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WILLIAM QUATMAN, from page 3
Without discussing the effect of the AIA disclaimer, the court held that the architect “lost his right to recover compensation when he designed a building impossible of construction within the maximum cost limitation” – even though there was no maximum cost in the contract! The court allowed evidence of an oral agreement on cost to supplement the written contract. In another case examining an AIA disclaimer, the architect’s estimate was $39,973, but the actual cost was nearly $80,000 (a 100 percent error). The architect was found to be negligent and was denied its fee. Expert testimony was not required because the error was so gross. As to the disclaimer, citing to another case, the court said, “If, as the [architect] seems to infer, it means that an architect will under no circumstances be bound by his estimate, we would consider it contrary to public policy because it would mean that no matter how large the bid for doing the work, [the owner] would be obligated to pay an architectural fee based on that amount.” In a 2014 New Jersey case, a homeowner sued his architect claiming he contracted for a house with a budget of $5 million, but the architect designed a larger house costing between $11 million and $13 million. While expert testimony was not required due to the huge variation, the trial court dismissed the lawsuit based on disclaimers that the preliminary budget was not a guarantee or warranty of the contractor’s estimates. When the owner saw the actual estimate, he asked the architect, whimsically: “What are you guys smoking over there?” and felt the numbers were inflated. The court found that the owner thought the architect’s estimates were in error and directed the architect to complete the design. As a result, the owner essentially assumed the risk and consented to the design of the more costly house. OVER-ESTIMATING? While the opening quote from a 1986 case may have been true at the time, i.e. that no reported case found a designer had over-estimated the cost of a project, that changed in 1993 when an engineering firm was sued in Florida for actually over-estimating the cost of construction, which led the county to issue bonds for more than was needed. However, the engineer’s contract said that estimates of probable construction cost could not be guaranteed and that actual costs might vary from the estimate. Although a jury found in favor of the county, the appellate court reversed, finding no breach of contract, given the disclaimer. SUMMARY. When a group of 10 bidders estimate a project, they all come up with different costs for the same project – and these companies estimate work for a living! Why then should design professionals be expected to get it exactly right when 10 contractors cannot agree on the cost? Therein lies the standard of care, which does not hold architects or engineers to a perfection standard, but to a reasonable standard. Contract disclaimers, like those used by AIA, reflect the reality that estimating is an art, not a science – and that design professionals use reasonable care, but cannot guarantee or warrant the actual costs of construction. A candid discussion with the owner, up front, might be the best approach to set expectations. If the owner wants a more reliable estimate, they may want to hire an independent estimator. WILLIAM QUATMAN, FAIA, Esq., is general counsel and senior vice president at Burns & McDonnell Engineering Co. He can be reached at bquatman@burnsmcd.com.
when given a firm budget. There is no hard, fast rule on this “standard,” but in a 1974 federal case, where the bids were twice the owner’s budget, there was evidence that the architect should have been reasonably able to estimate costs to within a 20 percent to 25 percent margin of error. AIA-TYPE DISCLAIMERS. In response to the old, tough cases, standard industry contracts (like the AIA and EJCDC documents) now routinely contain disclaimers regarding the designer’s liability for estimates. Under the current 2017 edition of the AIA’s B101 Owner-Architect Agreement, the architect provides three estimates during design, and the architect’s basic services only include “conceptual” estimates based on area or volume of the structure (“detailed cost estimating” is deemed to be “Supplemental Services” for an additional fee). First is an estimate based on a preliminary design. Based on the owner’s approval, the architect proceeds to the design development phase, which includes an “update” of the first estimate. If the owner approves again, the architect then moves into the construction documents phase in which it once again updates the estimate and requests the owner’s approval. As in prior versions of the AIA contracts, Article 6 of the current B101 disclaims any warranty or representation that actual bids will not vary from the owner’s budget or any estimate prepared by the architect. In the 1997 version of the AIA’s Owner-Architect Agreement, the words “best judgment” were deleted – a phrase that had been used for many decades and which arguably raised the standard of care from “reasonable” to “best.” (Compare 1997’s B141, Par. 2.1.7.2 to Par. 5.2.1 of the 1987 B141.) Thirty-some years ago, the 1987 edition of the AIA contract also stated that there was no fixed limit of construction cost established as a condition of the agreement, unless agreed to in writing signed by the parties. However, that clause was dropped in the 1997 version. Par. 6.6 of the 2017 AIA B101 provides specific contract remedies if the lowest “bona fide” bid comes in over budget. Those remedies include: 1) owner approves an increase in the budget; 2) owner authorizes re-bidding or re-negotiation; 3) owner terminates the contract, but pays the architect; 4) owner revises the project program, scope, or quality to reduce the cost; or, 5) some other “mutually acceptable alternative.” If the owner chooses to revise the scope of the project, the 2007 version required the architect to revise the drawings without additional charge to meet the budget. In 2017, that was changed to delete “without additional compensation” if the change is due to unanticipated market conditions. Also, modifying the design is the “limit of the architect’s responsibility,” a type of limitation of liability clause. EFFECT OF DISCLAIMERS. Cases involving AIA-like disclaimers have had mixed results. In one case, despite disclaimers, the court held that the cost representations were negligently made to the construction lender, who could sue the engineer for damages. The court also rejected an argument that the estimates were merely “opinions,” which are not actionable. In another case, Malo v. Gilman , 379 N.E.2d 554 (Ind. App. 3 Dist. 1978), the architect’s estimate was $70,000, but the lowest bid was $105,000 (a 50 percent error) and the architect was denied its fee.
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THE ZWEIG LETTER DECEMBER 14, 2020, ISSUE 1371
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