What's the damage?

There is nothing wrong with quantity surveyors. But sometimes they, like other professionals, are negligent. The area in which they are most likely to be criticised is negligent cost underestimation before construction contracts are let. The problem, however, is to assess what damages are then payable by the negligent QS (or its insurer).

These kind of claims against QSs tend to arise from situations in which a developer wishes to have cost information before deciding whether to proceed with a project. Almost invariably at this stage, the designs will have been drawn up by architects and engineers.

There will inevitably be a number of "unknowns" – for instance, unforeseen planning conditions or contaminated land – and the QS will have to work with the other consultants to produce a cost estimate. Broadly speaking, the greater the number of the unknowns, the greater the level of contingency allowance the QS should recommend. The cost estimation can always be further refined as and when the designs become more detailed.

The time comes, however, when the client must decide whether to proceed, often at the time of final negotiation with the contractor. Once the contract is entered into, it is often more expensive to abandon the project than to go on. It happens, therefore, that the employer relying on the advice of the QS does decide to go ahead. It is later (often much later) that the client begins to discover that the estimation on which it relied was an underestimate – sometimes a very great one. Of course, the cost rise may not be entirely attributable to the negligent cost underestimate; delay and disruption may have occurred, unforeseen problems could have arisen or the client may have authorised unpredicted variations.

Any consideration of what damages are recoverable from the negligent QS should follow the basic rules of damages. In principle, the employer should be entitled to all reasonably foreseeable losses caused by the negligence. In 1996, the South Australia Case decided that valuers were not liable for all the losses that flowed from the decision to buy a property, even though that decision was based on negligent advice.

Clients cannot assume they will recover all the losses that flow from the decision to proceed on the basis of the QS’s estimate

Clients cannot, therefore, assume that they will recover from the QS all the losses that flow from the decision to proceed. If, for example, the cost overrun is £10m, of which £4m is because of delay, the most recoverable sum is the balance of £6m. However, against that balance, credit may have to be given for the amount by which the capital value of the premises has been enhanced by that £6m of work, materials and services. Thus, if the development is worth £6m more than it would have been if the £6m had not been spent, there may be no loss recoverable.

A further, or alternative, loss recoverable might relate to the increased or extended financing charges a developer client might have to incur. The developer may have planned to fund only the estimated costs, but now finds itself in a position in which it has to fund the cost overrun as well. Alternatively, one could examine whether any savings could have been made in the development that would not have had a negative impact on the capital value. For example, the developer could argue that if it had been informed early enough, it would have used a terrazzo instead of a marble finish; the lost saving could properly form the basis of a damages claim.

The developer could, of course, always seek to argue that its damages should be the difference between the negligent cost estimate and the amount at which the estimate properly drawn should have been pitched. But this approach does not take into account the enhanced capital value of the premises. Another way of putting the loss claim might be to relate the value the property would have had if undeveloped to the net value in the developer's hands upon completion; the difference between the two may establish the loss.