"Just to reiterate, it isn't about being ripped off or getting a bargain, it is about creating the best environment for designing a house. When you are talking about something as permanent and expensive as a house, getting ripped off simply isn't a function of how much you spend. This board is full of people who spent less just to get ripped off more."

Agreed. All pricing discussions can go in circles for this reason, it's not where the focus is needed.

Yeah try basing compensation to results in a corporate or everyday work setting let alone a unionized setting.

Stock options? Remember corporations exist to create shareholder value, not be productive, while those things are usually one in the same, they sometimes are not.

No one said you have to tie everyone's work to results, just key decision makers.

"Now why would you want to reinvent the wheel if copy/paste meets the client needs?"

To make better wheels and to provide a service above and beyond the ordinary, without exceeding budget constraints.

"You're just wasting your time and the client's resource."

I am spending my time and managing my client's investment in an architect. My clients are not looking for canned plans or the ordinary, they are extraordinary, in the most positive senses.

I think one of the major problems with current architecture is cut and paste design. You can cut and paste any sort of Jenga like shapes together and computerize a complex roof on it.

You'd never design something like that on purpose starting with a pencil. Computers made buildings by Frank Gehry and Zaha Hadid possible but most residences and most architects are neither.

You can put lip sticks on it all you want but architect has only a few styles and they stick to it. Clients may go through your profiles and tell you they want this and that and all turn out to be almost the same. A little tweak here and there and you got a new plan.

Bry911, I understand you comments above, which are wonderful for a discussion in a graduate program seminar course. Let's talk about aligning goals and compensation in a best-of-all worlds scenario. I've lead the same sort of graduate seminars. Your two page paper on the subject will be due in the next class.

Just for the value of conversation in a real world, however, how do you react to the differences of a one-of-a-kind creative act and a mass produced, repetitive, off-the-shelf product?

Should the compensation for each be expected to be similar? Are the final results similar?

Is this goal misalignment, when folks expect the former but only want to pay for the latter? Or, in fact, do many folks simply see their custom house as a mass produced, repetitive, off-the-shelf product from the get go?

Just curious if a Van Gogh or a Picasso is really the same, and valued the same, as a Thomas Kincade, or paint by numbers kit.

Yes, let's talk about goal alignment and misalignment. And value. And appropriate compensation.

And as long as we're talking value and appropriate compensation, let's talk about compensation for other professionals--starting with your field of accounting, and including physicians, attorneys, veterinarians, pharmacists, and the like. How about how fees are handled with these professionals? How do you spell Lump Sum? Without any or very little prior discussion or any negotiation. Service provided--invoice attached with lump sum billing.

And when it comes to value, appropriate compensation and goal alignment, let's talk about compensation for elementary and secondary school teachers. Even your position as a university faculty member. What value do these folks contribute? And where's the goal alignment with their compensation, for value provided?

Just how many more important endeavors are there in our society than properly educating our young people? So why is there such misalignment between value and compensation for teachers?

Now there's a graduate seminar topic worth discussing...

Hmmmm?

Well to put this sort of thing in perspective, the architects that somehow manage to be prolific and churn out one p.o.s. McMansion after the next are making more money than a lot of architects who design perfectly nice charming houses. (Some starchitects with talent obviously exluded).

And Thomas Kincaid was known probably throughout the world, was worth tens of millions of dollars at his death; and Van Gogh sold a single painting in his lifetime, and may have remained anonymous had his sister-in-law decided to dispose of his body of work, rather than actively promoting it and offering it for sale.

Our culture rarely works out to be a meritocracy.

Virgil, I don't think you do understand what I am talking about at all, because you completely misunderstood my entire post. In fact, I think you believe we are talking about the amount architects are paid. It isn't, at all!

You managed to read something into my post that wasn't anywhere near it all. I suspect that this is the best demonstration of how powerful a bias can be. As we know, you and I disagree a lot, so it isn't surprising that you managed to find something you didn't like about my post.

Were the average architect fee quadrupled yet based on appraisal value, you wouldn't typically have goal misalignment. You might have a value problem, but not a goal alignment problem. I am not suggesting this as a solution, I really don't have the time or inclination to study an industry that didn't ask for my help.

We need look no further than CEO pay to find a discussion on the value of pay vs. goal alignment. CEO compensation packages are incredibly good at aligning CEO's and shareholders. CEO's may well be overcompensated, but they are aligned.

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I am having a hard time addressing your questions because they are so unrelated to my point, but I will attempt it.

how do you react to the differences of a one-of-a-kind creative act and a mass produced, repetitive, off-the-shelf product?

This has absolutely nothing to do with a structure based bias. However, I did note that an aligned system would probably be tiered to deal with different complexities.

Is this goal misalignment, when folks expect the former but only want to pay for the latter?

No that isn't goal misalignment at all. You are discussing perceived value and the two things are not related.

And as long as we're talking value and appropriate compensation, let's talk about compensation for other professionals

Neither value or compensation have anything to do with anything I posted. The only time I mentioned the word value was in response to a post that confused the word cost and the word value.

Nothing I said has ANYTHING to do with appropriate compensation.

starting with your field of accounting, and including physicians, attorneys, veterinarians, pharmacists, and the like. How about how fees are handled with these professionals?

Just to be fair, I am really an economist, yes I got there through a PhD in accounting and lots of accounting experience, but this is actually close to what I study, efficiency of the firm. My research revolves around how efficiently companies interpret consumer demand in project development.

Attorneys have huge goal misalignment (I actually mentioned earlier that it was a profession collapsing under the weight of goal misalignment).

Do we really need to discuss how the mechanics of medical billing has skyrocketed medical costs in this country while degrading care? We pay 250% of what the UK pays and 200% of what Australia pays for worse results.

It should also be mentioned that all of the above have a fiduciary duty while architects do not.

How do you spell Lump Sum? Without any or very little prior discussion or any negotiation.

You spelled it right, but nothing you mentioned has lump sum billing. The big four sometimes use competitive lump sum bidding for audit jobs, but none of the rest have lump sum billing.

And when it comes to value, appropriate compensation and goal alignment, let's talk about compensation for elementary and secondary school teachers. Even your position as a university faculty member. What value do these folks contribute? And where's the goal alignment with their compensation, for value provided?

Again, possibly worthy of discussion, but for the life of me, I can't think why you want to discuss it with me. Nothing I wrote has anything to do with compensation at all. I am not sure whether or not you can have a macroeconomic goal alignment problem, it is a microeconomic bias.

Just to be clear(er?)

Goal misalignment happens when two parties doing business in a trust or transactional relationship have reward structures that oppose each other.

There is always misalignment in arms length transactions, such as retail. Essentially, everyone goes to work for the same reason - to make their life better. Everyone buys stuff for the same reason - to make their life better. Goal misalignment happens when those two are opposed. This only becomes problematic when we create agency or a trust that people will work for our benefit.

You always get more of what you incentivize, if you tie architect pay to house cost, you are going to get a tendency toward more expensive houses. This doesn't mean that the architect was overpaid, or is cheating you, just that you have introduced a bias. Were architects paid more and yet it was never based on house cost, then the bias would disappear.

If we were to pay architects $150 per hour for the first 100 hours, and $30 per hour for every hour after that, an amazing number of houses would manage to get completed in 99.5 hours.

It isn't really that earth shattering if you think about it.

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ETA: Just to be even clearer, I don't think architects are overpaid. I believe that much of the front end savings of using a draftsman come back as back end expenses. Things like inefficient designs, change orders, too much left to contractor, etc., more than remove the savings.

However, that doesn't mean that I like percentage of cost billing methods.

"As we know, you and I disagree a lot, so it isn't surprising that you managed to find something you didn't like about my post."

What was that about a bias??

What was that about a bias??

I am unsure of your meaning here. If you are insinuating that I am biased, well of course I am! My entire post on this matter is a bias towards my research. I am probably more aware of my biases than most people, but just like everyone else in the world, I am powerless to stop them.

See, here is where words matter, and I suspect what you said, isn't what you meant.

No, I meant what I said.

A percentage of house value sounds like a great solution to the goal alignment problem. Value and cost are two very different things. Tying compensation to results rather than inputs or expenditures is the best way to align goals and remove the problem.

It doesn't sound like a great solution IMO. I wouldn't say this is the best way but maybe the should have feature packages. The results doesn't come from the architect alone (I'm not saying you said this) but from everyone who's involved in the project. What you're implying is that we should pay everyone top dollars otherwise you wouldn't get the results you want.

It is important to remember in the end, it is a house you have to live in. Regardless of how much you spend if it is a house that you can afford and it enhances your life, then you are doing fine. If you managed to spend or save your way out of either of those things, you have problems.

I think this is flat out wrong. Someone can do their homework can save a big trunk. Just because they manage to spend or save that doesn't mean it's wrong.

Yes, they can be ripped off if they are grossly over paying the architect.

This thread is comedy gold. I have one person arguing against my implication that architects are overpaid and another arguing against my implication that architects should be paid "top dollar." All the while, I haven't said a thing about architect pay.

Someone can do their homework can save a big trunk. Just because they manage to spend or save that doesn't mean it's wrong.

I can only assume that English isn't your first language, because that is not what I said. I said the two overarching goals are a house that enhances your life and which you can afford. If a house makes your life worse or you can't afford it, then savings are moot.

What you're implying is that we should pay everyone top dollars otherwise you wouldn't get the results you want.

Can you please direct me to any place that I implied anything like that? In fact, find one place where I mentioned how much you should pay an architect.

I am talking about pay structures that create friction in the transaction and not the amount of the pay. What if an architect charged fees based on house value at $1 per $100,000 of value? You would then pay $5 in architect fees for a $500,000 house, and according to you that is being ripped off.

The value of an architect is a point aside from how the fees are structured. To me the structure of the pay is interesting, the amount isn't. Architects are not stupid, they know how much money they want to make, I assure you that they are good enough at math to get to that goal somehow.

I do advising work, in fact, I am leaving for China next week. I don't care how a client wants me to bill them. I have a really good idea how much effort a project should take, I know how much I want to make off the project, and I went to middle school so I can divide. If a client wants me to use a percentage method, an hourly method, or fixed price I don't care.

The market sets the rate for architects, you have every right to decide that you don't want to pay that. In fact, the supply and demand curve is full of consumers who would pay for services if they were cheaper, this isn't news. If Rolls Royce started selling their cars for $32 I would buy several. However, at their current price I believe people are overpaying, obviously, some people disagree.

I can only assume that English isn't your first language

You're right. English isn't my first language.

Can you please direct me to any place that I implied anything like that?

Tying compensation to results rather than inputs or expenditures is the best way to align goals and remove the problem.

Maybe I'm mistaken but isn't what you said above implies the same thing?

For architect, better results = more money? Isn't that's what you are implying? If not then my fault and please elaborate.

What if an architect charged fees based on house value at $1 per $100,000 of value. You would then pay $5 in architect fees for a $500,000 house, and according to you that is being ripped off.

That's a terrible scenario and not realistic.

For architect, better results = more money? Isn't that's what you are implying? If not then my fault and please elaborate.

No, not what I am saying at all. Let's try a different example.

Suppose I want to sell a piece of art, which I set a minimum sales price of $3,500 and expect to sell at around $5,000.

Now suppose I select the appropriate gallery and they have three fee options to choose from.

(1) $1,000 selling fee plus a selling bonus of $500 if sold within the first month.

(2) $1,500 flat fee.

(3) 30% sales commission.

Even at the same gallery, with the same customers, and the same salespeople, I will get a different price for the art depending on which fee structure I choose. Each of them incentivizes different things, so I should pick the one that aligns with my goals. Each of them may be a bargain or a rip off, but that is beside the fact that the structure of the fee changes the result.

Do you know galleries like all of these examples?

I've been painting and exhibiting for more than a few years now. My experience is that galleries charge a stated percentage of the sale price (set by the artist), ranging from 30% to 50%, depending on gallery.

In my few days as a painter, teacher and exhibitor, I've never encountered an artist who prices their art using "...I set a minimum sales price of $3,500 and expect to sell at around $5,000..." approach.

Please enlighten us on your experience in the art world. I want to know what I've been missing all these years...

You may not directly talk about architect pay but you're indirectly doing it. And your scenarios are terrible.

Some people tries to sound intelligent but they're just speaking gibberish, IMO.

I think everybody is talking past each other, here. And, Mike, I'm not sure you're getting Bry's point at all. It has nothing at all to do with the specific numbers or whether anyone would "really do that."

The point is - you get more of what you incentivize. So, if you are being paid on a percentage of the total cost (commission, or whatever), you are incentivized to increase the cost. If you can obtain a bonus based on speed, you are incentivized to work faster. If you are paid at an hourly rate, you are incentivized to sort of take your time. If you are paid a flat fee per project, you are probably incentivized to take on TOO many projects and not do any of them well. If you're salaried (and no bonuses apply), you don't have much incentive toward any specific result.

The trouble is that it's hard to come up with ANY payment scheme that would incentivize (in economic terms - and in no way casting dispersions on the field) Good Design(TM). Because it's difficult to quantify what that is, and come up with any sort of pay method that would directly cause this result. You can argue that good design builds a steady stream of happy clients, but this is not a direct motivation to produce good design strictly because it pays better.

Please enlighten us on your experience in the art world. I want to know what I've been missing all these years...

It was painfully obvious that it was a hypothetical. If it makes you uncomfortable substitute furniture, rugs, cars or any other product in there that helps you sleep better at night. I admit that I don't understand how a grown man who supposedly has taught graduate classes struggles with simplifying assumptions, but whatever.

I have no interest in an art discussion on this forum, thus I am going to decline.

Ok everybody. Let's take a deep breath and get the discussion a lttle lighter.

A blog by my good friend Jody Brown who writes (or used to) "Coffee with an Architect" titled "How to get Architecture at a Discount":

-Make sure they know the project will only take 2 weeks (the project will actually take 36-72 weeks)

-Tell them that their competitor has already given you a quote for 1/2 that amount. However, if the Architectural firm has a Barcelona chair in the lobby you may assume 1/3 that amount. If the Barcelona chair is an original, you should leave.

-Remind them that you have in-house talent who will make all the material, product, and finish selections (if at all possible, this should be your wife)

-Tell them you only need “plans to turn in for a permit”

-Make sure they understand that all other “consultants” will be under a separate contract. You just need the Architect to coordinate the drawings. (By “coordinate” you mean “produce” and “assume all legal responsibility for”. You won’t be hiring any consultants).

-Explain that this project should be “really functional” and/or “utilitarian”. Ask how many windows are really needed to meet “code”.

-Keep in mind, “Curtain-wall” and “Store-front” cost the same amount. Don’t let them try to convince you otherwise.

-Make sure they know you plan to work most of the details out in the field. (nitty-gritty details like power, utilities, dimensions, or accessibility)

-Tell them that the drawing tolerances need only be +/- 2 feet. (prepare to sue if any dimension varies more than 1/16″)

-Look at their proposal and say “what? really? this includes land acquisition costs, right?”

-Remember, most drawings are produced on computers, and pushing buttons is not hard. Architects can simply “plug-in” the information now.

-Have your initial meeting at a high end wine-bar. Have one too many. Talk about your dream of one day building a high-rise condo on you families’ property in Brussels.

-Tell the Architect you just got off the phone with Tom at Gensler and he’s looking for a local “Architect of Record” for that new lifestyle-center by the mall (don’t worry, they’ll know who that is)

-Tell them you really admire the work of Peter Zumthor. “It’s just so poetic, isn’t it”. But, make sure to clarify that you weren’t thinking that would work on this project, but it may be ideal for the next one.

-Explain that you’ll need to cut this meeting short so you can make it to your Tee time with <insert owner of local steakhouse franchise here>

-If the Architect gives you a schedule of hourly rates, it is safe to assume that 99% of the work will be done by the lowest paid position on the schedule. These eployees will usually be called “interns” or “architectural designers”. Keep in mind that most Architectural firms do not pay a salary to these positions. So, they are just marking up the rate to cover their “expenses”. Note: although most work is done by the lowest paid employee scheduled, all calls should be directed to the president of the firm. Phone calls are free.

-Ask if they plan to handle the award submission process on the project, “or is that just something that happens organically?”

-Compliment them on their sweater, and/or glasses. Then remove your own glasses and slowly lick your lips.

-Give them the “sketch” your son-in-law drew on the “cad machine” to use as a starting point. Let them know you just want to “note up” this “drawing”.

-Or, simply accept their proposal without question. Then, pay them whatever you want, after you get the plans.

You may not directly talk about architect pay but you're indirectly doing it. And your scenarios are terrible.

I am not directly or indirectly talking about architect pay. As for my scenarios, they are simplified.

If you would like for me to complicate it, I can. I guess I could develop a series of indifference curves that explore the marginal increase in non-pecuniary benefits to wealth decreases, but that is a lot of math and something that I suspect most people wouldn't be interested in reading anyway.

Some people tries to sound intelligent but they're just speaking gibberish, IMO.

On this we completely agree...

If you want to see bias at work, just look at this thread.

I have one person who read my posts and came to the conclusion that I was defending architect pay and the value of that pay. Another person reading the same thing came to the conclusion that I was attacking architect pay and the value of that pay.

Neither one of you are right, but it is a great example of how people decide what they are going to think before they start reading.

"...The point is - you get more of what you incentivize. So, if you are being paid on a percentage of the total cost (commission, or whatever), you are incentivized to increase the cost. If you can obtain a bonus based on speed, you are incentivized to work faster. If you are paid at an hourly rate, you are incentivized to sort of take your time. If you are paid a flat fee per project, you are probably incentivized to take on TOO many projects and not do any of them well. If you're salaried (and no bonuses apply), you don't have much incentive toward any specific result..."

Ok...I'll push back on this one. All of this theory (and that's all it is--theory, not fact based on any specific architectural data), doesn't take into account the nature of architecture as a creative, one-of-a-kind endeavor, as opposed to repetitive, mass-produced commodity production.

To make such grandiose projections reflects a lack of any time in and knowledge of a small professional services firm like many architectural firms, and those of other professions.

The problem with Bry911's current economic graduate seminar is that he doesn't know much about the nature and practice of architecture and lumps it into a global analysis applicable to major industrial production and governmental policy making.

The point is that there's night and day differences between the architectural services for the design of a residence (or a hospital) and the production cycle of coil steel, or how the Chinese biotechnology industry can achieve favorable world position.

I'll give you a simple example of architectural professional practice: when I was practicing, I would do residential design on a time and materials basis until the conceptual design was finalized and approved by the owners. I'd then quote a fixed fee to complete whatever remaining architectural services were desired, except for construction administration which was also on a time and materials basis.

Why?

Because the early conceptual design phase is an exploration of the unknown, and the owner has as much responsibility for the time required, and the directions pursued, as the architect. For success, the exploration has to be a trusting and workable partnership.

Why?

Well, how many threads have we seen where the owner is confused; has spent indescribable amounts of time coming up with a design to show the architect; can't make up their combined minds; changes their minds, and says, "as long as we doing it, let's just add X and Y, since we always wanted them...", and the like?

So how long does it take to wade through this garden and finally arrive at a productive point of exploration?

Thus, an hourly rate enables the owner to fully participate in the design search, and to take responsibility for their own decisions, indecisions and changes.

Since I had reasonable experience, I could identify an appropriate fixed fee thereafter to provide the remaining requested services.

The relevant point is that there's such differences between a relatively small professional services firm (like my architectural firm), and US Steel or the Chinese government wanting favorable consulting advice on a strategy for U.S. tariff policy.

These worlds are simply not comparable. And broad, sweeping generalizations about them are no more comparable...

Take that into the seminar room and see what happens...

All I know is $3000 for a full set of plans would incentivize me to become a barista.

Or plumber. I would get a raise.

Virgil, given our current understanding, your post is completely wrong.

You are railing against our understanding of basic psychology, and architects are still people. As unique as individuals can be, they really are not that different for the most part. We all want more of the things that make us happy, even architects. Add any reasonable weight to what you are saying and win a Nobel prize, because there have been half a dozen given in opposition to your point.

Google Lake Flato and see if you can spot a pattern. If all architecture is a creative process free from bias then why do architects develop distinct styles?

You can argue that architects are the one exception because their process is so special but your support for that argument must be that architects are not human or the process itself eliminates bias. Neither of which are true.

And just to be clear, these are not "seminar room" topics. These are things that have been actively used to develop compensation packages and competitive bidding for many years now. Agency theory is extremely well developed.

Well..."Google Lake Flato and see if you can spot a pattern. If all architecture is a creative process free from bias then why do architects develop distinct styles?..."

I know this firm and its history (admittedly from a distance) reasonably well--as you know. Your comment simply indicates a lack of understanding of original, creative and artistic work. Distinctive "style" is extremely common in architecture and many fine art forms.

I never said architecture or any creative process is free from bias. I suspect every human endeavor has an element of bias--we are human and each of us has our individual experiences, beliefs and priorities. That introduces bias. Bias is not necessarily a negative term whatsoever. It may often be life saving, in fact.

"...These are things that have been actively used to develop compensation packages and competitive bidding for many years now. Agency theory is extremely well developed..."

For whom? Multi-national conglomerates and holding companies? For boards and executives whose annual compensation is in the 7 and 8 figures?

I'm sure your research in this area is excellent and thorough.

Tell me, how large of a sample base did you use in your research for the professional services sector in the U.S.? Which professional fields did you include in your research? More to the point, how many architectural firms do you know who use this in their business? Do you know of an architectural firm organized along and employing these principles?

I'm genuinely interested. Just how applicable is this to those of us who dwell in the professional services sector?

Is your research based on physicians in private practice? Or accountants, pharmacists, or any other professional service field?

My guess is that you may be attempting to apply research and theory to fields of endeavor for which the data is simply not applicable, nor used. But tell me how your research was focused.

How much does this apply to the practice of architecture?

How many small professional service firms do you know who use this in their business?

Ever heard of something called a Cost plus contract. They were developed because of the agency issue, goal misalignment...

You are trying to claim something is theory which it is, and so is gravity, but that doesn't mean people can fly by spreading their arms and making airplane noises.

Bias is not necessarily a negative term whatsoever.

When did I say it was? In fact, several times I have said that bias has probably helped architecture. That doesn't mean goals are aligned.

"...That doesn't mean goals are aligned..."

This is exactly why the initial, conceptual stage of architectural design is so important, and often so time consuming...because the consumer has ideas for goals which may be headed in one direction, and the architect of experience quickly understands that that direction may well not be a productive, or cost effective direction at all.

It often may take a great deal of time (and it always takes a great deal of professional effort) to achieve goal alignment in architectural design, if in fact it's possible at all.

We've all seen the endless threads where an OP posts terrible designs that they want to take to the architect "to show what they are thinking about".

How long do you think it takes to achieve goal alignment in those situations? How much better spent could be that time and money?

And just how similar to this is a potential customer for US Steel to come into the home office and describe their image of a order for coil steel? How much time do you think the President/CEO of US Steel would spend on this?

Still think global conglomerates and professional service firms are one and the same business model?

Still waiting to know how many professional service firms were used in your research.

You again post a lot of stuff that has nothing to do with what I am talking about. The conceptual stage has nothing to do with the discussion. A car salesperson may set you down and ask questions in order to show you the right car, that doesn't mean that he suddenly your advocate acting only for your benefit.

Still waiting to know how many professional service firms were used in your research.

Let's be clear, this isn't my research, it is similar to my research as I study firm efficiency (market inefficiency), and this is market inefficiency, but I didn't claim to study this specifically.

However, it has been studied extensively on professional service firms, including architects. You might have read some of that research as I suspect it is required for anyone teaching graduate school classes.

I have been referring to it as goal alignment, because that is what you are trying to achieve and that is the overarching action and transactional friction. However, it is also known as the principal-agent problem, which in most professional firms becomes the fiduciary issue (although the AIA contends that architects don't have a fiduciary they are one of the few professional firms that do not). So a quick search (in only one database) finds many studies on architects and the principal-agent problem, thousands with doctors, attorneys, and financial services.

So to answer your question... It isn't my research but a hell of a lot.

ETA: This new "theory" is something society has been acting against for more than a thousand years. We can find measures to counteract what has become the principal-agent problem from the middle ages. Oddly enough they started with land and architects. The first professional services to have a fiduciary responsibility were architects, because at one time architects were considered the most important professional service. Furthermore, U.S. architects (the AIA in the early 1900's) argued that contracts could be designed to remove the conflict, thus alleviate the fiduciary responsibility. So not only is this an acceptable problem in architecture, your own professional organization believes it is correctable through structure of remuneration.

"...However, it is also known as the principal-agent problem, which in most professional firms becomes the fiduciary issue (although the AIA contends that architects don't have a fiduciary they are one of the few professional firms that do not)..."

That's odd...when I was practicing and teaching, I seem to remember that architects had fudiciary responsibility. When I was a senior executive at the AIA for seven years there was never any talk about the issue or effort to change that.

Has something changed in the last few days?

Virgil, I just didn't want to argue with you again. It seems to me that you will pursue any tangent to score a point, constantly contradicting statements you have made in the past.

Although there is case law to support it, the courts generally find that there is a contractual relationship and not a fiduciary one. Believe me I was stunned when I investigated further. Note: A fiduciary clause can be inserted into any contract, but a fiduciary duty will exist sans contract.

Carlson vs. Sala

Because the court erred in determining that there were no genuine fact issues as to professional negligence, we reverse and remand for further proceedings. We also reverse the court's determination that "an architect owes fiduciary duties to its clients" as being an error of law. We affirm the court's denial of the respondents' motion for an award of attorney fees.

---------

So do you believe that architects have a fiduciary duty, and if so, how can you simultaneously claim the creative architecture process is free from goal alignment issues while simultaneously recognizing that a requirement to mitigate goal alignment issues is necessary?

ETA: Don't feel the need to answer...

I can't even believe we are having an argument about this.

I don't even see how a vested interest in the status quo allows anyone to argue this cause. It just seems ridiculous on its face to me, and I honestly don't understand why it isn't painfully obvious to everyone.

An increase in wealth (receiving money) is a good thing, and a decrease in wealth (spending money) is a bad thing. So a relationship that increases one party's wealth in proportion to the decrease in another party's wealth is obviously problematic. Thus a contract that pays an architect more if he designs a house that costs you more has very obvious issues.

Every rationalization of this system seems silly, especially since there are other reasonable methods available.

This doesn't mean architects who use this system are cheating people, or doing anything wrong. It is certainly common enough to be an industry standard, but I hope that one day it will not be.

"... An increase in wealth (receiving money) is a good thing, and a decrease in wealth (spending money) is a bad thing. So a relationship that increases one party's wealth in proportion to the decrease in another party's wealth is obviously problematic..."

Thank you, Bry911. I'm going to hand this to the cashier at HEB, our local Texas mega grocery store, when I bring up my loaded grocery basket when I go shopping tomorrow.

I'll also hand it to the business manager at my wife's nursing home.

Clearly we need an end to all these problematic situations...

Could you post your phone number, so these good, but problematic, folks can give you a call to discuss your thesis...?

Yes, Virgil. I noted earlier that this always exists in retail transactions and why it doesn't rise to a problem. You are quite literally a day behind. But keep working it, I am sure you will eventually catch up...

Just follow the link and you can learn a brand new use for your computer

http://lmgtfy.com/?q=principal-agent+problem

"...Every rationalization of this system seems silly, especially since there are other reasonable methods available..."

"...This doesn't mean architects who use this system are cheating people, or doing anything wrong. It is certainly common enough to be an industry standard, but I hope that one day it will not be..."

Well, that helps! Thank you. I think I see the bias now...

Again, it is ridiculous to defend this system as free from problems.

Client: Will you take my case Mr. Attorney?

Attorney: Sure, but I charge 15% of everything you lose.

Client: What if I want to win?

Attorney: I want to win, you just have to trust me and the process...

Sound legit?

NO! BECAUSE IT ISN'T!

"...No layman is going to find a zinger that is going to stump me..."

Gotcha, Brother! I always appreciate confidence when I find it. And there's probably not much you could tell me about designing a house or other structure.

Given your expertise in compensation, what are your ideas on appropriate compensation for creative endeavors, such as architects who design buildings? You've made clear your lack of appreciation for percentage fees for professional services. So what is the goal aligned compensation structure which you would like to see replace the current options?

We do agree that architecture is a creative endeavor and not a mass produced production and distribution system don't we?

Given your expertise in compensation, what are your ideas on appropriate compensation for creative endeavors, such as architects who design buildings?

There are many. In fact, you can use percentage of cost based fees with a bonus structure to eliminate the problem. I mean you don't have to reinvent the wheel, all you have to do is find a way to align interests.

Time basis methods (hourly rates) can be fixed with not to exceed clauses. The project can be divided such that there are a series of not to exceed clauses.

Fixed fees also works fine and that can again be divided into a series.

A combination of fixed cost and time basis is very common and works.

If you want to keep it similar, use a percentage of appraised value rather than cost.

If you want to complicate the hell out of it, but really align goals use a healthy percentage of appraised value less a much smaller percentage of cost to build.

We aren't talking ridiculously hard things to develop, in fact, they are pretty easy to develop and many are already in use. Just the change from cost to build to appraised value of the plans would easily work, and realizing that all complexity isn't shown in appraisal, if necessary, you can have a percentage range in the beginning with the final percentage determined after the initial design phase.

We do agree that architecture is a creative endeavor and not a mass produced production and distribution system don't we?

I would contend that the billing issue with architecture is due to its collaborative nature rather than its creative nature. I commission a decent amount of art and it is always fixed price. However, I don't often tell the artist that it doesn't work for me and I need some changes.

I think it may be worthwhile to elaborate on the nature of the environment of interest, to me at least. That is, the environment where folks labor in creative effort, i.e., artistic effort if you will, and the appropriate compensation protocols for creative work.

Wiki defines creativity thusly: "...Creativity is a phenomenon whereby something new and somehow valuable is formed. The created item may be intangible (such as an idea, a scientific theory, a musical composition, or a joke) or a physical object (such as an invention, a literary work, or a painting)..."

"..Scholarly interest in creativity is found in a number of disciplines: engineering, psychology, cognitive science, education, philosophy (particularly philosophy of science), technology, theology, sociology, linguistics, business studies, songwriting, and economics, covering the relations between creativity and general intelligence, personality type, mental and neurological processes, mental health, or artificial intelligence; the potential for fostering creativity through education and training; the maximization of creativity for national economic benefit, and the application of creative resources to improve the effectiveness of teaching and learning..."

So, Bry911, what does your research and your goal alignment theories suggest to you about compensation for creative endeavors?

This ain't US Steel and General Electric brother! And this ain't Internet plan factories, tract and builders repetitious building endeavors, and cut-and-paste drafters.

Let's cut to the chase: what's the value and appropriate compensation for Lake Flato, and others of their caliber?

what does your research and your goal alignment theories suggest to you about compensation for creative endeavors?

This was addressed above. However, I am not sure what that has to do with anything. I haven't addressed compensation amounts at all on this thread, just a conflict of interests in the structure of certain fee arrangements.

(HINT: HYPOTHETICAL INCOMING)

Suppose that an architect charges 15% of total cost on a house that cost $500,000 to build. So his fee would be $75,000.

Suppose that same architect would design a house with the same requirements for $80,000 fixed price.

The first method has introduced conflicting goals, and the second method hasn't. It isn't a function of value. Value is an issue aside from the structure of the compensation.

The reason this becomes problematic is because over time architects who work on a percentage of cost will unconsciously find reasons to spend more money. Their creative style will be influenced by the rewards from that style. However, simply charging more money would often be better for the client. In the above example it only takes $5,000 of cost savings before the client reaches the cost indifference point between the two options.

As for your question...

I think architects are sinfully cheap. To be honest, I think it is tragic that someone who adds so much to our lives is paid such a minor amount especially considering the time and talent required and the general risk that they work under.

"...The reason this becomes problematic is because over time architects who work on a percentage of cost will unconsciously find reasons to spend more money..."

I understand that percentage fees are your bias, and that you don't like them.

But this sweeping generalization has no basis in fact, in my experience. In my experience, percentage fees are correlated to the client and the amount of work that is required based on the cost of construction. A $500,000 house will not take the work that a $1.5 million house will take. And then, there's clients who want detail after detail, additive after additive, all of which drive the cost upward.

Under these circumstances, a percentage fee, based on what the owner asks to be done, is very appropriate to the amount of professional service required.

It's not the architect's decision to add more and more to the project scope, resulting in higher construction costs.

Finally something we agree on: "...I think architects are sinfully cheap. To be honest, I think it is tragic that someone who adds so much to our lives is paid such a minor amount especially considering the time and talent required and the general risk that they work under..." There's little question about this.

Once again, you've dodged my question to come down from your macro economic mountain and talk specifically about the nature of professional service firms and those who labor in creative fields...too micro for you? Doesn't fit your research?

Paying an architect a percentage of appraised value strikes me as absurd if the yardstick is market value.

All kinds of strange and wonderful residences cost fortunes to build, but appeal only to a limited number of other current, let alone future buyers.

For instance, the amazing Integral House in Toronto designed by architects Shim and Sutcliffe for a multi-millionaire textbook author and arts patron cost an estimated C$34 million to build. But after the original owner died, it ended up going for a mere C$14.5 million eight years later.

Once again, you've dodged my question to come down from your macro economic mountain and talk specifically about the nature of professional service firms and those who labor in creative fields...too micro for you? Doesn't fit your research?

/sigh... This is not macroeconomics... Look up words if you don't understand their meaning but stop trying to sound smart using words you don't understand. This can't be macroeconomics, it is barred from ever being a macroeconomics problem. EVER... Functionally can't be.

A macroeconomic discussion on fees charged to clients?!?! Seriously?

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You win. I made my point, I refuse to continue trading blows with you in this ever downward spiral.

Good luck to you.

All kinds of strange and wonderful residences cost fortunes to build, but appeal only to a limited number of other current, let alone future buyers.

For instance, the amazing Integral House in Toronto designed by architects Shim and Sutcliffe for a multi-millionaire textbook author and arts patron cost an estimated C$34 million to build.

So then don't use it. Architects already use multiple billing and bidding methods. It isn't like every project has to fit a single billing method, as they don't already. Do you know why we know that percentage of cost can be eliminated? Because it is already the rarest of the three methods.

Just chiming in to note that this discussion is fascinating!! Thanks to all for the your posts. It really is interesting!!

Oddly, I was thinking there is nothing more boring than the argument over what architects are paid that has been going on since the inception of the Garden Web. But I do appreciate bry's insights and am puzzled why they would be so rudely challenged. I believe that one of the reasons architects are so poorly compensated is that these issues are overlooked in design school. We can use all the advice we can get.

I might actually take this up as a research project for some grad students next year if I can get them interested.

I believe there are several self-inflicted wounds that make a lot of sense individually but are ultimately harmful to architects. I suspect that billing practices are the most prominent, but I also suspect that copyright policies are damaging the profession.

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While the value of any service is set by supply and demand, regardless whether those services are creative or not, the demand curve is set by consumers. Consumers will set the value of any service at what they feel the utility of that service is. In other words, they will spend until they realize they can do something better with that money.

However, the other thing that modifies what people are willing to pay is risk, and people are pretty risk averse. We always perceive risk much higher than it actually is, and overemphasize it in our calculations.

Architects have done a marvelous job of offshoring risk. When architects rightly note that some clients take a lot of work to produce anything, therefore, fixed cost models are problematic, they are correct. However, the other side of that coin is a hefty risk premium that lowers the value of the their services, and since risk is overemphasized I strongly suspect the reduction in demand is probably greater than the marginal cost of production.

I am a lot more worried about having nothing to show for it than I am about the amount I pay the architect. I would strongly prefer to pay more money with some assurances. This is why companies offer warranties on products, every time a product needs warranty service they lose money on that sale, but the extra money they receive from offering the warranty far outstrips warranty costs of the small percentage of products that need it.

This is also where the copyright policies come in, I agree that there should be copyright protection for architectural works, at the same time I think the profession could modify procedures to allow reciprocal arrangement between licensed architects and maybe homeowners. Obviously, the protection of the architect's work is important, but there are ways to allow homeowners some portability while still protecting the architect's brand.

Again, this is just an additional risk premium item, and it is a bit trickier than billing, but it is one of the two things that stand out as adding a risk premium to the project.

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This isn't brand new ground, there is a lot of research that suggests that attorneys should be adopting flat fee legal billing, that they actually increase their fees when they do, and many firms have started adopting that method.

Essentially, when clients are told that fees are probably going to be around $2,500 but about 10% of the time the fees will be $10,000, they focus too much on the $10,000 and so choose other methods of resolution. However, when given a guaranteed rate of even $4,000 they will proceed.

These are resulting in increased profits for firms. Both from clients who would have proceeded anyway, who are now willing to pay more for the assurance, and from new clients who would have chosen not to proceed.

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Again, not trying to start an argument, just my thoughts.

As a consumer, it's difficult to engage a professional that is tasked with both creative and technical talents in a job for something as personal a house design. My guess is a long-term residential architect will say it averages out in the end. Some clients need more attention or service than others. I can only rely on their experience to tell me what they think it will take to bring the product to satisfactory conclusion.

Interesting thoughts on fee structures. One of the main beliefs on the board is that most people opting for mass plans would be better off with an architect designed home because it will be more functional for a given $ amount. By functional I mean the following, though not limited to these areas:

1) Better suited to the land site: Takes advantages of views, more energy efficient, more aesthetically pleasing

2) Flow which is optimized for your family's lifestyle

3) More efficient use of square footage (again, as per your family's lifestyle and needs)

4) More efficient construction: No unnecessary jigs/jogs, no unnecessarily complicated roof lines

Given that, what fee structure do you think would result in more owners choosing to hire an architect? I think many people don't choose an architect because they fear that the plans created won't be able to built w/in budget, in which case they've basically thrown money away. I think some sort of flat fee (so they know what they are paying), along with a bonus payment for bids coming back w/in 10% of budget (either side) would best align homeowner goals with that of the architect (after all, architects don't want their work to end up in CAD files, they want to see the built product too).