A Brief History of Fees
Ever asked your doctor for a bid? How about an attorney? If so, it’s unlikely you received a satisfactory response. Providing a cost for services before you know the full scope of the work involved is risky business. Even contractors, whose pricing structure is more consistent with an architect’s than our fellow professionals, have defined parameters for what they’re bidding. That’s our job after all. Yet, we’re regularly tasked to put a fee on little more than an idea. How did architects end up in this position?
A 2005 article in Engineering News Record states that fees are actually the reason there is a profession of architecture, at least in the US: “A dispute over fees led to the emergence of the modern notion of architecture as a profession. In 1861, Richard Morris Hunt sued a client who refused to pay his fee. The litigation launched a new era, setting an important precedent for the recognition of architects as professionals – no longer merely building designers engaged in construction trades – who are entitled to a fee for design.” While some may debate this interpretation of events, it serves to highlight a key point. Until recently, architects were part of the overall building team and contracted accordingly. Granted, the position often involved leading the team as the master builder but it was still a craft. Unlike a new pair of shoes; however, a designer deals in ideas. How do you price ideas?
Most early building designers likely used rates for their labor akin to any other trade. This time and material approach is still common today. The most creative designers charging higher rates as demand allowed. But this approach didn’t guarantee a final price for their work. So a contemporary solution was developed that relates the architect’s fee to the estimated cost of the resulting construction. There was substantial historical data that validates the relationship and a strong correlation between complexity and the architect’s cost to design and document the project. So, in 1866, the newly formed American Institute of Architects (“AIA”) issued a “Schedule of Charges” that established five percent of a building’s cost “as the proper charge for architectural services, including preliminary studies, construction documents and site visits." Most architects welcomed the innovation of a percentage fee and felt it set them apart from the other building trades; an important distinction at the time. The satisfaction was short-lived.
A Columbia University article on 19th century architecture notes “The Industrial Revolution, underway by the middle of the 18th century and emerging first in England, is often cited as the single most important development effecting architecture in the modern world. The harnessing of coal and steam energy combined with new mechanized technologies and industrial materials, especially iron, steel and glass, brought sweeping changes." These changes included electricity, central heating and plumbing, and high-rise structures. These were all elements that architects were expected to master. Initially, they relied upon the respective trades for their technical expertise with these new systems. Not surprisingly, that failed to protect architects from blame when building components did not perform as expected. Claims and litigation led to more detailed construction documents, specialized engineers on the architect’s staff and a recurring role in construction supervision. These increased responsibilities, along with the advent of state licensing laws, led the AIA, in 1908, to increase its fee schedule to six percent.
Of course, this fee schedule was a recommended rate and not compulsory upon a firm. Architects could discount their fee but the AIA strongly discouraged price competition between its members. In the 1949 book, Architectural Practices, the authors wrote “If any firm wishes to go on record as charging less than others, it should do so…(as) the service of some firms is undoubtedly worth less than that of others…When fees are cut beyond a certain point, the only way to avoid loss is to reduce the quality of the service, or to resort to dishonest practices.” On the other hand, a common percentage also served to undermine the profession in the eyes of its clients. Charles Whitaker, past editor of the Journal of the AIA, writes that the schedule “made it possible for the incompetent to creep into the public’s esteem while demanding equal remuneration.., to ask a fee to which they are not entitled.” Despite this concern, the six percent fee remained the standard for most of the early twentieth century.
But a predetermined fee did not contribute to the financial health of the profession. Instead, it led many firms to ignore their job costs and related economic issues. Escalation in relative labor and engineering costs outpaced fees. Yet architects stood firm that their services were “not a product to be priced according to comparative cost." An admirable principle but destined for failure.
The final straw for a collective fee schedule came in 1971, when the Department of Justice notified the AIA that in intended to file suit against the Institute because its standards placed limitations on its members and constituted a restraint on trade, a violation of the Sherman Act. Subsequent negotiations led to a consent decree that prohibited the AIA from restricting its members from competitively pricing their services. The impact was immediate. By 1997, an AIA survey determined that nearly 50% of architectural billing were based upon fixed fees and only about 20% were based upon a percentage of construction costs.
Unfortunately, even these developments did not improve the financial outlook for most architects. According to the most recent US Bureau of Labor Statistics report, in 2012, only the top ten percent of architects earned above $118,230 with the bottom ten percent at $44,600, or less. In view of the long hours, importance of continuing education, and ever-present deadlines, there seems to be little correlation between money and effort.
So how are firms responding? With the advent of Building Information Modeling and Virtual Immersion around the corner, the complexity of an architect’s role continues to escalate. Our next segment explores the pricing options we use at Worth Group Architects and advice for clients seeking lower fees.
ABOUT THE AUTHOR
With over thirty years of experience working on hospitality and gaming projects, Doug has one of the most respected names in the industry. He is both a registered Architect and a licensed General Contractor; which has led to a passion for hands on building. Since founding the firm in 1990, WORTHGROUP has contributed to over $4 billion in completed construction value as planners, architects, and designers.