Mirza & Nacey Research has compiled the first-ever survey of QSs’ fees – and it doesn’t make happy reading.
In the top 250 consultants league table published in Building last week, quantity surveyors were noticeably less eager to recruit than their counterparts in other industry disciplines. The top 10 QS firms grew in staff numbers by only 7% – compared with 14% for building surveyors, for example. There is a good reason for this, as the first ever survey of QSs’ fees, carried out by Mirza & Nacey Research, shows. QSs’ fees remain obstinately low, hovering around 2-3% of construction cost, which means that many firms are worried about the level of recruitment and salary they can support.

The fees issue is the bane of QSs’ lives. Even when a firm is profitable, the low fees still rankle. Quantity Surveyors Fees 99 looked at the 1600 jobs totalling more than £1.5bn that 250 QS practices won in the nine months to June 1999. Almost half of the firms responding were small practices, with one or two QSs; at the other end of the scale, 5% had more than 31 chartered staff. The majority of respondents came from the North (27%), the next highest proportion from the South-east (22%). Ulster produced the lowest number of responses, with only 2% of the sample.

The researchers found that average fees ranged from 2% for new-build, design-and-build contracts, to a maximum of only 3.3% for JCT contract refurbishment work. Looking at QSs’ hourly charge-out rates, the researchers found more disquieting results: a partner or director averages a measly £50 an hour. Postgraduates and junior surveyors go for a song, at an average of £20 an hour.

Tony Bevan, managing director of Citex Bucknall Austin, sums up the issue: “Fee levels are always too low,” he says. Gerry Fagan, managing partner of McBains Cooper, whose 250-strong firm employs about 70 qualified QSs, agrees: “We constantly complain about the level of fees in quantity surveying. It’s extremely tight.” RICS QS division president Neil Pountney goes further: “They are not going up at all,” he says.

There is no doubt that fees are a problem, and that many QSs see this as the cause of the profession’s low status with clients. They explain that fees are low because some practices are always willing to do jobs for less than cost, then find they cannot do the job properly at the price and give poor service, which means clients feel justified in not paying more for using them. The trouble with this is that other QSs get tarred with the same brush.

“The profession is not selling itself very well,” says Fagan. “It’s seen as a very pedestrian service in many respects, confined by its tunnel vision. It needs to brand itself as a higher value service – in fact, with the core skills QSs have, they are ideally placed to help clients manipulate finances. Those sorts of people are usually highly rewarded.”

Fagan says the £50 hourly charge-out rate the survey quotes for partners is a little low compared with what his staff earn. However, like everyone else in the profession, he bemoans the fact that QSs’ hourly rates are lower than those for lawyers, accountants and management consultants.

“We still remain the poor relations of the money-checkers and contract writers,” complains Gardiner & Theobald senior partner Michael Coates. Although a senior QS from his firm would charge £100 an hour rather than £50, a G&T management consultant can command at least £120 an hour. It is a situation he does not believe will change in the near future, despite saying the practice’s order books are full and that the “pressure is off fees a bit”.

EC Harris chairman Richard Clare insists that it is wrong to compare QSs’ charge-out rates with those of management consultants. He says the profession’s lack of top-notch academic graduates is reason enough for the difference: “Fair enough, we’re cheaper,” he says. However, he does not believe this is a problem. He sees it as an opportunity for QSs to undercut the management consultants in an area where they have more expertise.

Clare also thinks management consultants will not get away for long with charging higher fees for the same work QSs do:

“I think the mistake management consultants are making is hiring QS staff from firms like us and adding £100 an hour to their charge-out rates. It won’t wash,” he says.

Francis Ives, managing director of Cyril Sweett, is another optimist who has pinpointed management consultancy as a way of increasing his firm’s fees. To this end, Cyril Sweett is following in the footsteps of other big QS practices and launching Cyril Sweett Consulting. It is recruiting new staff and hopes that offering services such as legal advice, value engineering, contract drafting and capital tax allowances will enable it to negotiate higher fees. “We’re fighting back against management consultants,” says Ives. “At the end of the day, we do know our industry better. Management consultants borrow your watch to tell you the time.”

The profession’s other major bugbear is fee bidding. It is almost universally loathed, it seems – and no wonder. Peter Rumbelow, managing director of 35-strong QS Hills, says aiming for a 2.5% fee in a bid situation is unrealistic, although that would be his target. Nearer 2% is the norm. He describes fee levels as “static”.

One thing that all QSs agree on is that negotiated, lump-sum fee agreements are the way to avoid such low fees. The most optimistic QSs believe fee-bidding is now on its way out anyway: “The great majority of our work is now negotiated,” says Ives. “The trend is inevitable. A lot of clients suffered from either poor service or claims from consultants where a fee bid was too low. There’s a reaction away from the straight fee bid.”

Fees by sector

The breakdown by sector shows that QSs’ most profitable markets are office refurbishment (3.8%) and public housing refurbishment (4.2%). Putting these figures to a QS from a major firm that carries out office work, new build and refurbishment, the reaction was “you’d be lucky”. However, this is again explained by the fact that most of this firm’s jobs are in the £10m-plus category, hence fees come out as a lower percentage of the overall construction cost. Leisure and industrial work both look relatively rosy areas, with top percentage fees of 2.5% and 2.3% for new-build JCT contract work.

Fees per type of contract

The research shows that fees for refurbishment are nearly half a per cent higher than for new-build work, with refurbishment averaging 2.2% compared with 1.8% for new-build schemes. The survey also shows that JCT contracts pay better than design-and-build jobs, generating average fees of 2% compared with 1.8% for design and build. The highest fees QSs can expect are 2.8% for work on a £1m JCT refurbishment contract. However, because fees are worked out as a percentage of the construction cost, the bigger jobs attract smaller fees, as the figures show.