Large public agency doing many projects establishes an A/E fee schedule based on percentage of construction budget (notice I said “budget,” not actual “cost”). Large public agency also establishes, without any input from the A/E, the project program and construction budget. A/E is retained for a fee based on the owner’s construction budget. A/E designs the project, incorporating all elements of the program as approved by the owner. The project is over budget. A/E is required, by contract, to redesign without additional fee to meet the construction budget. However, eliminating any of the project program is strictly forbidden. A/E spends hundreds (sometimes thousands) of manhours redesigning in a vain attempt to squeeze the program into the artificially low budget. Finally, everyone involved, including the large public agency, agree that the project has been VE’d to death and it obviously will not fit within the budget without cutting important program spaces. A miracle happens. The large public agency announces it has “found” the additional funding necessary to make up the difference between the savagely VE’d design and the artifically low initial construction budget. But wait…A/E is not entitled to additional fee on the new funding because “A/E failed to design within budget.”
You may not think this is true, but I actually had an employee of the large public agency admit to me that it was a strategy of that agency to establish an unrealistic construction budget in order to set a low A/E fee and then run the A/E through the ringer squeezing out every ounce of design effort to get the full VE, knowing that the budget would never actually be met. Then, the agency would announce that they had the funding (which had been residing in their “total” project budget all along. But, the A/E was ridiculed for not being able to design within budget and no additional fees were forthcoming to the A/E.
Mr. Johnson’s post reminded me that this is the real problem.
Mr. Liebling, I knew somebody would say that. And, of course you are correct. The one problem with that course of action, though, is that public agencies control a huge portion of the available design/construction work. There is typically no negotiation (or very little) on a pubic agency contract. They operate on a “take it or leave it” basis. Sure, any architect can walk away, and some do, but when you make that decision you are not walking away from just one project, you are walking away from a lot of work. Now, if all of that work is going to be a nightmare, then why bother…I would agree. The problem is that larger firms, in particular, simply can not walk away from what amounts to the largest pool of available work to feed the machine. The public agencies know this. Another true story is that I had the head of one very large state agency (he is an architect) tell me that it was nearly impossible for him to raise architectural fees because his agency consistently had a large pool of qualified firms beating their door down to do their work. During the same timeframe that I was hearing this, I was sitting on a committee of architects wringing hands trying to figure out how to get said state agency (along with several other state agencies) to raise their fees because all of the “qualified firms” were losing money on every project they did for this (and other) state agencies. It is a vicious cycle. Truly, if enough architects walked away from these types of situations, the world would change, but as an individual firm just trying to make the monthly nut, it is a very hard decision to make.
Of course, Mr. Black, there is the other side of the coin.
You are exactly right about the work controlled under these circumstances and the line-up of firms “willing” to work within this framework. but would seem that some organziation, in each state could come to deal with the inequity of this through its political connections and its professional aplomb.
Perhaps the AIA; perhaps in association with the CSI. Would seem to have enough expertise there [and perhaps political influence]
It’s a losing battle. AIA and CSI could never have the same clout as the political appointees of a Governor, which the heads of these agencies usually are. But, while we have always felt things like this were happening, this agency seems to be particulary eggregious. They need to be outed. Maybe if enough Architects tell the same story over and over showing a consistent pattern of behavior, there may be some recourse. Biggest problem is that trying to organize Architects is sort of like herding cats.
Seems like you could head up a panel discussion at your city’s AIA chapter meeting, get those major firms to share their expereinces and develop a united approach, perhaps create a referendum and approach the (mayor?) to publically decry this practice or those implementing it.
There has been some organized attempt at a negotiated and/or legislative response to this situation, but with little to no effect so far. Anonymous is basically correct in identifying the problem. In the end, it all does come down to whether individual firms are willing to walk away from these situations. So far, not nearly enough firms have been willing to do so. Until that happens, public agencies will continue to operate in this manner. From their perspective, if they are getting qualified firms and getting good (if not great) service from those firms for the fee schedule and contract terms they dictate, it is not their problem whether the firms are making money. From that perspective, I would probably have to agree with them, as much as it pains me to say that.
The issue that really gets me about all of this is that architects and engineers have been shot down in the past regarding even feeble attempts at establishing recommended fee schedules, yet, public agencies can set fee schedules and contract terms that govern a majority of the available design/construction work. In my opinion, this really amounts to price fixing in reverse. They control the market. I believe that the only remedy to this is a legislative remedy, but Anonymous already knows how hard that would be.
Here is the deal. The bidder bids the job according to 2 year old pricing with a minor increase planned for escalation. Remember, he has to bid low to get the job. So he gets awarded the job. Now some time later the price of raw materials and labor shoots through the roof. Does the contractor say, “Oh silly me! Gosh darn! Well I guess I will make money on the next job.” No. Instead the contractor tries his darndest to squeeze every last nickel out of the project.
I know of one project where the contractor is millions of dollars in the hole due to escalation. So he is trying every trick in the book to get more money. He is blaming the architect for incomplete documents and the owner for last minute changes. The team actually feels sorry for the contractor because he is unfortunately caught between a rock and a hard place. Its like watching a man drown all the while trying to protect yourself from him dragging you under the surface.
So lets review. The contractor is losing money due to escalation. The architect is called upon to do more CA and CYA paperwork than originally planned. So the architect is losing money. The owner is having to shell out more money that originally budgeted to get the building built. So it is a Lose-Lose-Lose situation.
True. However the architect, and the contractor as well, are providing a service. The owner ends up with the asset (the building) whose value is based upon things such as land value and cost of construction materials. In my view, they should bear the lion’s share of the escalation risk because of this. Of course, construction contracts are intended, in part, to allocate risks to each party by agreement. Unfortunately, owners frequently posses a stronger negotiating position than the contractor – and most certainly stronger than the architect – and push the risks onto parties less able to bear them.
Most school districts that we work for have a provision that if the bids come in over 10% (I think) over the budget that we have to redesign the building on our nickel. In order to protect ourselves we usually add alternate bid items. Well I am currently writing a spec that has 29 (yes TWENTY NINE!) alternate bid items. Even still the project manager is worried that the bids will be over budget.
We have also had projects whose estimate changed dramatically from DD to CD, even though we have not alterned the program or significantly changed materials.
I tell you. In today’s economy the budget is a crap shoot.
Massachusetts law governing public projects has a built-in limitation (in a sense) to excessive alternates. When determining the low bidder, alternates must be accepted in the order they were listed, and cumulatively. That is, if you want alternate 5, you have to take alternates 1 through 4 also. Then, the low bidder is determined on the basis of the alternates selected. Thus, the owner really has to have their act together in terms of priorities, and having alternates where one material is used in lieu of another can get complicated plenty quick if you have overlapping systems. Public owners thus have a built-in incentive to keep it simple. By the way, the point of this is to keep owners from skirting the requirement to select the low bidder by cherry picking alternates to get the bidder they want (like).