The cost of professional services on a building project is typically a small percentage of the full life capital and operating cost of the developed facility. Care should be taken not only to select a fully competent Consultant but also to select a basis of fee that complements the services required to meet the needs of the project and the desired quality of the completed work.
There are three concepts on which fees for professional services are commonly based:
Each has distinct applications, and frequently combinations of the concepts are applied to different stages of a project. Variations involving targets, bonuses and cost plus an agreed fee are also used to reward the Consultant for innovation and to encourage efficient performance. Special application of the concepts may be required to accommodate the unique needs of complex or major projects.
negotiating a Prime Consultant and/or Subconsultant fee on a specific
project, care should be taken to establish the categories of service
required to properly represent the needs of the Client. When the categories
of service have been established, the appropriate basis of fee for each
category should be determined. Projects which require a full scope of
professional services commonly use a combination of Time Basis and Fixed
This fee basis is particularly applicable in circumstances where the scope of assignment is not well defined or where the Consultant may not have control over manhours and disbursements required on specific stages of a project. It should normally be used for Categories of Service 1, 2, 5 and 6 described in Section 1:
It is also appropriate for Categories of Service 3 and 4 when the scope of services is not definitively established:
All Categories of Service can be supplemented with a target or upset fee when circumstances warrant. Such an arrangement should not however, be allowed to negatively influence the quality of services.
The Total Cost of Professional Services when the Consultant fee is on a Time Basis is determined by multiplying the number of hours each member of the Consultant's staff expends on the project by their respective hourly billing rates and adding disbursements marked up by an appropriate disbursement factor.
formula for the Total Cost of Professional Services using the Time Basis
Note: See Appendix A for explanatory details.
This fee basis is applicable only to projects or components of projects where the scope of the work is clearly defined and where construction, if applicable, will be completed over a known schedule. The Fixed Fee for such assignments should be negotiated following preparation of a comprehensive estimate of the manhours required and applicable overhead costs. The key assumptions made in developing the estimate must be identified and agreed to in the negotiation process.
On some projects the cost of Categories of Service 3 and 4, as described in Section 1, are relatively predictable as a percentage of the estimated construction cost. A graph illustrating this relationship is shown in Appendix B. The fixed fee for the Prime Consultant shown on the graph corresponds to the normal range of project complexity for the types of buildings listed in the three Building Groups included in the appendix. The graph is intended to be used as a guide to determine if the Fixed Fee for the Prime Consultant, resulting from the cost estimate for these two categories, is reasonable.
An agreement,describing in detail the services to be provided and all categories of cost included in the Fixed Fee, is essential. The agreement should cover schedule, time limits, inflation and other identifiable items that influence costs. Changes in the scope of the work, or the estimated value of the project, after the Fixed Fee has been established should be compensated for on a Time Basis or by a negotiated Fixed Fee adjustment for each change.
formula for Total Cost of Professional Services using a Fixed Fee Basis
See Appendix A for explanatory details.
Projects frequently require several Categories of Service; some can be accurately quantified at the commencement of the project and others vary with schedule and conditions that cannot be predicted. In these circumstances, the services that can be accurately described and quantified can be appropriately covered by a Fixed Fee and those that are unpredictable should be on a Time Basis.
A judicious combination of the Time Basis and Fixed Fee Basis for different phases of a project permit a variety of innovative fee concepts that encourage execution efficiency without sacrificing quality of service. These concepts include targets, bonuses, cost plus fixed fee and other variations.