Architect Liability for Cost Estimates

Architects drafting plans for clients and estimating costs can find themselves liable to clients for incorrect estimates. When construction costs far exceed an architect’s estimate, he or she can be found liable for damages, as well as fraud and misrepresentation based on various grounds.

Where an architect completes plans with a cost estimate, and the cost of the building is much more than estimated, an architect may be found liable for fraud and misrepresentation. (Goldberg v. Underhill (1950) 95 Cal. App. 2D 700.) In Goldberg, a landmark case on this issue, the architect-contractor estimated the cost of erecting a building to be $12,000. In the end, it cost the owners over $22,000, resulting in a law suit for fraud and misrepresentation. In his defense, the architect asserted that the owners had changed the plans several times. However, the court found that the changes made by the plaintiffs did not explain the large difference in construction costs.

Where an architect holds out to clients that he or she possesses special skills or knowledge in the design of a building and that assertion is relied upon, an architect may be liable for damages caused based on fraud and deceit. (Edward Barron Estate Co. v. Woodruff Co.(1912) 163 Cal. 561.) In Edward Barron Estate Co., the architect held out to the owner that he possessed special architectural skills, when in fact he had none. He further promised the owner that a building could be completed for $300,000, and that the owner would earn an 8% profit on his investment. The architect asserted that construction costs would under no circumstances be more than agreed upon, for if construction costs increased, modifications would be made to the plans to ensure the amount never exceeded the maximum allowed. Half way through construction, the architect informed the owner that the cost of the building would be $700,000. The court found that the architect had fraudulently induced the owner to invest his money in the building, and held that where an architect affirms that the cost of erecting a building will not cost more than a certain amount, and the building in actuality costs much more when completed, the owner may recover from the architect the commissions paid and the excess cost above the amount contemplated.

If an architect is hired for his or her specialized knowledge and skill, it will be assumed that the architect has knowledge of all applicable building codes, ordinances, and laws. If an architect’s construction or improvements cannot be completed or constructed because they fail to comply with legal requirements, the architect shall not be entitled to compensation for the services unless the project can be brought into compliance with little change in design, and the owner prevents the architect from making the necessary modifications.

Additionally, when an architect incorrectly estimates a project, the result can be that the owner abandons the project. Under these circumstances, the architect’s liability and right to compensation may depend upon the contract she has with the owner. Where an architect underestimates the costs and an owner abandons a project, the architect will not be liable if he or she has skillfully drawn plans. In  Benenato v. McDougall (1913)166 Cal. 405, the architect skillfully drew plans, however the owner was informed by  its contractor that the building could not be constructed for the architect’s estimates. There, the court found that because the owner was put on notice of the architect’s mistake, he could not recover and the architect would not be liable for the additional expenditures.

Architects seeking to reduce their risk of liability for incorrect cost estimates should ensure their client contract contains a clause addressing this problem and providing for the remedy in case such a situation arises. If this issue is addressed, the contract between the architect and client will control, and common law will be considered second. Furthermore, architects can always reduce their personal liability by maintaining proper liability insurance.

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