If you are not confident about how long it may take (typical remodel), I would go T & M for sure. The client will probably want a range of hours estimated and a not-to-exceed number to go with that, unless they have more dollars than sense.

Since it is your first client, and a small renovation job has the highest degree of unknown conditions, and the kitchen/bath/spa combo can be pretty intensive in terms of drawings and research. I suggest you stick with a percentage of construction, know their budget, and work backwards to figure out how many hours you can give it. As to what percentage, it really varies based upon local custom. However the range is typically between 10 and 20%. Hopefully your client will use a negotiated bid with a preferred GC. That'll give you access to the GC during design so you don't spin your wheels and working with a good GC can save you from having the generate lots of CYA details. Have fun.

Like a wounded bull.

Or like fro9k, give an estimated amount of hours, and a lump sum figure with a 'will not exceed clause'.

Be very conservative with the hours you deem necessary - it will almost always take longer, and include time for talking to subconsultants, authorities etc.. Make sure that the lump sum and hourly rate are compatible so that you are not being paid $12, or $112 an hour - unless you want to charge them this.

If you are doing this after hours, then let them know this. I find [I do this relatively frequently] that I cant openly talk or visit to contractors and authorities, so you may have to pass this responsibility onto the client.

Finally, make sure that you are not overcommitting your energy and time. If the client and job are going to suffer, then you should'nt do it - you're reputation is paramount. But it sounds like this is doable to me.

Have phun.

I meant: "I cant openly talk or visit to contractors and authorities during work hours"

Of course, this lump sum figure should be a percentage of the construction budget, as per el jeffe...

Hourly rate to a max. set fee with a very, very specific scope of work defined. On a small job the cost estimating is problematic and not a reasonable way to determine a fair fee. on some small jobs the % of construction budget can give a widely varied fee that really doesn't reflect the work and effort made by the designer. We charge fees in all sorts of ways to best suit the client and / or the job.

Just make sure they are okay with the fee before you start. Its an awkward part of the business but as anbody will tell you it has to be done, and you should be confident about your skills to justify the fee charged.

Has anyone found the Guidelines documents to be helpful? I have several of his publications including a copy of the Fees 2002 and wonder how accurate they are (were) sometimes.

personally if i were a client knowing what i know now about architectural practice, i would never pay an hourly fee. but this will be our little secret.

oh great, now the party's over - thanks vado....

i agree with the lump sum as being best in this situation with a set not to exceed amount and then if they want more work out of you charge them an hourly fee.

you should draw up a contract too that defines the scope of work so you don't get shafted

one of my mentors told me on a job like this decide what you want to get paid by the hour and then double or triple it.

don't sell yourself short

I think you should be more worried about how you will design within their budget without being able to estimate costs closely than how much you will charge. We also charge differently depending on client, but usually go with percentage of construction cost or hourly. For hourly, we give an estimate and tell them it usually amounts to between x and x percent of the final budget (anywhere from 6-15% depending on what is required).
It is definitely tricky with small jobs and generally we feel like we never charge enough, it's just not worth it. So, think of it as a learning experience rather than a money-making one. Then, be very clear with the clients as to expectations, their budget, etc. Be sure to include in your contract and highlight with them that you can only give them a rough estimate and that you have no control over the cost of construction materials, labor, etc. Almost invariably, we find that clients start out with a certain budget, then we start designing within that, they add scope and tell us to just give them an estimate at the end (we also do construction), and what they want far exceeds what they want to spend. Sometimes they come up with the xtra money, sometimes we value engineer (which is a waste of our time because we had already told them their budget would be exceeded but they told us to go ahead anyway, then we have to scale it back just like we told them), sometimes they don't do the project at all. But no one has ever been satisfied with what we've told them they can afford for their budget.
You learn these things with experience, but you really have to be firm and not give them everything they ask for. Also, depending on where you live and what the permit process is like, it can take more or less time and the amount of detail you'll need on the drawings varies as well. It also depends on whether they hire a good contractor or a shitty one, how well you work with the contractor. There are so many factors!
Ideally (esp. if you know these people well and they trust you), I would pick a fair/low hourly rate, tell them design fees might add up to 10-15% of the construction cost, and then just start working. But make sure you have a good contract, even if they are friends or family. It's just not worth arguing over something that could be clearly laid out from the beginning.

Thanks for all the great feed backs!
Any good suggestion about where should I start with the contract? Should I use AIA ones to edit?

AIA B151 - abbreviated standard form of agreement between owner & architect is pretty good - you'd have to replace architect with designer if you aren't licensed, or make your own but read it very carefully to be sure you really know what it is you're ommitting. I think the most important parts are definition of scope of services, architect/desigers and owners responsibilities, compensation (including reimbursables), responsibility for construction cost and dispute resolution. Also make sure you get a program or wish-list and budget in writing before you start. Ask for a retainer (even a small one) and make sure you bill regularly (every 1st or 15th of the month, for example). Good luck!

Thanks Rudolph for the detailed information. I'm licensed, but don't have stamp yet, maybe it's a good chance to get one.
Since it's a friend, I wonder if the contract is too formal will turn him off. But the whole purpose is not making money for this project but to start up a business model for future, so maybe it's better to start formal.

I think the AIA contract lacks a lot for a small residential project. I use one that is an expanded letter form. I add lots of really clear clauses like that I limit my liabiltiy to the amount of my fee, that i am not responsible for construction costs, that they should expect things to come up during renovation that are unexpected, and that things in wall that I could not forsee are normal, not an error, etc. It has worked pretty well. I will email you a copy if you post your email. Also, I always do the preliminary design for a fixed fee, then give them the fee for the rest of the project. This gives me a chance to see how they are to work with, how "needy" they are, do they drag out meetings, how do they make decisions, etc. I usually do a fixed fee cause thats what most people feel comfortable with, and my fees are usually about 15% of the costs on a smallish job, about 10% on large jobs.

not having a contract breaks friendships.

I fully agree with archie on the issues he brought up with the AIA contract - we have some detailed info on scope and issues that could come up (especially when dealing with the building dept. because we're in LA) that we add as part of the contract. We also generaly charge separately for a "feasibility study" for larger projects where we work on the scope, budget and code issues. But for smaller projects (like a bathroom remodel), we just go with hourly. Percentage of construction cost has worked for us so far, but it's not perfect...