How much is too much? How much is too little? What added value does one firm bring over
another and what is that worth? Is it all about the fee….or what you get for the fee? Is it a better business model to be structured at a lower fee but do more volume, or charge a higher fee with less volume? How do we decide?
For the past 24 years, these are questions that that I have heard hundreds of times…and have actually asked myself. I have struggled for years as to how much is the right level of profit, overhead…and for contractors…general conditions. These questions are not just limited to contractors, but also to design professionals, other professional consultants, construction managers…etc.
Here are a few things that I would like to get your input on:
1. Is it right to charge a higher fee (or overhead) just because a firm has X amount of overhead? Is it the clients responsibility to pay for decisions made by your firm that may bring your firm benefit (or that you” think” are cool or what the market wants), but may not add value to the client?
2. What “real” added value does the boutique firms bring and what is that really worth? Not in your mind, but in the mind, perception and reality of the client? I have seen boutique firms in the design, graphics and construction disciplines that charge more than double of other firms. Is there really double the value?
3. Is charging too little equally as bad? Is it worth putting your firm at risk just to compete in
the commodity based mindset? What if you have a mistake that causes a loss of income on the job or even worse… puts you out of business? Is that good for the client?
4. If fees are reasonable, why would a firm not be willing to share them with a client? I think the IPD methodology is a great example of open communication and open sharing of information that allows all the parties to know who is doing what and what they are getting paid for to perform those tasks. If a firm is not willing to share their fees or overhead or general conditions, are they being transparent and are they someone you want to do business with?
These continue to haunt me. Over the past year I have had the chance to sit on the “other side” of the table and have seen some pretty interesting things. I have seen contractors offering to do work at margins that are not sustainable long term. I do not even know how they are 
breaking even. I have witnessed others charging fees, overhead and general conditions that are so far out of line that I wonder how they sleep at night. I have seen a construction manager charge fees that match or exceed the fee of the general contractor on the project. I have seen a huge swing between the fees of design firms and I have scratched my head trying to understand the “WHY”. Is it arrogance to think they are “worth” that much more or is there really that much more added value?
So…how do you pick? How do you know how to interview and select the right firm that balances fee, value, services, experience and performance? Is a firm’s “experience” more important than their ability to perform? Is fee more important than the value and services?
Now…don’t get me wrong. I am 100% in favor of a company making a profit. I am a huge fan of competition in the marketplace. I am also totally opposed to price fixing or monopolies. But…I also believe that those of us that “serve” the Church (capital C) have a responsibility to be prudent in establishing our fee structures. The passage in Luke12:48 (New Living Translation) says:
48 But someone who does not know, and then does something wrong, will be punished only lightly. When someone has been given much, much will be required in return; and when someone has been entrusted with much, even more will be required.
I believe this should resonate in our hearts and minds. We have been given these opportunities and God has ENTRUSTED these projects to our care.
How would you answer these items? Join the conversation…
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Tags: building project, church, church building, church construction, facilities
Integrated Project Delivery Association
International Facilities Manager Association (IFMA)
National Assoc. of Church Business Administration (NACBA)
National Assocaition of Church Facility Managers (NACFM)
Lynn Parsons
Thanks for being so straight foward in this article; transparent in your thinking.
Thank you also for your concern for all involved, including the client-church. It makes me feel good about the prospect of doing some construction “ministry” in the future.
April 10th, 2010 at 10:51 am
Christopher
Tim –
Excellent framing of the question. IPD is a great methodology, but implementation remains the problem… getting people to do what they said they’ll do. This problem will never go away, so from the beginning, it has to be all about building trust and forming a true partnership.
Let me tell you what you already know (but maybe haven’t grasped yet): The fee “structure” has to be dynamic… always responding to the demands (differences) of the current project, how our understanding changes as the project moves, and how uncontrolled circumstances impact the project. In short, everything is always negotiable… before, during and after.
Mature professionals on any project are constantly negotiating, that is seeking solutions that work for everybody. At the very beginning, they set the expectation for ongoing discussions by talking about a strong partnership, relationships and conflict resolution: When the going gets tough, we agree to trust each other and work to achieve the solution.
Set expectations about finances and accountability, too. Discuss how your competitors do pricing based on dollar price, quality, and customer service (including craftsmanship and accountability). A simple way to break this out is: “cheap, shoddy and gone,” “inexpensive, good, and done (can’t afford to come back),” “valuable, excellence, and fully engaged with you,” or “overpriced, oversold, and you feel robbed.” What does the owner really want? What reputation do you, the architect and the builder want?
If something on the project changes, and it will, expect that it will cost more. That should be a shared expectation.
My unspoken assumption is that, if I find a way to save money, and I will, it will cost less. My spoken expectation is that, if there are savings, we’ll share them, with special consideration to the initial costing and to the owner. But if I can bring a project in on time, with quality and under budget, I expect a bonus.
I discuss this, constantly reasserting Relationships above: We’re in this together to the end. We all want to feel a great victory and get the benefits of it. Keep negotiating constantly.
I usually have to train church leaders to go through this process. I have clients pay a set fee to take them through the project initiation process and find the right team. If I turn out to be the right project manager, then we continue working together. If not, that’s okay. They’ll usually recommend me to somebody else because they like the process and the results.
Finally, I never compromise on my value. I’m transparent. They know that, with me, they’re getting value, excellence and full engagement. I make sure they get reminded of this from beginning to end. They won’t regret it, and they won’t have to fix it. Together we’ll get it done right; or we won’t start working together at all.
Best wishes for a successful negotiations!
- Christopher
April 11th, 2010 at 4:39 pm
Bob
Great questions. I wrote out a long first draft, but decided to be more direct. A difficulty we often deal with is clients who want to believe that building design and construction is a commodity product. Their final decision is based entirely on choosing the lowest fee or bid. The building design and construction industry is truly a “get what you pay for” industry.
Back to your questions. It takes a knowledgable, educated client to understand that their goal should be to select the firm/contractor that offers the best value. And unless that client has direct past experience that they can rely on, then it requires a process of due diligence and evaluation.
In theory at least, design firms and contractors that do not provide a good value, or that charge much more than the value they provide, will not survive in a competitive marketplace.
April 13th, 2010 at 11:24 am
Brian
Good points. And I have often thought that voodoo was a part of fee determination, as there seems to be little science behind it. I also call General Conditions the “nebulous black hole.” I do feel, however, that when a firm (design or construction) brings a certain skill set, talent, or level of experience, they are justified to charge a little more. Maybe they are good designers, maybe they are particularly adept at production of construction documents–which leads to lower, or no, change orders for an owner. It depends on what the client values. The trick is then putting a dollar number on that increased value. Simply having an architectural license does not make all designers equal. Same thing on the GC side.
April 13th, 2010 at 2:11 pm
Darrel Starkey
Tim.
Great questions. Thanks also to the others who have commented.
It appears the goal is to establish a set of criteria to be able to measure something that may not be able to be measured.
At the age of 10-12 I remember suggesting that we as a family purchase or do something. The answer was “we don’t have the money right now”. When the new car pulled in the driveway a few days later, I was confused and skeptical. The old car wasn’t that old to me and quite comfortable to ride in. So what did I learn.
It’s about priorities. And those priorities are as vast and different as the people we serve. This is particularly evident in the product selections and levels of acceptable workmanship seen from one project to the next.
In short, it’s about understanding and meeting/exceeding the expectations of the client. What’s maybe more important is educating the client. When trouble comes along the “value” builder takes no financial liability and the high priced guy may just eat a few cost along the way.
Like you, I prefer to educate the consumer, plan for the unexpected in building the budget with them, and leave little room for surprises.
It takes a professional like you to educate the client, be able to evaluate the agreements for the inherent “risk” and in so doing, the client will be able to weigh out the risk and decide how much of a gamble he/she wants to take.
April 13th, 2010 at 4:57 pm
Daniel Ehrman
As a Chicago area church design bulder for the past 20 years we struggle constantly with these issues.
We work within the principle of charging the client church enough so we can continue to operate as a business for the next church. Shockingly to some clients, this requires we take a modest profit.
For our church clients, they are presented with the difficult task of acting as amateur commercial developers, making a once in a generation purchase. As the Church is given vision leading to the act of creating a properly fitted facility they must keep those at the heart of the ministry and mission at the heart of the development process, not merely delegating the work to business people who have never lead professional development projects before. The Lord is active in these endeavors, as we have witnessed spiritual leaders make business decisions with monumental advantages for the church that no one could have ever predicted.
As for us business people serving the church, we must remember our actions play out before the Lord and our clients, His Church, is the apple of His eye. Let’s make sure we keep our treasure in heaven.
Thanks for the good word. God bless you all as continue to serve to his glory.
October 26th, 2010 at 7:07 pm
Big Sky LLC
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February 19th, 2011 at 2:59 pm
Church Construction
Awesome info! I was honestly just thinking about something similar to this other day so, it was almost weird when I ran across this. You would be surprised how many people simply have no idea when it comes to this kind of stuff. Anyway, thanks for getting this cool info out there and I am sure I am not only one who appreciates you taking time to post this for masses.
April 22nd, 2011 at 1:49 am