What is the business case for BC(A)R?

by Bregs Blog admin team

Business-Plan

The following opinion piece was submitted on 17th June by a registered professional.

What is the business case for BC(A)R?

What is the cost to an architect of signing the first BC(A)R certificate of compliance?

Let’s examine the case of a 40.5sqm extension to a house in Dublin.

The statute of limitations is 6 years; let’s assume it can be relied upon to limit the architect’s professional indemnity (PI) insurance exposure. The main costs are therefore as follows:

  • PI insurance cover for 6 years (€1,800 x 6) €10,800
  • Membership of Register of Architects (€500 x 6) €3,000
  • 40hr p.a. CPD commitment (6 x 40 x €20average) €4,800

Total overhead for first certificate €18, 600

If the architect has 20 years of practice left before retirement and completes an average of four such projects per year the total exposure is as follows:

  • PI insurance cover for 26 years (€1800 x 26) €46,800
  • Membership of Register (€500 x 20) €10,000
  • 40hr p.a. CPD commitment (20 x 40 x €20) €16,000

Total €72,800

If the total cost is now distributed over the 80 projects the cost per certificate in overheads alone is €910.

If the influence of cyclical collapses in building activity is allowed for over the 20 year period it can be assumed that for at least 4 of those 20 years there will be no project income and no certificates issued but the overhead will continue.

  • PI insurance cover for 26 years (€1800 x 26) €46,800
  • Membership of Register (€500 x 20) €10,000
  • 40hr p.a. CPD commitment (20 x 40 x €20) €16,000

Total €72,800

The total cost is now distributed over the 64 projects the cost in overheads alone is €1,137.50 per certificate signed.

If the architect has 10 years to retirement the costs escalate further:

  • PI insurance cover for 16 years (€1800 x 16) €28,800
  • Membership of Register (€500 x 10) €5,000
  • 40hr p.a. CPD commitment (10 x 40 x €20) €8,000

Total €41,800

If the total cost is now distributed over the 32 projects which the architect will complete in those last 10 years of his working life, the cost to the architect is €1,306.25 per certificate signed.

The overhead alone exceeds the Minister’s proposed €1,000 fee for a BC(A)R certificate and that is before the cost of actually carrying out the administration and inspection work is accounted for.

The above figures do not account for the impact of income tax on the architect, especially in the retirement phase where the full cost of PI cover has to be funded from pension income (if any) for a period of at least six years.  The calculation assumes that the statute of limitations applies to the discovery of defects or mistakes from the time of certification, as opposed to from the time of discovery, which could be many years after the building is completed.  This important consideration has yet to reach a definitive conclusion in legal circles.

The above calculations assume no inflation, no currency depreciation and no cost for borrowed capital and are therefore of limited value.  The real overhead figures are likely to be significantly more costly.  Accountants will be able to advise on the NPV calculation required to assess the costs in real terms.

As PI cover is calculated on a claims basis, i.e. historically, it is impossible to predict the future cost of PI insurance cover, especially in a small peripheral economy like Ireland.  Appreciation in premiums can have a dramatic effect on the overhead costs to be borne by architects long into the future; we have all seen the impact of recent medial insurance premium increases which have now become unaffordable for many.

Blog Footnote: 

Many readers will say that Professional Indemnity cover will already be in place pre-March 1st for established practitioners and that we do not know how much (and when) any increase will be specific to duties associated with SI9. This is correct. This opinion piece is addressed at the professional who is considering setting up as an Assigned or Design Certifier service provider and leaving a practice to do so. Or setting up with a county enterprise board grant in a back to work self employment scheme. There are also, especially these days, a number of architects working in non traditional employments and who may be asked to sign certificates, eg working in development, engineering or interior design. In other words anyone who will soon be setting up as SI9 certifiers who need to understand the 6 year overhang on Professional Indemnity (PI). Many have never taken out PI before.

The piece also suggests that the Minister may be preventing the development of the market by setting the fees for certifiers so low as to be a barrier for new market entrants.

Other posts of interest:

Minister Hogan concerned at exploitation by professionals: BC(A)R SI.9 – click link here

What is PI Insurance? – click link here

What is Latent Defects Insurance and how much does it cost?  – click link here

8 Questions for Professional Insurer – click link here

Alarming Legal opinion: BC(A)R SI.9 – click link here

Assigned Certifiers facing jail? BC(A)R SI.9 – click link here

Problems with role of Design Certifier: BC(A)R SI. – click link here

Press- RIAI: High-rise buildings and quality developments the way forward – click link here

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