Fee Structure

This page explains how Renovation Navigation’s approach to fees compares to other market participants.

Traditionally, architects generally charged clients a percentage of the total value of the construction costs of a renovation project undertaken. However, this approach may distort incentives for an architect to not pay sufficient attention to construction costs or at worst, “gold plate” designs so they would make more money. Recently, the trend is increasingly veering towards an hourly rate. It is very rare to see an architect charge a fixed price, since customers invariably change their minds as they review designs made by the architect—a perfectly natural part of the renovation process.

Some contractors offer fixed-price construction contracts. But in order to protect themselves from unforeseen delays, price increases of inputs, and materially hidden problems not initially visible, contractors incorporate large cost cushions to offset their exposure to these types of risks. Increasingly, therefore, contractors have been moving towards contracts that are priced on a “time and materials” (T&M) basis, where the client is charged for (i) the number of labor hours expended (priced according to different skill levels) and (ii) the cost of materials used, where both (i) and (ii) are increased by some percentage to cover the contractor’s ‘mark-up’. The magnitude of the percentage mark-up charged can vary substantially from contractor to contractor, and in some cases can be quite high, e.g., 30%-40%. But, mark-ups are also increasing across the board.

Sometimes, contractors will use T&M contracts that also include a “not to exceed $X” provision. Typically, once the client and contractor jointly realize they are coming up to the “not to exceed” ceiling, an amended T&M contract is agreed to. There are of course cases where, when this point is reached, the client’s budget is exhausted. When this occurs, work ceases. It may start again when the client’s budget is replenished. The risk in this case is that the contractor has “startup” costs that will have to be borne again by the client if the work resumes.

In either case, contractors do not face strong incentives to shop around to lower the cost of materials or ensure their workers are performing tasks cost-effectively because costs are “passed through”—with a markup—straight to the client.

Renovation Navigation’s approach is the most straightforward and freest of distorted incentives. Clients are charged a uniform, fixed hourly rate, which is clearly specified in the contract for any activity undertaken by the firm for the client. This approach allows clients to purchase as much or as little time as wished, charged in 30-minute increments. On a bi-weekly basis, Renovation Navigation sends an invoice to the client that specifies the actual number of hours expended on activities related to the project, including brief descriptions of the activities undertaken during that period.