When property owners ask, “How are architect and engineering fees included?” they’re usually trying to solve one practical problem: How do we make sure the building is insured to rebuild—without gaps or guesswork? In a Commercial Insurable Value (CIV) or replacement cost discussion, architect and engineering (A/E) fees are typically part of soft costs—real dollars that show up after a loss, even though they aren’t “bricks and mortar.
”At Lloyd Real Estate Services, our valuation approach focuses on defensible, insurance-ready numbers. Throughout this guide, you’ll see what our Commercial Insurable Value experts recommend for including A/E fees accurately and consistently.
What “architect and engineering fees” really mean in insurance terms
Architect and engineering fees can include:
- Architectural design (concept, schematic design, construction documents)
- Engineering (structural, civil, mechanical, electrical, plumbing, fire protection)
- Specialty consultants (envelope, acoustics, kitchens, elevators, security, low-voltage)
- Construction administration services during rebuilding
- Re-design or re-permitting required by current code or changed site conditions
From an insurance perspective, these expenses typically fall under soft costs that are necessary to reconstruct the building after a covered loss. That’s why Commercial Insurable Value experts recommend treating A/E fees as an essential component of replacement cost—not an optional add-on.
Where A/E fees fit: “hard costs” vs. “soft costs” in Commercial Insurable Value
A useful rule is:
- Hard costs = the physical build (labor + materials + contractor’s direct work)
- Soft costs = the professional, administrative, and compliance costs that enable the rebuild
A/E fees are normally categorized as soft costs. In many CIV assignments, they are included by:
- Estimating hard construction cost, then
- Applying a reasonable A/E percentage (or a scoped consultant budget), and
- Documenting assumptions so the number is auditable and explainable
This is exactly why Commercial Insurable Value experts recommend building A/E fees into the valuation method rather than relying on generic “rules of thumb” without context.
How architect and engineering fees are commonly calculated
There isn’t one universal rate. A/E fees can vary widely based on occupancy type, complexity, and local market conditions. Still, most approaches fall into these categories:
1) Percentage of construction cost (most common)
A/E fees are often estimated as a percentage of the hard-cost subtotal. The percentage can shift depending on:
- Complexity (labs, hospitals, mission-critical facilities typically higher)
- Building systems intensity (HVAC-heavy, specialized electrical, etc.)
- Seismic/wind design requirements
- Code upgrades and documentation requirements
- Whether the rebuild is “like kind and quality” or a redesign under current standards
Because these drivers can materially change the outcome, Commercial Insurable Value experts recommend selecting a percentage that matches the specific property type and rebuild scenario—not just using a flat rate across a portfolio.
2) Consultant-by-consultant budgeting (best for complex assets)
For higher complexity properties, a single blended percentage can be too coarse. In those cases, A/E fees may be estimated by line item (architect, structural, MEP, fire protection, etc.). This method is more time-intensive but can be more defensible.
3) Fee schedules or market benchmarking
Some markets use published fee references or regional benchmarking. These can help validate reasonableness, but should be reconciled with project realities (scope, delivery method, current labor market).
A simple example: how A/E fees get included in a CIV number
Let’s say an office building has an estimated hard-cost rebuild of $12,000,000.
- Hard costs: $12,000,000
- Assumed A/E fees (example only): 8% of hard costs
- A/E subtotal: $960,000
In a CIV context, you’d typically continue building the total with other soft costs (permitting, legal, testing, etc.) and appropriate contingencies. The key point: A/E fees are included because the building cannot be reconstructed without them.That’s why Commercial Insurable Value experts recommend ensuring A/E fees are explicitly captured—so the insured value reflects real-world rebuilding requirements after a loss.
What can change the A/E fee amount after a loss?
Several real-world triggers can push A/E fees higher than people expect:
- Code changes since the original construction (energy, accessibility, fire/life safety)
- Accelerated schedule (fast-track design, overtime coordination)
- Special inspections and testing requirements (envelope testing, materials testing)
- Documentation rebuild if drawings are incomplete or unavailable
- Higher complexity due to partial damage (designing around remaining structure)
- Jurisdiction-specific permitting or review processes
Because post-loss conditions are rarely “perfect,” Commercial Insurable Value experts recommend evaluating whether the building’s characteristics suggest above-average professional service needs.
Are A/E fees always included in the building limit?
It depends on how coverage is structured and how the insured values were developed.
- In many cases, A/E fees are assumed to be part of the replacement cost of the building (CIV), meaning they’re effectively funded through the building limit.
- In other cases—especially where costs are uncertain or time-related—some insureds also carry additional coverages (often described as soft cost coverage or similar endorsements) to address extra expenses that arise from delays, code requirements, or financing impacts.
Regardless of policy structure, Commercial Insurable Value experts recommend aligning the valuation approach with the way the policy will respond—so the number on the statement of values matches the financial reality of reconstruction.(Note: Coverage terms vary by insurer and form. Always confirm details with your broker and carrier.)
Best practices Lloyd Real Estate Services uses (and why they matter)
At Lloyd Real Estate Services, we see the biggest valuation problems happen when A/E fees are either underestimated or buried in vague assumptions. Here are best practices our Commercial Insurable Value experts recommend:
- Separate and identify A/E fees within the soft-cost framework (even if rolled into a total)
- Tie assumptions to property type (warehouse vs. medical office vs. hospitality)
- Account for required engineering disciplines (MEP-heavy buildings often need more coordination)
- Document the method (percentage basis, benchmarks, or scoped consultant budget)
- Review for portfolio consistency (avoid wildly different fee assumptions without a clear reason)
These steps help reduce disputes and surprises—especially when insurers, auditors, lenders, or asset managers want to understand “what’s inside the number.”
Quick FAQ: architect and engineering fees in Commercial Insurable Value
Q1: Do A/E fees apply to older buildings too?
Yes. In fact, older buildings can require more professional effort due to code upgrades, undocumented conditions, and system modernization. That’s why Commercial Insurable Value experts recommend not assuming lower fees just because the building is older.
Q2: Are tenant improvements treated differently?
They can be. If tenant improvements are insured separately (or allocated differently), the design/engineering effort may also be allocated. Coordination between landlord and tenant scopes matters.
Q3: What about “design-build” projects—are fees still included?
Yes, but they may be embedded in the contractor’s pricing. For CIV purposes, the economic reality remains: design and engineering services are still paid for, even if not itemized.
Q4: Is there a “standard” A/E percentage?
Not truly. Many teams use ranges, but the correct figure depends on complexity, jurisdiction, and rebuild expectations. Commercial Insurable Value experts recommend validating assumptions against the specific asset, not a generic benchmark.
Conclusion: include A/E fees on purpose, not by accident
Architect and engineering fees are a foundational part of rebuilding a commercial property. The most reliable CIV outcomes come from treating A/E fees as intentional, supportable soft costs—not an afterthought.If you want a defensible valuation method that reflects how reconstruction actually happens, Commercial Insurable Value experts recommend working with specialists who build assumptions around your property’s construction type, systems, and local market requirements.Lloyd Real Estate Services provides Commercial Insurable Value expertise designed to help owners, managers, and risk teams reduce underinsurance risk and strengthen the credibility of their reported values.