Episode 27:

Hello and Welcome to the Part3 with me podcast, 

The show that helps part 3 students jump start into their careers as qualified architects. I am your host Maria Skoutari and as mentioned last week, this week, we’ll be talking about Part 2 of Fee Management covering how to negotiate the fee, getting paid, what to do in the event of non payment and working at risk - PC2 - Clients, users and delivery of services & PC4 Practice and Management of the Part 3 Criteria.

The key to any successfully commission is negotiating and agreeing the fee with the client. So under this section of the episode I will be covering how to negotiate the fee. 

So in order to negotiate the fee with the client, as an architect you will have to convey the importance of your services and that you are not just selling drawings but valuable knowledge that will improve the lifestyle and property value of the user. 

That’s why during the negotiation process it is important to establish eye contact, listen and concentrate to what is being said, be direct and convincing in your tone but try not to sound arrogant, reassure the client with any questions or queries they may have, be commercially aware, avoid personal bias remember to listen carefully to what the client wants.

So during the negotiations you should aim to:

• Recognise the client’s values and objectives
• Aim high initially and adjust later if necessary in small increments
• Any offer to be conditional 
• Use questions to respond to a proposal
• Nothing is agreed until everything is agreed
• Repeat items back to the other party to confirm everyone is in agreement
• Always confirm back in writing what has been agreed

Then the client and architect together can review the fee and potentially consider if any of the task and/or resources could be eliminated to bring down costs. But the architect in such an instance be very clear to the client of the effect of any omissions can have on the successful delivery of the project. The architect may decide to carry out some of the services at no cost but they will need to evaluate the risk and the implications of not making a profit and the knock-on effect it can have to the practice. If the client comes back and says to start work and that the fees can be negotiated at a later stage, then the architect should consider such a scenario as ‘working at risk’ - whereby the architect may not be paid for some of the services undertaken and therefore working at a loss. 

So once you’ve negotiated the fee, you should determine what form the fee agreement should be in. It is in the architect’s best interest to use an RIBA Agreement form to protect their interest but in the case where a client requires them to use a bespoke form, the architect should compare it with the RIBA terms and conditions and if necessary negotiate on points of concern and they should also check with their PI insurance provided that a non-standard appointment agreement is acceptable. 

If you end up using an RIBA Standard Agreement, this form is suitable for a commission where detailed contract terms are required and the project uses either a JCT standard or intermediate form of building contract. The standard agreement can be used with a wide range of procurement routes so it’s quite flexible in that sense and can be used with both domestic and commercial clients. The RIBA Standard Agreement also covers the architect from termination to be fair to both architect and client. You can also use a Concise Agreement form if the project is for extensions or alterations to an existing building and where the JCT Minor Works Building Contract or JCT Intermediate Form of Building Contract are used. Or you can use the Domestic Project Agreement where the works involve work to a client’s home.

Next up, I will be covering how to actually get paid and the events of non-payment. 

In terms of getting paid, make sure:

• To always have an agreement in writing
• That the client understands the payment provisions
• Use RIBA Agreements wherever possible
• Don’t start any work until the agreement is signed
• Reevaluate the cost of providing the services
• Get the client to sign off and pay for the relevant work before initiating any submissions and for each stage as completed
• Establish a rigorous procedure for managing fee accounts
• Keep a separate fee file with the agreements and fee correspondence
• Invoice monthly 
• Submit claims for additional fees as incurred not at the end of the commission

There are a number of ways you can claim fees, they can be obtained through:

Staged payments - whereby you are paid at each stage as previously mentioned, this ensures you are protected from front-loaded fees from the earlier stages in the event that the project is cancelled or changed later on. 

Another option can be through dividing the fee into equal instalments for each months in the programme.

The preferred method for charging will ultimately come down to the clients preference and once agreed it should be set down in a fee management plan to be used to calculate periodic payments and cash flows. 

Now when it comes to non-payment:

A common method used by clients to avoid payment is through what’s known as Set-Off. The coming law of set-off provides a remedy where one party can rely on a separate claim to reduce or extinguish liability to the other. Client’s commonly make claims of negligence and use the right of set-off as a means to avoid payment of fees. If using an RIBA Agreement, the right of set-off is excluded from the RIBA Conditions of Appointment with the intention of separating payment of fees from damages, if the alleged negligence is proven, it will be payable under the architect’s indemnity insurance policy encouraging the client to make a realistic assessment of success before pursuing the claim at adjudication or in court. 

The architect can try to recover unpaid fees by:

• Initially calling the client to discover the reasons for non-payment and to obtain a date fro payment. 
• If there is an indication that the client is in financial difficulty, the architect will then need to potentially consider to strike a deal for a lesser amount in case the client becomes insolvent
• If the client indicates that they have a genuine complaint, then the architect should determine whether to negotiate a settlement - If this is not possible, the architect should sent a letter to the client drawing their attention to the no set-off clause and demand payment and the letter should suggest that the client uses the dispute resolution procedures to settle the matter and that the architect is referring the matter to insurers.
• If the allegation of default was made just to avoid payment, the client may choose to repent rather than face any formal dispute resolution. 

If the client still refuses to pay, the architect has some additional contractual options they can exercise, including:

• To claim interest on unpaid amounts whereby, if using RIBA Agreements, they can add an 8% interest per year over the base rate to recover costs
• To suspend use of the copyright license and any sub-licenses by giving the client 7 days notice
• To suspend or terminate performance of services by giving the client 7 days notice provided no pay less notice has been given by the client
• To start dispute resolution procedures
• To start commence debt recovery procedures

Before the architect exercises any of these options, they should consider the possible reaction of the client and whether the situation can be remedied in any other way and how to minimise any potential loss.

And to conclude today’s episode, I will revert back to where I mentioned ‘Working at risk’;

This will typically occur when the architect has been invited to provide preliminary services usually in competition with others and can either be with or without a fee proposal. Before proceeding with such an arrangement, the practice must decide on their strategy and make a commercial judgement on the risks involved. Or you may be working at risk until an agreement has been reached with the client meaning some work may end up being abortive. 

Working at risk, therefore, should not be an option because there is always a danger of loss. The law doesn’t generally support claims for payment for doing work in the expectation of obtaining a contract. The bidding process is usually speculative and the associated costs aren’t normally recoverable. 

To avoid this, an architect providing preliminary services at the request of a client, may in certain circumstances make a successful claim of what’s known as a quantum meruit - whereby in the absence of a contract a claim would be based on the principle that the law will require the client to make restitution if the client has not paid for the architect’s work which helped to achieve the client’s objectives and the anticipated contract was not awarded to the architect. For such a claim to succeed, the architect would need to demonstrate that their contribution was requested by the client and given on mutual understanding that a contract will follow, that the architect provided services efficiently and effectively and that the services were carried out for the benefit of the client without payment. 

Of course there is no guarantee that the architects input will be rewarded so the architect need to assess when the cut off for ‘free’ work must come to an end. Whenever there is risk, the architect should make sure to give the job a number and keep records of the time spent on it. This will then make it possible to assess the cost of the job and if it proceeds to recover the costs of some of the preliminary work - if it proceeds sometimes practices include the speculative work costs within the fee of the initial stages or planning. 

So going back to the RIBA Code of Conduct, which requires all architects to define the terms of engagement before services are provided and not to make an offer of services unless invited to do so. While the terms of engagement e.g. contract requires ‘offer and acceptance’ to be complete it may be reasonable to assume that a contract has come into force if, after receipt of and offer, the clients actions imply acceptance. If you don’t receive a response then it’s up to the architect to make a commercial judgment on whether to proceed with the services or not. 

Just to give you a quick understanding of what you would consider when putting together a fee, I’ll outline the key items you would go through to determine it. So you should start by:

• Scheduling out all the drawings to be produced and how many days each one will take
• Then you can draw up a simple bar chart programme setting these out to determine if your timescales seem realistic
• Then you would work out the key tasks and how many days they would required
• Following this you can then put everything together into the first chart for each key work stage to get a good overview of the total extent and period your services will take 
• So once you determine the total time for the services you can then allocate your hourly fee against it 
• Then add your estimated expenses 
• And the total will give you an approximate Lump Sum Fee  - then it would beneficial to work backwards to work out the % against the construction cost to see if you fall within the right region which can be approximately between 5-10% depending on the size of the project - generally the larger the project the smaller the fee percentage

To sum up, remember to:

• Always have fee agreements with clients and have them in writing, signed and agreed. Make sure the agreement covers what will be paid, when you will be paid and how you will be paid.
• Make sure the agreement allows for additional fees if the site is sold on or if someone else takes in the design
• Don’t start work until this agreement has been confirmed and signed to avoid working at risk as you may not be able to cover the costs later on
• If anything on the project changes, make sure to adjust the fee to reflect the changes and ensure it has been confirmed in writing with the client
• Make sure to add VAT to your invoices if you are registered and make it clear to the client
• Protect your copyright interest with a contract clause that covers the payment to be made to you if the client sells the site or uses the design without you being retained as the architect
• If possible, agree the level of your PII cover to be the limit of your personal or company liability to the client for the particular project. If this is included in your fee agreement it will need to be explained to the client so they are aware of and agree to the implications. 
• Get your fee accounts out on time and in line with your clients payments system and have a process in place to chase them if they haven’t paid on time
• Impose an interest in late payments to force clients to pay on time
• If the services change or the client asks for amendments throughout the duration of the project make sure to adjust your fee accordingly 
• Make sure to allow for your expenses to be covered and what will be chargeable to the client
• Keep a separate fee file to enable you to access the agreement quickly if any issues arise that impact fees or costs
• Known when it is wise to get out of a job
• Control the amount of speculative work you take on and ensure that you are fairly compensated for the risks if the work is successful
• Keep your clients updated of any fee changes at all times as required within the ARB & RIBA Codes of Conduct