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Not So True to Form

Just last year, the American Institute of Architects (AIA) released its update to its contract documents library. Given that the AIA only updates the contract documents every ten (10) years, the update garners significant attention in the construction industry. This article provides a brief overview and commentary of some of the changes to AIA A201 (General Terms and Conditions).

  1. Prove Your Worth. The updated A201 places additional obligations on an owner to provide financial information to a contractor. This update was necessitated, in part, by the fact it is not uncommon for an owner to be a single-purpose entity with limited or no assets beyond the project site.  The updated forms now require owners to provide “reasonable evidence” that it can fulfill its financial arrangements under the contract.
  2. Don’t Lien On Me. In a newly added provision, the A201 now imposes a clear obligation on a contractor to defend and indemnify an owner for any mechanics’ liens or other claim against the project, provided that the owner has satisfied its payment obligations to the contractor. Moreover, contractors are now required to submit lien waivers with their applications for progress payments. Both should be welcomed changes by owners and the latter is often required by owners’ lenders.
  3. A Convenient Termination. The A201 now clarifies that upon a termination for convenience by an owner, a contractor is entitled to payment: (a) for all work properly executed; (b) for costs incurred by reason of such termination (including costs attributable to termination of subcontractors; and (c) of a termination fee as may be agreed among the parties in the contract documents.  Both owners and contractors should take note of this change as the termination fee could be a point of contention during contract negotiation.
  4. Do You Have My Back? Curiously, the AIA decided to make few changes to the indemnification provision which, in essence, requires a contractor to indemnify the owner “only to the extent” the liability was caused by a contractor’s negligence or wrongdoing.  This qualifying language is often found at the center of disputes and court opinions. Consequently, the parties’ respective indemnification obligations should be carefully considered and negotiated prior to the signing the contract.
  1. Show Me A Warranty. All warranties must now either be in the owner’s name or transferrable to the owner. This is a subtle change, but an important one as the owner should be the ultimate beneficiary of warranties relating to the work.
  1. Talk to Me. An owner may now directly communicate with a contractor about the scope of work as opposed to previously having to communicate through the architect.  While this change may help streamline project communication, both the owner and contractor should be mindful about communication and decisions relating to the scope of the work without input from the architect.

It is noted that the reference to the AIA Documents as “form documents” is a bit of a misnomer.  While an AIA Document serves as an excellent starting point, it is imperative that the parties negotiate and modify the AIA Document to address the specific project needs and goals.

Scott Osborn is an attorney with the Business and Transactional practice group at Davis, Agnor, Rapaport & Skalny LLC. Scott commonly works with developers and construction professionals in all facets of the construction process.  If you have questions about your project please contact Scott.