U.S. Dept. of Defense statutory fee limit for architects has been raised

For the first time in more than 80 years, the U.S. Department of Defense (DoD) will increase the statutory fee limitations for architects working on construction projects within the purview of the Army, Navy, and Air Force from six to 10 percent.  AIA lobbied for the change that was finally implemented when Congress amended a section of the National Defense Authorization Act for Fiscal Year 2024. The DoD subsequently amended the Defense Federal Acquisition Regulation Supplement (DFARS), which includes this increase in architect-engineer (A-E) fees. This increase goes into effect on August 26, 2024.

Costs for architects to produce accurate and complete construction documents for federal projects have increased dramatically, which necessitate a higher statutory fee limit. The revised fee limit will allow architecture firms of all sizes to cover labor, expenses, and other direct and indirect costs on contracts for producing and delivering designs, plans, drawings, and specifications. The increase will benefit architect and engineering entities with contracts for producing and delivering designs, plans, drawings, and specifications for large horizontal and complex vertical construction projects. 

Ed Gauvreau, FAIA, chief, Planning Branch, Installation Readiness Division, HQ US Army Corps of Engineers, shares his insight into what the change means for architects.

How significant is the fee change for architecture firms?
Ed Gauvreau: By raising the limitation up to 10%, firms will be able to recoup more costs required to produce design. We all must acknowledge that putting a project together is more than just the architect, the civil, mechanical, and electrical engineer anymore. For smaller projects, the number of consultants can be in the double digits depending on the complexity. And for the large projects…. the number of professional folks on board are even greater. If the estimated project cost is under $50 million, I find it very hard for firms to break even, particularly if the project requirements are not reduced. By raising the statutory fee limit to 10%, I believe firms will be able to recoup a lot more of their costs.

Will this change the way the DOD works with architecture firms?
EG: Maybe we may do fewer projects, but hopefully we may do better projects. We’ll see what happens when we start negotiating fees. Obviously, the government wants to spend the least amount of money and gain the most value. On the other hand, firms want to maximize their profit while covering their costs. You will still have that tension between the parties, but maybe we won't have as contentious as a fee negotiation as we have had in the past. The fact is, I'd like to see firms make money because when they make money, they stay in business; then we can come back and ask them to do more work.

Do you anticipate more firms working with DOD?
EG: I believe it will probably help get more small, mid-size firms involved to do federal work. It will help the firms that want to do work or willing to pursue it. The fact is, you're actually going to make some money now - you're not going to go to the poor house to do DOD work.

Does this change make the DOD the most lucrative government agency with which architects can do business? 
EG:  At the moment, yes. To note - this change refers to DoD agencies under the Executive Branch. When you get to the Legislative Branch, Congress is not subject to these limitations, e.g. Architect of the Capitol (AOC). Obviously, AOC has some unique requirements, but they are allowed to negotiate fair and reasonable rates. States and localities have their own policies based upon the federal standards and revised to meet their own thing at this point, they have made their own policies. I can't speak for all the states and cities, but if there are jurisdictions on the fence about revising their fees, this change at the federal government may drive change at lower levels of government.

What areas of DOD are impacted by the fee change?
EG: Right now, it is applicable for Army, Navy, and Air Force. It does not apply to the DoD agencies - it was specific in the legislation.

What consideration is there for the fee to be considered Department-wide?
EG: When AIA lobbied Congress in February, the charge AIA President Kim Dowdell gave to the audience was: extend the increase in A-E fees to all federal agencies. What we would like is to just be fair and reasonable and not have this limitation. Obviously, the trickle-down effect is that it goes down to lower levels of government because as they say, “Well, this policy is what the Federal government does.”

How much money will this fee change bring to the industry?
EG:  I don't have an exact amount. The jury is out as to the impact in terms of individual projects. 
For example, the US Army Corps of Engineers spends over a billion dollars a year in A-E fees; add the Navy and Air Force and other DoD agencies, you're talking total fees that the DoD spends of around $3 to $4 billion a year. The change is going to be gradual. I'm sure that some contracting offices will be more reluctant to embrace the new policy. Getting any agency to change its practices is like getting an aircraft carrier to turn on a dime. It just takes a little bit of effort and consistent communication.