Does anyone have any experience proposing fees for a single-family home design that a developer client can potentially sell and build multiple times?
Would it be appropriate to charge a commission on each additional home built?
If anyone has any tips or additional provisions to include in a fee proposal it would be appreciated.
Non Sequitur
Feb 2, 22 1:17 pm
What did your insurance provider and legal counsel tell you?
Chad Miller
Feb 2, 22 2:32 pm
At the very minimum I would charge them the profit you'd make on the original design. AKA - if your architectural fee was $10,000 (just a round number), and your profit margin was 15%, then charge at least $1,500 each time they use your design to build the same structure.
Obviously these numbers are just for example purposes.
You'll also need a well written contract that doesn't hold you liable for the additional structures and clearly defines how and when you'll be paid for each additional structure.
geezertect
Feb 3, 22 4:52 pm
You'll still be liable for third-party lawsuits.
Non Sequitur
Feb 3, 22 5:20 pm
what about 4th party lawsuits?
rcz1001
Feb 3, 22 5:45 pm
I would charge profit margin + overhead (namely what impact that will have on your insurance premium would be for the increased liability over the period of statutes of repose) + cost to make modifications to the plans for each building site and adjustments for regulatory requirements that may differ + additional print costs if you are printing them, and then add 30-50% to the sum. It's not all about the price you have to cover. You also have to establish indemnification. If you aren't going to be modifying the plans then any modification shall be prepared by the party who will be making those changes AND they shall be responsible for the changes made. If it was me, I would require that they use my services for modifications unless project is located in some place I can not provide said services and then they must use a local professional there to work on it and then there will be indemnification clauses requiring the client to hold you harmless and defend you from third-party claims. Now, of course, you can potentially face third-party lawsuit so you should carry coverage associated for this project and the costs for such for a period of 10-20 years would in the fees. Note: In following Chad's example, it would actually be more than $1500. If insurance a year for coverage for each project. So, lets assume we are looking at 10 years coverage (depending on locality) at such was say was costing about $200 each (as that may be discounted as well as your maybe a lower amount per occurance or something).... that's $1500 profit + $2000 project liability insurance coverage (might need to check what that may cost so I'm kind of guessing here) + $250 overhead + ($0 to say $50 x 50-100 hours.... for up to $5,000) + 30-50% would range from $4875 to $13,125. Most likely, we are looking at $5000 to $10,000 each. First of all, I would have likely charged on the first one a higher fee than $10,000 but reality is the extra 30-50% would also be contribution margin in addition to that base profit. Also accounting for the factor of inflation. Additionally, to contain or limit liability, I might limit the license to a geographical area where the license is permitted AND also for a limited period of time. You get paid, whether or not they end up building it or not. Plus the license expires after say... 5 years. So if they sit on it and don't do anything, they have to relicense for it which means you may increase the price for inflation.
rcz1001
Feb 3, 22 5:46 pm
Obviously, I don't get a lot of developers asking for my building design services. I'm not the cheapest and I am not going to take it up the ass if some buyer of the homes sues me.
rcz1001
Feb 3, 22 5:50 pm
Also I suggest to take note of what proto said below. All four points proto made.
This increase in rates may be a factor that I would need to consider for each over the period of the statutes of repose and statutes of limitations. Namely, what do I have to pay out more in terms of insurance for each one they want to build. Then that would be in my figures for the liability insurance coverage (whether that is project liability insurance or the difference in cost that is increased on the regular professional liability E&O insurance) and factor for 10 or 20 years.
rcz1001
Feb 3, 22 5:54 pm
AGAIN I will also echo what Non Sequitur said. Geezertect's point is also valid concern to address.
proto
Feb 2, 22 2:55 pm
no direct experience, but a few thoughts/questions:
1) your e&o is priced by the total of construction cost you have in a given year - how much more is it going to cost if you have 50 of these?
2) what is your professional liability to produce more than one of these? does multiplication change the exposure?
3) what modifications may be necessary to the permit docs depending on the locality they go up in? how much CD billing will come from the future deployments?
4) what is your role in the profit sharing strategy of deploying these?
axonapoplectic
Feb 4, 22 11:46 am
I would contract only up through DD. Owner assumes all risk unless they hire you for CDs/CA.
Does anyone have any experience proposing fees for a single-family home design that a developer client can potentially sell and build multiple times?
Would it be appropriate to charge a commission on each additional home built?
If anyone has any tips or additional provisions to include in a fee proposal it would be appreciated.
What did your insurance provider and legal counsel tell you?
At the very minimum I would charge them the profit you'd make on the original design. AKA - if your architectural fee was $10,000 (just a round number), and your profit margin was 15%, then charge at least $1,500 each time they use your design to build the same structure.
Obviously these numbers are just for example purposes.
You'll also need a well written contract that doesn't hold you liable for the additional structures and clearly defines how and when you'll be paid for each additional structure.
You'll still be liable for third-party lawsuits.
what about 4th party lawsuits?
I would charge profit margin + overhead (namely what impact that will have on your insurance premium would be for the increased liability over the period of statutes of repose) + cost to make modifications to the plans for each building site and adjustments for regulatory requirements that may differ + additional print costs if you are printing them, and then add 30-50% to the sum. It's not all about the price you have to cover. You also have to establish indemnification. If you aren't going to be modifying the plans then any modification shall be prepared by the party who will be making those changes AND they shall be responsible for the changes made. If it was me, I would require that they use my services for modifications unless project is located in some place I can not provide said services and then they must use a local professional there to work on it and then there will be indemnification clauses requiring the client to hold you harmless and defend you from third-party claims. Now, of course, you can potentially face third-party lawsuit so you should carry coverage associated for this project and the costs for such for a period of 10-20 years would in the fees. Note: In following Chad's example, it would actually be more than $1500. If insurance a year for coverage for each project. So, lets assume we are looking at 10 years coverage (depending on locality) at such was say was costing about $200 each (as that may be discounted as well as your maybe a lower amount per occurance or something).... that's $1500 profit + $2000 project liability insurance coverage (might need to check what that may cost so I'm kind of guessing here) + $250 overhead + ($0 to say $50 x 50-100 hours.... for up to $5,000) + 30-50% would range from $4875 to $13,125. Most likely, we are looking at $5000 to $10,000 each. First of all, I would have likely charged on the first one a higher fee than $10,000 but reality is the extra 30-50% would also be contribution margin in addition to that base profit. Also accounting for the factor of inflation. Additionally, to contain or limit liability, I might limit the license to a geographical area where the license is permitted AND also for a limited period of time. You get paid, whether or not they end up building it or not. Plus the license expires after say... 5 years. So if they sit on it and don't do anything, they have to relicense for it which means you may increase the price for inflation.
Obviously, I don't get a lot of developers asking for my building design services. I'm not the cheapest and I am not going to take it up the ass if some buyer of the homes sues me.
Also I suggest to take note of what proto said below. All four points proto made.
This increase in rates may be a factor that I would need to consider for each over the period of the statutes of repose and statutes of limitations. Namely, what do I have to pay out more in terms of insurance for each one they want to build. Then that would be in my figures for the liability insurance coverage (whether that is project liability insurance or the difference in cost that is increased on the regular professional liability E&O insurance) and factor for 10 or 20 years.
AGAIN I will also echo what Non Sequitur said. Geezertect's point is also valid concern to address.
no direct experience, but a few thoughts/questions:
1) your e&o is priced by the total of construction cost you have in a given year - how much more is it going to cost if you have 50 of these?
2) what is your professional liability to produce more than one of these? does multiplication change the exposure?
3) what modifications may be necessary to the permit docs depending on the locality they go up in? how much CD billing will come from the future deployments?
4) what is your role in the profit sharing strategy of deploying these?
I would contract only up through DD. Owner assumes all risk unless they hire you for CDs/CA.