Wow. I was so surprised at the popularity of my last post – Architecture and Interior Design is a business, isn’t it? I’ve had more visitors to my website in the one week since I published this post than in the 2 months since I launched this blog! Is there a thirst out there for more discussion of architecture and interior design business and practice issues? Or were you all thinking that I was going to say no, architecture is not a business? Or was it just that cool money clock image? I’m going to go with the first choice, you all want to think and talk more about the business of design – but please feel free to let me know if I’m wrong.
One of the reasons I decided that my blog would be on design practice issues was that I felt there was something of a gap in the market for discussing how we actually practice design – as opposed to blogs covering great projects, new products or current events of which there are many. There is a real lack of discussion and education both at student and professional development level about how we practice. In particular the subject probably least discussed is fees – how we calculate them and how we spend them, let alone how much they are – so today I’m going to look at architectural and interior design fees and the various methods I’ve seen for calculating them.
I’m going to focus this discussion on the methods used for calculating lump sum commercial fees because in my experience this is the most common fee basis expected by most government, institutional and commercial clients – even in situations where they would actually benefit from using hourly rates. For some reason there is a perception amongst clients that the architect or interior designer charging hourly rates is only doing so in an effort to rip them off. Which makes no sense given that the supposed basis for calculating a lump sum feet should also be the hours of work that it will take the architectural or interior design firm to complete the project.
Over the years I’ve seen quite a number of ways of calculating architectural or interior design fees. Ranging from back of envelope scratchings through to enormous spreadsheets. This variations seems to me to be mostly personal preference and is not always necessarily a guide as to how the project will actually perform financially. I certainly don’t remember learning much about calculating fees when I was at uni. I do remember we had a course about calculating chargeout rates and multipliers, but I can’t actually remember anything about how to determine fees for an architectural project. If it was there I think it must’ve been something quite simple such as calculate how many hours you think it’s going to take you. Easy right?
I certainly discovered it’s not so easy in the real world. Back in the day when the Institute of Architects set mandatory fee scales it probably was. This thought took me off an interesting research project on the net. I wondered when the fee scales had been made illegal, the thought being that maybe most architects today were trained to use the fee scales. So I discovered that both in Australia and the UK the story is similar. I couldn’t find the date for the withdrawal of the mandatory fee scales, but I believe it was in the 70’s or perhaps 80’s (readers please correct me if I’m wrong on this) but that published fee scales were still available and published until after 2001, and only since have been withdrawn (on the basis of competition for the consumers benefit). Now I do recollect these fee scales, and assume that this is actually what I was taught about at uni in around 2000. These fee scales can still be found on the web, however, by now they are obviously hopelessly out of date. The scary thing is that usually you get paid less now!
So basically this means that architects really only had to calculate fees for the last 10-15 years – although I’m sure many would also have been doing this before the fee scales were withdrawn. As far as I know there were never any interior design fee scales (again if someone knows differently please let me know).
There are a number of well known methods for determining architectural fees, discussed on the net and used in practice and below I’ve provided some comments on the pluses and minuses of each of these methods.
Percentage based fees
A percentage based fee is basically the same as using the old scale of rates. The fee is calculated based upon the percentage of the construction cost and the type of project. These days the actual percentage could be calculated in a very scientific manner – based on records of projects the firm has undertaken or of records of winning tender prices ( where clients have to publish the winning price). Obviously for this to work one needs to have decent records (is all that free overtime recorded?) and you have to have worked on enough projects to have sufficient records.
However percentage based fees can still also be an art – rather than records there are plenty of architects who consider the percentage based fee based upon a gut feel or a perception of where the market sits.
One of the biggest benefits of a percentage fee is that it doesn’t take much time to figure it out. The downside can be that it doesn’t take individual project factors such as contract conditions, scope of work, program or client into account. The other issue is that you may not know the project budget or, particularly with interior design, debate can arise over what is included in the construction cost. For these reasons percentage fees are often used as a sanity or double check on another type of fee calculation.
Note that percentage based fees can also be used as a contract type (as opposed to using a percentage to determine a lump sum) – meaning that the client will pay a fixed percentage based upon the construction cost, but this type of contractual arrangement is much rarer – clients see it as encouraging the architect or designer to design a more expensive project.
Number of drawing sheets
This approach is to make a list of drawings you expect to produce for the project and then assign a cost – either to each drawing individually or even just a lump sum price per sheet. Personally I’ve always found this method quite bizarre. There is a hell of a lot to an architecture or interior design project that is not a drawing. Especially when that we started using Revit for documentation, I found this approach had no real meaning whatsoever. So the next logical step becomes a work breakdown structure, looking at costs of all activities.
Work breakdown structure
This is a method that seems to be loved by project managers. Rather than just making a list of the drawings you expect to produce, you make a list of everything you expect to produce and all the activities to be undertaken on the project. This can be interpreted at different levels. Some people would take this down to individual tasks that may take 1 to 2 hours – such as select door handles. Other people may keep this as big tasks such as prepare specifications. Certainly if you get down to the very small level of 1 to 2 hours this becomes a mammoth spreadsheet. And potentially with very little benefit.
The problem with this detailed fee basis in architectural or interior design is that different projects can have different needs. It is often not until you win the project and get into the concept design that you’ll understand how much time is required for certain aspects. For example, I might not know if a project has operable walls or not until I’ve done the concept design. Therefore I don’t know if I need to allocate time to selecting and detailing an operable wall system.
If you allow in your fee for every possibility that could occur at your fee will obviously be too high to be competitive, and indeed even becomes ridiculous.
I also have wondered if there is much accuracy or benefit in producing something so detailed and then not tracking against it during the project. I have actually tried to do this on a couple of projects, but I ended up feeling there was no great benefit. The problem is that this level of detail just becomes too much time and effort. This method appears to fall into the category of science, with all its figures and spreadsheets, but really in the end the actual figures in the spreadsheet are something of an art – and I think would remain so even if you had accurate detailed records of previous projects.
Program (time schedule) based fee
My own method for calculating fees is something of a combination of art and science and in some ways takes a little from many other methods. I have found that the biggest project cost risk is in project program overruns. The more time the design team or the client has on the project the more money that we can spend designing, either because we can spend more time resolving details or because the client is spending more time wanting more information to make up their mind or making design changes.
For me the starting point is to identify the project program. This may be either the program required by the client or, if they have no specific requirement, our determination of what is a reasonable program in order to undertake the scope/project type. The program will then be broken up into the various design stages. For each stage, the type and number of staff and the percentage time commitments are identified. This is something of an art roughly thought out based on previous similar projects. The fee is then calculated based on these hours by the number of weeks for each program.
As well as the program I would also look at the project works scope and our assumptions. Potentially additional lump sum fees would be added for major tasks outside of our normal scope (for example if no existing drawings were available). Then the next step would be to review the fee against previous jobs or similar size and scope. Finally, I do have to admit to going back to the old percentage based fee as a final sanity check, and comparing to recent tenders we knew pricing for.
Did you learn about fee at uni? Do you have other methods for calculating fees? Can our fees be scientific or will there always be an element of art to fee calculations? Should fee scales be brought back? And would it be better for our clients?
Ps. Whilst I was about my research for this post, I came across a couple of interesting items I’m going to share with you – the first is a great article by Angela Ferguson from Futurespace. This deals with the subject of competitive fee bidding and ‘the race for the bottom‘, whilst you reading it – take note that it was written back in 2006.
The other is a book on fee bidding – Architects’ Guide to Fee Bidding by M Paul Nicholson, written in 2003. I haven’t read it yet, I’ve downloaded a sample to my kindle – and may have more to say on this subject once I have. You can find it here on Amazon, either ebook or hard copy.
If you have any suggestions of articles, books or blogs on this topic I’d love to know.
Image credits: Original image by
by Lisa Brewster
Despite claiming to be creative, and trying to sell ourselves as problem solvers, we’re really not. Our expertise seems to apply only to the subjects of our design (and even then it can be questionable). Our passions, egos and lack of acumen undermine our entrepreneurial ambitions. Our idea of value is often different to the clients’, hence the disparity in expectations of what constitutes a reasonable fee.
Time-based fees (whether ongoing or lump-sum) are the stupidest thing ever invented for design professionals. They entrench the lowest-common-denominator thinking, and deny any expression of value beyond the dollar or the minute. If you get paid $200/hr, but in an hour you’ve generated something for the client worth $100,000 within 5 minutes, you may charge $16.67. Does this seem attractive to you, the designer? Equally, if you spend twice as much time as you anticipated (under a lump-sum agreement), you stand to be paid half the rate.
Consider this for lunacy: You invest tens or hundreds of thousands of dollars in a new way of working (let’s call it ‘BIM’). Without changing your scope of services, you’re expecting a 30% gain in productivity over the next few years. If you continue to determine fees on a per-diem basis, you’ll end up charging 30% less. So where is the return on your investment? You’ve just let it walk out the door in your client’s pocket!
If someone always says ‘yes’ to me, because I pay them and they want to get paid, that shows me they have no cahones, no self-respect and ultimately, they’re only looking out for themselves. If they sometimes push back and articulate why they or I can’t or shouldn’t do something, I may learn to trust their judgment. Given time, they become more than a service provider. Because I trust them, I respect them. Hell, I might even value them!
Forgot to commend you on your great posts, Ceilidh!
I might add that as the fees are on an unsustainable spiral downward, I see many Architects holding on to their precious ‘design’ scope (with clenched fists and gritted teeth), Meanwhile, those same architects are outsourcing their documentation (to ‘stay competitive’), not realising that the contractors are about to go direct to the same outsourcing crew and cut out the Architect’s documentation fee entirely. That leaves them with Project Management – oh, wait – they lost that! Cost Estimation – no, they lost that, too! I guess it’s just concept and schematic design, then? Architects driving BIM for FM and Asset Management as a service? Forget about it!
So many Architects just see the risk, and not the opportunity. Others see the risk, work out how to mitigate it, and make money. The greatest risk (and perhaps irony) is that under an unsustainable fee model, they soon won’t be able to afford to stay in business and continue their first love – designing buildings – as others will employ specialist designers to do that within their cradle-to-grave offerings.
Chris – thanks for your great comments and compliments. A couple of people have now raised the issue of if our fees should be linked to the value we add to our clients business, which I think is an interesting topic – and I think I will probably explore this further in a future blog post.
It is also true that many architects and designers now give themselves different titles in order to sound more valuable – will you pay me more if I am a design manager or a strategic workplace planner than if I am an architect or interior designer!
I think also that as long as architects believe that BIM means business as usual, you are absolutely correct that they will be further squeezed out of the construction market. Lets hope that the efficiency savings that BIM brings don’t all go into the clients pocket either.
The interesting thing right now is that as a skill ‘BIM’ seems to be more valued than ‘architecture’ or ‘design’. I have a feeling that an independent BIM manager would likely command a higher fee than the architect on the same project, the salaries seem to be higher. I wonder if this will last.
It’s already begun to be eroded. While I think they’re off with the fairies, I know of a firm who was seeking a National BIM Manager, and offering only $90K. Some will never learn that you get what you pay for, and if you get ripped off, it’s only because you didn’t do your due diligence…
Maybe the architects went in and undercut them!
Hi Ceilidh, some interesting topics you’ve been posting. At Uni we only looked at a full work breakdown structure, and resource planning schedule. It was an engineering project management subject, so I guess it is not surprising.
I agree with the range of techniques you found, though I hadn’t come across yours before. I’ve seen value in tracking costs on different, but mostly on bigger projects where there is someone who tracks such things at a medium granularity.
Taking your point about programs and Chris’s about pushing back, I think managing client expectations on design changes and when and what can occur is crucial.
Hi Andrew, thanks for you comment. I do see value in tracking costs, just not at the level of a work breakdown statement. I will probably write some more on this topic in the future.
In my experience the large infrastructure projects are often structured quite differently to architecture projects and for various reasons there is a requirement for a person (sometimes full time) devoted to cost control and management. This I think is also linked to the fact that this detailed resourcing cost breakdown is often required to be submitted to the client as part of the fee proposal. Which can allow for the opportunity for variations to be submitted if the proposed hours are exceeded. I have only seen this kind of request from an architecture client twice in all the time I’ve been involved in fee proposals.
Claire
Thanks for your comments. I’m going to join up to your website and check out some of the tutorials there.
I would say the fee scales are extremely important as it protects the quality of the art off design. Creating more efficient quicker art dose not create better art, think of artists competing for quicker efficient paintings. The fee scales works as a recommended price so the client knows what average price they should be paying for an average quality of work.
The Fee scales was dropped in, in 1997 with the protection of the title “architect” by the EU as in most EU counties you have to employ an architect to design a building.
Which to me is really interesting as if architecture is art and science, then you do not need to be qualified to do it. General principle of art and science is that any one can do it in less you are living in a fascist dictatorship or during the Spanish inquisition and as Monty Python pointed out nobody expects the Spanish Inquisition.
Art, science and politics is a lot of fun.
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