Appeals Court of Massachusetts

Case no.: 24-P-956
Date filed: April 30, 2026

A Massachusetts appeals court has addressed an architect’s fee stated as a percentage of the cost of the construction. When construction was not completed, the actual cost of the work performed was not relevant. Bid prices could be used to determine estimated cost, but the lowest bid was not necessarily determinative.

Carrollton West Pet Hospital (CWPH) entered into an agreement with Rauhaus Freedenfeld & Associates LLP (RFA) to design a large veterinary hospital. The owner-architect agreement also called for construction phase services, with compensation for the design phase set at eight percent of the construction cost. This was defined as “the total cost or estimated cost to [CWPH] of all elements of the [p]roject designed or specified by [RFA].” The owner’s initial budget for the project was $3.3 million.

RFA proposed a design, to which CWPH requested numerous changes to the design, many expanding and upgrading the facility. RFA altered the design and proceeded to prepare construction documents. The contract was put out to bid, and all bids came in over $7 million. CWPH rejected all bids and refused to make further payment to RFA. During the subsequent payment dispute, the parties agreed to modify the design and put it out to bid again

The revised project received nine bids, and RFA determined that Tri-Star Construction Inc. was the low responsible bidder at approximately $7.29 million. CWPH insisted, however, that Donvegan Construction was the low responsible bidder at approximately $3.99 million. RFA expressed concerns about Donvegan’s qualifications and the scope of work covered by Donvegan’s bid.

CWPH did not award a construction contract to Donvegan or any of the other bidders, and the payment dispute with RFA continued. Then, in consideration of a partial payment by CWPH, RFA agreed the project owner could use its design and construction documents to proceed with construction. CWPH turned that responsibility over to a construction management firm. Meanwhile, the total fee owed RFA for the design remained in contest.

By the time the case went to trial, the project was about 50 percent constructed. CWPH argued that the total cost of construction should be extrapolated from the cost of the work performed to date. If the fee was based on bid prices, the eight percent fee should be applied to the low bid of $3.99 million. RFA insisted it was entitled to eight percent of Tri-Star’s low responsible bid of approximately $7.29 million. The trial judge agreed with RFA, and CWPH appealed.

The Appeals Court of Massachusetts noted that the owner-architect agreement defined construction cost as the total cost “or estimated” cost incurred by the project owner. And, 90 percent of RFA’s fee was to be paid before the construction phase even began. Consequently, the fee could not be calculated based on the construction costs on a portion of the project.

“[W]here the construction was not complete, cost thus far was of no relevance; actual cost of the entire project could not be ascertained and some amount of estimation would have been required…. [W]e agree that the use of estimated cost in the calculation of RFA’s fee as of the time of [CWPH’s] breach in 2015 was appropriate.”

The court went on to rule that the use of bid prices was a persuasive measure of construction costs. That does not mean, however, that the low bid must be determinative. CWPH was not obligated to accept the low bid. RFA believed the low bid did not cover the full scope of the defined work. It also believed the Tri-Star bid, which it considered the lowest responsible bid, reflected the reasonable costs of the full scope of work. The trial judge had been entitled to rely on the Tri-Star bid to establish the estimated cost of construction.

“We also agree with the judge that the calculation of estimated cost, and RFA’s fee therefrom, must be based on a reasonable bid and not simply the lowest bid, and that the Tri-Star bid of $7,287,167 was a reasonable estimated construction cost.”

It is common for design fees to be stated as a percentage of actual construction costs. It is also common for the bulk of the fee to be paid before construction even commences. The agreement in question stated a “preliminary construction cost” of $200 per square foot. That did not factor into the court’s decision, as both parties seemed to ignore it during the subsequent payment dispute.

There have been many disputes over design fees based on a percentage of actual construction costs. It may behoove parties to seek alternate means of defining the designer’s compensation.

Participants: No attorneys of record listed

Before: Judges Massing, Sacks, and Allen

Opinion by: The full court

Outcome: Judgment of trial court affirmed

Source: Please click here to read the complete opinion.