Every so often, architects lapse into the futile discussion about the economics of our profession. What happened? We often ask. I spent time last year in the AIA’s archives, to satisfy my curiosity. I aggregated data on firm revenues and profitability over the past 50 years. Sources from several organizations used varying methodologies to track average net profits over the decades. Analyzing this data revealed a clear trend that shows after 1960 we had a period of decline followed by volatility that continues to affect our profession to this day. I shared this data at Envisioning Organization hosted by Professor Karen Lewis at OSU.
What Happened? A series of legal, economic and policy shifts had a significant impact on our profession. In the 1950’s, the American architectural profession was caught off guard by a precipitous drop in net profitability. Initial profit declines could be chalked up to the increase in the costs of architectural production. The business of architecture wasn’t capitalizing on the expanding scope and needs of clients for services like programming, site analysis, interior design, etc. Such services were typically absorbed into project time without formalized, separate scopes. Additionally, firms weren’t able to streamline their workflows to keep up with the proliferation of innovative building technologies, and modern construction systems. During the decades that followed, however, client fees paid to architects remained relatively static. Something greater than increasing complexity in the studio and on the job site was at play. This chart plots those external events that further contributed to the profession’s economic volatility, and the architect’s declining value proposition in the overall construction equation.
The rise of the litigious era in the mid-1950’s led the AIA & Engineering Societies to establish the Professional Liability Insurance Program to protect construction professionals from exposure to liability. The program discovered substantial underwriting losses in its first years. This led liability insurance carriers to put pressure on the AIA to revise its Contract Documents, so that it would decrease the architect’s exposure by reducing his/her authority over construction. In 1960, key language in the Owner-Architect Agreement was replaced, and the architect’s role during construction shifted from “general supervision & direction of the work” to making “periodic visits to observe.” In the years that followed the AIA continued to dismantle the architect’s construction scope, and further jettison the Architect’s most valuable role as masterbuilder. In 1966, the AIA Contract Documents added that the “architect shall not be responsible for construction means and methods,” further disengaging the architect from the construction process. In 1970, the AIA removed the architect’s authority to “stop work” during construction from the Contract Documents, leaving only the ceremonial authority to “reject work” that doesn’t conform to construction documents. Since then, the AIA has endeavored to put some items into the documents that increases the architect’s responsibility, but nothing that matches the responsibilities and accountability of the masterbuilder.
After the 1960’s wider external factors began to impact our profession. In 1972, the US Department of Justice filed an antitrust suit against the AIA for its Code of Ethics that prohibited its members from engaging in competitive bidding. A consent decree was entered, with the AIA rescinding its “Minimum Cost of Service” schedules and revising its Code of Ethics to free its membership from having to set competitive rates. The settlement led to increased price competition among firms, just as the US entered the 1970’s recession. Being the lowest bidder enabled a firm to survive the construction industry contraction and energy crises. The architectural profession found a reprieve when Congress passed the Economic Recovery Tax Act of 1981. The Reagan-era tax policy provided accelerated depreciation schedules and incentivized speculative commercial real estate development over the first half of the 1980’s. It put the construction industry and architects back to work, though the demand and expectation for program-rich site-specific architecture was diminished.
The profession could have never controlled the external legal, political, and economic events. However, it is remarkable that its collective reactions to them kept architectural practice and its business model unchanged over decades. For three decades, our profession has been disengaged from the job site, more competitive with itself, and involved in speculative buildings. Yet somehow we organize our businesses as if we are still the pre-1960’s professional. Contemporary practitioners are the beneficiaries of this steadfastness, as well as the diminished value and stature that it provokes. Perhaps it’s time for a new business model?
(Updates 2012 with new data)