The traditional architectural fee was a percentage of construction costs. The baseline fee was 6%, but the percentage decreased as the construction cost increased; and increased as the construction cost decreased.
The fee was allocated most often among the phases of Basic Services of the project like this:
15% - Schematic Design
20% - Design Development
40% - Construction Documents
05% - Bidding
20% - Construction Administration
See this download for a sample fee schedule.
Although this fee arrangement appears to reward the architect for running up the construction cost, there has always been a simple counterbalance. The contract can set a limit to construction cost. Over this limit it is the architect’s responsibility to re-design at his cost. This is a serious incentive to stay on budget.
Where this method breaks down for the Owner is the Owner’s inability to provide a realistic budget. I would say that Owners, who have not been through the process before almost never provide this counterbalance because they have no idea what the project will cost. For this type of Owner there is a real need for someone (the architect?) to lead them through a planning process to set the budget.
Where this method breaks down for the Architect is the Architect’s inability to control the scope of work in Schematic Design and in Construction Administration. Schematic Design often takes too much effort because the Owner doesn’t have a written program. This causes all kinds of schemes to be done to discover the project’s needs. Or worse, a scheme is ’sold’ to the Owner and endless changes crop up throughout the project as needs are discovered. This remediation of the design might extend through construction. The solution is to provide Programming for the Owner as a separate fee.
Construction Administration takes more time than allotted by the fee because the contractor, the low bidder, proves unable to build the project without excessive hand-holding, changes, or re-dos. The solution for Construction Administration is for the architect to specify the number of hours that are included for site visits, phone calls, meetings, and submittal reviews. After these hours have been used, additional time is billed on an hourly basis.
A third way that the fee as a percentage of construction cost breaks down is the number of ’new’ services provided nowadays that don't fit the percentage method very well. LEED certification, commissioning, and civil engineering are the most common. By hearsay LEED certification adds 2% to the costs, and commissioning can add 5%. But these numbers relate to the ’average’ project. What is average? What percentage applies to your project?
Using the fee as a percentage of construction cost method is still a viable fee structure. It is just that projects are more complicated than they used to be.
Other articles on fees: