by Glenn D. Taxman, attorney at Much Shelist Freed Denenberg Ament & Rubenstein in Chicago.

e-mail at taxman@muchlaw.com

During a construction project, both owner and architect may experience feelings of disappointment and even anger due to unrealized expectations or confusion as to their respective rights and responsibilities. However, a carefully drafted owner-architect agreement can help prevent potential pitfalls. For every project, whether it involves the construction of a manufacturing facility, retail shopping center, or dream house; the rehabilitation of a two-flat; or the addition of a second story to a bungalow, the agreement between the owner and architect will most likely be evidenced by a contract form known as Document B141, produced by the American Institute of Architects. Across the United States, this form is the most widely accepted and most commonly used owner-architect agreement.

In 1997, the B141 was revised for the first time in ten years. Although revised B141 further clarifies the owner-architect relationship, it is still a "form" agreement and without modification may result in misunderstandings. Thus, before signing a B141, the owner and architect should consult their respective attorneys to modify the contract. In this way, they can allocate the risks and responsibilities associated with the project as equitably as possible to avoid future controversy. In this regard, the owner is at particular risk, since the B141's terms and conditions are drafted in a light favorable to the architect. Accordingly, the owner's attorney will typically propose more modifications than will the architect's attorney. In particular, the three topics discussed below require careful attention.

1. Determining the cost of the work on a project

This is an area fraught with difficulty. Lack of communication between owner and architect during the initial design phase is the single most common reason for serious disputes and failed expectations. The B141 requires the architect to prepare a preliminary estimate of the cost of the work and to periodically refine the estimate and update the owner. If the architect's estimate exceeds the owner's budget, the architect must notify the owner and recommend ways to bring the cost of the work back within budget.

In a significant departure from the old form, under revised B141 the owner's budget for the cost of the work functions as an automatic price limitation. If the lowest bona fide bid or negotiated proposal exceeds budget, the owner has various options. One available alternative is to have the architect, at no additional cost, revise the construction documents to try to comply with the budget. Although this option would appear to safeguard against runaway budgets, it provides no protection from inexperienced or impractical architects. In fact, the architect does not warrant that final bids or negotiated prices will correspond with its estimate. (In preparing the estimate, the architect is permitted to take into account various factors, including contingencies for materials to be used.) Therefore, if all proposals exceed budget even after the construction documents have been revised, the most likely cause is that the architect's estimate was unrealistic from the outset -- a contingency B141 does not address.

The more specifics the parties can incorporate into the estimates, the less heartache that may ultimately result. In any case, the architect should frequently advise the owner (and the owner should frequently question the architect) regarding the selection process.

2. The scope of services included in the architect's basic compensation

Here's another area which creates disputes between owner and architect. Frequently, the owner assumes that particular services are provided by the architect as part of the basic compensation package, when in fact such services are considered extras for which the architect is entitled to additional compensation.

Former B141 enumerated several levels of services, ranging from basic to additional to optional.  Revised B141 improves on this by dividing the architect's services into two categories: standard services and change in services. Anything not categorized as a standard service is a change in service and entitles the architect to additional compensation. Furthermore, revised B141 contains a chart listing various services which may be assigned to the architect or the owner. Owner and architect must carefully review these services to determine which are to be included as standard services and which as change in services.

3. Compensation due upon termination of the architect

This is another controversial topic. Under former B141, upon termination the architect was entitled to recover expenses and fees earned to date along with a specific additional amount, determined according to a formula based on the percentage of fees earned. Under new B141, the owner must pay the architect all the compensation which would have been earned if the architect was not terminated. Needless to say, this new scenario is not likely to please the owner, although a terminated architect may not have been satisfied with the compensation provided under the formula in former B141. Thus, to fashion an equitable solution the parties must give the question of termination fees serious consideration.

The fundamental goal of both parties to an owner-architect contract is to complete the project on time and within budget. Inevitably, however, problems arise when the parties are not in accord on what that goal really means. A carefully drafted B141 enables the owner and architect to agree upon and pursue a common goal.  Whether you are an owner or an architect, engaging an attorney to modify the B141 so as to specifically and unambiguously set forth your rights and responsibilities will pave the way to a more harmonious and productive relationship throughout the construction project.

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