What is the architect’s obligation to design to budget?

Designing to a budget

As with most questions regarding obligations between two contracting parties, the first place to look is the contract. AIA Contract Documents address this issue in two ways: one in the AIA Document B101™-2017 Standard Form of Agreement Between Owner and Architect and the other in the AIA Document B103™-2017 Standard Form of Agreement Between Owner and Architect for a Complex Project. The relationship between design and budget is extremely important for a construction project, so important that almost 20 sections in the B101 and B103 contracts address the “designing to a budget” process. To get started, let’s talk conceptually about how they both tackle this issue. 

How B101 approaches budget

Looking at B101, the process anticipates that the architect will: 

• Consult with the owner regarding program, budget, and schedule. 
• Provide conceptual estimates of construction cost. 
• Design with the intent to stay within budget. 
• Update the estimates as the design progresses and inform the owner of variances from the budget. 
• Obtain the owner’s approval of the design at each phase before moving on to the next one. 

At the conclusion of the construction documents phase, if the lowest qualified bid is over the owner’s budget the owner may—among other possible remedies—require the architect, at no additional charge, to perform redesign services to bring the cost within the budget (B101-2017 Section 6.7). The 2017 edition of B101 adds protections for the architect to account for price increases caused by market conditions the architect could not reasonably anticipate; in that scenario, the architect will be paid to make changes to meet the budget as an additional service. Further, B101 Section 6.7 notes that the architect shall have no further responsibility as a result of bids coming in over budget once the architect has provided its redesign services. 

The risk allocation set forth in B101 is fair and sensible because, under B101, the architect is the person best situated to keep the design within the owner’s budget. Why is that the case? Under the terms of B101, (i) the architect is responsible for managing the design to meet the budget, (ii) the owner has the right to rely upon the architect’s conceptual cost estimating, and (iii) the architect has considerable freedom in the design process to manage the design to achieve the owner’s budgetary goals. The key section in the contract regarding this process is Section 6.3, which reads as follows: 

Most architects don’t fully appreciate the impact of Section 6.3 or don’t invoke it, tending to defer to other forces at work during the design process. 

How B103 approaches budget

Conceptually, the B103 contract is very similar in overall structure to B101. There is, however, a significant difference that shifts the risk allocation. In B103, the architect is not providing design estimating services because the owner is required to employ a professional cost estimator or construction manager who provides pre-construction pricing services. Due to the involvement of the owner’s cost estimator, provisions in B103 relating to the architect’s obligation to design to budget differ from those in B101, including Section 6.3, which states the following: 

Note the critical difference. In B103, the architect has the right to rely upon the estimates provided by the owner’s cost estimator, and the architect will be paid additional compensation to make changes, due to inaccuracies or incompleteness in those estimates or market conditions the architect could not reasonably anticipate. However, if the project is over budget at the end of the design development phase—contrasted with the end of the construction documents phase, as is the case in B101—the architect will be required to make cost-reducing changes to the design and bring the project under budget as a basic service unless one of the conditions in Section 6.3 applies.

Appropriately, once the architect performs any necessary redesign services during the construction documents phase to meet the owner’s budget, any further efforts to revise the design to meet the budget will be paid as additional services because the architect will be relying upon the pricing guidance of the owner’s cost estimator. Like B101, Section 6.6 of B103 confirms this concept; it states that the architect’s revisions in the construction documents phase are the limit of the architect’s responsibility.

Your contract—and you need to make sure you have an executed contract—will describe the responsibilities of the parties regarding designing to a budget. AIA’s agreements referenced above are very good at fairly allocating those responsibilities. But what if you don’t have an opportunity to use an AIA Contract Document? Now that you understand the concept of fairly written “design to budget” contract terms, use that knowledge to negotiate a contract that works for you and your client. 

AIA has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice. The Risk Management Program posts new materials and resources periodically.