Vol. 2 No. 7		July 1983

One thing is clear. Your clients have a vital interest in eliminating as much of the uncertainty surrounding their projects as they possibly can. The cost of construction is a critical unknown, and they view the estimates they ask you to furnish as the design evolves as information essential to their planning. This is not unreasonable.

It does, however, pose a potentially serious problem. What your clients really want from you is information about the costs of construction they can rely on. Without great candor on your part, they are not likely to understand the limitations on your ability to respond. The distinction between what you may consider to be a tentative assessment of costs you are in no position to control and the virtual guarantees most owners would like to have is simply too obscure.

Unless you are unequivocal in your explanation of what your estimates represent (and why they must be qualified), your clients are likely to make their own assumptions about their accuracy. They are also likely to act on those assumptions. If they do, and if subsequent events should later prove you wrong, you could find yourself drawn into costly disputes over the extent of your responsibility for the consequences.

The problem stems from the ambiguous meaning of the word "estimate." We tend to deal in ambiguities partly because we are more casual in our use of the language than we should be and partly because they give the appearance of an advantage: Everyone who joins in their use can walk away thinking they mean whatever they like. Ambiguities help to avoid argument. They also obscure intent, and nothing can so quickly undermine the effectiveness of your agreement with your client as a lack of clarity.

So it is with construction cost "estimates." No one really knows when an estimate might cease to be a considered professional opinion, subject to adjustment over time as the facts become known, and when, instead, it might take on all of the trappings of a guaranteed cost ceiling. What is known is that this transformation can have a way of taking effect as soon as it becomes evident that the owner's resources are less than adequate for the task at hand.

The all-too-common result is that responsibility for sorting out the true intent of the parties is turned over to a panel of well-meaning citizens who, based on their own experiences in life, have a perfectly lucid understanding of what an "estimate" is. Put yourself in their shoes for a moment.

Your car is making terrible noises, and you can put the dismal day of reckoning off no longer. Either you replace the transmission, or you might as well call the salvage yard. You just barely manage to make your way to your friendly neighborhood garage, and you are somewhat relieved to discover that the "estimate" for replacing your transmission is only $780. You authorize the work and go on about your business.

The following day, when you come back to pick up your car, you have a balance of $850 in your checking account. You are handed a bill for $1322.86! The owner is consoling: "It was only an estimate, Mac. The cost of parts went up."

How do you think you would react to this? In many states, you would be well within your rights to write a check for $780 and demand your car. It does not matter that the price of parts may have gone up, and the fact that a mistake might have been made is irrelevant. A product of the consumer movement of the 1960's, the law in these states is clear on this point: Once you accept an estimate for certain kinds of repair, the estimate becomes a guaranteed cost unless you specifically authorize additional work.

Small wonder there is confusion over what your "estimates" really mean.

This helps to explain why the professional societies have incorporated provisions into their standard forms of agreement calling for "opinions (or statements) of probable construction cost," why they define with such precision just what the limitations on those "opinions" really are. There is another reason: Claims arising out of estimates of construction costs being exceeded are excluded from coverage under the insurance policies written by most professional liability insurers in the United States.

Clearly, the problem is serious. It is one you are going to have to address with great care, both in your negotiations with your clients and in the written agreements you sign. You may have to explain that while you share your client's concern with costs, there are unknowns out there over which you have absolutely no control--conditions in the labor market, for example; or the future costs of materials and equipment; or the contractors' methods of determining prices. You can agree to put forth your best professional efforts to help to bring the project in on time and within budget, but you are in no position to assure your client it will work out that way.

Discuss the need for contingencies. Otherwise, there is a danger your client will stretch the budget to its limit before the project ever goes out to bid. In your agreements, avoid using "estimate" to describe your approximations of probable costs. Spell out the limitations on your ability to control those costs, and qualify your responsibility for their accuracy. Make it clear that you cannot guarantee they will not be exceeded, and explain why.

If your client has trouble with all this, you might illustrate the problem by reviewing bids for construction submitted on recent public projects. Even where the totals are relatively consistent, you should be able to point to wide variations among the trades, variations that reflect the enormous uncertainty with which those who are in a position to control their costs approach the work they promise to perform .

As you sort through this issue with your client, keep in mind that you are not attempting to shirk responsibilities that reasonably ought to be yours. You are seeking to reach a clear and equitable understanding about a difficult question of risk and responsibility. Your goal is to establish a working relationship based on realistic expectations--a relationship designed to avoid unnecessary conflict later.

Notwithstanding the good works of the professional societies, and in spite of your persuasive eloquence, there is nothing to prevent your clients from insisting on greater assurances. It is not uncommon for them to do so. Nor is it necessarily inappropriate for you to be responsive. But, there are limits beyond which you can go only if you are willing to assume substantial and uninsurable risks. We will address these limits and the techniques you might use to negotiate acceptable alternatives in "Construction Costs, Part II: Coping with the Guaranteed Maximum Cost."