How, then, does an architect calculate fees based on as yet unknown costs? AIA Agreement B101-2007 required the owner and architect to enter their own terms for percentage remuneration. Some of the inserted terms made sense, but others were confusing and ambiguous. The new B101-2017 offers a solution that could bring clarity to the dark world of percentage compensation. Instructions B101-2007 identified at least 10 methods of calculating architects` remuneration that could be included in this agreement. With respect to the use of a percentage of project costs, the instructions suggested the following wording: Despite these guidelines, owners and architects had difficulty clearly defining the architect`s compensation in a “percentage of labour costs” scenario. Often, they included a statement such as “7% of the cost of labor,” and the architect would charge the owner based on estimates throughout the project. Ultimately, if the actual cost exceeded these estimates, the architect would send the owner an invoice to make up the difference. If the estimates exceeded the actual cost, an accomplished homeowner knew they had to ask for a refund. Both scenarios yielded precise results, but neither seemed fair to the party, which had to hand over extra money after the deal felt complete. Architects often set their remuneration as a percentage of the project costs.
After all, the cost of building a project is directly related to its complexity and the degree of planning services the architect is expected to provide. But there has always been an inherent conflict in an architect`s calculation of compensation as a percentage of project costs, as these costs are not fully known until the architect has provided most of his services. How does an architect calculate fees based on as yet unknown costs? AIA document B101-2007 can help you with this. Lorem ipsum dolor sit amet, consectetur adipiscing elt. Cura bitur amet et commodo turpis. For more information on AEOI contractual documents, see aiacontracts.org. There are a few nuances that owners and architects need to understand when calculating the architect`s fees as a percentage of the owner`s budget. For example, B101-2017 clarifies that once the owner has made a progressive payment to the architect, it cannot be adjusted based on subsequent increases or decreases in the owner`s budget. So if the project starts with a $100 million budget that increases to $120 million during the design development phase, the architect can`t charge 20% additional fee for their schematic design bills. However, the architect may claim compensation as an additional service if this budget increase is due to a significant change in the project or to any of the other reasons listed in Article 4 of the B101-2017. Architects should also be prepared to have a conversation with the owner at the beginning of a project about the architect`s budget, project expectations, and compensation. A lower initial budget may suit the architect to charge a higher percentage.
An unrealistic initial budget may cause the architect to charge the owner for additional services if asked to do more work than originally planned. There are many ways to structure an architect`s fees. There is no right or wrong way to do it. But for architects frustrated by the cost of labor-based compensation, B101-2017 may finally have an answer. Finally, B101-2017 offers protection to the architect if the owner decides not to build the project or part of it: what does the basis of the architect`s fees do on the owner`s budget? First, it eliminates confusion about how to calculate the royalty at the end of each design phase. The owner`s budget is known at the beginning of the project and the owner must update it as the project progresses. In other words, if the architect submits an invoice at the end of each design phase, there is a real and unambiguous number on which it can be based. It also eliminates the worst feature of the old payment method based on the cost of the work: the need for an invoice or reimbursement at the end of the project to reconcile the estimated cost with the actual cost. B101-2017 contains several revisions to clarify the architect`s remuneration when calculated as a percentage.
Article 11 now contains claims in which compensation may be based on a specified amount, percentage or other method established by the parties. Percentage compensation is defined as “percentage of the owner`s budget for labour cost” rather than “percentage of labour costs”. Language has also been added to illustrate how this new method works: Mike Koger, AIA, Esq., is AIA`s Manager and Legal Counsel for Contractual Documents. There is also an inherent relationship between the owner`s budget and the architect`s design services. For example, if the architect performs a schematic design, the final cost of the work is largely irrelevant. This is an unknown number, in the distance, that the architect can only control marginally. The owner`s budget, on the other hand, is a real number during schematic design, and the architect is contractually obligated to develop a schematic design in accordance with this budget. Thus, this relationship between the architect`s services and the cost of the project – which makes percentage payments attractive in the first place – still exists and is reinforced by the basis of the architect`s remuneration on the owner`s budget. .