A common complaint from employers and main contractors alike is a failure by their design team to work to budget. But what rights do you have if your budget is ultimately exceeded?
This is a matter which was discussed in the recent case of Riva Properties Ltd & Ors v Foster + Partners Ltd. In this case the employer, Riva Properties Ltd (“Riva”) alleged that its architect, Fosters + Partners (“Fosters”) was in breach of its obligation to exercise reasonable skill and care by failing to adhere to Riva’s budget for a hotel at a site in London and/or to advise whether that budget was realistic or not.
Riva had advised Fosters that its budget for the project was £70M. Fosters produced a scheme which was costed at £195M. Riva then increased its budget to £100million in reliance upon Fosters telling it that the project could be “value engineered” down to that figure.
As it turned out, Riva could not obtain funding for the scheme, which it discovered could not be value engineered to as low a figure as £100M. Riva could not therefore build the scheme which Fosters had designed and which had cost Riva approximately £4M in design fees.
Riva raised proceedings to recover the losses suffered by it.
In this case, the Court held that Fosters was engaged under a RIBA appointment to provide a full service. This meant that Fosters was responsible for identifying key requirements and constraints in the scheme which was being designed. A client’s budget was identified as a constraint. It was not something which could be ignored. If a budget was not communicated to the designers, then it was a matter that the designers ought to ask. It was no excuse to say that budget and costs were nothing to do with the architect. Accordingly, Fosters was found to be in breach of contract.
In addition to this, the Court held that Fosters were negligent in their advice that the project could be value engineered down from £195M to £100M. If this could not be done, Fosters was under an obligation to advise Riva that this was the case. Riva had continued to incur professional fees in reliance on this negligent advice and the fees incurred in producing an alternative design, together with the cost of quantity surveying services required on the alternative scheme were accordingly recoverable.
In this case Riva was unsuccessful in its claim against Fosters for loss of profits; the hotel was not built due to lack of funding caused by the financial crash in 2007-2009 and not Foster’s budgetary advice. We watch with interest whether this position will be extended in different circumstances.
Lessons to be learned from this case
This case highlights the fundamental importance of architects managing clients’ expectations in respect of what is and isn’t achievable within a clients’ budget. It also highlights the importance of a professional understanding the scope of services it has agreed to perform. Architects and other professionals should ignore the outcome of this case at their peril.