Therefore, the owner can’t claw back fee as they reduce cost of the work.
The architect is protected from scope reductions through contractual language that indicates the fee is updated based on the most recent budget or estimate and past payments are not affected by those updates. Owners also worry that the architect has little incentive to look for cost reduction opportunities since their compensation increases when the building costs more. The biggest drawback for both owner and architect is that the design fee can fluctuate significantly over the duration of the project as scope is added or removed and as market demand for construction fluctuates. However, the AIA agreed to stop providing those recommendations. This method was much more common historically when the AIA published recommended fees based on construction cost, building type, and complexity. Fee as a Percentage of Construction CostĪ less common method of compensation is the fee as a percentage of the owner’s cost of the work, often referred to as a fee based on percentage of construction cost. Architects must also maintain good communication channels with the owner so they can preemptively warn when the owner’s decisions or process starts to affect the agreed scope. Both the owner and architect should be keenly aware of what services are included and what are excluded to avoid contentious debates. An inefficient design and documentation process can lead to increased costs that cannot be passed along to the owner.Īs we will discuss below, it is absolutely critical that the scope of services is well defined to limit exposure for all parties. However, the architect carries the risk of underestimating the amount of work required to provide the instruments of service. The architect is contractually obligated to identify additional services before starting work on them so the owner has a chance to avoid those fees if possible.Īrchitects can benefit from the stipulated sum structure since they know what they will be paid and can increase their profit by being more efficient. However, owners have to properly manage their decision making process to avoid changes in scope, which will lead to additional services costs. Owners like a stipulated sum fee because they can establish a fixed budget at the beginning of the project and everything is included if the scope of services is well defined. The owner and architect agree to the scope of services and the associated fee for that scope.
Lump Sum or Stipulated Sum FeeĪ stipulated sum fee is a fixed fee for a set of services as defined in the contract. The most common alternate to stipulated sum or percentage basis is an hourly fee, but there are some regions and project types where fees are calculated on a unit cost basis. The AIA B101 Standard Form of Agreement Between Owner and Architect includes options for Stipulated Sum (often called Lump Sum), Percentage Basis, or any other method agreed to by both parties. There are four main compensation structures used in the industry. Fee development takes all of those into account. We will cover the four types of fee structures, what is and is not included in standard fees, a series of principles to consider when developing an architectural design fee, and then we discuss four ways to build a competitive and profitable fee.Īrchitects, interior designers, and engineers should be fairly compensated for the value they offer, the risks they carry, and the effort they apply to a project.