Generally there are 3 ways owner’s reps charge for their services: lump sum fee, by the hour or as a percentage of the total cost of the project.
What’s the best way? The best way is the way that makes sense for both the client and the owner’s rep given the specific circumstances of the project.
Lump Sum Fee
A lump sum fee is ideal when the responsibilities of the owner’s rep can be identified with great clarity up front. This allows the client to be comfortable with costs from the very beginning of engagement. It also allows the client to call on the full array of services the OR offers without having to worry about being “nickeled and dimed” to death with add on charges for this and that.
Lump sum fee is very straightforward and gives the client full access to meetings and explanations and whatever is needed to make the project successful.
Hourly rate is another way owner’s representatives charge for their services. Hourly rate is best for a client when the client is extremely experienced in the type of project they are doing. If they have “been there before” they can bring the owner’s rep in to do very specific tasks that save the owner time and money. One of the negatives about hourly rate is that owner’s may feel reluctant bringing in the OR in certain circumstances because they don’t want to incur more costs, thus possibly jeopardizing the project.
From an owner’s rep perspective hourly rate may be too restrictive if the number of hours are capped. This can cause owner’s reps to work too fast or miss important details because they are over budget on time. Owner’s reps and owner’s should not be too concerned if tasks take longer than planned. Quality is what is important.
Percentage of the Total Project Cost
Percentage of the total project cost is another way owner’s representatives charge for their services. If the total project cost is known when the owner’s rep is being hired this way can make sense for the owner. If not, a negative here is that the owner’s rep may not be motivated to reduce costs and find value engineering solutions to reduce the total cost of the project. Typically total project fees are in the 1% to 2% range.