Creating Architectural and Design Contracts and Getting Paid For Your Work

Your interview went well, your prospect has moved from a qualified lead to a
new client, ready to hire you to do the job. The designer in you is ready to
design, but you need to establish a framework for your business relationship.
And that means a contract and a discussion about how you’ll be compensated
for the work that lies ahead.

I certainly don’t need to tell you how to do the tasks associated with the
actual work. But there are some parts of delivering the work that new
designers may not have much experience with yet. Let’s review the key steps
between the client’s committing to working with you and the point where you
set off with your pens and trace and begin pushing pixels in CAD.

Carney Logan Burke Architects

Contracts
I’ll preface this conversation by saying that I’m not a lawyer, and the legal
ramifications of your entering into a contract with someone else really
demand that you seek legal counsel.

A contract is designed to protect you and your client and spell out the legal
terms and responsibilities of your relationship. In many locations, a
contract is a legal requirement for offering architectural services. Even if
you practice in an area that doesn’t require one, it makes good business
sense, and it forces you to evaluate the range of possibilities in the
complex (and expensive) process of delivering of a custom home design to a
client.

Where should you start?

A good place to begin is the AIA’s (American Institute of Architects’)
website. It has a contract for just about any situation you can envision. I
recommend signing up for (free) access to the AIA’s Small Project Contract
Guide, which provides the information you’ll need to choose which contract is
right for your situation. It also helps to read through the various sample
contracts on the site to get an idea of what your contract should include.

At a basic level, the contract will include the:

Project description

Architect’s responsibilities (including scope of services)

Owner’s responsibilities

Compensation terms

Termination section

Other contract considerations. Make sure to be clear about what’s included in

your proposal (basic services) and what isn’t (additional services).
Developing a menu of additional services (an existing conditions survey,
energy modeling, subconsultants, 3D modeling, the number of options provided,
etc.) can often be helpful to a client who’s unfamiliar with the process.

When you’re just starting out, the small-project contracts will probably
serve you well (assuming you’re working on small projects); however, as you
build your practice and pursue larger projects, you’ll need to transition
into more complex agreements.

You can purchase these documents on an as-needed basis on the AIA website.
You may find that they don’t quite describe what you do or how you like to
offer services (if you or your client are always modifying them, that’s a
sure sign), and at some point, you’ll probably develop your own contract that
suits your personal process. Just be sure an attorney specializing in
construction law has studied your contract before you put it in front of a
client. We’re architects and designers, not lawyers, and this isn’t a DIY
project; you need professional help.

If you’re a member of the AIA, you can subscribe to its LegaLine Service,
which offers unlimited legal consultations for a fixed price. Even if you’re
not a member, it may be worth the price if you’re developing your standard
contract and you don’t have access to a local lawyer who specializes in
construction law.
Fees
Buried in the process of drafting your contract is the weighty decision of
how you’ll approach charging for your services. Heading into your interview
with the client, you’ll have a basic idea of how you want to structure this,
but it will be codified in your contract. There are many different methods of
charging for services rendered, but let’s look at a few of the most common
ones:

Stipulated sum (fixed fee):

A negotiated fee that includes your direct personnel expenses (if you don’t
have employees, that’s you), your consultant’s fees, an overhead expense
(your cost of doing business not directly attributable to the project) and
your profit (not reimbursable expenses, which we’ll talk about later). Your
client will want this kind of an agreement. I can almost guarantee it.

When everything is known about a project’s scope, and when you have some
experience, it can be feasible to determine the fee required to complete a
project. But how often is everything for a project known up front? Just about
never.

Clients (and architects) don’t know everything they want or need at the
outset of a project, and things change in the design process, revealing new
opportunities and insights. Furthermore, it can be hard to determine your own
fee early on in your practice. You won’t have a good sense for exactly what
it takes to put a project together from start to finish by yourself.

The scope of work changes must be accounted for (up or down) along the way,
as they’ll impact the overall fee. And if there are any changes in the scope
of work, the contract must be renegotiated with the client. Like it or not,
the process of renegotiation is uncomfortable and can breed resentment. Your
goal is to have a happy client at the end of this process, and a constant
renegotiation of your fee is likely to get in the way of that goal.

If you guess at all of these fluid variables and get it right, this structure
rewards efficient work habits by the designer. As your time investment goes
down, your profit margin will go up. Conversely, if you estimate it
incorrectly, it can be financially devastating and could end up shuttering
your business before it gets up and running.
Fixed fees can have a place in your proposal, though, as we’ll see in the
hybrid fee structure that follows.

Percentage of construction cost:

In this scenario your fee is set as a percentage of the construction cost
(typically 8 to 20 percent or more). There are some pitfalls associated with
this method of compensation. First, you’ll need to define in writing what the
construction cost that you’re basing your percentage on includes: hard costs,
soft costs, site development costs, infrastructure, engineering, etc. As you
can imagine, this can produce a wide range of fees. This can mean the design
professional isn’t compensated appropriately, or the owner is overcharged for
the work.

One of the benefits of this arrangement, though, is that as the scope and
construction cost increase, the fee rises along with it. Having a client who
is open about the actual program and construction budget, as well as an
architect who is knowledgeable in local construction costs, is key to making
this arrangement work. It demands a thorough understanding of the program,
project goals and budget to ensure the designer isn’t working toward an
unrealistic or imaginary budget only to absorb redesign costs down the road.

Competing objectives between owner and architect can also make this outwardly
seem an unfair arrangement. An architect seeking to reduce construction costs
for an owner actually reduces his or her own fee. Equally, drawing and
detailing expensive materials is (generally) no more work than doing so for
less expensive ones. There are exceptions, of course, as some more expensive
systems actually do require more design thinking and drawing. For these
reasons clients and architects alike shy away from constructions costs as the
sole governing fee structure.

Hourly:
For projects of an unknown or yet-to-be-defined scope, an hourly fee is
appropriate. It’s used by many as a starting point until the scope of work
can be fully described. It can be capped at a not-to-exceed number or tied to
project milestones (for example, hourly until design development is
complete).

The actual rate is determined by the architect or designer’s level of

experience and the prevailing rates in your area, and there are of course
mathematical formulas, all of which you should understand. However, when
you’re just starting out, a lot of those variables won’t be known to you.

To be completely honest, you’ll have to set your hourly rate at a level you
think it will take to get the job. Understand that out of your compensation
will come a host of taxes, both federal and state, as well as insurance and
the cost of keeping the doors of your business open and the lights on. This
all will add up to a big number, and your hourly rate should reflect this
reality.

Hourly compensation can be a hard sell to a client — for good reason. It’s
difficult for a client to budget for, and tensions can arise when a client is
surprised by an unusually large monthly bill. Designers work a lot of hours,
which leads to either large bills for our clients or an internal struggle for
the designer when trying to decide what the invoice should be revised down to
in order to avoid a conflict.

For the design professional, it can be a reasonable situation as your profit

is baked into your hourly rate. Efficient work habits, however, aren’t
rewarded — those are handed directly over to the client in the form of fewer
billable hours.

To limit some of the uncertainty for the client of the hourly proposal, one
option is to assign percentages of the overall estimated fee to each phase of
design. For example, if your estimated design fee is 15 percent of the cost
of construction (not including soft costs), take the total fee and assign 20
percent to schematic design, 20 percent to design development, 35 percent to
construction documents, 5 percent to bidding and negotiation, and 20 percent
to construction observation (your percentages may vary). This also helps with
tracking the fee along the way for both you and your client.

Hourly agreements are often incorporated into hybrid structures (discussed

next) in the schematic design and construction observation phases, where
flexibility is needed.

Hybrid fee:
Most of the time there isn’t any one structure that is an obvious or optimal
fit, which is why many design professionals opt for a combination that
balances the individual needs of both the client and architect.
For example, you can use an hourly method at the outset, when the project
parameters are undefined and your working relationship with your client is
unknown. It’s an incentive for the client to efficiently establish the
project goals and commit to a schematic design direction. Equally, it allows
the designer flexibility to determine the permitting and code parameters, the
program spaces and the budget, and to set the conceptual framework for the
design based on the client’s feedback. You’ll quickly get a sense for how
timely your clients responds to design iterations, for their desire to
explore options and, perhaps most important, for their ability to make
decisions.

As the project scope and budget come into focus, you’ll have an idea of what
it will take to complete the drawings, specifications and schedules necessary
to deliver the project. This part of the work can be delivered on a fixed-fee
basis, as you’ll control most of the variables pertaining to that portion of
the work. When the project transitions to the construction phase, you might
again transfer back to an hourly rate. This will ensure that you’re
delivering the amount of service necessary based on actual time input, site
meetings, the specific needs of the client and the observation requirements
of the selected contractor and subtrades. It also will protects you from a
project that extends far beyond the promised completion date by compensating
you for the reality of the construction schedule.

Another hybrid to consider is an hourly proposal to define the scope of work

and schematic design. Then you transition to a fixed fee that’s tied to an
estimated percentage of the construction cost based on the schematic design
developed (don’t forget to add a contingency). The clients will benefit, as
they have a target not-to-exceed number; the contract will be flexible,
allowing for the fee to be adjusted along the way to reflect their decisions
and change in scope. And the architect won’t be fixing a fee on a set of
unknown parameters but on a known preliminary design.

Reimbursable expenses: These are items that are typically outside of the fees
listed previously. They vary depending on very specific project requirements,
and it’s an accepted practice to bill separately for items such as prints,
reproduction costs, travel expenses and postage. For small projects nearby,
you may choose to disregard these as incidental and not bill for them. It
takes time and resources to track these expenses, so decide if it’s worth
your time to recoup the costs involved. It’s always a good idea to include a
provision in your agreement to cover them just in case they escalate out of
control - you’ll want the option to bill for them.
Value
It’s important to remember, especially when you’re just beginning to draft
proposals for potential clients, that the real money in the construction
process is in the architecture itself - it’s not in the design fee. It’s easy
to look at your proposed $50,000 fee and think it’s an incredible amount of
money for someone to pay for design services. It certainly is, but if the
entire project costs $500,000, it’s also an incredible value proposition for
your client.

Design professionals orchestrate and organize the process of design and

construction, which is of direct financial benefit to your client. Minimizing
construction delays and change orders and providing an efficient, durable
building are just a few of the value propositions you can use to sell the
client in real financial terms. Then there are the intangibles: what you can
add to the livability, comfort, and beauty of a home. Don’t undervalue your
services. And learn to recognize that a client shopping for design
professionals based solely on fees is a client you can’t afford to work with.

Your turn: Every business has a fee structure that’s a little bit different
and nuanced. What’s working for your business? Please share your thoughts in
the Comments section.
pd-logo
Architectural Proposal Template

Prepared for [CLIENT COMPANY]

Created by [COMPANY]

PandaTip: This architectural proposal template should be used by an architect

or architectural firm to set out the scope and costs of proposed works as
well as the details of the firm and its team and will usually include
sketches, plans or drawings.

[LETTER HEAD]
PandaTip: Part 1 is a cover letter which should be printed on the architect’s
letterhead, this serves to introduce your architectural proposal.

[DATE]

[CONTACT NAME]

[CLIENT NAME]

[ADDRESS]

Dear [CONTACT NAME],

Re: Enclosed Proposal

Please find enclosed our detailed proposal for your kind consideration.

We know that realizing creative projects requires a unique combination of

drive, ambition, skill and technical know-how so at [ARCHITECT FIRM] we only
hire the best to ensure we provide a turnkey solution for our clients that is
both realistic and extraordinary!

[ARCHITECT FIRM] prides itself on turning in projects on-time and within

budget so if you would like to contact some of our hundreds of satisfied
clients then please let me know. We have full confidence that whoever you
speak to you will hear nothing but ringing endorsements. You can also check
out our portfolio of recent work online at [WEBSITE].

We care about each and every client and will work our hardest to design a
safe and exciting home for you and your family. We also follow best practices
in the areas of ergonomic home planning and environmentally-friendly design
to make your home efficient and save you money on the cost of utilities.
PandaTip: This should be changed if you are working on an architectural
proposal which is not for a home. For Example “an attractive and practical
office space,” “an efficient and spacious workshop” etc.

Please let us know if you have any questions, suggestions or changes (however
small) to the proposal; we really want to hear from you!

Finally, we realize that you are very busy and wanted to thank you in advance
for your time spent reviewing our proposal. We hope that you will give us
this opportunity to deliver you an on-time and on-budget dream-home.

PandaTip: As above you should change this paragraph if the architectural

proposal is not related to a home.

Yours Truly,

field-signature
Signature
Enclosed

Executive Summary

[EXECUTIVE SUMMARY]

PandaTip: The executive summary should comprise 100-500 words explaining a

top-down view of the salient points of this proposal. It should include
sufficient detail to outline the project and engage the reader’s interest so
they will continue through the architectural proposal. It should provide a
precis of the the later information, and specifically it should present an
overview of the detailed proposal, some details about the firm and the staff
member/s who will be working on the project as well as a summary of the the
sketches and plans. You can use pictures here to fill out the page but you
should not waffle, the place for sales patter is in the cover letter above.
Many architectural proposals use this opportunity to present high resolution
images of previous successful projects.

Contents

Detailed proposal (including milestones) Page 2

Firm’s profile and key staff Page 3

Sketches
Pages 4-5

Plans
Pages 6-7

Pricing, payment terms Page

8

Contact details
Page 9

Terms and conditions Page

10

PandaTip: These page numbers should be changed to accommodate the number of

pages of sketches and plans included in this architectural proposal(if any).
For simpler architectural proposals you might want to combine some items onto
the same page to reduce the size of the document.

Detailed Proposal

The Brief
PandaTip: Outline the brief here, be as specific as possible. Remember to
draft this with the client and mind and, if possible, to see it from their
point of view i.e. “To design and build Family Jones’ dream-home.” is likely
to be better received than “The design and construction of a 140-square-yard
one-storey timber-frame residence on vacant lot 555100.” You should also make
reference to any drawings or plans which are relevant to the brief.

Our Approach

We believe that each client is unique and so we take a unique approach to

each brief. In this case we have noted and analyzed your requirements as well
as undertaking a thorough review of the site including a feasibility analysis
and a detailed costing and modeling of the whole project. Drawing on our long
experience in this area we have tailored a solution to your exact
specifications by fusing form and function to create the ideal space for you.
In practical terms we have also identified and outlined key strategic
milestones in the life of the project to ensure a smooth completion as well
as accountability throughout all stages of the build and compliance with all
local and national laws and regulations.

The Proposal

PandaTip: Outline the brief here, do not mention timescales or fees, as they
are covered later. Make reference to any drawings or plans which are relevant
to the points you are making in this proposal.

Project Milestones

PandaTip: Outline the milestones here, example milestones might include:

Milestone1: Approval of sketches and concept drawings.

Milestone2: Preparing of plans.

Milestone3: Preparation of planning permission application.

Milestone4: Receive planning permission.

Milestone5: Breaking earth (lot 555100).

Milestone6: Completion of foundations and basement.

Milestone7: 1st floor complete.

Milestone8: Roofing.

Milestone9: Plumbing and electrics.

Milestone10: Interior modeling.

Milestone12: Interior finishing.

Milestone13: Landscaping.

For each milestone try to provide a short description. Obviously the

milestones will depend on the project but would normally include key events
in the project’s life especially those depending on outside agencies (such as
planning authorities or builders’ merchants) as well as key stages in the
project’s completion (such as the laying of foundations etc.). You should
include dates here (if possible) and if you wish you can include the
percentage completion through the whole project near each milestone. When
choosing milestones you should bear in mind both the payment of fees (yours
and contractors) and the ordering and delivery of materials.

Firm’s Profile

[ARCHITECT FIRM] is a leading firm in [GEOGRAPHIC AREA] specializing in

customer-oriented design and project-management to make your dream home and
garden a reality. [ARCHITECT FIRM] has unique expertise in the areas of both
new builds and home renovations and has been operating since [year].
[ARCHITECT FIRM] has assisted hundreds of clients across multiple industries
including private clients, local government and schools as well as major
state and national businesses. Our previous clients include [PREVIOUS
CLIENTS].

PandaTip: This paragraph is very tailored based on your firm’s experience.

Remember, if you include details of other clients you must get their
permission first. You may have a standard profile to include here, perhaps on
your website. Some architectural proposal also include high resolution
pictures of previous, successful projects.

Key Staff

PandaTip: Include the bios of some key figures from the firm, especially the
owner and the person in charge of this project. Include photographs as well
since people like to have a face to put to a name on the phone or by email.
If you have a standard bio (perhaps from the website) you can use this,
otherwise you can create one around 50-150 words detailing their experience,
the date of their qualifications and any other similar projects which the
architect has worked on.

Pricing

Our fee for seeing the project through from start to completion will be
[FEE]. In addition to this you should also budget approximately [BUDGET] for
additional materials and outsourcing of labour.

Payment Terms

We propose the following payment terms:

PandaTip: This depends on your relationship with the client and to a certain
extent the type of project you are contemplating but we include a complex
example here. In most cases this page will be simpler.
10% (10%)

Paid on acceptance of this architectural proposal and signing of our terms

and conditions.

20% (30%)

Paid at Milestone 1, completion of drawing and sketches.

30% (60%)
Paid at Milestone 4, planning permission being granted.

10% (70%)
Paid at Milestone 6, basement level completion.

20% (90%)
Paid at Milestone 8, roofing complete.

10% (100%)
Paid on completion of project.

Contact Us

You can get in touch with us in any of the below ways:

By Phone

[CELL NUMBER] (Cellphone of [SALESMAN])

[OFFICE NUMBER] (Main Reception)

By Email

[EMAIL ADDRESS]

By Fax

[FAX NUMBER]

On our website

[WEB URL]

By post:

[ADDRESS]

If you would like to proceed with our proposal then you can sign the Terms
and Conditions page (below) and return it to us by fax, email or post.

In any case please feel free to call us to discuss the quote, request more
information or for any other reason.

We look forward to hearing from you soon!

Terms and Conditions

The following terms and conditions shall form the basis of a contract between
the client (“Client”) and [FIRM NAME] (“Firm”) in the event that the client
decides to proceed and accepts this proposal:
1. The Firm agrees to provide the services outlined in this proposal for the
fee outlined above.

2. The Client undertakes to pay the fee set out above in accordance with the
agreed payment milestones.

3. The Firm undertakes to consult with the Client in order to facilitate the
completion of the agreed milestones above as well as the completion of the
project as a whole.

4. The Client undertakes to provide the Firm with clear instructions and
guidance when required.

5. The Firm will ensure compliance with all relevant laws and regulations.

6. The Firm shall undertake all of its work with professionalism and due
care.

7. The Firm may outsource work or manage contractors.

8. The Client undertakes not to withhold payment for any reason.

9. Any subsequent agreement, whether written or oral, between the Firm and
the Client shall override the terms of this architectural proposal.

10. The Firm is not responsible for delays due to outside agencies such as
planning or government authorities, builders’ merchants, shipping and transit
companies and third-party contractors.

11. The Firm is not responsible for delays due to unforeseen eventualities or
acts of God such as poor weather, flooding, natural disaster etc.
12. The Firm is not responsible for increases in costs caused by a future
rise in the costs of materials (including outside contractors) or by a later
lack of availability of those materials used as a basis for calculated
costing in our proposal.

13. The Client undertakes to insure and keep insured the site against injury
to third-parties and contractors.

14. Although every care has been taken in the preparation of this proposal it
is not possible to predict with complete certainty the cost and timescale of
any architectural project and the Client should allow at least a 10% margin
on costs and timescales.

Signed as accepted, [CLIENT]

field-signature
Signature
field-name
Name
field-date
Date