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VOICES FROM THE INDUSTRY: New architecture contracts bring interesting changes

March 31, 2008

Change. While it is a buzz word that some political candidates throw around like candy, the construction industry is bracing for an important and imminent change of their own.

The American Institute of Architects has produced standard contract forms for the construction industry for more than 100 years. Regardless of your perspective on such forms, the AIA forms still are the most commonly used standard forms in the industry.

The AIA released their updated and revised set of contract forms in late 2007. This was the first major revision in 10 years. It has taken many years to address and negotiate the terms of the 1997 AIA documents, and we now are faced with the daunting task of implementing new forms in the industry.

Interestingly, there is now a competing set of contract forms for 2007 called the ConsensusDOCS, created through a collaborative effort of the Associated General Contractors of America and a group of 20 or so construction associations.

While there are several revamped or new forms for 2007, the AIA's keystone document is the A201 General Conditions form. The A201 has seen significant changes, many of which are incorporated throughout the AIA's series of standard forms.

Perhaps the most publicized change is the installation of an initial decision maker, or IDM, for dispute resolution and termination. One of the perpetual criticisms of AIA claim-resolution procedures is the perception that the architect, who is engaged by the owner, is a biased decision-maker when it comes to ruling on contractor claims.

Moreover, there are inherent conflicts in asking an architect to render a decision on a claim from the contractor that may implicate the architect's design. The AIA's answer to this criticism is the IDM. Under the 2007 AIA forms, the IDM is to render initial decisions on claims and to certify termination for cause. The owner and contractor can designate an IDM, but if no IDM is selected, the architect becomes the IDM by default.

Devil in details

While the introduction of an IDM is an innovative concept, the devil lies in the details. It is not clear under the A201 how the IDM will be selected, or when the IDM will be engaged. This is to be decided by the parties. Who will pay for the IDM? If the IDM is not the architect, how expensive will it be to require a neutral third party who is "cold" to the job to ramp up its review and investigation of the claims? How involved should the IDM be with the project? Does the IDM attend progress meetings and conduct site visits?

All of these issues impact the cost, which will likely be the biggest detractor concerning use of the IDM. However, the benefit of having a neutral and objective third party may outweigh this concern. Lastly, who should be engaged as an IDM? Conceivably, attorneys, construction consultants or experts, or any other third-party contractors or design professionals may be good candidates.

There are other significant changes in the dispute-resolution procedures. Mediation is still mandatory, but arbitration is no longer the default dispute-resolution procedure. In the A201 and throughout its family of contracts, the AIA has now implemented a new "Check Box" disputeresolution process, wherein the parties check litigation, arbitration or "other" as the agreed upon dispute-resolution procedure. This is a major shift away from the mandatory arbitration approach.

Also, arbitration through the American Arbitration Association, or AAA, is no longer mandatory. The parties can agree to other arbitration rules, procedures and facilitators. This represents a significant divorce between the AIA and AAA. If arbitration is provided for, the consolidation of separate arbitration proceedings is permitted. Now, disputes that have common facts and issues can be consolidated.

Digital emphasis

Throughout the new 2007 AIA forms, there is increased emphasis on electronic documents and digital data. In furtherance of this effort, the AIA has redefined the architect's Instruments of Service and created a new C106 Digital Data Licensing Agreement to deal with the transfer and licensing of digital data.

Another new form is the E201 Digital Data Protocol Exhibit, which provides a table identifying the various types of digital data and how it should be exchanged between the parties.

Overall, the new A201 calls for a reduced role for the architect as the owner's representative and additional restrictions and limitations on the architect's construction phase duties have been added. This is a clear movement to peel back the architect's construction phase role on the project. There are new restraints on the owner's financial disclosures as well which make it more difficult for the contractor to obtain financial information from the owner.

There are critical changes to insurance requirements. The new A201 requires the owner and architect to be named as additional insureds under the contractor's Commercial General Liability policy, and completed operations coverage is now required as part of that CGL policy.

One last legal change to the A201 to note, the AIA has eliminated the concept of a statute of limitations and replaced it with a statute of repose. This essentially requires that claims be brought within 10 years after the date of substantial completion or else they will lapse and be time-barred.

In the years ahead, it will be interesting to see how these changes are implemented and how they will be judged.



Drewry is a partner at Indianapolis law firm Drewry Simmons Vornehm. Views expressed here are the writer's.
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