Sales and use tax relief for contractors.

The Maryland sales and use tax will be increased from 5% to 6% on January 3, 2008; however, there is a limited exception for contractors and subcontractors who buy materials after January 3rd for incorporation into real property under a contract that was made before January 3rd. In other words, contractors who entered into contracts in 2007 can buy materials for those projects at the 5% sales tax rate even after the 6% rate generally goes into effect. The Comptroller's office has created a certificate that contractors can submit to vendors in order to receive the 5% rate. Vendors are not required to accept the certificate and can charge the 6% rate, but in that case contractors may submit the certificate directly to the Comptroller's office for a rebate in the amount of the extra 1% sales tax paid. The certificate is available here.

Important Changes to the 2007 A401 - AIA Standard Form of Agreement Between A Contractor and Subcontractor

The American Institute of Architects (“AIA”) revised its standard form contract documents this year, including the standard form agreement between a contractor and subcontractor.

Published in October 2007, the changes to AIA A401-2007 contain large impacts to both general and subcontractors, some of which are summarized below:

Subcontract Documents

Under the new A401-2007 contract form, a contractor need only make available the Subcontract Documents to a subcontractor, where previously copies of these documents were furnished by the contractor. As such, a subcontractor must specifically request all Subcontract Documents from the contractor to ensure that they know the entire scope of work for a project.

Timing Change for a Contractor’s Remedies

If a subcontractor defaults or neglects to carry out its scope of work pursuant to the agreement and the contractor provides written notice as a result, A401-2007 expands the time a subcontractor has to correct such default or neglect. The subcontractor now has five working days, instead of three, to commence and continue correction of such default or neglect.

Written Requirement for Work Performed by a Sub-Subcontractor

A401-2007 requires a subcontractor to enter into written agreements with sub-subcontractors performing work on the agreement between the contractor and first tier subcontractor. This places a stricter burden on the subcontractor, as the previous version of A401 only required written agreements between a first and second tier subcontractor upon a request by the contractor.

Indemnity of the Contractor

Subcontractor must indemnify the contractor for the cost and expense a contractor incurs for 1) remediation of a material or substance brought to the site and negligently handled by the subcontractor; or 2) where the subcontractor fails to perform its obligation of taking reasonable precautions to prevent foreseeable bodily injury or death resulting from a hazardous material or substance.

Warranty

In the event that a warranty issue arises, the revised 2007 contract requires the subcontractor, at the request of the contractor and architect, to furnish satisfactory evidence as to the kind and quality of materials and equipment used. Therefore, subcontractors must keep organized records of the materials and equipment used after the completion of the project to ensure they can comply with this new provision.

Acceptance of Final Payment Constitute a Waiver of Claims

Any outstanding claims by a subcontractor are waived upon acceptance of final payment, unless the claims are made in writing and identified by the subcontractor as unsettled at the time of final application for payment. Subcontractors must be vigilant with ensuring proper documentation on all outstanding claims has been brought to the contractors attention prior to accepting final payment.

Again, these changes do not encompass all of the changes made to the A401, but are key updates that may affect your rights as a contractor or subcontractor.

A101 2007 Changes

The A101- 2007 provides a few significant changes from its 1997 counterpart. We will outline those that we believe are more than just stylistic.

1. On the cover page, the A101-2007 requires a more detailed description of the project.

2. In Article 3, liquidated damages can be assessed for failing to achieve substantial completion on time. The A101-1997 referred only to completion

3. Article 4 provides for the inclusion of any allowances in the Contract Sum.

4. The dispute resolution provision is markedly different. It creates an Initial Decision Maker, with the Architect holding this designation unless the parties agree and insert information on someone other than the architect to take on this role. Most Claims, must be referred to the Initial Decision Maker for initial decision. The initial decision is a condition precedent to mediation. The A101 2007 requires mediation under most circumstances, but does not require arbitration. Instead, the parties can elect arbitration, litigation or some other dispute resolution process. However, mediation is a condition precedent to binding dispute resolution.

5. Article 9 incorporates a digital protocol exhibit that governs the manner in which the parties will handle the transmission of electronic data.

6. Article 10 contains a provision to set forth the bonding and insurance requirements.

In the next blog entry we will discuss the A401 2007. For questions, contact Matt Hjortsberg at Hjortsberg@bowie-jensen.com or 410-583-2400.