Architects fail to capture much of the value they can create. For example, an architect who designs a building with an innovative passive shading strategy will yield substantial energy-cost savings for the building’s owner and tenants over the project’s lifetime. Or, if an architect designs an attractive workplace which attracts and retains employees for many years, he is helping the client’s bottom line by making the workforce more productive.
The standard contracts that architects use don’t contain any language to reward the architect for the additional financial value they create. Instead, their fee is often a factor of the total construction cost, and there is no mechanism for incentivizing the designer for how well the building performs over its lifetime.
Now consider that the during a typical 30-year building life cycle, design and construction costs make up only a small proportion of the overall building costs. Operational costs –particularly for energy – are far greater. And construction cost is dwarfed by the personnel costs an organization will pay in salaries for the workers that use a building over thirty years. By gauging their compensation to construction cost, architects are only relating their work to the smallest fraction of value they can create by reducing operational and personnel costs for the owners and tenants of their buildings.
Currently, if a building fails to perform in some way, the architect is financially liable for costs associated with latent defects, even years after warranties stated in the construction contract have expired. So, architects have long-term exposure to any value they destroy, but no exposure to long-term value they create.
Architects should be incentivized to create long-term operational and personnel value for their clients by receiving some of the cost savings their design achieves. To do this, an alternative to the age-old architectural fee structure will be needed.
Thanks to LEED and other green building initiatives, building monitoring technology, and the benchmarking it facilitates, is becoming more widespread. Architects could play a role in monitoring the performance of their buildings on an ongoing, long-term basis. They could tie a portion of their fees to the higher performance levels that their buildings meet or exceed compared to an agreed benchmark.
Clients would be willing to accept these terms, since they will be saving more money in the long run and the architects’ incentives will be clearly spelled out. Since designing highly sustainable buildings is generally more work for an architect, this compensation model could be drive to far exceed their clients’ demands.
Architects are best positioned to design value into a project at the earliest stages in its development. By shifting their incentives, not only would they be motivated to design the greenest buildings possible, they would also have a fairer long-term source of income that would help the profession survive and prosper.