Richard Waite unearths a new wave of aggressive fee undercutting and finds that clients are happy to exploit an unsustainable race to the bottom
Suicidal fees have returned. Architects are warning of a resurgence of undercutting as desperate practices resort to ‘buying’ jobs to keep hold of their staff.
Those willing to speak out about this worrying trend – last seen in the aftermath of the 2008-2009 recession – claim a growing number of firms are offering to work for a fraction of the price of others and seemingly ‘below cost’. Fees as low as 2.5 per cent have been reported.
The situation has echoes of the aggressive bidding culture of almost a decade ago when fee levels dropped down to 1.8 per cent on some private residential jobs (see AJ 16.09.10).What’s more, this unsustainable ‘race to the bottom’ is being exploited by a clutch of clients happy to benefit from the super-competitive fee landscape.
Carl Turner of Carl Turner Architects, who talks to a range of practitioners in his role as chair of RIBA London, believes fee undercutting has become one of the major issues facing the profession today.
It appears we are in a race to the bottom – and, at the moment, there appears to be no bottom
‘[It] is widespread, from the smallest house extension to large, mass housing schemes and everything in between,’ he says. ‘Unless an architect is chosen as a signature architect – for the kudos and the perceived value of their name – it appears we are in a race to the bottom. And, at the moment, there appears to be no bottom.’
Piers Taylor of Invisible Studio has also seen a new wave of cut-rate fee bids and has been left bemused how low his competitors are willing to go.
‘I’m often finding [other architects] have pared their fee to the bone, meaning we just walk away scratching our heads as to how they can get it to work,’ he says ‘Often this is led by quantity surveyors. We pitched for a housing project recently where our fee was a realistic £85,000, only to be told that the QS had stated the fee should be £15,000 for all the consultants inclusive.
‘Needless to say, we weren’t prepared to work under those conditions, and this scenario appears pretty normal right now.’
It is something Sally Lewis of London-based housing and regeneration focused Stitch Studio has also witnessed.
‘Everyone I speak to refers to the “race to the bottom” and is constantly reconsidering their position on fees in response to a shifting (and shifty) market,’ she says. ‘Being reactive on a weekly basis – as the benchmarks for value appear to weaken – does not bode well for our industry. We should be spending our time and energy on producing great work; not scratching our heads and agonising over an acceptable fee for every pitch.’
I have been undercut on a few projects by larger practices – I feel a bit sorry for architects who take on work just for turnover
John Pardey, founder of New Forest-based practice and one-off house specialist John Pardey Architects, has also been the victim of bargain-basement bids – mainly from bigger outfits.
‘I have been undercut lately on a few projects by larger practices desperate for turnover,’ he says. ‘I just move on to the next job and don’t look back. [Actually I] feel a bit sorry for architects who take on work just for turnover.’
The current situation is being compared to the ‘nervous’ late-noughties, when the pipeline of work for architects had effectively dried up due to the global economic downturn.
Since then, workload and fee levels had slowly edged back up. So why are fees so super competitive now?
According to former RIBA president Jack Pringle, low fee bids are being driven by a fear of the unknown ahead of the UK’s imminent departure from the EU.
‘Practices will be wanting to “stock up” in the face of the crunch time of Brexit,’ he says. ‘But large or small, firms can only bid below cost for so long.
‘Then they will either go out of business or give such a poor service that they lose their clients and their reputation.’
Chris Romer-Lee of Studio Octopi, who says his practice has not directly experienced being undercut, adds: ‘[This] happens across most service industries in times of trouble.
‘[Those doing it] are presumably desperate to hold on to good staff. I guess big practices can undercut far longer than the rest of us. While we’re all on our knees as fees come crashing down, they continue to hoover up all the work.’
This characterisation of the large firms being painted as the major fee-bid baddies is disputed by John Assael of Assael Architecture.
‘This is a myth,’ he says. ‘All practices need to be able to run sustainable businesses and with 60 per cent of expenditure being on salaries, it is important to pay staff at the end of every month.
‘All practices are guilty of undercutting and, in my experience, this is more the case with small firms, especially those outside London.’
We pitched for a housing project where our fee was a realistic £85,000, only to be told that the QS had stated the fee should be £15,000
The anecdotal evidence of a general reduction in architects’ income – which could of course be linked simply to workload – is backed up by data from the annual AJ100 survey.
As reported in 2016, the nation’s top 100 practices together earned £1.99 billion. This combined income peaked at £2.2 billion the following year but in 2018 fell back to £2.09 billion.
Meanwhile clients are being blamed for exacerbating the downward spiral.
‘Architects are complicit in this situation,’ argues Turner. ‘But it’s clearly born of desperation to sustain a viable business and protect jobs. It’s clients who are really exploiting the situation, many of whom should know better – both public and private sector.
‘To quote [developer] Roger Zogolovitch, architects need to find a way of changing the perception of clients who appear to see architects as just another line on the expense side of their equation. This perception needs to be challenged. Architects should sit on the value side of the equation, bringing vision and value to buildings and places.’
This is not, however, a picture recognised by Steven Sanham, managing director of London-based mid-market residential developer HUB.
‘I can honestly say that I have never selected an architect for a project based on fees,’ he says. ‘We spend hundreds of thousands of pounds every month on architects’ fees, but that pales into insignificance when it comes to the value the right architect brings to our projects.’
One would have thought, in light of Grenfell, that clients would have come to terms with the fact that exceptionally low fees deliver nothing but problems
Paul Templeton of Brighton-based developer Baobab admits that in these ‘straitened times’ he has looked ‘to make efficiencies with all our costs and … strike keen deals with all our designers and consultants’.
He adds: ‘But this is all pre-contract and we all enter in to all agreements knowing the scope of works and fees.
‘[I would not] ask architects to produce excellence for peanuts. As a rule of thumb, we negotiate like billy-o on materials, but not on people’s time and expertise.’
Undoubtedly though, less responsible developers – as well as less responsible architects – are conspiring over unsustainable fee-cutting.
So what are the solutions? Would naming and shaming those who routinely undermine the rest of the profession act as a deterrent to others?
Turner believes it could be ‘an option’, as does Russell Curtis of RCKa who says: ‘We need to call out those that insist on this unsustainable and anti-competitive behaviour.’
So far no one has been willing to take that step.
And former RIBA president Stephen Hodder of Hodder + Partners is not even sure it would work.
‘Naming and shaming is not the answer,’ he says. Instead there needs to be a ‘recognition that we have a collective professional responsibility and a code that says a fee should be sufficient to fulfil those obligations’.
As the RIBA’s executive director for professional services Adrian Dobson explains, the RIBA Code of Conduct is clear in its expectations of architects.
‘We would stress that all chartered practices need to be mindful of the requirement to adhere to our codes and the need to have a fee that enables them to be able to properly resource a project,’ he says.
In this respect, Alex Ely of Mae Architects thinks public bodies commissioning architects should be brave enough to turn to the rule book and throw out suspiciously cheap fee bids.
‘Regulation 69 of the Public Contracts Regulations 2015 (as amended) allows a contracting authority to reject an abnormally low bid,’ he says. ‘The client should reserve the right to request clarification or the submission of evidence for any submitted prices that it believes to be unsustainably low and the rejection of any bid.’
But Stitch’s Sally Lewis believes the only real way to tackle the issue is a return to a standard baseline on architects’ charges.
‘There is no way of stopping [undercutting] except getting clients to set minimum fees,’ she says. ‘They have that responsibility and should not be abusing an obviously vulnerable market.’
Bringing back the fee scale – scrapped by the government many years ago for being anti-competitive – seems impossible.
Yet surely for those employing architects, the cost/value equation should be simple.
‘One would have thought by now, in light of Grenfell and other significant building failures, that clients would have come to terms with the fact that accepting exceptionally low fees delivers nothing but problems,’ says Curtis.
‘Proper design takes time, and half the fee means half the quality. Nobody has yet demonstrated to me otherwise.’
Comment: Sunand Prasad, former RIBA president and co-founder of Penoyre & Prasad
This [portrayal of low fees and undercutting] is very recognisable. It’s far too late for naming and shaming; that horse bolted long ago. The law of supply and demand now operates unchecked.
What we are seeing is a downturn that few are admitting to, and those who can will bid low to just maintain turnover. And there is the added toxin of few customers knowing how to weigh cost vs quality, defined as long-term value. This applies to both the public and private sector, though in different ways.
The situation was different for a few years in the noughties, with investment in design in schools and healthcare. And, thankfully, there are still enlightened and/or wealthy clients.