Higher Fees for Designers Due to Cost Increases? What Clients Need to Know

More and more often, architects and engineers are sending additional invoices to their clients. “The project is dragging on, construction costs are rising, and our costs are rising too, so we need a higher fee“But is such a demand justified? When do cost increases entitle the planner to additional compensation, and when do they not? And what special considerations apply when the public sector is on the other side of the table?”

There are various reasons for claims for additional compensation related to cost increases. We have examined the most common ones.

Are there any contractual claims for additional compensation?

Before discussing the planner’s potential legal claims, it is always worth reviewing the contract, regardless of whether remuneration was agreed upon in accordance with the HOAI or as a lump-sum fee, for example. If the contract contains a price escalation clause, indexation, or a provision for the event of a construction delay, this agreement must be examined first. Often, it is already possible to determine from this whether and under what conditions an adjustment is even possible. However, this does not resolve every dispute. Unclear or broadly worded clauses, in particular, quickly lead to disputes over how they should be interpreted and whether they withstand legal scrutiny.

When do cost increases justify a higher design fee?

Rising construction costs

“Construction costs have gone up, so my fee is going up.”

Whether the fee is based on the HOAI or a flat rate, the planner’s fee does not automatically increase simply because construction costs rise due to price increases.

Under the HOAI fee schedule, architects’ and engineers’ fees are generally based on the billable costs calculated in Service Phase 3. Any subsequent increases in construction costs do not affect this basis of calculation. The designer therefore does not receive a higher fee simply because materials have become more expensive or because tender results exceed the original estimate.

In the case of a pure lump-sum fee, the fee is independent of construction costs in any event. Anyone who agrees to a lump-sum fee thereby also assumes the risk of increased costs. Merely citing increased construction costs therefore generally does not justify a claim for additional compensation.

Rescheduling and re-tendering

“I had to change my plans and put out a new call for bids.”

This may give rise to a claim for additional compensation. As a general rule, services that must be performed again (so-called repeat services) are not covered by the original compensation.

However, the situation is different if the redesign or re-tendering is based on faulty planning or cost estimates by the planner themselves. In such cases, this is generally not considered a repeat service subject to compensation, but rather the initial, defect-free performance of the service that was owed in the first place. In such cases, a claim for additional compensation is generally ruled out. Furthermore, objections to the fee claim and, where applicable, counterclaims by the client may be considered. The planner must therefore specifically demonstrate why the re-performance of the service is not based on an error of their own and to what extent they actually went beyond their contractual obligations.

Extension of the construction period

“My own costs have risen beyond the amount calculated at the time the contract was concluded due to delays in the project.”

If the project duration is extended—for example, because the planning or construction phase is prolonged due to disruptions—this can result in increased organizational and staffing costs for the planner. Legally, however, this does not automatically entitle the planner to additional fees. The decisive factor is whether the planning contract contains an explicit provision for the event of an extension of the project duration or construction period, such as additional compensation after a certain period of delay or a specifically agreed calculation mechanism.

In the absence of such an agreement, a claim for contract modification may be considered only in exceptional cases under § 313 of the German Civil Code (BGB). According to this provision, the planner may demand an adjustment to the contract if essential assumptions of the parties that formed the basis of the contract subsequently prove to be incorrect or have changed significantly, and it can no longer be reasonably expected of the planner to adhere to the unmodified contract. The hurdles for this, however, are very high. Not every extension of the construction period and not every increase in internal expenses is sufficient. Rather, the planner must specifically demonstrate which circumstances were assumed at the time the contract was concluded, why these circumstances have changed significantly, and why the unchanged remuneration has become unreasonable for him. General references to increased personnel costs, a longer project commitment, or reduced profitability are generally insufficient for this purpose.

Delays arising from the planner’s own sphere of responsibility, however, do not constitute grounds for a contract adjustment. These include, for example, delays due to late planning, inadequate coordination, or planning deficiencies. It is therefore worthwhile for clients to carefully examine whether the delay falls within their sphere of responsibility at all and whether the claimed additional expenses are substantiated and supported by verifiable evidence.

Clients should also be careful not to interpret an update to a schedule as an instruction that automatically triggers a fee. An adjustment to a construction schedule initially describes only the actual or projected course of the project. It does not automatically replace an explicit decision by the client to commission additional services subject to remuneration.

Additional costs due to changes made during construction

“I had to review extensive construction-related addenda from the contractors.”

Extensions of the construction period are often accompanied by claims for additional compensation from the contractors. Reviewing these claims can be quite time-consuming. However, not every review of a change order automatically warrants additional compensation.

The key distinction is between basic services and special services. Depending on the scope of services, the review and evaluation of bids for additional or modified services are part of the basic services contractually owed. Particularly in Service Phase 7 (“Assistance with Contracting”), it is the architect’s responsibility to solicit, review, and compare bids. This also includes verifying the reasonableness of prices and evaluating supplementary bids from contractors from both a technical and financial perspective.

The situation may be different if the review of change orders justified on construction economic or operational grounds goes significantly beyond a standard review of change orders. This applies in particular to cases where claims related to the construction period must be reviewed based on notices of obstruction, target-actual comparisons, schedules, or construction processes modified due to disruptions. In such situations, a special service may be deemed to have been provided.

Here, too, the planner bears the burden of proof. He must specifically explain which addenda were reviewed, why the review went beyond the basic services, what additional work this entailed, and why this work is not already covered by the agreed-upon fee. General references to a large number of addenda or a heavy project workload are not sufficient for this purpose.

What public contracting authorities must also verify

For public contracting authorities, the review does not end at the contractual and civil law level. Even if a claim for additional compensation appears justifiable on its merits, this does not necessarily mean that an adjustment is also permissible under public procurement and budgetary law. A retroactive fee increase may constitute a modification of the public contract and must therefore meet the relevant requirements. Cases in which the adjustment was not provided for in the original contract or alters the economic scope of the contract are particularly critical.

Public contracting authorities are also subject to the requirement to use funds sparingly and economically. They should therefore document the basis on which they accept, partially accept, or reject a claim. The documentation should indicate which basis for the claim was examined, which additional expenses are verifiably documented, whether counterclaims are applicable, and why the chosen solution is justifiable under public procurement and budgetary law.

How can disputes with planners over fee adjustments be avoided?

The most reliable way to avoid future disputes is to draft contracts carefully. Based on practical experience, several points have proven to be particularly important:

The construction period should not only be outlined in a construction schedule but also defined as a binding contractual basis. Building on this, provisions can be established to determine at what point an extension of the agreed-upon period would warrant additional compensation, for example through a grace period or a percentage threshold. It is common to have provisions under which an extension of the planned construction period of up to 20 percent—in some cases additionally limited to a maximum of six months—is still covered by the agreed-upon fee. Such thresholds create greater predictability for both parties. However, they do not mean that an additional fee is automatically owed once they are exceeded. Even then, the planner must—depending on the specific terms of the provision in each case—demonstrate that they have actually incurred additional expenses and that the delay did not originate from their own sphere of influence.

Provisions regarding how to calculate potential additional fees in the event of project delays have often proven ineffective and can themselves lead to disputes. While these provisions may offer apparent certainty, they often do not reflect the actual situation and simultaneously limit any flexibility in structuring and negotiating the agreement when necessary. In any case, it is important that the client can later understand which additional work is being billed, why it is not already covered by the base fee, and how the amount of the claim is calculated.

For contracts with very long terms, an index clause may also be advisable, although the provisions of the Price Clauses Act and the limits of the review of standard terms and conditions must be taken into account.

Conclusion

The following applies to clients: Claims for additional compensation related to cost increases require a critical and thorough legal and factual review. This is the only way to defend against unjustified claims while simultaneously finding viable, legally sound solutions for justified adjustments.