Case Study – A Hotel That Costs too Much!? – Architect Pays Developer For Expensive Design.

This week I have a very interesting story from the United Kingdom about a hotel designed near Heathrow Airport. The hotel was never built because the building that was designed cost twice the developer’s original budget to build.

The developer Riva Properties commissioned Foster + Partners to design a building that should have cost 70M pounds.  Foster created a design described as a “distinctive layered glass shell” which was estimated to cost 195M pounds.

There have been several articles written about this case study and all suggest that Foster failed to meet RIBA standards.

The acronym RIBA stands for Royal Institute of British Architects.  In the UK most firms follow the scope of work defined by RIBA standards.  These standards provide a highly detailed step by step guide establishing the Architect’s scope of work.

According to the story, Riva Properties hired Foster to perform RIBA Stages A through L.  These stages have since been amended to be known as RIBA Stages 0 to 6.

The key component that the court found was that Foster failed to perform RIBA Stage A which required Foster to “identify requirements and possible constraints” and Stage B which required Foster to “confirm key requirements and constraints”.

The court stated that budget was a constraint and despite Foster’s protests that they excluded advice on cost, the court ruled that designing within a constraint such as budget was not the same as providing advice on cost.

In the US the equivalent standard comes from the American Institute of Architects (AIA).  The AIA does not have stages of scope rather it publishes the Architect’s scope in their standard form of agreement.  Regardless, the AIA contract states,

The Architect shall prepare a preliminary evaluation of the Owner’s program, schedule, budget for the cost of the Work, Project site, the proposed procurement and delivery method, and other initial Information each in terms of the other to ascertain the requirements of the Project.” The AIA documents go one to say “Based on the Project requirements…the Architect shall…prepare a preliminary design”

Essentially, both clauses have the effect of requiring Architects to design to the Owner’s budget.

In my career I have observed many instances of Architect’s ignoring the Owner’s budget and designing buildings with no regard for cost.

In their defense, many Owner’s come to Architects with dreams of designs that far exceed their pocketbooks and Architect’s should not be expected to act as estimators.

When Foster claimed that advice on cost was excluded they were saying that they do not provided estimating.  Their obligation is to design a building that meets the program their Client requested.

Regardless, Architect’s often take broad creative license with designer dreams of their own.  Many Architects spend their lives chasing aspirations of award winning projects.  These aspirations are paid for with their Client’s money.

Frequent readers of this blog know that this is the point where I lay out some suggestions for how to avoid the dilemma of our protagonist’s, but Today I only have two simple suggestions.

Pay for estimating

Whether you are developing an initial budget or you are verifying the cost of the design, Owner’s should always have a professional estimator working for them.

Estimators are a special blend of number crunchers and construction experts who spend all day bench-marking and estimating projects.  It’s a very specialized skill.  Don’t assume your Architect or your Contractor will take care of this.  I don’t even recommend allowing the Architect or the Contractor to sub-contract an estimator.  What you want is the estimator working directly for you and ONLY you.

The fees for estimating are typically very low and well worth every penny.  Incorporate your estimator into each phase of your design to ensure that you are within budget every step of the way.  You may even want to retain the estimator during the construction to help you with accounting and cash-flow projections.

Incorporate Designing within budget into Standard of Care

In an article a few weeks ago, I shared how I define the Standard of Care in my design contracts.  One item I did not mention in that article is designing within budget.

For Owner’s who have properly developed budgets, adding a clause requiring that the design be developed according to your budget is essential.  Bear in mind that depending on the stage of development, your estimate will have a margin of error and/or contingency.  Be sure to factor in that contingency if you plan on requisitioning funds or taking a loan.  I also recommend carrying an additional 20% to 25% contingency of your own to ensure you can complete the work.

As is the case with all Standard of Care language, be sure to have an open conversation with your designers about budget to ensure alignment up front.  Doing so will avoid conflicts later.  Oh, and be sure to check the Standard of Care language with a Lawyer, laws vary from one jurisdiction to the next.  Some provisions may not be enforceable in your jurisdiction.

Closing

Budgets are an essential part of every project.  Be sure that your budget is based on sound information and is developed by an impartial expert estimator.  This will ensure that your financial expectations are properly set from the beginning.  Pair that with an open conversation with your designer about budget and you will avoid surprises like the one experienced by Riva Partners.

What about you? Have you had a design exceed your budget?  Was the problem your design, or was the problem your budget?  Tell me your stories.

Thanks for reading.  If you enjoyed this content, please feel free to browse my previous articles and please like, share, comment, and subscribe.  This helps promote my content and is greatly appreciated.

 

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