How architects can safeguard themselves from descoping

Construction markets are under stress, which means projects are more likely to be delayed or put on hold, especially when the scope of a project is altered or reduced. When this happens, architects can face a sudden loss of anticipated income and the cost of demobilising a team. And when projects are finally restarted there may be additional costs associated with remobilising a team, fielding requests for redesign work or when a team is encountering resourcing challenges.

Specialising in advice to the construction, engineering and infrastructure industries, legal firm Beale & Co says it is hearing from practices that feel penalised by the prolongation of projects that make them no longer profitable.

Andrew Croft, Partner at Beale & Co, says that all too often architects are waiting until projects have been completed before trying to negotiate additional fees with clients, by which time it could be too late.

Why architects must start conversations with clients early when it comes to variation management

Allied to problems of delays and restarts are contract variations aimed at reducing costs, possibly by reducing the scope of the project, or even ‘descoping’ where the client takes some work off the originally contracted party and gives it to someone else. An example might be giving more of a design role to a specialist sub-contractor, with the architect losing part of the anticipated design fee as a result.

Croft recommends that architects need to carefully manage variations and start conversations early with clients about any impact to their fees.

Commercial contracts often have provision for variations and may require the architect to be informed, following which both parties should agree on the impact to fees and where necessary agree to additional payment. Croft warns that some architects prefer simply to get on with the job and seek redress later, but they are likely to lose out because they have not followed the contract provisions and reached agreement at the proper time.

He also warns architects to beware bespoke contracts that require architects to provide services according to the project scope “and other services that may reasonably be required”, or similar wide-ranging wording that can benefit the client and leave the architect at a disadvantage.

What needs to be in contracts to recognise a case for additional fees?

It is clearly in the architect’s interest to have all of the elements of the initial scope of the contract tied down and made specific. This means that any subsequent variation, or descoping, will clearly be outside of the scope of services agreed. It is important that the architect is paid for any original work completed under the initial scope, even if it is abortive following change of services due to client instruction.

Likewise, contracts should have programme dates for services to start and finish and recognise that there may be a case for an additional fee if there is a significant delay that is no fault of the architect. Croft says the majority of bespoke commercial contracts will set out a programme, but will make no provision for additional fees if the project is delayed.

To protect themselves going forward, Beale & Co advises architects to negotiate provisions in bespoke agreements wherever possible that allow for recovery of costs where there are significant variations, descoping or suspension of projects with prolonged delays.

Taking the RIBA Professional Services Contract 2020: Architectural Services as an example of a standard form that can be modified, Croft suggested that provisions to be added might include:

Prolongation:

[5.5] if the Architect/Consultant is involved in extra work or incurs extra expense for reasons beyond the Architect/Consultant’s reasonable control, additional fees shall be calculated… Matters in relation to which the Architect/Consultant shall be entitled to additional fees include, but are not limited to, where:

[Suggested addition as 5.5.4] performance of the Services is delayed, disrupted or prolonged.

[2.3] The Client acknowledges that the Architect/Consultant does not warrant… [2.3.2] compliance with the Project Programme and Construction Cost, which may need to be reviewed for, but not limited to:

[Suggested addition as 2.3.2 (c)] delays caused by any Other Client Appointments, the Contractor or any other factor that is not the responsibility of the Architect/Consultant under the Contract.

Cost inflation:

[2.3] The Client acknowledges that the Architect/Consultant does not warrant… [2.3.2] compliance with the Project Programme and Construction Cost, which may need to be reviewed for, but not limited to:

[Suggested addition as 2.3.2 (b)] fluctuations in market prices.

[Suggested addition as 5.3] Lump sums and rates for time charges, mileage and printing shall be revised every 12 months in accordance with changes in the Consumer Prices Index. Each 12-month period commences on the anniversary of the date of the Contract.

Descoping of Services:

Services [Definition]: the professional services to be performed by the Architect/Consultant specified in the Schedule of Services…

[Suggested addition] which may be varied by agreement.

[5.4] The Basic Fee shall be adjusted… [5.4.1] including due allowance for any loss and/or expense, if material changes are made to the Project Brief and/or the latest approved estimate of the cost of the building work and/or the Project Programme save to the extent that any changes arise from a breach of the Contract by the Architect/Consultant…

[Suggested addition] and/or the Services are varied by agreement.

It is a difficult conversation for architects to discuss a claim for additional fees or the loss of fees due to variations and descoping, but negotiating for such provisions in bespoke agreements at the outset will give the architect a contractual basis for their claim and make any dispute a less one-sided affair, says Croft. However, it’s always prudent to seek legal advice, especially for complex and larger projects.

Thanks to Andrew Croft, Partner at Beale & Co.

RIBA Core Curriculum topic: Legal, regulatory and statutory compliance.

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