Money no object?

As Foster + Partners has discovered, you ignore clients’ budgets at your peril.

While an architect may not be expected to provide cost advice, establishing and understanding a client’s budget is an essential part of its duties.  The recent decision in Riva Properties Ltd and others v Foster + Partners is a stark reminder of this and the importance of the budget in the design process.  

Foster + Partners was commissioned in 2007 to design an iconic five star  hotel near Heathrow Airport by Mr Dhanoa (using one his Riva group companies, Riva Properties).  Fosters' scheme included a 600 bed hotel (set over 7 floors above ground and seven below) with conference and leisure facilities, a bowling alley and parking laid out in a village theme.  The proposal included a large glass biosphere surrounding the hotel and the outside containing the village.  The estimated cost was calculated to be £195million, way in excess of Mr Dhanoa’s original budget of £70million.  That budget was subsequently increased to £100million after Foster + Partners advised that it was possible to ‘value engineer’ the project to that figure.  That advice turned out to be incorrect.  Some 10 years later a hotel has yet to be built on the site.

Mr Dhanoa sued Foster + Partners on the grounds that it was negligent in failing to take the original budget into account and for incorrectly advising that value engineering could achieve a significantly reduced estimated cost.  The court agreed and Foster + Partners was ordered to pay £3.6million (for sums Mr Dhanoa would have to pay consultants and advisers in order to start again).  Fortunately for Fosters the figure was not higher – the financial crisis, rather than its costly design, was the effective cause of Mr Dhanoa’s inability to build the hotel and so the loss of profit element of the claim failed. 

The way in which the duty of care clause and schedule of services were drafted meant Foster + Partners was responsible for finding out whether there was a budget and, if so, how much it was.  

The requirement to provide design for RIBA Work Stages A – L meant a ‘full service’ encompassing Work Stages A and B - which refer to the identification of, and reporting on, key requirements and constraints (particularly as part of the Strategic Brief).  Budget can be a constraint on construction projects (something reinforced in the RIBA Architect’s Job Book which was current at the time the project was undertaken) and, as such, should have been identified as part of the services Foster + Partners provided and subsequently taken into account.  This was the case even though the terms and conditions did not appear to expressly impose an obligation on Foster + Partners to design within a stipulated budget. 

As one of Fosters’ own expert witnesses stated, failure to comply with a budget would be at the ‘architect’s risk’ – as the judge summarised:

“Fosters could simply be required to do the design again, at their own cost, if they failed to comply with the budget the first time around.”   

While it was accepted that Foster + Partners is not a costs specialist and was not in a position to provide detailed advice on costs, the judge found that compliance with the budget and costs advice (something Foster + Partners sought to elide) are not the same thing.  Foster + Partners was expected to know what the budget was and to take that into account when carrying out its services.

The finding that architects are required to establish and subsequently take a client’s budget into account when designing a project should not come as a surprise.  The judge’s decision is a salutary reminder of the financial implications of failing to comply with even the most of basic of requirements on a project.

In plain English: Budget

The amount of the budget, whether it had been communicated by the client or Foster + Partners had an obligation to establish how much it was, took up a considerable part of the case.  It was acknowledged by the judge that in the construction sphere and even generally the phrase can have different meanings depending on the context in which it is used.  While it can mean the approximate level of funds available to a client, in this instance the judge found that it connoted the approximate outturn cost for the project.  The question then arose of what is included within the phrase ‘outturn cost’ in addition to construction costs.  Professional fees?  Planning fees?  Contingency?  Fixtures, fittings and equipment?  In this case the judge found that it included all of the above, other than contingency.  The take away point is that there is no standard definition or meaning of what is meant by budget and clarification of what is and is not included should always be sought. 

This article was published in The RIBA Journal February 2018.