Cost Estimates – Contract Tip of the Week

Q: How can I explain to my client that any cost estimates that I might provide are not guarantees for a maximum price on the construction work?

A:  Some design professionals agree to provide cost estimates to their clients based on their professional experience with similar types of projects. However, it’s important that clients who receive these types of estimates are also informed that factors like the labor market, future costs of equipment and materials, and the actual construction process are beyond a design professional’s control, so the accuracy of such estimates is not fully known. It’s also important for all parties to understand that claims arising out of express warranties and guarantees are specifically excluded from coverage under professional liability insurance, so pushing for a budget guarantee may not actually have the effect desired by the client.

The Risk Specialty Group and RLI Design Professionals are pleased to feature our Contract Tip of the Week series. Each week, we’ll review a question submitted by a design firm relating to the subject of contracts. Keep in mind, though, that these discussions are general in nature and in making specific business decisions, it’s important to review your options with a knowledgeable attorney.