{"id":893924,"date":"2018-04-05T10:47:12","date_gmt":"2018-04-05T16:47:12","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=893924"},"modified":"2018-04-05T10:47:12","modified_gmt":"2018-04-05T16:47:12","slug":"aia-contract-changes","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/aia-contract-changes\/","title":{"rendered":"Like Death and Taxes, AIA Contract Changes are a Sure Thing!"},"content":{"rendered":"

Melissa Brumback | Construction Law in North Carolina<\/a> | March 23, 2018<\/p>\n

Like death & taxes, you can count on the\u00a0American Institute of Architects (AIA)\u00a0to regularly update their standard form construction contracts.\u00a0 Most such forms are updated every 10 years, and 2017 was no exception.<\/p>\n

In\u00a0the 2017 version, the changes are \u201cevolutionary, not revolutionary\u201d, according to AIA Managing Director and Counsel, Kenneth W. Cobleigh.\u00a0 Ken and I both recently spoke at the\u00a0North Carolina Bar Association\u2019s\u00a0Construction Law Forum on various AIA changes.<\/p>\n

I\u2019ll be presenting\u00a0the Top 10 Changes that you need to know about the AIA A201 General Conditions<\/strong>.<\/p>\n

Differing Site Conditions<\/strong><\/a><\/p>\n

Previously, the A201 required a Contractor to provide notice to the Owner and Architect within 21 days after discovery of unforeseen site conditions.\u00a0 This notification is required prior to the conditions being disturbed, so as to allow the Design Team the ability to evaluate the site and determine the compensability of any such differing conditions.<\/p>\n

The requirement has been shortened to 14 days<\/strong>\u00a0\u2014 that is, under the 2017 version, a Contractor must give the notification within 14 days of discovery.\u00a0 \u00a0See Section 3.7.4.<\/p>\n

This is a small contract adjustment, but could prove substantially deprive a contractor of potential additional sums if caught unawares.\u00a0\u00a0As the Architect or Engineer of Record, you should also be aware of this new 14 day requirement, which is a week shorter than most AIA deadlines.<\/strong><\/p>\n

Owner\u2019s Right to Carry Out the Work<\/strong><\/a><\/p>\n

In prior versions of the General Conditions, if a contractor defaulted and the Owner (after giving notice) opted to cure by carrying out the work itself, an appropriate Change Order would be issued.\u00a0 However,\u00a0a Change Order is a contract that requires an agreement<\/strong>\u00a0by both the Owner and Contractor, and, obviously, Contractors were reluctant to agree that they were in default and responsible for a deductive change order.<\/p>\n

The\u00a0new Section 2.5 allows the Owner to carry out the work if the Architect approves, without a signed change order<\/strong>.\u00a0 Instead, the Architect can withhold or nullify a payment to the Contractor (under Section 9.5.1) to reimburse the Owner for the work carried out.<\/p>\n

If the Contractor disagrees with the actions of the Owner or the Architect, or the amounts claimed as costs to the Owner, the Contractor can institute a Claim under the Claims section (Article 15) of the 201.<\/p>\n

Direct Communications between Owners and Contractors<\/a><\/h1>\n

As the Engineer or Architect of Record, you probably have frequently experienced Owners and Contractors communicating directly, in direct contravention of the language of the contract that requires them to endeavor to route all communications through the design team.\u00a0 With the latest version of the 201,\u00a0direct communication is now authorized<\/strong>, to recognize both the reality of what was happening on the ground and to recognize that sometimes Owners and Contractors may need to communicate without waiting for the design team.<\/p>\n

In the new Section 4.2.4, Owners & Contractors are only required to include the Architect in communications that relate to the professional services of the design team.\u00a0 HOWEVER,\u00a0the Owner is required to promptly notify the Architect<\/strong>\u00a0of the substance of any such direct communication.\u00a0 The Owner-Architect agreement has been changed as well, to make it consistent with this new AIA 201 procedure.<\/p>\n

Is this a good change?<\/strong>\u00a0 Honestly, the verdict is out on that one (pun intended).\u00a0 It may prove very helpful in keeping a project on track when the Architect is not regularly on-site.\u00a0 However, the parties run the risk that they may make decisions that do effect the design team, without design team input.\u00a0\u00a0Be cautious, and make sure the Owner *does* keep you informed.<\/strong><\/p>\n

Contractor\u2019s Means & Methods<\/strong><\/a><\/p>\n

First, a little history:\u00a0 as you know, means, methods, techniques, sequences, and procedures are all part of the Contractor\u2019s responsibility on a construction site.\u00a0 However, when the AIA A201 was last revised, in 2007, there was a provision put in for that rare time when the Contract Documents gave specific instructions concerning a particular construction method.\u00a0 If the Contractor viewed such instructions as unsafe, he was to give notice to the Owner and Architect, and was not to proceed with that portion of the Work without further written instructions from the Architect.\u00a0 If the Architect directed him to proceed, the Contractor was absolved from any risks with following that instruction.\u00a0 Instead, the Owner assumed the responsibility for any loss or damage.<\/p>\n

In the 2017 version (in Section 3.3.1) a slightly different approach was taken.\u00a0 The Contractor still has the sole responsibility for construction means and methods.\u00a0 However, if the Documents provide for a specific instruction which is unsafe,\u00a0the Contractor is to give notice to the Owner and Architect, AND propose alternative means or methods<\/strong>.<\/p>\n

The Architect then must\u00a0evaluate<\/strong>\u00a0the proposed alternative solely for conformance with the design intent for the completed construction.\u00a0\u00a0Unless the Architect objects<\/strong>\u00a0to the proposed alternative, the Contractor is to perform the Work using the alternative it proposed.<\/p>\n

Take away tip here?\u00a0\u00a0Make sure that you timely evaluate any such alternative proposal!<\/strong><\/p>\n

Financial Arrangements of the Owner<\/strong><\/a><\/p>\n

Since 1976, the AIA Contract Documents have allowed the Contractor to require the Owner to provide evidence that the Owner has made financial arrangements to fulfill the Owner\u2019s obligations under the Contract.\u00a0 That is,\u00a0the Contractor had the unfettered right to request evidence indiscriminately throughout the Project<\/strong>.\u00a0 The Contractor also had the unilateral right to stop work if the Owner failed to provide evidence that he was financially sound when requested.\u00a0 This process could lead to abuse where, for example, a contractor demanded financial evidence as a ploy to get more time and avoid liquidated damages.<\/p>\n

In the last contract revision, in 2007, the documents were changed to only allow the Contractor the right to request evidence of adequate financing prior to the start of Construction, and thereafter only if certain conditions were met.\u00a0 In the 2017 version, revisions were made for clarification, to establish deadlines for receipt of the information, and to restrict the right to stop work relating to a change in the Work.<\/p>\n

Now, the Contractor can request financial information before construction (Section 2.2.1) and during construction (Section 2.2.2)\u00a0ONLY IF (1) the Owner doesn\u2019t make a payment when due; (2) the Contractor demonstrates a \u201creasonable concern\u201d regarding the Owner\u2019s ability to make payment when due; or (3) there is a change in the work that materially changes the Contract Sum<\/strong>.<\/p>\n

If the request is made prior to start of Work, the Contractor has no duty to commence work until the evidence is provided.\u00a0 If the request is made during construction, the Owner has\u00a014 days<\/strong>\u00a0to provide the information or the Contractor can stop the Work or, if the request is because of a change in Work, stop work on that portion of the Work affected by the change.\u00a0 Of course, the Contract Time would need to be extended if the Work is delayed, and the Contract Sum would need to be increased by the amount of the Contractor\u2019s reasonable costs of shutdown, and re-mobilization.<\/p>\n

Since Architects are often asked to rule on whether or not a Shut Down is proper, the changes to this provision are important to keep in mind as you administer your construction contracts.<\/strong><\/p>\n

Notice provisions in the AIA A201<\/strong><\/a><\/p>\n

Recognizing that we live and work in the electronic age, the A201 now allows written notice to be given\u00a0electronically<\/strong>.<\/p>\n

Written notices can be sent in person, by mail, by courier, or by electronic transmission.\u00a0 (Section 1.6.1).\u00a0 The default for establishing requirements for the giving of Notice (EXCEPT Notice of Claims, discussed below) is the use of AIA Document E203-2013, the Building Information Modeling and Digital Data Exhibit.\u00a0 Alternatively, the parties can use a fill point in Article 12, special terms and conditions.<\/p>\n

When establishing an Electronic notification procedure, you should make sure that there is a system in place to capture emails sent to departing employees or others that might otherwise go into the \u201celectronic void\u201d.<\/p>\n

Notices of Claims (under Article 15)\u00a0cannot be by electronic methods<\/strong>.\u00a0 Instead, they need to be made by certified or registered mail, or by a courier that provides proof of delivery.\u00a0 This makes sense, since Claims notices are the most important notices and can effect substantial rights, so proof of delivery is required.<\/p>\n

There is one more Notice provision with changes, dealing with\u00a0Financial Arrangements by the Owner<\/strong>.<\/p>\n

Financial Arrangements by the Owner<\/strong><\/a><\/p>\n

Since 1976, the AIA Contract Documents have allowed the Contractor to require the Owner to provide evidence that the Owner has made financial arrangements to fulfill the Owner\u2019s obligations under the Contract.\u00a0 That is,\u00a0the Contractor had the unfettered right to request evidence indiscriminately throughout the Project<\/strong>.\u00a0 The Contractor also had the unilateral right to stop work if the Owner failed to provide evidence that he was financially sound when requested.\u00a0 This process could lead to abuse where, for example, a contractor demanded financial evidence as a ploy to get more time and avoid liquidated damages.<\/p>\n

In the last contract revision, in 2007, the documents were changed to only allow the Contractor the right to request evidence of adequate financing prior to the start of Construction, and thereafter only if certain conditions were met.\u00a0 In the 2017 version, revisions were made for clarification, to establish deadlines for receipt of the information, and to restrict the right to stop work relating to a change in the Work.<\/p>\n

Now, the Contractor can request financial information before construction (Section 2.2.1) and during construction (Section 2.2.2)\u00a0ONLY IF (1) the Owner doesn\u2019t make a payment when due; (2) the Contractor demonstrates a \u201creasonable concern\u201d regarding the Owner\u2019s ability to make payment when due; or (3) there is a change in the work that materially changes the Contract Sum<\/strong>.<\/p>\n

If the request is made prior to start of Work, the Contractor has no duty to commence work until the evidence is provided.\u00a0 If the request is made during construction, the Owner has\u00a014 days<\/strong>\u00a0to provide the information or the Contractor can stop the Work or, if the request is because of a change in Work, stop work on that portion of the Work affected by the change.\u00a0 Of course, the Contract Time would need to be extended if the Work is delayed, and the Contract Sum would need to be increased by the amount of the Contractor\u2019s reasonable costs of shutdown, and re-mobilization.<\/p>\n

Since Architects are often asked to rule on whether or not a Shut Down is proper, the changes to this provision are important to keep in mind as you administer your construction contracts.<\/strong><\/p>\n

Liquidated Damages<\/a><\/h1>\n

Liquidated Damages\u00a0can make or break a project.\u00a0 They can either encourage efficient construction completion, or completely derail a project if there are multiple competing delays and delay claims.\u00a0 They can also cost a contractor a lot of money if he doesn\u2019t meet the timing requirements of the Project.<\/p>\n

In the 2017 contract revision,\u00a0a specific fill point<\/strong>\u00a0has been included in all Owner-Contractor agreements (except A105) to prompt the parties to consider including a liquidated damages provision.<\/p>\n

The details concerning calculation of the damages, and the limits (if any) to the damages are still left to the parties to negotiate.\u00a0 The intent of the fill point is to\u00a0bring the discussion to the forefront<\/strong>, rather than have the provision buried within the Contractor Time section of the contract.<\/p>\n

There is also now a\u00a0separate fill point for bonus<\/strong>\u00a0or other incentive provisions.<\/p>\n

Commencement & Completion Dates in the AIA Documents<\/a><\/h1>\n

Today, dates of commencement & completion.\u00a0 Technically, I\u2019m cheating, because these changes are in the related contracts, not the A201 itself, although A201 Section 8 discusses commencement & completion dates in general.\u00a0 However, in the related contract documents (A101 Section 3; A102 Section 4; A103 Section 4), changes were made to encourage specificity.<\/p>\n

There is now a check box that allows the parties to select as the Date of Commencement as one of the following:<\/p>\n

(1) the date of the Agreement<\/p>\n

(2) the issuance of a Notice to Proceed (NTP) by the Owner; or<\/p>\n

(3) a different date as agreed to by the Parties.<\/p>\n

If no box is checked, the default is the date of the Agreement.\u00a0 The check box format is meant to clarify any confusion between the parties before the contract is inked.<\/p>\n

For\u00a0Substantial Completion, there is also a new check box to indicate whether such is obtained no later than a specified calendar date or within a certain number of days from commencement.\u00a0 There is also a new section that addresses Substantial Completion of certain phases of the Work prior to full Completion.<\/p>\n

Finally, a new section has been added to cross-reference\u00a0the new liquidated damages fill point.<\/p>\n

The Termination for Convenience Provision<\/strong><\/a><\/p>\n

The Termination for Convenience provision (14.4.3)\u00a0has an interesting history which explains why this small, but very specific, change was made.<\/p>\n

Termination for Convenience, an exclusive owner right, was added in the AIA contracts in 1997.\u00a0 However, contractors and architects were losing the benefit of their bargains,\u00a0including the fixed overhead and the fee or profit on the portion of Work which was terminated.<\/p>\n

To alleviate that problem, in 2007, the contracts were revised to allow the contractor\/architect to get payment for work executed, costs of termination, and\u00a0reasonable overhead and profit on the work not executed<\/strong>.<\/p>\n

As many of you know too well, Owners, in response, often completely struck through that provision,\u00a0denying any overhead or profit for work not yet performed<\/strong>\u00a0after a termination for convenience.<\/p>\n

In the 2017 revision, the A201 (as well as the related Owner-Architect agreements), the automatic entitlement is eliminated, in favor of a fill point\u00a0to prompt the parties to discuss a fair fee<\/strong>\u00a0before the project begins.<\/p>\n

A negotiated amount also serves\u00a0to liquidate the Owner\u2019s liability<\/strong>\u00a0to the Contractor (lost business opportunity and overhead and profit on the Contractor\u2019s unperformed work).\u00a0 However, the fee is not necessarily designed to completely liquidate the Owner\u2019s liability to the Contractor\u2019s downstream parties.<\/p>\n

To protect the Owner from downstream claims,\u00a0the A401 will need to be edited and coordinated<\/strong>, so that the Owner\u2019s entire liability to the Contractor, inclusive of subcontractors and suppliers, is established in the Termination fill point.<\/p>\n

Likewise, if you utilize subconsultants in your architecture or engineering practice, be sure that your contracts are\u00a0likewise modified to track your entitlement\u00a0for termination expenses.<\/strong><\/p>\n

Digital Data in the A201\u00a0<\/a><\/h1>\n

Building Information Modeling (BIM) is fast becoming common place on larger construction projects.\u00a0 However, there are multiple risks associated with using digital formats that can be manipulated by multiple parties.<\/p>\n

In the 2017 revisions to the A201, there is now a requirement that data protocols be established concerning the development, use, transmission, and exchange of all digital data, including BIM data.\u00a0 (See Section 1.7).<\/p>\n

The E203 form is the suggested document to create the digital protocol.\u00a0 Note, however, that\u00a0if the parties have not established a protocol, the use of any digital data is at that party\u2019s own risk.<\/strong>\u00a0 (Section 1.8).<\/p>\n

Further, revised section 3.11 clarifies that the Contractor can keep contract documents, change orders, construction change directives, and other modifications at the site\u00a0only in electronic format<\/strong>, if it so chooses.<\/p>\n

Again, a common theme about these contract changes\u2013 they are small, but they are important.\u00a0\u00a0As the designer of record, it is vital that you play a lead role in determining the who\/what\/when\/where\/why of data transmission.<\/strong><\/p>\n

At last, we have arrived at the\u00a0Top Change in the AIA A201<\/strong>\u2014 and it deals with the subject that everyone loves to hate (until they need it!),\u00a0Insurance<\/strong><\/a>.<\/p>\n

Insurance\u2013 everyone needs it; everyone would just as soon not have to deal with it.\u00a0 I get it, I do.\u00a0 Attorneys, Insurance Agents\u2013 no one likes spending time with those folk!\u00a0 Good news though.\u00a0 The changes to the A201 mean that you may end up spending less time with both!<\/p>\n

The most important change to the Insurance requirements of the AIA contract is that most of it has moved to a new Exhibit.\u00a0 Why is this important?\u00a0\u00a0Instead of having to send the entire contract to your agent or broker, you can now send them only the section that they really need to review for compliance<\/strong>.\u00a0 This also means that if insurance policies change (as they surely will), the entire contract document does not need to be re-written\u2013 the Exhibit can be updated accordingly, leaving the rest of the A201 alone.\u00a0 Nice, right?\u00a0 This change was made to streamline insurance review and provide for that flexibility of the changing insurance market.<\/p>\n

Does this mean that there are *no* insurance requirements in the A201 anymore?\u00a0 Unfortunately, no.\u00a0 There are still some insurance provisions in Article 11, such as the requirement that both parties maintain insurance.\u00a0 (11.1.1 and 11.2.1).<\/p>\n

Most notably, it is\u00a0now the Owner & Contractor, and not the insurer\u2019s, requirement<\/strong>\u00a0to provide each other with notice of cancellation\/expiration within 3 days.\u00a0 (Section 11.1.4 and 11.2.3).\u00a0 The party receiving notice can stop work until the insurance lapse is cured.\u00a0 The reason for the notification change is that prior editions of the A201 required that the insurer notify the Owner of a pending lapse in insurance.\u00a0 That provision was ultimately removed from the certificates of insurance issued by most insurers, so it was eliminated as a requirement to codify what was happening on the ground between the parties.<\/p>\n

There are also some changes to property insurance losses.\u00a0 The Owner must notify the Contractor of proposed settlements and allocations, and the Contractor has\u00a014 days to object<\/strong>\u00a0or he will be bound by the allocation.\u00a0 (See 11.5.2).<\/p>\n

The main take-away here is that\u00a0most insurance will now be in a streamlined, stand-alone exhibit<\/strong>\u00a0which will make it easier for you to ensure your agent\/broker is on board with the requirements before work begins.<\/p>\n

In case you are wondering why,\u00a0as the architect or engineer<\/strong>,\u00a0you need worry about insurance of the contractor, just remember that\u00a0it is in your own financial interest<\/strong>\u00a0to make sure they are properly insured for the project.<\/p>\n

That\u2019s it.<\/strong>\u00a0 You\u2019ve made it through the Top 10 changes.\u00a0 I do have a few\u00a0other changes of note<\/strong>, which will be in my next post.\u00a0 Stay tuned!\u00a0 As always, if you have any comments or questions, drop me a line or comment below.<\/p>\n

 <\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Melissa Brumback | Construction Law in North Carolina | March 23, 2018 Like death & taxes, you can count on the\u00a0American Institute of Architects (AIA)\u00a0to regularly update their standard form construction contracts.\u00a0 Most such forms are updated every 10 years, and 2017 was no exception. In\u00a0the 2017 version, the changes are \u201cevolutionary, not revolutionary\u201d, according… Continue reading Like Death and Taxes, AIA Contract Changes are a Sure Thing!<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[9],"tags":[9895,394,10417,72],"class_list":["post-893924","post","type-post","status-publish","format-standard","hentry","category-construction-contracts","tag-advise-consult","tag-aia","tag-american-institute-of-architects","tag-construction-contracts-2","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nLike Death and Taxes, AIA Contract Changes are a Sure Thing! 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