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Suicidal-fee bidders could face insurance premium hike

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Practices found to be undercutting fees and consistently bidding at unsustainable levels could face higher insurance premiums and a dwindling pool of underwriters willing to cover their risk

The AJ has discovered a growing faction of underwriters offering architects’ PII insurance who now intend to start quizzing clients over their fee bids. Sources claim the RIBA Insurance Agency is leading the charge.

‘The suicide bid practices will find certain insurers will not be able to provide them a quote at a competitive rate,’ an insurance industry source said. ‘Some underwriters believe they are not receiving the correct premium for the risk exposure they are undertaking and they are beginning to ask: “What fee do you charge as a percentage of the project value?”’

More underwriters could follow suit if high-profile litigations expose endemic under-resourcing of projects as top UK practices continue bidding at fee levels as low as 1.8 per cent (AJ 16.09.10).

Brian Waters, Association of Consultant Architects (ACA) president, said: ‘It seems totally reasonable to me for the underwriter to ask that question and take that view.’

Last month, the ACA launched a new survey to replace the abolished fee survey graphs that remains open to respondents.

But David Lumb, director of Leeds-based Architecture519, said low fee bids are not always suicidal, arguing practices with low overheads matched with minimum profit levels are ‘able to deliver reasonable quality service for a fee level another practice couldn’t sustain’. Instead he called on insurers to assess practices’ risk management on a ‘project-by-project basis where necessary.’

RIBA director of practice Adrian Dobson doubts the insurers’ move will work but said ‘PI providers may become more interested in better understanding practices’ fee structures.’

Alan Eyre, managing director of Towergate Professional Indemnity, said: ‘I don’t believe that any action by the insurance market can, in itself, end the risk of undercutting and suicide bids, but for those firms undertaking work on this basis they are running a real risk of exposing themselves to claims, inevitably leading to significantly increased premiums and/or lack of availability of future coverage.’

John Assael of London-based Assael Architecture supports the move and has gone a step further issuing a call to arms against suicide bidding practices. He said: ‘I’m calling on lots of architects to report their colleagues who are going in with ludicrously low fees.’

He argued that a low fee bid often makes it impossible for a practice to properly resource a job and that it constitutes a breach of the RIBA Code of Professional Conduct. ‘It’s time architects were reprimanded by the RIBA and ARB,’ he said.

The RIBA has failed to sanction any members for project under-resourcing in the past three years.

 

Take part in the ACA fee scales survey

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