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QBS fee negotiation: building a fair and reasonable fee from the firm’s own hours

QBS fee negotiation starts after the hard part looks finished. Under qualifications-based selection, a public agency ranks architecture and engineering firms on competence first and only then negotiates a fee with the top-ranked firm, moving to the next firm if the two sides cannot agree. The federal Brooks Act, 40 U.S.C. 1104, sets that order for federal work, FAR 36.606 carries it into federal contracting, and states such as Texas, Florida, North Carolina and California have their own versions. The agency arrives at the table with its own estimate built from hours. The firm’s strongest answer is the same kind of evidence: hours by phase on its own similar past projects. This guide quotes the statutes and regulations as they read on October 17, 2026, lists the records worth pulling before the meeting, and sets out how to fix a walk-away line in advance. It is not legal or procurement advice.

By , founder of Lumina Business Advisory · Updated · Sources checked · Editorial standards

What the law says happens after the firm is ranked first

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Answer it in the Self-Audit

The federal sequence is short. Under 40 U.S.C. 1103(d), the agency selects, in order of preference, at least three firms it considers most highly qualified. Under 1104(a), it then negotiates “at compensation which the agency head determines is fair and reasonable to the Federal Government,” considering “the scope, complexity, professional nature, and estimated value of the services.” Under 1104(b), if it cannot reach a satisfactory contract with the top firm, it formally terminates negotiations and moves to the next.

FAR 36.606 puts that into practice. Negotiations follow FAR part 15, “beginning with the most preferred firm.” If no mutually satisfactory contract results, the contracting officer obtains a written final proposal revision, notifies the firm that negotiations are terminated, and starts with the next firm on the list. Paragraph (e) adds that “the extent of any subcontracting is an important negotiation topic” — the consultants a firm names at the table matter.

  • Texas, Government Code 2254.003 and 2254.004: a governmental entity may not select architects, engineers or surveyors on competitive bids; it first selects the most highly qualified provider, then attempts to negotiate a contract “at a fair and reasonable price,” then moves to the next provider if that fails.
  • Florida, Statutes 287.055(4)–(5): the agency may consider compensation proposals only during competitive negotiation, must negotiate a fee that is “fair, competitive, and reasonable,” and must conduct “a detailed analysis of the cost of the professional services required.” Above a threshold set in section 287.017, the firm signs a truth-in-negotiation certificate that its wage rates and other factual unit costs are “accurate, complete, and current.”
  • North Carolina, G.S. 143-64.31: selection is on demonstrated competence and qualification “without regard to fee other than unit price information at this stage,” followed by negotiation of “a fair and reasonable fee” with the best qualified firm.
  • California, Government Code 4526: state and local agencies engage these services on the basis of demonstrated competence and qualifications “at fair and reasonable prices to the public agencies,” under procedures each agency adopts.
  • Federal-aid highway work, 23 CFR 172.7: engineering and design services funded through the federal-aid highway program follow the Brooks Act procedures, and price “shall not be used as a factor in the evaluation, ranking, and selection phase.”

None of these statutes names a number. “Fair and reasonable” is settled in the room, by whoever has the better-supported estimate.

The agency arrives with its own estimate

Federal agencies do not negotiate blind. FAR 36.605 requires an independent government estimate of the cost of architect-engineer services before negotiations on any contract or modification expected to exceed the simplified acquisition threshold, prepared “as though the Government were submitting a proposal.” The overall amount is not disclosed, but the contracting officer may disclose the cost breakdown for a specialized task to the extent needed to reach a fair and reasonable price.

On federal-aid highway contracts, 23 CFR 172.7(a)(1)(v)(B) is more specific. Before reviewing the top-ranked consultant’s cost proposal, the contracting agency prepares a detailed independent estimate “with an appropriate breakdown of the work or labor hours,” labor classifications, other direct costs and fixed fee, and that estimate “shall serve as the basis for negotiation.” Florida requires its own detailed cost analysis, as quoted above.

There is also a ceiling on some federal work. FAR 15.404-4(c)(4)(i)(B) limits the price for architect-engineer services for public works or utilities — for the production and delivery of designs, plans, drawings and specifications — to 6 percent of the estimated construction cost, excluding fees.

So in QBS fee negotiation, the real conversation is hours against hours, task by task. A firm that brings a lump sum and a feeling is negotiating against a spreadsheet.

The records that prove the hours

The firm’s best evidence is already in its own project accounting and time records, if time was coded by project and phase. Before a negotiation meeting, pull these from the five most similar completed projects:

  • Hours by phase, budgeted against actual: schematic design, design development, construction documents, procurement, construction administration
  • Construction administration in detail: site visits made, submittals reviewed, RFIs answered, and the hours each took
  • Plan-check or permit review rounds per project, and the hours spent on resubmittals
  • Meetings: how many the client required, against how many the fee assumed
  • Consultant fees by discipline, budgeted against invoiced
  • Additional services: what was done, how much was billed by amendment, and how much was absorbed
  • Rates actually paid by labor category, from payroll rather than a price list

Each line answers a question an agency estimator will ask. If the last three similar projects spent far more on construction administration than the fee assumed, that is evidence, not a complaint — provided the firm can show it from its own time records.

Build the fee from the task list up

Start from the agency’s scope and break it into the same tasks the estimator will use. For each task, take the hours the firm actually spent on comparable projects, adjust for what is different on this one, and write down why. Multiply by the rates the firm can support. Add consultants by discipline, with their own proposals attached, and reimbursable expenses as a separate line.

Florida’s truth-in-negotiation certificate is a good discipline even where it is not required: the wage rates and unit costs in the proposal should be the ones in the payroll and the books, current as of the day the contract is signed. Under section 287.055(5)(a), a Florida contract that requires the certificate must also let the agency adjust the price for significant sums that came from inaccurate, incomplete or noncurrent rates, within one year after the contract ends.

Illustrative example: an agency’s scope assumes 20 construction-phase site visits. On the firm’s last four similar projects, its records show 28, 31, 26 and 30 visits, at about 6 hours each including reports. The firm can propose 28 visits, or 20 visits with additional visits at a stated price, and show the four projects either way. The numbers are invented; the firm’s own records give the real ones.

Set the walk-away line before the meeting

The statutes assume that some negotiations end without a contract: the agency terminates and moves to the next firm. That makes a written floor a normal part of preparation, not a threat. The floor is the fee below which the project, on the firm’s own history, loses money after its overhead.

When the gap is real, trade scope before rate. Fewer design options, fewer meetings, a capped number of site visits, a defined number of plan-check rounds, with anything beyond priced as additional services in the agreement. A rate cut on an unchanged scope only moves the loss from the negotiation to construction administration.

Name the consultants at the table. On federal contracts that carry FAR 52.244-4, subcontractors and outside consultants are limited to those “specifically identified and agreed to during negotiations,” and a substitution needs the contracting officer’s written consent. A consultant added later is a negotiation the firm may not get.

After award: keep the record that wins the next negotiation

The evidence for the next QBS fee negotiation is created during this project. Code time to the same tasks the fee was built on. Count site visits, submittals, RFIs and plan-check rounds as they happen, not from memory at closeout. Log each request outside the negotiated scope the week it arrives, with a decision: amend, or record a written choice not to bill it.

This is the same record a firm needs to bill additional services and to see a phase running over before the fee is gone. It is not a cost-accounting system, and it does not replace an overhead-rate audit where a contract requires one.

When not to hire anyone for this

If the firm already keeps hours by phase and task on comparable projects, it has what it needs; the estimate is an afternoon’s work for a principal and a project manager. If the question is legal — a protest, a contract term, a state procurement rule — it belongs with an attorney.

We do not prepare overhead-rate audits, cost proposals under federal cost principles, or anything else priced and audited under federal cost rules; firms whose work is mostly that kind of contract are outside what we do. An outside count helps when the past-project record is the problem: time coded loosely, construction administration hours never separated, additional services absorbed without a trace. That is the work of an architecture & engineering business consultant who reads records. Our Revenue Review reads the firm’s own agreements, time and invoices, read-only, and puts a monthly dollar figure on each leak the records support. It takes two weeks. We do not run an architecture or engineering firm, and there are no client case studies on this site yet.

If it is unclear whether any of this is worth a fee, the next step is a free 20-minute call, which will say plainly when the firm does not need the Review.

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Asked right after

Can price be considered in qualifications-based selection?
Not in ranking under the federal Brooks Act: the fee is negotiated after the top firm is selected. Florida lets an agency consider compensation proposals only during negotiation, North Carolina allows unit price information at the selection stage, and 23 CFR 172.7 bars price from ranking on federal-aid highway work.
What happens if a firm and the agency cannot agree on a fee?
The agency formally terminates negotiations with that firm and moves to the firm ranked next. That sequence is in 40 U.S.C. 1104(b), FAR 36.606(f), Florida Statutes 287.055(5)(b) and Texas Government Code 2254.004(b).
Does the agency share its own fee estimate?
On federal work, the overall amount of the government estimate is not disclosed, except as agency regulations permit. Under FAR 36.605(b), the contracting officer may disclose the cost breakdown for a specialized task to the extent needed to reach a fair and reasonable price.
Is there a cap on federal architect-engineer fees?
For public works or utilities, FAR 15.404-4(c)(4)(i)(B) limits the price for producing and delivering designs, plans, drawings and specifications to 6 percent of the estimated construction cost, excluding fees.
What is a truth-in-negotiation certificate in Florida?
Under Florida Statutes 287.055(5)(a), a firm awarded a contract above a threshold set in section 287.017 certifies that its wage rates and other factual unit costs are accurate, complete and current, and the contract lets the agency adjust the price if they were not.

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