Fee MAD-ness (mutually assured destruction): an existential crisis

Did you hear the one about the architect who won the lottery? They kept on working until they were broke. This was my introduction to architecture. I thought it was a joke. Now I’m not so sure.

I talk to architects all the time and in almost every conversation hear stories of outrageously low fees and cutthroat fee gazundering. Economics 101 taught me that when a good or a service is in high demand and the supply is limited, the cost goes up. So why is it, then, in this boom time for architects, that we have managed to slash our fees in a desperate race to the bottom?

It seems only yesterday I was discussing with good architects how the fee for a full service for an apartment building was dangerously low at 3 percent. Now you’d give your eyeteeth for that amount. Recently we lost a project of 150 apartments by 30 percent, when our bid was only 2.22 percent. The winning bid was a paltry 1.55 percent. Earlier this year we made a calculated decision to halve our fee to win a public project but lost the job. Our fee was double that of the winning bid – a quarter of what we think you need to do the job properly. Not to chumps, mind you, but to other award-winning architects (clearly I am also part of the problem!).

When will this madness end?

If we are to achieve major reforms and be respected as a profession, we need to be not only financially viable, but financially successful. Otherwise, how are we to achieve gender equality? How do we stop our practices becoming sweatshops of juniors working long and late hours? How will we be able to invest in design and innovation if we can’t even afford our own software? How can we develop the professional systems and protocols to help Asia build trillions of dollars’ worth of infrastructure this coming decade if we can’t afford to upskill our own people?

As a member of the NSW Architects Registration Board, I get to see the complaints made against architects. An overarching pattern that emerges is that “cheap” fees for service (fees that seem barely possible) regularly lie at the heart of the dispute. Clients don’t recognize that their service is cut-priced, but have the same expectations as a good, fee-paying client. You can fill in the rest; it’s not pretty.

Clearly, poor fees are not just bad for business, bad for innovation and design and bad for staff and training. They are also bad for the client, as they will likely lead to disciplinary action by the regulator. Poor fees are a poor outcome for the profession. It would be useful to unpack why this is happening and offer possible solutions to pull ourselves back from this existential cliff. I see it breaking down into four categories: architects, clients, regulation and cheap overseas labour.

Let’s start with architects. It’s clear we aren’t all motivated by money. But being poor at business is just plain dumb. Architects need to collectively bargain minimum rates of fees and not go under them. We need a strict ethical and moral code to prevent rogue architects from damaging our profession. We have to believe we are stronger together, that united we will not be as easily picked off as we would be individually. Architects need to be smarter in the way we do business. We need to say no to low fees that cheapen our service, drive down our professional standards and our ability to innovate, and limit our opportunity to play our part in design export services.

A healthy profession is a financially strong profession that can compete internationally for export dollars. In a world of ever-increasing design excellence, clients need to understand that design excellence costs money. It makes no sense for clients to cheapen their own product chasing an elusive profit that won’t materialize because of substandard architecture. It’s fool’s gold. It’s no surprise that top-tier and boutique developers invest in design to enhance their image, their product and their reputation. Design gives a developer the edge in a crowded marketplace where the standard is not very high. So why wouldn’t a developer pay the small extra amount for good design to lead the pack and enjoy the profit?

Regulation has been a dirty word these past 30 years of neoliberal and trickle-down economics. What we know of this period is that the failed economic model has advantaged the few at the expense of the many. Economic literature has thoroughly documented the failure of loose and limited regulation and the way this has run down professions and reputations. Just ask the banks. We also see this in our headline economic numbers – big budget deficits coupled with poor wage growth despite 27 years of uninterrupted economic growth. Clearly something has to change.

I see regulation working for architects in three ways. The first is minimum fees that architects, clients and governments don’t breach. We have clearly seen that in an unregulated market, architects will compete for work even if it’s to their own detriment. This is a well-understood mammalian response. A floor under fees would mean that a good standard of service can be achieved while staff are reasonably remunerated for reasonable hours, good skills and hard work. It can be set by a fee guide, which is something we used to have. Where architects once used the Institute’s fee guide as the bible for setting fees, we now have nothing to rely on. The fee guide was not only useful for architects; it also helped clients understand and budget for good design. This has been discussed for too long within the profession – let’s not let the perfect be the enemy of the good. A new fee guide should be put in place immediately and reviewed every two years. The Institute can work with the Association of Consulting Architects Australia and government architects to collect data on fees from the profession and make adjustments as necessary. It should factor in what a financially healthy profession looks like.

The second is for government to lead the way by acting as the model client. Government agencies at all levels should mandate a minimum fee, ideally based on the fee guide. This would send a healthy signal to the market about minimum standards.

The third is to limit university places in architecture degrees. If the profession is going to send our future architects’ jobs offshore, then let’s stop the cruel practice of offering them meaningful employment with one hand and ripping it from them with the other. This may sharpen architects’ business practices and keep us on the right side of the supply and demand equation.

Perhaps the most controversial reason for the erosion of fees is firms employing cheap overseas labour to undercut the market. I believe that this is the emperor’s new clothes of business school management. It drives down fee expectations that will be difficult to claw back, while limiting employment opportunities for our young architects because their jobs are being sent overseas, all at a time when we are enrolling and graduating architects at record rates. This seems more than a little strange and antithetical to me.

Architects clearly have themselves to blame for this existential crisis and make no mistake, it is an existential crisis. It’s madness. We are on a path to mutually assured destruction. Slashing fees at a time of great need is ridiculous. We need to help ourselves, but we also need help from industry and government. The actions outlined here I believe will set us on a path to a better, healthier and more financially viable profession.

Shaun Carter is the immediate past president of the New South Wales chapter of the Australian Institute of Architects and a principal architect at Carter Williamson Architects.

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