The Architect’s Race to the Bottom
We open today with a discussion about the latest epidemic in the US. Yes, we’re talking about the epidemic of pickleball-related injuries. Here’s the story in Bloomberg.
Then we move on to today’s topic–a topic that John Roach brought to Eddie’s attention recently. It’s all about architects and the pricing of their services.
It all goes back to the Sherman Anti-trust Act, which was enacted in 1890 to address the problem of monopolies.
In the 1860s, Richard Morris Hunt sued a client who failed to pay his 5% fee. In doing so, he unknowingly set 5% as the industry standard for architect fees.
By the 1950s, the AIA had formalized a somewhat complicated fee structure for various architectural services.
In the late 1960s, concerns arose that this fee structure was a form of price fixing. The Justice Department investigated and found that it did, indeed, violate the Sherman Anti-trust Act. In 1972, they issued a “consent decree,” which amounted to a settlement that outlined how the AIA could and could not behave going forward. (If you’d like to geek out on details, go here.).
Here’s the 2022 AIA compliance guide.
After reviewing this history, we discuss the complications of defining the scope of an architect’s work and getting clarity on that when it comes to the architect’s fees. It can become a race to the bottom. These complications have affected the way that contractors relate to owners and designers.
We compare these patterns to the patterns within fees for engineering services.
The question all of this leads to is this: “How do we argue for spending more money on design when it’s hard to know what I’m buying?”
We discuss the challenge of bank loans based on permit designs, as well as owners who don’t know how complicated the design process is.
Tyler really wants a Ford Raptor… What does that have to do with architecture fees? Well, when you buy a truck, you know what options you’re paying for and how they affect the price. Eddie explains that he’d like to see that kind of manufacturing mindset influence the designing and bidding process in construction.
We discuss the F1 price cap as an analogy for how things could play out if people were to spend more money on design.
Our Megaphone Message:
Define value. Then buy value. Buy more design. Work with your lender and explain that this project can be much more successful if more money is invested in design. Slow is smooth, and smooth is fast.
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