UNDERSTANDING DESIGN FEES

Post 713 -by Gautam Shah

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Designers often help their clients to acquire or dispose off entities in their completely prepared form. When the transaction originates at producers’ end, it is little above the cost, at a price. Price, reflects the value a producer attaches to an entity. Later transactions may not in any manner relate to an entity’s cost.

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For a thing to have a value, it must be transferable. A latent value becomes potent when it is perceived that someone needs the entity in some time and space, for a utilitarian or hypothetical purpose. A demand for a perishable commodity, if it, does not occur within the life span, is irrelevant. Similarly demand for something in a far off place cannot be satisfied, due to transportation hazards and handling problems. Air has a lot of utility but is not scarce. Rotten eggs may be scarce, but hardly have any utility. Friendship is very useful and scarce, but is not transferable or marketable.

Historic cost of creating a painting may be few drops of colour, a canvas and artists’ few moments. But once the fact is accomplished, the painting gains a very high value due to its extra ordinarily high relevance to the society. Relevance of a product in terms of its utility is (more) likely to degenerate over a period of time, but its value may appreciate or depreciate depending on its relevance to the owner or the society.

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Prices are effected in money. Prices go up or down depending on the fall or rise in the (universal) value of the money. Any change in money (monetary value) affects the prices of all things across the board. Value of a thing, however, is specific. There cannot be a general fall or rise in value of all things. Value of a thing goes up, when we can acquire or aspire for more or superior things in exchange. Value of a thing goes down, when we can acquire or hope for less or inferior things in exchange. Value is relative, referred in terms of something else.

Value of a thing, cannot be always measured in money. Value has many different connotations, typically, it has relevance in terms of, emotions, remembrances, associations, ageing, maturity, heritage, rarity, ecological, environmental, social, etc.

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Valuation, in functional sense, is done to determine what one would gain by acquiring, or forgo by disposing the item, but not necessarily doing so. Value of a product means an addition or deduction to wealth, Cost at the moment of transfer may or may not reflect the value of an item, but it helps in a better judgement of the value.

A rare painting or an antique may have an indeterminable cost, but will have a probable value. Value could be several times more or less than the actual cost of the item. Value is considered to be the true worth of an item, more lasting, but not necessarily reliable. Cost and price are very realistic and reliable, but not always representative of the true worth of the item. Both, perhaps, are required to gain a full insight of the situation.

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Monetary versus Non-Monetary Valuations

Valuations are of two types: Monetary and Non-Monetary. Monetary valuations are not very different from costing exercises. Value of a thing, cannot be always measured in money. Though here utility, desirability, scarcity, availability and marketability etc. of an item are assessed in monetary terms rather than market equivalent costs of such items.

Valuations of non-monetary type are made to check adherence to values, customs, traditions, ethos, rules regulations, laws, etc. Greater adherence to these issues results into higher value realization for the product. Often negative or repulsive aspects of an entity, such as Hitler’s memorabilia, black magic tools, due to their rarity, invite a connoisseur’s favour. Non-monetary valuations have a relevance only to people who are concerned with it in some way. Non-monetary valuations based on one aspect or few concerns are not very useful, desirable, or even reliable. Non-monetary valuations based on too many aspects are not comparable, so must be scaled into some economic or monetary component. These makes, a valuation, very complicated process.

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Costing versus Valuation

Costing is a logical (mathematical) process, and any technically proficient person can carry it out. Costing process must always remain justifiable, and requires many exact inputs, including latest market costs etc. Valuations, however, involve many hypothetical judgments, are very subjective, and so may not seem rational. It is the experience of the valuer that imparts some degree of objectivity and also reliability to the valuation. Valuation on the other hand is a subjective judgment, and no explanations may be asked for.

Costing helps a designer in planning, budgeting and auditing the expenditures. Valuation is used to confirm or justify expenditures, indicate non monetary savings, and to convince a client for quandary options.

 

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Design Practice and Cost Determination Methods

Designers choose entities, increase or decrease their usage by predicting the costs. Designers develop their own cost determination methods, appropriate for the jobs they handle, and for types of items specified in their projects. Input data like market rates for materials, parts, components, labour etc. are continuously updated or sought as and when estimates are to be prepared. Updating feedback is also available through the historic estimates conducted on completion of a project.

In design offices predictive cost analysis is made through Rate analysis. Average prices of all commonly used materials, operations, etc., are collected routinely, reformatted and stored. These are presumed as standard rates, and form the basis for the cost analysis. To simplify the process of cost analysis, number of items and their individual rates or prices are reduced by approximation (through definition of a factor for variation) in quantity and quality.

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Routine jobs and jobs with substantial intellectual effort

Routine jobs have a determinable cost (and by adding a customary margin of profit, etc. one can derive the price). However, jobs with substantial intellectual effort accomplish more than the cost of implementation. So, dilemmas occur, should one charge a professional fee on the total cost of the job, or value accruing out of the job? Authors of creative efforts must know how to value their accomplishments, and thereby demand a fair compensation for it. Designers need to know both the cost and value of their professional services.

Cost versus Value for Designers

The understanding of Cost versus Value of an entity helps a designer at TWO distinct levels:

1 Determination of Fees: Cost-based and Value-based

2 Helping a client for the value-assessment of their possessions.

Screenshot_2020-02-29 Mares and foals with an unfigured background (England,1762) - George Stubbs (1724 - 1806)

Cost-based Fees

Design practice follows age-old traditions of Architectural practice. Jobs are generally executed by appointed contractors or selected vendors. These third party (away from the Architect and the Client) business entities present an invoice, which reflects the nearly true cost of the job. Architects base their fees on this foundation after adding certain percentage amount to account for miscellaneous expenses, (such as on power, water, etc.). Substantial part of Designer’s work follows a similar path.

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Value-based Fees

Value-based Fees are charged for jobs like renovation, extension, addition, conservation, etc. that make substantial change to the existing environment, upgrading the commercial value, or advantages deriving out of it. A unique concept that costs very little to implement, provides a substantial benefit to the client. Should one charge a fee on the cost of a job or on the value of the completed job? Here determining an appropriate cost base for fees is very difficult.

Value Assessment of Possessions

On some sites there are pre-existing structures which are to be only reformed or reused. The design cost of continuing or protecting such structures is difficult to compute, and so must be value-based. Cost of works or supplies by third party vendors and contractors are accountable, but items supplied by the Clients from the existing stock are difficult to document. Cost of Retained Structures, Antiques, Curios, used in a project are often indeterminable, instead their values, if available need to be used. On sites where several Professionals operate simultaneously, exclusive authorship to a creation is disputable, so cost of a patent idea is disputable.

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Cost Plus Fees

Fees for very complex jobs, or jobs that are unique, and without any precedents are very difficult to predefine. A Client wishes to see the job properly done, and the Professional wants a guaranteed, but a fair amount of income. Such jobs are executed on Cost Plus Basis.

The office work of the professional and the site work of the project, both are executed in a very transparent setup. All the expenses at the Processional’s Office (salaries, stationary, conveyance, rents, service charges for equipments, etc.) and at the Project Site (on raw materials (stationary), wages, and salaries, rents for equipments, conveyance, postal and telecommunication charges, taxes, etc.) are well monitored, documented and audited. The Professional is then allowed a percentage over the Audited Costs.

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MANAGING FEES -for Building Design practices PART – IV

Post 511 by Gautam Shah

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Building Design firms often provide many different design services, such as Architecture, Interior Design, Structure, Interiors, Landscape, etc. And within these broad range of groups, the actual services may relate to New constructions, Renovations, Alterations, Extensions, valuation and project assessment, project feasibility reports, etc. The projects, when handled simultaneously rarely remain within the confines of well-documented definitions. Like some pre-emptive work for interior or landscape design will occur in the architectural scheme. And when the post building construction, other services are prematurely terminated, the ‘pre-emptive’ work will not get paid.

Serpentine BP Pedestrian Bridge by architect Frank Gehry’s Buckingham Wikipedia image by Author Torsodog

The Louvre Museum

These services occur in different schedules, and their scopes are based on very different criteria. Building design fees are chiefly collected on the basis of floor spread or footprint, except in few countries where it may be based on hours spent on it. The floor spread based varies with the type of project. Fees charged for Architectural projects include the construction cost (built-up coast) + some extra for site development design works. Similarly structural design fees are computed on the construction costs, but that may be a small part, in comparison to costs of site development works like land contouring, retaining walls and other support entities. Interior Design fees cannot always be calculated on the basis of carpet area, as lot of materials and objects are retained or reused.

Maggie’s Care Centre, Glasgow, Scotland Wikipedia – Flickr image by Author scarpadog (Jon-Marc Creaney)

In a group or associated practices the savings occur from the seamless handling of a project. This occurs when common entities are detailed or specified just once. Like for Landscape design site structures (pavings, curbs, retaining walls, water-body formations) are specified with architectural details. Electrical layout for architecture and Interior design is nearly identical.

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Das Haus der Deutschen Kunst in München.

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Yet, in all these, the most important issue, vis a vis a client that comes through is, What should be, and How to determine the Cost of the job? The term Total Cost of Job nominally means to include all the costs of actually executing the designed job, similar costs of inputs from other design consultants or agencies, and the cost of all the peripheral work executed on the site through or by owners themselves or their agents, during the Currency period of the Design Services. The total Cost of Job will also include the estimated value of the work being preserved or maintained on the site.

interior-of-maintenance-shop Public Domain images by Hillebrand Steve, U.S. Fish and Wildlife Service

At the start of a design project, the total cost of the job, is not available. As a result some notional figure is determined, to bill the first installment of fees or a lump-sum figure is used for first bill. This figure is determined on the basis of total cost of the job, but more importantly the intellectual rights of design formation. To determine the cost of a job, spread of the job or the built-up area is very useful. Structural engineers often base the fees on RCC (or structural) component of the project or a percentage of fees payable to the architect. Interior designers base their fees on Carpet area, but more surely on Interior Design intervention area, which is more rational or realistic. In spite of this in a group or associated practices it becomes difficult to derive a common fee’s formula.

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The Louvre Museum

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MANAGING FEES -for Building Design practices PART – III

Post 502  by Gautam Shah

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Design fees are based on many factors or considerations. One of the important elements is the complexity of the job, which in turn is reflected in Design floor spread or area of work. This is now called expected area of design intervention. It can include every thing that is intensively and intentionally to be impacted by design. In case of architecture or interior design it includes all design affectations inside and outside the built form. For this purpose your design brief presented to a client becomes the Bench Mark. But one must also equate the design brief with a structure for fees’ computation.

 

 

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640px-Small_group_conversation_at_a_Gurteen_Knowledge_CafeFor all designers the safest bet is to mention a minimum chargeable fee with a rider that it relates to One site, One Project, One Client and One occasion or interaction. The minium chargeable fee, must be interpreted as the retaining amount (services of a designer). Mention of one occasion or interaction is necessary as some clients after paying the retaining amount go into sleep-mode lasting an indeterminate period. It is necessary to state what design services a client can expect on payment of retaining amounts. This may include one or few meetings for discussions of design brief, including scope of design services, collection and verification of the site related documents, a site visit, or submission of a design scheme.

If minimum chargeable amount (or retaining amount) covers and obligates you to submit a schematic design, than following cares are necessary. Schematic design must never be submitted in digitally manipulable form, such as the CAD-based files. One may however, submit image files like in pdf, jpg, or similar format. Smart designers avoid creating very exactly scaled proposals.

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First fee is a retainer fee > Pic through Flickr by David Goehring

The schematic or preliminary sketch design is likely to go into hyperbole for showing the possibilities of design interventions. The design elements not only spread as built-forms, but include surroundings’ treatments. This is often equated as a promise against the clients’ estimate or the perception of the budget. This means, one need resubmit a redefined version (usually truncated and very rarely an expanded one ) of schematic drawings, as soon as project is shaped (that is fees are set). At this stage it would be wiser to define and graphically indicate the extent and nature of Design interventions. It could also include the Requested Design (Client’s brief) and Design to be executed. A client should clearly understand the term ‘design to be executed’ will form the basis for fees’ determination. Cancellation of the job or any downward sizing will not affect the ‘basis for fees’.

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Caupona Salvius Pompeii customers playing dice

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MANAGING FEES -for Building Design practices PART – II

Post 497  by Gautam Shah

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A design client visiting a design office or querying about design fees through a communication channel, must provide some basic details about own-self and the project (its location and scope). Such inquiries however, routine must not be answered instantly or orally. A design fee statement is not a commodity rates list, and should be presented after knowing, meeting or vetting a client. A design fee statement presented to a client should be very specific. It should never be a standard print-out with few filled in blanks.

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A designer must mention as to why (under what circumstances) the fees are being stated in the presentation. For this purpose a Fees statement must mention the name of the client, and some details of the project, including its location.

Indian Institute of Management Kozhikode, Kerala India. A large building complex design has many overlapping design interests and fees for a component must have Limitations Statement.

A typical Starting Line could be > In reference to our meeting / your query of Dated: Date-Month-Year, I/We present our Terms, Conditions and Schedule of Charges for the Design Services1 for XYZ project2 for Client3 at, Location of project4.

1 = Architectural, Interior Design, Landscape Design, etc.

2 = Residential, School, Hospital, Office, etc.

3 = Mr or Mrs XYZ or M/s ABC Co (The Client).

4 = Plot or Building number, Suburb, Town, State, etc. (Location of the Project).

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It is very necessary to define precisely the scope of design services and for this Statement of Limitations must become part of Design Fees Statement. A statement of limitation restricts the liability to only the listed nature of services.

Pic from Wikipedia by Author Wolfgang H. Wögerer, Wien > French photographer en:Jean-Pierre Sudre, France, 1975.

TYPICAL STATEMENT OF LIMITATIONS >

1 We offer Design Services in the field of ____ . This statement relates to, our offer for design only services. Design services will mean and include designing, describing, specifying and facilitating (by our selves and other consultants to be appointed for sub services) the total project and its systems that are necessary. Design shall mean all drawn, written or digitally formatted documents, oral or otherwise instructed or implied schemes emanating from our office or the staff. The Period of design services shall nominally last 12 months from the date of payment of first payment of fees. On completion of this period, the Design Services will have to be renegotiated as a fresh project.

2 We offer our services as Designers, and for that we do not sell, supply or help procure any components, units, goods or materials, or provide on rent, hire or provide on any other basis: human resources, plants, tools, equipment, implements or gadgets. We also do not undertake any type of operations or servicing of jobs. We do not provide any operational surety or performance guarantees or warrantees for the items, systems, or schemes likely to be generated or formed through implicit or explicit design, suggestion, instructions drawn, described, specified in our design.

3 All payments to vendors, contractors and suppliers shall be made to the party concerned, directly by the client. As a designer our responsibility will be restricted to checking the work bills, and approving for payments, provided such bills or their authenticated copies are presented by the client with appropriate request to us.

President of UW Mark Emmert with an architect Pic from Flickr by Wonderlane

4 The job of Design shall mean designing and specifying all things for a building and its immediate surroundings (if listed in scope of a design project), and apparently for which no sanctions from any authority will be required. However, if any such sanctions / permissions are required, the client shall on own cost arrange them, or negotiate the issue separately with the designer.

5 As a consultant Architectural Designer we operate on our own, providing all such services to cause a building structure. We do not collaborate or agree to take in any help from any other designer or such experts or consultant, working on the behalf of any other agency weather paid by the clients or not. We will not accept or abide by reports, advise or observations offered by such persons or agencies. We will also not allow access or make available any copies of our documents, studies etc. to such persons or agencies.

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MANAGING FEES -for Building Design practices PART – I

MANAGING FEES -for Building Design practices PART – I

Post 478  by Gautam Shah

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Stating design fees or charges to potential clients is a routine exercise, but one that needs lot of thought, and reconsideration or improvisation from one project to another.

The discussion here is based on presumption that the designer is practicing a ‘pure design’ or ‘design-only’ business, and not co-conducting build or supply work for the projects. In the later case the person or the organization may be liable for paying other taxes.

Interior of Phillips Exeter Academy Library, Exeter, New Hampshire (1965–72)

A person-organization operates as an Architect, Interior Designer or Landscape architect. In each of these case the basis and terms for fees are different. It is advisable to state fees separately for each aspect of practice, while clearly stating ‘what constitutes that project. This also follows that drawings, details etc. must remain distinct documents for each practice. Inclusion of following clauses is advisable >>

1These terms, conditions and fees are for the Architectural (or Interior Design or Landscape Architectural) Services only, and must not be clubbed with any other service or services that have been provided, or will be offered by us.

2The services are offered by me/us in our capacity as an Architectural Designer (Interior designer or Landscape architect, as may be relevant). As a professional designer we do not sell or supply any components, units, goods or materials, or provide on rent, hire or provide on any other basis: human resources, plants, tools, equipments, implements or gadgets. We also do not undertake any type of operations or servicing job. We do not provide any operational surety or performance guarantees or warranties for the items, systems, or schemes likely to be generated or formed through implicit or explicit design, suggestion, instructions drawn, described, specified in our design.”

Tokushima Castle Lordly Front Palace Garden in Tokushima, Tokushima prefecture, Japan

Fees’ details must be stated (submitted), discussed, or negotiated in one meeting, or through one statement-letter. A designer nominally provides professional design services and the Invoice will include charges only for this. Other costs for like extra copies, documentation, additional survey or report preparations, conveyance, must be billed separately. It is better to use external agencies that provide such services, and bill the client directly. These arrangements reduce many tax hassles.

Trevithick’s 1804 steam-powered railway locomotive full-scale replica National Waterfront Museum, Swansea.

Cost of a model, Sample, Prototype, Pilot, Animated walk-through or a Typical design (to be repeated number of times) is always problematic. Delivery of such an item at ‘actual making cost’ can deny the designer ‘the cost of concept’. Charges for such an item must be inseparable part of the main design fee. Which in other words mean, the main design fee may mention delivery of such an item, but details that can give impression of its exclusive cost may be avoided.

A professional like an Architect, Interior Designer or Landscape-architect is retained by the client-owner-organizer of the property, and not by the executing agencies like Vendors or Contractors. So discuss and insist on payment of professional fees directly by the client-owner-organizer of the property. A professional designer must declare that the charges discussed here are for One site, One project, Only for the service that is mentioned, and for One year currency of the project.

Architectural Fees are of several types

1 A fee on Lump-sum base, or a fixed amount irrespective of the cost of execution of the project.

2 A fee based on total cost of man-hours (and stationary, use of equipment, etc.) plus some Lump sum amount or a percentage amount for ‘other expenses’.

3 A fee based on the percentage of the cost of the project. This has the advantage that a percentage share goes up (or down) with project cost escalation. To avoid losses due to down scaling of the project and too much escalation for extraneous circumstances, an upper and lower tag is considered prudent, respectively, by the client and the professional.

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In next few articles of the series other aspects of Building Design Fees will be discussed, such as:

  • What is the scope of Project?
  • Meaning of Design services,
  • What is included in the total cost of a project?
  • Stages of Fees collection-payment,
  • What is requested Design?
  • What is an approved Design?
  • What is an executed Design?
  • Currency period of the Design Services?
  • Assumed cost of the job,
  • Estimated cost of the job
  • Actual cost of the job
  • Specific issues of Interior Design services.

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DETERMINATION of PROFESSIONAL FEES

Post 360 – by Gautam Shah

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Determination of professional fees is a very difficult exercise. To determine a right fee, a professional is expected to know the following:

  1. What is the VALUE of professional services to the client, and in the society,
  2. What is the COST of providing professional services (cost of input),
  3. Will there be a surplus (profit) after deducting COST from the VALUE.

Senior professionals have experience, and so can prejudge the value of their professional services. Fresh professionals and even seniors venturing into unknown fields cannot judge the value of their services. They would rather compute the cost of input first, and then add a fixed or a percentage amount, as profit.

Lawyer and clients

Professional fees are very subjective. Fees vary from a professional to professional, from one project to project, and also from one client to another. There are no standards, though there may be traditions in the field. Professionals take on an assignment for a fee, determined by themselves, and sometimes after further negotiating with the clients. Besides fees, a professional also collects: Extras for other services, such as site visits, surveys, additional or optional detailing, special documentation, etc. and applicable taxes.

A professional gets engaged for different types of assignments.

Physical assignments are projects where implementation involves large resource outlays and the cost of the professional input is measurable with the scale of the project.

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Intellectual projects are more intensive on conceptual input or idea. The cost of idea formation is indeterminable and cost executing the extraordinary concept is very small. The results or benefits accruing to the client are great. A client may gain extraordinary advantage by such professional contribution. So fees for intellectual projects are based the value of the professional input (to the client, society, etc.). Such fees need not match with the scale or cost of the project.

Involved projects are of two types: Involvement of the professional and the involution of the client. The client is fascinated by the prestige of the professional and desires personal involvement. Such clients will payout the stipulated fees. Professional involvement depends on many factors: Personal attitude (sincere, commercial), Demands by the client, Nature of the assignment / Competition from others / Client’s readiness to bear the additional costs (of intense involvement) etc.

Marina Project Dubai

■   Cost of a job nominally includes cost of all items that physically constitute a job. These items may be existing and are reformed, reused or acquired afresh. Cost of supplies by third party vendors and contractors are accountable, but items supplied by the clients from the existing stock are difficult to document. Cost of retained, saved-reused structures, antique materials, curios used in a project are not available, instead their values, though not easy to ascertain, are used. On sites where several professionals operate simultaneously, authorship to a creation is disputable.

■    Cost of professional inputs are costs or expenses incurred to conceive, design and plan out a project. It includes cost of data collection, stationary, documentation, presentation, printing, conveyance, staff salaries, cost of management, cost of investments, cost of rents for plants, tools and equipments, etc. It also includes the value of patent ideas, royalties, and taxes.

■   Scale of a project can enlarge or shrink during planning, designing and the execution phase. Even at fixed spread or volume, the costs inflate or deflate according to the economic conditions. But are the fees adjustable, accordingly?

Carsten Höller’s work -a series of corkscrewing tubular metal slides

■   Cost of involvement in the project is as per the agreement on the variety of design services offered and agreed upon, and the scale of the project. Any downward sizing of the project may not automatically reduce the involvement of the professional. Though upward scaling of a project, increases the professional’s work.

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FEES NEGOTIATIONS WITH A CLIENT

Post 293 – by Gautam Shah

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Designers always seem to have a problem as to How much, How, and When they should charge their fees? Problems are manifold, as there are few traditions, absence of professional fees mechanisms, and very little social awareness about new design fields.

Fees’ negotiations are long drawn, tiring, and usually a worrisome process. The client and the Design professional interact on different wavelengths. A client may not be asking for a discount, but just trying to understand the fees completely, whereas a professional operates on many hypothetical grounds, cannot rationally explain the fees. A designer may explain well, the work and fees to a client if alone. A designer is forced to, justify the merits own work and, the effective value of the fees in competition with other professionals.

Dual Negotiations with competitors

One of the simplest ways of reducing hassles is to discuss the fee early in the project. Discussions, even if agreeable, must be backed by a detailed communication in writing. In the same document or letter, the design professional must make a client understand that of the total to be an invoiced amount, what forms the ‘professional fees’ component, and what forms the charges for various services, (recoveries of expenses incurred for the client).

Consequences of delayed, part or non payment of fees must be clearly defined. These conditional aspects of fees should be explained to the client, collectively in one meeting, and through a single written document.

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With organized clients, a professional may not get a personal meeting to explain or redefine the level of involvement and obligations. Even if such a chance is available to restate the case, it is professionally inappropriate to agree to reconsider the fees (for reduction in fees). Yet, a professional can (if one has structured the professional services and their costs) offer to take on additional responsibilities and services at no extra cost (while making the client aware of their costs), to make the offer attractive and viable.

No discounts in Design Fees

Professionally it is not courteous to reject a client, or refuse a job, however, detestable or unwanted a person may be. A professional’s only option out of this situation is to demand an abnormal fee and set extraordinary conditions.

FEES BILLING OR INVOICING

A professional ideally prepares an invoice for the professional fees and just a statement for chargeable services (to be paid to others).

A separately identifiable mention of certain items like rents, supply charges, maintenance charges for plants and equipments, cost of goods, plants, equipments, etc., even, if is to be compensated by a client, must be avoided in the professional charges’ invoice. Professionals must in all circumstances avoid invoicing, for supplies delivered to the client.

 

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