The case of Riva Properties v Foster  EWHC 2574 has generated a lot of publicity on the issue of whether an architect who had been engaged to design a hotel owed a duty of care to find out the developer’s budget and/or advise their client generally about the budget and whether the estimate cost of the proposed design was realistic or not. Richard Millard, Construction & Dispute Resolution Partner highlights the key points from this case.
The Claimant engaged the architects to design a 5 star hotel near Heathrow airport. The budget, according to the Claimant, was £70m, though the Architect denied that there was any budget.
The Architect came up with a design that would cost £195m, and the Claimant increased the budget to £100m, relying on the Architect telling him that the costs of the project could be pushed down to that figure through ‘value engineering’.
However, the Claimant could not obtain funding for the scheme, which he eventually discovered could not possibly be value engineered downwards to as low a figure as £100 million. He could not therefore build the scheme which the Architect had designed for him, and which had cost him approximately £4 million in professional fees.
The Architect denied that there was any budget, or at least none that the Claimant had communicated to them. The Architect also stated that they were not obliged to find out whether the Claimant had a budget or not and they were not engaged to provide costs advice.
Did the architect owe a duty of care to discover the client’s budget for the project before proceeding to design the building?
The Court had to decide whether the Architect owed a duty of care to the Claimant, and what the scope of those duties were. In particular, whether the Architect was obliged to advise the Claimant on costs, and whether the Architect was obliged to ascertain and consider the Claimant’s budget when designing the hotel.
The Court found that it was clear that the Architect’s duties included a contractual duty of care and skill, and they had a duty to ‘confirm key requirements and constraints’. A budget is clearly one such constraint. It therefore ‘simply could not be assumed by the Architect that there was no budget at all’.
If the Architect was obliged to prepare the Strategic Brief (which the Judge said that they were), this would and should have included identification of the budget as a key requirement and constraint. Both the expert architects accepted that in some, if not most projects, the budget can be a constraint. It was therefore necessary for any architect in this position to establish whether there was a budget or not at an early stage, as that was the only way that all of the key requirements and constraints could have been identified.
In addition, clause 8.1 of the contract, noted that: “…the Consultant has used and shall use all the skill, care and diligence to be expected of suitably qualified and experienced architects undertaking services the like of those undertaken by the Consultant in relation to projects of the scale and character of the Development”. The “scale and character of the Development” can only be established if the existence, or absence, of a budget is also established.
What does the term ‘budget’ mean in this context?
The Court went on to discuss what “the budget” actually was. The Judge said that in the context of this project (if not in all, or at least most, construction projects) “it connotes an approximate outturn cost for the project; it can also mean the approximate level of the funds available to the developer or employer”. Here, the meaning given to that phrase by the parties during 2007 and 2008 was the approximate outturn cost for the project. It could only be an approximation, certainly in the early stages of any project.
The Architect had argued that they were architects, not costs specialists, and so could not give costs advice. That was true, but that did not mean that “budget” in the sense that it was used by these parties throughout this project was not relevant. Budget meant the amount of funds available or the amount that one wished to spend.
What about the advice that the cost could be reduced through value engineering?
In addition, the Court found that the Architect had been negligent when it advised that the project could be ‘value engineered’ down from £195m to £100m. Once they realised it could not be done for £100m the Architect was under an obligation to advise the Claimant of that regardless of whether they had advised it of the value engineering in the first place.
Why is this case important for professional advisers in the construction industry?
The case serves to highlight important issues of the scope of construction professionals’ duty. As to the first issue, the case found that not only do architects have a duty to consider and find out key constraints of the project such as its budget; they must also inform the client if they know the client is under a misconception about how the budget could be achieved.
Whether this is specific to architects, or even this particular case on the facts, remains to be seen, but construction professionals involved in advising clients on the design and procurement of projects should be alive to the issue of ensuring the project and the client’s expectations are in alignment to avoid substantial costs being wasted that the client may then look to recover from the construction professional.
It might appear to be common sense that the budget for a project is discussed at the outset, and yet it is common that a project is designed only then for the client to discover when the works are put out to tender that to achieve the design might cost substantially more than has been budgeted for. Whilst savings can be made adopting ‘value engineering’ or changes in specification, this can lead to tension and disputes arising when variations are instructed as the employer seeks the finished building within its budget and the contractor wants to be paid a reasonable sum for what it costs to build it.