Whatever, Your Construction Contract is Soo 2007! An Overview of the Substantive Changes in the 2017 AIA-A201
For over one hundred years, the American Institute of Architects (AIA) have been publishing construction documents that are used from coast to coast in the United States and are among the most popular and consistently utilized throughout the construction industry. The AIA issues amendments to their construction documents every ten years; the most recent revisions occurred in 2017. The AIA-A201, titled General Conditions of the Contract for Construction, addresses the costs incurred during a project for site management, material handling, and project management. The AIA-A201 is designed to be used with other AIA contract forms, such as a stipulated lump sum or cost plus with a guaranteed maximum price. The 2017 AIA-A201 contains many minor revisions as well as substantive revisions. Below is a brief overview of the substantive revisions implemented.
Insurance and Bond Exhibit
In the prior version of the AIA-A201 all of the insurance and bond requirements were provided for in the general conditions. Now the insurance and bond requirements are provided for in an exhibit, the AIA-A102, as well as in the general conditions, section 11 of the AIA-A201. Accordingly, parties need to be cognizant to carefully review both to ensure that there are no inconsistencies. The advantages of having the insurance and bond requirements as an exhibit allows for greater flexibility in the type of insurance product, the coverage provided, and the party responsible for payment. Additionally, the AIA-A102 can be specifically tailored to meet the insurance and bond requirements for any type of construction project.
Notices Can Be Sent Via Electronic Transmission
Recognizing that it is the twenty-first century, the AIA-A201 now allows for notices to be sent to parties via electronic transmission provided that a method for electronic transmission is set forth in the contract between the parties. However, any notices of claims are required to be served by certified or registered mail, or by courier providing proof of delivery. This is going to be a potential pitfall for parties that do not carefully review the notice requirements pursuant to the contract, I am confident that there will be some improper notice of claims submitted by parties that fail to recognize that electronic transmission will not be sufficient.
Contractors Can Be Required to Submit Release and Waiver of Liens With Applications For Payment
Contractors can now be required to provide releases and waivers of liens from subcontractors and material suppliers if it is requested by the owner or architect. Many smaller subcontractors and material suppliers often times have enough issues with preparing their own applications for payment. They will now have to have the waivers and releases of liens carefully prepared and reviewed along with the submission of their applications for payment. This requirement can be potentially be very problematic to smaller contractors and material suppliers that do not have a lot of project management experience.
Minor Changes in the Work
Minor changes in the work are changes that do not change the contract sum or the time for completion of the contract. In the event that the architect orders minor changes in the work that the contractor reasonably believes will change the contract sum or the time for completion, then the contractor must notify the architect. After notifying the architect, the contractor has the right to not proceed or implement the change in the work.
Owner Must Provide Evidence of Financial Arrangements
While the prior 2007 version provided for evidence of the owner’s financial arrangements, the 2017 AIA-A201 has more extensive language regarding the owner’s ability to pay for the labor, materials, and/or services rendered to the project. This is a clear response to the recent recession that devastated the construction and real estate industry. Prior to the commencement of work and upon written request by the contractor, the owner shall provide reasonable evidence that the owner has the ability to pay for its obligations under the contract. After the commencement of work and upon written request by the contractor, the owner must provide evidence of financial arrangements only if one of the following occur: the owner fails to make payments under the contract; the contractor identifies in writing a concern regarding the owner’s ability to make payment when due; or a change in the work performed under the contract materially changes the contract sum. If the owner fails to provide the reasonable evidence of its ability to pay for the work then the contractor can refuse to proceed forward with the work or even suspend work. Any financial documentation provided by the owner under these circumstances is to remain confidential, absent a subpoena, court order, or the like. This provision is geared towards protecting the contractor and not the owner. Owner’s may potentially lose some of their bargaining power or negotiating arguments when they are forced to disclose financial information. Additionally, I am very curios to see in practice what will be considered as reasonable evidence of the ability to pay, there are likely going to be creative arguments about what constitutes reasonable evidence. Moreover, if the owner doesn’t have the money to pay for all of the work under the project, then they are going to be potentially forced to get creative with their reasonable evidence.
Termination for Convenience Compensation
Termination for Convenience allows the owner to terminate the contractor without cause. In the prior general conditions, the payment to the contractor that is terminated for convenience was for reimbursement for reasonable overhead and profit for work not executed. In the new general conditions, the owner is responsible to pay the contractor for the costs attributable to termination of the subcontracts, and the termination fee, if specified for.
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