by James B. Atkins, FAIA and Grant A. Simpson, FAIA

In the July 5 issue of AIArchitect This Week, we examined how a discrepancy can occur in the documents but impose no damages. This type of problem generally does not warrant compensation, as no party was injured. So when does an error or omission rise to the level of compensable damages?

When a non-damaging error or omission is discovered, the owner should expect the design professional to provide all necessary design services for corrective action at no cost. They should expect quick action and an acceptable solution with all necessary documentation. Although many owners and contractors tend to believe that any error is a compensable cause of action against the design professional, governing laws typically mandate that recovery can only be made against actual damages.

Betterment
The cost of betterment (also known as added value or added scope) is almost always the responsibility of the owner. (“Betterment” is defined in Black’s Law Dictionary as, “an improvement put upon a property which enhances its value more than mere replacement, maintenance, or repairs.”) Since both damages and betterment are often involved in an issue, the design professional is frequently viewed as the cause of the problem and thus inappropriately deemed responsible for all associated costs. If a portion of the costs involves work that would have been necessary to construct the project regardless of whether the mistake had been made, this work, or betterment, enriches the owner and should be his or her responsibility. Owners agonize when discrepancies are encountered late in the project, and they feel that the designer should be responsible because no money remains to cover the costs. This is no justification for damages, and it emphasizes the importance of realistic contingencies.

When should an owner expect to be paid for “first costs” associated with their building? If an owner decides that he or she does not like white painted sheetrock walls in their newly completed home and directs the design professional to design a wood paneled wall to replace it, is the owner justified in expecting the designer to pay for the new paneling? Certainly in this example there are some consequential costs for taping, bedding, and painting the wall. However, the change is being made only because the owners changed their minds about the type of finish they desired and previously directed. In this case, 100 percent of the cost of the change is the responsibility of the owner. On the other hand, if the architect had presented finish designs for approval early in the project and then neglected to detail and specify the wood paneling as was selected by the owner, the owner would be entitled to recover the costs of the unneeded taping, bedding, and painting. But again, as a general rule, the designer would not be responsible for the cost of the new wood paneling because it is betterment.

A common misunderstanding about betterment involves the cost of “putting things right.” Damages to an owner caused by an error or omission must be calculated not based upon the cost of replacement of the work affected by the error, but based upon the original cost of the erroneous work plus the impact or consequential cost of installing the new replacement work.

This is clearly illustrated in the case of an owner who hires an architect to design a house. The owner instructs the architect to specify gold-plated faucets in all lavatories. When the project is completed, the owner discovers that pewter faucets of the same design as the gold faucets have been installed instead and demands that the architect pay for replacement of the faucets. The gold faucets are priced at $1,000 each at the plumbing showroom. The pewter faucets cost $200 each and cannot be returned to the vendor. The plumber informs the owner and architect that the replacement cost is $75 for each faucet. What is the actual amount that the owner has been damaged for each faucet?

In this case, the total damages to the owner for each faucet is $275 ($200 for the original unusable faucet plus the $75 labor charge). The owner must rightfully pay for the $1,000 gold faucet. An unfortunate misunderstanding in many disputes is that owners often believe the damages should be either $1,075, or $1,275, both of which represent unjust enrichment.

Consequential or impact damages
In the absence of specific contract language to the contrary, when considering damages, the owner should not expect to recover the first-time cost of building the project. The owner should only expect to recover costs that are incurred as a consequence of mistakes made by design professionals and that add no value to the project. Many owners mistakenly believe that if a design professional leaves something out of the construction documents, the item becomes an “omission,” and the designer therefore should pay for the full cost of adding the item into the project. Under such a scenario, the owner would become unjustly enriched by the designer’s mistake. (The unjust enrichment doctrine is addressed in Black’s Law Dictionary as, “General principle that one person should not be permitted unjustly to enrich himself at expense of another, but should be required to make restitution of or for property or benefits received, retained, or appropriated where it is just and equitable that such restitution be made.”) Therefore, the owner should realistically expect to recover only the additional costs that are expended to add the item at the later date.

Summary
Errors and omissions will always exist due to the conceptual nature of the construction documents and the variables involved with the construction process. Tolerances, product options, and variations in trade installations will yield a completed project that can never be fully anticipated by the design professional and expressed in their documents. Drafting techniques and computer technology contain inherent variances that cannot be accurately resolved in illustrated dimensions. As a general rule, the cost of betterment, or added scope, will always be the responsibility of the building owner because only they will be enriched by it.

Design professionals should not be expected to provide perfect and flawless services or construction documents. Realistically, owners should expect and budget for a reasonable number of mistakes. Commercial developers, building managers, and owners who are savvy to these realities use allowances and contingencies to manage this process effectively. In other words, the design professional’s drawings are conceptual and not a “complete set of instructions on how to construct a building.” Finally, neither the law nor the ordinary and reasonable standard of care places the burden of perfect performance of professional services on a design professional. Therefore, some level of imperfection must be expected. Though aggravating and seemingly unfair, owners must budget and pay for a reasonable amount of “errors and omissions” when they undertake a project.

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