Architects’ fees survey 2000

The late 1990s upturn in construction activity has continued into the new millennium, bringing architects’ annual workload to an all-time high of £2.5bn. Yet in the past year, architects’ fees as a percentage of construction cost have remained static, according to Architects Fees 2000, a survey published today by Mirza and Nacey Research. In the office, industrial and retail refurbishment sectors, fee levels have even gone down.

The survey, which covered projects totalling £2bn, found that fees for traditional new-build contracts are unchanged on last year, at 6%, and new-build design-and-build fees are up from 3.9% to 4%. The best-performing sector is traditional contract refurbishment, and even that only managed a 0.6 percentage point rise, from 9.5% to 10.1%.

So, why are architects not capitalising more on the buoyant market? Bernard Hunt, director of London-based HTA Architects, has one explanation: “Fees would only rise if it was seriously a seller’s market, and there were not enough architects to do the work.” Jonathan Manser, director of architect the Manser Practice, says the problem is that architects’ skills are undervalued by clients. He cites a recent commission to design a 200-bed hotel for a major hotel chain: “Our fee was 3.5% and we discovered in passing that the QS’ fee was 1.6%. It is such a small difference that the client must have had an odd view of the overall value of individual consultants.” Manser attributes this to the proliferation of consultants taking part in the construction process, who encroach on the architect’s share of the contract value. “The client has this view that 12% is the right pot of money for the design fees, and that is being spread more thinly between consultants of varying usefulness, such as project managers, planning supervisors and IT consultants.”

Manser adds that it is easier to get decent fees from private work than for corporate jobs that are “run by accountants and managers rather than people who are interested in the end product”. The hard-nosed attitude of clients elicits a similar response from the architect. “We used to be more relaxed about doing a bit of extra work for the same fee if a client changed the brief. Now we charge hourly call-out rates of £80-120 for it,” he says.

In the office sector, architects doing new-build and refurbishment work have seen fees squeezed compared with last year. Aziz Mirza, director of Mirza and Nacey, says this suggests that clients are driving down prices in this sector. The experience of architect Sheppard Robson bears this out. Associate director Andrew German says: “Our fees are down on new-build offices. Everything seems to be very buoyant, so everyone is becoming far more competitive and then projects often get stuck at planning stage or do not go ahead.” German adds that the trend towards mixed-use development on brownfield sites has caused projects to be delayed, as planning authorities have to approve changes of use and complex site redevelopments. And as Manser says, delayed or abortive projects often prove costly. “We lose between 5% and 15% of what we spend on projects that don’t go ahead, but you claw that back on the ones that do.”

Even when projects do get the green light, says German, fees are lower than in previous years. He attributes this to the “hard-nosed attitude of clients and project managers, and the increased use of procurement methods that reduce the architect’s role at the on-site stage, like management contracting”. He adds: “It is a move towards the American style of contracting, where everything is down to money and time. The site role is being taken over by large contracting companies. Architects are spending less time on a project and are less in control of the end product.” Ken Taylor, partner in Abbey Holford Rowe, agrees: “Fees for service are not going down, but the reduced level of service that new procurement routes ask for erodes gross fee earnings.”

In contrast, fees for private housing new build and refurbishment are up on 1999. According to Mirza, this indicates that architects have been successful in increasing the fees they charge domestic clients. Ben Fereday of young practice Fereday Pollard says this bears out his experience. “There is a lot of work around so you can afford not to be so anxious about whether your fee bid is too high. People will charge what the market will bear.” He adds: “Most residential clients are delightful to work with. Once you have established a rapport and a chemistry, they are, within reason, happy to meet your fee.”

Rising fees for new-build retail projects can be put down to the surge in demand for the services of a small group of specialists. John Oldridge, senior partner in Chapman Taylor, says: “There is a limited number of architects with the reputation for new-build retail and in a time of rising demand we can expect to do better on fees.” Shopping centre refurbishment fees have not kept pace because, he says, “there are perceived to be more architects who do retail refurbishment”.

Abbey Holford Rowe’s Taylor believes that the increase in fees for leisure refurbishment reflects the trend towards town-centre leisure facilities caused by Planning Policy Guidance Note 13. “The out-of-town new-build leisure boom is over. There is a lot of pub and restaurant refurbishment going on and complicated conversions of town-centre properties, which command higher fees. Hopefully, that will revitalise retail refurbishment, too.”

Despite the competitive climate of the market, higher salary costs for experienced architects mean that practices cannot afford to make low fee bids. Sheppard Robson’s German says it is particularly hard to recruit experienced architects aged 30-36, and that this a throwback to the lack of work between 1989 and 1993, which dissuaded young people from studying architecture. “The architects who really know how to put buildings together are either staying where they are or commanding silly salaries,” says German. “That is squeezing margins and means we can’t take on jobs for low fees.”

Taylor agrees: “You are paying more than you have been used to for good people, so firms are becoming much more selective about the jobs they take on. You take a long, hard look at fees and the payment regime on a job and the client’s track-record of payment to ensure you don’t lose out.”

So, will the halcyon days of the 1980s, when 6.5% fees were common, ever return? Taylor says the question is irrelevant. “Percentages are so crude. The days of looking at a percentage

fee and applying it are numbered. Soon we will have to estimate the amount of work to be done – how many drawings we are likely to need to produce, how much design development might be needed, whether it is design and build or a traditional service – and quote accordingly.”

Others say fees as a percentage of contract value do have a future, but architects will have to work harder for them. Manser says architects can keep fees up by demonstrating the economic value of good design. “On a £20m project, if a client wants to knock our fees down 1% to save £200 000, we have to prove we can save them that much on the construction with a clever design.” Chapman Taylor’s Oldridge says firms need to maximise profits through other efficiencies. “Fees are quite high enough. To improve margins, we have to be more efficient, slimmer, fitter and highly computerised.” That is the challenge facing the profession.

Methodology

To compile Architects Fees 2000, Mirza and Nacey Research surveyed 300 individual architectural practices and collected fee data for more than 2000 separate jobs with a total construction value of £2bn in the 12 months to June 2000. The report costs £125 and is available from Mirza and Nacey Research, Southdown House, Ford, Arundel, West Sussex, 01243-551302.