2007 AIA 201 - Multiple Prime Contracts

The 2007 AIA 201 shifts the risk from the owner to the contractor in instances where the Owner enters into agreements with multiple contractors for a single project. In this instance, (known as a multiple prime project), the 2007 AIA 201 provides that if the contractor’s work depends upon the work of another contractor, the contractor must, before beginning work, notify the architect of apparent discrepancies or defects in the work of the other contractor that would prevent the contractor from properly performing work. The failure to notify the architect of the discrepancies or defects results in acknowledgement by the contractor that the Owner’s separate contractors completed or partially completed construction is fit and proper to receive work. Moreover, unlike the ConsensusDocs, there is no contractual entitlement to price and time adjustments rendered necessary due to coordination.

For further information, contact Matt Hjortsberg at 410-583-2400 or Hjortsberg@bowie-jensen.com

2007 AIA 201 - Protocal for Electronic Records

The new AIA 201 contains a provision that requires the parties to agree on a "protocol" for the transmission of information and documents. This requirement is an obvious reaction to the diffuse manner in which information is exchanged with the advent of electronic and wireless technology. While the AIA 201 provides little guidance on the various considerations necessary to establish this protocol, the new ConsensusDocs provide a comprehensive list of factors that the parties must address when arriving at an agreed upon protocol. The ConsensusDocs, which are the contract documents endorsed by the American Subcontractor's Association and the American General Contractor's Association, set forth express factors for consideration of the parties. These considerations include (1) definition of documents and data to be accepted and transmitted electronically; (2) management and coordination responsibilities; necessary computer hardware and software; (3) acceptable formats transmission methods and verification procedures; (4) methods for maintaining version control; (5) security and privacy requirements; and (6) storage and retrieval requirements. Consequently, while the AIA 201 is short on guidance the ConsensusDocs provide express details on setting forth the appropriate protocol for the transmission of documents and is the prudent course to follow in this regard.

For further information, please contact Matt Hjortsberg at 410-583-2400 or Hjortsberg@bowie-jensen.com. Mr. Hjortsberg and Tina Gentle of Bowie & Jensen were recently featured on the cover of the Maryland Lawyer section of The Daily Record with respect to an article on handling electronic information in the context of litigation. View article.

2007 AIA 201 - Insurance Provisions

The 2007 AIA 201 contains some significant changes from the 1997 AIA 201. The article addressing insurance, among other provisions, caused the American Subcontractors Association to withhold its endorsement of the 2007 changes. This is not surprising given the shift of risk to the subcontractors. The AIA 201 changes require the subcontractor to maintain both operations hazard coverage and completed operations coverage for each project. In short, operations hazard covers third-party claims for bodily injury and property damage that occur during the course of the project. Completed operations coverage covers third-party claims for bodily injury and property damage for a period of time after the project is complete and work has stopped. The AIA 201 requires that this completed operations coverage stay in place for any maintenance period or for a period specified in the contract documents. Furthermore, the changes to the AIA 2007 significantly increase the project participants who must be named as an additional insured to the subcontractor's policy. For operations hazard coverage, the subcontractor must name the general contractor, the owner, the architect and the architect's consultants. For completed operations hazard coverage, the subcontractor must name the general contractor as an additional insured.

For further information, contact Matt Hjortsberg at 410-583-2400 or Hjortsberg@bowie-jensen.com.

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.

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.