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Cost implications if an architect’s creative flare results in losing sight of its client’s budget

November 2017 - Issue 99

On 18 October 2017, the Technology and Construction Court issued a ruling in Riva Properties Ltd and others v Foster and Partners Ltd [2017] EWHC 2574 which is likely to highlight budget clauses within contracts and addresses an architect’s duty to take budget into account within its design.

Key facts

Breach of Contract

Architects follow the RIBA stages of work. Foster was instructed to carry out RIBA Stages A-L in September 2007 (now RIBA 0-6). It was held Foster breached RIBA stages A and B which highlight that the project budget should be a clear objective in the workflow.

Foster submitted that they were never advised of any budget and that there was no budget, however it was proved via emails and cross-examination of Foster’s witness that a budget of £70 million, increased to £100 million, was communicated to Foster. It was found that Foster was in breach of contract for failing to complete RIBA stages A and B with the reasonable skill and care to be expected.

Failure to inform Mr Dhanoa that it was impossible to value engineer the project to £100 million

In addition to not sticking to the budget provided to them, Foster advised that the project could be ‘value engineered’ down from £195 million to within £100 million. The architectural experts agreed that the value engineering advice was negligent. Although value engineering is a complex process and the result cannot be guaranteed, it was considered ‘blindingly obvious’ that it was impossible to value engineer the project accordingly. Judge Fraser therefore held that Foster was under a duty to advise realistically whether the project could be value engineered down to within the project budget.

Causation

Was Foster solely responsible for preventing Mr Dhanoa’s plans to construct a hotel on the Heathrow site? It was considered that a number of factors contributed:

  1. The 2007 financial crisis – resulting in Mr Dhanoa finding it increasingly more difficult to borrow funds for the £100 million project.
  2. As a result of the crisis, lenders were requiring a greater contribution from borrowers towards the full value of the loan.
  3. The £195 million scheme designed by Foster was very expensive and therefore difficult to pitch to lenders.

However, the chain of causation was found to be broken. Judge Fraser considered the contributing factors above and held that even if the project had been designed within the £100 million budget, the financial crisis would still have affected Mr Dhanoa’s ability to borrow funds.

Summary – Lessons to be learnt!

As a result of the chain of causation being broken, Mr Dhanoa’s claim for loss of profits of £16 million did not succeed. However, it was held that there was a breach of contract by Foster and Mr Dhanoa was subsequently awarded £3.6 million in abortive professional fees and costs incurred as a result of the breach and for continuing with the value engineering exercise following unrealistic advice.  

This case clearly highlights the need to be careful and explicit in the scope of professional services you may offer and to give adequate consideration to any budget clause that may be within your instructions.

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