Cost “blow out” Liabilities for Architects Administering Building Contracts
By Peter Micevski, Lovegrove & Cotton
In a Federal Court of Australia case handed down last month, the Court found that an architect was personally liable to his client, where the client sustained losses as a result of reliance on incorrect and incomplete information given to him by his architect. The Court found that the architect engaged in misleading or deceptive conduct during a tendering process by providing inaccurate costs estimates to his client.
This recent case demonstrates that care should be taken by architects when making representations to clients about tender processes and quotations, as a failure to do so could have expensive consequences.
The case in question is Robinson v Kenny  FCA 988. The owner commenced proceedings against the architect for misleading or deceptive conduct, pursuant to the Fair Trading Act 1987 (NSW), alleging that the architect misled him as to the nature of the tender process which resulted in the quote, as well as the likely costs of the works which were the subject of a building contract between the owner and a Builder.
Relying upon the representations of the architect that the work would cost up to $1.35 million or marginally more, the owner entered into a cost plus contract with a Builder to build his home. Unfortunately for the owner, before the house was complete the building contract was terminated and the owner, up until that time, had spent approximately $2.47 million. Even more unfortunate for the owner was the fact that it would have cost the owner a further $300,000 to complete the work.
At the hearing the Owner submitted that had he of known that the works would cost in excess of the contract price, he would not have undertaken the project at that time. Expert evidence presented before the Federal Court was that at the time the quote was given to the Owner, the true fixed price contract sum was approximately $1.7 million and the cost plus sum was approximately $1.9 million.
During the tender process, the architect was instrumental in the production of the quote. The architect:
- Created the quote on his computer;
- Liaised with the Builder on whether the Builder could build the house for $1.35 million fixed price or $1.4 million “cost-plus”; and
- Did not relay to the owner that the Builder qualified the quote by saying that he could not complete the work for a total cost of $1.4 million without changing the specification and design.
During the building contract process, the architect then sent draft building contracts and inserted the figure of $1.35 million into the contract, thereby giving credibility to the price as being an achievable construction cost within the Builder’s scope. In addition, the architect inserted that figure without having firm advice from the Builder that he would or might be willing to enter into a fixed price contract at $1.35 million.
It was found that the architect’s exposure was his failure to provide critical information including:
- not providing full details of the quotation from the Builder;
- relaying ‘unqualified information’ that was not yet verified; and
- not providing precise and crucial details about the tender process.
Grimly for the architect, the Court found that the appropriate compensation award for the owner’s loss was:
- $2,471,821.99 being the sum the Owner had paid to build the works, which the Court found would not have been incurred if the contract had not been entered into; plus
- Interest on that amount; plus
- The sum of foregone rent on the existing house, being $280 per week, adjusted for inflation.
Deducted from the compensation award was the change in the improved value of the property after the existing property was demolished.
In summary, we now know is that there needs to be a complete understanding between a contractor, a client and an architect in ensuring that the documentation is accurate so as to avoid serious legal fallout. Whilst in this case the architect assumed an unusually prominent role in devising estimates for the building works in the lead up to the execution of the building contract, the case highlights the importance of making accurate representations to clients where an architect assumes a contract administration role.
If you have had a building contract where the contract price has “blown out”, we suggest that you receive immediate legal advice from experienced construction lawyers.