Failure to Use Standard Agreements

The great advantage of using standard RIBA agreements of appointment is that they automatically take care of the major areas of risk. They have been developed as a result of the practical experience and consequent feedback of many architects over many years.

However, clients will sometimes have their own form of contract for architectural services that they will insist on using. The reason that the client wishes to use their own contract is, of course, because they have had it drafted in a way that they consider to be favourable to them. It would be wise to consider the terms of such a contract carefully, taking particular note of where it differs from the relevant RIBA standard agreement.

The fees to engage the services of a good contract lawyer to review the client’s contract will be money well spent and could prevent a major problem from developing later. The contract should also be forwarded to your PII provider for their review and comment before it is finalised.

Failing to Invoice for Work on a Regular Basis

The construction industry is used to the concept of payment becoming due when there is the completion of a particular stage or phase of the project. This is a reasonable approach, because the speed with which a piece of work is completed lies largely in the hands of the contractor. Most contractors are large businesses with financial resources to cope with these payment delays. But applying the same principle to the design team is very harsh. The timing of the receipt of their fees is now largely out of their control, and they tend to be much smaller businesses with much more limited financial resources.

Consequently, it makes sense to build in to the initial agreement the provision for the regular invoicing of fees, preferably on a monthly basis. As the previous chapters have shown, your major costs accrue on a monthly basis, so it makes sense to try to ensure that income is received at a similar rate. By agreeing to a staged payment fee schedule, you are reducing the risk of a six- or nine-month delay in receiving payment for your work. There is a considerable cost involved in the financing of this sort of payment delay.

Failing to Collect the Amounts that are Due

The mechanics of credit control are discussed in Chapter 8. However, it is worth repeating the basic message, which is to ensure that all the money you are owed is collected promptly. Failure to collect fees can be caused by various delays and oversights. As a rule of thumb:

• First: check whether all the invoices raised and recorded by the accounts department were actually sent out to the client. It is surprisingly common to find invoices lurking in a pile of ‘when I get around to it’ paperwork on the project architect’s desk, perhaps waiting for a covering letter to be written.
• Second: make sure there is a reliable system that alerts you when an invoice has passed its due for payment date. One person should be assigned the responsibility for tracking and chasing these outstanding invoices, and letting the relevant architect know if a problem has been encountered which will need their help to resolve.
• Third: deploy tenacity to pursue the debt until it is fully collected. The ‘multiplier effect’ means that even relatively small amounts can have a significant impact on profitability. It may be tempting to write off the final ‘trivial’ £2,000 that remains unpaid from a £100,000 invoice, but doing this will mean that the practice has to generate a further ten times that amount in fees to earn the profit to replace what has been lost by the uncollected amount.

Not Asking for Additional Fees when the Brief is Changed

I have noticed that many architects are not motivated primarily by financial reward. Indeed, it seems that architects could be the most generous of the professions, as they often seem to find themselves working for no fee at all.

Chapter 4 discussed ways to track the financial performance of an individual project. If the actual cost line is above the planned cost line, you are spending too much time on the project. This may be the result of inefficient working methods or faulty resource allocation, in which case it represents a genuine loss. More often, however, it is the result of the team trying to respond to a client’s request for something extra or different.

We are all correctly advised to be client-led in our work and to be concerned to keep clients happy by answering their questions and responding positively to their demands. However, it is crucial to remain sufficiently alert to notice if you are being asked to do work that falls outside the scope of the contract. This is potentially good news for the practice, if the client is prepared to pay for this extra work to be done. If the client does not wish to pay, you should not be doing the work for free.

This does require an element of judgement and has to be conducted within the overall context of the client relationship management process. It is important to maintain good working relationships and to show that you can be flexible, but you simply cannot afford to give away ‘the shop’ too often. Clients and contractors will be skilled and experienced negotiators and will of course try to gain any financial advantage that they can for themselves. You must be smart enough to ensure that the practice is not being too generous. In general, you will find that the work will be valued and respected as a result.

Not Asking for Additional Fees when Extra Work is Added

This is a similar situation to the change of scope scenario described above. Yet this can be a more subtle variation that is harder to spot. When the brief changes everyone in the design team needs to be involved and the project will be noticeably different from the original plan.

What I mean here is that the basic design is not changed, but the client requests that some aspect of the design is revisited and alternative options explored. You may be interested in pursuing this design option too, so gladly embark on this piece of work without much thought for the time and cost implications involved.

It is crucial to develop a financial sensitivity to notice when work falls outside the scope of what you are being paid for and negotiate an additional fee accordingly.

At SEH we have become much better at spotting these sorts of opportunities over the years and we now routinely generate an additional 5–10 per cent of fee income just by paying attention to these opportunities as they arise. This is a good example of where investment in project management software can really pay off. By picking up cost overruns quickly, there will be a chance to identify and agree an extra fee before it is too late and the project has moved on.

Failing to Monitor Project Costs and Contribution

You practice is more likely to be financially successful if you monitor the performance of individual projects and the work stages within those projects. Inter-firm comparisons such as those administered and published by the RIBA reveal that there is a correlation between those firms that make the most profits and those that monitor their project costs most closely.

We all know that some projects will not be as profitable as others. We may have chosen to accept a reduced fee in order to work with a new client, or to break into a new practice area. However, there is a danger that your practice might have a ‘good reason’ for every project not to make the required level of contribution, and hence end up being unprofitable overall.

Low Hit Rate on Competitive Tenders

For most architects the initial winning of a project is the result of being successful in a competitive tendering process. This is particularly true for architects who do a lot of work in the public sector.

It is important to be realistic about the tendency of clients to commission architects to do more of the same type of work that they have done before. From the client’s point of view the project represents a very substantial financial risk and we can understand their unwillingness to ‘gamble’ on an inexperienced architect. To their credit, some clients are prepared to give a new, young practice an opportunity to do the sort of project that they have never really done before. The client is hoping for the payoff of a fresh and creative approach, but this is a risk that many are not prepared to take, especially in the public sector where accountability for the spending of public money is at stake.

While we would all prefer to design something new or work in a different sector, it is easy to fall into the trap of bidding for everything that you feel the practice could do or would like to do. Sadly, the result of this approach will usually be a lot of disappointment and rejection, and a lot of wasted time and money. Clients will tend to choose an architect with a proven track record or a recognised name.

The successful approach is to apply for work where you can offer some recent experience or unique advantage and firmly believe that this is a project that you should win.

At SEH, we have saved ourselves a lot of time, money and disappointment in recent years by being much more focused on our bidding process. Generally we try only to bid for projects that we feel ‘has our name on it’. This helps to focus the marketing effort and improve the overall success rate.

These days public sector clients in particular are demanding an ever-increasing amount of supporting documentation to be prepared as part of the bid process. These bids are time-consuming and thus expensive to prepare, and it is important to ensure that the limited time available is used wisely. It can be easy to fall into the trap of being ‘very busy’ preparing bids and submissions. But if these are not well targeted, then the majority of the energy involved is being wasted, and this will ultimately be reflected in the reduced profitability of the practice.

Poor Estimation and Fee Negotiation

Fees must be adequate to cover the cost of the job and to contribute to the overhead costs and profit requirements of the practice as a whole. This can only be done by taking the time to think through what will be involved in delivering the project and in particular the quantity and type of resources that will be needed, using a bottom-up analytical approach

You must be prepared to decide not to pursue a project if the fee is inadequate. There may be slack times when you might choose to do a piece of work at cost, just to generate the funds to continue to pay the salaries and other bills, but this should only ever be a short-term approach, because it will lead to severe financial difficulties quickly if applied on a regular basis.

Failure to Manage the Design Team

Clients are increasingly looking for a ‘one-stop shop’ appointment of the design team. As the architect is the natural leader of the design team, it follows that they find themselves taking on this role more often than they used to, including managing various sub-consultant firms. There is often little or no reward for performing this additional co-ordination service. Indeed, it comes with its own considerable risks.

In practice, many sub-consultant firms are comfortable with a ‘pay when paid’ approach, although it should be appreciated that this is unlikely to be the correct contractual position. Standard agreements allow for the sub-consultant’s payment terms to be longer than those of the architect so that the fees can be collected in advance, but this does not change the underlying legal position. When the architect has contracted with the quantity surveyor or engineer, it is the architect who is ultimately responsible for the payment of their fees.

It’s very important to stay on top of the resources management process and to ensure that funds are flowing regularly from the client so that all members of the design team can be paid at the appropriate time.