Services and Compensation
Services  and  Compensation Part 1
Introduction <ul><li>Project planning and pricing identify both the  services  and the  compensation  appropriate to the n...
The Fees Proposal <ul><li>EARLY  in the selection process </li></ul><ul><li>To be formulated  LATE  in the discussion </li...
I. The Architect's Services <ul><li>What are the services that the  architect proposes to provide ? </li></ul><ul><li>What...
I.1. Options for defining services <ul><li>I.1.a. Selecting from a &quot; menu ” </li></ul><ul><li>I.1.b. Using a predefin...
I.1.a. Selecting from a &quot;menu&quot; <ul><li>Owner and architect working  from a menu of possible choices . </li></ul>...
I.1.a. Selecting from a &quot;menu&quot;
I.1.a. Selecting from a &quot;menu&quot;
I.1.a. Selecting from a &quot;menu&quot;
I.1.a. Selecting from a &quot;menu&quot;
I.1.a. Selecting from a &quot;menu&quot;
I.1.a. Selecting from a &quot;menu&quot;
I.1.a. Selecting from a &quot;menu&quot;
I.1.a. Selecting from a &quot;menu&quot;
I.1.a. Selecting from a &quot;menu&quot;
I.1.a. Selecting from a &quot;menu&quot;
I.1.b. Using a predefined &quot;package&quot; of services <ul><li>Basic services </li></ul><ul><li>Additional services </l...
I.1.b. Using a predefined &quot;package&quot; of services <ul><li>Basic services  are divided into five phases: </li></ul>...
I.1.b. Using a predefined &quot;package&quot; of services <ul><li>Other services  packages include: </li></ul><ul><ul><li>...
I.2. When services cannot be defined <ul><li>Work with the client to: </li></ul><ul><ul><li>Define  the project </li></ul>...
I.2. When services cannot be defined <ul><li>Compensation methods: </li></ul><ul><ul><li>lump sum </li></ul></ul><ul><ul><...
Services  and  Compensation Part 2
II. Project planning and budgeting <ul><li>The Project Plan </li></ul><ul><li>Carefully constructed  and formally drawn </...
II. Project planning and budgeting <ul><li>Project planning offers important  opportunities : </li></ul><ul><li>It helps t...
II. Project planning and budgeting <ul><li>Project planning offers important  opportunities : </li></ul><ul><li>It helps t...
II.1.a. Bottom-up planning <ul><li>Starts with the  tasks  to be performed </li></ul><ul><li>Identifying  who  will do the...
II.1.b. Top-down planning <ul><li>Starts with the compensation or  fee  available to do the project. </li></ul><ul><li>Bac...
II.2. Tasks and responsibilities <ul><li>Decide if the task is to be provided: </li></ul><ul><li>By the architecture  firm...
II.2. Tasks and responsibilities <ul><li>Ideas to identify tasks and responsibilities: </li></ul><ul><li>Review the  deliv...
II.3. Project schedule <ul><li>Construct a  schedule  for professional services. </li></ul><ul><ul><li>How long will it ta...
II.3. Project schedule <ul><li>Simple  Milestone chart  indicating major tasks or phases with target completion dates. </l...
 
 
II.3. Project schedule <ul><li>More elaborate  Bar Charts . </li></ul>
 
II.3. Project schedule <ul><li>Critical Path Method   (CPM)  networks and schedules. </li></ul>
 
 
 
II.3. Project schedule <ul><li>Suggestions: </li></ul><ul><li>Use the  task list </li></ul><ul><li>Include  activities  th...
II.4. Costs of providing services <ul><li>First-cut-budget </li></ul><ul><li>The expenses that will likely be incurred in ...
II.4. Costs of providing services <ul><li>Cost of providing the services </li></ul><ul><li>&quot; No brainer&quot;  Based ...
II.4. Costs of providing services <ul><li>Ways to cost services </li></ul><ul><li>Make &quot; cartoon set &quot; of the dr...
II.4. Costs of providing services <ul><li>Step-by-step buildup of the cost of providing services: </li></ul><ul><ul><li>fo...
II.4. Costs of providing services <ul><li>Suggestions: </li></ul><ul><li>Work at an appropriate level of detail :  Project...
II.4. Costs of providing services <ul><li>Suggestions: </li></ul><ul><li>Involve the people  who will be performing the wo...
III. Compensation methods <ul><li>The are two fools in every market;  one asks  too little , one asks  too much . </li></u...
III. Compensation methods <ul><li>From cost to price </li></ul><ul><li>Compensation (fee) proposal </li></ul><ul><li>How w...
III.1. Stipulated sum (Lump sum) <ul><li>Fixed  amount of compensation. </li></ul><ul><li>Tied to  specific set of service...
III.1. Stipulated sum (Lump sum) <ul><li>When project scope and quality are well defined   </li></ul><ul><li>When client a...
III.1. Stipulated sum (Lump sum) <ul><li>Clients like stipulated (lump) sum  because they establish  price up front . </li...
III.2. Cost-plus-fee approaches (C+) <ul><li>Compensate architects on basis of  actual time and expenses  incurred in prov...
III.2.a. Multiple of Direct Salary Expense (DSE) <ul><li>DSE * factor  that covers indirect expenses (non-salary expenses)...
III.2.b. Multiple of Direct Personnel Expenses (DPE) <ul><li>Includes  staff fringe benefits  as part of the base and not ...
III.2.c. Hourly or daily billing rates (/h) <ul><li>Cost-plus agreements can be useful  when there are many unknowns  and ...
III.2.c. Hourly or daily billing rates (/h) <ul><li>Unknowns include: </li></ul><ul><ul><li>variable scope </li></ul></ul>...
III.2.c. Hourly or daily billing rates (/h) <ul><li>From the owner point of view , the advantage of cost-plus approaches w...
III.2.d. Percentage of construction cost (%) <ul><li>Ties compensation to the construction cost of the project  and  not t...
III.2.d. Percentage of construction cost (%) <ul><li>This approach: </li></ul><ul><li>Assumes that  the cost of providing ...
III.2.d. Percentage of construction cost (%) <ul><li>This approach: </li></ul><ul><li>Penalize architects who invest extra...
III.2.d. Percentage of construction cost
III.2.d. Percentage of construction cost (%) <ul><li>Psychological factors  that may undermine the owner architect partner...
III.2.e. Unit-cost methods <ul><li>Cost per building  (residential development, large franchise operation) </li></ul><ul><...
III.2.e. Unit-cost methods <ul><li>The assumption is that  the initial design work will be repeated and adapted over multi...
III.2.f. Repetitive projects  <ul><li>The initial design may be used in additional projects on the same or  different site...
III.2.g. Evaluating compensation methods <ul><li>Questions: </li></ul><ul><li>Does the method permit the architect to  cov...
 
III.2.g. Evaluating compensation methods <ul><li>There is no best method of compensation; each has advantages and disadvan...
 
III.2.g. Evaluating compensation methods
III.2.g. Evaluating compensation methods
IV. Project Pricing and Proposals <ul><li>IF  the owner has fixed the fee to be paid     </li></ul><ul><li>Evaluate  the ...
IV. Project Pricing and Proposals <ul><li>Adequate compensation for the architect is in the client's best interest because...
The compensation (fee) proposal <ul><li>Proposed compensation method (or methods) </li></ul><ul><li>The amount </li></ul><...
The Pricing equation <ul><li>Rules of thump  based on your practice: </li></ul><ul><li>Hours per sheet of drawings or spec...
<ul><li>Cost </li></ul><ul><li>+   Profit </li></ul><ul><li>It is a  business  expense! </li></ul><ul><li>+   Marketing co...
<ul><li>+   Added value .  </li></ul><ul><ul><li>The  strength and weakness of the market ,  </li></ul></ul><ul><ul><li>Yo...
<ul><li>Project Cost +  </li></ul><ul><li>Profit +  </li></ul><ul><li>Marketing cost +  </li></ul><ul><li>Contingency  +  ...
<ul><li>The fees of the architect should be considered as a wise investment and not just an added expense. </li></ul>The P...
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Architectural Professional Practice - Fees

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Architectural Professional Practice - Fees

  1. 1. Services and Compensation
  2. 2. Services and Compensation Part 1
  3. 3. Introduction <ul><li>Project planning and pricing identify both the services and the compensation appropriate to the needs of the project. </li></ul><ul><li>The architect proposes the services to be provided and a compensation for those services. </li></ul>
  4. 4. The Fees Proposal <ul><li>EARLY in the selection process </li></ul><ul><li>To be formulated LATE in the discussion </li></ul><ul><li>An owner's Request for Proposal (RfP) </li></ul><ul><li>Series of proposals …….. </li></ul><ul><li>Verbally (not recommended) </li></ul><ul><li>Thick &quot; package &quot; </li></ul><ul><li>Sometimes there is NO proposal ! The client offers terms of what appears to be a &quot; take it or leave it &quot; basis!!! </li></ul>
  5. 5. I. The Architect's Services <ul><li>What are the services that the architect proposes to provide ? </li></ul><ul><li>What services are appropriate to meet the owner's objectives ? </li></ul><ul><li>What will it take to define the scope of the project ? </li></ul>
  6. 6. I.1. Options for defining services <ul><li>I.1.a. Selecting from a &quot; menu ” </li></ul><ul><li>I.1.b. Using a predefined &quot; package &quot; of services </li></ul>
  7. 7. I.1.a. Selecting from a &quot;menu&quot; <ul><li>Owner and architect working from a menu of possible choices . </li></ul><ul><li>Select a complement of services specifically appropriate to the project at hand. </li></ul><ul><li>Owner-Architect Agreement for Designated Services. </li></ul><ul><li>Kuwait Society of Engineers Documents. </li></ul>
  8. 8. I.1.a. Selecting from a &quot;menu&quot;
  9. 9. I.1.a. Selecting from a &quot;menu&quot;
  10. 10. I.1.a. Selecting from a &quot;menu&quot;
  11. 11. I.1.a. Selecting from a &quot;menu&quot;
  12. 12. I.1.a. Selecting from a &quot;menu&quot;
  13. 13. I.1.a. Selecting from a &quot;menu&quot;
  14. 14. I.1.a. Selecting from a &quot;menu&quot;
  15. 15. I.1.a. Selecting from a &quot;menu&quot;
  16. 16. I.1.a. Selecting from a &quot;menu&quot;
  17. 17. I.1.a. Selecting from a &quot;menu&quot;
  18. 18. I.1.b. Using a predefined &quot;package&quot; of services <ul><li>Basic services </li></ul><ul><li>Additional services </li></ul>
  19. 19. I.1.b. Using a predefined &quot;package&quot; of services <ul><li>Basic services are divided into five phases: </li></ul><ul><ul><li>1. Schematic design </li></ul></ul><ul><ul><li>2. Design development </li></ul></ul><ul><ul><li>3. Construction documents </li></ul></ul><ul><ul><li>4. Bidding or negotiation </li></ul></ul><ul><ul><li>5. Construction contract administration </li></ul></ul>
  20. 20. I.1.b. Using a predefined &quot;package&quot; of services <ul><li>Other services packages include: </li></ul><ul><ul><li>Small projects and projects of abbreviated scope </li></ul></ul><ul><ul><li>Interiors (furniture, fixtures, and equipment) projects </li></ul></ul><ul><ul><li>Projects involving construction management services </li></ul></ul><ul><ul><li>Design/build projects </li></ul></ul>
  21. 21. I.2. When services cannot be defined <ul><li>Work with the client to: </li></ul><ul><ul><li>Define the project </li></ul></ul><ul><ul><li>Establish project requirements </li></ul></ul><ul><ul><li>Identify the remaining services necessary to take the project to completion </li></ul></ul>
  22. 22. I.2. When services cannot be defined <ul><li>Compensation methods: </li></ul><ul><ul><li>lump sum </li></ul></ul><ul><ul><li>hourly cost basis </li></ul></ul>
  23. 23. Services and Compensation Part 2
  24. 24. II. Project planning and budgeting <ul><li>The Project Plan </li></ul><ul><li>Carefully constructed and formally drawn </li></ul><ul><li>Quick calculation based on lots of comparable experience </li></ul>
  25. 25. II. Project planning and budgeting <ul><li>Project planning offers important opportunities : </li></ul><ul><li>It helps the architect and the owner think through the project . </li></ul><ul><li>It helps both parties identify the professional services that are important to the project's success. </li></ul><ul><li>It helps the owner understand his role in the project (responsibilities, decisions, approvals, and implications) </li></ul>
  26. 26. II. Project planning and budgeting <ul><li>Project planning offers important opportunities : </li></ul><ul><li>It helps the architect structure the appropriate design team for the project. </li></ul><ul><li>It helps the architect understand how the project will affect the firm , its people, priorities, and other projects. </li></ul><ul><li>It helps both owner and architect build a foundation for the owner-architect agreement to follow. </li></ul>
  27. 27. II.1.a. Bottom-up planning <ul><li>Starts with the tasks to be performed </li></ul><ul><li>Identifying who will do them </li></ul><ul><li>How much time each task will take </li></ul><ul><li>What each task will cost </li></ul><ul><li>The total cost is the proposed price ( compensation or fee ) </li></ul>
  28. 28. II.1.b. Top-down planning <ul><li>Starts with the compensation or fee available to do the project. </li></ul><ul><li>Backs out the money available for various project tasks . </li></ul>
  29. 29. II.2. Tasks and responsibilities <ul><li>Decide if the task is to be provided: </li></ul><ul><li>By the architecture firm , with its own staff </li></ul><ul><li>By the architect, subcontracted to a specialist consultant </li></ul><ul><li>By another consultant to the owner </li></ul><ul><li>By the owner with its own forces </li></ul>
  30. 30. II.2. Tasks and responsibilities <ul><li>Ideas to identify tasks and responsibilities: </li></ul><ul><li>Review the deliverables being promised to the owner </li></ul><ul><ul><li>Who is likely to accomplish it (assistance, backup, and supervision) </li></ul></ul><ul><ul><li>Key project tasks (approvals) even if they are not with the architect's scope of service) </li></ul></ul><ul><ul><li>Include project management as a task (expertise, time, and resources) </li></ul></ul>
  31. 31. II.3. Project schedule <ul><li>Construct a schedule for professional services. </li></ul><ul><ul><li>How long will it take to accomplish each task? </li></ul></ul><ul><ul><li>How are the tasks related to each other? </li></ul></ul><ul><ul><li>What are the milestone dates to be met? </li></ul></ul>
  32. 32. II.3. Project schedule <ul><li>Simple Milestone chart indicating major tasks or phases with target completion dates. </li></ul>
  33. 35. II.3. Project schedule <ul><li>More elaborate Bar Charts . </li></ul>
  34. 37. II.3. Project schedule <ul><li>Critical Path Method (CPM) networks and schedules. </li></ul>
  35. 41. II.3. Project schedule <ul><li>Suggestions: </li></ul><ul><li>Use the task list </li></ul><ul><li>Include activities that may influence the schedule </li></ul><ul><li>Discuss contingencies to provide the owner with flexibility for considering options and possibilities. </li></ul><ul><li>Consider an interactive approach that involves key people, consultants, the owner, and outsiders </li></ul>
  36. 42. II.4. Costs of providing services <ul><li>First-cut-budget </li></ul><ul><li>The expenses that will likely be incurred in performing the services. </li></ul>
  37. 43. II.4. Costs of providing services <ul><li>Cost of providing the services </li></ul><ul><li>&quot; No brainer&quot; Based on recent very similar projects for the same client. </li></ul><ul><li>&quot; Built up&quot; Based on the cost of providing services . </li></ul><ul><li>&quot; Start from the other end &quot; A client-nominated amount . </li></ul>
  38. 44. II.4. Costs of providing services <ul><li>Ways to cost services </li></ul><ul><li>Make &quot; cartoon set &quot; of the drawings to be provided </li></ul><ul><li>Estimate parallel that of a recent similar project </li></ul>
  39. 45. II.4. Costs of providing services <ul><li>Step-by-step buildup of the cost of providing services: </li></ul><ul><ul><li>for each task: who, how many hours </li></ul></ul><ul><ul><li>totaling the hours X each person's hourly rate = </li></ul></ul><ul><ul><li>total Direct Salary Expense (DSE) for in house staff </li></ul></ul><ul><ul><li>+ payroll burden </li></ul></ul><ul><ul><li>OR </li></ul></ul><ul><ul><li>X DSE multiplier (1.25) </li></ul></ul><ul><ul><li>= total Direct Personnel Expense (DPE) </li></ul></ul><ul><ul><li>+ non-reimbursable direct expenses = </li></ul></ul><ul><ul><li>totals for each phase + contingency + profit = total project expenses </li></ul></ul>
  40. 46. II.4. Costs of providing services <ul><li>Suggestions: </li></ul><ul><li>Work at an appropriate level of detail : Project - Phases - Tasks </li></ul><ul><li>Document the internal budget carefully so you can use this information as a yardstick for measuring progress </li></ul><ul><li>Don't neglect the costs of project management . Require senior management time and important to project success </li></ul><ul><li>Course corrections </li></ul><ul><li>Develop cost estimates in spreadsheet form on the computer. &quot;what if&quot; analysis. </li></ul>
  41. 47. II.4. Costs of providing services <ul><li>Suggestions: </li></ul><ul><li>Involve the people who will be performing the work in the process. </li></ul><ul><li>Track project expenses by task or phase </li></ul><ul><li>Build historical database you can use in budgeting future projects </li></ul><ul><li>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. </li></ul>
  42. 48. III. Compensation methods <ul><li>The are two fools in every market; one asks too little , one asks too much . </li></ul><ul><li>Russian proverb </li></ul>
  43. 49. III. Compensation methods <ul><li>From cost to price </li></ul><ul><li>Compensation (fee) proposal </li></ul><ul><li>How will the architect be compensated? </li></ul><ul><ul><li>Lump sum fee </li></ul></ul><ul><ul><li>Construction cost </li></ul></ul><ul><ul><li>Unit costs </li></ul></ul><ul><ul><li>Repetitive units </li></ul></ul><ul><li>Combination of these approaches </li></ul>
  44. 50. III.1. Stipulated sum (Lump sum) <ul><li>Fixed amount of compensation. </li></ul><ul><li>Tied to specific set of services to be provided. </li></ul><ul><li>Then some form of cost-plus compensation </li></ul>
  45. 51. III.1. Stipulated sum (Lump sum) <ul><li>When project scope and quality are well defined </li></ul><ul><li>When client and architect have a shared understanding of what is required to provide professional services. </li></ul>
  46. 52. III.1. Stipulated sum (Lump sum) <ul><li>Clients like stipulated (lump) sum because they establish price up front . </li></ul><ul><li>Encourages efficiency in the architect's firm . </li></ul><ul><li>Unknowns may cause substantial losses </li></ul>
  47. 53. III.2. Cost-plus-fee approaches (C+) <ul><li>Compensate architects on basis of actual time and expenses incurred in providing services. </li></ul><ul><li>Variations include: </li></ul><ul><li>Multiple of Direct Salary Expense (DSE) </li></ul><ul><li>Multiple of Direct Personnel Expenses (DPE) </li></ul><ul><li>Hourly or daily billing rates </li></ul><ul><li>Percentage of construction cost </li></ul><ul><li>Unit-cost methods </li></ul><ul><li>Repetitive projects </li></ul><ul><li>Evaluating compensation methods </li></ul>
  48. 54. III.2.a. Multiple of Direct Salary Expense (DSE) <ul><li>DSE * factor that covers indirect expenses (non-salary expenses) and profit </li></ul><ul><li>DSE &quot;multiplier&quot; is carefully determined </li></ul><ul><li>Outside consultant services are typically considered to be reimbursable expenses. </li></ul><ul><li>&quot; Marked up &quot; to cover the very real costs of coordination, liability, and administration. </li></ul>
  49. 55. III.2.b. Multiple of Direct Personnel Expenses (DPE) <ul><li>Includes staff fringe benefits as part of the base and not as part of the multiplier. </li></ul>
  50. 56. III.2.c. Hourly or daily billing rates (/h) <ul><li>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. </li></ul>
  51. 57. III.2.c. Hourly or daily billing rates (/h) <ul><li>Unknowns include: </li></ul><ul><ul><li>variable scope </li></ul></ul><ul><ul><li>committee decision process </li></ul></ul><ul><ul><li>complex regulatory approvals </li></ul></ul><ul><ul><li>stop-and-start progress </li></ul></ul><ul><ul><li>unfamiliar construction methods </li></ul></ul>
  52. 58. III.2.c. Hourly or daily billing rates (/h) <ul><li>From the owner point of view , the advantage of cost-plus approaches when levels of uncertainty is high </li></ul><ul><li>From the architect's point of view , the advantage of cost-plus approaches help guard against losses . </li></ul><ul><li>?… BUT …? </li></ul><ul><li>Limit profit possibilities and increase paperwork (DES or DPE multipliers) and client reviewing the firm's books. </li></ul>
  53. 59. III.2.d. Percentage of construction cost (%) <ul><li>Ties compensation to the construction cost of the project and not to the scope of professional services provided . </li></ul><ul><li>While appropriate for some projects, has seen declining use because it can produce inequities (unfairness) for both the owner and the architect. </li></ul>
  54. 60. III.2.d. Percentage of construction cost (%) <ul><li>This approach: </li></ul><ul><li>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 . </li></ul><ul><li>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. </li></ul>
  55. 61. III.2.d. Percentage of construction cost (%) <ul><li>This approach: </li></ul><ul><li>Penalize architects who invest extra effort in reducing construction cost for the owner . </li></ul><ul><li>Produces a level of compensation that isn't known until the construction contract is established . </li></ul>
  56. 62. III.2.d. Percentage of construction cost
  57. 63. III.2.d. Percentage of construction cost (%) <ul><li>Psychological factors that may undermine the owner architect partnership: </li></ul><ul><li>The owner may perceive that the architect has no incentive to keep construction cost down . </li></ul><ul><li>The architect may lose substantial sums of money simply because the construction bids come in low . </li></ul>
  58. 64. III.2.e. Unit-cost methods <ul><li>Cost per building (residential development, large franchise operation) </li></ul><ul><li>Repetitive units (per apartment, hotel room, dormitory bed) </li></ul><ul><li>Floor area (tenant spaces in office buildings, shopping center) </li></ul>
  59. 65. III.2.e. Unit-cost methods <ul><li>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 &quot;piecework&quot; basis. </li></ul><ul><li>Earlier units usually require more effort that those that follow. </li></ul>
  60. 66. III.2.f. Repetitive projects <ul><li>The initial design may be used in additional projects on the same or different sites . </li></ul><ul><li>Royalty arrangement or other compensation approaches. </li></ul><ul><li>Important issues: </li></ul><ul><li>The first project require substantial research and development investments </li></ul><ul><li>Fixed costs for developing and drawing successive projects </li></ul><ul><li>Adaptation for additional sites and climatic and regulatory conditions may be significant </li></ul><ul><li>Each reuse represents an additional exposure or risk </li></ul><ul><li>Intellectual property must be carefully considered </li></ul>
  61. 67. III.2.g. Evaluating compensation methods <ul><li>Questions: </li></ul><ul><li>Does the method permit the architect to cover expenses and provide reasonable profit ? </li></ul><ul><li>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? </li></ul><ul><li>Does the method allow the client to estimate or fix (if necessary) the costs of professional services? </li></ul><ul><li>Does the method encourage the client to cooperate in pursuing the project? </li></ul><ul><li>Is the method easy to understand and simple to use ? </li></ul>
  62. 69. III.2.g. Evaluating compensation methods <ul><li>There is no best method of compensation; each has advantages and disadvantages, and each may be more or less appropriate in a particular situation. </li></ul>
  63. 71. III.2.g. Evaluating compensation methods
  64. 72. III.2.g. Evaluating compensation methods
  65. 73. IV. Project Pricing and Proposals <ul><li>IF the owner has fixed the fee to be paid  </li></ul><ul><li>Evaluate the owner's proposal against what's best for the project and the firm  </li></ul><ul><li>Propose changes in scope or in compensation. </li></ul><ul><li>Some clients look only to their immediate bottom line without regard to the architect's costs, needed profit, and value added. </li></ul>
  66. 74. IV. Project Pricing and Proposals <ul><li>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. </li></ul>
  67. 75. The compensation (fee) proposal <ul><li>Proposed compensation method (or methods) </li></ul><ul><li>The amount </li></ul><ul><li>Terms and conditions </li></ul>
  68. 76. The Pricing equation <ul><li>Rules of thump based on your practice: </li></ul><ul><li>Hours per sheet of drawings or specs (by project type) </li></ul><ul><li>Monthly allowances for direct office expenses (by project type) </li></ul><ul><li>Hours per square foot or meter of building (by project type) </li></ul><ul><li>Fee as a percent of construction cost (by project type) </li></ul>
  69. 77. <ul><li>Cost </li></ul><ul><li>+ Profit </li></ul><ul><li>It is a business expense! </li></ul><ul><li>+ Marketing cost </li></ul><ul><li>Negotiations, preparing and signing contracts. </li></ul><ul><li>+ Contingency </li></ul><ul><li>A factor based on project complexity, client, and scope of project </li></ul>The Pricing equation
  70. 78. <ul><li>+ Added value . </li></ul><ul><ul><li>The strength and weakness of the market , </li></ul></ul><ul><ul><li>Your position within it in the mind of the client, </li></ul></ul><ul><ul><li>How much competition is there, </li></ul></ul><ul><ul><li>How important is this project to you, and </li></ul></ul><ul><ul><li>How much room will you have to negotiate . </li></ul></ul><ul><li>= Your price proposal </li></ul>The Pricing equation
  71. 79. <ul><li>Project Cost + </li></ul><ul><li>Profit + </li></ul><ul><li>Marketing cost + </li></ul><ul><li>Contingency + </li></ul><ul><li>Added value = </li></ul><ul><li>$Your price proposal$ </li></ul>The Pricing equation
  72. 80. <ul><li>The fees of the architect should be considered as a wise investment and not just an added expense. </li></ul>The Pricing equation
  73. 81. END

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