Last edited 04 Oct 2018

Building design and construction fees

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[edit] Introduction

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:

Larger projects may need additional consultants for management and cost control.

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.

[edit] Variability of fees

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.

Fees charged by consultants vary according to:

[edit] 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.

[edit] 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.

[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, updated to 2013 prices.

[edit] Acquisition fees

Legal (for developer) £600,000
Agent (for developer) £45,000
Legal (for vendor) £120,000
Agent (for vendor) £10,000
TOTAL £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
TOTAL £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] Quantum meruit (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.

[edit] Competitive tendering and 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:

(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.

[edit] NRM1

NRM1: Order of cost estimating and cost planning for capital building work defines project/design team fee(s) as '...project team and design team consultantsfees for pre-construction, construction and post-construction related services, other consultantsfees, fees and charges for intrusive site investigations, specialist support consultantsfees and main contractor’s fees for the provision of pre-construction services.

See Group element 11: Project/design team fees for an indicative list of project/design team fees.

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).'

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