January 2008 Issue
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A Primer On the AIA’s New 2007 A201
Key Changes in the New B101
A Primer On the AIA’s New 2007 A201
By Patrick A. Drewry
Pat concentrates his practice in Construction Law and Litigation, Public Contract Law, and Surety Law.
Love them or hate them, the standard contract forms from The American Institute of Architects (“AIA”) remain somewhat of a comfort food for the construction industry. The AIA forms are a known and familiar commodity, which is why significant changes to these forms have widespread implications. AIA has just released its updated and revised set of contract forms for 2007. This is the first major revision in ten years. It has taken many years to address and negotiate the terms of the 1997 AIA revisions, and just as we are getting comfortable with the nuances and impact of the 1997 contracts, we are faced with the daunting task of implementing new forms in the industry. It should be noted that the AIA does have competition. The Associated General Contractors of America (“AGC”) together with the American Subcontractors Association and other contractor and trade organizations have collaborated and released for 2007 a new set of contract forms, called the ConsensusDocs. The ConsensusDocs will be addressed in a subsequent newsletter. 1
Any discussion of the 2007 AIA change has to begin with the A201 General Conditions, the AIA’s keystone document and most frequently used standard form. The A201 has seen significant changes for 2007, as well as a series of minor changes that may yield little to no impact. This article will address twenty key changes or modifications to the new A201.
Perhaps the most publicized change is the installation of an Initial Decision Maker (“IDM”) for dispute resolution and termination. One of the historic criticisms of the AIA claim resolution procedures is the perception that the Architect, who is engaged by the Owner, is a biased and not impartial decision maker when it comes to ruling on claims. Moreover, there are inherent conflicts in asking an Architect to render a decision on a claim from the Contractor that may implicate the Architect’s design. The AIA’s answer to this criticism is the newly created IDM. (1) The IDM is defined in §1.1.8, and is the person identified in the Agreement to render initial decisions on Claims under §15.2 and to certify termination for cause under §14.2.2. The Owner and Contractor can designate an IDM, but if no IDM is selected, the Architect becomes the IDM by default. One of the major impacts that flows from this change is that now either the Owner or Contractor can force the initial decision to a final decision and therefore resolution of the dispute. While the introduction of an IDM is a bold and interesting concept, the devil lies in the details. It is not clear under the A201 how the IDM will be selected, or when the IDM will be engaged. This is to be decided by the parties. One obvious downside to the IDM is the potential increase of costs, which begs the question: Who will pay for the IDM? Arguably a benefit to the Architect being the initial decision maker on claims is that the Architect is intimately familiar with not only the design, but the construction of the respective project. The Architect knows the job, knows the parties and issues, and is perhaps more well equipped in terms of background and involvement with the project to address any claims. How expensive will it be to require a neutral third party who is “cold” to the job to ramp up its review and investigation of the respective claims? To combat this issue, how involved should the IDM be with the project? Does the IDM attend progress meetings and conduct site visits, or otherwise have a presence on site? Again, all of these issues impact the cost. However, the benefit of having a neutral and objective third party may outweigh this concern. Lastly, who should be engaged as an IDM? Conceivably, attorneys, construction consultants or experts, or any other third party contractors or design professionals may be good candidates. As you can see, there are many unresolved questions with the use of the IDM, and this will certainly be one of the most interesting changes to see in how it is implemented over the next several years.
There are other significant changes in the dispute resolution procedures. (2) Mediation is still mandatory, but arbitration is no longer the default dispute resolution procedure. The AIA has now implemented a new “Check Box” Dispute Resolution process, wherein the parties check litigation, arbitration or “other” as the agreed upon dispute resolution procedure. This is a major shift away from the mandatory arbitration approach historically seen in the AIA contracts. (3) Also, arbitration through the American Arbitration Association (“AAA”) is no longer mandatory. The parties can agree to other arbitration rules, procedures and facilitators. This represents a significant divorce between the AIA and AAA. (4) If arbitration is provided for, the consolidation of separate arbitration proceedings is permitted. Now, disputes between the Owner and Architect and between the Owner and Contractor that have common facts and issues, can be consolidated. This prevents an Architect from requiring separate arbitrations, and should result in the complex construction dispute with various claims among several parties to be completely and universally resolved in one proceeding. Likewise, joinder of additional parties is now allowed.
(5) Throughout the new 2007 AIA forms, there is increased emphasis on electronic documents and digital data, while the concept of the old Project Manual has been deleted. In furtherance of this effort, the AIA has created a new C106 Digital Data Licensing Agreement to deal with the transfer and licensing of digital data. Another new form is the E201 Digital Data Protocol Exhibit which provides a table identifying the various types of digital data and how it should be exchanged between the parties. This document is now incorporated as a contract document in several of the new 2007 contracts. (6) With respect to ownership of Instruments of Service, new provisions now give the Architect ownership and retention of all copyrights with respect to Instruments of Service, and constructors are merely granted a license to use such Instruments solely for execution of their work. (7) Overall, the new A201 calls for a reduced role for the Architect as the Owner’s representative, and additional restrictions and limitations on the Architect’s construction phase duties have been added. This is a clear movement to peel back the Architect’s construction phase role on the Project. (8) There are new restraints on the Owner’s financial disclosures as well. The Owner is only required to furnish financial information to the Contractor (a) if the Owner has failed to pay the Contractor the certified amounts when due; (b) where changes materially impact the Contract Price; or (c) where the Contractor identifies a “reasonable concern” regarding the Owner’s ability to pay. This latter provision will undoubtedly prove to be the battleground as to what is “reasonable”.
(9) The Owner’s right to carry out the work has now been streamlined into a single ten day notice, rather than the former dual notice provision in the 1997 version. This also serves to shorten the Contractor’s cure period. (10) The Contractor has expanded obligations concerning the review of contract documents and shop drawings, and if the Contractor fails to submit a submittal schedule to the Architect, it is not entitled to a time extension or additional compensation based on the time required for submittal reviews. (11) One of the totally new changes is a mandatory work suspension when human remains, burial markers or burial grounds, archaelogical sites or wetlands are encountered. (12) A Contractor now has indemnity exposure for bringing hazardous materials to the job site or otherwise failing to comply with its contract obligations with respect to hazardous waste.
(13) An Owner has increased rights to withhold payment and to issue joint checks, while a Contractor now is required to pay subs and suppliers no later than seven days after receipt of payment from the Owner. (14) Importantly, the Owner can also request documentary proof of payment from the Contractor, and after seven days, can contact subs and suppliers directly to determine if they have been properly paid. (15) The ambiguous concept of liquidated “direct” damages has been modified by eliminating the word “direct” from the mutual waiver of the consequential damages clause. (16) With respect to differing site conditions, notice requirements are unilaterally required of the Contractor, not the Owner or Architect. (17) Another new wrinkle is that the Contractor must submit the name of the proposed project superintendent for approval by the Owner and Architect, and once approved, the project superintendent cannot be changed without Owner consent. (18) The new A201 requires the Owner and Architect to be named as additional insureds under the Contractor’s CGL policy, and completed operations coverage is now required as part of that CGL policy. If it seems that most of these changes are pro-Owner or pro-Architect, there are some changes favorable to the Contractor. (19) For example, the Contractor can now include in its pay requests work completed under a Construction Change Directive.
(20) One last legal change to note, the AIA has eliminated the concept of a statute of limitations and replaced it with a statute of repose. This essentially requires that all claims be brought within ten years after the date of Substantial Completion or else they will lapse and be time barred. Gone is the ability to extend that deadline by a later discovery of the claim.
In the years ahead, it will be interesting to see how these changes are implemented and how the 2007 A201 is judged by the industry..
If you have any questions regarding this article or related matters, please contact Pat Drewry at (317)580-4848 or pdrewry@drewrysimmons.com .
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Key Changes in the New B101
By Scott P. Fisher
Scott concentrates his practice in Construction Law and Litigation, Commercial and Business Litigation, Public Contract Law, and Surety Law.
Another major change for 2007 is the new B101-2007, Standard Form of Agreement Between Owner and Architect, which is a replacement for and combination of the B141-1997, Standard Form of Agreement Between Owner and Architect, and B151-1997, Abbreviated Standard Form of Agreement Between Owner and Architect. The creation of the new B101 has streamlined the contracting process between Owners and Architects, eliminating the two-part B141 and combining it with the B151. While many of the changes in the A201 have an impact on the B101, there are four critical provisions of the new B101-2007 that merit discussion as they are either new to the Owner-Architect Agreement or are controversial issues from past Owner-Architect Agreements that have been retained in the new B101-2007.
Architect’s Standard of Care
The B101-2007 contains a provision new to the Owner-Architect Agreement that includes a statement regarding the standard of care to which the architect must perform its services. The new provision provides as follows:
§2.2 The Architect shall perform its services consistent with the professional skill and care ordinarily provided by architects practicing in the same or similar locality under the same or similar circumstances . . .
Although this particular provision is new to the Owner-Architect Agreement, the concept is not. In fact, the standard of care provided is the same standard of care which is universally found to be implied in any contract for professional design services. In prior editions of the Owner-Architect Agreement, this concept was often addressed and modified by lawyers negotiating the contract to reflect a higher standard of care than that provided by law. One downfall of modifying this new provision, or in the past, the idea of a standard of care, is that in normal architects’ professional liability insurance policies, errors and omissions are typically defined as breaches of the usual standard of care (as provided above), not the highest standard of care. An architect’s agreement to modify this provision and heighten its standard of care due may prove costly in that its professional liability insurance will likely not insure to this higher standard of care.
Environmentally Responsible Design
Another new provision to the B101 is one that requires the architect to consider environmentally responsible design alternatives consistent with the owner’s program, schedule and budget. During schematic design, the provisions for environmentally responsible design are as follows:
§3.2.3 The Architect shall present its preliminary evaluation to the Owner and shall discuss with the Owner alternative approaches to design and construction of the Project, including the feasibility of incorporating environmentally responsible design approaches . . .
§3.2.5.1 The Architect shall consider environmentally responsible design alternatives, such as material choices and building orientation, together with other considerations based on program and aesthetics, in developing a design that is consistent with the Owner’s program schedule and budget for the Cost of the Work. The Owner may obtain other environmentally responsible design services under Article 4 [Additional Services].
Clearly the AIA deemed environmental issues sufficiently important to list them explicitly as an element of discussion at various stages of a project. An architect is required to consider environmentally friendly alternatives but an Owner is not obligated to select them. Although it does not bind an Owner to include such green building designs in its project, it serves to raise an owner’s awareness of environmental issues. The last sentence of §3.2.5.1 ensures that the Owner could seek more extensive environmentally responsible designs or governmental green building certifications, such as Leadership in Energy and Environmental Design (“LEED”) certifications. However, these certification and administration processes come with a price and can not only be costly but time consuming, as well. Accordingly, those more extensive environmental investigations and planning processes would not fall within basic services, but in the table referred to after Section 4.1 of additional services.
Consolidation and Joinder in Arbitration
As with the A201, the B101 now permits consolidation and joinder in arbitration without the express consent of the other party to the Owner-Architect Agreement.
§8.3.3.1 Either party, at its sole discretion, may consolidate an arbitration conducted under this Agreement with any other arbitration to which it is a party provided that (1) the arbitration agreement governing the other arbitration permits consolidation; (2) the arbitration to be consolidated substantially involves common issues of law or fact; and (3) the arbitrations employ materially similar procedural rules and methods for selecting arbitrators.
§8.3.3.3 Any party to an arbitration may include, by joinder, persons or entities substantially involved in a common question of law or fact whose presence is required if complete relief is to be accorded in arbitration, provided that the party sought to be joined consents in writing to such joinder . . .
The changes eliminate the previous ability of the architect to decline participation in any arbitration between the owner and the contractor or to prevent an Owner from joining a contractor to an arbitration between an Owner and Architect. These paragraphs represent a significant departure from past Owner-Architect Agreements. In the past, the AIA had believed that arbitrations between the Owner and the Architect should not be consolidated with any other arbitrations involving different matters because architects are judged by a different standard than contractors who may provide implied warranties, for example. The AIA had been concerned that the arbitrator may disregard the varying standards of care and not require the higher degree of proof associated with a professional standard of care.
Owner’s Right to Withhold Payment
Although reworded, the Owner’s right to withhold payment from the architect has been, in practical effect, retained in the B101-2007. The payment provision is as follows:
§11.10.3 The Owner shall not withhold amounts from the Architect’s compensation to impose a penalty or liquidated damages on the Architect, or to off set sums requested by or paid to contractors for the cost of changes in the Work unless the Architect agrees or has been found liable for the amounts in a binding dispute resolution proceeding.
This provision prevents the Owner from making unilateral determinations of fault or responsibility for damages. For the Owner to withhold monies from the Architect, either the Architect must agree or the Architect must be found liable by a neutral third party. Unfortunately for the Owner, this requires the Owner to seek a determination by a third party that the Architect is at fault, thereby converting payments that might otherwise have been properly withheld for design errors or delays into damages the Owner must subsequently recover.
If you have any questions regarding these cases or related matters, please contact Scott Fisher at (317) 580-4848 or email him at sfisher@drewrysimmons.com.
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