design fees as function of construction cost

[xeneize10]

Happy new year and I hope you are all doing well. I have a question am I am hoping that from either experience or literature someone could provide me feedback about design cost as a function of construction cost.

I have a project on which I have a consultant responsible for 4 task: feasibility, schematic, design, construction management. I am trying to re-negotiate the cost of the tasks. The reason the cost needs to be renegotiated is that at the end of the feasibility phase the construction budget quadrupled. Should the design fee be a function of direct cost only? I believe that would be the most reasonable way to renegotiate cost for pending tasks. At this point the consultant wants to use the TOTAL cost which includes mobilization, general conditions, escalation, art and permit fees, db fees, market location, leed fee, and contingency. I would appreciate if someone could share some of his/hers thoughts on this and/or if you could direct me to some literature about this subject (if there is any?)

Thank you.

 

[miningman]

IMO, regardless of how disapointed you are with the 300% overrun on the construction budget, you are now going about this all wrong. Are you 1000% sure that the consultant will have absolutely zero involvement in the mobilization , designs , permit applications etc?? If so carry on but be prepared to put these matters in writing. Sounds to me as tho someone dramatically under estimated the original budget. Your consultant is doing you a major favour in identifying this early.

Suggest you move forward slowly , perhaps looking at the schematic and design initially. You might find that construction costs will increase dramatically again at this stage and chose to cancel the project completely or at least reduce the scope

 

[GeoEnvGuy]

I have a consultant responsible for 4 task: feasibility, schematic, design, construction management

Did the original contract come with a ten year commitment for a team of five engineers? That should cover the potential risks with such a broad scope.Obviously not lowest bid or lowest qualified bid got the job.

With a project that starts from a feasibility stage the construction management estimate is based on an assumed feasible design with no bells and whistle's. After the feasibility stage if it's not what the original proposal had as the assumed design and construction, what a surprise, then it will need more effort to execute.

From an owners perspective it may be beneficial to try and get an all in price but the winner of the contract had the lowest price with smallest design and construction in mind. Could have gone with the most pricey proposal with largest design in mind and not had as much renegotiation. From the consultant side if they bid large scope and design, they are to pricey to win so assumptions and exclusions are put in to limit scope. Or the consultant will claim not in original proposal change order, change order, and more change order.

 

[Drazen]

If you have so large budget overrun, tightening consultant's fees is last thing to do in order to establish budget control. Their cost ratio compared to total budget is much lower than is the influence and importance of consultants in budget control.

That is typical business-destruction scenario where costs cuts are searched for in wrong places.

Did you hear of Pareto chart? Use it and find where your major troubles are, and focus on them.