AIA Cleveland
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Negotiating and Compensation

NEGOTIATING AND COMPENSATION

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The formal agreement between you and your architect is an opportunity to ensure that you both envision the same project, requirements, and expectations. Before committing these to paper, use the steps presented below to identify any items that may have been missed.

Establish project requirements with these crucial questions:

  • What is to be designed and built?
  • Where will (or might) it be built?
  • What is the level of quality?
  • What is the role of the project in your life, your community, and/or your business?
  • What are the scheduling requirements or restraints?
  • What is the target date for completion?
  • What are the budget and sources of financing?
  • Who are the anticipated key team members?

Describe project tasks and assign responsibility for each one
You and your architect should clarify the administrative, design, and construction tasks essential to successfully completing the project, as well as the services required and who will be responsible for each of them.

Identify your schedule requirements
Place all tasks on a time line, estimating duration for each, and identify those that, if delayed, will postpone completion of your project. Compare the time line with your target completion date and adjust one or both as appropriate.

Take a critical look at the results
Good project schedules allow enough time for decision making. Is your schedule reasonable, particularly given the project’s requirements and budget? Have you allowed enough time to review the architect’s submissions, receive any necessary approvals, and make your decisions?

The owner-architect agreement
If you have done your homework, the written contract should follow without difficulty. One thing to remember: As with medical or legal services, architecture is not a product that can be perfectly quantified, and just like your doctor or lawyer, your architect typically does not warrant or guarantee results. As a provider of professional services, an architect is required to perform to a professional standard. Courts recognize this, and so too must responsible clients.

 

COMPENSATING YOUR ARCHITECT

The fee an architect receives depends on the types and levels of services provided, and the formal agreement you develop jointly with your architect will be an excellent basis for a compensation proposal. There are a number of commonly used payment structures—compensation may be based on one or more of them—and arriving at the one that is fairest to both client and architect requires thoughtful consideration.

The payment methods and terminology below are commonly used by architects in either contracts or conversation. This brief overview should help you better understand how architects are paid for a project.

Time-based methods

  • Multiple of direct personnel expense multiplies salaries plus benefits by a factor representing overhead and profit.
  • Professional fee plus expenses includes salaries, benefits, and overhead as the expense, and the fee may be a multiplier, percentage, or lump sum.
  • Hourly billing rates include salaries, benefits, overhead, and profit in rates for designated personnel.

Stipulated sum: Compensation is stated as a dollar amount.
Percentage of cost of the work: Compensation is calculated by applying an agreed-upon percentage to the estimated or actual cost of the work.
Square footage: Compensation equals the square footage of the structure multiplied by a pricing factor.
Unit cost: Compensation is based on the number of units such as rooms and apartments.
Royalty: Compensation is a share in the owner’s income or profit derived from the project.

 

QUESTIONS AND ANSWERS

Before signing on the dotted line with your architect, review the frequently asked questions below to make sure the agreement with your architect is informed and accurate.

Suppose my project has many repetitive units. Does it make sense to use these as a basis for compensation?
Will the number of units bear a reasonable relationship to the responsibilities of the architect? If the answer is yes, unit cost may be an appropriate method of compensation.

When does it make sense to consider hourly compensation?
It makes good sense when there are many unknowns. Many projects begin with hourly billing and continue until the scope of the project is better defined.

What does a stipulated sum include?
Generally, it includes the architect’s direct personnel expenses, other direct expenses chargeable to the project, indirect expense or overhead, and profit. The stipulated sum does not include reimbursable expenses.

What are reimbursable expenses?
These are out-of-pocket expenses incurred by the architect on behalf of the owner, such as long-distance travel and communications, reproduction of contract documents, and authorized overtime premiums.

What about payment schedules?
Ask your architect to provide a proposed schedule of payments. Such a schedule will help you plan for the financial requirements of the project.

What other expenses can the owner expect?
These may include site surveys and legal descriptions, geotechnical services, required technical tests during construction, an on-site project representative, and the necessary legal, auditing, and insurance counseling services needed to fulfill the client’s responsibilities.

What if too little is known about the project to determine the full extent of professional services in advance?
If this is the case, then engage the architect to provide project definition and other predesign services first, with remaining phases and services to be determined later.