Although verbal contracts can be considered legal, a formal written document is the preferred way to contract for professional services to be provided by an architect. Purchase orders are not an acceptable means, since they are not applicable to a service arrangement but rather only provide a financial accounting system for purchasing a product, which is normally required internally by a client. A purchase order should not be used as a client-A /E agreement.
Most professionals use the AIA Standard Form of Agreement for Architect and Owner (client). Some larger firms, however, have their own form of agreement which augments or further defines that of the AIA. The basic elements of the agreement establish the definition and identification of project phases and define the specific scope and compensation for the architects basic services. Flexibility is built into this agreement to accommodate supplementary services that may be considered.
In addition, the agreement should define the understandings of the two parties as well as of any third parties that may be involved in the process and stipulate how the third parties are to be managed and compensated.
Furthermore, the client-A /E agreement should define items considered as direct costs that may be reimbursed under the agreement. Other items also to be addressed include project terminology, project terms and definitions, and the architects status as it relates to the profession such that the standard of care is clearly understood.
The definition of additional services, changes, and compensation for such services, as well as the method and timing of payment, reimbursable expenses, taxes, the responsibility for client-furnished information, project budgets, ownership of documents, confidentiality provisions, the use of project databases, insurance requirements, termination provisions by either party, and dispute resolution may also be addressed. A/E agreements may also define the documents to be delivered at the conclusion of each development phase and, in certain cases, the time estimated for completion of each phase of service.
Compensation for Professional Services. A major concern of an architect is to arrive at an accurate assessment of the scope of services to be performed. The nature of the project, the degree of professional involvement, and the skills required should be considered in arriving at an equitable fee arrangement. Types of fees that may be used are
Percentage of the construction cost of the project
Cost plus fee
Multiple of direct personnel expense
Multiple of technical personnel hourly rates
Stipulated or lump sum
Billing rates for personnel classification
For a project requiring what could be described as standard services, the percentage-of-construction-cost fee is a safe standard. Years of experience with the relationship between the scope of architectural services required for various sizes of standard construction contracts provide a basis for such rule-of-thumb fee agreements.
For projects where atypical services are required, other arrangements are more suitable. For example, for projects where the scope of service is indefinite, a costplus fee is often best. It permits services to proceed on an as-authorized basis, without undue gambling for either party to the agreement. Under such an arrangement, the architect is reimbursed for costs and also receives an agreed-on fee for each unit of effort the architect expended on the project. Special studies, consultations, investigations, and unusual design services are often performed under such an arrangement.
For projects where the scope can be clearly defined, a lump-sum fee is often appropriate. In such cases, however, architects should know their own costs and be able to accurately project the scope of service required to accomplish fixed tasks.
Architects should take care, for the protection of their own, their staffs, and the clients interests, that fees cover the costs adequately. Otherwise, the clients interests will suffer, and the architects own financial stability may be undermined.
Fee and payment agreements should be accompanied by a well-defined understanding in the form of a written agreement for services between architect and client. The method of payment should also be defined in the agreement. Certain clients may desire a billing and payment schedule while monthly billing and payment is preferred by the architect.