Building design and construction fees
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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. The core consultant team for most building projects will include:
- Project manager.
- Cost consultant (often a quantity surveyor).
- 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, fire engineer and so on. Other fees will also be payable on most projects, such as planning fees, building regulations fees and so on.
Fees are 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 fees than private residential work, works to historic or listed buildings may attract higher fees and so on.
- Size of project.
- Type and complexity of project.
- Scope of services. For example, full design and site inspection will attract a higher fee than concept design that is then developed by the contractor.
- Anticipated repeat and/or bespoke elements of the design.
- Location of site and other consultant practices.
- Reputation of 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, partnering arrangements and so on.
- Anticipated programme and resources. The outputs in a short or long programme are the same, However a longer programme prolongs administrative resources required such as attending meetings and responding to requests for information. Thus percentage fees for a longer period will tend to be higher.
- Economic climate of supply and demand. Fees may be lower during recessions and higher during booms.
- Consultant workload.
- Assessment of the competencies of other consultants.
 Historic 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 responsibility for disruption and delays.
 Fee calculations
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 previously paid for on agreed hourly rates. Interim payment of fees are then related to pre-defined stages reached or related to time, 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 so on as discussed above.
 Core consultant fees
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, updated to 2013 prices.
|Legal (for developer)||£600,000|
|Agent (for developer)||45,000|
|Legal (for vendor)||£120,000|
|Agent (for vendor)||10,000|
|Right of light||100,000|
|Legal (for developer)||400,000|
 Quantum merruit (time charging)
Occasionally 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.
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.
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