspension → termination. The AIA cannot revoke a license.

The most tested rules of conduct: don't sign and seal documents without responsible control, don't make false statements, don't assist clients with fraud or illegal acts, give credit to others for their work, provide fair compensation and suitable working conditions.

What's now permitted that wasn't under the 1909 Code: fee competition, advertising, design-build participation, supplanting another architect.

Spaced Recall — Earlier Material

From #01 What is the primary disadvantage of a general partnership compared to an LLC?

Unlimited personal liability for each partner — including liability for the actions of the other partners. Personal assets are fully exposed. An LLC limits liability to each member's investment.

From #02 In a C corporation, what are the three tiers of participants and what does each do?

Stockholders own the corporation (proportional to shares) and elect directors. Directors have fiduciary duty to stockholders and set broad policy. Officers are elected by directors and manage day-to-day operations.

From #03 An architect designing in 1998 is sued in 2010. The client claims the architect should have used a product that became standard in 2004. What is the architect's defense?

The standard of care is evaluated at the time of design — 1998. A product that didn't exist or wasn't standard practice until 2004 cannot be retroactively applied. The architect's work is measured against what a reasonably prudent architect would have done in 1998.

From #06 What is censure, and how does it differ from termination of membership?

Censure is a public sanction — a description of the violation is published in an AIA periodical. Termination is the most severe sanction — the member is removed from the AIA entirely. Both are more severe than a non-public admonishment.

From #07 Canon VI contains no Rules of Conduct. What does that mean for enforcement?

All Canon VI obligations are aspirational only — members should pursue environmental responsibility and sustainable design, but no violation of Canon VI can result in AIA discipline.

Today's Questions

1. A firm is structured as an LLC with three members. One member makes a negligent design decision that leads to a $3M claim. What is each member's personal financial exposure?
2. An architect's contract states they will deliver "flawless construction documents." How does this language affect their standard of care?
3. Which AIA Canon and tier prohibits signing and sealing documents without responsible control?
4. Name two things architects are now permitted to do that were prohibited under the original 1909 AIA Code of Ethics.

Next up: Wrap-Up Review II — HR, Finance & Legal

(No answers section today — questions above will be answered in tomorrow's email.)