Changes To The New AIA B101-2017 and B103-2017 Owner/Architect Agreements

Category | Briefing Papers

By Kristine Kroenke and Dean Thomson. Dean is a member of the firm’s Construction Law Department and can be reached at 612.359.7624 or dthomson@fwhtlaw.com.

        This Briefing Paper is a companion to our earlier Briefing Paper on the AIA A201-2017 General Conditions.  Like the recently revised A201 General Conditions, new revisions to the AIA B101, Standard Form of Agreement Between Owner and Architect, and the B103, Standard Form of Agreement Between Owner and Architect for a Complex Project, were issued by the AIA in April 2017.  This Briefing Paper will highlight some of the more significant changes to the standard forms of these Owner/Architect Agreements.

        Many of the changes to the B103 are the same as the changes made to the B101.  This Briefing Paper will provide the citation to both documents with the applicable sections of the B103-2017 included in parentheses.  However, despite some changes to standardize the language between the two forms, there are a few notable differences between the B101-2017 and the B103-2017, which are also discussed below.

• Article 1 – Initial Information – The B101-2017 contains many additions to Article 1 that were previously included in the longer B103-2007, and remain in the B103-2017. For example, § 1.1 now includes Subsections to define the Owner’s program, the Project’s physical characteristics, the Owner’s budget for the Cost of the Work, schedule milestone dates for design and construction, and consultants, among other items.  As this type of information is critical for small as well as large projects, these additions to the shorter form are useful.

• § 1.1.6.1 (B103-2017, § 1.1.7 and § 1.1.7.1) – Sustainable Objectives – This new section of the B101-2017 and B103-2017 requires the parties to use the AIA Document E204-2017, Sustainable Projects Exhibit if the “Owner identifies a Sustainable Objective.” This is a potential trap for the unwary if the parties were not anticipating use of the E204-2017 document or are not familiar with it.  The parties should be careful to either modify this Section or review the E204-2017.  See also § 5.7, which states the Owner shall fulfill its responsibilities under the E204-2017 if it defines a Sustainable Objective in Article 1.  Other changes have been made to reflect the addition of the concepts of Sustainable Objective and sustainable design alternatives, including §§ 3.2.5.1, 4.1.1.24, 4.1.3, 5.7 (§5.8 in the B103), 11.8.1.11, 11.10.1.2, and 13.2.3.

• § 1.2 (B103-2017, § 1.2) – Reliance on Initial Information ­–This Section retains the Architect’s right to rely on the Initial Information provided by the Owner, as well as the language that the Owner and Architect “shall appropriately adjust” the Architect’s compensation and schedule of services if that Initial Information materially changes. However, “Architect’s services” were added to the list of items to be “appropriately” adjusted.  A new sentence was also added to emphasize that material changes to the Initial Information “shall” require the Owner to adjust its budget and design and construction milestones as necessary to accommodate those changes.  As this Agreement is executed at the very start of the Project, it is highly likely that the Initial Information will change, which has often caused Owners and their counsel to object to the seemingly automatic request for a Change Order by the Architect for additional compensation and time this section creates.  Owner’s counsel sometimes instead propose an equitable adjustment to compensation and schedule if warranted by the type and kind of material changes made to the Initial Information.

• § 1.3 & § 1.3.1 (B103-2017, § 1.3 & § 1.3.1)– Digital Data Use and Transmission. These new Sections of the B101-2017 and B103-2017 state that the parties will use the AIA Document E203-2013, Building Information Modeling and Digital Data Exhibit.  This Section further provides that failure to agree on BIM protocols means that the party using the BIM shall use it at its sole risk and without liability to the other party, or its contractors or consultants.  As reliance on BIM is becoming more prevalent, it is in all parties’ interests to negotiate its terms of use at the start of the Project.

• § 2.5 (B103-2017, § 2.5) – Insurance – The B101-2017 and the B103-2017 include more robust insurance provisions as compared to the 2007 forms. Previously, the B101-2007 included only a list of insurance types – general liability, automobile liability, workers’ compensation and professional liability – but left it to the Owner and Architect to draft language defining coverage requirements and limits.  The B103-2007 insurance requirements were not much more defined.  The B101-2017 and the B103-2017 include the same types of liability coverage, but provide more detail on coverage requirements.  For example, a useful addition was made to § 2.5.3 to permit the limits of coverage to be reached by a combination of primary and excess CGL policies.  Section 2.5.7 also includes a requirement that the Architect name the Owner as an additional insured on the Architect’s CGL and Auto Liability policies, and that such coverage will be primary and non-contributory and apply to both ongoing and completed operations.  The requirements listed are fairly common, but the parties should still consider adding further detail, particularly on PL coverage and endorsements.

• Article 3 (B103-2017, Article 3) – Scope of Architect’s Basic Services –Several provisions were added to Article 3 to allow the Architect to charge additional fees that may be a surprise to the Owner. The document retains the concept of Basic Services and states that needed or requested services not included in Basic Services qualify as either Additional Services or as the newly named Supplemental Services for which the Owner must pay additional compensation to the Architect.  It is hard to understand why needed services should not be included in Basic Services.  As a result, many Owners invert this structure and instead list the types of additional or supplemental services that will qualify for additional compensation and then state that any other services necessary for Project or for the Architect to fulfill its standard of care are part of Basic Services.  The scope of the Architect’s Basic Services is often a point of contention, and the B101-2017 and B103-2017 could have done more to clarify the scope.

• § 3.1.1 (B103-2017, § 3.1.1) – Management of Architect’s Services –The phrase “consult with the Owner” was deleted in this Section, which generally describes the Architect’s Basic Services. It is not clear why this requirement was deleted as consultation with the Owner is a basic service essential to matching the design to the Owner’s needs and  increases the likelihood the Owner will accept the design.

• § 3.1.5 (B103-2017, § 3.1.7) – Communication with Governmental Authorities – Similar to the deletion in § 3.1.1, the reason for the deletion of the Architect’s obligation to consult with governmental authorities “at appropriate times” is also unclear. The documents now allow the Architect to request a change order if it disagrees with the interpretation of the authority having jurisdiction over code compliance (see discussion of § 4.2.1.3 below), so the sooner the issue of code compliance is brought to the fore by consultation with governmental authorities, the better the parties will be protected from a future surprise regarding code compliance.

• § 3.2.3 (B103-2017, § 3.2.3) – Preliminary Evaluation to Owner – It is unclear why the Architect’s obligation to raise sustainability issues with the Owner was deleted from § 3.2.3 – a preliminary evaluation is an appropriate time to raise such questions to avoid inefficient redesign.

• § 3.6.4.3 (B103-2017, § 3.6.4.3) – Architect’s Review of Contractor Designs – This Section discussing the Architect’s responsibilities to review Contractor designs specifically adds that “[t]he Architect’s review shall be for the limited purpose of checking for conformance with information given and the design concept expressed in the Contract Documents.” The added language appears to clarify what the Architect has usually previously insisted was implied in this Section.  However, the opportunity was missed to clarify the issue of overall responsibility for coordination and integration of all designs.  Coordination and integration of the Instruments of Service on the Project are particularly important if the Contractor has any design/build obligations on a portion of the Work, such as the MEP scope, or if the Project involves a remodel or expansion of an existing structure.  To lessen arguments down the road and to improve the resulting Project, someone should be specifically responsible for coordinating all of the designs.  As the Architect usually prepares the overall project design, it makes sense to have the Architect include in its Basic Services the coordination of third-party designs with its overall design.

• Article 4 (B103-2017, Article 4) – Supplemental and Additional Services – The B101-2017 and B103-2017 include the new concept of “Supplemental Services.” These Supplemental Services are to be paid in addition to the Basic Services as specified in § 11.2, are not part of the Architect’s Basic Services, and are not provided unless designated in the Supplemental Services Table.  According to the AIA, Additional Services requests are intended to be used for unforeseen changes, while Supplemental Services are intended for services that are foreseeable at the commencement of the Project, but are not typically included in the Architect’s Basic Services Fee.  However, many of the services included in the Supplemental Services table are services many Owners (and some Architects) consider to be Basic Services, such as “multiple preliminary designs” (§ 4.1.1.2); Site evaluation and planning (§ 4.1.1.5); Building Information Model management responsibilities (§ 4.1.1.6); civil engineering (§ 4.1.1.8); landscape design (§ 4.1.1.9); on-site project representation (§ 4.1.1.13); as-designed record drawings (§ 4.1.1.15); as-constructed record drawings (§ 4.1.1.16); multiple bid packages (§ 4.1.1.26); and perhaps others as well.  The AIA’s attempt to allow for more opportunities for design professionals to request additional compensation for additional or supplemental services will likely be the most negotiated part of these new documents.

• § 4.1.2 (B103, § 4.1.2) – Description of Supplemental Services – This new section provides a space for the parties to provide additional detail to describe the services designated in the Supplemental Services table. While providing a section for the parties to further define the intended scope of work for each of the items listed in the “Supplemental Services” table is useful, an opportunity was missed to provide longer, more substantive descriptions of these services to assist the parties in understanding what is generally included in each service instead of the short, somewhat vague, descriptions in § 4.1.1.1 through § 4.1.1.30. 

• § 4.2.1.3 (B103-2017, § 4.2.1.3) – Changes To Codes, Laws, or Regulations – A common complaint by design professionals is that Code or Building Officials with design approval jurisdiction regularly impose additional design requirements or changes during construction to previously submitted Instruments of Services. Design professionals frequently disagree with these determinations, claiming that they are not proper Code interpretations or do not reflect the applicable design standard of care.  Faced with an official decision with which they disagree, the design professional either has to appeal the Official’s decision or revise its designs.  As it is often a time consuming (and fruitless) effort to appeal, the design professional usually makes the change demanded by the Official rather than delay the construction of that component of the Project.  Disputes over which party should pay the cost of changing the design to comply with the Official’s decision are common; the Owner argues these costs should be borne by the design professional as compliance with Code is expected by the design professional’s standard of care.  The revisions to § 4.2.1.3, however, seek to change this outcome.  If the  Instruments of Service were prepared in accordance with the applicable standard of care (according to the Architect) but nevertheless rejected by the authority, then the Architect is entitled to payment for an Additional Service to make the change ordered by the authority.

• § 4.2.4 (B103-2017, § 4.2.4) – Additional Services for Delayed Construction Completion – This is a new Section that provides another opportunity for the Architect to be paid additional compensation. According to this Section, the Architect is to be paid for Additional Services if its Construction Phase Services are provided more than 60 days after the earlier of the Substantial Completion Date or the expected Substantial Completion date.  Given that § 4.2.5 already provides for the Architect to be paid Additional Services if its services are not completed within a specified time frame, this Section could be duplicative of § 4.2.5, although it does provide a few exceptions and also requires the Architect actually to have incurred additional costs in providing the Construction Phase Services after the specified date.

• § 5.12 (B103-2017, § 5.11) – Project Communications – Consistent with changes made to the A201-2017 and with actual practice in the field, communications from the Owner to the Contractor regarding the Contract Documents no longer have to flow through the Architect; instead, the Owner need only include the Architect on communications relating to or affecting the Architect’s services and promptly notify the Architect of the substance of any direct communications between the Owner and Contractor that relate to the Project.  Communications with the Architect’s consultants, however, must still be through the Architect.

• § 6.3 (no coordinate change in B103-2017) – Cost of the Work Estimates –  Section 6.3 of the B101-2017 recognizes that the Architect has the ability to “recommend” reasonable adjustments to the Owner’s program and Project scope, but it should not, and does not as a practical matter, have the right to control the Owner’s program or Project scope.  The Architect also retains the right to include in the Contract Documents alternate designs (not just alternate bids) as may be necessary to adjust the estimated Cost of the Work to meet the Owner’s budget. Once again, the B101-2017 specifies the services that require additional compensation.  This Section keeps earlier revisions that eliminated detailed estimates of the Cost of the Work as a Basic Service and now expressly makes detailed estimates (i.e. those prepared on a basis other than current area, volume or similar conceptual estimating technique”) a Supplemental Service.

• 6.7 (no coordinate change in B103-2017) – Modification of Construction Documents to Meet Budget – This Section includes modifications that provide still more opportunity for the Architect to be paid for Additional Services. This Section applies when proposals from construction bidders exceed the Owner’s budget and the Owner requests the Architect to modify the design to reduce the Cost of the Work.  Previously, this Section required the Architect to perform the redesign “without additional compensation.”  Under the modified § 6.7, the Architect is entitled to payment for Additional Services if the proposals exceed the Owner’s budget “due to market conditions the Architect could not reasonably anticipate.”  Such a change is likely to lead to arguments on what the Architect could reasonably anticipate.  Moreover, it also increases the opportunity for arguments on why bidders’ proposals are higher than the Owner’s budget – e.g. are the bids higher than the budget because the Architects’ design was too ambitious or because construction costs have increased since the budget was established?  More clarity is needed about when an Additional Service request would be justified in these circumstances because the need to re-design to budget is not an uncommon occurrence.

        The B103-2017 treatment of this issue is different from the  B101-2017.  The revision made to the AIA Document B101-2017 § 6.7 to permit the Architect to claim additional compensation if a re-design is necessary was not made in the AIA Document B103-2017, § 6.6.  Instead, under § 6.6 of the B103-2017, if bids exceed the estimated Cost of the Work at the conclusion of the Design Development Phase and the Owner adjusts its program, scope, or quality to reduce the Cost of the Work, then the Architect shall incorporate the revisions in the Construction Documents “without additional compensation.”  However, under B103-2017, § 6.3, the Architect would be entitled to compensation for an Additional Service due to the “Cost Consultant’s “inaccuracies or incompleteness in preparing cost estimates, or due to market conditions the Architect could not reasonably anticipate.”  The AIA has not yet provided any justification for the different treatment for the same issue between the two documents.

• Article 8 – No Indemnity Provision in the B101-2017 – Notably absent from the B101-2017 is a provision requiring the Architect to indemnify the Owner against the Architect’s professional negligence. The absence is particularly notable since the B103-2017, § 8.1.3 (as well as the B103-2007) includes such an indemnity.  Again, the AIA has yet to provide any explanation for the different treatment of the same issue between the two documents.

• B103-2017 § 8.1.3 – Indemnity – The B103-2017, § 8.1.3 expressly excludes the duty to defend from the Architect’s duty to indemnify the Owner. The standard language continues to limit the Architect’s indemnity to “available proceeds of the insurance coverage required by the Agreement.”  There is no similar language in the B101-2017.  Limiting indemnity for the Architect’s negligence to available insurance proceeds can be problematic because professional liability insurance does not always cover all the damages caused by professional negligence.

• § 9.6 and § 9.7 (B103-2017, § 9.6 and § 9.7) – Termination for Convenience – If the Owner terminates the Owner/Architect Agreement for convenience or the Architect terminates because the Project has been suspended for more than 90 cumulative days, the B101-2017 and the B103-2017 provide that the Owner shall pay the Architect for services performed prior to termination, Reimbursable Expenses incurred, costs attributable to termination (including termination of consulting agreements), a Termination Fee, and a Licensing Fee if the Owner intends to continue to use the Instruments of Service.  However, there is no definition of what the “Termination Fee” would include.  Presumably, the AIA intends it to include some amount for lost profit for services not performed since the multiple other categories for which the Architect is now entitled to compensation generally encompass all other fees and costs the Architect might otherwise incur. Therefore, the amount of the “Termination Fee” should be negotiated before the Agreement is executed.

 

CONCLUSION

This Briefing Paper has not discussed all of the changes in the B101 and the B103, but has intended to address some of the more significant changes.  As with all of the AIA documents, changes can be made to the standard templates.  Timely review and negotiation can help the parties develop a contract that addresses the areas where additional clarification is needed or where a different risk allocation is desired.

 

Announcements

Fabyanske, Westra, Hart & Thomson, P.A. is pleased to announce that the following six attorneys from the firm were selected by their peers as U.S. News Best Lawyers in America©: Charles Carpenter, Gary Eidson, Marv Fabyanske, Kyle Hart, Dean Thomson and Mark Westra. U.S. News Best Lawyers in America© is one of the oldest and most respected peer-review publications in the legal profession.

Congratulations to the ten attorneys from Fabyanske, Westra, Hart & Thomson, P.A. who have been named 2017 “Minnesota Super Lawyers”. The polling, researching, and selecting of “Super Lawyers” is designed to identify Minnesota lawyers who have attained a high degree of peer recognition and professional achievement. Only five percent of Minnesota attorneys receive this honor. FWHT’s 2017 “Minnesota Super Lawyers” include Scott Anderson, Gary Eidson, Marv Fabyanske, Kyle Hart, Jesse Orman, Greg Spalj, Dean Thomson and Mark Westra. Once again, Kyle Hart was selected as a Top 100 Super Lawyer, and Dean Thomson was selected as a Top 10 Super Lawyer.

Congratulations to the Fabyanske, Westra, Hart & Thomson, P.A. attorney Hugh Brown who has been named 2017 Minnesota “Rising Star”.  “Rising Stars” are nominated by their peers and must be 40 years old or under, or have been practicing for 10 years or less. No more than 2.5 percent of the lawyers in the state are named to the list.

Fabyanske Westra Hart & Thomson congratulates shareholder Mark Becker on being elected Chair of the Construction Law Section of the Minnesota State Bar Association for 2017-2018.  Mark has served on the Construction Law Section Governing Council since 2012.  Mark represents Developers, General Contractors, Architects, Engineers, Subcontractors, and Sureties in negotiating contracts and resolving complex construction disputes.

Tom Vollbrecht is a Program Chair for the Construction Program on Insurance at the ABA/FSLC Mid-Winter Meeting in Washington, D.C. on January 25, 2018.  Tom is also a chapter author for the upcoming ABA/FSLC publication, Managing and Litigating the Complex Surety Case (Third Edition), and will be speaking at the Spring Surety Program in Santa Fe, NM on May 10-11, 2018.

This discussion is generalized in nature and should not be considered a substitute for professional advice. © 2017 FWH&T.