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Architects' fees are finally on the move. After a static phase through 1999 and 2000, fees as a percentage of construction costs have nudged their way up, if only slightly. The private housing, leisure, retail and industrial sectors have all seen average fee levels increase, according to Architects Fees 2001, a survey published today by Mirza and Nacey Research. But not all fee movement is upwards; in the public housing and refurbishment sectors fees have fallen and architects' responses are mixed.

The survey, which covered projects totalling £2bn, found that average fees charged for new-build traditional contracts have risen 0.25% on last year, and new-build design-and-build fees are up about 0.4%.

Aziz Mirza, director of Mirza and Nacey, admits that the overall increases are modest but says the increase in fee levels on small projects has been marked. "A combination of economic growth, low inflation and low interest rates has increased demand for architects' services for small jobs, particularly in the private housing and leisure sectors," says Mirza.

The largest increase in fees for the average £1m project was in the industrial sector, at 1.6%, but there were increases across a range of private housing project values. But construction has been growing since the late 1990s and charge-out rates have been steadily increasing, so why are fee levels only going up now?

"I believe that clients across the board are becoming more enlightened about the costing of quality design work; they realise that if you pay peanuts you get a monkey," says Tim Holder, chairman of architect Holder Mathias Alcock. HMA's fees have risen slightly this year in the retail and leisure sectors. But Holder says it has taken a decade for clients to develop an understanding of fees since levels dropped dramatically in the early 1990s, sometimes to as little as 1.5%, during the recession and after the introduction of competitive fee bidding.

Holder says clients increasingly value an architect's track record, and points to the decision of one university authority to select an architect using what he dubs the "double envelope system". The process requires architects to make two submissions to an architectural competition: the first submission details the skills, experience and ideas an architect can bring to a project, the second suggests a fee. The university will choose an architect on the basis of the first submission and then open the second to consider the architect's fee. "This should mean the university's first priority is quality rather than price", says Holder.

He adds that working with a core of repeat clients has helped HMA negotiate its fees. "Rather than trying to be all things to all people, we have developed long-term relationships with key clients in education, leisure and retail. These clients understand our fees."

Private individuals are driving the increase in private housing fees, according to Tim Gough, vice-president of the RIBA's practice committee. "There is a swath of people willing to spend money on architecture," he says. "Fashion has changed and people have become interested in modernism and minimalism. High-profile projects like London's Tate Modern art gallery have helped develop an acknowledgement of the architect's role."

He adds that the effects of low interest rates on encouraging capital investment are significant: "Low rates are a big incentive to invest now in large projects."

In contrast to the improving performance of the private housing sector, traditional contract new-build fees in social housing have dropped by 1.3% to an average of 4.7%. Matthew Goulcher, managing director of social housing specialist Levitt Bernstein Associates, is not surprised by this. He explains: "Social housing work is becoming more competitive. Housing associations are taking on more local authority work. The housing association must put in a pitch to the local authority detailing the cost of the scheme it is proposing for a site. The lower the costs, the less money the association must raise and the less rent it will need to charge its tenants. If a local authority allocates a site to a housing association in return for nominating people on its housing waiting list, it will want a minimum rent for those people – this is often the priority."

Goulcher adds that refurbishment work in social housing is becoming particularly competitive as architects struggle to compete for work with building surveyors, who tend to offer lower fees.

But the outlook for social housing is not all bleak. As Goulcher says: "Some housing associations recognise that design is important and worthy of investment. This is happening at the same time as other housing associations cut costs."

Andrew Ogorzalek, director at architect PCKO, agrees that some housing associations want innovative design work and are prepared to pay for it. "We charge a 6% fee for traditional contract, small jobs – worth about £1m – and 4% for design-and-build projects worth between £2m and £5m. Our clients understand that our fees are based on our costs and we discuss these costs openly with them. I'm surprised the survey suggests such low rates for this sector."

In the office sector, fees are unchanged since last year. Kiran Curtis, managing director at Kiran Curtis Architects, says the reason is clear: "Developers of office projects are more concerned with keeping building costs down than design quality."

On the other hand, Curtis says clients in the retail and leisure sectors are often end users of their building projects, so have different priorities from developers. He says: "Retail and leisure clients are less likely to haggle over a half per cent. Their priority is to open the building for business as soon as possible, and an experienced project team will ensure this happens. Also, design – especially for city-centre locations – is seen as adding value."

Kiran Curtis Architects' fees are around the 6% mark in both the retail and leisure sectors. But Curtis is worried about the growing number of corporate clients in the leisure sector. "Leisure is becoming a centralised industry; look at the consolidation in the casino sector. As this happens, everything becomes more hierarchical and fee levels get fixed. This could mean lower fees in the future."

Despite the competitive market, architects' salaries continue to rise. Partners and directors have seen hourly rates jump 17% to an average of £70 since 2000. Curtis says the profession continues to suffer the effects of the drop in architectural work in the early 1990s, which caused many young architects to leave the industry. "There is a real shortage of architects with 10 years' experience," he says.

Architects say they are coping because as building costs rise, their fee percentages bring in more funds. The RIBA's Gough says the increases are well due: "Most senior architects get £60 per billable hour; this translates into about £30,000 a year, which is still way behind the salaries commanded by other professionals with similarly lengthy training."

So, will average fees continue to rise? Mirza is optimistic: "Our research over the past three years indicates there is long-term growth for both the new-build and refurbishment sectors, and the figures we have so far collated for 2001 suggest that growth is solid."

He explains that although rates for the refurbishment sector are down this year, they are still ahead of their 1998 level. The news is encouraging, but for many architects higher fee percentages are not necessarily the top priority. For PCKO's Ogorzalek, the focus is on working in an effective way with clients: "We are continuously reviewing our production process, monitoring all our costs and working closely with trusted clients. This is how we try to improve margins – and make sure our fees don't get too high."

Most architects agree that forging closer relationships with clients is beneficial. The challenge is to get closer to large corporate clients, while having the resolve to reject unreasonable demands. As HMA's Holder says: "A lot of clients will ask you to prepare feasibility studies, or produce speculative designs. We simply refuse to do this for free or minimal fees. You've got to protect your business interests."