Proposed 2007 AIA Contract Changes

Important Potential Changes to the 2007 AIA Contract Affecting Contractors and Subcontractors

The American Institute of Architects (“AIA”) is preparing revisions to key contract documents that have remained unchanged since 1997. The changes are expected to be published in October of 2007, and the anticipated changes to AIA A201-2007 contain large impacts to both general and subcontractors, some of which are summarized below:

Payment Procedures

Under the new A201-2007, contractors must pay subcontractors “no later than seven days after receipt of payment from Owner” (the current A201-1997 requires the contractor to “promptly pay” but does not define what “promptly” means). Another benefit to subcontractors is a new provision of A201-2007 that entitles owners to request written confirmation from the contractor evidencing payment to the subcontractors. If the contractor does not reply in 7 days, the owner may contact the subcontractors directly. A201-2007 also provides that when certification of payment is withheld by the architect, the owners may contact subcontractors to ask about the payment status, and make joint check payments, if necessary.

Insurance Coverage

The revised contract requires contractors and subcontractors to carry additional insurance coverage. This may result in higher costs, greater risk, and more exposure to claims and loss to the subcontractor.

Financial Assurances from Owners

The 2007 contract revisions also place new limitations on a contractor’s ability to request financial assurances from the owner after work has commenced. This is reflected in a change to the owner financial arrangement disclosure requirement.

IDM

While the Architect remains the default Initial Decision Maker (IDM), the revised 2007 contract provides that “unless otherwise indicated in the agreement” the Architect can be replaced by an IDM, which diminishes the Architect’s role in the dispute resolution process. The IDM reviews claims within ten days of receipt of a claim, acting as a third-party neutral in disputes between the owner and contractor or other parties. The initial decision is final and binding, unless a party seeks to appeal the IDM’s decision via mediation, arbitration, or litigation.

Arbitration and Litigation

The revised 2007 contract will no longer specify mandatory arbitration as a means of dispute resolution, but will permit parties to elect either arbitration or litigation after unsuccessful mediation. If no selection is made, litigation is the default.

Limits on Consolidation and Joinder

In 2007, consolidation and joinder will be made easier in arbitration. The Owner and Contractor may consolidate arbitrations if certain conditions are met. Other arbitrations can be consolidated at the election of the party whose arbitration is consolidated. There no longer is a requirement that there be consent of the architect or contractor for a subcontractor to be joined in arbitration involving the owner; therefore, the 2007 AIA increases a subcontractor’s risk of being joined in arbitration.

Contingent Assignments

The new A201 will provide greater protection for subcontractors in the event of termination of the prime contract. The revised document provides that, if the owner accepts the assignment of a subcontractor agreement, the owner assumes the contractor’s rights and obligations under the subcontract. The owner may then assign the subcontractor to a successor contractor or other entity.

Again, these changes to the key AIA contract documents have not yet taken effect, but updated information about these proposed changes and their pending adoption will be available on the new Bowie & Jensen construction law blog, at www.mdconstructionlaw.com/.

For more information on this subject, please contact Michael W. Siri.