Economic Policy Review ISSN 1313 - 0544

Methodology for the Regulation of Designers’ Services! What is that?

Author: Metodi Metodiev / 27.06.2007
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One of the debatable topics in the media during the last week was the theme for the regulation of designers' services. It became clear that a new methodology for the setting of remunerations will be introduced in September. The new methodology will replace the existing minimum prices for designers' services. What does this mean?

From a legal perspective, the change is the following: in the modified Law of the Chamber of Architects and Engineers it is written: article 6, paragraph 7 (amended-Official Journal, issue 79 from 2006) approves methods for the setting of remunerations for designers' services..." The original version of the law states that: "the Chamber approves and updates the minimum prices for the remunerations for the services provided by architects and engineers. The Chamber also watches closely whether these minimum prices are obeyed".

A short walk in the field of insanity

In the newly introduced "methodology for the setting of remunerations for designers' services" the main component of the price of services will be the prime cost of the service and the addition of a particular profit. The following expenses are included: expenditures for maintenance and administrative personnel, expenditures for social insurance, expenditures for materials, expenditures for telecommunications (telephone, fax, internet), expenditures for the maintenance of the office (rent, electricity, heating, water supply), expenditures for transportation, etc. In general, the economic theory defines them as fixed and variable costs. These are the normal determinants of price setting in ordinary market conditions. The question to ask is why there should be a normative act, given that even without such an act every sane person considers these costs. In other words, the lawmaker calls into doubt the rational economic behavior of the entrepreneurs who aim to minimize expenditures and optimize their profit. This is ridiculous!

Glancing further on at the so-called "methodology", we can notice even bigger absurdities such as article 6, paragraph 3, which says: "the prime cost of the services can be set as an ‘algorithm' for the processing of natural indices for the size and complexity of the designed construction site". What are these natural indices for the size and complexity and if we add an algorithm, who will calculate them? The situation looks more and more absurd! Everyone can set the price of the performed service on the basis of free negotiations between the buyer and the seller. Therefore, all algorithms and indices can be used when writing a PhD dissertation in the Bulgarian Academy of Science, but not in the conditions of market economics, where the most important acting forces are those of the demand and supply.

This is not the end yet. According to article 12, paragraph 1, the engineers who perform services and receive remunerations lower than the prime cost of the service, are subject to disciplined penalty according to Chapter 7 from the Law of the Chambers of Architects and Engineers. This is possibly an attempt for antidumping policy (which implies a fundamental misunderstanding in the foundations of market economics), but in reality this is par excellence totalitarianism. Something old, but quite real!

Chapter 4 from the "methodology for setting of remunerations for designers' services" is entirely devoted to all kinds of presumptions, assumptions and exact parameters, coefficients and lists of prices for services which the designers perform. This is an attempt to monetize everything already mentioned, and even more.

In conclusion, it is impossible not to mention article 2, paragraph 2, which says that: "the achievement of the goals of the previous article is possible through free competition between the engineers, the free choice of engineers made by the clients, lack of monopoly, unethical practices and unequal position of the participants in the investment design".

Having in mind the already mentioned points and the fact that the engineers and the architects are two of the most regulated professions, this article is quite sarcastically.

Again we have to point out the negative effects of the regulation:

  • o the regulation limits the competition
  • o minimum price or the methodology for setting prices- they keep the prices for consumers on a set (non-market) level. This leads to distorted market signals and logic of the free competition.
  • o the Chamber has too much discretionary power
  • o the Chamber collects one-time entry and annual fees, which actually act as taxes for those performing the profession
  • o the mandatory membership in the Chamber threatens the principles of free association and negotiation

The achievement of any positive change will be quite difficult. The reason is that all regulations are established, monitored and applied by the professional bodies, in this case the Chamber of architects and the Chamber of engineers. The paradox is in the fact that the same bodies apply this policy with the sole excuse that this is the way "to protect the quality of the services", "for consumers to be protected from malpractices and unethical behavior", "to stimulate competition" and many other explanations.

Some of them don't want (or maybe do not know how) to make a simple calculation for the expenditures and benefits caused by the introduction of such an insane regulation. Maybe it will turn out that the expenditures people should make to obey the regulations will be astounding!