August 29, 2017 at 12:00 am
By Mike Bosse, Shareholder, Bernstein Shur
Earlier this year, the American Institute of Architects released its new set of 2017 documents into the market. The AIA has long published standard form agreements for the construction industry, for well over a hundred years, and they update them to reflect the changing marketplace that is intended to offer protections to all participants on a construction project. The last major change to the documents took place in 2007, and this article will summarize most of the changes made to the general contractor and owner agreements.
- Insurance obligations are a notable change. A new feature in the A201, the general conditions of construction, is a new insurance and bonds exhibit that is appended to the contract. This exhibit provides both required insurance coverage, but also a list of optional insurance coverages that might be appropriate given the nature of the project. Required coverage, not surprisingly, includes commercial general liability coverage, auto coverage, and workers’ compensation. Some types of optional coverage include asbestos abatement liability coverage and insurance for damage to property while it is being either stored or is in transit. The goal of the new exhibit is to make the insurance on a project easier to navigate by providing a suite of possible coverage in a separate exhibit. Finally, the new agreement requires the owner to purchase the builders’ risk policy, but also offers for the ability for the contractor to purchase it, which often occurs on construction projects because the contractor may have easier access to purchase an all risk policy.
- The 2017 agreements also include new provisions for digital data and Building Information Modeling (BIM) that has enjoyed increasing popularity in the marketplace. The 2017 agreements expressly require the use of an AIA document that established protocols for using and exchanging digital data between project participants.
- The AIA forms address the contractor’s ability to ensure that an owner can actually pay for the project. In the new forms, the contractor will understand when he can refuse to proceed with the work if the financial information that he receives from an owner reveals that the owner is unable to pay, or if the owner simply fails to supply the information. Under the new suite of agreements, the contractor has to keep the information confidential, but is entitled to it to ensure that the funds exist to pay for the project.
- Also, when an owner terminates a project “for convenience,” the contractor will normally want to ensure that it receives overhead and project on the portion of the work not executed on because of the termination for convenience. Many owners strike this clause in contract negotiation. The new A201 requires owners to pay for costs “attributable to termination of subcontracts” as well as a “termination fee.” This is an effort to strike a balance between owners who do not want to pay overhead and profit on work not performed, and contractors who are left with holes in their schedules when work is terminated for convenience by owners.
- The new A201 also tightens up the lien waiver process. The new document explicitly requires contractors to submit lien waivers along with their progress payment applications. Surprisingly, some contractors are still resistant to procuring and sending these waivers. It also requires the contractor to indemnify the owner for damages that the owner suffers as a result of a lien filed by a subcontractor or supplier so long as the owner has fully complied with its payment obligations to the contractor. While this was already the law in almost every jurisdiction, having the clause explicitly in the A201 is a helpful change when lien situations arise after final payment on a project.
- As to warranties, all warranties must now be issued in the name of the owner, or be transferable to the owner. This new clause is helpful to owners, and equipment and materials are often installed by general contractors after having been supplied by others who have no contractual privity with the owner. The document also tries to make more clear what warranty obligations a general contractor has before substantial completion, and how those duties change following the issuance of substantial completion.
- Finally, the revised AIA contains a provision related to arbitration and litigation. After the initial decision from the initial decision maker, and mediation, either party may demand that the other party move forward with arbitration or litigation, as the case may be. If the other party does not file its claim within 60 days of the demand, then both parties waive the right to file the claim with respect to that initial decision that was made.
Overall, the 2017 changes to the AIA 201 are not considered major changes. However, regular revisions and changes to the AIA documents are not only helpful; but necessary. As the process of construction changes as we advance in our technology, change to the AIA documents will remain a constant.
Article originally published in the June 2017 issue of the Bernstein Shur Monthly
Categories: Maine Real Estate Insider