A recent TCC decision has considered whether the standard RIBA scope of services requires an architect to ascertain and comply with a client’s budget when designing a project. In this case, a well known architect was found liable for producing a design ultimately costed at almost three times the client’s initial budget. The decision is likely to bring increased attention to budget clauses in negotiations over consultant appointments.
Riva Properties Limited v Foster + Partners Limited
Riva appointed Foster + Partners to design a five-star hotel next to Heathrow airport. The scheme obtained planning permission in 2009 but was never developed. Riva alleged that it was not possible to obtain funding for the project and blamed this on the design exceeding budget. The scheme was ultimately costed at £195M compared to an initial budget of £70m. Riva sued Fosters for loss of profit or alternatively recovery of its wasted costs of the aborted scheme.
The scope of services contained within Fosters’ appointment aligned with RIBA Stages A to L and also contained bespoke additions. The appointment did not explicitly refer to budget advice, but the Stage B description referred expressly to Fosters “confirming key requirements and constraints”.
Fosters sought to draw a broad distinction between architectural services and “advice on costs”, which it contended fell outside the appointment. In Fosters’ submission: “There was nothing in the Appointment which required [Fosters] to design the hotel within a stipulated budget.” Fosters also argued that the presence of square brackets around the Stage B requirement for a Strategic Brief meant that this element was excluded from their scope of services.
The court rejected Fosters’ submissions and found it to be in breach of its budget obligations implicit within RIBA Stages A and B. The court noted that once a budget had been identified, Fosters “was obliged to design the Development to the budget indicated”. A central plank of Fosters’ defence up until trial had been that there was no budget and that therefore there was no obligation to design to one. However their witness evidence at trial did not support that and the judge found that there was indeed a budget that had been communicated to Fosters and that Fosters were obliged to design to it even though there was no explicit obligation in their Appointment providing for this. Even if that had not been the case, however, the judge found that this would not have helped Fosters because:
- Both Stages A and B required Fosters to confirm key requirements and constraints of the project.
- The requirement for Fosters to identify a budget or lack of a budget was a key requirement and constraint of the project. This was supported by the RIBA Architect’s Job Book, which states in relation to Stage A: "Obtain from the client the project requirements, budget and timetable. Check these carefully, question incompatibilities and agree priorities".
- Fosters had failed to carry out Stages A and B at all and jumped straight to Stage C without regard for the client’s budget.
The presence of square brackets around the Stage B requirement for a Strategic Brief did not affect Fosters’ obligations. They could not be taken as showing that the Strategic Brief had been deleted from Fosters’ scope of services.
The judge also found that when the possibility of value engineering the Fosters design to bring it back within the client’s budget was discussed, Fosters ought to have warned the client that this was impossible (it would have required a design valued at £195m to be value engineering to meet a budget with a maximum of £100m) and they failed to do so.
Conclusions and implications
The decision provides clarity that the ordinary scope of services for an architect will include an obligation both to ascertain and comply with the client’s budget whether this is expressly stated or not.
Whilst this might come as a surprise to some, this is in line both with the Architect’s Job Book (as referred to above) and also the Architect’s Code issued by the Architect’s Registration Board which requires Architects to carry out their professional work “so far as reasonably practicable, in accordance with any time-scale and cost limits agreed with your client” and “You are expected to keep your client informed … any issue which may significantly affect its quality or cost”.
In Scotland, the Scottish Conditions for Appointment of an Architect SCA/2014 contain similar requirements in Stage 0 to obtain the Client’s Requirements, Budget (which includes the construction costs budget) and Project Timetable including the Client’s Business Case (which identifies the commercial and financial viability of the Project) and the Strategic Brief, at Stage 1 to review alternative design and construction approaches and cost implications of these and at Stage 2 to obtain confirmation or revision to the Budget. There is also a specific requirement in the Conditions of Appointment to inform the Client if it becomes apparent that there is any incompatibility between the Client’s Requirements, the Budget or the Project Timetable.
Indications from professional bodies are that budget disputes between clients and architects are increasing. In light of the judicial confirmation brought by the present case, a greater focus on budget clauses is likely to be seen in the negotiation of consultant appointments.
Consultants and clients would be wise to keep the following in mind:
- Be explicit in what is included and excluded from the scope of services. Double-check whether any services in square brackets or “to be confirmed” are supposed to be included.
- If liability for budget overruns is to be excluded, an express clause to this effect is likely to be required.
- Pay attention to any budget clause included within the appointment terms and conditions. Consultants are likely to want to soften the language of such clauses away from an absolute obligation to achieve the client’s budget to an obligation only to “consider” or “have due regard” to the budget.