Guc arct 702 legislations lecture 7 - fees 2 9-11-2017

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

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

When project scope and quality are well
defined
When client and architect have a shared
understanding of what is required to provide
professional services.

Clients like stipulated (lump) sum because
they establish price up front.
Encourages efficiency in the architect's firm.
Unknowns may cause substantial losses

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

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.

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.

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.

Unknowns include:
 variable scope
 committee decision process
 complex regulatory approvals
 stop-and-start progress
 unfamiliar construction methods

 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.

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.

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.

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.

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.

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)

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.

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

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?

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.

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.

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.

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

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)

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

+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

Project Cost +
Profit +
Marketing cost +
Contingency +
Added value =
$Your price proposal$

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

Guc arct 702 legislations lecture 7 - fees 2 9-11-2017

Guc arct 702 legislations lecture 7 - fees 2 9-11-2017

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Guc arct 702 legislations lecture 7 - fees 2 9-11-2017