The document discusses various methods for defining an architect's services and compensation for a project. It describes selecting services from a menu, using predefined packages, and defining services when the full scope cannot be determined upfront. For compensation, it discusses lump sum fees, cost-plus approaches tying compensation to hours worked or a percentage of construction costs, and unit pricing for repetitive projects. The key factors in selecting the appropriate approach include the project scope, level of unknowns, and balancing the needs of the client and architect.

1. Services and Compensation

2. Services and Compensation Part 1

3. Introduction Project planning and pricing identify both the services and the compensation appropriate to the needs of the project. The architect proposes the services to be provided and a compensation for those services.

4. The Fees Proposal EARLY in the selection process To be formulated LATE in the discussion An owner's Request for Proposal (RfP) Series of proposals …….. Verbally (not recommended) Thick " package " Sometimes there is NO proposal ! The client offers terms of what appears to be a " take it or leave it " basis!!!

5. I. The Architect's Services What are the services that the architect proposes to provide ? What services are appropriate to meet the owner's objectives ? What will it take to define the scope of the project ?

6. I.1. Options for defining services I.1.a. Selecting from a " menu ” I.1.b. Using a predefined " package " of services

7. I.1.a. Selecting from a "menu" Owner and architect working from a menu of possible choices . Select a complement of services specifically appropriate to the project at hand. Owner-Architect Agreement for Designated Services. Kuwait Society of Engineers Documents.

8. I.1.a. Selecting from a "menu"

9. I.1.a. Selecting from a "menu"

10. I.1.a. Selecting from a "menu"

11. I.1.a. Selecting from a "menu"

12. I.1.a. Selecting from a "menu"

13. I.1.a. Selecting from a "menu"

14. I.1.a. Selecting from a "menu"

15. I.1.a. Selecting from a "menu"

16. I.1.a. Selecting from a "menu"

17. I.1.a. Selecting from a "menu"

18. I.1.b. Using a predefined "package" of services Basic services Additional services

19. I.1.b. Using a predefined "package" of services Basic services are divided into five phases: 1. Schematic design 2. Design development 3. Construction documents 4. Bidding or negotiation 5. Construction contract administration

20. I.1.b. Using a predefined "package" of services Other services packages include: Small projects and projects of abbreviated scope Interiors (furniture, fixtures, and equipment) projects Projects involving construction management services Design/build projects

21. I.2. When services cannot be defined Work with the client to: Define the project Establish project requirements Identify the remaining services necessary to take the project to completion

22. I.2. When services cannot be defined Compensation methods: lump sum hourly cost basis

23. Services and Compensation Part 2

24. II. Project planning and budgeting The Project Plan Carefully constructed and formally drawn Quick calculation based on lots of comparable experience

25. II. Project planning and budgeting Project planning offers important opportunities : It helps the architect and the owner think through the project . It helps both parties identify the professional services that are important to the project's success. It helps the owner understand his role in the project (responsibilities, decisions, approvals, and implications)

26. II. Project planning and budgeting Project planning offers important opportunities : It helps the architect structure the appropriate design team for the project. It helps the architect understand how the project will affect the firm , its people, priorities, and other projects. It helps both owner and architect build a foundation for the owner-architect agreement to follow.

27. II.1.a. Bottom-up planning Starts with the tasks to be performed Identifying who will do them How much time each task will take What each task will cost The total cost is the proposed price ( compensation or fee )

28. II.1.b. Top-down planning Starts with the compensation or fee available to do the project. Backs out the money available for various project tasks .

29. II.2. Tasks and responsibilities Decide if the task is to be provided: By the architecture firm , with its own staff By the architect, subcontracted to a specialist consultant By another consultant to the owner By the owner with its own forces

30. II.2. Tasks and responsibilities Ideas to identify tasks and responsibilities: Review the deliverables being promised to the owner Who is likely to accomplish it (assistance, backup, and supervision) Key project tasks (approvals) even if they are not with the architect's scope of service) Include project management as a task (expertise, time, and resources)

31. II.3. Project schedule Construct a schedule for professional services. How long will it take to accomplish each task? How are the tasks related to each other? What are the milestone dates to be met?

32. II.3. Project schedule Simple Milestone chart indicating major tasks or phases with target completion dates.

35. II.3. Project schedule More elaborate Bar Charts .

37. II.3. Project schedule Critical Path Method (CPM) networks and schedules.

41. II.3. Project schedule Suggestions: Use the task list Include activities that may influence the schedule Discuss contingencies to provide the owner with flexibility for considering options and possibilities. Consider an interactive approach that involves key people, consultants, the owner, and outsiders

42. II.4. Costs of providing services First-cut-budget The expenses that will likely be incurred in performing the services.

43. II.4. Costs of providing services Cost of providing the services " No brainer" Based on recent very similar projects for the same client. " Built up" Based on the cost of providing services . " Start from the other end " A client-nominated amount .

44. II.4. Costs of providing services Ways to cost services Make " cartoon set " of the drawings to be provided Estimate parallel that of a recent similar project

45. II.4. Costs of providing services Step-by-step buildup of the cost of providing services: for each task: who, how many hours totaling the hours X each person's hourly rate = total Direct Salary Expense (DSE) for in house staff + payroll burden OR X DSE multiplier (1.25) = total Direct Personnel Expense (DPE) + non-reimbursable direct expenses = totals for each phase + contingency + profit = total project expenses

46. II.4. Costs of providing services Suggestions: Work at an appropriate level of detail : Project - Phases - Tasks Document the internal budget carefully so you can use this information as a yardstick for measuring progress Don't neglect the costs of project management . Require senior management time and important to project success Course corrections Develop cost estimates in spreadsheet form on the computer. "what if" analysis.

47. II.4. Costs of providing services Suggestions: Involve the people who will be performing the work in the process. Track project expenses by task or phase Build historical database you can use in budgeting future projects Types of projects that the firm does best and that earn satisfactory profits as well as those that require extra expenses, more time, and/or higher profit margin.

48. III. Compensation methods The are two fools in every market; one asks too little , one asks too much . Russian proverb

49. 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

50. 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

51. III.1. Stipulated sum (Lump sum) When project scope and quality are well defined When client and architect have a shared understanding of what is required to provide professional services.

52. 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

53. 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

54. III.2.a. Multiple of Direct Salary Expense (DSE) DSE * factor that covers indirect expenses (non-salary 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.

55. III.2.b. Multiple of Direct Personnel Expenses (DPE) Includes staff fringe benefits as part of the base and not as part of the multiplier.

56. III.2.c. Hourly or daily billing rates (/h) Cost-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.

57. 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

58. III.2.c. Hourly or daily billing rates (/h) From the owner point of view , the advantage of cost-plus 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.

59. III.2.d. Percentage of construction cost (%) Ties compensation to the construction cost of the project and not to the scope of professional services provided . While appropriate for some projects, has seen declining use because it can produce inequities (unfairness) for both the owner and the architect.

60. III.2.d. Percentage of construction cost (%) This approach: Assumes that the cost of providing service , or the value of those services to the owner, relates to the amount the owner spends on construction . Allows 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.

61. III.2.d. Percentage of construction cost (%) This approach: Penalize architects who invest extra effort in reducing construction cost for the owner . Produces a level of compensation that isn't known until the construction contract is established .

62. III.2.d. Percentage of construction cost

63. III.2.d. Percentage of construction cost (%) Psychological factors that may undermine the owner architect partnership: The owner may perceive that the architect has no incentive to keep construction cost down . The architect may lose substantial sums of money simply because the construction bids come in low .

64. III.2.e. Unit-cost methods Cost per building (residential development, large franchise operation) Repetitive units (per apartment, hotel room, dormitory bed) Floor area (tenant spaces in office buildings, shopping center)

65. III.2.e. Unit-cost methods The 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. Earlier units usually require more effort that those that follow.

66. 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

67. 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 ?

69. 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.

71. III.2.g. Evaluating compensation methods

72. III.2.g. Evaluating compensation methods

73. 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.

74. 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.

75. The compensation (fee) proposal Proposed compensation method (or methods) The amount Terms and conditions

76. 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)

77. 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 The Pricing equation

78. + 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 The Pricing equation

79. Project Cost + Profit + Marketing cost + Contingency + Added value = $Your price proposal$ The Pricing equation

80. The fees of the architect should be considered as a wise investment and not just an added expense. The Pricing equation

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