ᐅ Construction budget/planning significantly exceeded—who is liable?

Hello everyone,

We have been planning our renovation for over a year now. It is a two-family house from the early 1960s, where my parents live in the ground floor unit and my husband and I live in the top floor unit. We now want to combine our top floor unit with the attic and partially extend it. In addition, the construction of a double garage and full insulation of the entire house was planned.

The plans were completed by the architect and approved by us. Then a cost estimate was made (using these tables that calculate average values per unit/trade; unfortunately, I can’t remember the name right now). We calculated planned costs of 220,000 euros without architect fees. With this plan, we went to our bank and got an offer for 250,000 euros (including equity) as a precaution, because in a renovation you’re sure to find unexpected expenses. Also, the garage (around 25,000 euros) and the full insulation (around 20,000 euros) do not have to be built right away, so that money was also set aside as a buffer. After the bank approved, it was clear to us that we wanted to move forward with the project. The building permit/planning permission has since been granted, the apartment has been transferred from my parents to us, and the loan has been applied for, so we could start.

Now all the offers are in, and we’re almost in shock: without the garage and full insulation, construction costs are currently around 225,000 euros, and that’s without any contingency! If I consider our original plan (175,000 euros for purely the renovation), this is already a cost overrun of more than 28%. Canceling the plan is no longer feasible for us without significant financial losses (initial architect and structural engineer fees already paid, ownership transferred, early repayment penalties would apply).

Now my question: Can I hold the architect liable for such a miscalculation in any way? Had we known about these high costs beforehand, we would have completely abandoned the renovation.

I know legal advice cannot be given here, but a hint in the right direction would be appreciated.

Thank you very much,
Best regards, maike321

If you have contractually agreed on a boundary beforehand, as far as I know, the architect is also responsible for ensuring it fits.
If the architect has given you a fixed price guarantee, they usually have insurance to cover that. However, some degree of inaccuracy must be allowed for the architect. Although I believe 28% is too much.

I think the architect needs to review the project again and see where costs can be reduced. I also believe you need to be willing to compromise.
The best option is always to consult with a construction law attorney.

Although some courts have accepted higher tolerance levels in individual cases, a cost overrun of up to 30% is generally considered permissible for the initial cost estimate (see most recently OLG Stuttgart, OLGR 2000, 422). However, for the cost calculation, only 20–25%, and for the cost projection even just 10–15%, are regarded as acceptable (OLG Cologne, BauR 2002, 978). Whether such tolerance levels can be applied in favor of the architect depends primarily on the underlying architectural contract. If the contract explicitly defines a maximum budget for construction costs through a specification agreement, exceeding this limit results in architect liability, as the architect cannot rely on any acceptable tolerance in such cases.

A quote:
Tolerance Limits for Cost Overruns

Exceeding the construction budget can constitute a breach of duty by the architect, potentially leading to significant fee reductions or claims for damages.

According to HOAI and DIN 276, a cost estimate must be prepared at the start of the construction project, which naturally involves many uncertainties. Later, during design phase 3, a more detailed cost calculation is required. As the project progresses, a cost projection based on the cost plan must be prepared in design phase 7. As part of cost control, the architect is also obligated to compare these different calculations. It should be noted that the accuracy requirements increase as the project advances. The tolerance levels accepted by case law are highest for the cost estimate and lowest for the cost projection. There are percentage “rules of thumb” for tolerance limits regarding cost estimation, calculation, and projection, but these should be applied carefully.

Although some courts have accepted higher tolerance levels in individual cases, a cost overrun of up to 30% is generally considered acceptable for the initial cost estimate (see most recently OLG Stuttgart, OLGR 2000, 422). For the cost calculation, only 20–25% overrun is deemed permissible, and for the cost projection, even just 10–15% (OLG Cologne, BauR 2002, 978). Whether such tolerance levels can be applied to the architect depends primarily on the underlying architectural contract. If the maximum construction budget is precisely set through a specification agreement, exceeding this limit results in architect liability, as the architect cannot rely on a justifiable tolerance. Therefore, such fixed agreements should be avoided whenever possible. The architect may also be denied the right to invoke a minor overrun if gross errors occurred in the cost estimate—such as using completely unrealistic volume prices or omitting sales tax.

Tolerances must be considered if the client later expands the project scope beyond the original budget limit (OLG Düsseldorf, NJW-RR 1999, 1496). This situation often arises when the client decides to use higher-quality materials after the fact. If the client requests changes that increase costs, the architect has a duty to provide clear information. To be on the safe side, the architect should always point out the rising costs with any client change requests, document this primarily in writing, and obtain the client’s signed acknowledgment.

It is important to note that a claim for damages by the client due to cost overruns is only possible if the client has set a deadline for the architect to correct the issue and this deadline has expired without results. This means the client must give the architect the opportunity to reduce construction costs through redesign or replanning, as long as this remains feasible. However, the client must also account for any increase in the market value of the property resulting from the more expensive construction work, which can offset the client’s alleged damages almost entirely.

Regarding fees in the event of cost overruns, the basic rule is as follows: if construction costs are exceeded, the architect can only calculate fees based on the originally estimated lower construction costs. A permissible tolerance overrun, however, can be included. If the architect fulfills the duties now imposed by HOAI (i.e., cost control by comparing cost estimate / cost calculation and cost calculation / cost projection) and informs or warns the client promptly about increased project costs, the architect can of course base their fee calculation on the higher costs without issue.

I am not sure if this is entirely accurate, but apparently there are now some court decisions on this topic.

maike321 schrieb:

We arrived at structural costs of 220,000 EUR excluding architect fees. ................ to be safe, we planned for 250,000 EUR (including equity),
................ offers: construction costs around 225,000 EUR ................ assuming the original plan (175,000 EUR for pure interior finishing) .............. cost overrun of more than 28%.

.. sorry .. I just don’t quite understand these numbers

@ Der Da: Thanks already for the information. I’ll need to look into this more closely, and we might have to schedule another meeting with the architect. If they’re not cooperative, we may need to consult a construction law expert.

@ Bauqualle: Yes, it might indeed not be that easy to understand. Here’s another attempt:

Planned costs €220,000 (pure interior finishing €175,000 + new garage €25,000 + full insulation €20,000)

Costs according to quotes €270,000 (pure interior finishing €225,000 + new garage €25,000 + full insulation €20,000, although we haven’t yet obtained any quotes for the garage and insulation since that’s currently not financially feasible.)

For our planning, we initially assumed required capital of €250,000, since we also need a new kitchen, might want the more expensive flooring, and so on. Plus, with a renovation, you can expect one or two unpleasant surprises. So we planned an additional €30,000 to be a bit more flexible.

I hope the numbers are clearer this way?!

.. and why is the architect’s construction cost estimate being significantly exceeded when you had already calculated 250,000 + 30,000 = 280,000 euros