Although the American Institute of Architects (AIA) B101-2017 Owner Architect Agreement is a great resource for Architects, there is one problem with the Agreement that has yet to be addressed.
Today I want to show you how to fix that problem so that you can use the AIA B101 Owner Architect Agreement to attract more Clients, and win more work.
The Problem with the AIA B101-2017 Owner Architect Agreement
The problem lies in the way in which the Architect’s compensation is framed within the Agreement.
You see according to B101-2017 Standard Form of Agreement Between Owner and Architect, (Accessed online 8/5/19), the Architects services are divided into three main categories:
Basic services cover the five traditional work phases of schematic design, design development, construction documents, procurement, and construction.
Supplemental Services cover the services that are not included within the Basic Services but can be added to the Architects scope of work. For example engineering, Interior Design and/or Landscape Architecture to name a few.
Additional Services cover all those services that may arise during the design and construction process but weren’t accounted for in the original fee. For example, drawing updates that are required due to changes in legislation, codes, regulations, Client requirements and/or other unforeseeable conditions.
Why is AIA B101 2017 Contract Compensation method a Problem?
As suggested by the Harvard Professor Gerald Zaltman:
“95% of purchasing decisions are made using emotions…”
According to the research, it’s not what you charge, but how you present those charges that have the biggest impact on your success!
So, it’s not the strategy per se, it’s the presentation of the strategy that needs attention.
(Note: To help you with your fee proposal strategy we’ve created a FREE Fee Proposal Mini-Series. Click the image below to learn more.)
How to judge a fair price:
To explain this concept further let’s remind ourselves about human behavior in the financial arena.
As demonstrated in Episode # 025, nobody really knows how much anything should cost.
According to the research, when judging price and value, all we’re really doing is comparing similar products (or services) and basing our understanding of price and value on the differences.
You see it’s the difference that we’re good at judging, not the absolute values.
And herein lies the problem with the AIA B101 Standard Form of Agreement. As currently drafted the Client is not presented with an opportunity to compare and contrast three different, but similar, services options.
Instead, the Client is only offered one service option (Basic Service) and then additional services are charged on top of the Basic Service option.
Unbundling Pricing Strategy:
This is a very subtle, but significant, difference in the way fees are framed and presented.
By offering a basic service and charging for additional services on top, the contract is adopting a pricing strategy, known by sales and marketing experts, as ‘Unbundling’.
Unbundling, as the name implies, requires breaking a service into smaller services.
This strategy is typically a very effective pricing strategy in markets where the Clients are highly motivated by price – by Unbundling the service, service providers have the opportunity to offer the lowest (unbundled) price possible.
A good example of Unbundling success is provided by budget airlines such as Easy Jet, Southwest Airlines, and Ryan Air.
They all strive to compete for the budget-conscious customer with their Basic service option (economy tickets) and then they charge for Supplemental Services on top (luggage, food, drinks, insurance, hotels, rental cars, etc.).
Why is Unbundling not suitable for the AIA B101?
Unbundling can be a very effective pricing strategy, however, the reason I would not recommend Unbundling, in this setting, is because it assumes Clients have a clear understanding of the service being offered and are only motivated by price, which isn’t always true.
Unlike airlines whose scope of work is very clear – to safely transport passengers from point A to point B as quickly as possible, Architectural services aren’t as easily defined.
You see since starting Blue Turtle Consulting we’ve worked with hundreds of Design Professionals around the world and it’s been our experience that different Design firms have very different, and unique, approaches to the design process.
How to avoid competing on price:
If you want to avoid competing on price alone then the fee proposal document needs to demonstrate why the design service is unique and the value it provides to the Client.
One of the best ways to demonstrate your unique value (selling) proposition is to adopt a Versioning Pricing Strategy.
A version pricing strategy allows service providers the opportunity to offer different versions of a similar service at different price points.
One version could still be the Basic Service (as stipulated in the AIA agreement) while the other versions will include additional benefits such as those described in the Supplemental Services section.
AIA B101 and the Fee Matrix:
Rather than presenting the different design service options in different paragraphs within the contract, it would be our suggestion to summarize each service option in (what we call) a Fee Matrix.
By offering Design Service Options and presenting those options in an easy-to-read fee matrix the Clients focus will shift from the design fee (in isolation) to the design fee and the design service being offered.
While the unbundling approach presented in the AIA B101-2017 Owner Architect form of Agreement is a great starting point, if left in its current format we’re only encouraging Clients to choose design services based on the design fee and not the design service.
However, if we develop the strategy further and adopt a multi fee pricing strategy like a versioning strategy then we can achieve two goals:
1) We can demonstrate the differences between service options, and
2) encourage Clients to choose design services based on the actual service being offered, not just the design fee.
Versioning Pricing Strategy Example:
Examples of versioning pricing strategies are all around us for example (staying with the aviation theme), Airlines have not only developed an unbundling pricing strategy, but they’ve also developed a versioning strategy with the implementation of different classes of travel (i.e. economy, premium economy, business, and first-class).
Each ticket still safely transport passengers from point A to point B as quickly as possible, they’re just giving those Clients who value more space and comfort the opportunity to compare ticket options, understand the differences, and then make an informed decision about the amount of space and comfort they’re purchasing.
Once Architects understand the many benefits that a multi-fee pricing strategy has to offer then the next step is to understand which options to offer, and how to present those options in a clear and concise manner.
Want Help with your Fee Proposal?
To learn more about how to create your own killer Fee Proposal Strategy check out the Fee Proposal Mini-Series.
The series is currently available FREE of charge, at the following link: https://blueturtlemc.com/fee-proposal-mistakes/