Architectural Fees

Imagine three different architectural clients, each of whom wants a bike shed and each with the same budget.

The first project is in inner-city Melbourne with neighbours in close proximity. The second is in rural Victoria, adjacent to fire prone bush land. And the third is located in the outer suburbs on a large allotment. Let’s assume each client wants to achieve a different outcome for their project: the first sees the bike shed as an opportunity for environmental excellence, the second wants to build a beautifully crafted timber pavilion and the third just wants the most basic structure to store bikes and garden equipment. That being the case, it is clear that each of the projects will require a different level of design expertise and input from its architect. Because of this, while the total budgets are the same it is reasonable to expect the architectural fees will be different.

So, what to charge?

It is widely understood that many architects set their fee for a project as a percentage of the total construction cost. In my opinion this is a very crude approach to the setting of architectural fees, akin to using square-metre rates to price building projects. Why should a construction budget determine the cost of an architectural service when there is no direct correlation between the two? What if a client determines they wish to invest heavily in the design aspects of a project to find ways to save money during the construction? In this case the architect would be disadvantaged by a percentage fee even though they are saving the client money. On the other hand, percentage fees can create the perception that architects are looking to increase the cost of their client’s projects in order to increase their fee.

Fee setting used to be fairer and more simple when the Australian Institute of Architects (AIA) produced a recommended fee schedule. This schedule was widely used until the ACCC deemed it ‘anti-competitive’. Since that time, architects have had no clear direction as to how they should set their fees. It is up to individual practices to determine their own fee structures, though without an agreed external guide for setting fees the task is problematic for both architects and their clients.

Today, apart from the common practice of percentage-based fees, there seem to be different architectural fee scales for different sectors. Fees are falling to unsustainable levels in those sectors where architects are bidding against each other to win projects.

Let’s go back to our three bike-shed clients and consider how the fees should be set in each case. As pointed out, each project will require a different level and type of architectural expertise. In addition, the requirements of the local authorities – and the associated workload – will vary with the different locations.

It is possible that the project in the outer suburban location only needs a partial service from an architect, whereas the environmentally-friendly inner-suburban project will probably need specialist input from an environmental consultant. Clearly the ‘percentage of construction costs’ approach is inappropriate here. It would see the architectural fees being too high in the outer-suburban instance and too low in the other.

So what is the answer?

Well firstly, apart from anything else, architects and others need to raise awareness of this important issue in the public domain. Since the ACCC deemed the AIA fee scale anti-competitive there has been no clarity relating to architects’ fees. Market forces will, and indeed are, forcing fees down to unsustainable levels and the built environment suffers as a result.

Secondly, we need to separately price the design and documentation components of each project, using different approaches to each. At the moment, design and documentation are bundled into one fee and it is impossible for a client to distinguish how much the design component costs in relation to the documentation and servicing provisions of a project. In our bike-shed scenario for instance, the design component of the architects’ work will be quite different in each case. But so will the documentation component due to the differing compliance requirements of the various locations.

On the design side, the ‘value’ of a service varies widely based on the experience and design credentials of the practitioner. It is certainly not something that can be based on time. Utzon probably took an instant to come up with the idea for the Sydney Opera House and yet he had probably researched similar ideas in other projects and knew what was possible long before he decided to enter the design competition. It was his research, experience and clear thinking that differentiated his work, not the time he put into the project. I think it reasonable that if a client commissions an award-winning architect then they would expect the cost of the design component of their project – independent of the documentation – to be higher than that charged by an architect who is just starting their practice. It’s up to the client to choose the right architect in line with their aspirations and budget for the project.

The documentation and servicing requirements of a project are a separate matter. Basing the fee on the deliverables requires planning before the project starts, and this really needs to occur in a pre-design phase that looks at all of the project parameters. While this approach might seem excessive at first, the benefit is clear expectations for the architect and their client about the scope of the professional services that will be provided. In addition, any change to this scope will be more accurately quantified. Again, taking this approach ultimately allows the client to decide on what level of service they want to pay for.

Our three bike-shed clients, like all architectural clients, have every right to expect value for money for their respective projects. They should also have the right to define what they mean by ‘value’, in both the design and documentation aspects of their project, measuring both against their individual aspirations. This is why clarity of fee calculation is so important.

As a community, we need to consider what we want from our architects and to what extent we wish to fund creativity and innovation. This is not to say that high fees will necessarily lead to better outcomes, however we need to price architectural services appropriately to the need of the client and the project so that the interests of both the client and their architect are served.

As I have shown, placing an accurate value on design and documentation services is not an easy task, made more difficult by the subjective nature of design in particular. That’s not to say we shouldn’t continue to discuss this issue, including in the broader public domain. There will never be a single ‘right answer’, but we need to find some kind of consensus on how fees should be set. And just as the ACCC acted on the AIA fee scale, it should now act on the setting, by some architects, of fees that are unsustainably low and could be considered predatory pricing.

At the end of day, we all benefit from a thriving architecture profession that invests good design back into the city we enjoy.