Episode 69:

Hello and Welcome to the Part3 with me podcast. 

The show that helps part 3 students jump start into their careers as qualified architects and also to provide refresher episodes for practicing architects. I am your host Maria Skoutari and this week we will talking about Architects Working at Risk. Todays episode meets PC1, PC2 and fits slightly into PC4 of the Part 3 Criteria.

I’m suspecting you are probably familiar with architects ending up working at risk due to a number of reasons and scenarios and that you have probably experienced it yourselves one way or another. So I wanted to dedicate an episode on how architects may end up working at risk and how to mitigate any potential risks that come with that. 

So how might an architect end up working on a project at risk:

This can typically occur, when architects are invited by either a private, public or contractor client to provide preliminary services, which is usually for design services, and sometimes in competition with others where they must develop a concept to try and ‘sell’ the design aspirations to the client. This process up to the selection stage is usually at the architects or practices own expense, if chosen from the competition the architect/practice may be able to claw back the fee and expenses spent on developing the concept for the competition. Typically the clients objective with requesting such services is to determine the:

• Viability of a planning permission
• Or for an approval in principle by a funder 
• Or relating to the acceptance of a design and build tender
• Or to determine the achievement of a preferred bidder status in public procurement type projects

The other scenario is if the architect/practice enters an open architectural competition where anyone can join. Essentially such work is taken on at risk by the architect/practice on the basis that payment will only be made in the event of the work proceeding.

Alongside speculative work that architects/practice take on at risk, competitive fee tendering is also something commonly used now, which essentially bidding for a project and providing a fee forecast for the works.  

What are the key risks the architect/practice should consider when taking on speculative/at risk work:

Before proceeding with such instances, the architect or practice must first assess their strategy and business position and make a commercial judgment about the risks involved. 

The key risk with proceeding with such cases is that the architect/practice essentially does work on the assumption and expectation that they will win the appointment. If they don’t, however, they won’t be able to make their costs back as the law doesn’t support claims of expectation of appointment. The bidding stage is usually speculative and any associated costs are usually not recoverable.

There is a potential route, for the architect to recover these costs. In order to be able to do so, however, the architect/practice would need to demonstrate that their contribution was:

• Requested by the client and given on the mutual understanding that a contract would follow and was not awarded
• Or that the work was done to the benefit of the client without payment
• And the services provided were made efficiently and effectively in achieving the clients objectives

The risk, however, is that there is no guarantee that the architects/practices input will be rewarded, unless it is specified that payment of fees and expenses will be provided whatever the outcome. So as mentioned, the architect/practice will need to make a commercial decision on how much ‘free’ work they are willing to provide. 

And even if it is a potential/speculative job, the practice should still assign it with a job number and keep adequate records on file alongside the time spent on producing the work. As per the RIBA’s & ARB’s Codes of Conduct, architects must ensure they have a written appointment with their clients before starting any services even if its a bid or competition, it is, therefore, best practice to send the client an offer letter stating what the offer comprises, the conditions that would apply on acceptance of the offer and to any subsequent appointment and the liability of fees arising and also to attempt to protect copyright in any work produced preventing the exploitation of the architect by the client. 

Typically such instances require an ‘offer and acceptance’ to be complete and valid, but if the architect/practice didn’t receive an explicit acceptance response by the client, if their actions imply acceptance by asking the architect to start work then it is reasonable for the architect/practice to assume implied acceptance of the offer. 

So, there are, therefore, a few key questions, that architects/practices should ask themselves before taking on speculative work:

• How realistic is the specification of the project?
• How likely is it to become fee earning?
• How much can the architect/practice risk in people and time before the project becomes fee-earning?
• If it succeeds, will the fees earned, if the practice gets paid, justify the risk taken?

So in order to mitigate such instances, it is advised for architects/practices to:

Have a clear policy in place outlining the proportion of the practices total workload to carry out ‘at risk’ work before the project becomes fee earning or is dropped. Key items to consider are - will such work create too many issues for the practice? Will the practice be at risk of great financial loss or bankruptcy? Is it a risky client? Can the practice afford the risk?

The practice will need to assess all these concerns and also consider their knowledge of the potential client, their company policy, the nature of the proposed project, the likelihood of its success, the practices existing commitments, the existing office capacity and future capacity, the possible income and profit from work if it proceeds, and the extent of competition for the work, all these factors should be reviewed before agreeing to take on the work. Balance out the rewards if the job goes live and downside risks if it doesn’t. 

That’s why architects should aim to ensure that clients fully appreciate the nature of the service being offered and don’t make appointments simply on the basis of the fee alone. Potential clients are often unaware of fundamental differences between, say, conventional design services and design by a contractor’s organisation; so that’s where the architect/practice need to explain the nature of services to be offered and that the fee is determined by that service and the cost of providing that service.

In some instances the practice may come on board to carry out speculative work required to assess the viability of a site and then the client that hires them to do so sells the site to someone else to carry out the scheme, the practice will need to assess such scenarios before accepting to be involved on the project ensuring the practice is compensated for the work carried out without payment and for contributing to the success of selling the site with a viability study. 

It is, therefore, very important to establish with precision when you agree to work without being paid and the amount of work you will carry out at risk before the project becomes fee earning or is abandoned. So if possible, it should be agreed from the outset with the prospective client the basis on which future work will be carried out when the limit of work agreed to be done at risk is reached. Practices must keep the amount of speculative work under control and avoid doing too much work which would prevent them from withdrawing from the project and having to accept their losses. 

When taking on speculative work, practices should ensure that the fee-earning work can support the cost of the speculative work as part of their overheads and fixing a limit to avoid being overstretched financially or with staff resources causing the fee-earning work to suffer. If the work is successful, practices should ensure they are fairly compensated for the risks shared with the client. 

So to sum up what I discussed today:

• Work is taken on at risk by the architect/practice on the basis that payment will only be made in the event of the work proceeding
• Speculative work taken on should be carefully monitored in relation to fee-earning work and proper compensation to be in place if the scheme proceeds but another practice is chosen
• The law doesn’t generally support claims for payment for doing work in the expectation of obtaining a contract
• Before agreeing to take on the work, the practice should consider their knowledge of the potential client, their company policy, the nature of the proposed project, the likelihood of its success, the practices existing commitments, the existing office capacity and future capacity, the possible income and profit from work if it proceeds
• As per the RIBA’s & ARB’s Codes of Conduct, architects must ensure they have a written appointment with their clients before starting any services even if its a bid or competition, it is, recommended and best practice to send the client an offer letter
• Working without an appointment agreement and agreed fee schedule is work at risk
• Remember, without fees there is no practice