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How fee deferrals and risk-sharing agreements help one practice achieve fair fees and avoid disputes.

15 February 2018

When it comes to negotiating fees, more architects need to understand the fundamental difference between patron clients with money in the bank and commercial clients, who work at risk and need to preserve as much of their limited working capital as they possibly can, Paul Bulkeley, RIBA Practice Role Model Snug’s founder is convinced.

‘Design fees are charged at the worst point for commercial clients, at the beginning when they are cash-poor. There is a basic disconnect between the client’s needs and the architect’s need to get paid. And fees might be the one bit of their budget that they can squeeze and which they see as coming straight off the profit margin,’ says Bulkeley.

‘All of this changes when the client becomes cash rich. They are happy to pay a fair or even generous fee without renegotiation or dispute.’

Bulkeley used to run a property development business in parallel with Snug in the early days of the Southampton-based practice, so he knows the developer mind-set. Unlike most architects, he empathises with clients who attempt to defer payment arguing that they have not yet won the land deal, secured the funding, got planning, sold anything and so on. Rather than spend time chasing payments, he offers them a deal.

Snug Architects is one of the RIBA’s Practice Role Models and describes its mission as understanding clients’ priorities and adding value. Photo by Pari Naderi.

Over the past three years, his practice has struck a variety of fee deals, from partial payment deferrals to full blown no win (planning), no fee agreements, although Bulkeley would frame these as joint ventures, never simply design work at risk.

‘Where there is risk and cash-flow restraint, there is value that can be leveraged by the architect.’

A typical arrangement would be a partial deferral, where Snug will offer a 30% discount on design fees pre-planning. If planning approval is gained, Snug will collect 100%, 200% or even 300% of the discounted amount, depending on the risk profile of the project and the pre-planning agreement.

As an absolute minimum, Snug will charge interest on any deferred payment, but there is more likely to be some other sort of deal.

The classic scenario is the cash-poor landowner seeking planning permission for housing. Snug might do the design work for free in return for an agreed share of the land uplift value. The architect has then become the client’s joint venture partner.

Bulkeley would like to see more architects being prepared to move towards the developer’s entrepreneurial mind-set. He sees it as a way of escaping the paltry fee levels that are often accepted. He also believes that if architects had more empathy with commercial developers it would improve the profession’s standing within the industry.

‘Like it or not, when we are working with a commercial client, we are engaged in the same risk venture. One of the benefits of deferred payment agreements is a willingness by the client to pay a fair fee. We can achieve 100% of our time charges, which is rare,’ he explains.

Most of Snug’s work is carried out for commercial clients, mainly house builders. Bulkeley argues that young practices moving into commercial work need to learn to tailor their services to the client and, most importantly, the client’s available fees budget.

‘The typical housebuilder knows how to build houses and requires a different level of service from the bespoke house client. The housebuilder may need perhaps five crucial details, rather than a hundred for the bespoke house. Both approaches are right,’ maintains Bulkeley.

Anticipating charges that doing just enough to satisfy the client is a recipe for driving down quality, he turns the argument on its head and argues that fair and reasonable fee arrangements negotiated with the client can avoid too much of the architect’s fee being spent on the planning stage at the expense of later work stages, a situation he sees as symptomatic of the current over-emphasis on planning as the guarantor of design quality.

Fees have not been rising in line with planning demands, so the result, Bulkeley suggests, is that increasing amounts of work are being done to satisfy the planning system at the expense of time spent on detailed working drawings and site supervision, which is how the quality is actually delivered.

‘We’re losing the ability to control quality at the critically important stages – substituting a CGI view of quality for the built reality,’ warns Bulkeley.

Thanks to Paul Bulkeley, founding/design director, Snug Architects.

by Neal Morris.
This is a Professional Feature edited by the RIBA Practice team.
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RIBA Core Curriculum Topic: Business, clients and services.

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Posted on 15 February 2018.

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