The cost of not designing to a budget

Architects that fail to design to a budget could find themselves liable for the cost of the client starting again with a different designer, a recent High Court judgement has established.

In the case brought against Foster + Partners by developer Riva Properties, who secured £3.6m in compensation, the ruling made it clear that the architect’s duty to identify client requirements and project constraints must include the client’s budget, which the architect should seek to establish at an early stage.

Fosters had been contracted to design a five-star hotel near Heathrow to RIBA Stage L (equivalent to the current work Stage 6). Riva claimed it had notified Foster of its budget of £70m, later increased to £100m, but when the hotel design was costed the estimated build cost of £195m was so beyond the original budget that the design was abandoned following the granting of planning permission.

Riva’s compensation payment was awarded to cover losses suffered through the instruction of new architects and consultants to design a hotel scheme that fulfilled the brief and could be built within budget.

The client alleged three breaches against Fosters: as part of carrying out RIBA Stages A and B (now merged as Stage 1), the architect had failed to establish the budget, resulting in a design costing twice the intended budget; advising the client that the hotel design could be value engineered to within the £100m budget when this was not possible; and alternatively failing to warn the client, when informed that Riva intended to value engineer the project to meet the budget, that this was not possible.

Though Fosters challenged the client’s account, the judgement went in favour of Riva on each of the alleged breaches.

Carys Rowlands, RIBA Head of Professional Standards, says Code of Professional Conduct hearings regularly hear complaints of architects failing to work to budget.

The Code sets out professional competence requirements, including the need for members to ensure that essential project requirements are clear and recorded in writing. It also expressly states that ‘members are expected to use their best endeavours to meet the client’s agreed time, cost and quality requirements for the project’.

The ruling makes clear that the project budget is both a client requirement and a constraint that the architect needs to identify. Photo @ Pari Naderi

What the judgement in the Riva vs Fosters case has done is firmly establish the equivalence of the client’s budget both to a client’s requirement and to a constraint, which the architect should identify when carrying out work under Stage 1.

Stephen Homer, partner at Ashfords LLP who acted for Riva in this case, commented: ‘This case serves as a warning to designers that they cannot design in a vacuum. Cost and budget is a key constraint and should always be identified and considered when designing any project, even when the provision of cost advice is expressly excluded from the designer’s obligations.’

Homer suggests that on a typical project where the budget overrun is small and the budget can be stretched to cover it, a breach of contract could still be identified, but no losses would be assigned to the client if the overrun could be accommodated.

If the overrun is so great as to require value engineering and design adjustments, a breach of contract could again be identified, but the architect would be expected to carry out these design adjustments free of charge, so any loss would be borne by the architect rather than the client.

If, as in this case, the cost overrun is so great as to make it impossible to value engineer the design back to the client’s budget, the court has found that the client is entitled to damages that would cover the costs of starting again. In fact, efforts to further develop the design through value engineering and put it through planning, when this was not possible to accomplish, added to the costs and therefore the damages awarded.

Any lack of clarity around the client’s budget does not absolve the architect from the duty to establish and communicate the assumed budget range.

‘Architects should always ascertain a budget. If there is ambiguity, it is our view that an architect should make clear attempts to ascertain the range of budget the client has available and confirm that it cannot progress a design without ascertaining this constraint. Secondly, it should be clearly stated what budget the architect has understood and is designing towards’, advises Homer.

A project may be halted or clients change, of course, which raises the question of whether architects need to repeatedly confirm the budget following any significant change of circumstances.

Homer says the architect will certainly be required to confirm the budget following events such as projects restarting after having been put on hold, or projects changing hands to a new client. This applies without question where the project hasn’t proceeded beyond Stage 1, which mandates that constraints and requirements are identified and confirmed.

‘If this stage has already been completed and a project is picked up from Stage C (equivalent to the current Stage 2), there is some uncertainty as to whether there is a duty to confirm the budget before progressing.

It would be our advice to any architect to ensure the client is informed of the budget the architect has worked towards before progressing through Stage 2. This will help avoid any abortive fees or claims of negligence at a later date’, adds Homer.

Thanks to Stephen Homer, Partner, Ashfords LLP.

Text by Neal Morris. This is a Professional Feature edited by the RIBA Practice team. Send us your feedback and ideas

RIBA Core Curriculum Topic: Legal, regulatory and statutory compliance.
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Posted on 25 January 2018

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