Architecture and Construction salary [Canadian Construction]

Architecture and Construction salary

Value-Pricing-For-Architecture-Engineering-FirmsWhy One Hour is Never Worth Another Hour

By David Stone, Stone & Company

Many years ago, while operating a design practice, I used the services of an accounting firm. One year, just before tax time, I discovered that they had made a very large error. With only days before the deadline, it was too late for the necessary financial moves. Despite their last-minute scrambling, I paid a big tax bill and was blessed with a $6, 000 invoice for their last-minute services.

Needless to say I was livid. But when challenged to rationalize the mammoth bill they confidently replied that the hours spent times the billing rate produced an entirely rational invoice of $6, 000. Following a brief and sometimes colorful discussion about value versus price, I wrote a check for a much smaller amount and fired them.

The scary part of this true story is the number of design and construction professionals who regularly find themselves in the same indefensible situation: pricing work for hours expended, not value delivered.

A curious route to today

A curious history has led to professionals selling hours by the pound. Ronald J. Baker tells a detailed story1 in his book Professional’s Guide to Value Pricing, but we’ll tell the short version here.

Baker, Ronald, J. Professional’s Guide To Value Pricing, Third Edition. New York: Aspen Law & Business, 2001. Pg 79-83.

Until the mid-20th century most professional services were priced on a value basis. Smith the businessman retained Jones the engineer for a project and a lump-sum fee would be set and paid. Jones would have little idea if a given project made or lost money and profitability was determined at year-end by subtracting total cost from total revenue.

As professional associations emerged around the turn of the last century, fee schedules were published, aiding professionals and removing them from the fray of competition. Around the same time businesses were learning to adopt formal cost accounting methods. By the 1940’s professional service firms, whose largest cost was staff time, introduced time sheets to keep track. By the 1950’s cost accounting was fully embraced and time sheets were its foundation.

As social moods swung in the late 1960s governments began viewing fee schedules as evidence of price-fixing among professional groups and by the 1980s they were largely banned by anti-trust legislation. No problem! Armed with cost information from timesheets, pricing was almost easier than using a fee schedule. Estimate the hours involved, multiply by the hourly rate and bingo, you’ve got a fee!

No one seemed to notice that, in the short span of 40 years, design professionals had abandoned a system based on value for one entirely derived from cost and now, instead of debating the value of services delivered, we are debating the value of an hour’s time.

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