Case Study 7-4 The Apartment Fiasco Project: Rehabilitation of a historic residence Location: Dayton, Ohio Budget: $95,000 (for construction and CM fee) Issue: Dispute between owner and architect A young architect in Dayton, with a sole proprietorship practice specializing in residential and small commercial designs, was approach about "saving" an old, large condemned residence by converting it into four apartments. Current zoning allowed this action. The owner pleaded that if the city did not see evidence of some progress to salvage the building within a month, demolition orders, already issued, would be executed, and the old house would be gone in the name of the health, safety, and welfare of the community, well within the police power of the city granted by the laws of Ohio. The architect, intrigued by the character of the house and having sympathy for historic preservation, accepted the idea and prepared an AL 8141 agreement for design services, with a fee that he felt appropriate. The owner and her attorney, who had now appeared on the scene, both stated that the fee was beyond the owner's means. The owner had recently returned to Dayton to take a position with a real estate company while working toward her real estate license. No income was yet forth coming; she had invested her resources in buying the property and was limited in her ability to pay for design or construction. She offered the prospect that her brother, with construction experience, would be the contractor and that thus the documents could be simplified-adequate for permit purposes and general description of the work, but not necessarily detailed for competitive bidding. There would be no separate specifications, all information being directly on the drawings. A bit apprehensive, but seeing an opportunity to display his historic preservation talent, the architect agreed to a reduced fee; deleted his con tract administration and produced a modified agreement that was signed by both him and the owner. He thoroughly measured and photographed the building, which, while on the verge of becoming a derelict, was still fundamentally structurally sound. He quickly produced schematics of the four- apartment layout. The units ranged from 800 to 1200 square feet, appropriate for that neighborhood. With a few changes, the schematics were approved by the client. Then the agreed-on working drawings were completed and were submitted for a building permit. A particularly demanding plan examiner requested several more details than the architect thought necessary. These included: o Details of full support and anchorage of balconies (there had recently been a collapse of a balcony on an old converted residence, injuring several people) o Wall sections of all walls, including existing ones o Complete sections through all stairs, even those already in place . Several interior elevations Initially, the plan examiner stated that the building would require sprinklers for fire suppression, but when he and the architect went over the code carefully, it wasdetermined that this was not the case if all units were separated by walls rated at one and a half hours. The differences over the drawings were resolved, and approval for a permit was granted. The architect did not actually secure the permit, which was priced at $428; this would be the obligation of the owner. The architect sent the permit approval notice and a statement for final payment to the owner. There had been no agreement on services during construction. After waiting two weeks, he called the owner to ask about the status of the project-was her brother proceeding on the work, and could they wrap up their agreement with her payment? She requested that he meet with her and her attorney. The meeting was set, and the attorney did most of the talking. The client still was having financial difficulty, and the attorney was thinking of buying into the project. Together they were investigating financing of the rehabilitation. The brother was having health problems and could not undertake managing the construction. While several options were explored, the team asked the architect to manage the construction. They said that they could not get a loan until a reliable cost estimate was given, and the implication was that he would not receive final payment (nearly 40 percent of the fee) until a loan was secured. The architect said that he would consider it and get back to them. He was torn between rejecting the proposal or accepting the challenge and moving ahead. The options he saw were: o Reject the proposal outright and probably not be paid the remainder of his fee- $3200, which was a substantial sum at that stage in his practice. He recognized that to sue the client would cost more than that in legal fees. o Accept the proposal with an agreement that would shield him from excessive risk. He carried minimal insurance. o Seek another party to undertake the construction, perhaps with the architect as collaborator in some role. The option of taking on construction responsibilities was not a "wil idea." The architect had already performed contract administration on a number of projects, and had contracted the expansion and remodeling of his own house. He knew a number of small contractors who might be come engaged in the project. In the meantime a local elected officeholder whom the architect had supported in a recent election, called to state confidence in the owner's attorney, "who would probably be appointed to a judgeship in the relatively near future." The culmination of several issues-most particularly the challenges of saving the old house (about which he had now developed a bit of romance) and engaging construction more fully than he had before-caused the architect to propose a construction management contract using AIA Form AIO 1/CM. He would line up several trade contractors to do the actual work and, acting as the owner's agent, manage them through to a completed building. The client insisted on a guaranteed maximum price and that the architect hold all the contracts and take responsibility for them. Having already developed his own estimates as part of the design. effort, and having received some preliminary prices from contractors, he compiled a GMP 12 percent higher than the earlier estimate (including hi own overhead and profit), citing the risk involved and the fact that the earlier estimate was based on the brother doing the work. Some hagglingtook place. A number 7.5 percent higher than the earlier estimate was agreed on, and the contract was signed in June. The architect immediately directly hired some students from the construction program at the local college to begin wrecking the necessary parts of the building. They also placed concrete foundations for new supporting members and performed several other miscellaneous chores to get the project ready for the carpenters and mechanical trade contractors, who began in July. The architect filed monthly payment requests for the direct hires (whom he had paid) and the trade contractors. June, July, and August payments were made by the owner, and most of the framing and rough-in plumbing, wiring, and ductwork were completed. Drywall work was to begin in September, but the team that originally agreed to do the plasterboard work declined to perform, citing other higher priority work. The electrical inspector rejected some wiring, necessitating rework, which the electrical contractor sought payment for. The owner and her lawyer, now partners in the project, visited the site regularly and, after initial excitement, showed more and more apprehension. She requested that one unit be completed by Thanksgiving for her to move into. This would be difficult, but the architect stated that he would try to do so. After resolving the electrical issue, he recruited three young men to hang drywall in the evening and on weekends. They worked hard with moderate skill. Several new problems developed: The owners objected to the quality of drywall and other work. Neighbors complained about the noise of night work and the accumulating debris on the site. A building inspector demanded evidence that the old partitions were properly firestopped. Several had to be opened, inspected, and then refinished. O The owner paid only half of the September payment application, citing unacceptable work. O The architect was spending an inordinate amount of time on the project, to the detriment of other important work. The building inspector, feeling triumphant in his firestop investigation, pressed aggressively on other issues. The architect, realizing that he had a "true loser" on his hands, knew that the only solution was to press forward to completion. All exterior work, except painting, was completed by the carpenters; drywall was finished (though with less than stellar work); and the mechanical trades finished their work, with the exception of setting of actual fixtures. The October payment was also only half of the submittal (the architect was tempted to submit inflated statements but did not do so). He paid for work from his own resources, and kept careful accounting of all activity. He persuaded the owners to directly purchase plumbing and lighting fixtures, cabinetry, carpeting, and other amenities to expedite the project. The Thanksgiving move-in date was missed, and the owner, expressing outrage, refused to make the November payment. Relations among all parties deteriorated. The architect and owners became increasingly hostile toward each other, and carpenters, sensing the situation were reluctant to return for finish work. The architect had to pay the plumbers inadvance to come back and set fixtures, and the architect self-performed much of the cleanup and final painting, hiring students help. The architect examined the ethics of the situation many times, and was quite anxious over whether he was performing correctly: Despite his disdain for the owners, one of whom had indeed been appointed to a judgeship as predicted, he kept them informed of activity through regular memoranda. . He paid workers on time, although one complained of underpayment and threatened physical damage to the building if not more fully compensated. O He strove for the best possible quality, while realizing that several compromises had been made. He remained fully truthful in all his dealings. o Yet he obviously could not be proud of the potential outcome. The architect, never having needed legal service, contacted a lawyer acquaintance who advised: Pushing the project through to completion-as a necessity, if litigation were to transpire Documenting a calendar of events with as much detail as possible O Filing regular (every two weeks) statements with the owners On final completion, filing a complete review of the project with the owners, including a request for full payment If payment in full was not made within 30 days, filing a lien on the property for the outstanding amount plus accrued interest O Beginning to line up witness who might testify favorably in case of arbitration or litigation Completion of the project came early the next year; a certificate occupancy was approved by the building inspector after a few miscellaneous alterations, and the owner immediately took occupancy of the unit. The architect considered trying to preclude this, but his attorney advised against it. The architect did, however, retain the keys to the other three units. This led to a call from an attorney who said that he was representing the owners, who were prepared to file suit if the architect did not immediately release all obstacles to their gainful us the entire building. The owners' advertisement in a local newspaper described excellent apartments, close to business and cultural facilities. The architect clipped and filed that with his other documents arranged for the suit. A month of haggling over various issues culminated with the architect filing a lien on the property for $33,000. This included labor, material, CM fee, and interest charges. The architect had paid all participants for whom he had responsibility. The owners had paid for several finish items and to redo some interior finishes at their volition. They had changed locks and proceeded to rent out the other units at marketplace prices. The AIA A1 01/CM contract had a clause requiring arbitration, unless other action was mutually agreed to. Both parties desired litigation: the architect, on advice from his\fencounter. In fact, he gained the admiration of several fellow designers by persevering both in completing the project and then in winning in court, without compromising his professional ethics-and in particular by beating a local judge at his own game. He still had misgivings about some of the issues, but accepted the learning value and moved on. Ten years later he was elected president of the Dayton Chapter of the American Institute of Architects. Amplification of Issues to Enhance Understanding of this Case Architectural practice has inherent risks, many self-imposed. As a ser vice profession, it is easy to extend valuable services to clients less eth ical than the architect. Also, architects tend to overcommit-that is, take on more work than they can effectively complete-with the rational that this situation is better than having too little work. Sole proprietors in particular suffer from the "romance of architecture" and the engage ment of marginal projects. And life is full of lessons to learn from. A salient skill is continually learning to learn. Discussion Questions How can architects gain better commitments from clients? o What are the pros and cons of architects acting as construction managers? Assignment Thoroughly review the case and cite the key decision points and whether the architect made the right decision each time. Draw a graph (like a decision tree) showing actual outcomes and possible outcomes if different decisions had been made. Place yourself in the architect's position and state what you would have done at each crucial point along the way. Sources to consider: " make a # line o AIA A201 list steps that were me " see if the architect o AIA AIOI/CM right decision " o Codes of ethics of professional behavior " list issues" o Rules of evidence in civil cases in your state o Interview with an architect to seek advice on how to avoid such problems or to work through them o Interview with an attorney about legal procedures pertaining to filing suits A debate may be set up with one team taking the role of the architect and the other team that of the owner. Each team should list the strengths and weaknesses of its side of the case and then argue for an appropriate outcome of the dispute. Extra Issue Investigate the advisability of hiring students or others "off the street" for construction labor. What are the liability issues? Are they independent contractors? What do your state laws say about independent contractors