Architects: Is your scheme within the Client’s Budget? Professional Negligence and Construction Professionals

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Charles Edwards, Barrister and TECBAR Adjudicator, reviews the key case of Riva Properties Ltd & Ors v Foster + Partners Ltd [2017] EWHC 2574 (TCC) concerning a claim of professional negligence against Foster + Partners, worldwide renowned architects.  The court reviewed amongst other things (para 10):
  • The scope of Foster + Partners’ duty and retainer?
  • Whether Foster + Partners were obliged to design the Development within a particular budget?
  • Whether Foster + Partners were required to ascertain the budget for the scheme which they had designed during work stages A/B?
  • Whether Foster + Partners were aware that their design for the 5-star hotel had to be value engineered to within the client’s budget of £100 Million?
  • Whether Foster + Partners warned the client that it was not possible to value engineer their design to be within the client’s budget of £100 Million?
  • Whether Foster + Partners were in breach of duty?
  • What did the RIBA Job Book require with regard to Stages A and B?
  • Whether Foster + Partners had been negligent in their advice/failure to advise?
  • What sums if any the client could recover from Foster + Partners?
Mr John Dhanoa through his four companies who are the Claimant, alleged that Foster + Partners were in breach of their duty to exercise reasonable care and skill in their professional performance as architects between 2007 and 2009.  The Claimant, through one of his companies, engaged Fosters + Partners in 2007 to design a 5-star hotel at a site in London Heathrow for an original budget of £70 Million.   Foster + Partners’ appointment required Foster + Partners to exercise reasonable skill and care in the performance of its duties.   Clause 8.1 of the Appointment provided as follows (para 63 of the judgment): “The Consultant warrants and undertakes that in the performance of its duties under this Agreement 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 and that it will observe and perform all the terms and obligations on its part to be observed and performed. For the avoidance of doubt, all duties and obligations of the Consultant under this Agreement are subject to the level of skill and care detailed in this clause 8.1 except where the Consultant is required to comply with any statutory requirements, permissions or law generally.” The Claimant’s case was that Fosters + Partners (“the Defendant”) in summary were in breach of their duty owed to the Claimant to exercise reasonable care and skill between 2007 and 2009.  The scheme designed by the Defendant was costed by the Claimant’s Cost Consultants, EC Harris, in February 2008 at £195 Million.  The Claimant increased his budget to £100 million from the original budget of £70 Million on reliance upon the Defendant’s advice that the scheme could be “value engineered” down to the figure of £100 million.  The Claimant also stated that Defendant advised him to apply for planning permission notwithstanding the high cost of the scheme and to have it value engineered down to as low a figure as £100 Million once planning permission was obtained.  The Claimant obtained planning permission in March 2009, however, he was unable to obtain funding for the scheme which he discovered could not possibly be value engineered downwards to as low a figure as £100 Million.  As a result, the Claimant was unable to build the scheme which the Defendant had designed. At this point the Claimant had spent approximately £4 Million in Professional Fees, about half of which had been paid to the Defendant and the other half to the other members of the professional team.   The Claimant’s position in summary is that the Defendant had failed to design a scheme within the Claimant’s budget of £100 Million.  The Defendant vigorously denied the allegations made against their practice and denied that any budget was provided by the Claimant and relied upon the fact that no quantity surveyor had been appointed at the very beginning of the project, denied giving value engineering advice, denied causation, alleged contributory negligence by the Claimant and denied loss. The Claimant had a further hotel scheme for the site designed by alternative architects which was referred to as the Acanthus Scheme. At paragraph 7 of the judgment, the Court stated that the Claimant maintained that the Acanthus scheme or something similar to it could have been constructed for £100 million in 2009. The Defendant denied this too. However, planning permission had not yet been obtained for this alternative scheme. The Claimant’s expert witness was asked whether the Acanthus Scheme could be built for £100 million (at 2009 values). The Claimant’s expert witness’s conclusion was that it could be.  The Defendant’s expert witness was asked whether the Acanthus Scheme could be built for £100 million (at 2009 values) and his conclusion was that it could not (para 56).  At paragraph 58, the Court stated that it preferred the Claimant’s expert witness’s evidence on this point which was an issue in the case and required expert evidence. With regard to the Defendant’s responsibilities as architect for the key requirements and constraints on the project, the Court stated as follows (paragraph 76) “…A client’s budget for a project is plainly a constraint (it could also be argued that it is a requirement too), and was in this case. If Fosters were obliged to prepare the Strategic Brief (which I have found they were), this would and should have included identification of budget as a key requirement and constraint (if the claimants’ case that there was a budget is accepted), or that budget were not such a key requirement and constraint (if Fosters’ case that there were no such budget is accepted). If Fosters were not obliged to prepare the Strategic Brief (contrary to my finding) then identification of the key requirements and constraints was still part of the scope of their obligations under Stage B in any event, and the same approach to budget should have been adopted upon receipt of the Strategic Brief from the client (or another professional). The lack of a bullet point on page 6, and the presence of one set of square brackets on page 4, do not relieve Fosters of the obligation to confirm or identify the budget, or confirm or identify the other key requirements and constraints. In neither scenario is Fosters entitled wholly to ignore the presence of a budget, and also fail to identify whether there is a budget or not, as that would plainly be a key requirement and constraint…” The court further stated that (para 77): “…the expert architects both accepted that in some if not most projects, budget can be a constraint. It was therefore necessary, in my judgment, for an architect in Fosters’ position to establish whether there was a budget or not at an early stage, as that is the only way that all of the key requirements and constraints could have been identified. It simply could not be assumed by Fosters that there was no budget at all. There is another secondary reason that was not argued, but seems to me to support that analysis. This is that the requirement to use reasonable skill and care in Clause 8.1 uses the following words “…..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…” The case advanced by the Defendant was that there was no budget or at least one was not communicated to the Defendant and that they were not obliged to find out whether the Claimant had one or not; and that the Defendant was not engaged to provide cost advice and that the Claimant’s other requirements such as wanting an iconic hotel with green credentials were more important to the Claimant than the budget. The court stated that (para78):  “…I find that whether there was a budget (or lack of it), and if so how much it was, had to be established by Fosters. I also find as a fact that there was a budget. Even if I am wrong about that, then Fosters were obliged to find out if there was a budget, or to find out that there was not a budget. Fosters did none of these things. Fosters rely upon Mr Dhanoa’s desire to have an “iconic” hotel as relieving Fosters of any concern or involvement in the budget for this project. I reject that argument…” With regard to the meaning of Budget in the context of this case, the court stated that: The Budget
  1. … “the budget”. This term can, in the construction industry and in fact in general, have different meanings depending upon its context. In the context of this case, and 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. I find that 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. A main plank of Fosters’ defence to the claim was that they are architects, not costs specialists, and cannot give costs advice. That is true, but that does not mean that “budget” in the sense that it was used by these parties throughout this project has no relevance to Fosters at all (which is effectively what Fosters were arguing in this case). Indeed, budget is used in the industry in general, and in society in general, as the amount of funds available or the amount which one wishes to spend…”.
The Court accepted the Claimant’s evidence that the Defendant had advised that the project could be value engineered down to £100 Million.  Furthermore, the Claimant’s desire to reduce the costs of the scheme to £100 Million by Value Engineering was recorded in numerous emails.  The court was clear that what the Defendant could not do is to excuse itself from performing Stages A and B on the basis that budget equates to costs and costs are nothing to do with the Defendant as the architect for the scheme. With regard to the scope of Defendant’s duty, the court found amongst other things that, the Defendant’s duties included identification of key requirements and constraints in respect of Stages A and B, whether they were to be provided by Defendants or others.  However, the key point was that by Stage B the Defendant should have been aware of the key requirements and constraints and in this case, that included the budget for the scheme which was originally £70 Million and which was increased to £100 Million.   The court did not consider for the purposes of the Defendant’s Appointment that value engineering was cost advice in the context of this case as the Claimant had already appointed chartered quantity surveyors to provide cost advice.  Therefore, value engineering in the context of this case was making changes to a design to reduce the cost of the building and not the provision of cost advice. The court considered that there were two breaches of duty by the Defendant.  Breach 1 involved the failure to carry out stages A and B of the RIBA Job Book.  The RIBA Job Book has many references to cost being a constraint which an architect must identify at Stages A and B.  The court’s view was that the exercise of reasonable skill and care required an architect to have regard to the RIBA Job Book and this was simply not done in this case.   The court stated as follows (para 153):  “…The Appointment sets out the Services Fosters were obliged to perform in Schedule 1. These include being “designer for Work Stages – Full service A-L”. It is Mr Rich’s opinion that Fosters failed to carry out Work Stages A and B. Most importantly Fosters failed to identify (in Stage A) and thereafter confirm (in Stage B) one of (if not the key) constraint on the development – the budget.   The expert architects disagreed in their written reports as to whether ‘cost’ or ‘budget’ was a constraint that should be identified and confirmed in Stages A and B. However, by the end of his cross-examination, Mr Moren accepted that it could be a constraint. I consider that whether it is or not should always be identified by an architect exercising reasonable care and skill. Indeed, constraints can only be identified if the existence or otherwise of a budget is established. Mr Rich stated that in relation to most projects (particularly commercial projects) cost is almost always “fundamental” and a “critical and key” constraint, but that is essentially common sense in any event. Constraints must be ascertained and considered by the architect in Stage A, and confirmed in Stage B. Mr Rich supported his opinion by reference to the RIBA Architect’s Job Book, to which both experts referred in their reports, using the version current in 2007. This confirms that budget is a key constraint that the Architect must identify at Stage A. It states:  “Obtain from the client the project requirements, budget and timetable. Check these carefully, question incompatibilities and agree priorities”. This was simply not done in this case by Fosters.” Breach 2 involved the Defendant’s advice that that scheme as designed could be value engineered down to £100 Million from £195 million.  The court accepted at paragraph 158 that the Claimant’s had been advised by the Defendant that the scheme could be value engineered to £100 Million and both architectural experts agreed that if such advice was given then it was negligent.  The court further stated that breach 2 was made out on the facts. Conclusion The court found in favour of the Claimant in respect of the Defendant’s breaches of duty as set out above and awarded the Claimant £3,604,694.36. In doing so the court found that:
  • The Defendant failed in their contractual duty to ascertain the budget for the scheme with reference to the RIBA Job Book which as architects the Defendant was required to consider in order to exercise reasonable care and skill in the discharge of its
  • The Defendant was in breach of duty for advising the Claimant that the scheme they had designed could be value engineered down to £100 Million from £195 Million.
This case highlights that:
  1. Architects are under a duty to ascertain the budget for a scheme in order to discharge their duty of reasonable care and skill.
  2. Architects will be in breach of duty for advising a client that a design/scheme for a project could be value engineered down to a particular budget if that could not be done.
  3. Architects if they are aware that their client’s expectations for a scheme/project cannot be achieved for the client’s budget, then they should advise their client accordingly as a failure to do so is likely to have grave consequences as set out above.
This case has far wider implications for architects and construction professionals generally. Architects and construction professionals will need to take greater care with respect to their terms of appointment with clients so that they are absolutely clear what services they are obliged to provide pursuant to the terms of their appointment. Should you require any advice in connection with the issues set out above, please do not hesitate to contact me. The above is for general information only and to encourage discussion and does not constitute legal advice.  The author does not assume any responsibility for the accuracy of any statements made and appropriate legal advice should be taken and relied upon before taking or omitting to take any action in respect of any specific matter.

Charles Edwin Edwards MSt(Cantab) MSc(Lond) FCInstCES Barrister
NEW TEMPLE CHAMBERS
2nd Floor Berkeley Square House
Berkeley Square
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London W1J 6BD
Tel: +44(0)207 887 6098

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