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FINANCE
Stagnant Percentage-of-Construction Fees Throw Designers A Curve
After the Justice Department antitrust pacts, professions quit setting minimums
By Richard Korman and Tony Illia

Engineer and Cornell University Professor Paul G. Carr says civil engineers are getting stiffed. In the 33 years since the U.S. Justice Dept. first enforced antitrust laws against engineer and architect associations, the groups stopped updating fee guidance for members. As a result, practitioners found that "percentage of construction," a widely used fee determinant among many public sector owners and some private, hardly changed much in that time. From the Florida Dept. of General Services to the Kentucky Education Dept., many owners still are awarding fees based on the same percentages used in 1972.

And that, say Carr and co-author Pamela S. Beyor in a July article in the American Society of Civil Engineers’ Journal of Management in Engineering, has allowed inflation to eat away at the value of fees–with unhappy consequences for the profession. But there are possible solutions, as seen in a fee increase agreement in Washington state that took effect last month and could be a model for practitioners elsewhere.

Fee curves are graphs depicting fee percentages that generally show higher value jobs receiving lower-percentage amounts. Frozen in time since the early 1970s, the percentages on the curve’s vertical axis and the fees based on them no longer pay for enough design and related services to fund new ways of building and working, says Carr. Click here to view graph

Fee erosion since the mid-1960s, about 20% according to Carr’s calculations, matches erosion in civil engineer and architect salaries. "Go to a construction site and they are the lowest-paid people there," he says. "Why should salaries go up 100% of the cost of living for laborers and electricians and only 80% for engineers and architects?"

Consequences

Carr

There have been two key consequences as civil engineers have struggled with the new realities, Carr says. One has been lower wages, so that a civil engineer’s starting salary, which he believes should be around $60,000 a year, is about $46,000. The other is to shift away responsibility for construction-phase services, which now commonly are handled by a construction manager.

Erosion of fees, combined with the changing nature and complexity of services have produced some unrealistic expectations about what engineers and architects are supposed to do.

Aligning those expectations was a major goal when architects, engineers and officials in Washington state first sat down to discuss fees in 1998. The eventual result? Last month, fees for architecture and engineering went up about 9%, the first increase since 1993. A joint public-private fees committee had studied the issue, concluding that architecture and engineering services had become more complex and time-consuming.

Collaborative building processes, construction-phase services and complex mechanical, electrical and communications systems all required more effort, the committee found. Representatives from the state chapter of the American Institute of Architects, Consulting Engineers Council of Washington and the state’s Office of Financial Management hammered out updated schedules to reflect industry realities.

The accomplishments included adjusting the fee schedule using current construction cost indexes, adjusting the distribution of basic fees to provide more time for architects and engineers to support the construction phase and beginning the fee schedule at $500,000 worth of construction cost. The pact also increased the maximum hourly rates for added services to $120 per hour for staff and $150 per hour for principals, with a maximum multiplier of 3.2. In the future, fee schedules would be updated every two years and scopes reviewed every four.

Designers are not satisfied with everything about the pact, but they are pleased in general. "This increase was way overdue," says Craig Curtis, partner in architect Miller Hull Partnership LLP, Seattle. "And what should happen is some-thing that keeps increases on a cost index so we don’t have to go back and negotiate fees every 15 years."

Officially, ASCE discourages use of percentage-of-construction fees. The most recently published manual of practice, How to Work Effectively with Consulting Engineers, published in 2003, contains historical fee curves. ASCE issues median fee curves based on survey of members, but it is careful not to produce a minimum fee curve.

Related Link
Why Architects Don't Charge Enough

Unethical?

The federal consent decree did not officially speak to fee curves but only prohibited ASCE from classifying price competition as unethical. But cautions a knowledgeable association staff member, "in making recommendations, that’s where we run into problems" with the Justice Dept. and antitrust law. Tom Smith, ASCE assistant executive director and general counsel, says Carr’s arguments about fees "are an advertisement for qualifications based election."

Carr’s views about engineering fees are based on both self-interest and heartfelt worry about the profession. He is a retired founding partner of civil engineer Bernier-Carr Group of Cos., Watertown, N.Y., and currently is an assistant adjunct engineering professor at Cornell University, Ithaca, N.Y. Prior to the government’s antitrust actions in the early 1970s, ASCE had adjusted the fee curve based on cost indexes...

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