Overestimating a Construction Project.

By Patrick C. Barthet

Florida's Third District Court of Appeal has recently reversed a significant jury award in favor of a municipality and against a consulting engineer, remanding the case for a new trial. It did so, in large part, based on findings that while there are cases of architects and engineers being held liable for grossly underestimating the cost of a project, there were no cases found or cited by the municipality which actually held an engineer responsible for overestimating a job.

The facts of the specific case are interesting. In 1981, and again in 1992, the engineer and the municipality entered into general consulting agreements. Under both, a professional service order would need to be issued to trigger actual work, noting the basis and specifics of the tasks to be accomplished. The 1992 agreement called for the engineer to, among other things, provide "statements of probable cost" to the municipality for a road improvement project. It also included the following statement:

"(Municipality) hereby acknowledges that (Engineer) cannot warrant that statements of possible construction or operating costs provided by (Engineer) will not vary from actual costs incurred by the (Municipality)."

The 1981 agreement expressly provided a similar disclaimer:

"The (Municipality) hereby acknowledges that estimates of probable construction costs cannot be guaranteed, and such estimates are not to be constructed as a promise to design facilities within a cost limitation."

The particular road improvement project had long been under consideration by the municipality, and in fact the consulting engineer provided cost information in 1983, 1987 and 1990. The costs were developed using the scope and pricing available at the time and incorporating the then known conditions.

In 1991, the municipality asked the engineer to provide updated cost estimates for the road project. The engineer sought out a local contractor, someone known to be familiar with such work and located very close to the anticipated project site. That information was provided to the municipality, which in late 1992 proceeded to issue bonds to fund the cost of the project - this before the road design was actually completed and before the municipality had ascertained what the final project cost would be.

The project was let out for bid in the summer of 1993, and the municipality accepted a low bid from the very contractor who had supplied the pricing to the consulting engineer. The bid was significantly less than the range of costs presented by the engineer, so much so that the funds previously raised by the municipality's bond issue were not necessary to pay for the work. The municipality retired the bonds early, paying the equivalent of a prepayment penalty of just under $500,000.

In short order, the municipality demanded the engineer reimburse it the amounts associated with both the bond issue and the bond defeasance. When that didn't occur, the municipality sued the engineer for breach of contract and professional negligence. After an eight-day trial, a jury awarded the municipality $233,640.00 on the breach of contract action, without explanation as to the amount. The engineer appealed.

While the trial court grappled with a variety of legal issues, the appeals court limited itself to what it determined to be an erroneous jury instruction. Over the engineer's lawyer's objections, the jury had been instructed as follows:

"It is the general duty of an engineer to be reasonably accurate in providing estimated costs of a project, even when the contract between the engineer and the client contains a warranty disclaimer clause stating that the engineer does not guarantee the accuracy of cost estimates."

Effectively, the jury in this case was free to disregard the disclaimer language if it found that the engineer did not provide "reasonably accurate estimated costs" - a term the engineer argued was inherently incongruous. The instructions focused the jury's attention on the result, not the conduct or care, and as such constituted reversible error, said the engineer.

The appeals court agreed, determining the jury should have been allowed to use the disclaimer clause in its analysis. In doing so, the jury could have more properly determined whether the engineer was contractually obligated to provide reasonable and accurate cost estimates; whether the engineer provided reasonable and accurate cost estimates, in light of the disclaimer; and whether the municipality could ignore the disclaimer and rush off to issue the bonds.

Customarily, a design professional, contractor or construction consultant faces the prospect of a claim, or possibly suit, when it provides too low an estimate. Here the municipality had sued its consulting engineer for providing too high an estimate, a decision which has resulted in long, expensive litigation, with no immediate end in sight now that the appeals court has ordered a new trial.

(This article was first published in Southeast Construction, February, 2004)