A recent Massachusetts Appeals Court decision provides an important reminder for owners, architects, engineers, and other design professionals: when a contract expressly bases a design professional’s fee on a percentage of construction cost, the contract may permit the fee to be determined from a reasonable estimated construction cost even when construction never occurs—or when the owner ultimately chooses a much lower contractor bid.
In Rauhaus Freedenfeld & Associates, LLP v. Carrollton West Pet Hospital, No. 24-P-956 (Mass. App. Ct. Apr. 30, 2026), the Appeals Court affirmed a judgment in favor of the architect after a bench trial. The dispute centered on whether the architect’s fee should be calculated using a reasonable construction-cost estimate and whether the owner could effectively reduce the architect’s fee by selecting a dramatically lower bid that the architect considered non-responsible.
The case is particularly interesting because the project began with an owner who had a stated $3.3 million budget but also wanted a facility that would be “the best of the best.” By the time the project was ready for bidding, the architect had developed a substantially more ambitious project, and multiple bids were in the $7 million range.
The owner ultimately refused to pay the architect’s remaining fee, arguing that the architect had already been paid in full based on the owner’s own calculation of construction cost. The courts disagreed.
The Contract: An 8% Fee Based on Construction Cost
Rauhaus Freedenfeld & Associates (“RFA”) was retained to design a veterinary hospital for Carrollton West Pet Hospital (“CWPH”).
The parties’ contract divided the architect’s services into three broad phases: design, construction documents, and construction administration. The dispute concerned the first two phases because the relationship ended before construction administration began.
For basic services during the design and construction-document phases, RFA’s compensation was the greater of 8% of construction cost or $18 per square foot. The contract set a preliminary construction cost of $200 per square foot and, importantly, defined “construction cost” as the “total cost or estimated cost” to the owner of the elements of the project designed or specified by the architect.
The fee was also paid progressively. Thirty percent was allocated to schematic design, 55% to construction documents, 5% to bidding and negotiation, and 10% to construction administration.
That payment structure became significant because the contract contemplated that most of the architect’s fee would be earned and paid before construction ever began.
A $3.3 Million Budget Meets a “Best of the Best” Facility
At the outset, the owner told RFA that its budget was approximately $3.3 million. At the same time, however, the owner expressed a desire for an exceptionally elaborate veterinary facility and reportedly told the architect that “price was no object.”
The architect’s initial program reflected a project substantially larger than the owner’s original budget. RFA worked with the owner to reduce the square footage, and the owner approved a revised program, writing “$3.3 million budget” next to its signature.
But the owner continued to request improvements and additional amenities.
The project grew in scope as the design progressed. The owner requested, among other things, additional upgrades and aesthetic enhancements. RFA incorporated those changes into the design and proceeded toward construction documents.
Eventually, the owner became concerned about the cost RFA was building into the project.
RFA obtained a contractor’s estimate of approximately $7.2 million.
The owner rejected that estimate as “grossly inaccurate.”
The parties’ disagreement over cost soon became intertwined with a disagreement over the architect’s compensation.
The First Bids Were All Above $7 Million
In December 2012, RFA solicited construction bids, and the bids came in at amounts exceeding $7 million.
RFA calculated its fee using the lowest bid then received—approximately $7.165 million—and invoiced CWPH for a balance of approximately $237,000.
The owner refused to pay.
From the owner’s perspective, the bids were unreasonable and had allegedly been solicited without proper approval. The owner also maintained, based on its own calculations, that it had already paid most or all of the architect’s fee.
RFA regarded the nonpayment as a material breach and ultimately filed suit.
The parties later attempted to resolve their dispute through an addendum to the contract. That addendum provided that RFA’s fee would remain 8% of construction cost based on the “lowest responsible bid,” while reserving final approval of the successful bidder to the owner.
The problem was that the parties had not agreed on what “lowest responsible bid” actually meant—or who would have the final say if they disagreed.
The Rebid Produced a $3.99 Million Bid—and a $7.29 Million Bid
The project was eventually rebid after changes to the plans.
Nine contractors submitted bids ranging from approximately $3.9 million to $7.9 million.
RFA reviewed the bids and determined that the lowest responsible bid was submitted by Tri-Star Construction at approximately $7.29 million.
RFA did not simply look at the lowest dollar amount. Its evaluation considered factors including the completeness of the bid, consistency of the numbers, references, responsiveness to requests for information, qualifications, and whether the proposed cost per square foot was reasonable.
The owner disagreed.
It maintained that a contractor whose bid was approximately $3.99 million was the lowest responsible bidder. RFA had significant concerns about that contractor, including its qualifications and the incomplete scope reflected in its bid.
RFA therefore calculated its fee using the approximately $7.29 million Tri-Star bid.
CWPH refused to pay.
That disagreement ultimately became the central issue in the litigation.
Trial Court: The Owner Could Not Unilaterally Decide the Architect Had Been Paid in Full
After a five-day bench trial, the Superior Court judge ruled in favor of RFA.
The judge found the parties’ later addendum unenforceable because they had never reached a meeting of the minds concerning the essential meaning of “lowest responsible bid” or a mechanism for resolving a disagreement over the bid.
The evidence showed a fundamental difference in the parties’ expectations. RFA’s principal, Warren Freedenfeld, believed that his professional judgment would determine the lowest responsible bid. The owner, Ross Barnes, believed that the owner retained the ability to select the lowest bidder based primarily on price.
Because the parties had never agreed on how that conflict would be resolved, the judge concluded that the original contract governed.
The judge then found that CWPH breached the contract when it ultimately “walked away” from the relationship without paying RFA the balance of its fee and instead relied on its own calculation of estimated construction cost.
Importantly, the judge credited Freedenfeld’s testimony as an experienced architectural professional with decades of experience in the specialized field of veterinary facility design.
The judge determined that the $7,287,167 Tri-Star bid represented a reasonable estimated construction cost.
The Appeals Court: “Estimated Cost” Meant What the Contract Said
The Appeals Court affirmed.
The court focused heavily on the actual language of the contract.
The contract did not define construction cost solely as the final amount actually paid to a contractor. Instead, it expressly referred to the “total cost or estimated cost” of the project elements designed or specified by the architect.
That distinction mattered.
The court concluded that this language gave the parties flexibility to determine the construction cost—and therefore the architect’s fee—during the project rather than requiring the parties to wait until construction was completed.
The payment provisions reinforced that interpretation.
The contract called for progress payments as the schematic design and construction-document phases were completed. In fact, 90% of RFA’s fee was scheduled to be paid before the construction phase began.
The contract also expressly stated that the architect would be entitled to compensation for services performed whether or not the construction phase ever commenced.
In other words, the fee structure was designed to compensate the architect for design work as that work was performed. It was not necessarily a fee that would be recalculated later based on the final construction price.
The Lowest Number Is Not Necessarily the Appropriate Construction Cost
Perhaps the most practical lesson from the case is that “lowest bid” and “reasonable construction cost” are not necessarily synonymous.
The owner wanted to use the approximately $3.99 million bid to calculate the architect’s fee.
But the architect had determined that the bid was not responsible because of concerns about the bidder’s qualifications, incomplete scope, inconsistent or questionable pricing, and other deficiencies.
The trial judge credited the architect’s professional assessment and concluded that the approximately $7.29 million Tri-Star bid was a reasonable estimate of construction cost.
The Appeals Court upheld that determination.
This does not mean that an architect automatically gets to select whichever bid produces the highest fee. Rather, the decision illustrates the importance of the contractual definition of construction cost and the evidence supporting a particular estimate.
Here, the architect was found to be in the better position to evaluate whether a contractor and its bid were responsible, and the architect provided specific professional reasons for rejecting the substantially lower bid.
The court therefore did not treat the lowest dollar amount as dispositive.
The Actual Cost of Construction Was Not the Measure of the Fee
The owner attempted to focus the dispute on what the project would ultimately cost to build.
The appellate court rejected that approach.
Because the contract expressly permitted construction cost to be based on an estimated cost, the court did not require the parties to wait for final construction costs to determine the architect’s compensation.
That makes practical sense under this particular agreement. If an architect is entitled to progress payments as design milestones are completed, and the contract provides that the architect is entitled to compensation even if construction never begins, using a final construction cost that may not exist would undermine the payment structure the parties negotiated.
The court therefore affirmed the use of the reasonable $7.29 million estimated construction cost.
The trial court calculated RFA’s total fee at $582,973.36, then accounted for the 10% portion attributable to unperformed construction administration services and payments already made by CWPH. The resulting unpaid balance was $119,973.27, with contractual interest bringing the total damages to $314,329.97, including prejudgment interest. The court also awarded contractual attorney’s fees.
What This Means for Architects and Owners
The decision offers several lessons for anyone negotiating a design-professional agreement.
1. Define “construction cost” carefully
A percentage-of-construction-cost fee can generate substantial disputes if the contract does not clearly explain whether “construction cost” means:
- the owner’s original budget;
- an architect’s preliminary estimate;
- a contractor’s estimate;
- the lowest bid;
- the lowest responsible bid;
- the accepted contract price; or
- the final actual construction cost.
The RFA contract was particularly important because it expressly included estimated cost within its definition of construction cost.
2. Do not assume the lowest bid controls
A low bid may not be a responsible bid.
Owners and architects should establish in advance who evaluates bidder responsibility and what criteria will be used. If the owner retains final approval of the contractor, the contract should also explain what happens if the owner and architect disagree about whether the lowest bidder is responsible.
That issue became particularly problematic in RFA because the parties attempted to solve their dispute with an addendum but never agreed on the meaning of “lowest responsible bid” or a procedure for resolving the disagreement.
3. Tie fee milestones to actual services
The RFA contract allocated the architect’s fee among specific phases and provided for progress payments.
That structure helped the court conclude that the architect earned its fee as it performed the contracted services, rather than only after construction was completed.
Design professionals can reduce disputes by clearly identifying when each portion of the fee is earned and what happens if the project is abandoned, delayed, rebid, or terminated before construction.
4. Be careful when changing the original agreement
The parties’ attempted addendum illustrates another drafting lesson.
An agreement that says the fee will be based on the “lowest responsible bid” may appear straightforward until the parties disagree about what makes a bidder “responsible.”
If the parties want the owner to have final authority, say so.
If the architect has authority to determine responsibility, say so.
If disagreements are to be resolved by an independent cost consultant, construction manager, mediator, or other third party, say so.
Leaving those questions unanswered can turn an attempted settlement into another source of litigation.
A Different Approach in Federal Architect-Engineer Contracting
There is also an interesting contrast with federal architect-engineer contracting.
Federal procurement rules impose statutory limitations on certain architect-engineer design fees. For example, current Defense Federal Acquisition Regulation provisions limit the fee for preparation of designs, plans, drawings, and specifications to a specified percentage of the project’s estimated construction cost, subject to the applicable statutory framework. The current DFARS provision also addresses how the limitation applies to modifications and redesign work.
Federal procurement therefore illustrates a related policy concern: the government does not simply treat a designer’s compensation as an open-ended percentage of whatever final construction cost happens to result.
The precise federal rules vary by agency and contract, so the federal model should not be treated as identical to the private contract at issue in RFA. But the broader point is worth noting: the way a design professional’s fee is tied to construction cost matters, and the contract should identify exactly what construction-cost figure controls.
The Bigger Lesson: A Design Fee Is Not Necessarily a Percentage of the Final Price
The most important takeaway from Rauhaus Freedenfeld & Associates v. Carrollton West Pet Hospital is that a percentage-based architectural fee does not necessarily mean the architect is entitled to some percentage of the contractor’s eventual final cost.
It depends on the contract.
Here, the contract expressly contemplated an estimated construction cost, established progress payments as design services were completed, and provided that the architect would be compensated for services even if construction never commenced.
The courts therefore treated the reasonable estimated cost as the appropriate basis for calculating the architect’s fee.
For owners, the lesson is equally important: if the intent is for the architect’s fee ultimately to rise or fall with the actual construction price, that should be stated clearly in the contract.
For architects, the lesson is to avoid relying on assumptions about what “construction cost” means. Define it. Identify who establishes it. Identify whether estimates, bids, accepted bids, or final costs control. Establish the treatment of rebids and rejected contractors. And specify what happens if the project is terminated before construction.
The dispute in RFA lasted years and ultimately required a five-day bench trial and an appeal. Much of that litigation might have been avoided with more precise language addressing who determines a “responsible” bidder and exactly when the architect’s percentage-based fee becomes fixed.
In the end, the Massachusetts Appeals Court enforced the economic bargain reflected in the contract: the architect’s fee was tied to a reasonable estimated construction cost, not to the owner’s preferred low bid or an eventual construction price that was never established under the original fee structure.
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