News > Full story

Architects Payment Issues

Architects and those agreeing to provide them with insurance protection have long recognised (if not been resigned to) the fact that they are likely to be the most conspicuous and popular target for blame in the event of problems being experienced on a construction project. Having very often been involved in the venture from inception and occupying the role of key advisor, designer and co-ordinator, it is perhaps not surprising that the Architect finds itself being held responsible in this way. A traditional procurement route will lead to allegations from the Contractor that information which it needed in order to progress the construction was not provided by the Client’s designer, or the detail was not capable of construction – hence the delay / overspend / water cascading through the conservatory roof; the Design & Build procurement has given rise to a new, additional breed of claim against the Architect of inaccurate or incomplete design information supplied to the Contractor at the time of tender; Partnering Agreements are well-intentioned although of questionable legal enforceability and suggest that all partners are jointly culpable but some are more jointly culpable than others. Had President Kennedy been driving through Dealey Plaza this November instead of forty five years ago, the Warren Commission would doubtless have concluded that the Architect of the Texas Book Depository was the responsible party, for facilitating access to an assassin.

It is therefore no surprise that the present credit crunch (aka recession) is leading to still greater pressures on Architects at opposite ends of the construction project scale. The construction industry is perhaps one of the first, behind high street retailing and the automobile industry, to be an indicator of a nation's economic well-being. In times of relative confidence development will proceed and receive funding at a seemingly indiscriminate rate but when the highly infectious chill takes hold the need and the financial support for new constructions evaporates. Meanwhile existing projects turn unpleasant and unless, the Architect has taken sensible steps to protect itself, the consequences can be distressing both from a cash-flow and a liability point of view.

Renumeration

There are a number of ways in which Architects' fees on commercial developments are agreed. The further that non-negotiable scale fees recede into history, the more complicated these fee agreements seem to become, but one arrangement may be a fixed lump sum fee up to planning and then converted into a percentage of the Construction Cost (based on what the initial fee represented relative to the initial Construction Budget).There have long been arguments between Architect and Client as to whether a prolonged contract period should entitle an Architect to additional fees over and above the extra fee it will earn on the presumed increased Construction Cost. An Architect will argue that an extended contract period will not necessarily lead to an increase in the Construction Cost, and, if its efforts over an extended period to reduce the Construction Cost are not separately recognised, then it will end up being penalised for saving the Client money. Recent incarnations of the RIBA standard terms have sought to address this by making provision for the Architect to receive additional fees where it will not receive remuneration elsewhere. This still, though, leaves open to interpretation whether the Architect has in fact received remuneration elsewhere. The current and very swift squeeze on funding has propelled this issue centre-stage. Developers who have secured a prime development opportunity are reluctant to see its team disband and to abandon the project. Instead, they seek the team's agreement to a revised programme, to allow more time for the bottom of the downturn to be reached and for trading conditions then to improve or in the hope otherwise that "something will turn up". The Architect, particularly if it is also responsible for engaging the other consultants under its aegis, may by then be committed to such an extent that it has little option other than to continue, meaning that employees who it thought would be freed up by a particular date, remain involved on this particular project. Where other work might be winnable with the proper resources thrown at it, those resources remain otherwise occupied. The Architect therefore remains obliged to incur an undiminished wage bill whilst being hamstrung in developing its business.

The present well-publicised predicament of many financial institutions almost legitimises what was hitherto the tactic of the more buccaneering entrepreneur operating on very thin profit margins; at the end of a particular work stage they would tell the consultant team how much money remained available to meet their fees, regardless of what had actually been agreed and what would in actuality be their entitlement to additional fees for additional instructed services. Where money is universally "tight" and with a high project casualtyrate, consultants are often obliged to accept "re-negotiated" terms. If in the interim they have responded positively to the Client's instructions or acquiesced in receiving additional services, the consultant (very often the Architect) finds that it is effectively funding the Client's commercial project. One is put in mind of Groucho Marx wining and dining Margaret Dumont in an exclusive restaurant and upon being presented with the bill handing it to Ms Dumont and saying "That's outrageous; if I were you I wouldn't pay it".

Common Sense Rules to Remember

In times of genuine economic hardship there is only limited comfort available because, if money is not available and the industry threatens to grind to a halt, there are unlikely to be any (or many) winners. However as an Architect there are a few timeless and basically commonsense rules which are worth observing whatever the trading conditions. That way, the Architect places itself in as strong a position as possible, and can be in control as to whether to decide to enforce its rights, rather than being Groucho's hapless date.

Firstly, where a lump sum is based on certain presumptions, these presumptions should be expressed in the fee quote and in any signed Appointment. In particular, if the fee presumes a contract period of no more than x months then this should be stated. When the period is exceeded (and if the Developer asks for an extended period to assist in funding it should be fairly clear that the prolonged period has nothing to do with any performance issues of the Architect) then an additional fee entitlement will be presumed. The Architect should also ensure that any stage payments relating to a percentage fee are based on the up to date Construction Cost as it develops throughout the project, rather than being anchored to the original Construction Budget figure until the Final Account is agreed and the final Construction Cost established. There should therefore be a built-in mechanism for the Construction Cost to be reviewed regularly by an identified, independent party (presumably the Quantity Surveyor) and thenceforth basic fee entitlement to be based on the updated figure. As to payment of additional fees for additional services, every effort should be made to define the services as accurately as possible and for those services which are additional to the basic services, to be unambiguously listed.

If all of these suggestions are incorporated within a contract which gives the Architect the right to suspend on brisk notice and which provides for the licence in the Architect's works to be suspended at the Architect's discretion in the event of unpaid fees, the Architect will have done the contract-negotiating equivalent of positioning itself at the head of the T in a squash court, leaving the Client obliged to run around.

Problems Encountered by the "Smaller" Architect

The sorts of commercial projects discussed so far are - despite their difficulties and the stakes being high - at the "glamour end" of the profession. They also tend to be handled by Architects in a practice where there may be a degree of security in numbers, so that one temporarily unprofitable department might be able to weather the economic storms with the assistance of another, more secure side of the practice. Very many Architects, however, practise alone or in small practices, and are having to deal on an everyday basis with domestic projects. These types of projects are traditionally fraught anyway, and the present economic ills add an extra tier of stress in the form of a Client's selective use of its Architect in the interests of saving money. Self-build projects tend to be more popular when money is tight and in very recent times a hybrid arrangement has sprung up, with the initial design having been produced by or in collaboration with the Architect and the Architect then having specific issues referred to it on an ad hoc basis. The Client will then take the plans, submit its own application and proceed on a project where it acts as its own project manager. The Client will still, however, require the Architect possibly to visit site occasionally but anyway more likely to sign a Mortgage Lender's (or equivalent) certificate for funding purposes. Furthermore, economic needs may lead the project to have changed in nature from one where the Client is simply building a home to live in (with no possibility of the involvement of third parties with no knowledge of the singular circumstances of the project) to one where the Client is seeking to raise capital by selling on.

Certification

The Architect will not necessarily have kept pace with the changes that the Client may have chosen to make along the way, to its original design, or changes which the Client may have made following planning and/or building regulation approval. Upon becoming reinvolved at the time of financial certification, the Architect will face pressure to rubber stamp that all has been carried out in compliance with the necessary consents and regulations. Such a request, however amiably put, needs to be approached with caution. The basic tenet to hold onto in that eventuality is that any certificate on its face (and on the assumption that it is going to be relied on by impersonal third parties rather than the Client whose responsibility for any departure from the regulations would presumably be evident) must be clear both as to the basis for its content and as to its limitations. Certification should rehearse the frequency of site visits and the purpose of those visits, without making a bolder claim for involvement; it would also be helpful to state when the last site visit was and the stage the project had reached. Furthermore (and probably less popular with the Client) if there are any reserved matters or matters of non-compliance then these need to be set out on the face of the certificate. Certification should then be expressed to be to the Architect's best knowledge and belief having carried out its duties exercising reasonable skill and care. In other words, the certificate should be clear as to what it is saying, how the Architect comes to be in a position to make those statements and the limitations on those statements. To do otherwise would mean that the Client has managed to pass responsibility for any economics-driven corner-cutting from itself to its intermittent Architect.

Insurers are having to brace themselves for an upsurge in Construction Industry claims generally and against Architects in particular given the economic duress that many people are finding themselves under. Manufactured disputes are often the last refuge of the desperate debtor and Insurers will be familiar with the difficulties encountered when joining battle with someone who has nothing to lose and everything to gain. The Housing Grants Act, and its introduction of the swift adjudication process, has unwittingly assisted this in that it enables a debtor to mount a claim (in the guise of a genuine dispute) more easily - and without the threat of a frivolous claim being held up by an application for security for costs. There is not a lot that an Architect can do about that, or even about a possible "rogue" decision from an Adjudicator. However, by taking sensible steps to define its services and the basis for its fees at the outset, and by steering a true path as to what it can and cannot certify, the Architect gives itself the best chance of protecting itself in whatever economic conditions it finds itself operating under.

By Mark Klimt at Fishburns solicitors