Place - March 2012
Fee reductions: healthy competition or eroding our future?
This latest survey is the result of CTC deciding to take a bold move in trying to get some facts around this highly topical area. We knew that it would be tough to get firms to partake and we sincerely thank those that did.
82% of respondents had fewer than 20 employees
Whilst no one was expecting to increase staff numbers over the next 12 months, only 18% expected to decrease.
Regarding fees we asked 3 questions.
- What they considered to be their standard fees
- What their fees actually were for projects secured this financial year
- What their fees actually were for projects secured last financial year
The answers were expressed as a % of total construction costs and broken into project size.
| Project Size: | Standard | This Financial Year | Last Financial Year | ||||||
| Projects won | Projects won | ||||||||
| Average | Highest | Lowest | Average | Highest | Lowest | Average | Highest | Lowest | |
| Under $2m | 6.55% | 10% | 3% | 5.80% | 10% | 3% | 6.09% | 10% | 3% |
| $2m - $10m | 5.20% | 8% | 2% | 4.43% | 8% | 2% | 4.50% | 8% | 2% |
| $10m - $25m | 3.71% | 5% | 1% | 3.40% | 5% | 1% | 3.66% | 5% | 1% |
| Over $25m | 3.17% | 4% | 1% | 3.50% | 4% | 2% | 3.75% | 5% | 4% |
The survey did find a reduction in fees but not as much as we had expected. Possibly practices reducing fees were less inclined to complete the survey or perhaps the picture is exaggerated based on fee reductions in tenders as opposed to projects won. Surprisingly only 36% of respondents had won work at fees lower than their standard this year and 27% last year.
The companies expecting to decrease staff numbers this year were also reducing fees by the largest margins. Conversely our feeling from the market is that the companies which are currently the busiest are not reducing fees. It begs the question as to whether reducing fees is the answer?
We asked what proportion of fees come from:
Competitive tendering: 30%
Preferred tendering (where you are the only tenderer): 32%
Mark up on hourly rates: 16%
Negotiated contract: 22%
Unsurprisingly those companies winning work at discounted rates typically operated in the competitive tendering world (on averaged 68.75% of their work). This is a huge variance from the average of 30% above.
Where does the work come from?
Private clients & developers: 61%
Government: 25%
Construction Companies: 9%
Engineering Consultancies: 4%
Architects: 1%
Those companies winning work at discounted rates historically / typically operated in the Government sector (62.5%). This is a huge variance from the average of 25% above.
What practical advice have you got to promote Architects and maintain or increase fees?
The general consensus is that price cutting undermines the entire industry and is unsustainable. Practices should compete on service and quality as opposed to fees and Architecture should be better promoted as a profession.
“Stick to your guns - it's remarkable what self belief and thus the "aspirational" appeal of using a successful company can achieve, even in a depressed climate. If we actively devalue our services, then we are implying we are not worth it.”
