Whether you are an independent owner or are part of a franchise group, you will need to engage the services of a commercial architecture, engineering and design firm to bring your project to life. However, before you open your chequebook, you may be wondering how commercial architects charge for their work.

In our experience, there are four different fee models that can apply to commercial architecture and engineering projects. Larger clients who are involved in multi-location builds will often determine the model that works best for them; whereas individual builds are typically quotes on a fixed fee model.

Each architectural and engineering firm will have a standard fee structure in place. These fees are determined based on a number of factors: such level of expertise and experience, the scope of work, the time required to complete a task, associated costs and fair market value). On large projects involving multiple builds, clients often have room to negotiate fees based on the volume of work. For one-off projects, the cost is typically as-presented – and may vary from firm to firm.

We’ve put together a description of the various models, outlined what type of client and project each is suited to, and have shared the advantages behind each. These models apply to projects involving new builds as well as renovations.

1. Fixed Fee Based on Scope of Work

Who is it for? Independent clients building a single location.

This is the traditional fee approach architecture and design professionals have followed in Canada. This remains the model of choice for a single-location build involving an independent client. Because everything is included, this model is well suited to clients that do not have the in-house experience and expertise to determine project needs on a line-by-line basis.

The architectural or engineering firm will provide an all-in cost based on project requirements. An RFP outlining all aspects of the project is required in order for the firm to provide an accurate quote. If there are any additional services that were not included in the RFP, the budget will need to be adjusted accordingly. This protects the design firm from scope creep. At the same time, the fixed price provides certainty to clients.

When evaluating proposals based on this model, we have a very important piece of advice to share.

An experienced architecture and engineering firm will identify any potential concerns or omissions in your RFP. They will take the initiative to bring these concerns to your attention and often factor the associated costs into their proposal. This may make their price appear higher than that of a competitive bid. However; it will save you from unexpected costs that could have been easily avoided. In most cases, it will cost significantly more to fix an oversight once work has begun. Such oversights can also have a serious impact on your completion schedule.

2. Fee Schedule

Who is it for? Large retail chains engaged in multi-location builds.

A Fee Schedule approach is suited to design projects that involve multi-location builds (over a short-term contract or as part of an ongoing partnership). These projects generally follow a preexisting design standard for locations of various sizes.

The engineering/architect firm will work closely with the client upfront to negotiate a mutually agreeable fee schedule, outlining rates and costs associated for an array of services (think of it as an a la carte menu in a sushi restaurant). Depending on the size and scope of the contract, there may be an opportunity to adjust rates based on volume.

Clients are able to use this fee schedule to get a fairly accurate sense of costs based on their project size and scope. Prices are all-in for that service.

The Fee Schedule is popular with clients who value a more hands-on approach and have dedicated project managers in place to oversee details. This model provides the client with the greatest amount of control over individual project components.

A Fixed Fee Model is ideal for builds that require a rapid turnaround. Because large chains regularly add new locations or renovate existing stores on an extremely short timeline, the Fixed Fee Model allows them to anticipate costs even before full project details are fully worked out. For example, if a restaurant chain wants a price for a 5,000 sq. ft. layout, costs can be quickly gauged by following the architect/engineer firm’s fee schedule. This saves precious time that might ordinarily be required to create a detailed RFP and obtain a line-by-line estimate.

3. Time & Materials

Who is it for? Large retail chains engaged in multi-location builds.

This model is based on assigning an hourly rate for each service associated with the project design, usually billed in increments (eg. 15-minute increments). The billing amount will typically vary depending on the specific service involved, and the personnel required to work on that part of the project. For example, rates will vary between a senior engineer or architect vs. a draftsman or technician.

While the architecture and engineering firm will have a standard rate structure as a baseline, there may be room for negotiation based on volume. Once the rate is set, clients are billed for the actual time required to complete the task. As you know, budgets aren’t bottomless. That is why most contracts today include a billing ceiling – a maximum price that cannot be exceeded without the approval of the client. This provides a larger degree of control and risk management.

Time & Materials billing is usually used by large clients (with multiple sites) who have established ongoing relationships with an architectural and engineering firm. Several national oil & gas firms follow this model with their trusted suppliers.

Time & Materials:
# Of Hours X Fixed Rate/Service= Cost for Service Provided

4. Percentage of Construction Cost

Who is it for? Large retail chains engaged in single or multi-location builds.

While it is not a common billing model, this approach is used by some large retail operations who have completed a significant number of builds at various sizes – and are quite confident in the what the final number will be based on their experience.

The quote is generally structured to cover core services and does not include equipment or interior finishing. Secondary services (such as inspections) are often billed separately. As such, this model can lend itself to buildings that are largely functional in nature, such as warehouses.

Look Beyond the Fee

As you can see, various fee models offer distinct advantages. Architectural and engineering firms will work with you to provide a fee structure that meets your needs and is to your mutual satisfaction. As is the nature of a business, different firms will charge different fees. Don’t base your decision on fees alone. Do your homework on the firm. Assess the experience and expertise they bring to your project. And always be aware that sometimes you pay the price for choosing a cheaper, less qualified design partner.