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The 2017 AIA Construction Contracts Updates

Posted in Case Law,Contracts by Blue Blog on the January 8th, 2018

AIA Updates Construction Documents for 2017

By:  Robby C. Stubley

For nearly 130 years, the American Association of Architects (AIA) has published some of the most popular and widely used forms and documents in the construction industry. Historically, the AIA has continuously revised and updated those documents to reflect current industry standards and conditions, issuing revisions to their standard forms and contracts every ten years. Continuing with this trend, in April of 2017, the American Institute of Architects released 14 document updates to its design-bid-build family of documents. While many of the 2017 changes are relatively minor clarifications and modifications, AIA has also made several substantive changes, some of which are discussed below:

The most significant of the 2017 changes to AIA-A201 is the revision of Article 11 and the creation of an insurance and bond exhibit for many of its owner-contractor agreements. Unlike the previous (2007) version of the AIA-A201, in which insurance and bond requirements were primarily presented in the agreement itself, the majority of insurance and bond terms under the 2017 update have been relocated to a new Insurance and Bond Exhibit, which must be read in conjunction with the remaining terms of Section 11 of the agreement. This Insurance and Bond Exhibit is more user-friendly, with check-the-box insurance coverage requirements, and allows the parties to negotiate insurance minimums and limits.

Among the revisions to Article 11 is the new requirement that the owner identify sub-limits on its Builder Risk policy. Article 11 also contains new provisions regarding the adjustment and settlement of insured losses covered by property insurance. Such losses are to be adjusted by, and made payable to, the owner as fiduciary for the insured. Prior to settlement of an insured loss, the owner must notify the contractor of the proposed settlement as well as the proposed allocation of the insurance proceeds. Upon such notice, the contractor shall have 14 days to object to the proposed settlement and allocation. If a timely objection is made, the owner may proceed to settle the loss, and any dispute between the owner and contractor pertaining to the settlement or allocation of proceeds shall be resolved under the claims and disputes provisions.

In order to create a more flexible and expansive set of insurance requirements, the new Insurance and Bond Exhibit distinguishes between required coverages and optional coverages. Among the coverages required include commercial general liability, automobile liability, workers’ compensation, and employers’ liability. Additional insurance coverage may also be required if the contractor’s work involves activities with risks addressed by those coverages. These may include coverages related to professional liability, pollution liability, maritime liability, and liability for the use or operation of manned or umanned aircraft. Optional coverages may including railroad protective liability insurance, asbestos abatement liability insurance, and insurance for physical damage to property while in storage or transit.

The new Exhibit also requires the owner to purchase property insurance written on a builder’s risk “all-risks” completed value or equivalent policy form, and sufficient to cover the total value of the entire project on a replacement cost basis [the contractor may optionally provide this coverage]. Such insurance and other required insurance bonds shall be procured prior to commencement of the work, from companies lawfully authorized to issue insurance or surety bonds in the jurisdiction where the project is located. This coverage must be maintained until substantial completion of the work. If the work involves remodeling an existing structure or an addition to an existing structure, the property insurance must also cover the existing structure against direct physical loss or damage on a replacement cost basis. This too must be maintained until substantial completion and thereafter continued or replaced with coverage for the total value of the project through the contractor’s one-year period for correction. This insurance is to include interests of the owner, contractor, subcontractors, and sub-subcontractors in the project, and the interests of mortgagees as loss payees. The parties must also indicate whether the contractor is required to obtain payment and performance bonds for the project and, if so, to specify the penal sum of the bonds.

Other significant changes to AIA-A201 are as follows:

§ 1.7-Digital Data Use and Transmission. A201-2017 automatically incorporates the protocol established in 2013 and memorialized in E203, notably, that if the parties do not use E203 or otherwise agree on protocols for digital data, the contractor’s reliance on BIM modeling shall be at its “sole risk and without liability for any other party”.

§ 2.2-Owner Financing. Under the revised Section 2.2, the owner must provide “reasonable evidence” demonstrating adequate financing for the Project or contract. Once the Project has begun, the contractor is entitled to financial proof of adequate financing if there is a change in the scope of work “materially altering” the contract sum, and the contractor identifies a “reasonable concern” regarding the owner’s ability to pay. The owner shall be required to provide financial information to the contractor, upon written request, within fourteen days. If the owner does not comply with that request, the contractor is entitled to cease work on the portion of the work affected by that change. The Contractor is under no obligation to

Warranty (§ 3.5). Section 3.5 mandates that all “material, equipment, or other special warranties required by the Contract documents” be issued in the Owner’s name.

Notice (§ 3.7). Under Section 3.7.4, the time period within which to give notice of a differing site condition has decreased from 21 to 14 days.

Scheduling (§ 3.10). Under Section 3.10.1, the contractor’s schedule is required 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.”

Delegated Design (§ 3.12). Under the revised Section 3.12.10.1, the Contractor is now entitled to “rely upon te adequacy and accuracy of the performance and design criteria provided in the Contract Documents.”

Contractor Communications (§ 4.2.4). Pursuant to Section 4.2.4, communications between the owner and contractor, directly, are now officially allowed, and the Architect need only be cc’d on any correspondence related to its services and professional liability.

Other Contractors (§ 6.1.1-2). The 2007 edition absolves Contractors of responsibility for identifying discrepancies in Separate Contractors’ work if those discrepancies were “not then reasonably discoverable.” The 2017 revision replaces the more subjective “reasonable discovery” standard of absolving Contractors of liability for defects “not apparent”.

Unit Prices (§ 7.3.4). The variation in quantities (VEQ) clause was moved in 2017 from Article 7 to Article 9, which means that the VEQ now applies to any quantity variations and not just to changes in a Change Order or CCD.

Subcontractor Lien Claims (§ 9.6.8-Subcontractor Lien Claims). For 2017, a new provision has been added which requires Contractors to remove Subcontractor liens if the Contractor has received “proper payment.” However, “proper payment” has not yet been defined, and it may be necessary to amend this Section to avoid disputes over ambiguity.

Termination for Convenience (§ 14.4.3). Termination for Convenience: Upon a termination for convenience, the Contractor is now entitled to receive a “termination fee” rather than “reasonable overhead and profit.” However, if a termination fee is not specified, the Contractor will not be entitled to any payment for expenses beyond the work performed due to a termination of convenience.

Claims (§ 15.1). Under the 2017 revisions, the Owner need not make a claim to assess liquidated damages. However, providing such notice is still recommended, as without Notice of a Claim, the Contractor may not know whether to make its own claim for a time extension or to accelerate (and thereby mitigate) a potential claim for liquidated damages. If made prior to or during the correction of work period, a notice of claims must be made within 21 days, while those arising after that period may be initiated at any time.

Time of Initiation of Dispute Resolution and Mediation (§ 15.3.3). Either party may now 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 finding dispute resolution within that 60 day window of receiving the demand, both parties waive their rights to binding dispute resolution.

While this Blog makes note of a number of the more significant revisions and modifications to the A201 for 2017, a number of other revisions were made that can and may affect have significant repercussions if misunderstood or ignored. As a result, care should be taken to review and understand the provisions of the A201, and if needed, the document should be negotiated prior to its incorporation into any Agreement.

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