Managing Subconsultant Fees: A Guide for A/E Firms
March 21, 2022
Architecture and engineering (A/E) firms use various methods to manage the fees of subconsultants (subs) within their projects. Whenever we ask the question, “how do you budget for subconsultants?,” the answer is almost always, “It depends.” For many firms, the method varies by project depending on client type or service provided by the subconsultant. Even after the budget is established, there are different ways to handle the subconsultant fees when setting up the fee breakdown, tracking the budget, and invoicing the client.
Ideally, all the various subconsultant scenarios a firm encounters could be handled in a system that combines project management and invoicing capabilities. Unfortunately, most project management software is designed to handle only one or two scenarios at best. When those methods don’t cover all of the scenarios across projects, the firm ends up using spreadsheets or other tools for tracking subs and their fees.
At minimum, this means spending lots of extra time tracking where each contract stands in terms of budget and reporting this to clients. However, many firms find themselves missing sub invoices and underbilling for subconsultant services. Or worse, they might forget that a phase includes subs and inflate the available budget, leading to overspend. These and many other potential issues reduce the profitability of projects. Repeat this on multiple projects, and you’ve got yourself into a sticky situation.
So, is there a way to ensure you are prepared to manage multiple subconsultant scenarios and their impact on projects? The short answer is “yes,” but it helps to understand the common scenarios that many firms encounter first.
3 Common Approaches to Dealing With Subconsultant Fees
If you want to implement a system that helps you manage subs’ fees more efficiently and effectively, it’s vital to know how firms have managed them historically. There are three common approaches:
- “It’s just an expense.” In this case, you treat a sub's fees and any expenses as a separate budget outside of your contract. For all intents and purposes, the budget for your sub is not much different than a budget for pass-along reimbursables. As with reimbursables, you’re probably listing charges and attaching details like receipts or sub-consultant invoices to your invoice.
- “It’s in the fee.” With this approach, you roll the sub's fees for each project phase into your fees, which are almost always fixed amounts. Your client doesn’t need to see the details. They just want to know how much of the budget is consumed for each phase. Who did the work isn’t important to them. Consequently, you probably don’t need to show the client the invoices or receipts from your subs. But you do want to track the amount submitted from your subs against the amount you budgeted for them in each phase.
- Hybrid methods. Some firms combine features of different approaches. For instance, you might be passing along expenses but still need to track incurred service or expense amounts against a total budget for the sub and report this to the client. You might have included your sub in your service fees, but the client still wants to see invoices from the sub as they are billed, just to understand how much of their current invoice is going to the sub. Or, you might have included the sub in your service fee and spread their total contract amount out over your project phases, but you need to report on the entire contract and billed amount for each sub separate from the budget.
"In industries like architecture and engineering, time is money, and accuracy is everything."
Essential Functionality for Managing Subs
It’s most likely that you have projects set up in more than one of the above approaches. What exactly do you need to support those methods? To make your life easier, the ideal platform should enable you to do any of the following, in combination when required by the project:
- Track subconsultant budgets outside of the project phase amounts. That includes allowing you to enter a total amount for each sub on the project and track the amount that they have submitted and that you have included on client invoices. You must also be able to associate expenses to the budgets for your subs and pass those along on your invoice.
- Include the subconsultant budget in your fees. That means spreading amounts out over the phases of your project to distinguish it from your firm’s available budget for services. You must also be able to track how much you’ve billed the client for the sub’s services in each phase.
- Customize how your invoices display subconsultant charges. For example, you should be able to optionally show the client the total amount invoiced for a phase without any detail about which sub’s services are being billed, provide the total amount invoiced for a subcontract, and include invoices or receipts from the sub on your invoice.
Simplified Sub Fee Management
If you use subconsultants, then you likely already have a system to manage their fees. But is it a system that encompasses the various ways your clients demand these fees be handled?
In industries like architecture and engineering, time is money, and accuracy is everything. Take too long to manage sub fees, and you burn valuable hours. Make too many mistakes using homegrown processes, and you tarnish your industry reputation. Instead, use a system designed for A/E firms, and give yourself a competitive advantage while also lowering your billing-related stress!
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