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Last edited 30 Dec 2022
Building design and construction fees
|The calculation of fees is a complicated and controversial subject. If you disagree with the contents of this article, tell us what you think by clicking on the submit comment button at the bottom of the page, or by adding your thoughts to the discussion page, or by emailing [email protected].|
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.
 What fees are paid on construction projects?
- 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.
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.
- 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.
 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.
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.
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.
|Construction cost (excl contingencies and VAT)||Under £1.5m||£1.5 - £3m||£3m - £10m||£10m - £25m||£25m - £50m||£50m+|
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.
|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|
 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.
 How does competitive tendering affect value?
- 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.
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.
NRM1: NRM 1 provides guidance on the quantification of building works for the purpose of preparing cost estimates and cost plans. Order of cost estimating and cost planning for capital building work defines the project/design team fee(s) as '...project team and design team consultants’ fees for pre-construction, construction and post-construction related services, other consultants’ fees, fees and charges for intrusive site investigations, specialist support consultants’ fees and main contractor’s fees for the provision of pre-construction services.
It suggests that project/design team fees estimate means '...the total estimated cost of all project/design team fees at the estimate base date (i.e. excluding tender inflation and construction inflation).'
- Appointing consultants.
- Architects fees.
- Base date.
- Charge-out rate.
- Construction organisations and strategy.
- Consultant team.
- Contractual obligation.
- Design team.
- Hourly rate.
- Letter of appointment.
- Planning fees.
- Quantity surveyor’s fees.
- Schedule of services.
- Search fees.
- Winning work.
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