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From Suspension to Resurrection: How to Restart an Abandoned Project

Know your rights and renegotiate compensation

By Glen R. Mangold and Charles W. Kopplin

Your client just called to tell you to suspend work on a project. You feel devastated because you have six employees dedicated to the project and $35,000 in outstanding invoices. You wonder, “Why is this happening and how should I handle it?”

There are many reasons beyond a design professional’s control that a client may suspend or terminate design services. As the housing market over the last few years has shown, projects often are suspended during an economic downturn, or the client may no longer be able to secure financing. There also could be a regulatory holdup—a governing agency unwilling or unable to issue the necessary permits for the project to proceed. The two-week shutdown of Minnesota’s state government last July suspended all activities except “essential services," stopping all inspections and permit reviews. Or a natural disaster could have made proceeding with a project undesirable or impossible. After tornadoes struck Joplin, Mo., last year, soil contaminated from long-abandoned lead and zinc mines added an estimated $7.5 million tab to the rebuilding efforts.

Rights and responsibilities

Whenever you receive a notice of suspension or termination, your first step should be to review your contract to verify your responsibilities and rights. AIA Contract Document B101™–2007, Standard Form of Agreement Between Owner and Architect, gives the owner the right to suspend the project indefinitely. However, if the owner has suspended the project for more than 90 cumulative days for reasons other than the fault of the architect, the architect may, after seven days written notice, terminate the agreement. The owners also may terminate the agreement (again after seven days written notice) for their convenience and without cause. If the project is suspended, the architect is entitled to compensation for services performed prior to the suspension. If the agreement is terminated for reasons not the fault of the architect, the architect is entitled to compensation for services performed prior to termination, reimbursable expenses then due, and termination expenses. The architect’s termination expenses can include items for which the architect is not otherwise compensated, such as the costs of terminating consultants’ contracts, reducing staff, and terminating leases on office space and equipment. In addition, the architect’s inducement for entering the agreement, which is profit, is expected to be fully paid.

Aside from verifying legal responsibilities, what else should you do when a project is suspended or abandoned? Stop work and, if possible, reassign the staff to other projects. Ideally, a client would pay the cost of an orderly project shutdown, allowing you to prepare notes on the status of various tasks and to organize project documents for easy retrieval. Bill for your services per the terms of your agreement and expect that the client will pay. At some point, if you realize the project will not be restarting in the near future, gather up project files and place them in long-term storage. Finally, you or your client may terminate the agreement.

Someday, hopefully, you may get a call from your client asking to resurrect their project. The client will want to know how soon you can start and when can you finish the design. You are elated because you believe you will finally get those invoices paid. You are tempted to begin right away. But your better (and more cautious) judgment takes over. You need to update the plan for managing the project and clarify the steps required to restart it. Perhaps most importantly, you also need to get more information to help you negotiate a new or amended contract.

Before resuming work on a suspended project, make sure to:

    • Review project objectives, scope, design criteria, and construction budget

    • Verify compliance with new regulations or building codes

    • Review the validity of previous studies and reports, i.e., traffic, environmental, soils

    • Consider whether computer models need updating

    • Revisit costs and schedules

Before any work begins, the project objectives need to be re-reviewed and discussed with the client. While the project was mothballed, the client may have thought of changes to the design criteria. The size of the project may have either increased or decreased, or the construction budget may have changed. Even if it has not changed, can the project realistically be built for the same price? The Engineering News-Record 20-city Construction Cost Index for the first nine months of 2011 reported a 5.6 percent increase in building materials year over year, including a 7.8 percent increase in steel. A new project schedule also needs to be established, as it may impact the project’s cost and objectives.

The computer models you were using to develop construction documents may need to be updated; software for BIM is regularly upgraded. You may also have switched software providers, and no longer hold a valid license for the previously used software.

As you begin to compile the costs for providing your services, be sure to review project staffing requirements. Ideally, the same design professionals would complete the project that were involved before it was abandoned, but that may not be possible if that staff is involved with other projects, left the firm, or were laid off.

Even with the same staff, you will incur additional costs to establish where they were in the design process when the project was suspended. If it was suspended during a project phase, such as schematic design or construction document development, more effort will be required to establish where in the process you were. Restart costs will be higher than if it was suspended at the end of a project phase. You and your staff will need to determine what instruments of service were incomplete, and where you were at in coordinating with other disciplines, selecting materials, finishes, and equipment.

Restructuring compensation

The client may want you to complete the project for the compensation agreed to in the initial contract. But probably the most important part of getting a project moving again is recalibrating how you’re going to get paid. Several factors can affect compensation for resuming a suspended project. Be sure to include any costs associated with:

    • Staff remobilization

    • Project scope or design criteria changes

    • Building code revisions, updated studies, or other reports

    • Electronic project model updates due to revisions, or updates in computer software

    • Staff compensation or firm overhead changes

    • Insurance requirement changes

If the project is suspended through no fault of the design professional, B101™–2007 allows for the design professional's fees for the remaining services and time schedules to be equitably adjusted when the architect’s services are resumed. Of course you will need to document why your compensation should be increased. Be sure to consider staff remobilization costs, as well as any changes to staff compensation or firm overhead.

After establishing the costs to complete the project, you need to renegotiate scope, schedule, and compensation with your client. Because they are all interrelated, these items should be negotiated together. If you have outstanding invoices for this project, you will also need to establish when you can expect payment for them. You should also discuss steps that will be taken to ensure that future invoices will be paid on time.

By redefining the scope, establishing the revised project schedule and construction budget, identifying areas requiring reworking, and outlining the tasks required to complete the project, you will have prepared yourself well for negotiating a new or amended agreement with your client. Doing the work to ensure the client and you both clearly understand the scope and cost of the project before work resumes will provide a basis for judging any new or amended agreement by objective criteria, and help you create a fair and equitable contract—and (finally) a complete building.

An abbreviated version of this article appeared in the January/February 2012 issue of Engineering Inc. published by the American Council of Engineering Companies.

Glen R. Mangold is the managing director of the architects/engineers program for Markel Corporation, a provider of professional liability insurance. He has more than 23 years experience in the insurance industry and can be reached at mgmangold@MarkelCorp.com.

Charles W. Kopplin has more than 40 years experience as a consulting engineer, including 14 years as the risk manager for an ENR Top 500 Design Firm. He can be reached at cw.kopplin@gmail.com.

   
   
     

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Reference:

Visit the AIA Contract Documents website.

Visit the Practice Management Knowledge Community website on AIA KnowledgeNet.

 

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