Design-Build Proposal Example: A Two-Stage Fee Letter With AI

Split a design-build proposal into two stages: a fixed stage-one fee for design and pre-construction, built from hours, consultants and margin, then a stage-two construction price set once the design is priced, as a guaranteed maximum price or cost plus a fee. AI can draft the letter wording from your term sheet; you supply and verify every figure and clause.

The split protects both sides. The client pays for design before committing to a construction price nobody can responsibly give yet, and the builder is paid for the design and pricing work even if the client walks. What goes wrong is the letter: "fixed price" used loosely, a design fee nobody explained, and no sentence about who owns the drawings if the project stops. The letter has to prevent all three.

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The deal in two paragraphs: what each stage buys the client

Stage one buys design and certainty. The firm develops the design with the client, prices it as it goes, and ends the stage with a construction price proposal. Procore's explanation of progressive design-build describes the first phase as feasibility, design development and cost estimating running together, with the formal price proposal arriving once the design is generally 60% or more complete. The client's decision point works as an off ramp: if the two sides cannot agree on price, the client can end the relationship and look at other ways to build.

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Stage two buys the build. The sample progressive design-build agreement from DBIA, the design-build industry body (document 544), lets the second phase be priced as cost of the work plus a fee, with or without a guaranteed maximum price (GMP), or as a lump sum. Its instructions make four points a fee letter should reflect:

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• If uncertainty about the final design remains after phase one, cost-plus or a GMP is the better fit. If the design is settled, a lump sum may suit.
• A GMP or lump sum should not be set until the design basis is defined well enough to make it realistic. Too early leaves no room to define scope and weigh risk; too late may defeat the client's wish for an early price guarantee.
• A GMP creates a pool of savings if costs come in under it, and sharing that pool gives the builder a reason to save money.
• If the client ends the agreement for convenience and then builds with someone else's help using the design, the designer is paid an additional sum for use of its work product. The instructions tell the parties to agree that sum in advance.

The worked example below uses a client who wants a 3,000 sq ft family home designed and built on their plot, with a target construction budget of $1,600,000. Every figure is illustrative.

Stage one priced from hours, with a cross-check against budget

Build the stage-one fee from the work, not from a percentage. List the phases, the people and the hours, add the consultants at cost with a handling charge, add expenses, and apply a margin. The example runs to 410 hours over four phases: brief and feasibility (50 hours), concept design (92), developed design (176) and pre-construction pricing (92).

Cross-check it two ways. First, $72,500 is about 4.5% of the $1,600,000 target budget. Compare that with what your own past design-build projects earned, not with a published norm, because what a stage-one fee covers varies enormously from firm to firm. Second, split it into instalments that match the work: 40% ($29,000) on signing, 40% ($29,000) on concept approval and 20% ($14,500) on delivery of the stage-two price proposal. They sum to $72,500.

The assistant does not set this fee. It can lay the model out in a clean table from your hours and rates, and it can write the sentence that describes what the fee includes. Ask it to show the arithmetic, and add the figures yourself in a spreadsheet. If the totals disagree, the spreadsheet wins. For the consultant side of a fee build-up, a structural engineer's fee proposal with scope and assumptions shows how those figures are written, and how architects use AI for fee proposals and briefs covers the design-side equivalent.

Stage two: a guaranteed maximum price and the cost-plus alternative

At around 60 to 70% design completion the firm prices the work. A GMP is built from the cost of the work, the general conditions, a contingency and the fee. Here is the build-up for the example, with a 3% contingency and an 8% fee as placeholders for your own:

The GMP lands $29,480 (1.8%) above the $1,600,000 target. That gap is the conversation to have at the decision point, so the letter should say what happens if the price proposal exceeds the target: for example, one round of value-engineering revisions is included in the stage-one fee. Allowances inside the GMP follow the same logic as in a normal proposal; a custom home builder proposal with allowances, exclusions and payment stages covers how to write them.

The alternative is cost plus a fee, billed on actual costs with no ceiling, or with a ceiling added later. It suits a design that is still moving, and it is transparent, because the client sees real costs. Its weakness is that a percentage fee grows with cost, which a careful client will notice. If you offer cost-plus, the client will expect open books, so every invoice, timesheet and subcontract has to land on the right job and cost code; construction job costing with AI shows how to keep that record clean.

Three outcomes on the same job: under, on and over the maximum

A client will ask what a GMP means in practice. Show them three outcomes for the same house. The letter's terms are a fixed fee of $117,440 inside the GMP and savings split equally. For the comparison, cost-plus uses an uncapped 8% fee on actual cost.

Read the table as a trade: a GMP costs the client more when things go well, because the builder keeps half the savings, and protects the client when they go badly, because the builder carries the overrun. Cost-plus does the opposite. Neither is better in general, and the honest letter shows both. The assistant can draft the table's explanatory sentence in plain words, but you check each number against your own model, because a GMP letter that mis-states the overrun rule is the one clause a client will later quote at you.

Choosing the pricing method: a decision table by design certainty

Give the client a rule they can apply, rather than a sales pitch. DBIA's instructions tie the method to how settled the design is, and the table below turns that into advice.

One caution on timing: the letter should name the trigger for the price proposal, such as "when the design is about 60 to 70% complete, as shown by the drawing list in Schedule A", so neither side can argue later about when the GMP was due.

The letter, clause by clause: AI drafts, you tighten

The structure is ten short sections: purpose; stage one scope and deliverables; stage one fee and payment; the decision point; stage two pricing method; savings and overruns; credit of the stage-one fee; if you do not proceed; assumptions; acceptance. Here are the four that carry the commercial weight, in the kind of wording an assistant produces from the term sheet.

Stage one fee. The stage-one fee is a fixed $72,500, payable in three instalments: 40% ($29,000) on signing, 40% ($29,000) when you approve the concept design, and 20% ($14,500) when we deliver the stage-two price proposal. It covers the services in Schedule A. It excludes consultants not listed there, planning or permit submissions, and design changes you request after concept approval, which we will price in hours before starting.

Tighten "design changes" so it does not read as every change. The usual fix is to separate refinements within the agreed concept from changes to the brief, and to say who decides which is which.

Stage two price. When the design is about 60 to 70% complete we will give you a price proposal for stage two as a guaranteed maximum price (GMP), built from the cost of the work, general conditions, a 3% contingency and our fee of 8%. If the actual cost of the work and our fee come to less than the GMP, the difference is shared equally between you and us. If they come to more, we carry the excess, except for changes you instruct. Nothing in this letter fixes a construction price; the price exists only when you accept the proposal in writing.

The last sentence is the most valuable one in the letter. Keep it in every version, and treat any draft that calls stage two a fixed price as wrong.

Credit and release. If you accept the stage-two proposal, half of the stage-one fee ($36,250) is credited against the stage-two price. If you decide not to proceed, the stage-one fee remains payable. You may then take the design documents for use elsewhere by paying a release fee of $18,125. Until then, the documents remain ours, with a licence to you to build only with us. [SOLICITOR]

With the half credit, the client's total at the GMP comes to $1,665,730 ($72,500 plus $1,629,480, less the $36,250 credit). State that total somewhere visible if the client will be comparing bids. The release fee here is 25% of the stage-one fee, a placeholder you set. The clause about documents is a legal one, so it carries [SOLICITOR] and the assistant is told not to extend it.

Status. This letter is a proposal and is subject to contract. It assumes access to the site, a decision from you within ten working days of each submission, and no unforeseen conditions beyond those in the soil report supplied.

The term sheet and prompt that produce the first draft

Put one page of facts in front of the assistant and tell it to use nothing else. For the example, the term sheet reads:

TERM SHEET (use only these facts)
Brief: 3,000 sq ft family home; target construction budget $1,600,000
Stage one fee: $72,500 fixed; 40% on signing, 40% on concept approval, 20% on price proposal
Stage one includes: brief and feasibility, 2 concept options, developed design, outline
  specification, priced proposal, 1 round of value-engineering revisions
Stage two: GMP; contingency 3%; fee 8%; savings split 50/50; overruns carried by us
  except client-instructed changes
Credit: 50% of stage-one fee ($36,250) against stage two if client proceeds
If client does not proceed: stage-one fee stays payable; release fee $18,125 for drawings
Price proposal due: design about 60 to 70% complete
Assumptions: site access; client decisions within 10 working days; soil report as supplied
Status: proposal, subject to contract

Write the fee letter from the term sheet only. Sections: purpose; stage one scope and
deliverables; stage one fee and payment; the decision point; stage two pricing method;
savings and overruns; credit; if you do not proceed; assumptions; acceptance.
Rules: no figure, date or promise that is not in the term sheet. Never call stage two a
fixed price. Plain English. Mark any clause on ownership of drawings, termination or
liability with [SOLICITOR] and do not extend it.

A personal paid plan on ChatGPT or Claude costs $20 a month, and either can hold the term sheet and your last letter in a Project so the layout stays the same. The first draft will usually slip in three places:

The third row is the one to hunt for. Assistants add dates and durations because proposals usually contain them; yours must not, unless you gave one. After the draft, run a scan: "List every figure, date and promise in the letter and the line of the term sheet it comes from. Mark anything without a source as UNSUPPORTED."

If the client walks after stage one: drawings, fees and release

The ownership question decides whether the design work is protected. Procore's explanation notes that owners may or may not keep the intellectual property, including the designs, if they part ways with the design-builder, which depends entirely on what the contract says. DBIA's sample instructs the parties to settle in advance what the client pays to use the design-builder's work with someone else. The letter should therefore pick one of three positions and say it plainly:

• Client owns the drawings once the stage-one fee is paid. Simple, and the most attractive to the client, but you lose the design that your pricing work depends on.
• You keep the documents, and the client may build only with you. Protects you but can look like a lock-in to a client comparing bids.
• The client may take the documents for a release fee. The example uses 25% of the stage-one fee, $18,125, and balances both sides.

Whichever you choose, the assistant drafts the paragraph and you take it to a solicitor, because rights over drawings, and any limit on liability for a design someone else builds, are legal matters that depend on where you work. Also decide how the licensed designer fits in. In many places design services must be provided or approved by a licensed architect or engineer, so name that person and their role in the stage-one scope. Testing AI contract review tools for builders is worth a look before the contract stage.

Scope grows during stage one: the variation letter

Midway through concept design, the client adds a garage and a pool house. The fee must move, and the client must see why. Ask the assistant for a short variation letter from the extra hours: 20 hours of the design lead ($3,000), 40 of the technician ($3,400) and 10 of the project manager ($1,200), which is $7,600; an extra $1,800 from the structural engineer plus 10% handling is $1,980. The subtotal is $9,580, and the 12% margin adds $1,149.60, so the variation is $10,729.60, quoted as $10,730. The new stage-one fee is $83,230.

The letter should state the new fee, the revised instalments, the effect on the target budget and the sentence that work on the additions starts only on written approval. The assistant is quick at this, and the risk is in the arithmetic, so recompute it. Once a GMP is agreed, later changes follow the change-order routine; AI tools for subcontracts and change orders covers the paperwork.

Sentences the letter must never contain

Before sending, search the letter for the sentences below. Each is easy for an assistant to write and expensive for you to honour.

• "Stage two is a fixed price." Until the client accepts the price proposal in writing there is no construction price, and after that the price is a GMP, not a fixed sum.
• Any completion date or programme the term sheet does not give. Dates arrive from the assistant's habits, not from your site.
• "The design fee is included." Included in what? Say whether the stage-one fee is credited, by how much and when.
• Ownership or licence wording without a [SOLICITOR] marker. Rights over drawings are a legal clause, and a solicitor should have been through it.
• A figure with no source. Every dollar amount traces to the term sheet or the fee model, and the instalments sum to the fee.
• "The price will not change." A GMP moves when the client instructs changes, and the letter must say so.

Two consistency checks finish the job. The credit, the release fee and the drawings clause must read the same wherever they appear, and a plain-English cover note, if you send one, must match the letter. After the first two or three letters, keep the reviewed version as the template and change only the term sheet. If corrections keep landing on the same clause, fix the instruction that produced it.

Questions design-build firms ask about the letter

Can the stage-one fee be a percentage of construction cost?

It can, and some firms quote it that way, but a percentage ties your fee to a budget that is still unproven. Build the fee from hours, consultants and margin, then use the percentage only as a cross-check against your past jobs. In the worked example the fixed fee is about 4.5% of the target budget, a figure to compare with your own history.

Should the design fee be credited against stage two?

That is a commercial choice. Full credit turns the stage-one fee into a deposit on the build, half credit shares the risk, and no credit treats design as a separate service. Whichever you pick, state it in one sentence with the dollar figure, and ask the assistant to confirm the figure appears identically everywhere in the letter.

Is the letter the contract?

No. It is a proposal, marked subject to contract, and the contract adds the legal terms. Industry bodies publish design-build agreement forms you can adapt with a solicitor. Once both exist, have the assistant compare the letter with the contract and list every place they disagree, because a conflict between the two is where disputes start.

Do I need a licensed designer for stage one?

Rules differ. In many places design work must be done or approved by a licensed architect or engineer, and a contractor offering design-build usually teams with one. Name the licensed designer and what they do in the letter, and check the licensing rules where you work before you send it. An assistant cannot tell you what applies to you.

Further reads

• Best AI Tool for Construction Design: What It Drafts and What Needs a Stamp — What AI design tools draft and what still needs a professional's stamp.
• How to Price Interior Design Services: Compare Fee Models With AI — Fee models compared if you also sell design as a separate service.
• AI for Consulting Engineers: Fee Proposals and Reports, Not Calculations — Fee proposals from the consultant side of a design-build team.
• Construction Retainage: Track It and Chase Release With AI Reminders — Track held-back money across the stage-two payments.
• Landscape Design Proposal: Write Concept, Scope and Fees With AI — A worked residential garden proposal: AI-drafted concept and scope, fees built from hours, a design-only and a design-build version, and a human fee check.
• AI Tools and AI Development: The Complete 2026 Guide — the AI hub, including every tutorial in the AI-for-business series.

Sources: Procore's explanation of progressive design-build; DBIA's sample progressive design-build agreement (document 544) and its instruction sheet; ChatGPT and Claude plan pages. All fees, rates and prices in the example are illustrative.