When and what you bill needs a rethink: use the new Plan of Work as a catalyst
It’s rare that two or more architects gather at a professional event without the conversation turning to the subject of fees. Just what is the secret recipe to calculate the right fee to win the job while ensuring it will allow the project to be properly resourced, deliver quality and value to the client, and at the same time provide a fair profit for the architect?
With the launch of the RIBA Plan of Work 2013, many practices will be reviewing the way in which they approach fee setting and presentation, since schedules of service are normally mapped and derived from Plan of Work Stages. So how do the standard fee formats work with the new Plan?
Traditional way
The traditional approach is to base fees on a percentage of the construction cost. The downsides to this are that clients perceive it as failing to provide an acceptable degree of certainty and offering little incentive for the architect to control construction costs; the percentages used are based on historical models, and do not take account of the greater variation in services which are now commonplace; the only fee negotiating position is to offer a percentage discount. Despite its mythical status, shrouded in the mists of a halcyon past, the percentage fee remains more alchemy than scientific method.
Fees chargeable at an earlier stage will map more closely to clients’ perception of added value
Resource-based fixed fees can be matched more closely to the services to be delivered and the value explained with greater clarity. Clearly clients prefer the cost certainty, but the architect takes the risk that its estimate of time/resources is accurate. Successful resource-based fees rely on accurate time recording of project work to build up a realistic picture of how long it takes to deliver service elements on different types of projects.
Hourly rates can be readily benchmarked in the marketplace and can be a useful option for more specialist services and for brief preparation and feasibility work (high value activities which architects often give away too easily), but they remain a very difficult sell for the main delivery stages.
The new Stage 0 (Strategic definition) and Stage 7 (In use) offer good opportunities to develop innovative pre and post project service which might readily suit an hourly fee structure. Stage 1 (Preparation and brief) is also an area where an hourly fee structure would be appropriate. Too often as a profession we give away this crucial early work too cheaply, yet work for the recently published Client Conversations report by the RIBA (see RIBAJ July 2013, p72) has shown that clients recognise just how important these early stages are to successful project outcomes.
Client perceptions
The new Stage 3 (Developed design) requires a fully coordinated design as an output (particularly important as we move rapidly into a BIM enabled era), going a little further than the old Stage D, and we would anticipate that the proportion of fee chargeable at Stage 3 will be higher than those applied to Stage D.
If a greater portion of resources and of the total fee is chargeable at an earlier stage under services derived from the structure of the new Plan of Work, then this will certainly map much more closely to clients’ perceptions of where architects add maximum value, which in research has consistently been shown to be in the earlier project stages.
In the old kingdom of mandatory fee scales, billing was traditionally structured around the end of stages, but this carries significant risks for the architect, not least because it means extending a lot of credit to the client, which affects cash flow and puts a lot of money at risk in the event of non-payment; so a monthly fee invoicing regime is far more preferable. While it is anticipated that fees will continue to be profiled against services in stages, a schedule of monthly fee payments across the project programme is an essential approach in effective fee management.
While as architects we may sometimes feel like Cinderella in comparison with colleagues in other senior professions, it is worth noting that in the EU context UK architects remain among the best remunerated, and despite economic challenges we are responsible for the leverage of a significant contribution to UK GDP and export income. Although the RIBA Plan of Work 2013 waves no magic wand, it offers an opportunity for practices to re-visit fee structures and ensure that Cinderella can continue going to the ball.
Adrian Dobson is RIBA director of practice