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Opinions of cost

An insured recently asked us for advice in response to his client’s request for an estimate of construction costs. I suggested that instead of providing a “cost estimate,” which may indicate a commitment that the project can be constructed for that “estimate,” it would be preferable to offer to provide an “opinion of probable costs.”  In this way, the design professional would be offering a professional opinion conditioned upon ordinary due care, and not a warranty or guarantee of costs. If the opinion proves incorrect, the design professional would be able to defend against claims by the client by presenting expert testimony that the opinion, albeit incorrect, met the generally accepted standard of care.

It’s important for the client to understand that cost estimates are only as accurate as the information on which they are based, and the design professional should make clear to the client the limitations of such estimates. The “preliminary estimates” or “opinions of probable cost” prepared by design professionals under the AIA and EJCDC agreement forms, respectively, are generally predicated on conceptual estimating techniques, not detailed quantitative techniques. If detailed estimates are desired, the design professional can be engaged to provide them with the assistance of a cost consultant if the design professional is not otherwise qualified. Alternatively, the client can engage an independent cost consultant directly.

The bottom line is that schedules, budgets, and estimates or opinions of probable cost reflect the design professional’s professional judgment based on available information. Such estimates should not be construed as warranties or guarantees. The following sample provision reflects this reality:

Sample provision: Any schedules or completion dates, budgets, or estimates of cost prepared by Consultant represent Consultant’s professional judgment based on its experience and available information. Since neither Consultant nor Client has control over the cost of labor, materials, or equipment, the contractor’s methods of determining prices, or over competitive bidding or market conditions, Consultant cannot and does not warrant or represent that actual schedules, budgets, or completion dates or actual costs will not vary from schedules or completion dates, budgets, or estimates of cost prepared by Consultant or proposed, established, or approved by Client.

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