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No. 1: Pricing design services as a percentage of construction cost:


Although this is the most common form of quoting fees throughout the western world, it is also the dumbest – with just one exception that we’ll come to in a moment.


First, the entire concept is based around the idea of trying to commoditize design services – which means that those reviewing the fee quotations are trying to make all bidders’ services offerings equal, and then buy that equalized package at the lowest possible price. Playing that game defeats creative design, promotes mediocrity, and ensures that your business will never really prosper, because you’ll always be competing against people who are more desperate or less aware of their costs of doing business than you are.


Second – and this why it is such a dumb idea – the harder you work to design a great project that can be built at the lowest price – securing fantastic value-for-money for your client, the less you will be paid for your efforts. It is completely backward of what makes sense: The more value you can deliver to your client in the final product should be rewarded, not punished.


Ah, I hear you say – we are required by the clients or their agents to use this method, so we have no choice!  DUH!  You always have at least two choices: (a) offer the percent-of-construction-cost quote together with a more interesting and attractive proposal that is value-based, and (b) Limit the base bid to exactly what is required by the invitation to bid, but carefully limit items of risk and identify, in addition to risk issues that require resolution, other options that would be attractive to the client (but without pricing them prior to an interview).


So, what’s the one exception:  We have a client working in a regional area that has developed a strong niche market track record in a particular industry that almost always starts with a feasibility study to determine needs, project viability, stakeholder issues, and other factors that would govern overall feasibility. This firm finds that they can command high percent-of-construction-cost fees for this preliminary work, as the overall amounts are low and the risk minimal – and then with other competitors out of the way, they can maintain higher-than-average fees for the ongoing work.


No. 2:  Submitting bids as a way to win work


Why else would you possibly prepare and submit a bid for design services?  Well, just think about your experiences negotiating general construction contracts. Successful building contractors don’t submit bids designed to win projects. They submit bids designed to get on a short-list and into a negotiation. Specifically, they design bid proposals to get the competitors out of the room, so they can negotiate the details of scope and price from the position of being the preferred bidder. We can learn from that: these guys have a half-century of experience of learning to survive in a highly commoditized environment.


Combine this idea with the one above, and you will start to completely re-think the way you prepare design proposals. For the better.