When it comes to hiring a project manager for your office construction, the cost can vary depending on several factors. In this article, we will explore the different fee structures for project management (Percentage, Fixed, and Cost Per Square Foot), clarify the timing of fee payments, discuss potential additional costs beyond standard fees, and highlight the key factors influencing your overall project cost.
At AQUILA we specialize in assisting clients like you and we aim to provide clarity and guidance throughout the construction process.
- The three ways project management fees can be structured (Percentage, Fixed, and Cost Per Square Foot)
- When the project management fees are due
- What, if any, costs should you anticipate outside the standard fees
- The major factors that will affect your total project cost
Read Now: The Ultimate Guide to Hiring a Project Manager for Your Office Build-Out
The Three Project Management Fee Structures
In many cases, large companies with in-house real estate teams and nationwide offices provide their own agreement terms. However, when clients seek the project management team’s terms of service, most project management firms adhere to three standard approaches.
It’s important to note that fees vary from market to market and the estimates below are based on market standards in Austin, Texas.
1. Percentage of the Project Cost
The prevailing payment structure for project management contracts involves a predetermined percentage of the overall project cost. This cost encompasses both the hard cost, representing the construction contract’s value, and the soft costs, including architect and engineer fees, permitting, and other expenses. To learn more about how to plan for your total project cost, read our article Cost to Build Out Office Space: How to Plan and Budget.
Total Project Management Fee = Project Cost x % Fee [Typically Between 3 – 5%]
Tenant Improvement/Office Renovation Projects
Reputable project management firms typically charge 3% to 5% for office renovations and tenant improvement (TI) projects. The position on this range is influenced by the total projected cost, with higher project costs associated with lower rates. The chart below provides a breakdown of typical project fees for TI/renovation projects based on the project cost.*
| Project Cost | Estimated Fee Percentage |
| Up to $2 million | 5% |
| $2 – 5 million | 4% |
| $5+ million | 3% |
*These numbers are an estimate and may vary on a case-by-case basis, due to scope, timeline, or special circumstances
Ground Up Construction
For larger projects like ground-up construction, fees can be further reduced. The chart below provides a breakdown of typical project fees for ground-up construction based on the project cost.*
| Project Cost | Estimated Fee Percentage |
| Up to $10 million | 4% |
| $10 – 50 million | 2.5% |
| $50 – 100 million | 2% |
| $100+ million | 1.5% |
*These numbers are an estimate and may vary on a case-by-case basis, due to scope, timeline, or special circumstances
The Gerson Lehrman Group office at 301 Congress is an example of a large scope office renovation project in which the AQUILA Project Management team represented the tenant throughout their TI project.
2. Fixed Monthly Cost
Upon client request, project managers occasionally adopt a fixed monthly cost structure for their fees. In such cases, the project manager assesses the project timeline and scope to estimate the monthly hours dedicated by their team and establishes a predetermined fee based on this estimation.
Total Project Management Fee = Hourly Rate x Hours Per Month x # of Months
This hourly fee can vary depending on the size, timeline, and scope of your project.
3. Cost Per Square Foot
The third option for project management fee structure involves a cost per square foot. The project manager charges a fee per square foot, determined by the total project cost. Generally, in Austin, this fee falls within the range of $1.50 to $3.50 per square foot. It’s important to note that this option is usually implemented upon the client’s request. Additionally, the project management fee per square foot decreases as the project size per square foot increases.
Total Project Management Fee = Project SF x Per SF Fee [Typically Between $1.50 – $3.50]
When do I have to pay the project manager?
Regardless of the chosen fee structure agreed upon with the project management team, the payment schedules follow a consistent format.
Initially, the project manager determines the lump sum total of the project management fees. These fees are subsequently divided and invoiced as equal monthly payments throughout the duration of the project.
Upon the client’s preference, billing may begin once construction has commenced, exempting charges during the pre-construction phase, including design and permitting. This option does not affect the total amount owed; rather, it leads to higher monthly bills over a shorter period exclusively during the construction phase.
Besides fees, are there any other costs associated with hiring a project manager?
In most cases, hiring a project manager does not involve additional fees. However, certain special circumstances may give rise to additional costs.
Your project management firm will incorporate a clause in the contract that either specifies a “not to exceed” estimate for such reimbursable expenses or stipulates that they will seek your written approval before incurring any additional costs.
Third-Party Consultants
Should the client request that a third-party consultant be brought in, the project management team may be tasked with hiring these consultants directly and then charge the client for reimbursement as a part of the typical billing cycle.
These consultants may include permit expediters, TDLR review, sound consultants, etc. However, in most situations, these consultants are typically included underneath the architect’s proposal as a third-party consultant. Also note that whether they are under the architect’s or project manager’s contract, the third-party invoices will carry additional markup costs owed to the contracting entity (usually either the architect or your project manager) for managing their services. In most cases, this is usually an additional 10% of the invoice total.
Travel Expenses
Typically, project managers do not charge for local travel. However, if there is a need to travel out of town or out of state for site visits, meetings, or presentations, the project manager may request reimbursement for travel, which can include mileage, airfare, and/or hotel costs.
What will my total project cost be?
Several factors influence the overall cost of your office renovation or build-out:
- Square Footage: The size of your project significantly affects costs since materials and labor are often calculated on a per-square-foot basis.
- Construction Type/Scope: Whether it involves ground-up construction, renovating an existing office space, or a build-out of shell construction plays a role. Comparatively, renovations or shell build-outs tend to be less expensive than ground-up construction, but this can vary depending on the specific circumstances.
- Level of Finish Out: Your desired level of finish and design elements impact the project cost. Choosing high-end materials and intricate designs will result in higher expenses, whereas a more cost-effective build-out will be more budget-friendly.
- Timeline: The project duration also affects costs. A longer project naturally incurs higher expenses, while expedited timelines may come with additional premiums. Your project manager will assist you in establishing an efficient timeline that meets your needs and budget.
Taking these factors into account, your project manager can provide guidance and ensure a well-planned and cost-effective office renovation or build-out.
Read Next: The Ultimate Guide to Building Out Office Space
The project management fees are determined by the size and scope of your project. It’s important to note that hiring a skilled project manager can lead to significant cost savings that outweigh their fees.
To learn more about finding the right project manager for your project, read our article Hiring an Office Build-Out Project Manager: 7 Must-Ask Questions.
The AQUILA project management team has decades of experience in the Austin market and is ready to help guide you through your next office renovation, TI project, or ground-up build. If you have any questions about this or any other services AQUILA offers, request a consultation today.
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