It's all about the Benjamins: Architectural Design Fees 101, Part 2

In our last discussion of design fees, we talked about a hypothetical architect figuring out the fees she would charge for a project. The fees she's figuring out are based on if the project goes just as it's supposed to: here are the project's requirements, here's the budget, decisions get made, buildings get built, and everyone gets paid. However, there are a few ways that this process gets complicated.

The first is when the project budget gets changed. Let's say that the owner of our fictional medical office building (MOB) from the first part of this post realizes that he's going to have to increase his budget to build the kind of building he wants to have and that people will want to rent space in. His original budget was $3 million, but let's say he increases it to $3.6 million. Remember that the architect's fee was based on the construction budget; if she charges 7%, then her fee is $210,000 under the original scope. If the owner increases the budget after the original contract and fee were agreed upon, she may decide to increase her fee if the extra $600,000 is about increasing scope, for example. She may decide not to raise her fee if the scope increase is just about being able to afford the nicest materials and finishes, or if the project was poorly budgeted before and the owner is increasing the budget just to make the project happen.

The second way to complicate the fee process is with additional services, or "add services". Let's say that the owner didn't decide to make the building LEED certified until partway through the design process. Perhaps the architect signs a contract with the owner and the doctors we mentioned in the last post, but then partway through the design process he brings in a gastroenterologist who wants to bring in a scope procedure suite, and he needs to have his suite designed, which involves some major changes to the rest of the project. Maybe as the deisgn process gets underway, the owner decides he needs an interior designer and wants the architect to provide those services. All three of these scenarios are reasons to ask for additional services--if the owner or project suddenly calls for things that are outside of the architect's contract, then she can ask for some cash and time to do those tasks correctly.

The third happens less frequently, but I've had it happen to me. If the project scope or cost decreases, the architect's fees may get reduced. One developer I worked with a while ago paid their architects a certain fee by the square foot of the project. When a project the developer decreased in square footage but not in scope, they decreased my fee. Talk about leaving a bad taste in my firm's mouth!

Trying not to leave a bad taste in people's mouths is often why architects won't charge more, especially in terms of add services. We want to seem like team players, like professionals that produce lots of good work at a good price. The problem with that is that we often shoot ourselves in the foot and undercharge for our work. We're seeing a lot of undercharging in the aftermath of the recession of 2008-2009 as owners literally choose the lowest of the fees amongst the architecture firms that interview for their projects. As construction and new projects has slowed in the last year, firms get desparate and lowball just to get work, figuring that if they get just one job with a big client and show them how good they are, they can get more work with them and make that money back over time. Nice idea, but it can set a firm up for having to constantly low-bid to keep the work with a client ("Why is this fee so high? Your last project wasn't nearly this high!").

On Friday, we'll talk about what going into charging fees and what those fees pay for. However, I'd love to hear from you, either in the comments or in in email from the sidebar, about what you'd like to see discussed here. Thanks!