Monday, September 7, 2009

It's all about the Benjamins: Architectural Design Fees 101, Part 1

Architects have a long history of discussing (or complaining about) how underpaid they are, but many of us don't actually know how we get that income in the first place. A quick review of how architects charge for their efforts--either as a percentage of construction costs or on an hourly basis--is in order, and it may make that discussion a little clearer.

For most projects, architects charge a percentage of the construction costs as their fee, ranging usually from 6%-10%, usually falling somewhere around 7%-9%. (I'm not sure how this particular percentage range came about; I'll have to do a little more research.) Architects will often charge towards the lower end of that scale if the project is a new building or a renovation/addition inside or on a building that the architect originally did and for which s/he has good drawings. We charge towards the higher end of that scale if the project is a renovation or renovation and addition, and perhaps even a little more if the work is being done on a project that doesn't have any CAD drawings available, and we'll have to rely on dimensions taken in the field plus whatever notes the building's facility manager has made during his time at the facility. Renovations, especially on older buildings (more than about 20 years old) can be fraught with problems, especially if the owner doesn't have accurate records of what's been done where to the building. For example, a project I did a couple of years ago had unforeseen increased demolition costs because some masonry walls had been completely covered with drywall, which did not show up on the old CAD plans as masonry (they were drawn like a wall with a 6" metal stud).

Let's say that company wants to build a new office building in an office park that was developed about six years ago, and their construction budget (that is for construction of the building alone) is $3 million. The architect looks at the project, and it's fairly simple: a new, four-story office building with a few amenities. The site should be easy to work with; since it was developed and built recently, all the plans and utility and soils information should be up to date and records will be fairly well-kept, and there are likely even CAD files of the site. The architect may then decide she only wants to charge 6% for her services: 6% of $3 million = $180,000. But suddenly, let's say that the owner wants to make the building LEED certified. The architect knows that getting a building LEED certified can take extra effort on her part to do all the research and get the paperwork in line, so she ups her fee to 6.5% = $189,000. That's an extra $9,000 for dealing with the hassle of research and paperwork with the USGBC. (Note: I have heard that it's a hassle to deal with the paperwork of getting a building LEED certified--I don't know this from experience. I'm just using that here as an easy example.)

But suddenly, the goal of the office building changes: it's going to be a medical office building, not just a plain old office building. Instead of lawyers and real estate agents in it, there are going to be obstetricians and gynocologists and podiatrists, and there's a dermatologist who wants an office here and he might bring in a plastic surgeon who will be doing outpatient surgeries and Botox and such, plus an oncologist (cancer doctor) wants to open an outpatient chemo treatment clinic here. Whoa--healthcare architecture is a specialty in architecture that requires more code compliance, more research, more expertise than just an office building. Our architect knows that she's going to have to do more coordination with her MEP consultants and with any special equipment the owner wants, plus any special equipment that the owner's tenants want. Extra coordination means extra work which means she ups her fee to 7% = $210,000.

At this point, our architect may decide that she doesn't charge extra for the LEED certification coordination, figuring that she can roll it into the overall project coordination. Conversely, she may still decide to tack on a couple of extra tenths of a percent to cover that coordination. That will be based on her experience with LEED certification procedures as well as designing medical office buildings in the past. Also, she will likely indicate to the owner a separate amount for "reimbursables": mileage for driving to and from meetings with the owner, the cost of printing and copying drawings for the owner and the contractor, any meals incurred in the process of working on the project (for example, having to eat lunch on the road because the owner's meeting took place far away from the office and by the time the architect got back to her office, her stomach would be eating itself), and so on. Sometimes, an architect will roll reimbursables into her fee in order not to nickel-and-dime the owner, especially if it's a smaller job or if the job is under a super-tight budget and the architect wants to show herself as a team player. This isn't ideal, but it can help keep a project moving forward if the architect isn't taking a few thousand out here and there for printing and mileage.

Also, the architect's contracts and fees may depend on the owner's dealings with the tenants of his new medical office building. If the owner builds the medical office building (MOB) on behalf of the various tenants (the dermatologist and plastic surgeon, the OB/GYN docs, the podiatrist, and the oncologist), the architect may keep the same 7% fee because she's dealing with one tenant with many different needs, which would be the case if she were designing a hospital with several different departments or a school building with several different subjects taught in it. However, if each of the tenants engages her separately, she may keep to the 6.3% she originally charged the building owner and sign a contract with each of the tenants separately. She may charge the dermatologist and plastic surgeon 7% on their suite because the surgery equipment is going to be a bear to coordinate, but she may charge the oncologist 6.5% or so because his suite will require a lot of code research regarding handling of hazardous waste but not a lot of equipment coordination per se.

The podiatrist's office will be relatively small and easy to do, so our architect may decide to use the other primary method of charging fees, which is hourly. The architect will look at the program of the podiatrist's office (what rooms does he need, and how big, and what equipment or special requirements are needed if any in those rooms), use past experience to decide how long it will take what people (intern, architect, etc.) to do the project, and then provide the podiatrist with an hourly fee not to exceed X. Let's say that the podiatrist only wants three exam rooms (90 sf each), a procedure room (130 sf), a clean supply storage room (100 sf), a trash/waste collection room/closet (40 sf), a staff toilet (50 sf) and break room (100 sf), a reception area (80 sf) and file storage (80 sf), a waiting room (about 100 sf), and an office for himself (100 sf). Including space for halls and walls, that's 1,365 sf. The finishes can be simple, no walls need lead lining, there's no super-duper equipment that needs to hang from unistrut in the ceiling...nice, simple project. This project will require an initial creation of a suite layout and review with the podiatrist, possibly another revision or two with accompanying reviews, the creation of the drawings, and final coordination. She can give these tasks to an intern in her office who has passed three of his seven ARE exams; this would be a good smallish project for him to manage, and he works pretty fast, so she knows it will only take him about eight hours to come up with the original layout and another four to revise it once, four to revise it again, another full week to do a small code study on the suite and complete the CDs on it, and another week to coordinate with the consultants. After passing the drawings on to the MEP consultants for a little work (likely the same consultants doing the rest of the MOB), that's about a half-week or so of their work to put in a few diffusers and ducts and lights and switches and circuitry. The architect herself will handle the meetings with the podiatrist, and those should last no more than an hour, but you never know.

So at this point, the architect takes that estimate, pads it a little bit just in case, and then comes up with a final amount:
She bills $150/hr for her time, and she's allotting 8 hours of her time for meetings and reviewing drawings = $1200.
She bills $85/hr for her intern's time, and she'll allotting 96 hours of the intern's time for drawings, code study, and coordination, but to be safe she'll round it up to 100 hours = $8500.
The MEP engineers told her that they'll charge $100/hr for their time in general, and it will take the two engineers on the project a total combined amount of time of 24 hours to do the work = $2400.
Total hourly cost not to exceed = $12,100.

That $12,100 may sound like a lot, especially if the podiatrist's suite's construction costs are kind of low: if his suite cost an extravagant $100,000 to build, and the design team ends up billing their entire estimate, they've billed 12.1% of the construction cost. However, bear in mind two things: one, the design team won't necessarily bill the entire $12,100, it's just that that's the highest they can bill for the project; and two, it takes what it takes to design, draw, and coordinate a project of any size. Just because the project is only 1400 sf, that's no excuse to design something that doesn't meet code or is drawn such that the contractor can't get clear information on how this or that should be built, and providing a good set of drawings takes time and effort. The architect might be able to bill the same hourly-not-to-exceed fee of $12,100 to a 2,500sf yoga studio going into the same MOB because it takes a certain amount of work, research, and coordination to do anything over three rooms.

On Wednesday, we'll talk about the pitfalls of fees: when architects don't charge enough, the price wars of 2009, and where all that money goes anyway. In the meantime, if you have a question or would like to see something discussed on Intern 101, feel free to mention it in the comments or ask me in in my email on the sidebar. Thanks!


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