It is a traumatic experience for the owner and architect alike when the
project is priced and the lowest responsible
bid exceeds the available funds. Sometimes it will result in a canceled project
and much disappointment, ill-will,
and legal repercussions. Usually, the owner will hold the architect entirely
responsible for the whole unfortunate situation.
However, it is very difficult for an architect to design within a stated
budget without the active cooperation
of the owner. This important concept is recognized in the AIA Owner-Architect
Agreement (Document B-141, Fourteenth
The owner is required to "establish and update an (overall budget) for
the project, including the construction cost, the owner’s other costs, and
reasonable contingencies related to all of these costs (paragraph 4.2)."
Architects should insist that owners comply in full with this provision to help
minimize misunderstandings as to which elements are included in the architects’s
design budget and which are not.
Often owners do not realize the magnitude of related and incidental costs and
their impact on the budget The actual building cost can be and often is less
than 50 percent of the overall budget including land acquisition costs. Even
without the land, many overall budgets would allocate less than 60 percent to
the general building cost.
A suggested format for an owner’s overall budget accompanies this article.
This can be used as a guide for owners who need help in compiling their cost
figures. Some of their costs will be known or already have been incurred, such
as land acquisition costs. All other anticipated costs will have to be
estimated. If the owner does not have the means to estimate the rest of the
costs, consultation should be sought with a knowledgeable building contractor,
real estate appraiser, or building cost estimator. Some of the information will
be obtainable by consultation with the owner’s insurance advisor, banker,
accountant, and lawyer. Some architects maintain a file of current costs to
assist their clients in preparation of their overall budgets.
After reviewing the owner’s overall budget form in blank, it is obvious
that architectural design should not be commenced before the overall budget is
fairly well developed, the total determined, and it is acceptable to the owner.
If the overall budget is comprehensively considered before any funds are
committed, it would still be possible to make beneficial adjustments in the
individual components as a value engineering technique and for controlling the
total cost. As time passes, and more funds have become committed to specific
items, it becomes less possible to make effective and acceptable adjustments.
Hand in hand with the budget is the owner’s program. The budget depends on
and is an expression of the owner’s program. Many of the budget items cannot
be realistically estimated before the program is finalized. A number of
assumptions will have to be made in estimating the quantity, quality, and
current prices of the various budget line items. The form should be checked for
completeness, adding supplementary items as appropriate to a specific project.
Every line item should be analyzed as carefully as possible, multiplying
numbers of units by unit costs where applicable. When estimating, it is better
to err on the high side, but excessive error will yield a distorted picture and
possibly a discouraged owner and an aborted project. An erroneously high
estimate will demand cutbacks in scope and other economies which will later be
regretted when the true costs are then known and it is too late to revise the
The owner should also prepare a provisional time schedule compatible with the
program and budget. It should state the key dates for starting and ending each
of the major events such as design, bidding, construction, and completion.
Reasonable time allowances should be included at all stages for reviews and
approvals by financiers, government, and owner.
The program, budget, and time schedule, all prepared by the owner, should be
presented to the architect for evaluation each in terms of the other, as
provided in subparagraph 2.2.2. It is only after the reconciliation of these
three documents to the mutual satisfaction of owner and architect that attention
should be turned to commencement of architectural design.
It is probable in many cases that the architect will have completed the
schematic, at least provisionally, in order to validate the program and thereby
allow that portion of the over all budget to be completed. The AIA architectural
services agreement provides that during the Schematic Design Phase the architect
will prepare "a preliminary estimate of construction cost based on current
area, volume, or other unit costs." (Subparagraph 2.2.5) At this state the
architect must have firm knowledge that the owner’s designated program will
fit in the building area allotted in the budget and that the quality corresponds
with the assumed unit prices. The assumed quantities must not exceed the budget
description of the elements being designed by the architect.
The assumed unit cost must be compatible with the quality of construction as
determined and controlled by complexity of structure and systems, expense of
materials, and refinement of detailing and workmanship. If the quality
designated by the architect is too high, then the size of the project will have
to be reduced to compensate. If the designed building area is excessive, then
the quality must be reduced accordingly.
Sensitive design judgment must be exercised in determining the appropriate
balance between quantity and quality consistent with the owner’s program and
budget. It is essential that the owner and architect are in complete agreement
at each point along the way as to the contents and meaning of the program,
schedule, and budget. Only effective and open communication will make this
Design Development Phase
As the project design is developed in an increasingly detailed manner, the
architect must be very careful not to increase the size or number of any element
of the project. And if the complexity and quality remain unchanged, the program,
schedule, and budget will still be intact. The architect must be ever alert to
inform the owner of the economic and time impact of any requests for deviation
from the previously approved schematic design. Moreover, the architect must
resolutely fight the urge to elaborate on or enlarge the project without the
owner’s informal approval and with appropriate adjustments to the program,
budget, and schedule.
The owner-architect agreement at this point requires the architect to
"advise the owner of any adjustments to the preliminary estimate of
construction cost." (Subparagraph 2.3.2) If the owner and architect are
still in accord with the design and all are in agreement with the program,
budget, and schedule, they are getting closer to a successful project.
Construction Documents Phase
If the design development documents were realistic and complete, it should
not be difficult to prepare the construction and bidding documents without
violating the sanctity of the programs, budget, or schedule.
Although the owner has the unquestionable authority to make (and pay for)
deletions, changes, and additions to the scope and quality of the project at any
time, the architect must constantly alert the owner whenever these decisions
produce some effect on previously approved programs, budgets, and schedules.
If the architect does not immediately raise the alarm when appropriate, the
owner might not realize the consequences of what might have seemed harmless
adjustments. Needless to say, the architect is not authorized to increase costs
by enlarging or embellishing the project. The owner’s informed approval must
be obtained for all changes in the previously approved program, budget, or
Bidding Or Negotiation Phase
At the end of the construction documents phase, the owner and architect
should once again be in complete harmony and both secure in the knowledge that
the program has not been amended except with the owner’s knowledge and
consent. The portion of the owner’s overall budget which is comprised of
components designed by the architect should still be valid if all changes in
quantity and quality have been ratified by the owner and the budget adjusted
The estimated time schedule will still be intact if all events up to this
point have taken place on time and the schedule adjusted to reality where
At the bidding or negotiation phase the construction documents will be tested
in the market place. The budget for the portion being bid should be adjusted if
necessary to account for inflation from the date of the estimate to the date of
tendering. Receiving of bids five or ten percent over or under the estimate
would not be unusual. An additional variation above the low bid among competent
bidders is to be expected. When bidding documents are skillfully prepared,
variations among bidders will diminish.
When variations among the main body of bids are small, exceptionally high or
low bids are probably erroneous.
Cost Estimates Not Guaranteed
The architect’s estimates of cost submitted to the owner in
the schematic, design development, and construction document phases should
be based on realistic current costs which are available in several local,
regional, and national estimating publications to which reference can be made.
These estimating factors should be carefully applied, using reasonable skill
and judgment. Avoid the temptation of wishful thinking or unrealistic expectations
that a favored design will somehow materialize.
Architects do not and cannot guarantee such estimates and the AIA
architectural agreement makes this clear in subparagraph 5.2.1 which states in
part, that the architect’s estimates "represent the Architect’s best
judgment as a design professional familiar with the construction industry. It is
recognized, however, that neither the architect nor the owner has control over
the cost of labor, materials, or equipment, over the contractor’s methods or
determining bid prices, or over competitive bidding, market or negotiating
conditions. Accordingly, the architect cannot and does not warrant or represent
that bids or negotiated prices will not vary from the owner’s project budget
or from any estimate of construction cost or evaluation prepared or agreed to by
Fix Limit Of Construction Cost
The architectural agreement clarifies that there is no fixed limit of
construction cost inherent in the contract unless the owner and architect
specifically agree otherwise in writing. If a fixed limit is so established, the
architect will be allowed to include contingencies for design, bidding, and
The architect would also be permitted to determine what materials, equipment,
systems, and construction types are to be used and to adjust the scope of the
project as necessary. The architect would also be allowed to include alternate
bids for adjusting the price to meet the fixed limit. Fixed limits would be
adjusted to account for inflation. (Subparagraph 5.2.2)
If the fixed limit, after all allowable adjustments, is exceeded by the
lowest bona fide bid or negotiated proposal, the owner is given four options for
proceeding: approve an increase in the fixed limit, approve rebidding or
renegotiating the project within a reasonable time, abandon the project, or
cooperate in revising the project scope and quality as required to meet the
fixed limit of cost. (Subparagraph 5.2.4) If the fourth option is chosen, the
architect is obligated to revise the contract documents at no additional cost to
the owner. This is the maximum extent of the architect’s responsibility
arising out of the establishment of a fixed limit of construction cost.
Elimination of Cost Estimating From Architectural Services
Some architectural offices would prefer to eliminate all cost estimating
services from their contracts along with all of the attendant responsibilities.
This can be easily accomplished by amending the AIA agreement to eliminate all
references to budgets or cost estimates in subparagraphs 2.2.2, 2.2.4, 2.3.1,
2.4.1, and 2.5.1. Also, eliminate subparagraphs 2.2.5, 2.3.2, and 2.4.3 in their
entirety. Eliminate paragraph 4.2 and all of paragraph 5.2. This will be
acceptable to many clients who are interested primarily in their chosen
architect’s design ability and the production of the contract documents. Such
a client would rely on other experts for controlling budgetary aspects of the
Various provisions of the AIA standard architectural services agreement have
been paraphrased or quoted in part. The reader is urged to refer to the entire
document for the complete and exact wording in the proper context.
Any who are contemplating entering into an agreement based on the
recommendations in this article are advised to confer with an experienced
construction industry lawyer for realistic and authentic advice.