The importance of matching your project team’s work with your requirements and goals cannot be overstated. Obtaining fixed fees and prices for services that are specifically catered to your needs will allow you to plan the project financial course while also giving you piece of mind that the process remains fully controlled.
In this article we look at value focused fixed fees and pricing that you should expect from your Architect, Sub-Consultants and General Contractor. We will also the negotiation process to help you achieve appropriate fees..
First of all, it must be noted that architectural practice in British Columbia is founded upon the requirement that an Architect must be retained and in receipt of the client’s instruction before providing service. This is a legal requirement which stipulates that a contract be in place before any work on the project begins.
So how do Architects calculate their fees?
In my years developing fee calculations on architectural projects ranging between $50,000 and $200M, I have come to understand that clients do not get the best value for their money when architectural fees are based on the amount of time their Architect spends working on the project. Unfortunately this is how most Architects calculate their fees. The reason for this is quite simple, hourly ‘bottom-up’ calculations relate directly to the way in which Architects cover their own expenses and therefore make a lot of sense from the Architect’s perspective. It is easy for Architect’s to define marked-up billable categories for all staff and then to project how much time each one of them will take to complete the work. As a final measure Architects will usually cross reference their resultant fee number against the AIBC Tariff of Fees for Architectural Services to make sure it is in line with industry norms. Once done they submit this to the owner and hope they are not underbid by another Architect.
The problem with this approach is that it does not relate the fee to your needs. It relates the fee to the Architect’s needs and is therefore quite arbitrary. When viewed from the perspective of service quality it is difficult to believe that an Architect charging $200 per hour will always provide twice the value of an Architect who charges $100 per hour. In reality it really depends on project specifics, the Architect’s experience, and what the desired outcome is.
Why should you care what the Architect’s overhead costs or profit goals are? You, as the owner, care about the value your Architect’s services provide and whether the final outcome is a profitable success.
In order to arrive at an appropriate fee you will need to work with your Architect to clearly articulate the exact nature of the problem you face and where you want to be once the project is complete. Your Architect needs to understand these constraints in order to come up with a plan that will get you to where you want to be. They also need this understanding to define an appropriate fee that leverages their experience to achieve what is needed.
Once the true fee number is known a fixed fee contract can be drawn up and signed.
Consultant fees are often built into the Architect’s fee. There are numerous reasons for this, one of the most important being the fact that the Architect is responsible for coordinating all Sub-Consultants work. Due to this, Architects will usually prefer to carry Sub-Consultant fees as it makes the coordination process much easier because it correlates with the business relationship.
Having said that, the Architect remains responsible for all coordination no matter what the business arrangement is. It is important for you to know that you can retain the services of all Sub-Consultants directly through a similar value focused approach as that which you use to retain the Architect. This approach allows you to assure best value is achieved for your investment.
There are a few issues you will need to keep in mind if you chose to proceed in this manner. Your Sub-Consultants will need to be engaged with input from your Architect as they will need to know the scope of the project that has been defined in your Client-Architect agreement. Once these issues are understood you will be able to define the fixed terms of your agreements with the Sub-Consultants.
General Contractor Fees and Prices
Most of the costs presented by General Contractors will be dictated by Sub Contractor trade bids. The General Contractor will also include a management fee as well as their own profit allowance.
You will need to work with potential General Contractors to arrive at an appropriate fee that fairly relates to the value of work provided. Your Architect and Sub-Consultants will usually assist you in this process.
Value based fees are a very equitable means of compensation that is increasingly popular amongst legal and financial consultants. It is a means of establishing a strong partnership with your consultants where their contribution is seen as an investment toward achieving your anticipated gains.
Under this approach, your Architect and Sub-Consultants stand to gain in proportion to the value the project achieves. As such they will need to work with you to establish the true viability of the venture before any work begins. With their input, you will gain a much clearer understanding of the potential project risks and rewards, as well as certainty that their fees remain directly related to their contribution. This, in turn, will allow you to start the project with great certainty in its success.
Tip Three: Get it In Writing; Tip Four: Allow Time to Plan it Thoroughly; Tip Five: Design Efficiently; Tip Six: Regularly Review and Approve all Work; Tip Seven: Be Covered; Tip Eight: Understand Product Warranties; Tip Nine: Enforce Your Rights During the Process; Tip Ten: Take Advantage of Available Incentives