AIA Updates Construction Contract Form Agreements

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In 2017, the American Institute of Architects (AIA) published updates to several of its construction contract forms. The AIA’s forms are the most commonly used form agreements in the construction industry and are updated once every ten years. The 2017 updates include changes to two of the most widely used forms used with the design-bid-build delivery model, the A102 (Standard Form of Agreement Between Owner and Contractor — Cost of the Work Plus a Fee with a Guaranteed Maximum Price), and the A201 (General Conditions of the Contract for Construction), which is often incorporated by reference into the A102. A number of changes were made with the intent to (i) remove barriers to the continuation of the work as events arise during the project, and (ii) formally acknowledge technological advances.

A few of the most noteworthy changes to the A201 are as follows:

Section 2.5 – Owner’s Right to Carry Out the Work: In the event an Owner has the right to carry out work under Section 2.5 where the contractor has failed to perform the work, the Architect no longer is required to issue a change order and has the authority to nullify or withhold a Certificate of Payment from the contractor in order to reimburse the owner. This change is consistent with the objective to advance the conduct of the work.

Section 3.7.4 – Differing Site Conditions: The time period for the contractor to provide notice of the discovery of differing site conditions has been reduced from 21 to 14 days. This change addresses comments that the prior time period was too long and is again consistent with the objective to try and advance the conduct of the work.

Section 4.2.4 – Communications: The 2017 update now allows the owner to directly communicate with the contractor so long as the architect is included in any communications that affect the architect’s services or responsibilities. Given this additional line of communication, and to avoid confusion, parties are advised to specify the matters where an owner may directly communicate with the contractor and the party responsible for giving the contractor direction on those matters.

Section 7.4 – Minor Changes in the Work: The 2017 revision made a fairly significant change to this section. While the A201 has always granted the architect the authority to order minor changes to the work that do not modify the contract sum or the schedule, the 2017 update places an affirmative obligation on the contractor to review the changes to confirm that they will not affect the cost or schedule. If the contractor does not notify the architect that the changes will require an adjustment to the contract sum or schedule prior to performing the minor changes, the contractor is deemed to have waived the right to any such adjustment.

Article 9 – Progress Payments, Lien Waivers and Indemnification: The 2017 update includes two noteworthy modifications. First, Article 9.3.1 has been updated to reflect common industry practice, by giving the owner or architect authority to require the contractor, as a condition to receiving each progress payment (not just final payment) to submit lien waivers and releases from its subcontractors and suppliers covering the applicable portion of the work. Second, Section 9.6.8 is a new section which provides that if the owner has fulfilled its payment obligations to the contractor, the contractor is obligated to defend and indemnify the owner from all losses, damages and expenses (including attorneys’ fees) arising out of any lien or claim by any subcontractor or supplier. The new provision also requires the owner to provide notice to the contractor of receipt of a lien claim or other claim for payment.

Section 14.4.3 – Termination by Owner for Convenience: The 2017 update eliminates the contractor’s ability, upon a termination by the owner for convenience, to collect “reasonable overhead and profit” on the portion of the work not performed prior to the termination and instead allows the parties to negotiate an established “termination fee” that the owner will pay to the contractor. The contractor is still permitted to recover payment for work already performed and other costs actually incurred by the contractor by reason of the termination. While owners will no longer be required to pay the contractor for its unearned profit, it may be difficult in practice for the parties to agree upon the termination fee amount at the onset of the project.

Article 11 – Insurance: Perhaps the most substantial change to the A201 is the relocation of all of the contractor’s insurance and bond requirements from Article 11 to an exhibit (labeled A102, Exhibit A.) As the insurance provisions are probably among the most commonly negotiated within the document (parties often attached a separate exhibit to the 2007 form with their specific insurance requirements), moving these terms to a separate exhibit should streamline the editing process. Article 11 of the 2017 form still includes the requirements for the owner’s insurance. Article 11 now also includes an affirmative obligation on the owner, rather than the insurer, to notify the contractor of a threatened or actual cancellation of required insurance coverage within three business day of the owner becoming aware of such an occurrence.

Article 15 – Claims: A number of changes were made to claims provisions of the A201. An important distinction was made between claims discovered before the expiration of the warranty period and claims discovered after completion of the project and expiration of the warranty period. Section 15,1.3.1 maintains the 21-day notice to the architect or initial decision maker of a claim discovered prior to the expiration of the warranty period. A new Section 15.1.3.2 merely requires notice to the other party and does not set a time frame for the notice, subject to applicable statutes of limitation as specified in Section 15.1.2, for claims discovered after the expiration of the warranty period. This is a commonsense change recognizing that (i) many of the personnel involved with the project, such as the architect or other initial decision maker, will no longer be actively engaged with the project after the expiration of the warranty period, and (ii) most claims discovered after expiration of the warranty period are latent defects where little benefit is gained from an expedited notice.

Section 1.6 – Notices: The 2017 version of the A201 now allows parties to opt-in and provide for notice by e-mail if a method for notice by e-mail is set forth in the Agreement. However, it is important to note that notice of claims must still be delivered by more traditional means of certified or registered mail or courier.

The A102 (cost plus contract) has also been modified to include various noteworthy changes, many of which flow through from changes to the A201:

Section 15.5 - Insurance: The 2007 form incorporated the insurance provisions from the A201 by reference. The 2017 update includes a separate Exhibit A identifying all of the required insurance to be carried by both the owner and the contractor, with pre-filled options to be selected by the parties. Given the importance of insurance, these changes make the contract easier to customize for both parties.

Section 14.1.3 - Termination for Convenience: As with the A201, the 2017 update includes a pre-negotiated termination fee to be payable to the contractor in the event of a termination for convenience by the owner. The payment of the termination fee does not preclude the contractor from collecting the other amounts payable to contractor (e.g., payment for work performed prior to the termination and costs that result from the termination.)

Article 4 – Contract Time: The 2017 update now provides check boxes to be selected by the parties for the definition of the date of commencement of the work and the required timeframe for substantial completion (if no selection is made, the default selection is the date of the agreement), whereas the 2007 form assumed a date of commencement of the work on the date of the agreement. The changes provide more specificity to contract time and recognize the variability of contract time requirements from project to project.

Section 12.1.8.1 – Retainage: One of the most notable form changes in the 2017 update is the establishment of a separate section providing for how retainage will be handled. Previously retainage was referenced in a few separate sections within Article 12. Most notably, retainage billing is now provided for upon substantial completion, not final completion, of the work.

Article 7 and Article 8 – Cost of the Work: Several costs which were previously included in Article 7 (Costs to be Reimbursed), including bonuses, profit sharing, incentive compensation and other discretionary payments, are now included in Article 8 (Costs not to be Reimbursed.) Additionally, the owner has broader approval rights with respect to any costs included in the Cost of the Work (which approval must be in writing), and the agreed rates for labor costs cannot be changed during the duration of the contract unless agreed to by the parties through a modification of the agreement.

Section 5.1.6 - Liquidated Damages: While the 2007 forms referenced liquidated damages here and there, the 2017 revision places greater emphasis on consideration of liquidated damages by including a separate section within Article 5 (Contract Sum) where the parties can insert the terms and conditions for liquidated damages. The new liquidated damages section is also referenced under the substantial completion provision.

This article is not meant to provide an exhaustive review of every change to the AIA family of documents, but to highlight some of the most significant changes. Should you have questions regarding the changes discussed in this article or wish to discuss other changes to the AIA documents, please contact the authors of this article: Doug Wambach, 312/840-7019 or dwambach@burkelaw.com, Robert Gamrath, 312/840-7064 or rgamrath@burkelaw.com, Rachel Wanroy, 312/840-7079 or rwanroy@burkelaw.com.

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