UAP-IAPOA Doc. 210: A Primer on Architectural Compensation & Fees PDF

UAP-IAPOA Doc. 210: A Primer Methods of Compensation and Schedule of Fees Authorship This presentation is the intellectual property of Arch. Pedro Santos Jr. and is covered by an Attribution-NonCommercial 4.0 International Creative Commons license. For questions, contact the author at arch.pedrosan...

UAP-IAPOA Doc. 210: A Primer Methods of Compensation and Schedule of Fees Authorship This presentation is the intellectual property of Arch. Pedro Santos Jr. and is covered by an Attribution-NonCommercial 4.0 International Creative Commons license. For questions, contact the author at [email protected]. Outline Preliminary ○ Definition of Terms ○ Acronyms UAP-IAPOA Doc. 210 Proper ○ Rule 1: Title and Rationale ○ Rule 2: Methods of Compensation ○ Rule 3: Schedule of Fees ○ Rule 4: General Provisions Definition of Terms Architect A registered and licensed architect (RLA). May also refer to the Architect-of-Record (AoR), Architect-in-Charge-of-Construction (AiCC), Consulting Architect, as provided for in RA 9266. Architectural Firm (AF) A juridical person under Philippine law duly registered with the DTI as a sole proprietorship for individual practice or registered with the SEC and the PRC as a professional partnership or as an architectural corporation for group architectural practice. Architect / AF Architect and Architectural Firm may be used interchangeably. Board Refers to the PRBoA Bid, Tender These shall mean the same. Cost of Work (CoW) The total cost of all fixtures and accessories for architectural interiors, acoustics, lighting works, site development civil works and landscaping works which were either designed, specified, or procured by the Specialist Consultants. Direct Personnel Cost The total cost considering the rate of the Architect, the Consultants, Technical Staff, Researchers, and others involved in the Project per hour (man-hours), per day, or per month. Multiplier Any factor which compensates the Architect for the following: Overhead costs of the office Fringe benefits and social charges Contingencies Interest on capital reserves Reasonable profit Multiplier The value of the multiplier may range from 1.5 to 2.5 depending on the setup of the Architect’s office, the type and complexity of the Project, experience of the Architect, and the geographic area in which hs/her office is located. Overhead Provisions for office, light, air-conditioning, and similar items for working space Depreciation allowances or rental of furniture, equipment and instruments Vehicle and travel-related expenses Office supplies Taxes and insurances other than those included as salary cost Overhead Library and periodical expenses and other means of keeping abreast with new developments and technologies Executive, administrative, accounting, legal, stenographic, and clerical salaries and expenses Business development expenses Prime Professional The Architect commissioned by the Client to plan and design the building and all its utilities and to coordinate the works of all allied design professionals involved in the project. He shall make certain that these inputs comply with the requirements of the project and are compatible with the architectural design concept. Professional Fee Compensation to the Architect on account of his/her delivery of services agreed mutually by the Client and the Architect. Project Construction Cost Cost of the completed building to the Owner, including the structure, plumbing, sanitary and electrical fixtures, mechanical equipment, elevators, air-conditioning system, communications and electronic systems, elements attached to the building, and all items indicated in the plans/designs of the Architect and his consultants. Project Construction Cost The cost of materials used and the labor for their installation are part of the PCC. If these items are furnished by the Client below market cost, the cost of the material and labor shall nonetheless be computed on the basis of current and fair market value costs. Project Construction Cost The PCC does not include any of the fees for the Architect, the Engineer, the Specialist Consultants, or the salaries of the construction inspectors. Project Development Cost Includes the cost of the construction as well as all professional fees, permits, clearances, and utilities and cost of acquiring the project site, cost of money, etc. Recommended Professional Fee The reference for the professional fee of an Architect based on the building type, project/construction budget, method of project delivery, role of consultants, and the scope of services. Reimbursable Expenses Expenses related to the project that may include, but not be limited to: Transportation Housing and living allowance of consultants if assigned to placed over 100km away from office Cost of printing of extra sets of drawings Identifiable communication expenses such as overseas and long-distance calls, internet, SMS, postage, etc. Salary Cost The cost of salaries of professional consultants for the time directly chargeable to the project, plus all imposable taxes and contributions for social security and insurance benefits. Service Agreement A duly notarized written contract stipulating the scope of services and guaranteeing compensation for such services. Acronyms Acronyms AF: Architectural Firm AICC: Architect in Charge of Construction AoR: Architect-of-record APCC: Awarded Project Construction Cost CA: Consulting Architect CoW: Cost of Work DAEDS: Detailed Architectural and Engineering Design Services DADS: Detailed Architectural Design Services Acronyms FPCC: Final Project Construction Cost MoP: Manual of Procedure PCC: Project Construction Cost PF: Professional Fee PPCC: Probable Project Construction Cost RPF: Recommended Professional Fee SPPCC: Statement of Probable Project Construction Cost Rule 1: Title and Rationale Title UAP-IAPOA Doc. 210: Architect’s Guidelines for Standards of Professional Practice (SPP) Compliances - Methods of Compensation and Schedule of Fees This replaces the 1979 UAP Doc. 208-B (Methods of Compensation and Schedule of Fees) Rationale To standardize the ranges for which the Client will compensate the Architect in direct relation to the value of services that the Architect provides To complement RA 9266, Code of Ethical Conduct, SPP 201-209, and other related laws Pop Quiz Does not include any of the fees for the Architect, the Engineer, the Specialist Consultants, or the salaries of the construction inspectors. A. Project Construction Cost B. Project Development Cost C. Salary Cost D. Reimbursable Expenses Includes the cost of the construction as well as all professional fees, permits, clearances, and utilities and cost of acquiring the project site, cost of money, etc. A. Project Construction Cost B. Project Development Cost C. Salary Cost D. Reimbursable Expenses Library and periodical expenses and other means of keeping abreast with new developments and technologies, business development expenses. A. Reimbursables B. Project Development Cost C. Profit D. Overhead The total cost considering the rate of the Architect, the Consultants, Technical Staff, Researchers, and others involved in the Project per hour (man-hours), per day, or per month. A. Overhead B. Cost of Work C. Direct personnel cost D. Tender The total cost of all fixtures and accessories for architectural interiors, acoustics, lighting works, site development civil works and landscaping works which were either designed, specified, or procured by the Specialist Consultants. A. Overhead B. Cost of Work C. Direct personnel cost D. Tender Rule 2: Methods of Compensation Criteria The compensation computation should be based on mutual evaluation of the amount of the Architect’s ○ talents, skill, and experience ○ effort and time available for the project ○ effort and time required by the project Criteria Choosing an appropriate method of compensation should be based on the type of services rendered The professional fee must be commensurate with the degree and scope of services the Architect has rendered Criteria The professional fee shall depend on the complexity and types of architectural and engineering services to be provided Criteria Compensation for services that require the use of more than one type of expertise shall be treated differently from those services that require only one kind of expertise Criteria The following criteria must be considered: ○ Schedule for furnishing the services and possible changes that may affect the consultant’s costs ○ Studies, programs, and other professional input furnished by the Client ○ Client’s procedure and timing for review and approval of the Architect’s recommendations/designs ○ Costs of administration, including records to be maintained and preserved ○ Probability of contingencies ○ Number of third parties or agencies that needs to be consulted or furnishes with plans, specifications, reports, and the like Methods of Compensation While there is a multitude of compensation methods, they can grouped into three main types: ○ Percentage-based fee ○ Lump sum or fixed fee ○ Time basis 1. Percentage-based Fee 1. Percentage based on Project Construction Cost (PCC) 2. Unit cost method 3. Value-based pricing/Percentage of gross rentals 2. Lump Sum or Fixed Fee 1. An appropriate percentage of the PPCC 2. Estimating the individual elements of the cost outlines + a reasonable margin for profit 3. Time Basis 1. Multiple of direct personnel expenses 2. Professional fee + expenses 3. Per diem, honorarium + reimbursable expenses 4. Salary cost x multiplier + direct cost or reimbursable expenses 5. Per diem or hourly basis 6. Retainer Mixed Methods Using one method of compensation on a single project may not be applicable all the time. There is no reason that an assortment of compensation methods should not be used if appropriate. Example: Predesign and construction services could be compensated on an MDPE basis while the regular design and specialized architectural services may be compensated based on a percentage of the PCC. Percentage-based Fees 1.1 Percentage Based on PCC This method of compensation is the most common worldwide. The amount of the percentage is related to the size and the type of the Project. The Professional Fee of the Architect os determined by multiplying the specified percentage by the estimated, awarded, or final PCC. 1.1 Percentage Based on PCC Fair to both the Client and the Architect because the fee is pegged to the cost the Client is willing to undertake. Flexible and easy to apply since if there will be changes, the fee adjusts accordingly without amending the scope of work in the Service Agreement. 1.1 Percentage Based on PCC The PCC may be: ○ Probable Project Construction Cost (PPCC), mutually agreed upon ○ Awarded Project Construction Cost (APCC), using the bid of the winning contractor ○ Final Project Construction Cost (FPCC), based on cost records submitted to the Architect at the end of the project 1.1 Percentage Based on PCC The most common type of contract for architectural design services is DAEDS (Detailed Architectural and Engineering Design Services). However, should the Client prefer a DADS (Detailed Architectural Design Services) only, the fee of the Architect shall be separate from the fees of the other consultants. Since the Architect is the lead professional for the Project and coordinates all the works of the other designers, he shall be entitled to 60% of the corresponding DAEDS professional fee. 1.2 Unit Cost Method A variation of the Percentage Based on PCC method Under this method, the remuneration is based on cost per square meter of the project, and the Professional Fee shall be based on a unit cost parameter. The cost per area may be derived from historical data on the average construction cost per sqm. of a similar project 1.2 Unit Cost Method Example: A high-rise office building project with 10,000 sqm GFA and 2,000 sqm non-GFA. DAEDS contract. ○ Average project construction cost: PHP30,000/sqm ○ Applicable Professional Fee: 6% of PCC (DAEDS) ○ Fee for GFA PHP30,000/sqm x 6% = PHP1,800/sqm PHP1,800/sqm x 10,000 sqm = PHP18,000,000 ○ Fee for non-GFA Use 50% of rate for GFA = PHP900/sqm PHP900/sqm x 2,000 sqm = PHP1,800,000 ○ Total Fee: PHP19,800,000 1.3 Value-based Pricing/% of Rentals The remuneration under this method is a value pricing based on the outcome of revenue, cost, and profitability result of a project engagement or based on a measurable profit on specific revenues by the Client. Examples: ○ Sales in retail facilities ○ Leasing in housing ○ Leasing in commercial spaces In this service, the Architect goes beyond maintenance and upkeep functions and innovates schemes to maximize building occupancy and make the building’s operations efficient. 2. Lump Sum / Fixed Fee 2. Lump Sum / Fixed Fee This method is appropriate when the scope of services required can be clearly and fully defined at the outset of the project. As such, the following must clearly defined from the beginning: ○ Scope of work ○ Schedules for designs and approvals ○ Construction schedule 2. Lump Sum / Fixed Fee The lump sum may be computed in two ways: ○ As a percentage of the PCC ○ Estimating direct cost then adding a reasonable margin for profit 3. Time Basis 3. Time Basis This method is useful when the services are difficult to determine in advance or they are interim in nature and often short in duration. Time-based methods are often used for: ○ Services that are not well-defined ○ Predesign services ○ Partial services ○ Additional services ○ Services as an expert witness ○ Consultancy 3.1 Multiple of Direct Personnel Expenses Applicable to non-creative work only (i.e. not design services). This method is based on technical hours spent and does not account for creative effort since the value of creative design cannot be measured by the amount of time spent. 3.1 Multiple of Direct Personnel Expenses Legend: ○ A = Architect’s hourly rate ○ C = Consultant’s hourly rate ○ T = Technical staff’s hourly rate ○ N = number of hours spent ○ M = Multiplier to account for overhead and profit, ranging from 1.5-2.5 ○ R = Reimbursable expenses Direct cost = An + Cn + Tn Fee = Direct cost x M Total cost of service charged to Client = Fee + R 3.2 Professional Fee + Expenses Often used when there is a continuing relationship on a series of projects. A fixed rate that already accounts for overhead and profit is established. An agreement on the scope of work is needed to set an equitable fee. 3.3 Per Diem, Honorarium, Plus Reimbursables Applicable for requests that require the Architect’s personal time, such as: ○ Attending project related meetings, conferences, or trips ○ Ocular of project site/s ○ Conferring with others regarding prospective investments or ventures and the like The reimbursable expenses include, but are not limited to: ○ Travel ○ Accommodations ○ Subsistence 3.4 Salary Cost x Multiplier + R This method is based on the total basic salaries (Direct Salary Expenses) of all Professional Consulting Architects (PCAs) and their staff multiplied by a factor from 3.0, plus reimbursables. Fee = Salary Cost x Multiplier + Reimbursables 3.5 Per Diem or Hourly Basis Applicable to engagements involving intermittent personal service, such as consultancy services. The Architect must be compensated for all the time he spends on the work, including travel time. ○ Consultation services ○ Testimony in court ○ Similar work involving miscellaneous personal service 3.6 Retainer Used when the PCA is expected to be required at intervals over a period of time. It is a means of ensuring that his services will be available to the Client when required. Under this method, a stipulated amount is paid at regular intervals for which the PCA is obligated to render a certain service or to spend a certain amount of time on the Client’s requirements. 3.6 Retainer The retainer arrangement is common in situations when the Client wishes to be assured of always having available the services of an individual architect or firm. It is also used when the service of the Architect is not required on a full-time basis. Rule 3: Schedule of Fees Predesign Services Manner of Providing Services After the initial meeting, the Architect must submit his proposal for pre-design services, stating the following: ○ Scope of work ○ Manner of payment ○ Owner’s responsibilities ○ Other conditions of services Methods of Compensation MDPE Professional fee + Expenses Lump sum or fixed fee Per diem Regular Design Services Manner of Providing Services Detailed Architectural and Engineering Design Services (DAEDS): There is a single contract between the Architect and the Client, and sub-consultancy contracts between the Architect and the other professionals Detailed Architectural Design Services (DADS): The Architect and the engineering and allied professionals execute separate contracts with the Client Manner of Providing Services Whether the arrangement chosen is DAEDS or DADS, the professional responsibilities and civil liabilities of each State-regulated professional remain separate. This means that in a DAEDS arrangement, the Architect does not assume the responsibilities or liabilities of the other professionals. Methods of Compensation Percentage of PCC Unit cost method based on PCC Professional fee + expenses Lump sum or fixed fee Per diem, honorarium + reimbursable expenses MDPE Mixed Recommended professional fee (RPF) Recommended Professional Fee Professional architectural work is classified in accordance with the degree of complexity and the creative skill required to meet the requirements of the Client within technical, functional, economic, and aesthetic constraints. Based on this, building types may be grouped to determine the fair remuneration for the Architect.