#226: HOW THE ARCHITECT IS PAID

There are many ways an architect is compensated for design services. The three most common are:

1. Fixed fee,
2. Hourly rate, or
3. Percentage of the construction cost.

1. FIXED FEE

A fixed fee, sometimes called flat fee or stipulated sum, is as simple as it sounds. To start, the architect considers things like:

– scope and complexity of the project,
– anticipated design process,
– number of meetings and changes,
– hours to produce drawings,
– past relevant projects and fees, and
– value of the design services and intellectual property.

Then the architect comes up with a number, the fixed fee. Going forward, that fee does not change unless something changes. Minor changes like a restroom tile choice would probably not alter the fixed fee. But if a school goes from 10 classrooms to 15, or a restaurant adds an exterior dining patio, the architect will adjust the fee accordingly to accommodate the additional work.

For a client, knowing the fee upfront brings comfort. For the architect, there are benefits and risks. If the project is executed efficiently, the left over dollars is the profit. But if the project waffles back and forth, the architect loses money.

2. HOURLY RATE

With an hourly rate, if an architect performs 100 hours of design time at $300/hour, for example, then the invoice will be for $30,000. As with an attorney, there might be concern with how the dollars might total up when all is said and done. Addressing this, a client can request a NTE (not-to-exceed) amount, but if a project’s scope is unclear, an architect will hesitate to cap the dollars and hours. With some projects, the scheduled 5 meetings can grow to 10 or 15, as an example. With an NTE, is it expected that the architect work for free?

From an architect’s standpoint, there is general financial security, because everything the architect does is compensated. But conversely, profit is limited. Even if the hourly rate is high, say $1,000 or $2,000 per hour, the amount earned is limited to the 24 hours in a day.

3. PERCENTAGE OF CONSTRUCTION COST

The 10% fee structure is commonplace, though not always useful. With this rule of thumb, if a project’s construction costs $10 million, then the architect’s fee would be $1 million. But within the industry, the percentage can fall anywhere from 5% to 20%. For some projects, the percentage goes down as the project’s construction value increases.

If the percentage and construction budget are agreed upon at the start of the project, you essentially have negotiated a fixed fee. But for some public projects like a school, the client awaits the construction cost from the bidding phase, which is at the end of the design process. In this scenario, an architect works at risk, for years sometimes, with assumed fee numbers. If there is an economic downturn and the final construction cost is 20% less than anticipated, the architect’s fee will unfortunately be 20% less.

WRAPPING UP

From an architect’s perspective, proposing a fee can be a challenge. The architect has to anticipate the time and effort to complete a design. Sometimes a high-maintenance client will call ten times a day vs. a busy client that only has time to speak once a month.

When calculating a fee, the architect should assign value to the services, not simply add up hours. For example, if the design work generates big profits for a developer client, shouldn’t the architecture fee be valued higher? Once, a structural engineer colleague charged $10,000 more in fee than his competitors, but his unique foundation design save $100,000 in construction dollars.

Awhile back, a graphic design colleague created an exciting logo in 30 minutes. The client loved it, but wondered why he was to pay the fee which was based on a whole month of work. The designer responded, “You are not paying me for my 30 minutes. You are paying for my 30 years of experience that allowed me to create a great logo in 30 minutes!”