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Fee levels stagnate despite architects' optimism

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While salaries and staff numbers are booming, fee levels are not seeing a massive shift upwards, according to AJ120 data

Despite a 21 per cent increase in the aggregate total of fees (£1.08 billion) billed by those practices that also appeared in last year’s rankings, only half said they had increased the rates they were charging clients.

Anecdotal evidence from those in the AJ120 backs this up. According to Ian Wilson, a partner at FaulknerBrowns: ‘Fee levels continue to be very tight. We are probably 20 per cent down on pre-recession levels with no indication that this will improve in the near future. Public sector clients are the worst. However, informed clients in the private sector understand the implications of low fees and take a more balanced view.’

Although percentage rates for smaller jobs have edged higher – the average fee for a traditional-contract refurbishment project under £500,000 has risen from 7.5 per cent (in last year’s survey, based on 2013 data) to 8 per cent (this year’s survey) – the figures remain mainly flat for larger projects. In fact while companies were charging an average 3.5 per cent for a £100 million traditional-contract new-build scheme in 2014, this has now dropped to 3.2 per cent.

Terry Brown, ex-president of the Association of Consultant Architects, added: ‘The fee climate remains extremely competitive. The main cause of the extreme undercutting of fees is that many non-architects are bidding for the work that architects normally do.’

Meanwhile the Asset Based Finance Association also revealed this week that practices were having to wait an average of 10 weeks (71.2 days) to be paid – an increase of 17 per cent on the last figures reported in 2008.

Further comments

Adrian Dobson, RIBA director of practice
‘Anecdotal evidence from the monthly RIBA Future Trends survey suggests that fee competition remains quite intense. Many practices accepted lower profit margins during the recession and tried to retain staff numbers. This meant that during the recovery there was significant spare capacity in practices overall. With workloads now growing at 8 per cent per annum, this slack is rapidly being taken up, and we would expect market forces to bring some upward pressure on both fees and salaries in the coming months.’

Ben Adams, founding director, Ben Adams Architects
‘Fee levels seem to be static. This is because practices remain hungry for work at the end of a long, deep recession. There is still pressure to compete hard on fees whenever a bid is made. Architects have long memories and love to compete and so I suspect fees will remain static for the medium term. As salaries are going up this will mean practices need to bid higher and expect to miss out on some projects; to reduce their profits; or reduce their project resourcing. I hope it is the former as it is the only way we can collectively improve fees and protect design quality.’

 

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Readers' comments (3)

  • I am retired now and livingabroad and I do not want to sound gloomy but if you say that fees on a £500k refurb (which might easily be an owner occupier house in London where my firm was) wll be 8% I am afraid that compares dosastrously with the 80s and 90s where we we getting about 14%. Those sort of jobs need a high level of input and lots of site visits if they are going to be done correctly.

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  • I think low fees are the fault of architects pricing themselves too low and continuing to compete on price.

    The RIBA business benchmarking report last year found that the majority of contracts are not decided on fees. Especially since high proportion of repeat work.

    When I have acted as a client adviser, the selection of architect was never on price although the client may like to barter so they feel like they are getting a deal or value for money.

    However I suspect that many architects continue to pitch their fees low because they think that is the way to win the contract even though the economy has picked up.

    In my experience, few architects have good sales and negotiation skills. Many fail to understand the clients needs or the drivers of their businesses. Negotiations are often a question of how the deal is structured / the value proposition framed or where value is perceived. Architects often misjudge this.

    Some architects however are natural deal makers. These are the very successful ones!

    If in doubt I always ask myself what Norman Foster would have done in that situation!

    I would like to encourage architects as a group to start charging more and not shoot themselves in the foot.

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  • All this demonstrates is the lack of training in the techniques that will deliver better fees. Carrying on the same way in fee negotiation will not result in better results. This requires a new skillset. As Abraham Maslow said "If the only tool you have is a hammer, you end up treating everything like a nail"
    Architects need a set of business tools that helps them create better revenue....watch this space

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