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Tender sum turned out to be lower than expected. Can the client ask us to reduce our fee?

Tender sum we received turned out to be £1m lower than estimated. At the outset of the project, we agreed percentage fee based. I am a bit worried that the client would come back to us for reducing the professional fees for the service that we prepared. Can you tell me what sort of action that I need to take for this? I found the following article from the RIBA published book called RIBA fee management but it is not really clear which RIBA standard conditions they are referring to. I looked SFA/99 and the latest standard agreement as well but didn't come across the clause either. Please tell me where I can find this.

Deflation Predetermined fees – percentages or lump sums – are based on the assumption that the fee will cover the cost of providing the Services. But in times of deflation, interim estimates or tender prices may be lower than predicted, although the input required does not change. Only time charges escape this trap. To cover this situation, RIBA Standard Conditions provide at clause 5.8.2: [The Basic Fee] shall not be adjusted for any reduction of the Construction Cost arising solely from deflationary market conditions not prevailing at the Effective Date. The Basic Fee shall continue to be based on the Construction Cost current prior to the date of such reduction.

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aa_87 [ Editor ]

Hi.

Things to you need to check:

  • Does your fee proposal refer to an agreed value?
  • For what RIBA stages does your fee proposal cover?
  • Have you agreed fees beyond tender?

Normally I would agree RIBA stages A-E percentage fees based on an agreed construction value, at the start of the project. This building value would be used as a basis for all consultants fees. Generally if this price remains relatively unchanged through out stages A-E we would not adjust our fees. This allows for relatively minor price fluctuations and also development of design and of the cost plan.

The fees would then be broken down into monthly charges for the client.

If the construction value then increases, it could be argued that this would involve more work, therefore a greater fee. The adjustment in fee would be agreed with the client and from this point of increased value onwards the monthly invoice would reflect this.

If the construction value decreases, it could be argued that it is less work, but it may also involve changes to reduce the value so there may or may not be a fee reduction.

In your case the building value has been determined at tender, therefore depending on your procurement route you should have at least made it to RIBA stage E, or on a traditional contract Stage G, without having to reduce your fee. As you have rightly stated, your input has not changed therefore your fee should not change.

Normally fees aren't agreed from Stage A-L, as the procurement route is not always known. We normally review the fees at Stage E, so we can take into account the procurement route, the type of documentation we need to produce for tender, and the time we need to allow for on site. Again, if this was agreed at Stage E, based on a certain value, then again you would be okay until completion.

The RIBA 'Standard Conditions of Appointment for an Architect' states "Where the Project is for construction works, the Relevant Cost is the latest professionally prepared estimate approved by the Client, or the final agreed cost of the elements, specified elsewhere in the Agreement, for which the Architect performs services. Where no such cost is approved it is a fair and reasonable amount."

If unsure, discuss the way forward with your Client, emphasising that if your input has not changed, therefore your fees should not change. Make sure you always understand your fee agreement before you enter into it and make sure you get any adjustments to this original agreement in writing.

Goodluck.

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