The publication of the RIBA Business Benchmarking 2024 report tomorrow (15 November 2024) will enable Chartered Practices to compare their key business metrics against averages of similar practices, including salaries, charge out rates, revenues and profits. While the Benchmarking report goes into detail about the sources of revenue, it gives no information on fees by project type.
This may prompt the question “Why doesn’t the RIBA publish fee scales?” This article explains why.
Once RIBA did publish fee scales. However, because of changes in competition laws over the years, that guidance had to stop.
Since then RIBA has aided practices in sustaining profitability through resources such as RIBA Benchmarking Service and the RIBA Fee Calculator, the RIBA Good Practice Guide: Fees, CPD, business-focused publications as well as professional features such as this. Together these assist practices in setting the right fees for them and the projects they work on, while also supporting wider, profitable practice management.
A brief history of RIBA’s fee scales and why they were discontinued
After a century of mandatory minimum fee scales, an investigation in 1982 by the Monopolies and Mergers Commission required RIBA to drop its mandatory fee scales. Ten years later, an investigation by the Office for Fair Trading required RIBA to withdraw both the 'recommended' and the subsequent 'indicative' fee scales that replaced them.
The prohibition of any form of prescribed fees was confirmed once again by the Competition Act 1998, which does not allow commercial businesses to collude by agreeing to fix prices or terms of trade.
Any agreement that prevents, restricts or distorts competition is covered by the Act, whether this is formal or an informal ‘handshake agreement’.
In 2009, RIBA ceased to publish its own surveys of fees after concern was raised over their accuracy, especially when factoring in diversity of procurement methods and an increase in partial services. Consecutive surveys found that fees were often discounted against the previous published results, driving the reported fees down in each subsequent survey.
What is the current state of play when it comes to competition law?
The Competition and Markets Authority (CMA) is the primary enforcer of competition law in the UK and it publishes a range of guidance on competition and consumer law to help businesses stay on the right side of the law.
It told RIBA: “Under competition law businesses are prohibited from entering into agreements or practices which prevent, restrict or distort competition. The Competition Act 1998 specifically refers to practices which directly or indirectly fix prices as being problematic. While the intention of publishing a rate card or fee scales might be to improve transparency in an industry, care needs to be taken that this does not break the law.”
On the subject of rate cards or fee scales, the CMA says: “In 2004 the European Commission’s Directorate-General for Competition found that the Belgian Architect’s Association had broken competition law when it published a recommended minimum fee scale. Even where fee scales are voluntary they can dampen competition by setting expectations in the market or prompting the alignment of fees. Even after Brexit, competition law in the UK remains largely consistent with that in the EU and when we enforce competition law we are required to consider past cases – including those from when the CMA was a member of the EU.”
“As the Belgian example makes clear, if a professional body sets a fee scale it risks breaching competition law and finding itself under investigation by the CMA.”
What are the consequences of sharing price fixing or commercially sensitive information? “Fixing prices and/or exchanging information about pricing strategies by individual businesses or trade associations and professional bodies puts everyone involved at risk of being found to be operating a cartel,” says the CMA. “Parties found guilty of anti-competitive conduct can face penalties of up to 10% of their turnover and individuals can be disqualified from acting as a company director, so before discussing any price information with competitors, architects should take care. Individuals who agree to fix prices may also be committing a criminal offence. From next year (2025), being found guilty of cartel conduct will also lead to exclusion from public sector contracts.”
Could RIBA also report on average fees?
There are risks when reporting on average fees.
When setting fees, it is crucial that practices appropriately assess, cost, and charge for each project. This will include securing a sufficient margin by including expected costs, staff time, fixed overheads, outputs, and other projects expenses in calculations. Practices also need to be mindful of the economic climate, competition, project risks, and project/client management requirements. Simply using an average from a scale can miss this important context.
Average fees may be used by clients as a starting point from which to negotiate down, and by other practices (or those providing “architectural services”) to complete on price through submitting below average proposals.
Further, any data RIBA supplies must conform to CMA requirements.
What resources are available when it comes to setting fees?
Within the constraints by which RIBA is bound, it continues to provide support to members in setting appropriate fees. External information is also available.
RIBA Business Benchmarking
This was launched in 2010 to support businesses in tracking key financial performance indicators and remains the purpose of the survey. Because it compiles actual reported data, and does not make forecasts or recommendations, it has remained unchallenged and is a vital part of the profession’s suite of tools for self-reflection and analysis.
The Fee Calculator is a powerful digital tool, free to use by RIBA Chartered Practices, that produces accurate, resource-based fee calculations for architecture projects. Practices input baseline data including salaries, overheads and, crucially, properly-calculated staff cost rates. Combining this data with a project profile then allows the Fee Calculator to generate fee calculations aligned to stages of the RIBA Plan of Work plus whatever profit margin a practice chooses to apply.
The Fee Calculator applies cost accounting principles such as Cost Recovery and true cost per person hour, which take all practice overheads and non-earning fee- earner times into consideration, allowing small practices to produce the kind of fee calculations that had previously been the preserve of large practices with dedicated finance.
Once practices are set up, they can readily work out the actual cost of delivering work and generate fees from a resource profile for the project plus any additional project specific costs (planning fees, specialist sub-contractor costs etc.).
There are step-by step guides for the Fee Calculator, including setting up your practice, generating a fee calculation, and getting the most from the Calculator.
Once a fee calculation has been approved by a client, data can be exported directly into RIBA Contracts Digital to create a professional services contract.
RIBA CPD
There are RIBA Academy CPD modules dealing specifically with fee generation, notably:
Practice management series: Appointments and Fees. Specialist practice advisor Mark Klimt dedicates the second half of this session to putting effective fee proposals together, covered aspects such as procurement routes, defining scope and service, calculating charge-out rates and profit margins.
The RIBA Fee Calculator. Contributor to the calculator Michael Holmes, former Finance Director at Grimshaw, talks through all of the building blocks of the calculator, from time sheets and cost per manhour to negotiating with clients.
RIBA Professional Features regularly cover fees and business finance issues to support practices in their financial management.
RIBA Publishing
RIBA Publishing has also published the Good Practice Guide: Fees by Stephen Brookhouse and Peter Farrall (2021), the definitive guide to fee calculation, negotiation and management.
Thanks to the CMA.
Text by Neal Morris and the RIBA Practice team. Send us your feedback and ideas.
RIBA Core Curriculum topic: Business, clients and services.
As part of the flexible RIBA CPD programme, professional features count as microlearning. See further information on the updated RIBA CPD core curriculum and on fulfilling your CPD requirements as a RIBA Chartered Member.
