Live by the G die by the G. Im not sure the architect can negotiate the type of fee without some sort of council action/approval process - I think Steven Wrad is experianced with public schools and how to structure the contracts - shoot him an email

Yikes...Do you know if the contractor has a history of low-balling the bids and then coming back later with tons of change orders during construction?

All the bids were withing about 8%. The economy finally caught up with us.

And we actually do have a pretty good relationship with the winning contractor.

bastards... looks like it's definitely time for graduate school.

Did I hear right, the contract was based on a percentage of the bid, not a percentage of the final construction cost?!?

time for new estimator?

We deal with the same thing all the time. We are generally pretty close, but every once in a while, we'll have a project that hits at a weird time for construction that will get really competitive bidding, and we'll get a winning bid significantly under the projected cost. Maybe an upgrade in finishes can be considered?

One time, the bid left enough money for the Owner to start another project. So we got to design 2 projects for the projected price of one. Yay us!

Liberty, if its like the work we do with schools, the bid price is the contract price. Change Orders and such will affect the bottom line, but generally not by much, since a contingency is usually built in.

i just got out of a AIA BIM VDC lunch where the presenter was Butler who presented a cost estimation BIM software they make, maybe you can contact them and get them to run the big through their application?

Tom Waldron PE
714 832 2227
[email protected]
www.butlermfg.com

Public work is a real problem. Notwithstanding the occasional public project that is an award-winning design that gets lots of press, doing public work is a mostly unrewarding experience...especially when it comes to compensation. I would argue that governmental agencies (from local to federal), school districts, even public university systems, are a major factor in the overall low fees that design professionals receive. Think about it. Public agencies control a huge amount of the total design/construction work available. It is rare to find a public agency that does not have a fee schedule for design services. In some cases, these fee schedules are even legislated. Many of these fee schedules have been in place since the 1960s or 70s and have never been changed to account for computer technology, increased complexity of building technologies, or any other factor. The agencies know full well that they have nearly monopolistic buying power and they use it to maximum advantage. Someone mentioned "negotiating" a contract, above. Well, you will rarely find a public agency that will negotiate anything of substance, especially fee. Public design contracts are offered on a take it or leave it basis. Why do design professionals keep doing this work under these conditiions you ask? Because, as stated above, public work is a huge portion of the work available. If you decide you simply will not do public work, you are eliminating a huge pool of projects, Design professionals keep going back for more because they need to generate the cash flow (and many firms will even justify taking a loss or breaking even just to maintain cash flow). The larger your firm gets, the more difficult it becomes to turn you back on the largest portion of work available. You have to feed the machine somehow.

I personally find it extremely ironic that any time two architects get together in a back room and talk about fees the Justice Department calls it "price fixing," but when any governmental agency sets artificial limits on the fees it will pay for services across a huge portion of the work available, it is perfectly legal.

lb's right. it should be based on final construction cost. for a public school, for example, you should get compensated (whether plus or minus) for each change order.

but, yeah, if this project actually gets built for $1.9m, your fee is based on that. them's the breaks.

(and, yes, we've also been on the wrong end of this deal.)

I'm assuming most people reading this thread will already know this, but in case any interns are reading, here is what we write into our contracts (for custom residential and remodel) to avoid this problem:

1. The percentage rises and falls along with construction cost, and at the end we adjust our final invoice to reflect the percentage of what actual construction cost ended up being.

2. We define the project scope in our contract, and note that if scope changes "significantly" we are allowed to either include the additional construction cost in the percentage or renegotiate the contract. Since significantly is open to interpretation, we tell clients in the meeting when they are suggesting something significant, then back it up with either formal meeting minutes or at least an email saying that the significant change clause is about to go into effect.

3. Since so much of our work is selections-based, we offer "up to three alternatives" for design schemes, materials, furnishings, etc. If we offer three and they don't like any of them, an hourly rate kicks in.

the actual percent changes? like 5% for one cost and 6% for a lesser cost?

'cause, if not, that's where joshcookie's dilemma stings. if you've billed through cd's under the assumption of one budget and then the project comes in less, you are npt doing nearly as well as you were before bids.

we have a project under construction right now for which the budget (put together by the c.m. using info from the same contractors who ultimately bid the job) was $9m. because they were hungry at bid time, contractors' bids came in at about $8m. our billings were therefor $40k ahead, now, based on the new contract basis. we're discounting this $40k across the rest of the construction period billings.

Sorry, I got lost there. We've never changed an actual percent figure, it just rises and falls as a constant percentage of a changing total. (And honestly, our residential remodel work never comes in under the assumed budget - because we know our very small corner of the market so well.)

I have, however, worked in a firm where the contract called for:

x% if the cost is below $y
x-1% if the cost is between $y+1 and y+3
x-2% if the cost is above y+3

which protects you somewhat.

To your second paragraph, though, Steven: don't the AIA contracts allow for a projected project cost and the option to adjust the final fee if the project budget differs significantly from that figure? Though I suppose public entities like schools don't allow AIA contracts.

wait, what's a contract? i must have missed that class...

The three largest firms in our neighborhood negotiated a model contact for the public k-12 schools in the area with the office of education. It stipulates that the contract amount is for 11% for the first million, 10% the second, etc. of the bid amount. We do get to increase for change orders that increase the cost of construction, but we aren't going to change order for 1/4 of the project budget, we would never work here again.
It is such a one sided way of doing things, we take ALL the risk, if the bid comes in high, the district rejects the bids, and we do MORE work to "value engineer" the project lower, so that we can get LESS money for our effort. I'm still a little steamed about it, I'll probably sleep it off and get busy on those change orders..

hm. we're also actually held (by a sort of verbal agreement with the school board only) to keeping change orders down to around the 1% range. 2% would be scandalous.

you're right, joshcookie. it IS one-sided. the project before the one i described above, same client, bids came in about $700k too high and we spent 2wks devalue-engineering the project to get most of that out. 2wks of our time, at no additional cost to the owner. (again, the discrepancy in budget>bid was a construction manager estimating issue.)

and then, because you can never really do well in 2wks what took 6mos to do the first time, there were change orders to answer for when things didn't quite work out. we have to defend EVERY change order to the board in person at the monthly board meeting.

you do what you do to keep the relationship. we've just gotten our 7th and 8th projects with the same school board.

architecture is hard. somehow, though, we make money and we live well and carry on.

11% or 10% fees, by the way, sound heavenly. kentucky department of education keeps us down in the 5%-7% range - and no that's not just for architectural services only.

I would argue that you should never allow your fee to float with the construction cost. Owners would (and thankfully, some do) worry that an arrangement like that eliminates any possible incentive for the architect to try and lower the cost of their design. Pick a point during the project where the fee will become fixed based on a solid cost estimate at that point in time). Scope increases after that date are, of course, additional services. If the project comes in over budget after the point where the fee is fixed, you may be responsible for some value engineering (or devalue engineering - I like that term better), but your fee should definitely not suffer if you have done a great job and/or the market conditions drive the bid prices down. And, yes, I am well aware that doing what I describe here is much more difficult than it sounds. As I said in my earlier post, public clients (in particular) will almost never allow you this kind of reasonable approach to fees.