Budget Overruns at Bid Time Are a Common and Testable Problem
One of the most stressful moments in architectural practice is opening bids and finding that every contractor has priced the project significantly above the owner's budget. This situation - when received bids exceed the established project budget - is called a budget overrun or bid overage, and the ARE PjM exam tests the architect's obligations and options when it occurs. Understanding what the architect must do, what they can charge for, and what the owner's options are is essential PcM and PjM knowledge.
The Architect's Budget Obligation Under AIA B101
AIA B101 Article 6 establishes that the architect must keep the owner informed of cost estimates throughout the design process. If the architect's most recent estimate exceeds the established budget, the architect must notify the owner. The critical question is what happens if the bids come in over budget despite estimates that were within acceptable tolerance.
Under AIA B101, if the project budget exceeds the construction budget established at the time of execution, the architect shall, at the owner's direction and without additional compensation, redesign the project to bring it within the budget. This "one free redesign" provision applies when the design (not the owner's budget reduction) is the cause of the overrun. However, if the owner later changes the budget to a lower number after design is underway, redesign required to meet the new budget is an additional service.
Options When Bids Exceed Budget
Option 1: Rebid
If bids are close to the budget and the overrun may reflect unusual market conditions, the owner may choose to rebid the project after a waiting period. Market fluctuations - particularly in materials prices or labor availability - can cause bids to vary significantly from estimates. Rebidding after a few months may produce better results if market conditions improve.
Option 2: Negotiate with Bidders
On negotiated contracts (not public competitive bids), the owner can negotiate with the apparent low bidder to find savings. This typically involves the architect identifying value engineering options that the contractor can price during negotiations.
Option 3: Value Engineering / Redesign
The architect leads a value engineering effort to identify scope and specification changes that will reduce cost. Redesign of documents is then performed. If this redesign is required because the design exceeded the budget, it is the architect's obligation without additional fee. If the owner is requesting a scope reduction beyond what is needed to meet the original budget, additional services may be appropriate.
Option 4: Increase the Budget
If the bids reflect an accurate market price for the project as designed, and the design legitimately meets the original program and budget assumptions, the owner may choose to increase the budget rather than reduce the scope. In this case, no redesign is needed.
Key Exam Points
- One free redesign: architect must redesign without additional fee if CDs exceed the established budget.
- If owner reduces budget after design is underway, redesign is an additional service.
- Budget overrun options: rebid, negotiate, VE/redesign, or increase budget.
- Architect's cost monitoring obligation: update estimates at each phase; notify owner of overages.
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