Like the United States Census Bureau’s counting of the American people once every decennial, so too does the American Institute of Architects introduce new versions of its form contract documents. Earlier this year, the AIA introduced to the construction industry several new versions of its form construction documents. The AIA has been issuing new and revised versions of its form documents since 1888. These documents have been evolving over this near 130 year period to include and acknowledge changes in industry technology, construction practices and case law involving litigated construction issues. The AIA documents are loosely organized among “families” depending upon the parties to the agreement: for example, owner and architect (B101), owner and contractor (A101), owner and design-builder (A141), contractor and subcontractor (A401), and so on. 2017 brings a plethora of changes and additions to these documents, many of which are minor, stylistic wording changes or otherwise inconsequential amendments. However, there are several important substantive changes and additions. This article will highlight the most important changes to be found in the revised documents.
The AIA A201 document contains the general conditions of the contract for construction. This document is the keystone document of all AIA contract documents in that it provides the framework of and for the relationships of those involved in the particular project as well as the contextual support for the other contract documents. The significant changes in the A201-2017 include the following:
Termination for Convenience: In the 2007 version of the A201 contractors and subcontractors were entitled to “reasonable overhead and profit on work not executed” in the event of a termination of the project or contract by the project owner. Likewise, architects and consultants were entitled to “anticipated profit on the value of services not performed.” With the 2017 version, contractors, subcontractors, architects and consultants notified by the project owner that the owner wished to terminate their work for convenience are no longer entitled to automatic payment of overhead and profit. Instead, contractors will only be entitled to payment for work properly executed along with costs incurred by reason of the termination including costs attributable to the termination of subcontracts and the termination fee, if any, set forth in the agreement. With the revisions to section 14.3 the parties are now free to negotiate further in their standard form agreement additional bargained for specifics as to what the contractor will be paid upon the owner’s termination for convenience.
Notices: The A201-2017 document provides at Section 1.6.1 the form in which Notices may be delivered. This section now permits for delivery of various required Notices by e-mail or other electronic transmission if set forth in the Agreement. It should be noted however that section 1.6.2 makes it clear that Notices of Claims must still be delivered in writing by certified mail, registered mail or by courier providing proof of delivery.
Direct Communications: Beginning with the A201- 2017 version, the owner and contractor are free to communicate directly with one another and are no longer required to communicate through the architect. However, the owner and contractor are required to include the architect in their communications. The owner is further obligated to promptly notify the architect of the substance of any direct communications between the owner and contractor relating to the project.
Claims and Disputes: Under the A201 documents, in article 15, all claims by the owner or contractor were to be submitted in the first instance to an Initial Decision Maker. Beginning with the A201-2017, specifically at Section 126.96.36.199, claims of either the owner or contractor which are discovered after the expiration of the period for correction of the Work are initiated by notice to the other party. No decision by the Initial Decision Maker is required for these claims.
Removing of Lien Claims: The A201-2017 at new section 9.6.8 requires a contractor to indemnify and defend the owner from all loss, liability, damage or expense, including reasonable attorney’s fees and litigation expenses arising out of any claim brought for nonpayment by a subcontractor or supplier of any tier. However, this section makes it clear that this indemnification obligation is only triggered if the owner has fulfilled its payment obligations under the contract documents to the contractor. Simply put, if the owner has not paid the contractor for the contractor’s, subcontractor’s, or supplier’s labor or material, the contractor is not obligated to indemnify or defend the owner for any liens asserted by the contractor’s subcontractors or suppliers related to the owner’s nonpayment.
“Minor” Changes in the Work: Prior to the 2017 version of the A201, the architect was authorized to order the contractor to perform minor changes in the Work. The architect was authorized to further declare that “minor” change in work involved no adjustment for the contract sum or extension of the contract time. In the A201-2017, the architect is required to make its order for minor changes in writing. The contractor then, if it believes that the proposed “minor” change will affect the contract sum or contract time, must notify the architect and has the right not to proceed with the work, until the matter is resolved or a change directive is issued. If, on the other hand the contractor moves forward to perform the work set forth in the architect’s order for a minor change without prior notice to the architect that such change will affect the contract sum or contract time, the contractor waives any adjustment to the contract sum or extension of the contract time. This contract change is found at section 7.4.
Evidence of Owner’s Financial Arrangements: At Section 2.2.2 of the A201-2017, the contractor maintains its right to request of the owner a demonstration of its financial ability to fund the project prior to starting construction. If the owner fails to do so, the contractor is not required to commence work on the project. In addition, the owner has a limited right after construction starts to request proof of financing, but only in the event the owner fails to pay the contractor, the contractor provides written notice of a reasonable concern regarding the owner’s ability to pay, or a change in scope materially alters the contract price. If the owner has failed to respond with the requested proof of financing within 14 days, the contractor has the right to stop its work.
In addition to the above changes in the A201-2017 the American Institute of Architects has created additional exhibits including a separate multipage exhibit for insurance and bonds. Whereas the required insurances and bonds were found at Article 11 in prior versions of the A201 this information is now set forth in this newly created document. This new insurance and bonds exhibit is used as an exhibit to the A101-2017, A102-2017 and A103-2017 agreement documents. This exhibit addresses almost all of the insurance and bond requirements for the owner and contractor. One of the primary benefits of this separate insurance exhibit is that it makes it much easier for contractors and/or owners to transmit to their respective insurance advisors/brokers for review and advice.
This article was intended not to be a comprehensive recitation of all changes but rather to highlight the important changes in the A201-2017 General Conditions document.
It is notable that over the several versions of the general conditions document (A201) from its debut in 1910 to the current version, it has become increasingly lengthy. To be sure new technologies, construction techniques, construction methods, and even case law have all contributed to the increased number of topics addressed in the A201. For comparison sake, the initial A201 issued by the American Institute of Architects in 1911 was comprised of approximately 20 pages of general conditions. With the introduction of the 2017 version of the A201, the current general conditions now weigh in at a hefty 36 pages. If the hallmark of formation and enforceability of contractual relationships is a meeting of the minds and a clear bargained for exchange it at least merits acknowledging that the length of contracts involving owners, contractors and architects, particularly the AIA documents, are becoming increasingly lengthy with each iteration. This of course begs the question as to whether the inclusion of more terms will make a contract document more clear, or will the ever increasing length and number of terms instead lead to the likelihood of ambiguity and inconsistency of terms. If the length of the contract documents someday (if not already today), will result in the greater likelihood that these contracts will go unread by those subject to its terms simply due to their daunting length, should we be seeking to account for and address every new innovation, technology, trend, construction means, and precedential court case in our contract documents moving forward? While this may simply be a question to ponder… there is an undeniable trend.
Tom is an attorney with the law firm of Reager & Adler, PC in Camp Hill, Pa. Tom has been assisting and advising clients in the construction industry for 25 years.