The American Institute of Architects (AIA) published its first contract document in 1888 when it published its Uniform Contract between Owner and Contractor. Since then, the AIA has significantly updated and expanded its contract documents library. What is now known as the A201 was updated by the AIA at random intervals for over one hundred years. In 1997, it started updating the A201 every ten years. The AIA has now introduced a 2017 version of the A201 and other contract documents, including the A100 series. Our overview and commentary on the changes to the A201 follows.
Key Changes (in the order in which they appear)
- Digital Data Use and Transmission. Sections 1.7 and 1.8 incorporate the AIA’s Digital Data Use and Transmission protocol established in 2013 and memorialized in Document E203. Notably, however, the AIA’s protocol does not address cyber-security, an increasing concern in today’s society where data breaches are fairly common. Most significantly, Section 1.8 provides that the contractor’s reliance on BIM modeling will be at its “sole risk and without liability of any other party” unless the parties use AIA E203 and G202 BIM Modeling documents. This is a major source of risk for the contractor and contractors should consider modifying this language.
- Evidence of Owner’s Financial Arrangements. The A201 has improved the ability of contractors to receive financial information from owners under revised Section 2.2. It is common for a contractor to enter into a contract with a single-purpose LLC with no assets, other than the project site. With these changes, the owner must provide “reasonable evidence” that it can fulfill its financial arrangements under the contract. The contractor is under no obligation to commence the project until that evidence is provided. Furthermore, if during the course of the project there is a change in the work “materially altering” the contract sum, the owner is required to provide financial information upon written request by contactor within fourteen days. If that information is not provided, the contractor is allowed to stop work on the portion of the work affected by the change.
- Warranty. Newly added Section 3.5.2 mandates that all “material, equipment, or other special warranties required by the Contract documents” be issued in the Owner’s name. Albeit subtle, this change nonetheless makes clear that the Contractor’s warranties are for the benefit of the Owner.
- Contractor’s Schedules. The previous A201 only required the contractor to provide a construction schedule that did not exceed the time limits contained within the contract documents under Section 3.10.1. The revision now requires the contractor’s schedule to include: “(1) the date of commencement of the Work, interim schedule milestone dates, and the date of Substantial Completion; (2) an apportionment of the Work by construction activity; and (3) the time required for completion of each portion of the Work.”
- Contractor’s Reliance on Performance and Design Criteria. Under the revised Section 3.12.10.1, the Contractor is now entitled “to rely upon the adequacy and accuracy of the performance and design criteria provided in the Contract Documents.” Interestingly, however, the AIA struck language from Section 3.12.10.1 that previously held the “the Contractor shall not be responsible for the adequacy of the performance and design criteria specified in the Contract Documents.” On its face, these changes seem contradictory. On the one hand, the addition appears to reduce the Contractor’s liability for issues with criteria specified by the Owner and/or Architect. On the other, the deletion implies the Contractor now is responsible for ensuring the criterion specified by others is accurate. The changes to Section 3.12.10.1, therefore, suggest the AIA attempted to strike a balance between the Owner/Architect and the Contractor, but whether the balance was achieved remains to be seen.
- Subcontracts must be in writing. Before, agreements between the Contractor and its Subcontractors had to be in writing only “where legally required for validity.” Now, Section 5.3 requires all agreements must be in writing. The practice of reducing agreements to writing in the construction world is less common than one would expect. This is a welcomed change, therefore, especially among the legal community.
- Minor Changes in the Work. Previously, the Architect had authority to bind the Owner and the Contractor, without their consent, to minor changes in the work so long as the changes did not contradict the Contract Documents, did not affect the Contract Price, and did not extend the Contract Time. Under the revised Section 7.4, the Contractor now has an opportunity to reject the recommended changes if it believes the proposed change will, in fact, affect the Contract Price or Contract Time. A Contractor who fails to object and nonetheless proceeds, however, waives any claim for adjustment. This modification accomplishes a fair compromise in that it affords the Architect discretion to make necessary changes, while giving the Contractor greater control over changes that could affect the Contract Price or Contract Time, especially considering the integrity of both clauses is often in jeopardy.
- Indemnity for Liens. Under the newly added Section 9.6.8, the AIA has made it abundantly clear that if the Owner has satisfied its payment obligations, a Contractor must defend and indemnify the Owner against liens and other claims for payment brought by subcontractors and suppliers. While a similar protection is arguably included in the catch-all indemnification provision, this modification emphasizes that all Owner’s costs connected with the lien claims are recoverable so long as the Owner has satisfied its payment obligations.
- Insurance and Bonds. Article 11 is the most significant change to the whole document. Most of the terms and provisions from Article 11 were relocated to a new Insurance and Bond Exhibit. The Exhibit allows the parties to negotiate insurance minimums and limits. While many of the remaining sections in Article 11 are largely unchanged, the Insurance and Bond Exhibit is more “user friendly” and has check-the-box insurance coverage requirements. The best new feature is the requirement for the owner to identify sub-limits on its Builders Risk policy. While it is an upgrade to the 2007 series, we believe that contracting parties will continue with the practice of striking Article 11 in whole or significant part and attaching an Addendum with project specific insurance requirements.
Notable Continuity
- Indemnification Clause. Section 3.18.1 on indemnity remains largely the same. The indemnification clause, like many others in various types of contracts, requires the Contractor to indemnify the Owner “only to the extent” the liability is caused by the Contractor’s negligence. This language, however, has been the subject of multiple judicial opinions across the country. Specifically, courts are addressing the qualifier’s intended meaning: is a negligent Owner barred from recovering any indemnity, or can the negligent Owner still recover indemnity for the portion of liability attributed to the fault of others? In California, the Court of Appeal recently applied the former finding, but cautioned that to avoid a potentially unfavorable interpretation, the parties should make their intent explicit. Stated differently, it seems the California Court of Appeal was suggesting an erasure of the qualifier from future indemnity provisions. Thus, the decision to maintain the indemnity provision as previously written is curious. [Click Here to read a prior alert that discusses a recent Court of Appeals case regarding a contractor’s duty to indemnify Owner “only to the extent” the liability is caused by the Contractor’s negligence.]
- Concealed or Unknown Conditions. The 2017 version of Section 3.7.4 remains largely unchanged. The AIA’s choice to keep this clause as is may not sit well with contractors, who generally find the obligations required by this Section unfavorable. Compounding this dilemma is the fact the Contractor’s deadline to provide the Owner and Architect notice of discovered, concealed or unknown conditions has been shorted from 21 days to 14 days.
Other Changes
- The revised Section 3.17 concerning infringement of copyrights and patent rights with respect to a particular design, process, or product, changes a Contractor’s threshold of liability from “reason to believe” to “discovered by, or made known to.” Stated differently, a Contractor is now only liable for infringement of copyrights and patent rights only if the Contractor had actual, as opposed to constructive, knowledge of the infringement, and failed to notify the Owner or Architect.
- Under the revised Section 6.2.2, the “Contractor shall not be responsible for discrepancies or defects in the construction or operations by the Owner or Separate Contractor that are not apparent.”
- The revised Section 9.2 now obligates the Contractor to submit any changes to the Schedule of Values to the Architect, and to support those changes with “such data to substantiate its accuracy as the Architect may require.”
- The revised Section 14.1.3 clarifies that upon the Contractor’s election to terminate the Contract for previously bargained for reasons, the Contractor can only recover from the Owner: 1) payment for the Work executed; 2) reasonable overhead and profit on Work not executed; and 3) costs incurred by reason of such termination.
- The revised Section 14.4.3 clarifies that upon the Owner’s election to terminate the Contract for previously bargained for reasons, the Owner must pay the Contractor: 1) for Work properly executed; 2) costs incurred by reason of such termination, including costs attributable to termination of Subcontractors; and 3) the termination fee, if any, set forth in the Agreement.
The changes in the A201 are welcomed, but overdue. The AIA cannot wait another 10 years to update its documents, the construction industry is changing too fast. Significant mark-ups and revisions to the A201 Contract Documents are commonplace, so much so that the documents bear little resemblance to the off-the-shelf version. By comparison, the AGC came out with its Consensus Documents in 2007 and updates its documents every five years, and occasionally more frequently based on developments. Consensus Docs are arguably better positioned to capture new laws, new construction processes, and developments in contract administration.
Finally, changes in the construction industry are influencing an evolution in contract administration, and the historical prominence of the architect in that role. The architect’s role in nearly every decision may have worked through much of the 20th Century, but the architect as the focal point for nearly every decision for the owner as it is under the A201 is becoming much less frequent. Modern contractors are extraordinarily sophisticated, and Consensus Docs have de-emphasized the prominence of the architect. Contractors are no longer just the muscle to complete a project – although there is still plenty of that – but have personnel with advanced degrees in construction, management and finance.
Even with these revisions, contracting parties need to take a close look at the A201 to ensure that it meets their needs for any given project. While the A201 may be perfectly suitable with only minor revisions in some circumstances, contracting parties are strongly encouraged to consult with legal counsel to assist in evaluating the legal ramifications of various provisions.
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