For the firm, a fixed fee with priced change is the healthiest architecture fee structure when scope is defined; hourly with a cap is healthiest when scope genuinely is not; and percentage of construction cost is the least healthy of the three because it rewards the wrong thing and pays you last. Most firms that are doing well use a hybrid: a stipulated sum by phase for basic services, hourly for additional services, and a percentage only as a sanity check on the proposal.
The longer version depends on what “healthy” means, and for a firm it means three things: margin you can earn through competence, cash that arrives on a schedule, and change that gets paid for.
Which fee structure do most architecture firms use?
The AIA (American Institute of Architects) Firm Survey Report 2024 reports that the stipulated fee (a fixed sum) is the most common compensation method, that percentage of construction cost has declined over the years, and that hourly billing with a not-to-exceed cap is common on smaller projects.
The contract lets you mix. AIA B101-2017 (the standard Owner-Architect Agreement) leaves the compensation method blank in Article 11 for each category of service, so basic services can be a stipulated sum while additional services under Article 4 are billed hourly.
When does a fixed fee make a firm healthier?
A fixed fee is the only structure that lets a firm profit from being good at its job. If your standard details are clean and your team has done six clinics like this one, the hours come in under the fee and the difference is margin. Deltek Clarity 2026 puts operating profit on net revenue at 16.7% for the typical firm.
Clients also prefer it, because it gives them a number, and a phase billing schedule makes cash flow forecastable.
Two things make it dangerous. The first is the phase split. The traditional AIA breakdown, from the Handbook of Professional Practice and older B141 guidance, allocates SD (schematic design) 15%, DD (design development) 20%, CD (construction documents) 40%, bidding 5%, and CA (construction administration, the phase after the permit when the building actually gets built) 20%. Practitioner consensus is that CA regularly consumes 25% to 30% of effort against that 20% budget, so a fixed-fee project can be profitable through the permit set and lose the whole margin in the last phase, on RFIs (requests for information from the contractor) and site visits nobody counted.
The second is unpriced change. A fixed fee only works if scope change triggers a fee change, and B101-2017 Article 4.2 is built for that: 4.2.1 lists changes in the owner’s instructions or approvals as additional services, and 4.2.3 sets limits on site visits, submittal reviews, and RFI responses beyond which the work is additional. Fill in those numbers. A blank 4.2.3 is a promise to do unlimited CA for a 20% budget. The efficiency pillar’s post on scope creep covers the letter you send when the trigger fires.
When is hourly healthier?
Hourly is healthier when nobody, including the client, knows what the scope is. Early feasibility work, a renovation of a 1920s building where the walls have not been opened, a client who wants “a few options” and means it. Pricing those as a fixed fee is a wager on how often the client will change their mind.
Hourly also removes the argument about change, because there is no change, only hours. And it makes a small project cheap to contract: a 6,000-square-foot TI (tenant improvement, the fit-out of leased space) on a six-week clock does not need a phase-by-phase fee negotiation.
The trouble is the cap. Hourly with a not-to-exceed, the form the AIA Firm Survey 2024 finds common on small projects, is the worst of both structures if the cap is set at the estimate: the firm carries all the downside of a fixed fee and none of the upside, because efficiency lowers the invoice rather than raising the margin. If you must give a cap, set it above the estimate and write down what happens when you approach it.
Hourly also tends to be slow to collect. Detailed hourly invoices invite line-by-line review, and a client who is reviewing lines is not paying. Deltek Clarity 2026 puts average DSO (days sales outstanding, the days from invoice to payment) at about 68 days, and hourly invoices with pages of backup rarely beat it.
Why has percentage of construction cost declined?
Percentage of construction cost was the profession’s default for much of the 20th century. It has three problems that explain its decline in the Firm Survey data.
You do not know your fee until the bids come in, which can be 18 months after you started work. The owner’s cost cutting cuts your fee after you have done the design: a value engineering round that removes the stone facade removes your percentage of it, along with the hours you already spent detailing the stone. And it looks like a conflict of interest to a client, whether or not it is one; every principal has heard “so you get paid more if it costs more” across a conference table.
It survives in institutional and public work where procurement rules or owner habit require it, and it retains one honest virtue: it scales with the size and complexity of the work. Use that as a check. When you price a fixed fee, compute what it is as a percentage of the expected construction cost and compare it to what you have earned on similar work. If the fixed number is 4% on a building type you have never delivered under 7%, the fixed number is wrong.
What does a healthy hybrid look like?
The structure we see working in firms of 3 to 75 people has five parts.
- Pre-design and feasibility hourly, with a small budget the client approves in writing, until the program and site are settled enough to price.
- Basic services as a stipulated sum by phase, with the phase split adjusted for the project rather than copied from the traditional table. Renovations and interiors usually need more in CDs and CA than the standard split gives them.
- Additional services hourly, with the Article 4.2 triggers filled in and a letter template ready for the day they fire.
- A retainer applied to the final invoice, plus payment terms written into 11.10.2 of B101-2017, which makes payment due on presentation of the invoice and charges interest after a number of days you fill in. Fill it in. The same contract lets you suspend services after seven days’ notice for nonpayment under 9.1.
- A percentage sanity check on the total, done before the proposal goes out, so a fixed fee never leaves the office below what the work has historically cost.
Then track each phase against logged hours, whichever structure the contract uses. The fee method sets how you get paid; profit per project tells you whether the method is working, and the firm KPI pillar (key performance indicators) puts that number beside the others that matter.
Healthy is a fee structure that pays for competence and charges for change. Fixed fee does the first, Article 4 does the second, and hourly covers the parts of a project that no one can yet describe.
AECPulse Project Manager tracks each phase budget against logged hours whatever the fee method, so a fixed-fee CA phase that is quietly eating the margin gets flagged in week two rather than at closeout.