Into the Abyss

George Zillante , 4 August 2014

Does excessive fee-cutting mean the profession is presiding over its own demise? George Zillante outlines the issues. 

Introduction

The recent release of the ACA Salary Survey Report has prompted me to reflect on some of the comments relating to architectural salaries and fees that have been made to me over several years. As a head of an architectural school with excellent long-term industry contacts, I am in a rather privileged position whereby I often have access to data and information that is not available to the general community and certainly not to other competing architectural firms. Against this background I have carried out a case-study analysis of several different projects to try and understand the issues involved and to see whether the anecdotal comments were supported by the data.  

In fairness it must be said that the state of the industry is not consistent across the country and that Australia is currently experiencing poor economic conditions. Nonetheless, the information from the case studies tends to support many of the anecdotal comments made about architectural fees and suggests that the industry is in a parlous situation, and that action needs to be taken now if we want to have a sustainable profession.

Case studies

The following sample of five different cases covers a range of different scale projects and illustrates some of the pricing practices in our industry. This is part of a much larger study. I have permission from the unsuccessful bid architects involved to use this data, provided that the work does not identify the architect or the project.


Case study A. Mixed-use, high-rise building in a capital city

Budget

$85m 

Service

Design, documentation and contract administration

Fee bid

1.5% plus GST
(including design, design development, documentation, calling and handling of tenders and contract administration and all consultant fees) 

Winning fee

< 1.5% plus GST
(including design, design development, documentation, calling and handling of tenders and contract administration and all consultant fees) 

The analysis of this case suggests that the architectural fee for the winning bid would be significantly less than 1% as the bid amount including all the project consultant fees. 


Case study B. Healthcare building in a capital city

Budget

$19m

Service

Design and documentation only

Fee bid

3.35% including all consultants (plus GST)

Winning fee

2.7% including all consultants (plus GST)

An analysis of the fee structure for the 3.35% bid indicated that the architectural fee did not exceed 1.5%. As most consultants other than architects tend to work to a similar per hour rate, this suggests   that the winning bid had an architectural fee in the order of 1.1%. 


Case study C: A small school in a capital city

Budget

$1m

service

Design and documentation only

Fee bid

6.4% plus GST  (including all consultants)

Winning fee

5.2% plus GST (Including all consultants)

The analysis of this case suggests that the architectural bid fee was 2.9%. We can assume that the winning bid must have been less than that. 


Case study D:  Housing in a remote area

Budget

$1.65m

service

Design and documentation only

Fee Bid

4.2% plus GST (Including all consultants) Architectural fee was: 1.44%

Winning Fee

3.3% plus GST (Including all consultants) 

The analysis of this case indicates that the architectural bid fee was 1.44%. We can assume that the winning bid must have been less than that.


Case Study E: School extensions in a capital city

Budget

$800,000

Service

Design and documentation only

Fee Bid

5.6% plus GST (Including all consultants) Architects Fee: 2.15%

Winning bid

4.5% plus GST (Including all consultants)

The analysis of this case indicates that the architectural bid fee for this project was 2.15%. We can assume that the winning bid must have been less than that.


What does this mean?

It is clear from the above cases (and many more similar examples) that architects are doing work on many major projects for 1% or less of the project budget cost. Similarly, for mid-size projects, the architectural fees are in the range of 1 to 1.5% and rise to between 1.5 and 2.9% for smaller projects.

To date, the lowest true break-even hourly rate that I have been able to find for an architectural office is $101 plus GST – and this is in a smaller state with a lower cost of living. If we apply this rate to the above case studies we find that a very low number of hours have been allowed to do the architectural component of the work. This is counter to the way architects work. Architects need time to explore and develop the design, and to resolve the complex array of issues that come with any projects, but this is simply not allowed for under the current fee regime. 

I know of one company in a cognate field in a major capital city that instructed its staff to “go out and buy work” as a way of maintaining turnover. There are many other stories of “buying work” as a strategy to navigate difficult economic circumstances. But this causes more problems than it solves, both for the individual practice and for the profession as a whole.

Low cash flow impacts significantly on practices, as is demonstrated by the current situation around Australia. We have seen mass redundancies (sometimes exceeding 30%), no salary increases for remaining staff, principals not drawing a salary and talented people simply leaving the profession.

It is not surprising then that many companies are simply cutting their fees and their services in order to survive, but this can also be to the long-term detriment of the profession. For example, trends suggest that the architect is slowly being phased out of contract administration. There is also a rise in poor quality documentation. As a result, onsite inspections of completed buildings often reveal many unresolved construction details, thereby exacerbating the quality debate between the design and construction sides of our industry, as well as fuelling the notion that architects do not really understand how buildings work.

I am also aware of at least two recent occasions where clients have invited younger architects to provide a residential design for free because it would give them an opportunity to establish themselves in the community.  This is not uncommon, nor is it new – as many of us will recall from our days as young architects. 

The current downsizing of many architectural practices has resulted in a proliferation of many small practices throughout the county, and this will place even greater competitive price and ethical pressures on our industry.  

This downward spiral needs arresting if we are to continue as a profession. There is no doubt that some companies are still doing very well but they are in the minority and most architects are struggling. Unfortunately the approach that we have taken to charging for our services is one of the main reasons for this. To continue the way that we are constitutes a cannibalisation of the profession as we slowly descend into an abyss from which it will be very difficult to exit.

Architects, by their very nature and training, are (in the main) good designers, but I am not sure that many of us really understand business principles as well as we should.

If we continue down this road we will end up “presiding over our own demise” as noted futurist James Woudhuysen argued in relation to the building surveying profession in his 2003 paper “The Future for Building Surveyors”. 

Is this what we want?

Professor George Zillante is Head of the School of Architecture and Built Environment at the University of Adelaide.

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