As a general rule, when there is a breach of contract, the injured party—in the case of a building owner and architect/engineer, the owner—must receive what they had a right to under the contract, but no more. A windfall or a benefit greater than would have been received had the contract been performed correctly is not allowed at the expense of the performing party or architect in this case. 

Black’s Law Dictionary describes betterment as:

“An improvement of a … building that goes beyond repair or restoration.”

For example, suppose an owner realizes that a standard built-in (plaster/painted) receptionist station is facing the wrong way on the drawings and was built as such. In that case, the owner cannot now ask for the station to be faced with marble or add a planter or other enhancement. This additional work, called “betterment,” is outside the scope of the original contract, and its costs are not allowed.

In another example, no light fixture has been shown in an entry closet. During construction, the owner adds a light fixture in the entry closet. All expenses related to adding the fixture are betterment. 

Betterment depends on what is reasonable. If an improvement is necessary and reasonable to complete the terms of a contract, then it will be allowed. If it is unreasonable, it will be considered betterment; thus, the amount of damages that constitute the upgraded improvement is not allowed. 

For example, if a city ordinance required the sidewalk around a building to be 48”wide, and it was only constructed 40” wide, the owner would benefit from the additional 8,” and it was required. The cost of the additional 8” is betterment, but demolishing pavement, for example, to allow for the additional 8” would be a cost for the engineer as it is reasonable and necessary to bring the sidewalk up to code. 

Betterment in the case of omission in design. Design professionals frequently invoke the betterment or added value defense in the context of claims involving omissions in design documents. Generally, courts require owners to pay what the omitted item would have cost had it been included in the original design. Accordingly, if the error is not discovered in the design stage, the owner should not have to pay for any additional labor or materials necessary to correct the error or the cost of necessary retrofitting demolition that would not have been part of the original design.

For example, an engineer was sued for designing an inadequate tank-drain septic system with a 1,000 sq ft drainage field instead of the required 1,200 sq ft drainage field. The owner would have had to pay the costs of the additional 200 feet required, and the engineer is not obligated to pay for that cost, but only any additional costs incurred, if any. 

Timing is crucial for the betterment defense. Traveler’s Risk Management Advisory Bulletin states:

“Timing plays a crucial role in the availability of the betterment defense and to what extent it can apply to reduce monetary liability. The key timing components are whether the project has been bid and a contract signed with the contractor, and if so, has this design element been constructed? If not, the owner may not have suffered compensable costs, at least not yet. With no compensable costs in play, a design change may fix the problem; however, the design professional will generally not be compensated for their re-work. On the other end of the spectrum, if the owner or contractor has spent money to construct all or a part of a deficient design, and must spend more to remediate the constructed design, the owner will attempt to recover these costs from the design professional who may have both a betterment defense and an associated defense of limitation of expense to the owner’s ‘first costs.’”

The concept of betterment is a highly complex but potentially money-saving defense. Consultation with the insurance company’s legal counsel and your construction lawyer is necessary to determine the correct structure of the claim, precedents, and arguments to use. Architects must understand that consulting engineers may also use this defense against them in suits. 

Want More Information? 

Click here for a video by Baker Law, “What is Betterment – The “No Free Lunch” Rule – in Design and Construction,” by Jeremy Baker, 2/26/2021.

Click here for a Federal Highway Administration (FHWA) overview and examples of transportation betterment under emergency relief.

References:

Atkins, FAIA, James B. & Simpson, FAIA, Grant A. AIArchitect, Vol. 13, November 3, 2006, “A Loss Cause Too:  Betterment.”

Travelers Advisory Bulletin: A Risk Management Publication for Design Professionals.

NOTE: SDA does not endorse any products or services mentioned, and SDA does not assume responsibility for any circumstances arising out of the interpretation, application, use or misuse of any information presented.  SDA recommends the reader consult the appropriate legal, financial or human resource counsel before implementing information contained herein.