In December 1971, the Justice Department made a decision that forever influenced the way architects in the United States approach business. The government chose to pursue a case against the AIA for what it believed to be violations of Section 1 of the Act of Congress of July 2, 1890, commonly known as the Sherman Antitrust Act. The law, which had been established to prohibit monopolies and to maintain fair competition in our free-market society, prompted the Justice Department to investigate the AIA and other professional societies and trade associations that had crafted fee structures for members. The antitrust lawyers claimed that the AIA’s fee schedules were tantamount to price fixing.
Indeed, in a similar case brought against a bar association, the U.S. Supreme Court ultimately validated that stance, says Jay A. Stephens, Hon. AIA, senior vice president and general counsel of the AIA. “If competitors in an industry get together and decide not to compete on price, that violates the Sherman Act,” he says. “It doesn’t matter if you have good intentions or not, anything that you do that tampers with competition on fees or payments is going to be a violation of that law.”
In June 1972, the AIA settled the case with the Justice Department by entering into a consent judgment outlining what the AIA and its members could and could not legally do when it came to pricing. But in 1985, a document distributed by the Chicago Chapter of the AIA discussing fees prompted a second Justice Department probe that resulted in a nearly five-year-long nationwide investigation into the pricing practices of architects. The AIA entered into a second consent decree, the upshot of which is this: The AIA and its members can in no way, directly or indirectly, restrain the way architects charge for services.
That second decree was issued in 1990 on Halloween—a fitting date given how the specter of the Justice Department probe has created considerable fear among architects about the subject of fees. It’s not hard to see why: Simply gathering with fellow architects to discuss how to charge for a certain building type or what to pay staff could be seen as a violation of the law.
In reality, though, the Justice Department probe targeted conduct that was in no way characteristic of the profession as a whole. Raymond L. Gaio, AIA, president of the Los Angeles AIA chapter when the second consent decree was announced, told the Los Angeles Times after the settlement that it would have little effect on architectural business: “I don’t think it [the lawsuit] really dealt with anything the profession was actually doing,” he was quoted as saying.
In fact, the most lasting effect of the antitrust litigation may well be the silence that ensued. Architects have been afraid to talk shop, in part because they don’t fully understand the scope of the law as it relates to fees. “We know that we shouldn’t be talking about fees, so nobody talks about it” says Peggy Deamer, principal of her eponymous New York firm and an assistant dean at Yale University’s School of Architecture. “The Justice Department going after the AIA—that has cast a very long shadow.”
The first rule of architecture fees is that you don’t talk about architecture fees. At least that’s how it seems to many in the wake of The United States of America v. The American Institute of Architects. So what, exactly, constitutes a violation of the Sherman Act? The 1990 consent decree stipulates that nothing “shall prohibit any individual architect or architectural firm, acting alone,” from expressing an opinion about architectural prices or competition. This reflects well-established precedent that the Sherman Act doesn’t bar an individual architect or a firm from setting prices any way they want, so long as the architect or firm acts entirely on its own, says Stephens.
It’s when architects act in unison that things get tricky. “You have three areas of concern,” Stephens says. “The first happens when competitors get together and actively fix prices. The second is when they attempt to fix prices, which is also a violation. Or in the third instance, they might simply talk about prices in a way that could be construed as part of a conspiracy to fix prices, and that is also a violation of the antitrust laws.”
Architects can also get into trouble for banding together to say “no” to what they perceive to be unfair pricing practices. Take, for example, a private design competition. Individual firms have every right to decide not to participate if they believe a competition fails to reward bidders appropriately. “If it’s not worth it, they don’t have to compete,” Stephens says. “The danger comes if architects get together with their potential competitors and decide not to participate in the competition. That’s called a joint boycott, and it’s also illegal.”
There are some arenas, though, where advocating for better fees is not a violation of the law. State and local governments are not bound by the Sherman Act and are free to set fee schedules and impose those on architects for government-funded projects. “The reasoning is that it’s a states’ rights issue,” Stephens says. “For most purposes under the Sherman Act, every state is sovereign and has the power to decide what it does within its own borders.”
Moreover, the First Amendment has a provision allowing people to “petition the government for redress of grievances,” making it legal for architects to join forces and lobby state or federal government officials to change the way they seek bids for architectural jobs. Stephens says the nuances of such exceptions to the law are often difficult to grasp, particularly in a slow economy. “If you talk to architects today, they will tell you that there is a tremendous pressure to lower fees,” he says. “The dilemma is that the courts are going to say that’s exactly what the law is meant to do. From the antitrust law perspective, the system is working.”
To blame the current state of architecture fees solely on the Justice Department case fails to recognize a larger truth. A quick look back at the history of fees shows that architects have often struggled with valuing their work.
In the early 1860s, the influential architect (and co-founder of the AIA) Richard Morris Hunt inadvertently established a standard working rate when he sued a client for non-payment of his 5 percent architectural fee. Hunt won and the 5 percent fee quickly became the norm, as outlined in a schedule of charges document issued by the AIA a few years after Hunt’s lawsuit.
Additional litigation throughout the 19th century created various precedents that saddled the profession with additional liability. In an 1888 case, the court concluded that the architect—and not the tradesmen—was accountable for an improperly sized boiler chimney installed in a building. For architects, shouldering the additional risk of such structural flaws, and having to keep pace with rapid advances in building design and technology, did little to change what they were paid. That flat 5 percent fee barely went up—to 6 percent—by the early 1900s.
Even with a flat rate, architects still felt pressure from clients to lower fees. Charging a set percentage was an advocated norm, but it was by no means the rule, and firms often undercut what they charged to earn a job. The AIA responded, and by the 1950s, individual AIA chapters had a (frequently convoluted) fee schedule for a variety of jobs. Even still, architects saw their profit margins continue to shrink. An AIA-commissioned study of firm economics in the 1960s concluded that many firms had no clue how to budget actual costs or maintain accurate records. Worse, one out of four jobs lost money, in spite of the complex fee schedules. Well before the Justice Department cracked down and ended fee schedules in favor of cost-based competition, architects struggled to define and defend their value. “We have never resolved our compensation model,” says Deamer.
Deamer is a founding member of a new and informal group of about 36 architects, firm owners, academics, and others calling themselves the Architecture Lobby. The Lobby began as a series of salons to discuss the state of architecture and evolved into a group with several advocacy goals, according to Deamer. Topping the list is a desire to change the way the profession values its labor.
Whether it’s reverse auction bidding that rewards the lowest rate; design competitions that require substantial outlays of resources with no guaranteed return on investment; firms low-balling fees just to get a gig; or a generation of hopeful architects clamoring for staff positions by accepting low salaries, long hours, and poor benefits—it is, Deamer says, essential that the profession overhaul its business model. “We haven’t gotten it together like other professions,” Deamer says. “There’s all this lip service to the architecture profession needing to be more entrepreneurial, but when we get right down to it, we aren’t at all creative about our business model.”
Rather than being paid for expertise, as some doctors or lawyers are, Deamer says architects are paid for an object. “We don’t know what fiscal model to follow: Are we a trade? An art? A service? Because we don’t know the financial model that we fit into, we adopt the worst of all of them.”
In an unscientific SurveyMonkey poll conducted last month by architect, half of the more than 800 designers in the magazine’s email database who responded said that their firms had implemented business strategies to offset plummeting architectural fees. Respondents said they had tried cutting staff and overhead, slashing the time spent on design and working drawings (using hourly rates instead of fixed fees), pursuing new sectors with better profit margins, and taking on more related work for a client to justify higher stipends, among other strategies.
It amounts, however, to the Dutch boy and the dike dilemma: As market pressure mounts, there seem to be more holes than fingers, and the dam seems ready to burst. What is so counterintuitive, then, is why architects—who are such savvy designers, such creative problem solvers—often struggle to adjust to the 21st century marketplace. Deamer points to other industries, like tech, which have figured out how to fund research and development and continue to innovate products through a mix of profit and venture capital investment. “How do we really set up a structure so that we can do research and development, pay our staff well, and charge what we’re [really] worth?” Deamer says.
Given our lukewarm economy, it’s more vital than ever for a firm to understand and articulate its worth and influence client opinion about architectural value. But with fees being such a nuanced and legally thorny issue, the result is that architects often don’t talk business at all. Stephens says that the AIA would never enable discussions—particularly about fees—that would cause problems under the antitrust laws. But, he says, “if we present to people the different ways they could add value to a business, do a better job with basic business preparation, then we could help people without getting anybody into trouble.”
In 2005, Bradley Samuels and four classmates in the architecture program at the Cooper Union decided to buck what they saw as indentured servitude at an existing firm and start their own practice, Situ Studio. They chose to create a different kind of business, one that supported their collective interests in design, research, and fabrication. “We built a practice model around combining different parts of the discipline in order to pursue the type of work we’re interested in,” Samuels says. “The fact is that compensation for doing design work isn’t what it needs to be. We knew, coming right out of college, that we couldn’t make it on design fees alone.”
The partners created three distinct departments—design, fabrication, and research—and gave each its own fiscal objectives. “They all have different marketing strategies, different revenue goals, and they need to be thought about discretely, even though they all feed off one another,” he says. “We wanted an alternate model of practice, and that’s why we structured the studio this way.” For instance, Situ pursues grants for the research arm while using the fabrication portion of the business to build for other people—architects and artists—which then helps fund the studio’s original design projects.
Today, Situ Studio employs 34 and continues to refine its business model to remain viable in the changing marketplace. (Samuels is quick to note that the path they chose did not lend itself to becoming a licensed architecture firm, but that licensure is something they are now discussing.) Samuels began attending Architecture Lobby gatherings because “we all agreed that the culture of the architecture firm was problematic, and these were important conversations to have,” he says.
“There’s a lot of discussion about the value of an architect,” he continues. “That’s not as big of an issue for our studio because we come at it another way. There’s a lot of downward pressure on fees, sure, but I don’t see that changing. There’s always pressure, and it’s not specific to architecture. There’s market pressure in general.”
In many ways, Situ mimics a tech start-up more than a traditional architecture firm. While grants currently fund research, the long-term goal is to monetize the department. For example, Situ used grant funding to design and patent a digital imaging instrument called the Giri, and they are about to spin the product off into its own company. “It’s a hard model to apply to architecture as traditionally defined,” Samuels says, “but it fits what we do.”
The studio also fosters a startup culture by keeping staff involved in important discussions, intellectual and otherwise. “We’re not hierarchical the way that many firms are. There’s an agility with the expectation of growing collectively,” Samuels says. “We remain small and agile, and we continually re-evaluate and adjust.”
Remaining agile and willing to move with the marketplace is equally important to large firms, according to Charles Dalluge, Assoc. AIA, executive vice president at Leo A Daly, one of the largest architecture firms in the country. When he began at the firm two decades ago, Dalluge was in the design department. Now, he says, he applies those design-thinking skills to business. “We all went to architecture school to be designers, and we were trained as problem solvers,” says Dalluge. “I’m still a problem solver, but I’m solving the problems of our business as opposed to [coming up with] a client solution.”
Dalluge says that one way to combat diminishing fees is to make sure your firm can advocate its value to a client. “We’ve had situations where we’ve said: If we had more time to look at this particular issue, we could come up with a better solution for you. So don’t reduce our fee, increase our fee,” Dalluge says. “The client has to believe that you are a value-added [proposition] and not just a commodity.”
Leo A Daly uses proof statements—a growing body of evidenced-based design results—to support this argument, such as providing fact sheets from a past hospital project to a new healthcare client in order to show how design choices increased the efficacy of a building and its occupants. Dalluge also says his firm customizes fees. “No two hospitals are alike, no two schools, so it makes little sense to base fees on a percentage of construction costs,” he says.
The firm works at the front end to understand the scope of a project in order to create a fee that makes the most sense for the project. “We try to get to the core of the issue—not just how many square feet, or how many stories or rooms. Once we feel like we have that ‘Aha!’ moment, and we have a genuine understanding of the scope of the work, at that point, we handpick the best people for that assignment and create a custom fee.”
Leo A Daly employs a “go/no-go” strategy in assessing a project: Do you take the project in the first place? “We look at where the risk is,” Dalluge says. “Is it in the terms and conditions of the contract? Is it a client that doesn’t pay on time? Do they have the money, or are we going to help attract financing? Today, as a profession, we have a much better handle on where the risk is in the opportunities. We are able to make sure that compensation is aligned with risk.”
Dalluge also says his firm has become savvier about saying “no” to design competitions. They won’t participate if there isn’t enough access to the client, and they scrutinize return on investment. “We’ve seen competitions where what the client is asking for in terms of deliverables—animation, video, documentation—means the cost of pursuit is more than the potential profit if you win it.”
Dalluge recently went to D.C. to help lobby with the AIA for improving the way the federal government invites bids for building projects. “While that wasn’t affecting the fee, per se, what we were trying to do was affect the way the government procures services to better benefit the architects.”
Better business models, smarter approaches to compensation, and lobbying government where possible—are all important strategies. For Deamer, though, simply lifting the taboo of talking about business and having a conversation about compensation may be the first and most valuable step in bolstering the perceived value of the architectural profession. She hopes that the Architecture Lobby can eventually spark a public discourse around the topic. “Really public,” she says, “so that all of the architects in the U.S. would know about this and the public would join the conversation, too.”
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