What are the Changes in AIA’s General Conditions Contract?

By John S. Mrowiec

The American Institute of Architects publishes a series of design and construction contract and contract administration documents. AIA has generally revised its Owner-Contractor and Owner-Architect agreements every 10 years.

advertisement

Major Changes

Review of Contract Documents: In prior editions, the contractor was obligated to review the Contract Documents before starting each portion of the work and was not responsible to the owner for damages resulting from errors, omissions or inconsistencies in those Contract Documents unless the contractor “recognized” an error or omission and “knowingly” failed to report to the architect, Section 3.2.3 (1997 ed.).

In the 2007 edition, the contractor is absolved from damages only if the contractor performs its obligations to inspect and to report any errors, inconsistencies or omissions “discovered by or made known” to the contractor, Section 3.2.4 (2007 ed.). But the “knowing” standard of 1997 is eliminated.

Submittals: The timeliness of the architect’s submittal review sometimes leads to claims by Contractor against an Owner for delay. In the 2007 edition, the contractor is to review, approve and submit the submittals to the architect “in accordance with the submittal schedule approved by the Architect,” Section 3.12.5 (2007 ed.). Prior editions of the A201 did not obligate the contractor to provide a submittal schedule for the architect’s approval as a precondition to claims for delays in the shop drawing process.

Owner’s Financial Information: The General Conditions previously provided that the contractor could request in writing reasonable evidence of the owner’s financing to fulfill the owner’s contractual obligations “prior to commencement of the Work and thereafter” without express restriction, Section 2.2.1 (1997 ed.). The owner’s furnishing of evidence was a condition precedent to the contractor’s commencement “or continuation of the Work,” Id.

Now, in the 2007 edition, the contractor’s post-commencement right to request evidence and to suspend if the evidence is not forthcoming is expressly restricted. The contractor now may ask post-commencement only where (1) the owner failed “to make payments” as required by the Contract Documents, (2) “a change in the Work materially changes the Contract Sum” or (3) the contractor identifies in writing “a reasonable concern regarding the Owner’s ability to make payment when due,” Section 2.2.1 (2007 ed.). The new General Conditions do not state who determines initially whether the change is “material” or the contractor’s concern is “reasonable” apparently leaving that to the claims process.

Subcontractor Payment: Formerly, the contractor was obligated under the General Conditions to pay subcontractors “promptly” on receipt of payment from owner, Section 9.6.2 (1997 ed.). Under the 2007 edition, the contractor is obligated to pay subcontractors no later than seven days after receipt of owner’s payment. Section 9.6.2 (2007 ed.).

If the architect withholds certification of a payment application for the contractor’s previous failure to pay subcontractors, the new A201 provides the owner the right to make joint check payments to the contractor and any subcontractor “to whom the Contractor failed to make payment for Work properly performed,” Section 9.5.3 (2007 ed.).

Beyond that, even without the contractor’s failure to pay subcontractors, the owner may request the contractor to provide written evidence of subcontractor payment. If the contractor does not provide the written evidence within seven days of owner’s request, the 2007 A201 grants the owner the right to contact subcontractors directly “to ascertain whether they have been properly paid,” Section 9.6.4 (2007 ed.).

Hazardous Materials: In previous editions of the General Conditions, the owner was obligated for those materials and substances brought to the site “required by the Contract Documents,” Section 10.4 (1997 ed.). That remains true in the 2007 edition “except to the extent of the contractor’s fault or negligence in the use and handling of such materials or substances,” Section 10.3.4 (2007 ed.). The contractor now expressly “is responsible for compliance with any requirements included in the Contract Documents regarding hazardous materials,” Section 10.3.1 (2007 ed.).

The new edition provides that the contractor “shall indemnify” the owner for the cost and expense the owner incurs for remediation of a material or substance the contractor brings to the site and negligently handles and (2) where the contractor fails to perform its obligations under Section 10.3.1, except to the extent of the owner’s fault. Section 10.3.5 (2007 ed.).

Additional Insured: It was customary for owners to require contractors to name owner, architect and others as Additional Insureds on the contractor’s commercial general liability insurance policies. Contractors typically require the same from subcontractors.
Despite an extensive insurance article in the A201, “Additional Insured” was not a subject of the AIA General Conditions. Instead, the Owner-Contractor Agreement provided that the parties could provide custom language regarding insurance in the Agreement. That is where parties typically addressed the subject.

Now, the 2007 General Conditions specifically require that the contractor’s commercial liability coverage must include owner, architect and architect’s consultants “as additional insured for claims caused in whole or in part by the contractor’s negligent acts or omissions” during contractor’s operations and the owner for completed operations, Section 11.4.1 (2007 ed.).

Dispute Resolution: The dispute resolution provisions of the AIA documents have been revised substantially for 2007 and now are part of a new Article 15. For the first time since 1911, if the parties choose, the architect might not be the initial decision maker on claims. For the first time since 1888, arbitration is no longer the required dispute resolution mechanism, but merely one option.

Under the Owner-Contractor Agreements, the parties have the right to designate a particular person to act as Initial Decision Maker (IDM). Under the 2007 General Conditions, the IDM decides claims, Section 15.2.1 (2007 ed.). Unless the parties choose a person other than the Architect to act as IDM, the Architect will maintain that role. Id. The IDM will not decide claims between anyone other than contractor and owner “unless the Initial Decision Maker and all affected parties agree.” Id.

Just as in prior editions when the architect decided claims, the “initial decision [of the IDM] shall be final and binding on the parties, but subject to mediation and, if the parties fail to resolve their dispute through mediation, to binding dispute resolution,” Section 15.2.5 (2007 ed.).

An important change in the 2007 edition is the right for one party to demand within 30 days from the initial decision the other to file for mediation. Unless, after timely demand, the other party files within 60 days from the initial decision, “then both parties waive their rights to mediate or pursue binding dispute resolution proceedings with respect to the initial decision,” Clause 15.2.6.1 (2007 ed.).

In another major change, the new Owner-Contractor Agreements provide a check box for whether litigation or arbitration will be the binding dispute resolution proceedings. Litigation is the default if no box is checked. If arbitration is selected, the 2007 General Conditions have modified the limits on consolidation or joinder.

The 1997 edition made it difficult for an owner to join an architect into the same dispute process with the owner and contractor, Section 4.6.4 (1997 ed.). Now, consolidation is permitted as long as the other agreement permits consolidation, the arbitrations substantially involve common questions of law or fact and employ materially similar procedural rules and methods for selecting arbitrators, Clause 15.4.4.1 (2007 ed.).

John S. Mrowiec is a partner with Chicago-based Conway & Mrowiec, a construction and public contracts law and litigation practice. He may be reached at (312) 658-1100. For information, go to the firm's Web site at www.cmcontractors.com.