Building design and construction fees

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1 What are fees?
2 What fees are paid on construction projects?
3 What are fees based on?
4 Why are there no standard fee scales?
5 How are fees calculated?
- 5.1 Core consultant fees
- 5.2 Other fees on an £80m office
6 What is quantum meruit (time charging)?
7 How does competitive tendering affect value?
8 NRM1
9 Related articles on Designing Buildings

[edit] What are fees?

The term ‘fees’ generally refers to payments made by the client to consultants for services under the terms of an agreement. They are generally paid in instalments based on regular dates or at pre-defined stages of completed work.

[edit] What fees are paid on construction projects?

The core consultant team for most building projects will include:

Larger projects may need additional consultants for management and cost control, including:

Project manager.
Cost consultant (see 'quantity surveyor’s fees').
A contractor on management fee contracts.

In addition, specialists may be required depending on the nature of the project, such as legal adviser, landscape designer, interior designer, environmental consultant, access consultant, planning consultant and fire engineer. Other fees will also be payable on most projects, including planning fees and building regulations fees.

[edit] What are fees based on?

The size of fees is entirely dependent on the nature of the project and the circumstances of the appointment. Large new-build projects may attract lower percentage fees than small works to existing buildings, commercial work may attract lower percentage fees than private residential work, and works to historic or listed buildings may attract higher fees.

Fees charged by consultants may vary according to:

Size of project.
Type and complexity of project.
Scope of services. For example, full design and site inspection will attract a higher fee than a concept design that is then developed by a contractor.
The number of repeat or bespoke elements of the design.
Location of site and other consultant practices.
Reputation of the practice. For example, a signature architect might charge more than one that is newly qualified.
Client organisation and track record. This will affect how much support is required and the risk perceived by consultants.
Conditions of engagement. For example, the requirement for collateral warranties and partnering arrangements.
Anticipated programme and resources. The outputs in a short or long programme are the same, However, a longer programme prolongs the administrative resources required such as attending meetings and responding to requests for information. So percentage fees for a longer period will tend to be higher.
Economic climate. Fees may be lower during recessions and higher during booms.
Consultant workload. Busy consultants are likely to charge higher fees.
Assessment of the competencies of other consultants. This may affect the amount of support that is required.

It is very important that the scope of services required are agreed in advance so there is no ambiguity about what is being paid for and what will be charged as extras. For more information see: Scope of services.

[edit] Why are there no standard fee scales?

Professional institutes used to publish recommended fee scales expressed as a percentage of construction costs for a range of different building types. However, legislation aimed at preventing anti-competitive behaviour forced the institutes to abolish these scales, leaving fee negotiation to market forces.

Consequently, bidding for consultancy work has become a free-for-all in a highly competitive market. Some commentators argue that this has driven down fees, however, it has also been suggested that it has driven down standards and led to much design work being transferred from consultants to specialist contractors and suppliers who include design costs in their building agreements. The design co-ordination issues this has caused has had far reaching consequences and supplied the legal profession with a constant flow of disputes about who is responsible for disruption and delays.

[edit] How are fees calculated?

Despite the demise of fee scales, developers are still inclined to use percentages of building costs for early calculation of the likely fees associated with construction. However, they will then generally negotiate fixed price lump-sums, with each consultant wrapping up any early work in the conceptual stages when fees might have been paid for on agreed hourly rates as the construction cost may not have been known at that point.

Regular, interim payment of fees are then made at pre-defined stages, or on a timed basis, for example, monthly payments against a payment schedule based on anticipated resources.

The table below is a very approximate guide based on commercial office developments in the London area, where the fees of the core team of consultants are expressed as percentages against construction costs (excluding contingency allowances and VAT). Clearly, fees on actual projects will vary considerably depending on the nature of the building required, the site, state of the economy and other factors as discussed above.

[edit] Core consultant fees

Construction cost (excl contingencies and VAT)	Under £1.5m	£1.5 - £3m	£3m - £10m	£10m - £25m	£25m - £50m	£50m+
Architect	9%	8%	7%	6%	5%	4%
Cost consultant	2%	2%	1.5%	1.5%	1%	1%
Services engineer	2%	2%	1.5%	1.5%	1%	1%
Structural engineer	2%	2%	1.8%	1.5%	1%	1%
Project manager	n/a	n/a	2%	1.5%	1.25%	1%

[edit] Other fees on an £80m office

It is likely that other, more variable fees will also be incurred. These are much more difficult to predict without a detailed understanding of the nature of the project. However, to give a sense of the type of fee that might be payable, indicative figures are presented below based on actual records of costs incurred on an £80m office block development in the City of London.

[edit] Acquisition fees

Legal (for developer)	£600,000
Agent (for developer)	£45,000
Legal (for vendor)	£120,000
Agent (for vendor)	£10,000
[edit] TOTAL	[edit] £775,000

[edit] Specialist fees

Survey	£30,000
Party wall	£228,000
Acoustics	£62,400
Site inspector	£358,000
Soil investigation	£67,000
Landscape design	£30,000
Traffic engineer	£28,000
Programmer	£35,000
Interior designer	£200,000
Right of light	£100,000
Archaeology	£40,000
Building regulations	£100,000
CDM co-ordinator	£50,000
Planning fees	£40,000
[edit] TOTAL	[edit] £1,368,400

[edit] Letting fees

Agents	£2,800,000
Promotion costs	£3,000,000
Legal (for developer)	£400,000
TOTAL	£6,200,000

[edit] What is quantum meruit (time charging)?

Occasionally, the scope cannot be determined or a project involves significant uncertainty. Consultants may then be employed on pre-agreed hourly rates for different categories of staff. Generally, the hourly rate will reflect 2.5 x payroll cost based on a 1,500 working hour year.

[edit] How does competitive tendering affect value?

Attempting to save money by driving fees down can be a mistake. Fees represent a small part of the whole-life costs of a project, but poor design can have a long lasting and expensive impact.

The relative cost of a typical project is sometimes illustrated using the ratios shown below:

0.1 to 0.15 for design costs (ref. OGC Achieving Excellence Guide 7 - Whole-Life costing).
1 for construction costs.
5 for maintenance and building operating costs during the lifetime of the building.
200 for the cost of operating the business during the lifetime of the building.

(Ref. Report of the Royal Academy of Engineering on The long term costs of owning and using buildings (1998)).

However, this has been criticised as misleading, not least because the construction industry accounts for around 7% of GDP, implying a much more significant proportion of business costs than the ratio suggests. Other ratios of construction costs to operational costs to business costs have suggested figures as low as 1:0.6:6 for some types of buildings. However, the usefulness of these ratios is questionable, other than if they are calculated based on actual figures for specific businesses.