Fee calculation requires a method of analysing the cost of time, calculating the expenses of a business and determining minimum charge out rates for staff, all of which is necessary to determine the level of fee below which one cannot go without suffering a loss.
There are two things to be concerned about when quoting fees to clients. First, to be sure to quote fees which will enable a proper professional service to be provided and, cover all costs and make a reasonable profit. Second, to be sure that the level of fees quoted is consistent with the prevailing market.
The key information required to accurately establish fees for architectural services are:
- accurate historical records of the cost to the practice to provide services for various types of project
- clear understanding of the scope of service required for the project
- realistic hourly rates for the staff to be used for the project
- appropriate margin for profit
- appreciation of the market conditions.
In order to run a business successfully, a practice must know how much it costs to do a job and receive a fee which covers the costs and achieves a profit.
There are three basic requirements to run any business: time, people and money. People provide the skills and put in the time. Money is required to fund the business, to pay the people, to fund the expenses, to fund the equipment needed and to provide working capital. Money is derived from three possible sources:
- from capital invested in the business by shareholders or principals of the practice
- from income (in the case of an architect's practice, fees)
- capital obtained from borrowings.
The legal status of fee scales
The Competition and Consumer Act 2010 applies to the supply of professional services including those of an architect. Among its effects is a prohibition of mandatory fee scales so that architects and their clients are free to negotiate and agree fees on any basis so long, of course, as it is legal.
Refer also Client note: Architects' fees
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