A Sad Tale about Fees

Collecting fees can be a hassle. Even if an architect performs flawlessly, many projects (and the associated architectural fees) are vulnerable to the client’s failure to manage the wider issues. The architect needs to keep an ongoing “weather eye” on the client’s character, intentions, competence and solvency.

Not being paid is an uninsured commercial risk, and you need to provision for it, and manage clients to minimise your exposure. This can be difficult when – for good reason – you cannot just cease work and await payment. Nor do you want the non-payment to escalate into a dispute.

This little story is by no means an isolated case, and no doubt you can think of your own variations on the theme. The moral of the tale may be to invoice frequently, explain comprehensively, record correspondence diligently, track/monitor/record all changes to the scope of attendance as they happen, benchmark and follow up on design decisions and cost estimates as often as necessary, and be alert to changes in client circumstances.

An architect undertook design work in accordance with NZIA AAS. The client failed to pay, alleging overcharging. The architects responded with a specific statement refuting the overcharging. They then set out a very full but simple and logical explanation of how the costs were built up; references to the relevant correspondence; how the invoiced fees related to the prior fees estimates and terms of engagement; and the changing circumstances of the project as it evolved. They were confident their work was not at fault, nor that they had ‘overdesigned’ or ‘done more work than requested’ as alleged, because the correspondence confirmed that additional work had been requested and subsequently changed by the client, and the architect’s responses had signalled the fee implications.

The client then responded saying the project and the design cost too much, the architect’s design had been a wasted cost, and that they had engaged another (presumably cheaper) designer to revise things. This throws up the usual issues of copyright; cost control, both in the overall development budget and in the design decisions; and the benefits accruing from all the prior design input which, even if not progressed, informs subsequent designs.

Shortly afterward, the property was put on the market. Perhaps this is another case of a client not being realistic about the costs and risks of development.

Fees recovery is now even harder, because the architect has no control over the recoverable value of what they have produced. Client insolvency, marital strife, or change in ownership structure would increase the problems. The architect is – in reality and despite legal niceties – an unsecured creditor. Then there is prospect that the client could pursue the architect for the losses (“damages”) arising out of the project being abandoned. Perhaps the only good thing to happen at this stage is that your PI policy would respond to that damages claim.

We have observed that some disgruntled clients have sought an unfair fee settlement by threatening to make a disciplinary complaint to NZRAB in the alternative. This extortion is unconscionable, but permissible. The cost and reputational implication to an architect is considerable.