14.4 Contracts & Procurement: Managing Proposals & Contracts
Key Takeaways
- AIA B101 is the owner-architect (and owner-interior-designer) agreement; AIA A101 is the owner-construction contract; consultant and FF&E agreements are separate instruments
- Common fee structures are fixed lump sum, hourly (time and materials), percentage of construction cost, and cost-plus; each carries a different risk allocation
- Exclusions and additional services define what is NOT in the scope and billable if needed — the designer should list them explicitly to avoid scope creep
- RFP solicits proposals based on scope; RFQ solicits qualifications before scope is defined
- Billing methods (time-based, lump sum by milestone, percentage of completion) must match the fee structure to avoid disputes
Why Contracts and Proposals Matter
The proposal and contract define what the designer is paid to do, what is explicitly excluded, and how the work will be billed. The IDPX tests the candidate's ability to pick the right fee structure, scope the phases correctly, and recognize the standard AIA agreements that govern owner-designer and owner-construction relationships.
Fee Structures
Four fee structures dominate interior design practice:
| Structure | How It Works | Risk Holder | Best When |
|---|---|---|---|
| Fixed lump sum | One price for a defined scope | Designer holds overrun risk | Scope is well defined |
| Hourly (T&M) | Time and materials at stated rates | Owner holds cost risk | Scope is undefined or volatile |
| Percentage of construction cost | Fee as a % of the constructed cost | Owner (cost grows) / designer (cost shrinks) | Full-service, traditional projects |
| Cost-plus | Actual cost plus a fixed fee or % | Owner holds cost risk | Open scope, fast-track work |
A not-to-exceed proposal caps a T&M or cost-plus engagement at a stated ceiling, giving the owner cost certainty while letting the designer bill actuals below the cap. A stipulated sum is the AIA term for a fixed lump sum.
Proposal Types
A proposal is the designer's offer to perform a scope for a fee. Common forms:
- Lump-sum proposal — single price for a defined scope; over-runs are the designer's loss, under-runs the designer's gain.
- Time and materials (T&M) proposal — hourly rates and material markups with a not-to-exceed cap optional.
- Not-to-exceed proposal — T&M with a hard ceiling; useful when the owner wants cost certainty but scope is uncertain.
The proposal must state the scope of services, the fee structure, the exclusions, and the billing schedule.
RFP vs RFQ
- Request for Proposal (RFP) — solicits proposals based on a defined scope; respondents price the work and propose an approach.
- Request for Qualifications (RFQ) — solicits qualifications before scope is defined; respondents submit experience, team, and references. The owner shortlists and may then issue an RFP to the shortlist.
Public projects often require an RFQ first for legal compliance; private owners can move directly to an RFP.
Scope of Services by Phase
The AIA B101 defines the architect's (and by extension the interior designer's) scope as a sequence of phases. Each phase is a milestone for billing and for additional-services triggers:
- Schematic Design (SD) — concept, space planning, preliminary finishes, preliminary budget.
- Design Development (DD) — refine the design, finalize finishes, FF&E selection, pricing.
- Construction Documents (CDs) — drawings and specifications for bid and permit.
- Bidding / Negotiation — answer bidder questions, evaluate alternates, recommend award.
- Construction Administration (CA) — site visits, RFIs, submittals, change orders, punch list, closeout.
- FF&E — selection, procurement, PO management, installation, and warranty (often a separate agreement).
Exclusions and Additional Services
Exclusions are items the designer explicitly does NOT provide in the base fee: survey, geotechnical, hazardous-material testing, code review by a specialty consultant, and post-occupancy move management are common exclusions. Listing them protects the designer from scope creep and gives the owner a clear list of additional contracts to procure.
Additional services are excluded items that the owner later requests; they are billable at the contract's additional-services rate. Triggering examples include major redesign after DD approval, owner-directed changes, and extended CA beyond the contract duration.
Types of Agreements
| Agreement | Parties | Typical Use |
|---|---|---|
| AIA B101 | Owner–Architect (or Owner–Interior Designer) | Standard owner-designer professional services agreement |
| AIA A101 | Owner–Contractor | Standard construction contract (stipulated sum) |
| AIA A201 | General Conditions | Incorporated into A101; sets the rules of construction |
| Architect–Consultant Agreement | Designer–Consultant (structural, MEP, lighting) | Designer subcontracts specialists |
| FF&E Agreement | Owner–Designer or Owner–Dealer | Furniture, fixtures, and equipment procurement |
| Leasing Agreement | Owner–Lessor | Furniture and equipment leased rather than purchased |
A professional services agreement (PSA) is the umbrella term for the B101-style contract. A construction contract is the A101-style instrument. Interior designers most often operate under the B101 (or a PSA based on it) plus a separate FF&E agreement.
Accounting and Billing Practices
Billing must match the fee structure to avoid disputes:
- Time-based billing — invoiced against hours logged; used with hourly/T&M fees.
- Lump-sum by milestone — invoiced at phase completion (SD, DD, CDs, CA); used with stipulated-sum fees.
- Percentage of completion — invoiced against earned value; used with percentage-of-construction or cost-plus fees.
A common dispute pattern is billing a lump-sum fee hourly. The owner expects the lump sum to be a cap; the designer expects to bill hours. The contract should state which governs. Progress billing ties invoices to completed milestones or to a schedule of values; it is the standard for construction-phase billing under A101/A201.
Exam Scenario
An owner requests a full redesign of the lobby after DD has been approved and CDs are underway. The redesign was not in the original scope. Because the original B101 listed major redesign after DD approval as an additional service, the designer bills the redesign at the additional-services rate rather than absorbing it within the lump-sum CD phase.
Which AIA agreement is the standard owner–architect (and owner–interior-designer) professional services agreement?
An owner asks for a full lobby redesign after DD approval, while CDs are underway. The original contract listed post-DD redesign as an additional service. What is the correct billing treatment?