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Case Study: Architecture

An architectural firm based in California wanted to evaluate the possibility of generating an R&D tax credit based on their design development work. The firm had roughly 25 employees, most of whom were involved with the development process to varying degrees. Upon review of their time tracking system, the firm was found to be capturing time on all projects, broken out by the standard AIA (American Institute of Architects) phases, these included: programming, schematic design, design development, construction documents, bidding/negotiation management and construction administration. This made the analysis of the actual activities much simpler since there were clearly defined tasks occurring within each phase.

First was programming. During the programming phase, a firm will have extensive discussions with the building owners to determine the requirements and specifications they want to set as project goals. During these discussions, general direction of the project is established and any items that may be technically challenging are identified. Once challenges are identified and requirements have been set, the team will move to the next phase of development, schematic design.

During schematic design (SD), documents are developed that includes a checklist for the progress of the project. This includes elaboration on specific tasks such as program and quality management, scheduling, cost analysis, performance criteria, civil & site design, design & architecture, structural, MEP/FP, and information on other outside consultants that will be needed to complete the project. Once this document is completed, the building owners have a chance the review these efforts and request any changes that they may want to incorporate before the development team moves forward to the design development phase.

In design development (DD), the team begins tackling much more in terms of detail. Often, this requires extensive knowledge of a variety of areas including alternative energy systems and technologies, engineering principles, building envelope design, automated building systems, constructability, design impact on human behavior, engineering load calculations, among a vast number of other facets that inform the design development process. Often, this phase includes three dimensional models and renderings of a completed design of both interior and exterior elements. It is also not uncommon for decisions about sustainable design to be made during this phase and these decisions directly affect all the efforts following the completion of the design documents.

Once a set of design documents is complete, the team dives into more detail during the construction document (CD). The creation of construction documents is the development of all the final detailed drawings. Usually, the level of detail in CDs will vary based on owner preference and the agreement put in place between the firm and the client. For this particular company, their CDs usually were 100% drawings meaning that they would be final designs which could be taken through to construction. On the other hand, it is not uncommon in the industry for an architect to hand over drawings that are only 80% to 90% complete. For architectural firms, this is where development efforts can be viewed as complete.

With construction documents being finalized, the team then works with the building owners to put the project out for bidding and negotiation. During this process, the architects will manage the effort by putting the CDs out for bidding and answering any technical questions that the firms bidding for the job may have. This can often include clarification on such items as sustainable design, integrated automated systems, grading/elevation issues, etc. While this particular company did not see any technical development during  this phase on the majority of their projects, it is not uncommon for changes to CDs to be made based on value engineering performed by the individual companies bidding on the project.

Finally, comes contract administration, also referred to as construction phase services. The architect’s core responsibility during this phase is to help the contractor build the project as specified in the CDs as approved by the owner. The architects involved with the project are fielding issues and questions during this time presented by the contractors and often, field conditions and issues require the architect to develop architectural sketches that provided added clarity to add detail to the CDs already developed. In this case, the company decided not to capture these activities as they viewed these as support functions with no additional design development for over 90% of the time being captured on the average project within this phase.

When their analysis was complete, the firm had secured an annual benefit of $100K split between the Federal and California state credit which they secured and utilized to expand their offices and has been claiming the credit on an ongoing basis.

Will Chang

William Chang is a Managing Director at R&D Incentives Group with more than 13 years of experience whose primary responsibilities include providing tax credit consulting services to CPAs and their clients, managing RDIG’s relationship with its referral partners, and managing active audits. William has extensive knowledge of federal and state tax credits and incentives and is a frequent guest speaker for CPA firms. Prior to joining the R&D Incentives Group team, William founded The Enterprise Zone Company, a tax credit consulting firm based in Southern California.

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