GUC – German University in Cairo
Architecture and Urban Design
ARCH 702 Legislation, Professional Practice and Contracts Fall 2017 Instructor: Dr. Yasser Mahgoub
Fees 2
1
Services and Compensation
III. Compensation methods From cost to price Compensation (fee) proposal How will the architect be compensated? Lump sum fee Construction cost Unit costs Repetitive units Combination of these approaches
Services and Compensation
III.1. Stipulated sum (Lump sum) Fixed amount of compensation. Tied to specific set of services to be provided. Then some form of cost-plus compensation
Services and Compensation
III.1. Stipulated sum (Lump sum) ď şWhen project scope and quality are well defined ď şWhen client and architect have a shared understanding of what is required to provide professional services.
Services and Compensation
III.1. Stipulated sum (Lump sum) Clients like stipulated (lump) sum because they establish price up front. Encourages efficiency in the architect's firm. Unknowns may cause substantial losses
Services and Compensation
III.2. Cost-plus-fee approaches (C+) Compensate architects on basis of actual time and expenses incurred in providing services. Variations include: Multiple of Direct Salary Expense (DSE) Multiple of Direct Personnel Expenses (DPE) Hourly or daily billing rates Percentage of construction cost Unit-cost methods Repetitive projects Evaluating compensation methods
Services and Compensation
III.2.a. Multiple of Direct Salary Expense (DSE)
DSE * factor that covers indirect expenses (nonsalary expenses) and profit DSE "multiplier" is carefully determined Outside consultant services are typically considered to be reimbursable expenses. "Marked up" to cover the very real costs of coordination, liability, and administration.
Services and Compensation
III.2.b. Multiple of Direct Personnel Expenses (DPE) ď şIncludes staff fringe benefits as part of the base and not as part of the multiplier.
Services and Compensation
III.2.c. Hourly or daily billing rates (/h) ď şCost-plus agreements can be useful when there are many unknowns and when it is difficult or even impossible to establish a stipulated sum at the outset.
Services and Compensation
III.2.c. Hourly or daily billing rates (/h) Unknowns include: variable scope committee decision process complex regulatory approvals stop-and-start progress unfamiliar construction methods
Services and Compensation
III.2.c. Hourly or daily billing rates (/h) From the owner point of view, the advantage of costplus approaches when levels of uncertainty is high From the architect's point of view, the advantage of cost-plus approaches help guard against losses.
?… BUT …? Limit profit possibilities and increase paperwork (DES or DPE multipliers) and client reviewing the firm's books.
Services and Compensation
III.2.d. Percentage of construction cost (%)
ď şTies compensation to the construction cost of the project and not to the scope of professional services provided. ď şWhile appropriate for some projects, has seen declining use because it can produce inequities (unfairness) for both the owner and the architect.
Services and Compensation
III.2.d. Percentage of construction cost (%)
This approach: ď şAssumes that the cost of providing service, or the value of those services to the owner, relates to the amount the owner spends on construction. ď şAllows conditions in the construction marketplace to expand - or contract - the owner's costs and the architect compensation without an equivalent change in the services provided.
Services and Compensation
III.2.d. Percentage of construction cost (%)
This approach: ď şPenalize architects who invest extra effort in reducing construction cost for the owner. ď şProduces a level of compensation that isn't known until the construction contract is established.
Services and Compensation
III.2.d. Percentage of construction cost (%)
Psychological factors that may undermine the owner architect partnership: ď şThe owner may perceive that the architect has no incentive to keep construction cost down. ď şThe architect may lose substantial sums of money simply because the construction bids come in low.
Services and Compensation
III.2.e. Unit-cost methods ď şCost per building (residential development, large franchise operation) ď şRepetitive units (per apartment, hotel room, dormitory bed) ď şFloor area (tenant spaces in office buildings, shopping center)
Services and Compensation
III.2.e. Unit-cost methods
ď şThe assumption is that the initial design work will be repeated and adapted over multiple units and the professional should receive compensation on a kind of "piecework" basis. ď şEarlier units usually require more effort that those that follow.
Services and Compensation
III.2.f. Repetitive projects The initial design may be used in additional projects on the same or different sites. Royalty arrangement or other compensation approaches. Important issues: The first project require substantial research and development investments Fixed costs for developing and drawing successive projects Adaptation for additional sites and climatic and regulatory conditions may be significant Each reuse represents an additional exposure or risk Intellectual property must be carefully considered
Services and Compensation
III.2.g. Evaluating compensation methods
Questions: Does the method permit the architect to cover expenses and provide reasonable profit? Does the method allow changes in compensation during the project as a result of changes in scope of services or events outside the architect's control? Does the method allow the client to estimate or fix (if necessary) the costs of professional services? Does the method encourage the client to cooperate in pursuing the project? Is the method easy to understand and simple to use?
Services and Compensation
Services and Compensation
III.2.g. Evaluating compensation methods
There is no best method of compensation; each has advantages and disadvantages, and each may be more or less appropriate in a particular situation.
Services and Compensation
IV. Project Pricing and Proposals IF the owner has fixed the fee to be paid Evaluate the owner's proposal against what's best for the project and the firm Propose changes in scope or in compensation. Some clients look only to their immediate bottom line without regard to the architect's costs, needed profit, and value added.
Services and Compensation
IV. Project Pricing and Proposals
Adequate compensation for the architect is in the client's best interest because it provides the architecture firm with the wherewithal to deliver the appropriate level of service.
Services and Compensation
The compensation (fee) proposal Proposed compensation method (or methods) The amount Terms and conditions
Services and Compensation
Services and Compensation
Services and Compensation
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The Pricing equation
Rules of thump based on your practice: Hours per sheet of drawings or specs (by project type) Monthly allowances for direct office expenses (by project type) Hours per square foot or meter of building (by project type) Fee as a percent of construction cost (by project type)
Services and Compensation
The Pricing equation
Cost + Profit It is a business expense!
+ Marketing cost Negotiations, preparing and signing contracts.
+ Contingency A factor based on project complexity, client, and scope of project
Services and Compensation
The Pricing equation
+ Added value. The strength and weakness of the market, Your position within it in the mind of the client, How much competition is there, How important is this project to you, and How much room will you have to negotiate.
= Your price proposal
Services and Compensation
The Pricing equation
Project Cost + Profit + Marketing cost + Contingency + Added value =
$Your price proposal$
Services and Compensation
Services and Compensation
The Pricing equation
The fees of the architect should be considered as a wise investment and not just an added expense.