. For someone who doesn’t actually handle any of the billing in the office, I spend a lot of time thinking about billing.
I have written two previous posts on the subject of architectural fees: Architectural Fees- Part One: this posts talks about the different ways architects can develop their fees (hourly, percentage of construction costs, etc.) Architectural Fees – Part Two: this posts elaborates a bit more on Part One (more on hourly rates, per square foot fees, and combination fee structures) but I introduce the concept of “Skin in the Game.” I like to tell clients that everyone needs to have skin in the game, that both architect and client are accountable to one another and while we both have something to gain, we both also have something to lose. That’s what I was thinking about as I sat down to flesh out this post. Alternate ways of setting up a fee structure that helps the client feel like they have more control over the architectural fees that could be generated while giving the architect the opportunity to plan for and cover their expenses for the services they are providing. One of the issues that we come up against all the time is that during the interview process, most clients have just a few things to base their selection criteria – design style, personality, and professional fees. More times than not, we don’t struggle with the design style and personality portions, people are generally familiar with our design style and as an office, we are a fairly likable bunch. That just leaves the last bit – the architectural fees. In our office, almost all of our contracts are based on a percentage of construction costs. Most architectural firms who subscribe to this way of determining their professional services fee fall into the 8% to 15% range. This means on a $100,000 dollar construction cost project, the architectural fees would fall in the range of $8,000 to $15,000 range – pretty simple really but one of the things that can always cause confusion is what exactly counts as part of the cost of construction. The other issue is the level of service that Firm ‘A’ at 8% charges and the level of service that Firm ‘B’ at 15% charges … and for these new potential clients, they can’t always tell (or even understand) why they would hire Firm ‘B’ when they like Firm ‘A’ and they are so much cheaper!?! Since I am more of a Firm ‘B’ service provider (and our professional fees reflect that) we lose out on a number of project to less costly architectural firms. This drives me crazy for the simple reason that the additional services I generally provide are worth far more than the delta of fees between the two firms might suggest. That’s where my idea of skin in the game is evolving. What I have been thinking about is how I can create a menu of services that allows the potential new client to more readily recognize the value of the service they are receiving. If I am going to provide less service, then my fee should reflect that right? The problem with this model is that most people think they don’t want these “extra” services but in the end, almost always see their value … but at this point, it’s too late and some other firm is working on their project. So by creating a menu of services, we can get down to a more competitive fee – again, seems pretty straight-forward to me.
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One of the projects I have been highlighting here on the blog is the Cottonwood Modern house and pool pavilion. These clients signed up for full services and I’d like to say that they are pretty happy with their decision. The drawings package we prepared for them was significant – I get asked some times about our drawings and what sort of effort do we put in to document these sorts of projects. To say “a lot” probably isn’t a very satisfying answer. On this particular project, here is some of the metrics on what the construction drawings package included:
- 53 – pages of construction drawings at 30″ x 42″ sheets – the breakdown = 31 architectural, 14 structural, 4 landscape, 4 lighting design. That’s 463.75 square feet of drawings or 61.83 yards if the sheets were laid end to end
- 62 – interior and exterior doors
- 34 – window types
- 19 – wall sections
- 71 – door and window details
- 105 – interior elevations
- 14 – exterior elevations
- 299 – individual architectural drawings
- unknown – sodas and cups of coffee consumed during the drawing of these documents
There are about 95% more drawings here than are necessary to secure a permit for construction. It is a complicated house but we probably didn’t need to draw 71 door and window details – but we did because it produced a more thorough set of drawings, enabled more accurate pricing, and has led to far fewer construction related issues in the field. But not all clients want to pay for all this additional service … what to do? The idea is that for an architectural fee totaling 8% of the construction cost, you get a standard set of drawings: plans, exterior elevations, door and window schedule – basic stuff. If you want interior elevations, millwork details, that will be an additional 1.5%. Coordinate interior finishes? Sure, that will be 2% … I think you get the picture. The client comes in for the interview, understands that our fees are competitive with everyone else, thinks that they don’t need these additional services, and we get the project. As the project goes on, they learn more about the process, come to understand and value our input and guidance, and start to select some of the additional services items because … well, because they have real value to them. The flip side to this is that is the client chose to retain our services up front for these “additional” items, the percentages associated would be reduced. Like I said in the beginning, I don’t have anything to do with billing in our office – that task is relegated to those whose names are on the door. I know I don’t have the kinks worked out – I’ve only just started to identify the kinks. One really apparent one is “Construction Observation” which we make a requirement on all our projects. We will occasionally get potential clients ask to have this portion of scope removed from our basic services but we always say no. I have all sorts of reasons why this is the worst area to remove your architect but that’s a different post on a different day. I would be curious to know if any of the readers here either have a menu of services contract like I describe in place for residential projects or if you are a a client who has worked with an architect who had a contract like this in place. What are your thoughts? Thanks. . .
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Great post Bob. From my perspective we spend a lot of time trying to head in your direction. We are the opposite end of the spectrum from you. It’s a gamble that most of them will see the value and want to cough up the extra money. Whenever we have given options, reduced the amount of documentation, or lessened our involvement during construction, the project really suffers. Too many times the owner and client take over making those decisions that are left out and in the end the project isn’t even worth a couple of photos. You may pick up a few more jobs, but in the end you may wish you hadn’t. The grass is always greener.
That sounds like a great method Bob. We don’t have a lot of choice in my boss’ firm, as the very small town atmosphere that exists here means we’re all competing with ‘drafting services’. The architects here each have their own niche though. What we do is generally offer a flat fee for a basic set of permitting documents, which we work out the price on after a potential client has brought their project to us. Each time is a guessing game between how low we can go without shooting ourselves in the foot as projects inevitably expand. We also break up the preliminary design phase from the CD phase, if the client’s want to just hire us for one. It can be frustrating, but my boss and I are both in it for the love of the game, and as long as we can pay our bills we don’t mind working with clients as long as their change requests don’t become too ridiculous.
I don’t write the contracts, but when I worked at a firm that did a lot of residential, these same problems came up. One idea that was floated was to charge hourly for the design phases (PRE, SD, DD), and then fixed fee for CDs and CA. This way you can get reimbursed for creeping scope (“while we are here we might as well …”) and hemming and hawing (“let me see it this way … what if we …”) during the design phase , and then offer competitive rates for CDs and CA. I wasn’t there for the implementation of this (if it ever happened), but it seemed fair conceptually.
This is EXACTLY how I set up my proposals. I explain to me clients that it is actually is in their best interest to do it this way because I do not need to set the fee artificially high to cover any “what-if-costs”. I do, however, give them an estimated fee of between x and y and assure them that they will be notified as we get close to y. I rarely exceed y but when I do, my client is very aware of the reason since it is usually as you put it “design creep”.
The hardest part is educating the potential client about the difference between a “builder set” and a true “architectural set” of drawings and the associated difference in service and dedication that we put into a project. I don’t think too many “builders” wake up a 3:00 a.m. to sketch out an idea for the house they’re working on as I have been known to do.
My favorite question is “How much do you charge for blueprints?” as if our only value is the creation of permit drawings (not to mention that I haven’t run a blueprint in 20 years). I try to explain that the real value that they get from an Architect is the customized design and problem solving process we go through on their behalf before we begin “blueprints.”
Because of this,I find that residential projects are the hardest projects for which to formulate a fee proposal. I like your ideas and some of the others in the comments too. Thanks as always for an interesting post.
Great post Bob. I just wonder if this violates the terms of the consent settlement between the DOJ and the AIA requiring the institution and thus its members from discusssing fees?
My understanding is that discussing fee has to do with price fixing and collusion would need to play a role. My article is really only talking about theory and application and I could easily substitute “architectural services” for any other service provider.
At least that was the intent
The best thing is to work for lawyers. True, they are entitled, argumentative, and even litigious but at least they don’t flinch at your fees!
But maybe not property lawyers.
They have a tendency to revert to type and are likely to strike you down at the end.
It’s in their make up, their sport even, they simply can’t change their spots.
several folks have advocated for an hourly not-to-exceed approach – which I have always felt to be the worst of all possible worlds for the architect and the profession. Essentially, it’s an insurance policy for the client – if you ‘go over’ the limit, you are working for free (assuming you are indeed using your time effectively). If you ‘go under’, the client is only billed for the hours actually spent, effectively reducing all of your experience and efficiency down to the commodity of ‘hours’. If your multiplier is correct, you come out OK in this case, but you’ve been willing to take the risk of establishing a fee limit (like a fixed fee) and completely walked away from the reward potential that should come with being able to do your work really well.
If you do get to ‘the limit’ and find yourself asking for more, then the trust in the relationship is in jeopardy, and most of us are nice folks, and tend to be optimistic that we’ll ‘make it up later’… such thinking has been the bane of our profession for a very long time…
Inspiring! – I really need to get more pro and rework my fees to pin things down. Duo Dickenson and (I think) Modative put their fees on their websites with much detail.
I have started breaking my fee out between the different phases of the project (SD,DD,etc.)and only asking for a contractual commitment on a phase by phase basis.
Many clients are concerned about starting the project race and signing a
contract that is based on the final cost of construction when they are not sure
where the finish line really is. The overall fee is still based on a
percentage of a preliminary cost of construction estimate, but the client is
not asked to commit to the total fee all at once. This way they can make
adjustments along the way without feeling like they are going to get into to
something they are not prepared for.
Bob,
Thanks for tackling this topic today and the comments you’ve received are great! I like the idea of attaching a percentage of the fee to a part of the project so people might have a better understanding of what they are paying for. I work in commercial (until I can find a way to get to residential!) and one thing my current firm has done is pay by the hour. I wouldn’t recommend this to anyone for any project as the client only sees the hours adding up and starts to complain. Pretty soon you’re sending out some drawings you’re not proud of. We had to work on my boss’ house and even he was complaining about the cost (at $$/hour). But that’s another story….!
Hi Bob. We use a per square foot model for determining our fees [I know you think they are unreasonable, but it works for us ending up around 10% of construction costs.] We have very similar sized sets to your firm where everything is detailed [not from a non-customized library] and are considering creating 3 tiers of fees rather than an a la carte system. We already have a range of fees and adjust the type/number of details we include in a set accordingly, but it’s at the prinicipals discretion – i.e. is the client a personality fit and the project fun – to reduce fees.
I like that idea, but how do you determine in the beginning which tier to use? The clients we have on the Cottonwood Modern project couldn’t be better people and as a result, the project has been really enjoyable and pleasant. If all clients were as easy going and agreeable as them, it would be easy to lower our fees a few percentage points. They make timely, well informed decisions and once they’ve made up their mind, haven’t gone back on the decision. Very little time has been spent modifying construction details in the field due to on site design changes.
Typically, we always start in the top tier and then work our way down. It’s much harder to go up from a middle or bottom tier. Clear communication and full understanding of the services is key.
I am intrigued by the hybrid system you mentioned in a previous post by billing Schematic Design at an hourly rate. Combine that with a tiered DD/CD/Con. per square foot could cover our bases more frequently. However, our schematic design phase tends to be our most profitable phase, so I’ll have to check that system out.
I agree with you that the Construction Phase is not negotiable anymore. It used to be that we would reduce site visits or sometimes eliminate altogether, but now we are holding our ground these days.
Most of our fees are lump-sum but sometimes work hourly for reasons you mentioned. We never work as a percentage of construction cost. I was wondering if you could elaborate more on exactly what a percentage is based on. Is it the estimate, bid, final construction cost, etc.? What happens to your fees as the construction cost inevitably changes from bid to final cost (i.e. change orders)? Does your fee get adjusted? If so, how? Or does it stay fixed based on an early agreement?
For those of us who prefer lump-sum, we often get compared to other firms who work as a percentage. And lump-sum often seems much more expensive in the beginning due to many clients unrealistic opinion of construction cost. Often this leads to us losing a job over fee when later we learned that when the final construction cost came in, the other firm’s percentage fee was much higher, yet ours would have remained unchanged and ultimately lower.
Thanks for all the good posts!
Chris, I am interested to know how you bill a “lump sum” project. I would think a client would balk at paying up front, and it would create cash-flow problems if you waited until the end to collect it.
lump sum doesn’t mean pay everything up front. It means that a total fee is in place for the entire project and is typically billed as a percentage of the work completed at a predetermined period of time (like monthly)
When we initially meet with the clients, we are able to ballpark the cost of construction based on the size of house and type of construction they want. They may want a house that in our experience will run between $250 and $300 per square foot and if the programming for the house is 5,000 sf, simple math can tell us if our understanding and the clients fee are in the same vicinity to one another. At the point at which we write a proposal for services, we identify the approximate square footage and potential cost of construction so that if either deviate significantly. (say 10%) we can adjust our fee.
If the client has been particularly agreeable and we have not be burning through our fee, more times than not, we don’t adjust the fee. We would rather have a happy client (since most of our work is based on our reputation) than a few extra $$.
I like this…I try to go above and beyond, but it’s not always appreciated, nor is the invoice, or the (hopefully) lack of questions or problems in the field.
Bob, I would say you face the same challenges in residential as most firms that practice institutional or commercial. Unfortunately when the client is not educated/experienced with design and the preparation of Contract Documents, selling why extra services are valuable or necessary is a tough row to hoe! My firm is big on providing services that make everyone’s (client, document team, consultants and CA staff) life easier, but that doesn’t always win out with fees when competing against firms who haven’t yet grasped that lower fees (and the level of service they can afford to provide with them) actually complicate their lives and increase the potential for an unhappy client at the end of the project. Of course at the beginning of the project when fees are negotiated, everyone is on the utopian high of the potential of the project and no challenges have been encountered yet; making it a tougher sell to the cost concious client. I get your conundrum and frustration.
Thanks for the feedback Paul.
I frequently hear from people who have worked with other architects (commercial or residential) that going into the process, they didn’t really understand what the architect scope of work was … and as a result, they assumed it was “everything that needed to be done to get a finished product”. More times than not, this really has to do with the level of communication up front. The menu of services is a way of breaking out and identifying the roles – and work performed – by each party.
As it stands now, we charge a higher fee because we do it all – and we lose out with that attitude because we haven’t been competitively flexible.
The idea of providing a baseline of service with additional services as an option offers a degree of flexibility to potential clients. They aren’t interviewing your firm to cost check though that is part of the decision; they are there because of the firm’s work and reputation. This structure gives the client a control point without permanently removing those services from their menu. But I can see where reconciling the % of construction costs and the amount of additional services actually provided not an easy task,…
It has generally worked out pretty well, and our firm as a general practice doesn’t nickle and dime our clients when they make changes to the drawings at inconvenient times as long as it isn’t an excessive practice.
This model is really for the people who are price shopping and looking for a little more control over their initial understanding of the services architects provide.
Bob, sounds to me like your pricing is based on a mindset from a previous era. Years ago all those drawings took time to create with architects at a drawing table etching line by line. Today most all of what goes info what you have described is in a,computer library database where it can be selected and dropped onto the page. The 34 window type, as you mention, really takes no work other than a few minutes of selection and placement. Clearly if one were designing their first home the library creation would consume some time. But if you are really in the business it has become quite simplified. I suspect people balk at the additional charges because they feel that theymaremgetting overcharged for the basics.
Charlie, sounds to me like your design is based on a mindset from a crappier era.
Ted, I think you nailed it when you said mentioned understanding what the detail actually conveys. Yes, with computers it is easy to drag and drop details into a drawing set, but if you don’t understand what the detail is telling the contractor to build, it’s pointless.
In my (relatively short – 10 years +) experience, it’s better to not rely on just plopping a detail in from a previous job, even if you think it’s the same detail.
Building technology is constantly evolving, and the slightest change can make a detail more efficient or clearer for a contractor to understand the intent. Our understanding of what has worked and what hasn’t also continues to evolve.
While that might be true for some offices & types of job (…”really takes no work other than a few minutes of selection and placement”) – some firms still, to this day, design every job from scratch. And by that I mean, each job, while related to the previous job, is a whole new creation – with new details, new finishes, customized built-ins. (My office does high-end residential & ecclesiastical design. EVERY SINGLE JOB requires the creation & integration of new CAD details.) If you come to our office because you like our work – that is why: because we don’t use any cookie-cutters. Sure – we might be able to snag a trim detail or two from the previous job – but that’s unusual. Our design is time-consuming & cost-ineffective & our fees *should* reflect that. But usually don’t – because people think we can just “select & place” a few details… I mean, c’mon! Doesn’t the computer do everything nowadays? 😉
I agree with Kate. Each of my projects start with an interview and a blank piece of paper. Then it moves to bumwad, then SD, DD, CD. Each project is unique and, outside of CAD standards and digital titleblocks, there are very few items that can be recycled from a previous project.
We thought about trying to make a standardized library but the homes we do are typically complicated, there are probably 15 different window manufacturer’s that we use with any regularity and generic details just don’t get it done. Trying to create drop in details would mean a library of all those different manufacturer’s window profiles, with every conceivable exterior material (rain screens, cement boards, masonry, wood siding, etc.) … Next thing you know, do the math, there are thousands of possible standardized details. As a result, we have a standard based set of details that we use as a starting point and customize them to the project rather than starting from scratch.
Maybe we are drawing things that the contractor should be able to figure out if we provide them with a generic representation that closely represents the final product. I can’t help but think that since our fee is established prior to the drawing of those details, my only motivation to create them would be the creation of a superior end product – it certainly doesn’t help the bottom line to spend the time drawing details just to draw details, I don’t get paid by the hour.
I’ve just started the process of reviewing options for our (hopefully) final home. The thought of paying an architect 10 – 15% for plans is beyond my wildest imagination. I am not looking for a Frank Loyd Wright home. I don’t see the logic in linking architect’s charge and sq ft or final cost of the home unless you are talking about catagorically very different home brackets (there is a big difference between a $50M and $300K). I must admit that this chat has shied me away from considering the use of an architect. Perhaps architects are only for the very wealthy?
Maybe.
The thing I try and communicate to people who are interested in hiring an architect is to consider what they are doing on your behalf. What drives my fee up into the 10-15% range is the magnitude of the construction drawings I create. Sure, it’s going to cost you some money to get those drawings but from those drawings you will get accurate and competitive pricing, you get far fewer construction coordination items, fewer mistakes in the field – and all of these things will cost you money to fix. What my services provide is the ability to identify and resolve problems on paper rather than in the field where you options become limited and problems are generally resolved by pulling out your checkbook. Pay 5-7% to your architect, or pay a whole lot more to your contractor while getting a lesser product in the end – at least that’s been my experience.
I wish you well with whatever path you choose.
Hi Bob, this is really interesting for me as I have just purchased a georgian terraced house in Norwich, England & am wondering if i need an architect to create the ‘look’ I am after or if i can achieve it with my builder. This post is really helpful. Liz
Great! I am glad it helped (and good luck on your remodel)