Cutting to the Bone: How fee cutting is destroying architectural practice

The architecture awards in my city is normally a time for celebration. As it should be. Many architects in my town live for it. This is not unlike my friends in advertising, who are also obsessed with awards but the difference is if you are in advertising you get to go to Cannes for the ceremony. In advertising you get an actual Lion. Architects in Australia get to go to their local state chapter awards or maybe if they are lucky to the nationals in Canberra. If you win you get a framed certificate.

I now no longer go to the AIA awards I think I was banned after my last visit there.  Of course the ban was self imposed after I knocked the the tiny but sticky dessert wine glasses off a waiters tray to see them spin in the air in slow motion and land on the toupee of a distinguished middle aged contract admin architect. Another year in the early 90s I remember booing at some of the award winners and one year, as chair of a jury, I was told if my jury didn’t give a particular building the award I might as well pack my bags and leave town. Another year I passed out at the after party and woke up in the president’s kitchen with my hands clutching someone else’s framed award. That’s probably about as close as I will ever get to an award. All of the architect awards functions I have been to in my city have now blurred in my memory into one large ceremony of alcohol, glittering prizes (always badly framed) and bad cut-price function centre food.

Social media was on fire after the recent  Victorian chapter awards because the President of the institute reportedly admonished every one for fee cutting and not arguing for the value of design. If that is what she said then she is right. Ranked just below the scourge of gender inequality in the industry the other great scourge of our profession is fee cutting. it doesn’t matter if you are in Australia or elsewhere iI think it is a global phenomena.

Fee cutting is the scourge of architects no matter where they practice as it devalues design as a service in every respect. This year in my practice class we asked students to develop fee proposals using the Association of Consulting Architects Australia Time Cost Calculation Guide. The software helps people understand the relationship between office overheads and variable rates in relation to the hours needed to be spent on each phase of a particular project.

With another colleague I am currently researching the degree to which architects choose to specialise in practice. Linked to this is how much architects charge for their knowledge and expertise. Our early results indicate that for design services most architects will charge a either a fixed fee (30% of respondents) or a fixed fee with added charge out rates if circumstances change (38% of respondents).  As most architects will know good design takes large amounts of time. Particularly in the early stages of a project.

This above statistics beg the following question: if design is the central skill that architects offer then why is it predominantly charged for with fixed fees? A fixed fee might get you the job and give your client some kind of “certainty” as to what you will charge. But if the fee is low you will always inevitably end up spending more hours than you allowed for if you care about the design. If that is the case you might as well pay your client to get them to let you do the job for them. This may be why 41% of our respondents felt that partial services were unsustainable. They were more optimistic about the profitability of specialist services. But if you are stuck in the low fee vortex you will never develop those new services.

If a firm is in the spiral of fee competition, fee cutting and fixed fees you will never get the resources to undertake good design. It’s no good just cutting the fees, or offering a fixed fee, just to get the job. Of course most developers don’t really know what good design is and will exploit price competition in the market for architectural services to get the design cheaply. The talk around my city is you can get a fully designed high rise apartment building with planning permits for around 120k. Not bad for developer constructing a building with 200 apartments with a sale value of 60M.

Many  small firms dream of going upstream in the knowledge stakes and adopting a management consulting style model. They dream of clients paying a premium for their architectural knowledge and expertise is indeed a dream unless firms charge more for design. With the rise of digital practice and workflows, the disintermediation of architectural services, (try explaining what design development is to a client), the loss of contract admin to project managers and the outsourcing of documentation all architects have left is design. The problem is low fees undervalue design and ensure crap outcomes all round. It also means firms are stuck in a vortex of reacting from crisis to crisis; from low fee job to low fee job and never getting above water. If fees are low firms will never have the time or be able to invest in the R&D and the innovation they need to undertake to go upstream. Eventually these firms, and perhaps architectural services as we know it, will disappear.

So what is the solution to this downward spiral? How do small firms, which are most of the profession, get out of the vortex?

Firstly, a change in the professions  broad culture is needed. The old stereotypes really need to fall away. The myth surrounding the dichotomy between innate “designers” and “business” types in the profession is sickening. It annoys me that because I teach practice at MSD and have and MBA I am typecast as a kind of business “man” architect rather than being seen as having a stake in design or architectural theory. You can just see me in the chinois and the boating shoes playing golf with my gentleman stockbroker mates. I think these old stereotypes are perpetuated by the appalling gender constructs within the profession. As architects we all need to know about the mechanics of business strategy and competition.

As one eminent colleague said to me when I started teaching practice, “Just stand in front of them at the first lecture and tell them it’s all bout the fucking money.” In some ways it is all about the money. But, the troglodytes would argue that such a sentiment cheapens design. That is not the case as it is really about about valuing design services and arguing the case for their worth.

The best architects I have worked for have been good designers and highly skilled negotiators. A winning combination. We need to mentor our young architects so they gain negotiation skills. Yet negotiation and financial skills are not really a big part of the national architectural competency standards last time I looked. Its all about doing the traditional things and there is nothing about management, finance or negotiation. The competency standards are a sop to those who think architects need to be technical experts rather than a profession focused on generating design knowledge. The balance is all wrong.

Small firms, indeed all firms, also need to conduct formal R&D. R&D into simply doing a bit of design and calling it research. It should not be an adhoc activity. Nor is it about having a chat, and throwing around a few ideas, with a few friends down at the pub. Firm’s need to invest in formal R&D programs if they really want to develop their design skills and go upstream. R&D and innovation is the way for architects to compete with their competitors. There needs to be more institutional infrastructures from the AIA and other bodies to enable this. Architects need support to understand IP and commercialisation pathways. Unitised Building is a great model of how formal R&D can lead to a successful commercialisation pathway for an architect.

Firms need to charge more for design services. Fixed fees or even fixed fees with hourly rates for variations should be abandoned for the design phase or for partial design services. If all firms charged a percentage fee for design or an hourly rate for design the profession would be better off. Firms need to argue to clients that design is labour intensive and until it is undertaken it is hard to know how long it will take. Firms need to argue for its importance in the early stages of the project. If clients go elsewhere so be it. But they will eventually figure it out: You get what you pay for. I inform my students that they are better off going down to their local single origin, filtered coffee, wified, barista heaven with there sketch book than take on a project for low fees. Why do a job for such a low fee that you end up doing it at a loss. Effectively paying the client to do it. You are better off just buying the coffee.

As a profession we need to out the fee cutters and the informal price-cutting cartels. The culture of the profession needs to avoid the schizoid tendency when it comes to design fees. On the one hand architects exalt design and glorify the designers. On the other hand firms are viciously cutting their fees behind the scenes to get that elusive job next job. This schizophrenia will eventually destroy the profession as we know it. Fee cutting and price competition has already destroyed the middle sized firms and the small firms will be next unless all architects change this. This is architecture’s last stand.

This is the last blog for the month. Thank you to all those who read it and have sent me comments (good and bad). I am leaving the periphery and off to the northern hemisphere sunshine in my gentleman architect chinois, panama and boating shoes. So in July watch out for a few Kerouac road trip style blogs from the so called centres of architectural excellence and culture.