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Construction cost volatility alert for design professionals

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With the tariffs on foreign steel and aluminum, there are significant increases in prices (including reinforcing steel) that are making construction projects more expensive.

Project owners want certainty on both the cost of putting a capital asset in place and the time it will take for the productive asset to become available. One of the greatest sources of claims against design firms is the dissatisfaction of clients with the ability of firms to design to a budget and complete design services in a timely manner.

That issue was so apparent that in the AIA B101-2007 owner-architect agreement, a trade-off was contractually set so that if the project exceeded the owner’s budget at the conclusion of the construction documents phase, the architect would redesign to a reduced program, scope, or quality at no cost to the owner as long as the redesign represented the limitation of the architect’s liability. This meant that the delay caused by the redesign would not result in litigation. The 2017 version of B101, however, modified that commitment so that the owner would pay the architect for the redesign if the cost overrun ”was due to market conditions the Architect could not reasonably anticipate.”

Given the inflationary economy and the increasing cost of materials due to tariffs that both increase the cost of imports and allow domestic producers to raise prices in an environment of reduced competition, architects may be in a position of having to redesign at no cost, or suffer through litigation that shows the architect should have reasonably anticipated higher construction costs.

With tariffs on foreign steel and aluminum, there are significant increases in prices (including reinforcing steel) that are making construction projects more expensive. In addition, construction costs are increasing because of the additional cost of construction equipment. As inflationary pressures continue, the cost of other materials and the labor to put them in place will be a moving, but ever-rising, target that impacts design.

Firms should carefully review contractual language on redesign and on the waiver of claims if redesign is required. Firms should educate clients on the difficulty of designing to the owner’s budget in a commercial environment where a presidential proclamation (official or not) could drive up material prices, corrupt supply streams, disrupt labor forces, or contribute to increased financing costs.