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History of architectural fees

sloring

On the way to work this morning I was listening to the news regarding inflation and rising hourly workers salaries and lamenting my own poor financial decision to be come an architect.  

When I sat down at my desk the first task of the day was to review a pay app for the project I'm deep in CA on.  I start looking through and notice the separate line items for General Conditions, Contractor's Fee, Builder's Risk and General Liability and it gets me thinking, once again, about how we as architects get hosed on fee compared to so many other professions.  Contractors are getting owners to give them guaranteed profit on every project on top of their general salaried employees; we as architects have to guess at the beginning of a project and work backwards to make sure we make a profit.  The owner also pays for their insurance; we are stuck paying for ours out of pocket.

Obviously, this is a deep-rooted industry-wide issue.  How did we get here?  Why don't we do what contractors do and say, here is our fee to do the project, now give us a fixed percentage profit based on the entire construction cost?  Oh and any change orders get hit with it too.

I've been in this industry over 15 years now and just getting sick of it all...

 
May 6, 22 10:11 am
Non Sequitur

we charge extra as scope changes just like the gc does. Nothing unique there.  Fee % linked to construction cost is sketchy and could be dangerous when specifying products.   Would you reduce fees or payback the client If they change to lower cost-products, or value eng the project? Bet y’a you won’t. 

May 6, 22 11:05 am  · 
1  · 

I agree that architects are not paid enough for the services we provide.  

I think you've gotten a few things 'off' though.

I think you're over simplifying the contractors fees.  Depending on the project delivery method the contractor can have their profit reduced. For example - In a GMP the cost to the owner and thus the contractors profit is set.  If things go over budget because of the contractor then it reduces their profit.  

The owner pays for a portion of the general contractors insurance because it's insuring the owners building.  A contractor will have and pay for their own insurance that covers workmanship defects and the costs that are associated with it.  Architects pay for our own insurance because we're covering our own competence.  

For architectural fees we base them on the construction cost project and complexity of the services provided.  Every contract should have a means to be paid more if the project scope changes.  This language is written into the basic AIA contracts.  The issue is that most architects are hesitant to ask for these additional fees as it upsets the client. 


May 6, 22 11:08 am  · 
2  · 
rcz1001

Right, as a firm, you may also have general liability insurance and to an extent, it may cover cases that occur on a project location. In general, your GLI and PLI are not project specific so it would be expenses embedded under the portion of your fees that goes into "overhead" but when you carry liability insurances specific to a project site, especially if it is a client specific demand, then it would be appropriate and reasonable that it is a specific line item in your costs. How transparent are your fees broken down is up to you and perhaps the profession. Nonetheless, it should be in the calculations so when you give your fee amount in the project cost, so you are not f---ing yourself by giving a fee that is way too low and falling into the trap of "underpricing the competition". Yes, it's a trap ( que for a meme ).

May 6, 22 4:28 pm  · 
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JonathanLivingston

Great topic. I have personally come to the conclusion generally low fees and compensation are the result of a risk-averse nature of architectural thought. We spend all day thinking about what could go wrong, what doesn't work, and how to find a solution to a problem and at the end of the day we don't have the stomach to take on the risk like a contractor, engineer, lawyer, accountant, doctor the list goes on, but at the end of the day the compensation has a lot to do with greater risk equals greater reward.  

Lump-sum contracts would allow you to price your service above the value of the labor multiplier. But there is a risk there that you don't hit your goals and take a loss. Or don't get the jobs. Most architects opt for more hourly fee structures because it provides safety, they fear not being competitive on price and want some assurances on overruns. However, by walking away from lump fees we leave that opportunity for the profit that the market could provide on the table. High-end profitable firms take more risk but can reap greater rewards.  The tie of profit to hours worked is nuts, it's like saying a painting is worth X dollars because that's how long it took to paint. Try to find any other bespoke product that is priced that way. But we focus on the service nature of the business to our downfall and let the market value of the product we create be eaten by others. It also results in ever-constant hiring and firing. the only way to make more becomes to do more. 

A similar pitfall of pricing based on construction cost vs market value.  Developers really enjoy that we think about construction costs and not the value they are actually going to get. Tieing our fee to the market value would mean assuming more risk. 

Finally, we constantly ignore the liability value of our work. I guess it's cause we don't want to be pointing out that if things go wrong you can turn around and come after us, but that doesn't relieve us of the actual liability. Lawyers, doctors, accountants, and engineers all understand this and step up to the plate to assume the risk of that liability and price their services accordingly. We never speak to that value that we bring. We are scared of it when we should be charging for it. 

May 6, 22 11:55 am  · 
3  · 
proto

some incisive comments, thanks for the post.

value hits home for me (we are hourly).

risk to provide market value is a good item too, but to own that involves taking development risk too. I often think about that when a commercial client tells me i should be cheaper. I say, if i had ownership risk that might makes sense to advance a pro forma, but i'm here for one time service to your project. and liable for the life safety looking forward

May 6, 22 12:58 pm  · 
1  · 

Interesting. Other than a few single family residential or really small jobs I've never done an hourly fee. Even when doing an hourly fee it's always had a not to exceed on it. Other than that we've always done a lump sum fee based on construction cost and complexity of services provided

May 6, 22 1:05 pm  · 
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RJ87

Engineers, Lawyers, Accountants & Doctors have also better maintained their barrier to entry for providing professional services. Architectural salaries would probably be higher if you were required to be licensed to work in an office.

May 6, 22 1:14 pm  · 
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Bullshit.

May 6, 22 1:43 pm  · 
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RJ87

Which part? They do maintain a higher barrier to entry to work in a professional setting & if there were less practitioners rates would be higher. Whether its morally or ethically "right" is another conversation but logistically / economically it's probably accurate, no?

May 6, 22 1:58 pm  · 
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SneakyPete

Architecture has been gatekeeping since the 70's. The barrier to entry for Architecture is much, much higher than for lawyers and accountants. That hasn't resulted in higher fees, just a smaller pool of candidates who we then have to pay less because we simultaneously used every efficiency advance to save the client money instead of pocketing the difference. Our industry is a bunch of designers with no business chops flailing around in the deep end of the pool never having learned to swim.

May 6, 22 2:07 pm  · 
2  · 
proto

@chad, we are small & doing 95% SFH & 5% small commercial. Everything is small enough for 2 people to handle & usually just 1. Our philosophy is that our fees are right-sized based on time, expanding or contracting as needed. But, as RJ87 & Jonathan note, we are strategically enslaved to our time -- profit has to be buried in that hourly because their is no profit on time not spent (like in a fixed fee).

May 6, 22 2:09 pm  · 
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RJ87

Pete- While I agree you can make an argument that our licensing process is "harder" (based on IDP/AXP & the number of exams), I think it's easier to work (not the work itself, but to actually get a job) within the architectural profession than it is in law for instance. If you're not an attorney you're strapped with a paralegal title & severely limited. There are plenty of people who are draftsmen & project managers that won't become Architects.

May 6, 22 2:15 pm  · 
1  · 
RJ87

Proto- I think that's why we rarely do anything on an hourly bases except for add services. The profit is made in the efficiency of the project. As long as you're trading time for money you'll never get very far ahead.

May 6, 22 2:28 pm  · 
2  · 
SneakyPete

I've not met many architecture firms hiring people (or keeping them on after a few years) that don't at least LIE about planning on getting a license. You need to have 5+ years of school. A bunch of experience. And then take multiple exams. In California you can take the bar without a law degree.

May 6, 22 4:03 pm  · 
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rcz1001

"Architecture has been gatekeeping since the 70's." 

Well...... actually a bit earlier than that in most places in the U.S. It has been doing that 'gatekeeping' since they began architectural licensing laws as not just a title act but as a title act. In Oregon, it became an actual practice act in 1935. Between 1919 and 1935, it was more of a title act. Then when we began having architectural licensing exams, again gatekeeping. Then the IDP program (now AXP) can be said to be somewhat another additional gatekeeping element. The ARE itself serves what architectural examination has been about since the beginning but made so that it's a universally accepted exam across the many states that facilitates reciprocity. 

However, how the profession has done more outside of official 'gatekeeping' processes has been mostly associated with IDP and keeping interns from getting certain required IDP training hours until after being with the firm a lot longer than total number of training hours. This is not unheard of and is probably true given the level of testimonies on it. Historically, it was really the exam that was the big gatekeeper because they were only available one or two times or so a year and also had a limited number of seats and you have to wait 12 months before you can retake the exam. In some states, you couldn't just retake the portion you failed. You had to retake all of exam each time and then you may pass the exam. Many states had over time relaxed things a little bit to allow retaking the failed section and I think they did that because of some shortage of licensed architects. There was a time when there could be a "shortage" of licensed architects. There really not a shortage of licensed architects these days.

May 6, 22 4:53 pm  · 
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proto

"As long as you're trading time for money you'll never get very far ahead." @RJ87, agreed.

But we aren't in business purely to stack as many bills as we can. Working this way allows flexibility & time away...I don't do 40hr wks but rarely

May 6, 22 5:24 pm  · 
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rcz1001

"Our industry is a bunch of designers with no business chops flailing around in the deep end of the pool never having learned to swim." 

That is because business training or any of that sort is not taught as part of the required education curriculum in architecture and a lot of firms vehemently will not train people to be their competition or to be effective at it. This is because they don't want more licensed architects. They want more architectural staff. A firm technically only needs one licensed architect per project the firm takes on concurrently. The rest are just staff members so a lot of firms discourage licensure except until more or less recently (relatively), when the PLI insurance carriers provides incentives for increased percentage of staff being licensed professionals and/or other certifications they recognize. 

Right now, there is actually too many people who obtained architectural degrees but not enough jobs. There may be a shortage in places of people wanting to work for a firm. That may be in some cases but that doesn't mean there is a shortage of people with the education. It is that it might be that the public knowledge of architecture as a career sucks is getting out there but still not enough to detract people from enrolling into architecture. 

The shear supply problem is because architecture degrees are frequently one of those university degrees that have the least/lower math requirements. A computer science degree often has more math course requirements than is required for a number of NAAB accredited architecture degrees and numerous BA/BS in Architecture degrees. Since so many degrees now requires 3rd year and 4th-year level math courses, makes people who are not particularly good with high-level math want to take such degrees so they get attracted to degrees that have less strenuous math requirements. Most architecture degrees tend to be less math heavy like many computer science, engineering, etc. type degrees. So we have a huge supply. 

Then you have those that were laid off and they aren't interested in working under someone else so they start up their own little boutique practice/firm. This doesn't mean they are licensed and there are plenty of designers out there, most do largely comply with the licensing laws/rules. Many (licensed and non-licensed), simply learn how to run a business as they go because they weren't taught it in school or when they were working for others. Sadly, that is the way things are and have been and is not new at all.

May 6, 22 5:36 pm  · 
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rcz1001

"Pete- While I agree you can make an argument that our licensing process is "harder" (based on IDP/AXP & the number of exams), I think it's easier to work (not the work itself, but to actually get a job) within the architectural profession than it is in law for instance. If you're not an attorney you're strapped with a paralegal title & severely limited. There are plenty of people who are draftsmen & project managers that won't become Architects." 

I agree to an extent. However, I am not sure I agree the licensing process is harder based on the exam. Not so sure. While you have more individual exams you take. The original exams were just as extensive as they are now (relatively) but you had to do it in a single nearly week-long sitting. Additionally, in many states over that time period, the exam was administered only once or twice a year. 

If you failed, you weren't allowed to take the exam for at least 12 months, and for numerous states, for quite some time, you had to retake the whole exam, not just the failed section(s) or division(s) or whatever they were called roughly equivalent to ARE divisions. Some states made it easier by allowing the retaking of the failed parts without having to retake the whole. Additionally, others had reduced the time to retake to 6 months and made it possible for a person to retake the exam one time in a year other than the original (total of 1 time a year). In any case, this actually leads to a lot more people never bothering to get licensed. This and fewer NAAB accredited architecture degrees. 

For Oregon, in much of the first 40 years of architectural licensing, there were less than 1000. Over the course of the next 40 years, we have reached 4000. In the following 25 years, we have issued over 10,000 licenses to individual architects over the history of architectural licensing in Oregon. Sure, that doesn't mean we have 10,000 active practitioners but that should indicate the sheer volume of people licensed. The availability (access) to the ARE has resulted in more people getting licensed. 

Certain policies changed and the exams became easier to pass. This is not to say the exam is not rigorous but the ability to more easily retake failed divisions made it easier for a person to retake the exams and actually do it instead of basically saying f--- it. That's a reality check about access being a part of making it easier for a person to pass the exams. You benefited from some of that as well. Despite the cost, you didn't have to go to your state capitol or whatever the one or two locations the exam is administered in a given year and the limited number of seats. 

You just had to go to an easier-to-access proctor center. It used to be much more difficult. OBAE used to be located in Portland instead of Salem because they had a place to administer the test that wasn't particular from a central hub point for the trains and later bus routes. Eventually, the exams from NCARB's ARE began to be administered. Of course, before ARE, the exams may go by various names and at a certain point was state-specific exams... most licensing boards in the 1920s-40s followed the exam model that Illinois established as far as exam format more or less. 

Other states may have varying figures but you can see that the trend of access to ARE results in more people getting licensed overall..... now we do have a phenomenon that people have taken longer to pass the architectural licensing exam and getting licensed. 

In the early days, if you didn't pass it the first or second time, you usually simply gave up so you wouldn't get licensed at all but for those that did, the path average was about 6-10 years. Given that some had obtained work experience while also at college so they had been able to get licensed in 6 years (not counting anyone grandfathered in at all).

May 6, 22 6:17 pm  · 
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RJ87

A good portion of our industry frowns upon making money via repetition too, which is the area that lump sum contracts are most useful for. Our office does plenty of one off projects, but we also absolutely hammer commercial work that more or less uses the same details & amount of effort each time. It's profitable. In general I think a lot of architects make pretty terrible business owners.

May 6, 22 1:12 pm  · 
1  · 
proto

yes, we do

May 6, 22 2:05 pm  · 
1  · 
rcz1001

sloring, I have to remind you that even contractors do not have a guaranteed profit. It's that when they present their fees, it's often laid out. What is referred to as O&P is section on top of "material & labor (direct and indirect labor cost of workers that actually works on the project). Technically, architects have the same thing but contractors, in general, for reasons either legally or through history of the contracting profession have to be a little more transparent about their fees where architects might not have to have their fees broken down into the constituent components. 

O&P (overhead and profits) are planned contribution to overhead and a planned amount for profit but shit can go sideways and end up costing more money than the budgeted amounts and can end up with less profit than that which was planned. 

Before you quote a fee under any format, you should be making a detailed estimation of the various costs that it would take to deliver the services. A lot of people in the architecture / building design field are lazy and just take something like a copy of the old AIA fee table (which AIA no longer publishes but can still be found on the internet) and use those percentages for the project type / size. Ideally, you should do that AFTER doing the long hand estimate and then choose those other methods like percentage, flat fee, price per sq.ft., etc. after you determine what it would likely cost you including float and padding in the pricing for variables.... which is especially important if you use pricing method that are more fixed so you make an estimate that is more of an educated guess that is more reliable of ending with a profit than a wild ass guess or picking a number that is lower than your competitor putting too much importance at underpricing competition instead of more value (with reason).

NOTE: the use of 'you' is largely rhetorical.

May 6, 22 3:53 pm  · 
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rcz1001

To some degree, contractors may be more regulated and have to outline those items but guaranteed profit isn't something that is absolutely guaranteed. Now, they do have to disclose that they are carrying general liability insurance as required for licensure. They can not legally require a client to pay for that directly. They can require clients to pay for any special insurance coverage for a particular project. This is because they are actually building the project and are in fact at a higher risk of requiring to use of general liability insurance (including project-specific general liability insurance) than an architect. Do you, as an architect, operate cranes? bulldozers? require to go onto roofs bringing ladders and going up on ladder, and do all that? 

Some of those are flat out no but the ones relating to ladder, the answer is generally a no but you may but the chances you would break a window or fall through the roof or something is less likely than it would be cases in construction firm which would actually be doing the work with crew often more on-site than you would have at any time as architect, and would most likely have more chances given all the crew on the site and any one of them can accidently or incidently cause a case that triggers general liability insurance usage and quite a few cases can trigger OSHA. 

While even in an architect office, an issue may cause an OSHA incident but those are more closer to the kind of experiences of offices of lawyers, accountants, etc. which are really more "office" like and relative risk. When it comes to those insurance issues like general liability (which you may have in your office) and PLI, you would incorporate the costs in your own line item for overhead and profit. The difference is, architects are less likely to disclose the details of their fees and how it breaks down along materials/supplies & labor from that of overhead expenses and profit margin. 

Contractors are generally required to be more transparent about their fees and the break down but architects are not always required as often to do that. I know there are cases where they are and that is usually a requirement of clients (some public entity clients for example).

May 6, 22 4:15 pm  · 
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SneakyPete

You're out of your element.

May 6, 22 4:48 pm  · 
1  · 

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