AE Blog - Opinion of Probable Construction Costs

Your opinion of probable construction costs is, in all likelihood, one of the most important items in connection with management of your Client’s expectations.   Many clients refer to this as a “cost estimate” and unfortunately stretch that term to believe that you will be providing a guaranteed amount on which they may rely absolutely as being one that will not be exceeded when the bids are opened.  Substituting “Opinion of Probable Construction Costs” for “Cost Estimate” in your contract is a good start at clarifying this frequently misunderstood deliverable.

The Standard Provisions should include a statement that explains what the Opinion of Probable Construction Cost (Opinion) is and what it is not.  Most of the contract templates available from professional societies contain very concise language that can be used.

Here are some thoughts about items that should be included about the Opinion:

■ The Opinion is only that; it represents the Consultant’s best judgment as a design professional

■The Opinion is supplied only for the guidance of the Client

■Consultant has no control over the cost of labor and material, competitive bidding, or market conditions

■The Opinion is based on Consultant’s recent experience and adjusted to accommodate factors known to the Consultant at the time the Opinion is prepared

■Consultant does not guarantee the accuracy of the Opinion as compared to actual bids or cost to the Client

■If the Client desires a higher level of confidence in predicting anticipated construction cost than that provided in the Opinion, the Client  should retain the services of a professional cost estimator for this purpose

The term “Cost Estimate” has been around so long that it may be beneficial to not only put the Opinion in your contract but to specifically call it to the Client’s attention.

If the Client has negotiated a construction contract rather than receiving bids, be sure to involve the contractor in preparing the Opinion.

Some Clients require that the Consultant revise its design, at no additional cost to the Client, if the bids come in above the Consultant’s estimated cost.  Read this section very carefully and take advantage of the opportunity to revise the estimate at certain stages of the design if it appears that the original budget will be exceeded.

As a last resort, you could agree to redesign certain portions of the design whose bid prices exceeded those in the Opinion by a specified amount.  If you use this approach, you should get the Client to agree that this is the Client’s only remedy to dealing with bids coming in over the Opinion.

Also be aware that some professional liability policies do not cover errors and omission in connection with cost estimating – check the exclusion section of your policy.

This information has been provided to Hall & Company by John Lowe, President of Lowe Consulting, LLC.