June 15, 2017
By Hugh D. Brown & Private: Kristine Kroenke & Dean B. Thomson
Dean Thomson, Hugh Brown, and Kristine Kroenke are members of the firm’s Construction Law Department. Dean can be reached at 612.359.7624 or firstname.lastname@example.org. Hugh can be reached at 612.359.7663 or email@example.com. Kristine can be reached at 612.359.7628 or firstname.lastname@example.org.
Approximately every 10 years the AIA revises its core document, the A201 General Conditions. The last version of the AIA General Conditions was issued in 2007, so just when we’ve memorized the “chapter and verse” numbers of that edition, the AIA has now issued its 2017 version of the A201 with significant revisions to its text. As the A201 General Conditions contain many of the more important terms of any AIA Agreement, this Briefing Paper will highlight some of the more significant changes made in the 2017 version about which every Owner, Architect, Contractor and Subcontractor should be aware.
• § 1.1.8 – Initial Decision Maker. The A201 adds a provision insulating the Initial Decision Maker (IDM) from liability for “results of interpretations or decisions rendered in good faith.” Unless the parties actually choose another, the Architect is almost always the IDM by default. As a result, this provision could insulate the Architect from liability even when the Architect’s alleged liability is at issue, as long as it can profess “good faith” in its decisions on contract interpretation or disputes. This is a questionable result.
• § 1.6 – Notice. The required means for providing proper notice have been moved to this Section, and they also have been expanded and clarified from what was in the former § 13.3 of the A201-2007. Notice is now defined as being in writing, so whenever notice is required by the A201, provide it in writing and do not be misled by the omission of the phrase “in writing” after “notice” throughout the new document. Notice can now be transmitted by any number of conventional ways, but Notice of a Claim must be sent by registered mail or courier, which seems to be a pointless exception in this digital age and may catch contractors unawares.
• § 1.7 – Digital Data Use and Transmission. Section 1.6 of the A201-2007 provided that the parties would “endeavor” to establish necessary protocols governing digital data transmission. The new A201-2017, however, automatically incorporates AIA Document E203-2013, Building Information Modeling and Digital Data Exhibit, as a Contract Document in § 9.1.4. Notably, if the parties do not use E203 or otherwise agree on protocols for BIM or other digital data, the party using that data does not have a right to rely upon it.
• § 2.2 – Owner Financing. Several revisions were made to the Owner’s obligations to demonstrate adequate financing for the Project. The Contractor is entitled to both additional time and money if work is suspended due to lack of proof of adequate financing, but after construction starts the Contractor is only entitled to proof of adequate financing if the Contractor identifies a “reasonable concern” regarding the Owner’s ability to pay or if there is a “change in the Work that materially changes the Contract Sum.” Unfortunately, the words “reasonable” and “materially” are undefined and ambiguous and will probably generate rather than resolve disputes about when adequate assurance of financing is due.
• § 3.3.1 – Specified Means and Methods. Changes made to this provision increase the risk that Contractors cannot safely rely on the adequacy of specified means and methods in the Contract Documents. Deletion of the phrase “unless the Contract Documents give other specific instructions concerning these matters” arguably makes the Contractor responsible, for instructions in the Contract Documents “concerning construction means, methods, techniques, sequences, or procedure.” This delegation of responsibility to the Contractor may create uncertainty about whether the implied warranty of adequacy applies, as it has in the past, to specified means and methods. In addition, if the specified means and methods created a safety issue, the previous A201-2007 required the Contractor to wait for instruction from the Architect after raising a concern, but the responsibility to devise safe means and methods has now been delegated to the Contractor.
• § 3.7.4 – Notice – Differing Site Conditions. The time period within which to give notice of a differing site condition has been shortened from 21 to 14 days.
• § 3.10.1 – Scheduling. While the scheduling provisions in the 2017 version require more detail than those in the 2007 version, they still do not impose requirements necessary to produce a CPM schedule. The continued reluctance of the AIA to specify CPM scheduling is odd given its prevalence and expanding use in evaluating time related claims.
• § 220.127.116.11 – Delegated Design. The A201 continues to impose a warranty of reliability and adequacy on any design delegated to the Contractor in the Contract Document, but the A201 only imposes liability on the Architect if its design fails to meet the professional standard of care. The AIA’s special protection of its members is hard to justify, and Contractors should demand the same standard of care defense be applied to their designs as is applied to Architects’ designs.
• § 3.18.1 – Indemnification. Section 3.18 remains largely unchanged, which is unsurprising as this indemnity is generally understood to be covered by CGL insurance. Indemnity provisions also tend to be vigorously negotiated and often are limited by law, a majority of states now impose statutory limits on indemnity provisions, and many states make broad indemnities unenforceable, so make sure this standard provision comports with the applicable indemnity statutes governing your Project.
• § 4.2.4 – Owner-Contractor Communications. Communications directly between the Owner and Contractor are now officially allowed, which was a previous prohibition in the 2007 edition that was ‘honored in the breach.’ Now, the Architect need only be copied on correspondence related to its services and professional responsibilities.
• § 6.1.1 – Owners’ Other Contractors. A newly defined term, “Separate Contractor,” replaces the previously undefined (and wordy) description of separate contractors hired by the Owner to perform portions of the Project not included in the Contractor’s Work.
• § 6.2.2 – Discrepancies in Separate Contractor’s Work. In the 2007 edition, the Contractor was not responsible for identifying discrepancies in the Separate Contractor’s work if they were “not then reasonably discoverable.” The 2017 edition changes the standard to absolve the Contractor of liability for those defects that are “not apparent.” Replacing the more subjective “reasonably discoverable” with the more objective “not apparent” standard should limit disputes about what preceding defective work should have been discovered.
• § 7.3.4 (and 9.1.2) – Unit Prices – Variations in Estimated Quantities. The variation in quantities (VEQ) clause was moved from Article 7 involving Changes to Article 9 involving payment. The move is significant because the VEQ provisions now apply to any quantity variations and not just to Changes ordered by the Owner in a Change Order or CCD.
• § 7.4 – No-Cost Changes. Revisions to this Section provide helpful clarity regarding how to handle allegedly minor changes in the Work that the Owner or Architect thinks should not have a cost or time impact. In a nutshell, if the Contractor thinks any such minor changes do, in fact, have a cost or time impact, provide notice before starting the work or “the Contractor waives any adjustment to the Contract Sum or extension to the Contract Time.”
• § 8.3.1 – Time Extensions. The references to time extensions were consolidated in this Section and are to be granted “for such reasonable time as the Architect may determine.” This change arguably removes the Owner from the decision process.
• § 9.2 – Adjusting the Schedule of Values. The Architect can now insist on data to substantiate the accuracy in any shifts the Contractor makes in the line items of its Schedule of values. While there is nothing objectionable about “accuracy,” this provision should not be construed to create line-item GMPs.
• § 9.5.2 – Payment Disputes. This Section appears to require notice of a Claim if the Contractor disputes the Architect’s decision regarding a Certificate of Payment. As this is not now a standard practice, Contractors should revise this provision or provide notice of Claim regarding any payment reductions with which it disagrees.
• § 9.6.8 – Subcontractor Lien Claims. A new provision has been added requiring the Contractor to remove Subcontractor liens if the Contractor has received “proper payment.” Unfortunately, the AIA did not define “proper payment,” so the parties don’t know whether this means payment certified by the Architect (which won’t include Claims in dispute) or payment that covers all disputed Claims. To avoid inevitable disputes over this ambiguity, changes should be made to this Section so that it covers only indemnity and bonding over of amounts actually paid to the Contractor and not Claims that are in dispute.
• § 10.3.5 – Hazardous Materials. The substantive modification in this Subsection regarding hazardous materials or substances was to change a requirement that the Contractor “indemnify” the Owner to a requirement that it “reimburse” the Owner for the costs and expenses incurred due to the Contractor’s failure to perform its obligations regarding hazardous materials. Perhaps there is a substantive difference between “reimburse” and “indemnify” but if so, revisions should be made to make whatever distinction was intended more clear.
• Article 11 – Insurance and Bonds. The most substantive change to new A101 – 2017 was to delete most of the specific insurance requirements from the General Conditions and move them to an Exhibit A covering Insurance and Bonds that is to be negotiated between the Owner and Contractor as part of their Agreement. Because the changes made in Article 11 are so extensive, they will not be covered in this Briefing Paper and will instead be the subject of a future Briefing Paper.
• § 14.1.3 – Remedies for Wrongful Termination. This Section revises the Contractor’s remedies for wrongful termination for cause by the Owner. In the previous A201 – 2007, an ambiguity regarding whether the Contractor was entitled to payment for “overhead and profit” on Work not executed has been clarified in the Contractor’s favor. A change beneficial to the Owner is that the word “direct” was inserted before the word “costs”, so the Contractor should be able to recover only direct costs from a wrongful termination. A general reference to “damages” as recoverable has also been deleted making the scope of allowable recovery for an Owner’s wrongful termination arguably vague.
• § 14.4.3 – Termination for Convenience. Upon a termination for convenience, the Contractor is now entitled to a “termination fee” rather than reasonable overhead and profit on Work not executed at the time of the termination. The purpose of the change was to make the concept of some compensation to the Contractor upon a termination for convenience more acceptable to the Owner, the amount being left to negotiation between the parties. Beware, however, that if some number isn’t inserted for the termination fee, the Contractor will not be entitled to any payment for expenses beyond the cost of Work performed due to a termination for convenience.
• § 15.1.1 – Claims. A sentence has been added stating that the Owner need not make a Claim to assess Liquidated Damages. Without Notice of a Claim, however, the Contractor may not know whether or not it should make its own Claim for a time extension or to accelerate and thereby mitigate a potential Claim for LDs. Providing Notice of a Claim is always a good idea if only to allow the parties to address the problem early and try to solve it. Contractors’ counsel will want to require such Notice when they negotiate this term.
• § 18.104.22.168 and .2 – Claims – Notice. Notice of Claims arising prior to or during the correction of Work period must be made with 21 days, but Claims arising after the correction of Work period can be initiated merely by Notice without any time deadline. Unlike Claims arising prior to or during the correction of Work period, a decision by the IDM is not required for Claims arising after that period. This is a useful clarification as parties often were not sure whether or not the requirement for an IDM decision applied to their Claims.
• § 22.214.171.124 – Continuing Contract Performance of and Payment for Disputed Work. Greater clarity is provided for how payments should be made regarding a pending dispute until it is finally resolved. The Contract Sum and Contract Time shall be adjusted according to the IDM’s initial decision regarding the Claim and the Architect will issue Certificates for Payments according to that decision which should remove the Owner from the payment decision making process.
• § 15.2.1 – Dispute Resolution – Initial Decision Maker. The option of an Initial Decision Maker (IDM) being someone other than the Architect is a great idea that is almost never used. Truly neutral dispute evaluators (such as Dispute Review Boards) have been found effective, but the A201-2017 missed an opportunity to provide guidance or options on how to better develop that possibility. Fortunately, the parties can solve that problem with a well-drafted amendment.
• § 15.3.3 – Timing of Initiation of Dispute Resolution and Mediation. In this new Section, either party is given the right to demand in writing that the other party file for binding dispute resolution within 30 days from the date mediation has been concluded, or 60 days after mediation has been demanded without resolution of the dispute. If the party receiving the demand does not file for binding dispute resolution within 60 days of receiving the demand, then both parties waive their rights to binding dispute resolution with respect to the IDM’s initial decision. This provision should be revised by the parties as it does not give the mediation process enough time to determine if the Claim can be settled short of proceeding to final dispute resolution.
• § 15.4 Arbitration. The arbitration provisions in the A201-2017 have not changed significantly, which is unfortunate – i.e. unless the parties specify arbitration, their dispute will be resolved by litigation. Policy of the AIA documents committee is ultimately decided by a relatively small group of architects, and delegating the design of dispute resolution to them is like delegating the design of buildings to attorneys – the result is unlikely to work well. Parties should take advantage of the opportunity to negotiate and specify the exact terms they want in their arbitration agreement and incorporate that agreement in the A201-2017.
Many other changes were made to the A201, but this Briefing Paper has covered the most significant. Fortunately, changes can be and frequently are made to the A201, and many of the risks described above can be addressed and better allocated if the document is negotiated before it is incorporated by reference into your Agreements.
Once again, Fabyanske, Westra, Hart & Thomson, P.A. has been ranked as a Band 1 Construction Law Firm in Minnesota by the well recognized Chambers professional rating service. Here’s what Chambers has to say about FWHT: “Esteemed for its dedicated construction group, which brings deep industry insight to disputes, contract negotiations and planning issues. Represents diverse participants from the public and private sectors, including design professionals, insurers and subcontractors. Frequently acts on large-scale regional and national projects.”
Dean Thomson (Band 1 Construction Law)
Kyle Hart (Band 2 Construction Law)
Gregory Spalj (Band 2 Construction Law)
Jesse Orman (Up and Coming Construction Law)
Marvin Fabyanske (Senior Statesmen Construction Law)
Dean Thomson draws on over three decades of experience in high-value transactions and disputes, tackling many of the state’s largest projects. Clients praise him for “his experience, his status in the industry, his problem-solving capabilities and his knowledge of the law.”
Kyle Hart is held in high regard by clients, one of whom states: “He understands the construction process and the law, and how to try a lawsuit.” He frequently acts for contractors in contentious proceedings and draws praise for his commercial approach. As one source confirms, “he knows what’s important and which details are insignificant.”
Gregory Spalj is “very knowledgeable, and brings a depth and breadth of experience that’s very valuable,” according to interviewees. He advises on project development and related litigation, acting for both corporate entities and individuals such as architects.
Jesse Orman “understands and analyzes the details, and can keep the big picture in mind,” impressed clients report. He represents a broad client base across the gamut of construction concerns, including contract negotiation and disputes. Sources describe him as “extremely knowledgeable and excellent to work with.”
Senior statesman Marvin Fabyanske draws on longstanding experience in the construction industry, offering additional expertise in areas such as insurance disputes. Clients appreciate his “creative solutions to sometimes very difficult issues,” and note that he “works toward equitable resolutions while helping us maintain positive relationships.”
This discussion is generalized in nature and should not be considered a substitute for professional advice. © 2017 FWH&T.