Guc arct 702 legislations lecture 7 - fees 2 9-11-2017

GUC – German University in Cairo

Architecture and Urban Design

ARCH 702 Legislation, Professional Practice and Contracts

Fall 2017

Instructor: Dr. Yasser Mahgoub

Fees 2

1

Services and Compensation

III. Compensation methods

From cost to price

Compensation (fee) proposal

How will the architect be compensated?

Lump sum fee

Construction cost

Unit costs

Repetitive units

Combination of these approaches


III.1. Stipulated sum (Lump sum)

Fixed amount of compensation.

Tied to specific set of services to be provided.

Then some form of cost-plus compensation



When project scope and quality are well

defined

When client and architect have a shared

understanding of what is required to provide

professional services.



Clients like stipulated (lump) sum because

they establish price up front.

Encourages efficiency in the architect's firm.

Unknowns may cause substantial losses


III.2. Cost-plus-fee approaches (C+)

Compensate architects on basis of actual time and

expenses incurred in providing services.

Variations include:

Multiple of Direct Salary Expense (DSE)

Multiple of Direct Personnel Expenses (DPE)

Hourly or daily billing rates

Percentage of construction cost

Unit-cost methods

Repetitive projects

Evaluating compensation methods


III.2.a. Multiple of Direct Salary

Expense (DSE)

DSE * factor that covers indirect expenses (non-

salary expenses) and profit

DSE "multiplier" is carefully determined

Outside consultant services are typically

considered to be reimbursable expenses.

"Marked up" to cover the very real costs of

coordination, liability, and administration.


III.2.b. Multiple of Direct Personnel

Expenses (DPE)

Includes staff fringe benefits as part of the

base and not as part of the multiplier.


III.2.c. Hourly or daily billing rates (/h)

Cost-plus agreements can be useful when

there are many unknowns and when it is

difficult or even impossible to establish

a stipulated sum at the outset.



Unknowns include:

variable scope

committee decision process

complex regulatory approvals

stop-and-start progress

unfamiliar construction methods



From the owner point of view, the advantage of cost-plus approaches when levels of uncertainty is high

From the architect's point of view, the advantage of cost-plus approaches help guard against losses.

?… BUT …?

Limit profit possibilities and increase paperwork (DES or DPE multipliers) and client reviewing the firm's books.


III.2.d. Percentage of construction

cost (%)

Ties compensation to the construction cost

of the project and not to the scope of

professional services provided.

While appropriate for some projects, has seen

declining use because it can produce

inequities (unfairness) for both the owner and

the architect.



cost (%)

This approach:

Assumes that the cost of providing service,

or the value of those services to the owner,

relates to the amount the owner spends on

construction.

Allows conditions in the construction

marketplace to expand - or contract - the

owner's costs and the architect

compensation without an equivalent change

in the services provided.



cost (%)

This approach:

Penalize architects who invest extra effort in

reducing construction cost for the owner.

Produces a level of compensation that isn't

known until the construction contract is

established.



cost (%)

Psychological factors that may undermine the

owner architect partnership:

The owner may perceive that the architect

has no incentive to keep construction cost

down.

The architect may lose substantial sums of

money simply because the construction bids

come in low.


III.2.e. Unit-cost methods

Cost per building (residential development,

large franchise operation)

Repetitive units (per apartment, hotel room,

dormitory bed)

Floor area (tenant spaces in office buildings,

shopping center)


III.2.e. Unit-cost methods

The assumption is that the initial design

work will be repeated and adapted over

multiple units and the professional

should receive compensation on a kind

of "piecework" basis.

Earlier units usually require more effort that

those that follow.


III.2.f. Repetitive projects

The initial design may be used in additional projects on

the same or different sites.

Royalty arrangement or other compensation approaches.

Important issues:

The first project require substantial research and

development investments

Fixed costs for developing and drawing successive

projects

Adaptation for additional sites and climatic and regulatory

conditions may be significant

Each reuse represents an additional exposure or risk

Intellectual property must be carefully considered


III.2.g. Evaluating compensation

methods

Questions:

Does the method permit the architect to cover expenses

and provide reasonable profit?

Does the method allow changes in compensation

during the project as a result of changes in scope of

services or events outside the architect's control?

Does the method allow the client to estimate or fix (if

necessary) the costs of professional services?

Does the method encourage the client to cooperate in

pursuing the project?

Is the method easy to understand and simple to use?



III.2.g. Evaluating compensation methods

There is no best method of

compensation; each has advantages

and disadvantages, and each may be

more or less appropriate in a

particular situation.


IV. Project Pricing and Proposals

IF the owner has fixed the fee to be paid

Evaluate the owner's proposal against what's

best for the project and the firm

Propose changes in scope or in

compensation.

Some clients look only to their immediate

bottom line without regard to the architect's costs,

needed profit, and value added.


IV. Project Pricing and Proposals

Adequate compensation for the

architect is in the client's best interest

because it provides the architecture firm

with the wherewithal to deliver the

appropriate level of service.


The compensation (fee) proposal

Proposed compensation method (or methods)

The amount

Terms and conditions





The Pricing equation

Rules of thump based on your practice:

Hours per sheet of drawings or specs (by project type)

Monthly allowances for direct office expenses (by

project type)

Hours per square foot or meter of building (by project

type)

Fee as a percent of construction cost (by project type)


Cost

+ Profit It is a business expense!

+ Marketing cost Negotiations, preparing and signing contracts.

+ Contingency A factor based on project complexity, client, and scope of project



+ Added value.

The strength and weakness of the market,

Your position within it in the mind of the client,

How much competition is there,

How important is this project to you, and

How much room will you have to negotiate.

= Your price proposal



Project Cost +

Profit +

Marketing cost +

Contingency +

Added value =

$Your price proposal$




The fees of the architect

should be considered as a

wise investment and not just

an added expense.
