What are the key principles for architects when it comes to setting fees?

With upward pressure from payroll, insurance, premises and IT, costs are going up for architects. In addition, the arrival of the new building safety regime – albeit welcome - has created its own costs in terms of additional resourcing and competence required to perform the Principal Designer role. 

However, revenue growth is failing to keep pace with rising costs. The 2024 RIBA Business Benchmarking survey shows that although Chartered Practice revenue grew by 13%, profits fell by 2%. How to get practice profitability back on track? Increasing architects' fees would seem to be the answer. But with intense fee competition (including from those outside the profession) practices can struggle to secure fees that reflect the professional value they offer.

The authors of the new RIBA Good Practice Guide: Fees, Peter Farrall and Stephen Brookhouse, argue that architects shouldn’t focus on figures in client negotiations, but instead communicate the wider value they will bring to a project, through the professional services they offer. “Fee negotiation has to be based around principles rather than price,” says Stephen. “Focusing on numbers is always going to present a simplistic view to the client; it’s absolutely essential that we convey what it is we’ll be doing for them.”

Why relationship building matters

In the process of setting fees, architects are also building a relationship with the prospective client. Establishing a strong relationship at the start based on understanding an architect's services is as important as building the project - especially when things change. Good communication is about building a relationship before you build a building, as Stephen says.

Good communication and relationship building is one thing, but architects, of course, will also be looking at their costs. Starting with internal resourcing, they will then look at profit margin and where they will be adding demonstrable client value, and all three factors will be shifting according to market conditions.

Practices need to have a good idea where they sit within their own markets, information available to Chartered Practices through RIBA Business Benchmarking sevice. If they are competing with other architects offering the same services, then they obviously have limited wriggle room, Stephen adds. But if they’re able to identify premium services that mark them out as something different, they’re able to differentiate against the competition and price to their premium level of service.

Peter says that a good way to approach client negotiations is to understand the way RIBA has assembled its Professional Services Contract and to use it as a template for discussions.

Read more about why RIBA withdrew its fee scales

“Sitting down with the client and going through the key issues in the professional services contracts, or your own customised contract if that is what you use, can be extremely helpful because it will draw out things that the client perhaps had not realised,” he says.

“It helps you to define what you’re going to do so that the client understands what they are getting. There are some really good smaller practices who do this extremely well even when dealing with domestic projects by being very clear with the client about exactly what they are going to do, and what they’re not going to do.”

There is a risk that a client might be put off by a practice that will only work in a particular way, but the upside is that some clients will be convinced to the extent that they stick with a practice for future projects.

The counter scenario is where a practice is knowingly underpricing, which everyone recognises as a challenge for the profession. Peter says the book makes clear that this is not a sustainable business strategy. Apart from the risk of making a loss, the practice is increasing the risk of losing control of the project. And if the underpricing was done in order to enter a new market sector, the risks and scope for making mistakes are that much greater.

“Due to the necessity of this work being carried out, I can’t think of any other industry where clients would just say ‘no’ to paying for additional services to meet statutory requirements that might otherwise end in prosecution."

How has the new building safety regime affected fee setting?

As well as rising costs, planning delays project, cost inflation and the wider economic environment have all weighed on practice profitability. The regulatory burden on architects has also been growing, creating new costs, but also new opportunities.

The new building safety regime is being seen as a way that architects can make design management their own by taking on the Principal Designer role, and as a corresponding opportunity to charge additional fees for the resourcing and responsibility that goes with it.

The counter argument being made anecdotally by clients is that architects should have been acting with due diligence and meeting statutory requirements all along, so why pay extra?

Stephen says some of this resistance is no doubt down to a lack of client understanding about what the new statutory duties entail. He comes down firmly on the charging more side, arguing that architects must factor in the cost of additional resourcing, the cost of achieving staff competence and the extra work involved in liaising with other design professionals to meet the new duties.

“Due to the necessity of this work being carried out, I can’t think of any other industry where clients would just say ‘no’ to paying for additional services to meet statutory requirements that might otherwise end in prosecution. We can guide clients through this.”

It is still early days, and he suggests the industry stance will become clearer after we have seen more full project cycles. But what is already clear is that designers should be factoring in a greater risk of rejection by building control and subsequent project delays.

In cases of higher risk buildings (HRBs), we have already seen a much higher than expected rate of rejection by the Building Safety Regulator at Gateway 1 (design for fire safety) and more recently the first rejections at the pre-construction Gateway 2 stage, which will have major cost and delay implications for clients.

“There is tremendous uncertainty in the profession, both with smaller firms and the larger practices, as to how this is all going to pan out, both in terms of providing professional advice to our clients, and working out what the liability might be,” adds Peter.

Good Practice Guide: Fees, written and edited by Stephen Brookhouse and Peter Farrall, RIBA Publishing, 2024.

Thanks to Stephen Brookhouse, Professor of Professional Practice in Architecture at University of Westminster; Peter Farrall, Senior Lecturer at University of Liverpool.

This is professional feature edited by the RIBA Practice team. Send us your feedback and ideas

RIBA Core Curriculum topic: Business, clients and services.

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