Who is Responsible for the Budget?

Of course your client wants you to meet their budget. As a professional, you may indeed have (some) control over what you design, and of course the budget is a design parameter. But how much control do you have over the other issues which affect the project cost?Probably nil.For the range of issues which imperil budgets, see our May 2017 Communique. And in May 2018 we suggested that QS input is not a panacea.Budgets may or may not represent the reality: like many formative project decisions they may be more akin to aspirational “key performance indicators” than to a considered response to the costs of meeting the design brief. Even if they are assessed by a QS on the basis of preliminary information, they are subject to variation from poor assessment, changes in design assumptions, changes in the design brief, client expectations, changes in economic circumstances, time effects, and many other issues. Under even the very best of circumstances, budgets need to be reviewed as the design develops.What is included (and probably more importantly not included) in the budget? GST? Design and consultant fees? Fittings and fixtures? Provision for changes, undefined work, under-estimation and for the unexpected? All projects have risks, and one way of managing risks is to provide a contingency sum: expenditure of that sum is not an indication of failure, it is validation of prudent risk management.What better lesson is there out there than the prominent construction company that has recently declared massive losses as a result (at least partly) of taking on projects at a lump sum based on preliminary information and accepting the risk of subsequent cost escalation?Quite simply, you cannot guarantee project delivery at a stated cost. And if you were to enter into a contract for services on that basis, the likelihood is that your PI insurer would not cover you in the event of a claim arising from your failure to meet that requirement.Why?Your PI policy terms (at 2.03(5)) do not cover liability that you have taken on which is beyond the duty that would be owed by you at common law. Your common law obligation is to exercise reasonable skill and care, nothing more. The benchmark for that reasonable skill and care is that of a professional with equal or commensurate qualifications skills and responsibilities and engaged in similar activities.Let’s say that (contrary to our entreaties) you sign up to a project which – one way or the other – binds you to achieving a stated budget:

• You have now taken on the risk of cost over-run, gain nothing if the risk is not manifested, and take all (or at least some) of the downside in the event of a cost over-run.
• Your client gets all the benefit of expended costs: you only get the loss arising from cost over-run.
• In the event of a cost over-run, you have by definition breached the contract of services: A contract is either broken, or not broken. There is no such thing as being half pregnant. The damages for a breach of contract is to put the innocent party back into the same position they would be if the contract was not broken. This may require a refund of your fees, the requirement to fund the additional costs of completing the project, and to meet consequential costs.

So, returning to our title: “Who is responsible for the budget?” The short point is that you can’t assume responsibility for things that are beyond your control. You need to communicate that to your client, educate them about the inherent risks in any project, and point out their duty to manage risks that are beyond your control.