B101 - Owner Architect Contract Termination - Termination and Licensing fees

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    Michael Ermann

    The termination fee (and licensing fee for the owner to use the architect's work after the architect is terminated without cause) are agreed upon in the beginning, before the project starts. at the signing of the AIA B101 Owner-Architect agreement.Termination and licensing fees are negotiated between owner and architect (and their lawyers). Obviously, the architect would push for a higher number, so the architect will be paid if the owner leaves the project, and the owner would prefer a lower number.

    Especially with BIM, more of the project's design efforts are front-loaded, even though--based on historic precedent from the days before BIM--most of the fees often come in later stages of design. So in the case of termination, even after the owner pays for the completed design, the architect might not recover enough to cover her sunk labor costs.

    I know of no standard or rule-of-thumb for determining the amount. . .  Does the owner have a history of stopping projects or terminating architects? Is the nature of the project more speculative and dependent on cyclical market forces? If a developer wants to hire you today to design a spec office building with plans to rent space to a cryptocurrency company, that sounds like a project that an owner might not see to completion and the architect might either need a higher design fee or a higher termination fee to mitigate that particular risk. Conversely, if a municipality with a high bond rating (good accounting practices and a historical tradition of paying its debts) has received a federal grant--with dollars in-hand--to build a health clinic . . . that feels to me like a lower risk of the owner flaking . . . and the architect might put up with a lower termination fee (or the owner might not care much about the architect having a higher termination fee because the owner doesn't see termination as likely.)

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    Rebekka O'Melia (Edited )

    I don't think many architects actually get termination fees.  Market conditions can change very quickly.  It'd be wise to write the fees into your contracts, but repeat clients may not be willing to agree to it.

    The client has to pay for all the work hours up until the point of termination, whether they like the design or not.

    Hope this helps!

    Rebekka O'Melia, Registered Architect, NCARB, B. Arch, M. Ed, Step UP,  Step UP ARE 5.0 Courses

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