SA Architects Worry About Fee Shrinkage

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Tuesday, May 3rd, 2016
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Fee shrinkage and the transfer of risk onto architects have emerged as critical areas of concern for the design profession in South Australia, a new survey says.

In a state-wide survey of its members conducted by the South Australian chapter of the Association of Consulting Architects, more than half of the firms that responded to a question in which they were asked to rank the significance of a variety of challenges indicated that fee shrinkage was either an ‘extremely significant challenge’ or a ‘very significant challenge.’ More than than four in 10 felt likewise about a shifting of risks onto architects and competition from other sectors.

Respondents to the survey talked of a ‘race to the bottom’ in terms of fees as well as a loss of respect for the profession and the work it does.

According to one respondent, the replacement of architects as the lead role in projects represented the most significant threat to the industry in the 25 years in which their practice had been in business.

Another indicated that fee cutting was so intense that it was becoming difficult to remain profitable and still maintain professional standards.

The survey comes amid a period of challenging building markets in South Australia as the state’s economy is hit by the withdrawal of the car manufacturing sector as well as difficult conditions in resources, defence and steel manufacturing.

Whilst activity in the state’s residential building sector has lifted, ABS data indicates that the value of work done in its non-residential building sector came in lower last year compared with any other year since the aftermath of the global financial crisis.

ACA – SA president John Held said fee shrinkage was most likely being driven by a combination of the subdued nature of building markets as well as a tendency on the part of architects to want to win work and to lower fee levels in order to make this happen.

He said it was not certain whether or not these issues are prevalent in other states or are predominantly occurring in South Australia.

“(Practices) are seeing their profit margins eroded and we are noticing that fee income per person is quite low and that salaries in South Australia are much lower than elsewhere,” Held said. “I guess that is partly due to the downturn in the South Australian economy, although we are not sure. What we would like to do is measure that nationally and see if that’s just in South Australia that they are finding that or whether it is nationwide.

“It’s also partly, I think, that architects by nature just want to get the job, so they tend to cut their fee because that’s the way they are going to get it.”

Held said architects as well as a number of other professions and trades were also being impacted by efforts on the part of major clients to transfer as great a degree of project risk as possible away from themselves and toward parties with whom they contract – a phenomenon which he says is often achieved through bespoke contracts or non-standard terms and conditions inserted into contracts.

Particularly concerning were terms which required the architect to assume responsibility for risks relating to parts of the project with regard to which they were not involved and did not have any capacity to manage or control, he said.

Special warranties which architects were being forced to provide that were over and above what is typically covered under the architect’s professional indemnity insurance were also problematic, he added.

According to ACA, the survey will provide a baseline for ongoing regular surveys in order to track changes in the status of the profession and to provide an evidence base on which to support strategies for industry wise intervention in order to maintain and advance the profession’s viability, relevance and influence.

All up, 124 eligible practices participated in the survey, with most completing the full survey and some providing partial responses.

Outside of the aforementioned challenges, the survey found that:

  • Whilst there was an ongoing move away from full service work, procurement of architectural services remained largely traditional, with 82 per cent of practices providing full service for an average of 60 per cent of their work from full service arrangements.
  • Procurement of buildings via traditional tender remains the most popular strategy, with design and construct as well as managing contractor types of arrangements also being common especially with larger practices.
  • The majority of practices operating within South Australia are based in the state and operate solely within the state, with only small numbers operating interstate or affiliated with interstate practices and even smaller numbers operating overseas.
  • Collaboration with other practices within the state is common for smaller practices, whilst collaboration with interstate or overseas practices is common for larger practices.
  • A significant number of practices (most commonly larger ones) undertake unpaid work, most commonly as speculative work for existing clients or potentially new clients but in 35 per cent of cases in the form of pro-bono work.
  • Residential work is a major component of small practice work whilst larger practices tend to focus around commercial and institutional work.
  • Gender stereotypes continue to be played out with men dominating employment numbers in all levels of practice.
  • Traditional work practices dominate the profession, with only low numbers being employed on the basis of flexible hours or in part time work.
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