- Project plans
- Project activities
- Legislation and standards
- Industry context
Last edited 07 May 2018
Calculating Fee's: Architectural Practice
- SCENARIO: NEW CLIENT
-The client is new to the practice and should be investigated and credit checked before undertaking any work. This checks the financial status of the client, that they are capable of paying the fees and how regularly and rapidly. This helps to mitigate the risk of unpaid fees later in the project, helping to maintain a regular cashflow.
-If repeat client, are they good at settling invoices on time? If they are likely to pay late the fee forecast should be updated to schedule when the invoice will be settled. Any negative cashflow highlighted may indicate the practice does not have sufficient levels of work to cope with the late payment of fees and should withdraw from the project.
ARB code Standard 1 - seek written confirmation if any architects have previously been involved with the project and find out why things may have broken down. This can highlight any warning signs of non payment and to clear any conflicts of interest.
- SCENARIO: DIFFERENT SECTOR
-If the project is one that the practice is familiar with they can charge a premium due to expertise regarding the benefit of added value. Compare the proposed fee against previous similar jobs to check a sensible outcome has been reached.
- If the project is one the practice is unfamiliar with/ attempting to undertake new work they should offer a discounted fee due to lack of experience/ competitive price to get into a new market. The financial management representative should assess whether the practice will be able to cope with such a low fee as more time and resources are likely to be required to get up to speed with the new design sector and may require specialists input. Monthly flash reports are recommended to regularly monitor profit/ loss and identify whether the practice is likely to experience problems. You may need additional staff which will need to be input in fee
- SCENARIO: UNDER RESOURCED
- If the project is a major, large-scale development then additional staff are likely to be required especially in the later RIBA work stages. The calculated fee will need to take this into account. Predict the number of hours to be spent at each RIBA work stage along with overheads. For a new project type in this case, unknown timescales and resource costs may be difficult to predict and a time charge fee should be negotiated otherwise the practice may fall into a negative cashflow.
- The project is likely to require specialist consultant advice who have expertise in these sectors. The practice will pay additional costs which will need to be considered as part of the inflow/outflow analysis to monitor the cashflow of the practice. Any negative cashflow will highlight that the practice does not have sufficient working capital to undertake the project.
ARB code Standard 11 - co-operate with regulatory requirements and investigations.
However, this can be difficult to negotiate with the client as there is no guaranteed maximum price. Tight monitoring of the project costs will be necessary if any other method is taken. The practice should be prepared to withdraw from the project if a negative cashflow can be predicted.
- SCENARIO: TRAVEL COSTS/ EXPENSES
- The project is in a different country which will involve high travel costs. These should be considered in the fee calculation with an estimated number of visits (i.e. monthly). If these additional costs are not accounted for then the profitability, of a competitive fee in this case, will likely result in a loss.
-The project should also be assessed against RIBA business benchmarking for inter-firm comparison. This can highlight how competitive the fee calculation may be and how other practices are dealing with this sector of work.
-The project involves a change in scale to the normal workload the practice undertakes and their PI insurers should be notified. The level of cover is likely to need increasing. The practice should consider the impact of this additional cost to the cashflow forecast. The practice should negotiate a front loaded fee schedule with the client across the early RIBA work stages in order to lighten the load and mitigate this risk.
-The practice should gather an estimated project cost including resource time, VAT, PAYE & NI, Office rent, PII, supplier payments, corporation tax, expenses and overheads in order to calculate a target profit cost. Monitor performance against expectations in order to keep track of the level of profit likely to be made on the project.
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