The Construction Budget: How Much Do You Have To Spend?

Most of my clients have never hired an Architect before and many have never built anything in their lives. So it comes as no surprise when they ask me for advice on how much construction costs are likely to be. I even wrote a blog post back in June 2009 describing contemporary building budgets.

Whenever a prospective client contacts me, I usually meet them at their property and talk through their wish list for the building work. Inevitably, the discussion turns to money and I ask the same question every time;

"How much money do you have to spend on the project?"

For some reason I keep getting the same answer;

"Oh, I dont know how much it's going to cost"

Of course you don't and neither do I, because we haven't designed the building yet! Perhaps I'm being impatient and unkind, It is understandable after all if someone has no construction experience that they are a bit scared and bewildered by the process.

I try to explain to each of my new clients that if they tell me how much money they have to spend, a sum beyond which they simply cannot or will not go, then I can design the building to fit this budget. If, on the other hand, they send me away to design their wish list, it will probably be more than they can afford. Then the problems start.

A good analogy, is of a person phoning a tailors shop and ordering a new suit. The tailor asks for their measurements and the person replies saying, “oh, Ive no idea what size I am”.

Hiring an Architect to design your home is just like employing a tailor to make you a suit. Its bespoke, it's unique, its made-to-measure and it fits you perfectly. Just like the tailor needs your measurements, I need your financial dimensions. Just as some people are uncomfortable discussing their bodies, they may also be coy when it comes to their money. I am a Charted Architect and I am discrete and treat all may clients information as private and confidential.

Value Added Tax and Historic Listed Buildings

I finally got clarification today on something that has been bothering me for ages. I had head anecdotes about VAT (Value Added Tax) on historic listed buildings, ie. That there is no VAT to pay. At present VAT is 15% and will go up to 17.5% in January and maybe even higher after the election in 2010. A saving of that kind is substantial and could be the difference between the project going ahead or dying at the outset.

Because I'm an Architect and not a tax expert, I have always advised my client who own Listed buildings (quite a lot in Edinburgh) to seek the advice of their Accountants (also quite a lot of these in Edinburgh). Today however, I called the RIBA and spoke to their VAT expert, Jim Pinder of Accounting Firm BDO.

Mr. Pinder advises that the zero rating of Listed buildings for VAT purposes only applies in the following circumstances:

1.If the building is being used for residential purposes and not commercial. So only for private homes and not shops or offices.

2.Only work which is deemed an improvement or upgrade may be zero rated, repairs are not included in the work. This is going to upset several clients who take on Listed Buildings for their 'character'. It may be more tax efficient to make some alterations than to just restore the fabric to its former glory.

3. Only work which is specified in the Listed Building Consent is included in the scheme. It would be wise then to include as much detail as possible in the Listed Building Application. As each item of work described will be zero VAT rated when the application is approved.

Finally, it is the builders responsibility to arrange all of the necessary paperwork, not the clients. This could present a problem for the builders cash flow, as they will have to pay the VAT on all materials and labour first and seek a rebate once every three months, when VAT returns are made.

It could also be an opportunity for the builder to charge a higher fee or to ask for a larger deposit up front.

Architects, Polymaths, TED and Continuing Professional Development

I have a distant relative in Dublin who is also a successful Architect and back when I first announced my intention to study the subject, he took me aside and gave me some advice. He explained that in order to have any chance of making it in the profession, one had to be a 'Jack of all Trades, but a Master of None'. This really does sum up an Architect's work, we are polymaths, from the Greek, meaning someone who has learned much.

The reason for this generalisation is that we make all kinds of buildings for all kinds of people in all kinds of places. As a profession, we cant afford to be specific.

Any competent Architect should have a grasp of History, Economics, Mathematics, Sociology, Psychology, Art Theory, Biology, Engineering, Culture...the list could go on for a very long time.

Looking back now, it was the promise of this broad field of study that attracted me to Architecture. I have always had an interest in things in general, rather than anything specific. That is why I love the TED organisation.

Technology Entertainment Design, those are the three core fields TED stands for. What TED does is to gather some of the worlds leading experts in these fields, put them on stage for 18 minutes and ask them to speak on the most profound or important ideas they have. The talks are recorded and the videos are available free on the website. Genius.

As a Chartered Architect I am required by the RIBA to complete 35 hours of Continuing Professional Development each year. Most of the CPD is structured in a set curriculum but 15.5 hours is at my own discretion. TED wont provide all of that, or anywhere near it, but it is fascinating and some of the speakers do provide unique insight into their fields.
Some of these could have direct applications in my field.

Imagine using your Nintendo Wii for 3D visualization.

How good design can save lives.

How supposedly 'primitive' cultures use sophisticated mathematics in their Buildings.

Cities could be the solution to the worlds problems, not the source.

Inspirational stories of how other Architects design their buildings.

This is another list that could go on for a very long time. I try to set aside 30 minutes each week to see the latest videos on the site. It seem to be gathering a serious following both on-line and in academia. To the point now where I can imagine being asked to give a TED talk could be the pinnacle of a persons career.

Where Will the Next Project Come From ?

When I started my own Architects Practice earlier this year, I felt that it was the last option I should take. I was excited for sure but I was also very worried. My biggest fear was not hard work, but no work at all. Having spoken to many self employed people, it is the single biggest concern they have.

I threw myself into the job and tried everything I could think of to get noticed, some things worked, others did not. Live and learn.

My last blog post, The Power of the Network, was all about meeting other business people and trying to drum up new work. Many people who read the post asked me how effective it was and this set me thinking, where do all my projects come from? I looked back at my accounts since January and broke down each project by its turnover and by its source; that is, where did I get the jobs from?

I have five source categories:

Builders.
Website.
Advert.
Networking.
Word of Mouth.

This diagram shows the Number of Jobs I have received from each category. Notice how jobs from builders outnumber any other source, with my website and word of mouth next. Networking is probably a slow burner as you have to establish working relationships but Advertising is a very poor last place. Also bear in mind that I met all the builders I know through either networking or word of mouth.
By far the most effective source of new projects for me has been the building trade. I work closely with a number of good builders, doing their Planning and Building Warrant applications and occasionally acting as their consultants.

In my first eight months of business, a close relationship with builders has accounted for over half my turnover. Of the 31 jobs shown only 19 have been fee earning, the other 12 are either at a very early stage or they have stalled, usually due to funding issues.

I still haven't given up on the other source categories, I am particularly pleased that my website and word of mouth are working so well. But if you know any good small builder operating in Edinburgh, Fife or the Borders, please let me know.

The Power of the Network.

I love networking, no one ever explained this while I was training to become an Architect, but the best way to get new business is to go out and press the flesh.

I am a member of two networking groups, three if you count the Friday Night Freelance Meetup (a pub-club for the self employed), the two serious groups I attend regularly are Bizini and the Property Network Scotland.

Bizini is a well run networking lunch, usually held at Gusto on George St. Edinburgh (it used to be Est Est Est.) It has a broad cross-section of the Edinburgh business community and is open to any organisation, though they limit the number of members from each trade or profession. So far, I am the only Architect and I am continually amazed at how many business professionals have never met an Architect, let alone worked with one. I can only suppose we are rarer than I had imagined. Or we do a great job of keeping to ourselves!

Bizini helps me meet a wide variety of people, some of whom I do business with and so far I have had one direct commission from another member.

For a more focused networking experience, I attend the Property Network Scotland every fortnight. This group grew out of a local BNI chapter and has been in the development stages for one year now, it went live for the first time today, 15th September 2009.

The group aims to have every property/construction trade, profession and service you could ever need under one roof. We have over 20 members and growing, I am the groups Architect and I anticipate great things from this. We work to provide referrals for other member of the group and to publicise its services to as wide an audience as possible.

Even though its still in its infancy, some very interesting deals are being done by the members. Watch this space.

Architects Fees

Architects love to complain about their income. When times were good, we imagined ourselves hard done by in comparison to other professions. These days, when every trade and profession is suffering, we are no longer the solo performer but just another voice in the choir, despairing at reducing fees and vanishing jobs. The older Architects whom I know personally, get all misty eyed when they talk about a supposed golden age of never ending commissions and high fees. The times they refer to are the post-war decades leading up to the 1980's. During this time, they tell me that Architects (and other professionals) best fee earner was the Mandatory Fee-Scale.

Fee-Scales are lists, drawn up by professional bodies, that describe how much each member of that body must charge for a given type of job. For example, all dentists agreeing to charge £50 to remove a tooth, no dentist is allowed to charge any more or any less. This gives the consumer cost certainty, you know how much you will be charged and you know every dentist will charge the same, so you go to the dentist you prefer the most (or dislike the least). The same was true for Architects, we all agreed to charge the same rate for the same work, there was no competition.

Many Architects blame Margaret Thatcher for abolishing mandatory fee scales but in fact it began in 1977, before she came into power, the Monopolies and Mergers Commission started the process, not the Tories. The Office of Fair Trading stuck the boot in around 1986, ruling that Mandatory Fee Scales were anti-competitive. But even before that, in 1982, the RIBA changed the Mandatory Fee Scales to Recommended Fee Scales. It was around this time that the Architecture profession began what economists call, a race to the bottom. We began undercutting each other to win work. Whereas before, a consumer chose an Architect based only on their reputation and the quality of their work, now they can choose based on the cost of the service as well. Only in many cases they don't, they choose based on the cost of the service and nothing else.

Since the early 80's there has been a constant chorus of complaint from architects, that ever dwindling fees leads to poorer buildings and more dis-satisfied clients. This in turn, they say, has lead to Architects losing their financial and social status. According to these disgruntled designers, the solution is to re-introduce Mandatory Fee Scales. Of course this is illegal under UK and EU law, it's a dead end. For a profession famed for its creativity, this approach shows a remarkable lack of lateral thinking.

So what can we do to improve our income while also giving the consumer the benefit of choice? I suggest that each practise should clearly publish their Architects Fees for standard items of work.

Whether its the hourly rate charged for each member of staff or the fee for each type of service. This will give the public a clear idea of how much they will be charged and it will let others within the profession know where their fees fit in relation to other Architects. At present, the main way for an Architect to gauge how much to charge is to consult the Mirza and Nacey fees guides. This publication surveys Architects across the UK and publishes the going rate for most main types of work; residential, commercial, education, healthcare etc. It lists the fees charged on sliding scale with the construction costs, the more expensive the build the bigger the architects fee. The main report for this year costs £195. It tends to be bought by Architects and is not something the average consumer will purchase.

I publish my fees on my website, I state my hourly rate and I list the fees I charge for a Full Appointment and a Limited Appointment. I've had a mixed reaction to doing this, mixed in that clients love it and most other Architects are resistant. Discussing fees is still something of a taboo among the profession and how much each firm charges for its work is, In my experience, a closely guarded secret, even from their own staff. The current state of affairs does not fully protect the consumer, as it was supposed to. The ordinary consumer does not have easy and convenient access to fee information and, In my experience again, most ordinary people have a greatly inflated idea of the fees charged by a typical architect. Many of my clients are surprised and delighted at the level of service they receive, relative to the fees I charge.

If every Architects practise published their fees we would see a number of benefits:

1. More enquiries from ordinary people who would otherwise avoid Architects because they mistakenly believe we charge huge sums.

2. Less variety in the amounts being charged by Architects. If everyone within the profession knows how much their competitors are charging, there will be fewer practises charging very high or very low fees. The spread of fees will narrow.

3.Architects charging higher than average fees will have to justify this to clients.

4.Architects charging lower than average fees will have to justify this to their staff and any creditors, such as their bank.

5.The consumer, whether they be home-owners or property developers will have a convenient and easy guide to how much they can expect to be charged. This should encourage them to look at other factors in choosing an Architect, factors such as quality of work.

6.If an Architect wishes to undercut the competition, they can do so by a smaller margin. At present, it appears those who engage in under-cutting do so by massive margins because, in part, they don't know how much their competition are charging.

7.Architect will still be free to offer discounts to valued clients, the profession will still comply with the law, as publishing fees does not make those fees mandatory.

Structural Engineers and Small Projects, Do They Go Together?

I was once told that a good Architect is a 'Jack of all trades, but a master of none'. Constructing buildings is complicated and its getting even more so, as a result I have to know the basics behind many different trades and professions. The most important thing to know is when to employ them. Advising a client to employ a specialist they don't need is expensive, not advising them when they really do need one can be a show-stopper.

Most of my current projects are house extensions, some of them are substantial structures, one of them is larger that the original house. When any new building is being designed I have to consider its structural integrity, I need to understand how it is going to stand up. But I'm not an Engineer and how far can I go before I need the services of one, at my clients expense?

The Scottish Building Regulations contain a section called the Small Buildings Structural Guidance which is written to "provide structural guidance to designers of small domestic buildings". The guidance is complex and detailed and the intension is that a construction specialist, other than an Engineer, can use it to achieve a competent structural design. The building cannot be more that 15m tall, or 3 stories (2 if timber kit is used). There are other restrictions on the size of floor spans, the slope of the roof, overall area enclosed etc. When the design is being submitted for Building Warrant approval, there is a box to be ticked asking whether the building follows the guidance. One can only guess that if the Building Control Officer see the box is ticked the application gets an extra thorough going over.

If all this amateur engineering is too risky for you, then look at the advantages of hiring a Structural Engineer. They can prepare an SER certificate, essentially a piece of paper that says 'yes, it will stand up'. If you submit the SER with the Building Warrant application you get a 10% discount on the warrant fee. This is nothing to write home about, if the extension cost £50,000 the full warrant fee would be £640, so saving 10% equals £64. The engineers fee for the service can vary, I had two quotes from Engineers this week to prepare SER certificate for internal alterations to a two bed basement flat in Edinburgh; the first quote was £350 the second £800, typical house extensions cost somewhere in the middle.

So, now you know.