Committee on the Environment

This message has been cross posted to the following Discussion Forums: Committee on the Environment and Practice Management Member Conversations .
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I'm interested in hearing from firms who have negotiated a value-based fee that is based, at least in part, on the success of the client's project or business. 

I have a potential architecture partner who has been able to cover the cost of design services with a conventional fee while also earning a percentage of sales for retail clients, or a bonus for increasing the sell-able area, or ownership of a residential unit in an apartment complex. 

Clark Davis's chapter 10.2 on Compensation in my 13th Ed of the HANDBOOK has a sidebar called "Another Perspective on the Value of Architectural Services, speaking to the impact of design services on the client's bottom line--the inverse of architectural services-as-commodity. But is is just a series if hypothetical questions that I presume helps embolden architects to charge a higher fee at the front end before that value is realized. Since most/all of us live hand-to-mouth and fee-for-service, the notion of cutting a fixed fee for a chance at a bigger, but contingent, success-based payoff is attractive but but too risky. It also only works with private clients. 

Also worth mentioning in that same chapter that AIA Code of Ethics Rule 2.301 (1997) allowed (still allows?) architects to take a financial interest in a project as long as that interest is disclosed to the Owner.

The scenario my friend described is attractive to Owners since they have less cash up front and are happy to share the rewards of a profitable outcome. 

I have long been bothered by the notion that we can be paid hourly in concept design for ideas that sometimes make six and seven figures for a developer/owner --that we are on the design team but not benefiting from the results of our ideas.  Sustainable design has been making the case for operational savings for energy but business-smart basic design can result in even greater overall value to owners. 

Is there an expectation from the client side that although we occasionally provide that huge value but just as often do not and that it therefore evens out?  Obviously we can't work for free up-front for very long on large projects, although developers themselves are. 

Thoughts? 



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Mark Rylander AIA
Principal
Mark Rylander, Architect
Charlottesville VA
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Mark,

Thanks for posting this.  It addresses a really, really, important issue, one that is central to "repositioning" architecture and changing its "value proposition".  The view I have gained of this topic has been mostly in its negative form: what potential new risks and liabilities are architect's exposed to, for example, when buildings don't perform as promised, anticipated, or modeled? 

The only example I know of that is truly a value-based compensation approach is regarding energy performance.  An engineer that both our firms have worked with (who I will not identify here) did energy upgrades at large-scale industrial facilities for fees as a percentage of energy savings.  This predated the proliferation of the energy service company (ESCO) business model, but,the structure was about the same.  Note that this arrangement also required that the engineer monitor energy performance real-time for the life of the contract. This assured that performance anomalies were detected and corrected immediately for the benefit of both owners and the engineer whose compensation was based on energy savings.

I hope you get lots of other responses.  I'll read them with great interest.

Best regards, Carl

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Carl Elefante FAIA
Principal
Quinn Evans Architects- DC
Washington DC
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Original Message:
Sent: 08-06-2014 11:01
From: Mark Rylander
Subject: Success-based valuation of Services

This message has been cross posted to the following Discussion Forums: Committee on the Environment and Practice Management Member Conversations .
-------------------------------------------
I'm interested in hearing from firms who have negotiated a value-based fee that is based, at least in part, on the success of the client's project or business. 

I have a potential architecture partner who has been able to cover the cost of design services with a conventional fee while also earning a percentage of sales for retail clients, or a bonus for increasing the sell-able area, or ownership of a residential unit in an apartment complex. 

Clark Davis's chapter 10.2 on Compensation in my 13th Ed of the HANDBOOK has a sidebar called "Another Perspective on the Value of Architectural Services, speaking to the impact of design services on the client's bottom line--the inverse of architectural services-as-commodity. But is is just a series if hypothetical questions that I presume helps embolden architects to charge a higher fee at the front end before that value is realized. Since most/all of us live hand-to-mouth and fee-for-service, the notion of cutting a fixed fee for a chance at a bigger, but contingent, success-based payoff is attractive but but too risky. It also only works with private clients. 

Also worth mentioning in that same chapter that AIA Code of Ethics Rule 2.301 (1997) allowed (still allows?) architects to take a financial interest in a project as long as that interest is disclosed to the Owner.

The scenario my friend described is attractive to Owners since they have less cash up front and are happy to share the rewards of a profitable outcome. 

I have long been bothered by the notion that we can be paid hourly in concept design for ideas that sometimes make six and seven figures for a developer/owner --that we are on the design team but not benefiting from the results of our ideas.  Sustainable design has been making the case for operational savings for energy but business-smart basic design can result in even greater overall value to owners. 

Is there an expectation from the client side that although we occasionally provide that huge value but just as often do not and that it therefore evens out?  Obviously we can't work for free up-front for very long on large projects, although developers themselves are. 

Thoughts? 



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Mark Rylander AIA
Principal
Mark Rylander, Architect
Charlottesville VA
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