Equally frequent is the subsequent question of who bears responsibility for the excess costs. Where the client and the planner (architect, general planner, etc.) agree on a so-called construction cost guarantee, the planner is liable for exceeding the agreed costs irrespective of fault. In practice, such guarantees are extremely rare, as they entail incalculable liability risks and the loss of insurance cover on the planner’s side. Accordingly, specialist planners usually reject any form of construction cost guarantee in contractual negotiations.
If, however, the client and the planner have agreed a cost ceiling not as a guarantee but as a characteristic of the planner’s performance, and the planner fails to adhere to that ceiling, the work is defective. The decisive point in time for assessing whether the cost ceiling has been complied with is the date of acceptance.
In order to establish whether the work is defective, the agreed construction sum must be compared with the final construction cost — at least where the planner has also been commissioned with site supervision (Work Stage 8 under Section 35 of the German Fee Regulations for Architects and Engineers, HOAI). Where the parties have defined the cost ceiling in the contract by specifying amounts for the individual cost groups under DIN 276, a deviation in a single cost group does not in itself constitute a defect; only an excess of the total agreed costs does. The planner may only rely on a tolerance if the contract clearly indicates that the agreed sum is not a strict limit but merely an estimate or reference figure.
If the planner wishes to avoid liability for cost overruns, the contract must expressly state that the cost basis for the project is to be understood only as an estimate, not as a characteristic of the work owed.
Irrespective of tolerances, the actual construction cost must be adjusted to exclude any amounts resulting from client changes, special requests or similar modifications. Likewise, if delays arise because the client fails to make timely decisions on implementation, any resulting cost increases — particularly inflationary ones — do not fall within the planner’s responsibility and must be excluded from the cost calculation.
The difficulty for the planner lies in the fact that liability does not depend on fault. The planner may thus be liable even if he or she had no influence on the additional costs and the excess does not originate from the client’s own sphere of responsibility — the test applied by the courts. It is therefore the task of the planner and the advising construction lawyers to mitigate this strict liability, for instance by agreeing that cost provisions are not deemed characteristics of the work, or by expressly setting tolerances in the contract.
Planners cannot expect that, as compensation for this strict liability, their fee will automatically increase. Under the HOAI, remuneration is calculated based on net construction costs. If a specific construction cost is contractually agreed, this serves solely as the calculation basis for the fee. Increases in costs during the construction phase do not increase the planner’s remuneration.
If the client has a warranty claim against the planner due to cost overruns, the client may reduce the fee under Sections 631, 634 No. 3, and 638 of the German Civil Code (BGB). The reduction corresponds to the percentage by which the cost ceiling has been exceeded.
The planner may also be liable in damages. The client’s loss, however, does not necessarily consist of the actual additional construction costs, since these usually enhance the value of the property. In cases of commercial property, where the income value is lower than the actual construction cost, the recoverable loss is the difference between the two.
In summary, planners must exercise the utmost care when drafting contractual provisions on construction costs. For clients, it is essential to ensure that binding and enforceable cost ceilings are clearly and unambiguously agreed.
The lawyers in SPIEKER & JAEGER’s Construction and Real Estate Law team will be pleased to assist with the drafting of such provisions.