Fee proposals and how to get them right
Putting an effective fee proposal together and getting paid is fundamental to any professional service. To maintain profitability, architects need to fully understand their costs and overheads and take a methodical approach to the costing of every element of the service being provided, advise Peter Farrall of Liverpool University’s School of Architecture and Professor Stephen Brookhouse of the University of Westminster, presenters of the RIBA’s core CPD unit on ‘Fees: how to best calculate, negotiate and monitor’.
The RIBA Appointment Documents and Plan of Work provide the template for thinking seriously and methodically at the outset about time requirements and charge out rates.
‘It’s a good template, but architects nevertheless need to ensure they fully understand the terminology used and what the contractual roles and services cover. Only if you understand the basis of your appointment will you be able to extract the best value from it,’ says Brookhouse.
Contract administration in particular can be high risk and requires high indemnity cover. The time required tends to be out of the control of the architect, so they need to go through contract documentation very carefully to assess what might be expected.’
Practices need to ensure they understand their true costs.
‘Architects need to be very clear where the break-even point on a project lies given their all-in costs,’ says Brookhouse. ‘You need to know your business inside out, so when fee negotiations do arise, you know your own weaknesses.’
Brookhouse and Farrall advise that when preparing fee calculations, tasks should be defined relative to the RIBA Plan of Work and services to standard RIBA agreements. The programme should be sketched out with milestones and key events, and outputs should be clearly defined. Invoice points should be identified in advance.
Resources should be allocated based on a net day rate. The break-even point should be noted and a view taken on risk and profit.
‘Once you have set out your store clearly and specifically, the clever architect will get the client to sign off after every Plan of Work stage. This approach will highlight any issues arising from changes that have been introduced into the process,’ says Farrall.
Monitoring the project is the flip side of the fee proposal, and Farrall suggests that it should be relatively easy to check progress against the proposal.
He is in favour of practice principals sharing information with staff over targets and whether they are being met, and checking with them whenever there is slippage.
‘You need to identify where the delay is and how it came about. It is important to identify whether the problem is internal, perhaps an architect spending too much time on a favourite project, or whether it stems from the client,’ advises Farrall.
Most practices fail due to cash flow problems rather than a lack of profit, so cash flow forecasts should be checked against workflow, perhaps on a monthly basis. One of the greatest risks to small practices is gearing up after the success of winning a large project, but failing to plan for the inevitable time lag before cash arrives.
Farrall suggests a three-step approach when faced with late payers: a timely ‘nice’ letter, a firmer letter possibly raising the issue of whether work can continue, and then a sit-down with the client to identify and hopefully find a solution to the problem.
‘The main point is to be methodical over fees. Monitor the situation and always talk to the client when problems arise. Try to avoid legal action, particularly at the lower end of the scale, because small claims courts tend to be more sympathetic to the consumer and their problems,’ says Farrall.
Some clients and their architects are still happy with percentage-based, rather than resource-based fees. The obvious risk here is when changes are introduced into a project with cost implications that the architect is expected to take it on the chin.
‘It is very easy for architects to start losing money on a percentage fee. Where both parties are happy, perhaps where relationships have built up over time, architects still need to guard against arrangements that come to rely on staff working long hours and weekends for nothing,’ warns Farrall.
Brookhouse makes the point that resource-based fees give architects an opportunity to identify where the greatest value lies in their services. ‘Did percentage fees ever serve the profession well? I’d say the answer is “no”,’ he says.
Thanks to Peter Farrall, head of the fourth year of the MArch programme, Liverpool University School of Architecture; Professor Stephen Brookhouse, Interim Dean of the Faculty of Architecture and the Built Environment and RIBA Part 3 Course Leader, University of Westminster.
Text by Neal Morris. This is a ‘Practice News’ post edited by the RIBA Practice team. The team would like to hear your feedback and ideas for Practice News: firstname.lastname@example.org.
Posted on 16 November 2017.