Communique Nov 2001
Reviewed June 2009, additional items Feb 2017The Claims Directors have compiled examples of a typical range of claim types from the NZACS Claim files.Often problems grow in scope with litigation. Problems should therefore be resolved at the lowest level of participation. The “Three Pigs” analogy is applicable to architectural practice – a carefully considered and crafted service will enable the architect to get to the fair and back without meeting a big bad lawyer. The examples chosen have been modified to protect the identity of architects and other parties, but in a manner which preserves the nature of the claim.
A sole practitioner with contract staff, was introduced to a foreign property developer, and hoped to obtain a commission for three resort projects valued respectively at $2m, $12m, and $50m. Initially there was a cordial relationship with the client. The architect proposed that the NZIA AAS should form the basis of a professional service contract, and that there be separate client engagement of consultants, including QS. The client rejected AAS, presenting instead its own agreement. The architect’s legal adviser changed many clauses and this was submitted to the client who changed some terms. These changes were not then referred back to the architect’s solicitor for review. The architect effectively accepted the terms presented by the client.Fee negotiation (prior to the agreement) was on the assumption that the consultants would be engaged sequentially for all three developments - a lower fee was therefore tendered. Subsequently the client’s representative kept changing, and the contractual relationship with the architect became less personal. The project did not proceed beyond the first stage.The consultants sought recovery for loss of profit resulting from the truncated service. The architect then discovered that, under his contract with the client, he was liable for the payment of consultant fees.The QS successfully sued the architect for fees totalling more than $70,000. The architect carried his own legal/ professional costs and was uninsured. Interestingly, this was not a case of professional negligence (none was evident) but rather an example of an unwise commercial decision which does not fall within the cover afforded by a PI policy.
Client selected an architect to design their new house. The architect agreed, as an ancillary service, to undertake due diligence with the site selection. The architect’s telephone discussion with the Territorial Authority town planner did not identify a coastal management zone which overlaid the site. The house design exceeded the client’s budget at the preliminary design stage, but no useful record existed to confirm this understanding. Design detail matters were handled by the wife throughout - the lawyer (husband) being too busy to attend the architect/client meetings.A building consent was obtained subject to satisfying Resource Consent conditions i.e. “obtain consent or remove offending portions of building” which encroached onto the coastal management zone.The architect was not formally asked to administer the contract beyond receipt of building consent.The lawyer client then instructed the builder to start site excavation without first having received competitive tenders, without having a formal building contract, and before the issue of a building consent - relying instead upon the architect’s estimate of costs - which exceeded budget.A stopwork notice was issued by the Territorial Authority after excessive site excavation and cost reappraisal by the client. The lawyer husband cancelled the contract and sued for losses. The architect was uninsured and subject to substantial costs, notwithstanding that there were arguments identifying contributory negligence on the part of the client.
The architect’s commission was to “design and obtain a building consent only” for a group of townhouses on a very difficult site. A building consent was obtained. The architect was not engaged for project administration, and did not visit the site during construction. A townhouse was subsequently sold. The new owner obtained a “building consultant’s” report, and rebuilt much of the townhouse to remedy leaks emanating from poor construction detailing. The original builder-client had amended the architect’s construction details. The architect was held liable because of his failure to properly detail balustrades, roofing etc, which resulted in the builder undertaking his own design detail which later failed - (the architect’s details would have failed also). The builder, Territorial Authority and architect were all jointly and severally liable for the cost of rectifying the defective work. Subsequently the adjoining townhouse owner sued the same parties for similar negligence costs.
The architect’s commission was to “design a house and provide documents for building consent purposes only.” The architect noted in both the plans and specification, the likelihood of encountering subsoil fill and for the builder to notify the architect of such finding. The architect was not consulted during construction, apart from providing an interior colour scheme. The house settled one year following completion. The client sued the Territorial Authority and architect. The architect was found not to be negligent, but incurred substantial legal costs and unproductive office time in defending the claim.
An architect was commissioned to design and prepare drawings and specifications for a new house in a provincial town. Builders were difficult to find so the architect recommended a managed labour/material supply and fix contract with a local builder. Poor subtrade selection and/or management occurred. The architect went overseas on holiday during construction and the contract budget was exceeded by 40%. The client sued for negligent cost estimation and project management.
A house was designed with an indoor heated pool for an arthritic client. Ventilation windows provided, were not used because of cold air introduction. The pool opened into the lounge, via french doors, and moisture vapour condensation resulted in structural/lining problems. A subsequent owner successfully sued for rectification costs.
Lack of clarification of the respective co-ordination requirements for determining accurate levels on site boundaries has resulted in numerous claims for negligence - against architects and surveyors. Failure to qualify the location of ground levels has resulted in building construction being partially demolished, redesigned and reconstructed after roof construction stage. Correction costs exceeded $200,000 on one house and around $60,000 for others.
An architect sought technical advice from a reputable trade product supplier during the early design and documentation stage of a commercial building. The advice was incorporated onto the contract documents.The construction detail failed. The architect was sued for negligent detailing. The architect joined the material supplier as a third party defendant - hundreds of thousands of dollars were involved in the claim. Sealant and Paint Manufacturers have been similarly involved.
An architect and other consultants were engaged separately by a client under the administration of a project manager. Various co-ordination difficulties arose between architectural, structural, and mechanical service engineering aspects of the building. The architect claimed it was the project manager’s role to check and co-ordinate the various consultants drawings etc. This understanding was not recorded and a multi-million dollar claim followed.
Architects have been engaged for the provision of “design and building consent only documentation” services for various multi-unit apartment complexes. Construction has often been stucco cladding over light timber framing. Inadequate detailing for shrinkage control joints, construction joints, window flashings, stucco drainage, subfloor ventilation, balcony step downs, balustrade detailing, flat skillion roofs, to highlight a few problem areas, have all contributed to substantial law suits against architects for professional negligence. Claims extend into hundreds of thousands of dollars with considerable legal and expert consultant costs being incurred. These losses often extend across all apartments and if the contractor is made of straw, liability is typically carried by the Territorial Authority and architect alone. Architects typically fail to quantify their risk before negotiating their fees for limited services. Full documentation and contract administration remain as good risk management practices.
A potentially effective defence for a client who owes professional fees is to claim professional negligence and to offset these alleged losses against fees owing. This ploy is often successful for the client. Architects should always consider their exposure to PI claims if fee recovery is via the legal process. Architects are encouraged to discuss such fee recovery means with their PI Insurers at an early stage so as to avoid later disappointment.
An architect contracted to provide the design, contract documentation and “quality control” services for a luxury home. The client employed an experienced firm to act as project manager. During construction the client demanded more attention from the architect than that envisaged by the architect. Tensions rose and the architect’s employment was terminated. After a period of 2-3 weeks the architect was recommissioned, but during this period a construction detail for external balconies was changed. When he returned on site the change was noted by the architect who questioned the builder who responded by saying “it’s OK, we and the project manager agreed on an alternative detail”. This detail failed, causing extensive efflorescence damage to the building. The architect became liable for the rectification costs because he failed to notify the client of the change and his reservations about the substituted detail. Significant costs and legal and technical expenses ensued.
An architect engaged an accountant to prepare his personal accounts for income tax assessment purposes. Difficulties arose over their preparation and tax calculation. The architect then corresponded with IRD, in a manner which was seen as being defamatory of the accountant. Through the process of legal discovery, the accountant became aware of the communication and successfully sued the architect. The costs were not covered by the normal PI policy extension, because the comments were not made in the course of the architect’s business: - but in a personal capacity unrelated to architecture practice.
An architect specified a propriety furniture item, or similar, for an interior fitout commission. The manufacturer/supplier of the proprietary furniture failed in its tender bid and the contract was awarded to another supplier, who copied the specified furniture. The specified supplier successfully recovered damages from the architect.
An architectural company was sued for professional negligence. During the drawn out litigation process, some directors resigned and new directors bought into the company. The share transfers made no reference to director’s existing liability. The new directors then became responsible for their share of the company’s liability following claim settlement.
An architect was commissioned to design a moveable illuminated directory board within a building. The design illustrated the visual impression of the sign and the layout of fluorescent tubes and ballasts. The architect referred the design drawings to a reputable lighting manufacturer for developed design, the manufacture of prototypes, and the refining of these prototypes before commercial manufacture.The building was destroyed by fire, and the fire officer’s report indicated that the source of fire originated from the illuminated sign. It was suspected that the sign, which was open at the top, some 1.5m from the floor, could have permitted a paperclip or similar to be admitted, thereby causing a fusing of the electrical terminals. Proof was difficult for both plaintiff and defendant, but one thing was certain: - the plaintiff was not responsible for the design or manufacture of the electrical fitting.The litigation process was taken over by the client’s insurer, who claimed design fault as a means of recovering its loss.
We all know that after the presentation of preliminary sketch designs and preliminary budget estimates, the client often increases the size or value of the project. This process sometimes continues throughout the contract documentation phase, without a corresponding reappraisal of the cost estimate and/or its affect upon the fee base. If there is no clear documentation from the architect which confirms these important matters, a fee dispute with the client will inevitably follow. When the client is simultaneously confronted with a project cost increase and a fee increase, there is a temptation for the client to allege negligent cost estimation as a means of offsetting fees due. Clear communication on this aspect is essential for preserving client goodwill and effective fee collection.
An architect had prepared tender documents for a substantial house reconstruction and addition in a rural location, which made lump sum tendering difficult. The local builders preferred construction to be on a labour and material/subtrade supply basis. The architect had prepared for his own cost estimation purposes, a material schedule and obtained unit rates from suppliers. Carpenters tendered a fixed labour price. The lowest tenderer had worked for the architect previously in a satisfactory manner and came with other good references.A Master Builder’s contract was formalised on the basis of a fixed labour price, and with materials and subtrades being arranged by, and their payment on invoice through, the labour-only builder. The project being distant, meant that site contact with the architect was by regular phone/fax communication and monthly site visits.Towards the end of construction, it became apparent that the material invoices submitted exceeded the project quantities. Subsequent inquiry found the invoices had been inflated, falsified and/or altered by the builder. There were concerns also with the builder’s fiduciary obligations to the client with respect to subtrade selection.Progress payments were stopped, the labour-only builder went into liquidation, leaving material and subtrade providers exposed commercially and the architect to a claim for over-certification.
An architect contracted to provide architectural design and documentation services for an apartment building. The other consultants were engaged separately by the client and coordinated by a project manager. Tenders received exceeded the client’s budget, so the project manager negotiated a price reduction which involved material changes etc, some of which were against the architect’s recommendations.The architect was not requested to amend the original tender drawings for construction purposes. Progressive architectural site visits were for quality control purposes. The project manager oversaw construction and processed progress payment claims.The architect was then required to certify practical completion of the individual apartments to satisfy the requirements of the respective “sale and purchase” agreements. When the apartments subsequently leaked as a consequence of poor construction, the architect was joined in the litigation proceedings, with in excess of 20 plaintiffs and 10 defendants which included the various design professionals. A clear statement of the architect’s perceived role prior to commencement of construction, would have assisted in refuting the various claims.
Occasionally plaintiffs have a genuine cause for initiating a legal process for resolving their construction problems, which may involve a shared responsibility between building contractor and architect. These issues may involve small monetary value and be readily repairable with the cooperation of all parties. But some clients have no wish to resolve the conflict in a cost effective, convenient manner and instead embark upon a litigation process through ever changing lawyers to prove their point. This course can take years to process through the court system, causing excessive distress to the architect en route.
An architect’s employee, who held a trusted position, misappropriated a significant amount of practice funds by forging cheque signatures. This loss was covered by the firm’s PI Insurance policy, which embraced employee/partner dishonesty.
Architect designs EIFS home according to the state of the art in 1999, which is certified for Practical Completion and occupied late 2000. There are several outstanding issues, but the client and the architect part amicably and the owner instructs a building surveyor to manage the washup.In 2006 the client gets around to applying for a CCC but has lost all the paperwork, so calls a meeting on site with the architect and the building inspector to agree on what is necessary. No inspections done or required, and the architect returns to the office, copies off the paperwork, and the CCC is issued.By 2013 the building is clearly a “leaker” and the architect is called upon to contribute. But not the builder or the building surveyor. At mediation in 2016 the architect pleadings are based on the 10 year longstop (2000 + 10 = 2010) but fail in the face of the counter-claim based on 2006 +10 = 2016: he and the council share a gut wrenching payout.
A promising client, a nice brief for a house which was not top shelf, but a satisfying commission nevertheless. A few hiccups in the timelines during design, so there was the potential to forget or overlook some of the early information provided by the client. But the designs were done to the clients satisfaction, the consent was approved, and the builder about to start on site.At that stage, someone recalled that there was a height covenant on the title which would not – of course – necessarily be known about by the BCA when approving the consent. Did the design comply? Regrettably not. The architect burned the night hours to correct the drawings without fee and to avoid disruption to the construction programme (and the owner’s rental payments elsewhere) but of course the new design was more expensive……
A client who was unable to obtain the redress he considered necessary laid a complaint to NZRAB on the basis that the architect was avoiding responsibility by changing his company name and structure. In fact, the changes were the result of new business ownership and consequent re-marketing.
A designer engaged for resource consent and sketch design services received the threat of a complaint to the BPB when the client discovered that the documentation required amendment before a consent was granted, and then was insufficient for the building consent and construction. This would seem to be a case of inadequate communication by the designer, and/or misunderstandings by the client.
In the US, an emerging issue (2016) is “class actions” (ie claims brought by a large group with common interests) alleging material or manufacturing defects where there may not yet be evidence of any actual damages. In a case involving roofing shingles, the evidence of failure in some roofs initiated a class action on the basis that other properties were blighted - despite no damage being apparent - because they used the same materials. The claim was thus for economic loss, in the prospect that the value of a property was reduced merely because those shingles were present.
Tightly planned 2-storey townhousing, with winder-type stairs. Architect only partly involved in construction phase attends on an as-required basis. On-site change relocates HWC cupboard over the stairs: loss of clearance for double beds to be carried to upper floors.
Minor encroachment on height control planes, client looking to architect to fund Resource Consent amendment; encroachment caused by subconsultant and subcontractor design. This claim is typical of many situations where the architect ends up being in the firing line because co-ordination between consultants has somehow come unstuck.
Architect, project manager and client are agreed over the shape/colour/scope of items to be provided by a specialist contractor, but which are outside the architect’s agreed scope of attendances. The items go through a shop drawing submission which copies in the architect: whilst the architect could have declined to respond, they did respond on the basis of relevance to their limited scope. A subsequent wider claim relies on that response to include the architect.
Developer is grasping at straws to improve profitability on a mixed-use project, and the outstanding architect’s fees are a handy target. It so happens that walls between differing uses shifted around between the design stage and final construction, with a result that area measurements provided by the architect are awry. The developer draws direct parallels between values and floor areas, profitability and the incorrect measures, and responsibility of the architect to initiate an update to information provided earlier in the project. The scene is set for the architect to have to concede on fees, or face the costs of a battle to defend a claim from the developer for recovery of lost profits.
The NZACS claims files show that area measurements by architects have often been used for purposes not envisaged at the time the measurements were made. Measurements for insurance valuations, cost estimates, lease agreements, resource consent applications and other purposes will all have particular requirements and perhaps standards and provisos. Those subtleties may not be apparent to clients unless members make it clear that their measurements are made on the basis of particular assumptions methodology and accuracy, for a particular purpose, at a point in time.
Architect commissioned on minimum terms basis for about 30 townhouses of three basic plan formats and three varying cladding types in several blocks on a site with varying levels excavated out of sloping land. “Typical” plans elevations sections and retaining walls only provided – almost all at 1:100 – with 1:20 details at a few critical/typical junctions; generic specification with “choices” all left for construction phase. Developer runs the whole of the tendering/contract admin/project management using NZS3915 (no “engineer to contract”): directly contracts out the bulk excavation which is done as the tenders are submitted for the building construction. Disputes arise when contractor seeks variations on the basis that the actual on-site circumstances are very different, but the architect is only exposed on the basis of non-typical details not being provided along with the more usual ones.
Architect engaged for gym with specialist sprung floor system. After much research, local franchisee of global brand is appointed as nominated subcontractor, at least partly on the basis of the warranty available. Construction proceeds to completion to everyone’s satisfaction and the warranty formalities are actioned. A few short years afterward it is apparent that the floor is failing, and the only remedy is total replacement at a significant sum. Local franchisee immediately folds, and the global principal is called upon to make good the warranty. Polite letter overseas principal points out that the global entity unconditionally stands by their product but offers no underwriting of franchisee performance and therefore from their point of view the matter is at an end.
Clients engage architect for fancy house on their existing site and on the basis of a very preliminary chat about psm costs which sets the preliminary budget. Many changes by the client along the way substantially add to costs, but the architect is determined to create a masterpiece nevertheless. Clients independently seek builders estimate at an early stage, arrange finance and update architect on that basis, shift out to another house they owned and had previously rented out, and demolish existing house. 18 months delay while client diverts available funds into unrelated business opportunity. Project recommences and is eventually put out to tender. Wildly varying tenders received, but the lowest is significantly above any expectations: the client abandons the project and seeks damages from architect. (But it later transpires that the business has sucked them dry also, and that their dreams were beyond their prospective funding ability).
Structural engineer designs steel beam (ie calculations, PS1 and pencil sketches) for architect to incorporate into drawings. House completed (to the delight of the clients), but the floor over the beam is very bouncy and gib ceilings crack. Ceilings pulled away, beam strengthened, clients have to move out and pay for motel while the remediation is completed at engineer’s cost. Architect’s final fee claim returned unpaid and with a short note that if it is pursued there will be a counter-claim.
Architect designs a building to the maximum allowed by height to boundary controls. One or more of the following happens (ie these have all happened on one or more jobs!) and the breach will result in replanning/rebuilding/resource consent with attendant costs and delays.