Architect negligent because of client’s budget

A decision in October 2017 looked at whether the standard RIBA scope of services meant that an architect was required to ascertain and comply with a client’s budget when designing a project: Riva Properties Limited v Foster + Partners Limited [2017] EWHC 2574.

The facts

In 2007, Riva, which was controlled by an individual, appointed the well-known architects, Foster + Partners, to design a five-star hotel at a site next to Heathrow airport. The scope of services in Fosters’ appointment was based on RIBA Work Stages A – L.  Stages A and B come under the heading “Feasibility” and relate to identifying and confirming “key requirements and constraints”.

No budget was specified in the appointment, but Riva said that they had notified Fosters of the initial £70 million overall budget. After the design was later costed by the cost consultant at £195 million, Riva increased the budget to £100 million, relying on Fosters’ advice that the design could be “value engineered” down to within that budget. Despite the project receiving planning permission in 2009 it was never built – in reality, it was impossible to obtain such funding or value engineer downwards to as low a figure as £100 million.

Riva made a claim in professional negligence against Fosters for £4 million in professional fees (about half of that was for advice from Fosters) and circa £16 million in loss of profits.  The court had to consider the scope of Fosters’ duty towards Riva and whether they were obliged to ascertain the budget and advise their client generally about the budget and how realistic it was.

Fosters said that “there was nothing in the Appointment that required [Fosters] to design the hotel within a stipulated budget” and in any event, denied both that there was any budget communicated to them at the outset and that they had provided an assurance that the project could be value engineered to £100 million.

The decision

The judge, Fraser J, rejected Fosters’ arguments, and decided in favour of the claimants in part.

On the witness evidence, Fraser J found that Fosters knew there was a budget and were in breach of contract for failing to complete RIBA Stages A and B with reasonable skill and care.  In any event, the court found that it was necessary for an architect in Fosters’ position to establish whether or not there was a budget at an early stage as it was the only way that all the key requirements and constraints could be identified (RIBA Stages A and B). A client’s budget for a project is plainly a constraint (and arguably a requirement too), and so Fosters had a duty to ascertain the budget and advise Riva if the budget was unrealistic. The judgment stated that the architect’s duty of skill and care required them to consider the RIBA Architect’s Job Book (2007) which confirmed that budget is a key constraint which the Architect must identify at Stage A. The argument that square brackets around the Stage B requirement for a strategic brief meant it did not apply was rejected.

On the basis of expert evidence, Fraser J held that Fosters had negligently advised that the project could be “value engineered” down from £195 million to £100 million to bring it back within the limit of the budget. Given that Fosters knew that Riva expected the cost-reduction to occur by value engineering, Fosters were under an obligation to advise and warn Riva that it was impossible.

Riva succeeded in recovering £3.6 million in respect of the professional fees as damages for breach of contract as it was reasonable for it to rely on Fosters advice. However, the loss of profit claim failed because it was held that the inability to secure funding was partly attributable to cash reserves and also the 2007 financial crisis and these would have been present regardless of whether the project could have been designed in accordance with the £100 million budget.

More focus on budget clauses

This case highlights that cost and budget is a key constraint and should always be identified and considered when designing a project even if not providing cost advice. This is because RIBA Stages A and B (and the updated, albeit similar, requirements of the current Stages 0 and 1) does include an obligation to ascertain and comply with their client’s budget irrespective of whether this is expressly set out or not.

Consultants and clients should take care to ensure that special attention is paid to any budget clause inserted within the appointment terms and conditions. In particular, consultants should be wary of an ‘absolute’ obligation to achieve the client’s budget (instead seeking to restrict this to an obligation to “consider” or have “due regard to”).