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Important Changes To The 1997 AIA Standard Contract Documents

Written by Thomas H. Welby on . Posted in Important News.

Over the past century, the construction contract documents published by the American Institute of Architects have become an industry standard. First published in 1888, these agreements are now used throughout the nation on projects of every size and scope, in both the private and public sectors. Almost everyone in the construction industry has some understanding of what is meant by a “Standard AIA Contract”, but it would be a big mistake to think of these forms as being static, and unchanging over time. On the contrary, the American Institute of Architects has a long standing program whereby each of the more significant forms is revised and updated on a ten (10) year cycle, to reflect ever-changing industry customs and practices. In late 1997, the AIA issued thoroughly-revised editions of some of the more frequently used construction contract documents.

Contractors are, by definition, those who agree to perform certain work according to the terms of a contract (including plans and specifications), and agree to be paid in accordance with the terms and conditions of that contract. The very essence of being a contractor is to bring together experience, skill, and resources (labor, equipment, working capital, etc.), to perform the specified work in accordance with the allocation of risks, responsibilities and rewards defined in the contract documents. In today’s business environment, it is more important than ever, to focus not just on the plans and specifications, but also upon the provisions in the “boilerplate” portion of the contract, regarding performance and payment, when evaluating the risks of bidding on and entering into any particular contract.

Among the most important standard agreements are the AIA A101, which defines the relationship between the Owner and Contractor, the AIA A401, which defines the relationship between the Contractor and the Subcontractor, and the AIA A201, the General Conditions which accompany both the A101 and A401. There are many significant changes between the 1987 and the 1997 editions of these standard forms of agreement. Every prudent contractor would do well to thoroughly acquaint him or herself with these changes prior to entering into any contract based upon these standard forms of agreement.

It is beyond the scope of this article to discuss all of those changes in detail. However, among the more important changes are: 1.) the shifting of responsibility for incidental design from the architect/engineer to the contractor (or subcontractor/supplier); 2.) a major overhaul of the Alternative Dispute Resolution procedures, including the mandatory use of mediation as a pre-requisite to arbitration or litigation; 3.) a waiver of consequential damages by both the owner and the contractor (no more home office overhead claims); 4.) new guidelines for including partial payments for disputed change order work in monthly progress payments; and 5.) the right of the owner to terminate the contract for convenience, as opposed to terminating it for cause, and the corresponding right of the general contractor to terminate the subcontract for convenience, as well. Each and every one of these areas of change creates a re-allocation of risks and responsibilities, and provides new challenges and opportunities for contractors and subcontractors.

Traditionally, it was understood that the architect/engineer was responsible for the design of the work, and the contractor was responsible to perform the work in accordance with the plans and specifications. Of course, the contractor was always responsible for design related to means and methods, for example, sheeting, shoring and underpinning, etc. Under the 1997 A201, and under recent case law in New York, this division of responsibility has been changed. By its terms, the contract now may permit the owner to make the contractor responsible for certain items of design (for example, the design of connections for structural steel members). This would, in turn, make the contractor (or its structural steel fabricator), responsible to hire a licensed professional engineer (as opposed to a “detailer”), to analyze and design the connections and furnish sealed drawings.

For quite some time, it was argued by the contracting community that such allocation of design responsibility violated the laws of the State of New York, in particular, those laws relating to the licensed practice of engineering and architecture. In a decision dated December 30, 1997, entitled General Building Contractors of New York State, etc. against New York State Education Department, et al., the Supreme Court, Albany County, held that such shifting of the design responsibility to the contractor did not violate the State Education Law. Contractors must keep this new risk in mind when drafting contracts, subcontracts or purchase orders in the future.

In summary, it is imperative that the general contractor/subcontractor take the time to thoroughly read and understand these important construction industry forms, before signing their next “Standard AIA Contract”.Over the past century, the construction contract documents published by the American Institute of Architects have become an industry standard. First published in 1888, these agreements are now used throughout the nation on projects of every size and scope, in both the private and public sectors. Almost everyone in the construction industry has some understanding of what is meant by a “Standard AIA Contract”, but it would be a big mistake to think of these forms as being static, and unchanging over time. On the contrary, the American Institute of Architects has a long standing program whereby each of the more significant forms is revised and updated on a ten (10) year cycle, to reflect ever-changing industry customs and practices. In late 1997, the AIA issued thoroughly-revised editions of some of the more frequently used construction contract documents.

Contractors are, by definition, those who agree to perform certain work according to the terms of a contract (including plans and specifications), and agree to be paid in accordance with the terms and conditions of that contract. The very essence of being a contractor is to bring together experience, skill, and resources (labor, equipment, working capital, etc.), to perform the specified work in accordance with the allocation of risks, responsibilities and rewards defined in the contract documents. In today’s business environment, it is more important than ever, to focus not just on the plans and specifications, but also upon the provisions in the “boilerplate” portion of the contract, regarding performance and payment, when evaluating the risks of bidding on and entering into any particular contract.

Among the most important standard agreements are the AIA A101, which defines the relationship between the Owner and Contractor, the AIA A401, which defines the relationship between the Contractor and the Subcontractor, and the AIA A201, the General Conditions which accompany both the A101 and A401. There are many significant changes between the 1987 and the 1997 editions of these standard forms of agreement. Every prudent contractor would do well to thoroughly acquaint him or herself with these changes prior to entering into any contract based upon these standard forms of agreement.

It is beyond the scope of this article to discuss all of those changes in detail. However, among the more important changes are: 1.) the shifting of responsibility for incidental design from the architect/engineer to the contractor (or subcontractor/supplier); 2.) a major overhaul of the Alternative Dispute Resolution procedures, including the mandatory use of mediation as a pre-requisite to arbitration or litigation; 3.) a waiver of consequential damages by both the owner and the contractor (no more home office overhead claims); 4.) new guidelines for including partial payments for disputed change order work in monthly progress payments; and 5.) the right of the owner to terminate the contract for convenience, as opposed to terminating it for cause, and the corresponding right of the general contractor to terminate the subcontract for convenience, as well. Each and every one of these areas of change creates a re-allocation of risks and responsibilities, and provides new challenges and opportunities for contractors and subcontractors.

Traditionally, it was understood that the architect/engineer was responsible for the design of the work, and the contractor was responsible to perform the work in accordance with the plans and specifications. Of course, the contractor was always responsible for design related to means and methods, for example, sheeting, shoring and underpinning, etc. Under the 1997 A201, and under recent case law in New York, this division of responsibility has been changed. By its terms, the contract now may permit the owner to make the contractor responsible for certain items of design (for example, the design of connections for structural steel members). This would, in turn, make the contractor (or its structural steel fabricator), responsible to hire a licensed professional engineer (as opposed to a “detailer”), to analyze and design the connections and furnish sealed drawings.

For quite some time, it was argued by the contracting community that such allocation of design responsibility violated the laws of the State of New York, in particular, those laws relating to the licensed practice of engineering and architecture. In a decision dated December 30, 1997, entitled General Building Contractors of New York State, etc. against New York State Education Department, et al., the Supreme Court, Albany County, held that such shifting of the design responsibility to the contractor did not violate the State Education Law. Contractors must keep this new risk in mind when drafting contracts, subcontracts or purchase orders in the future.

In summary, it is imperative that the general contractor/subcontractor take the time to thoroughly read and understand these important construction industry forms, before signing their next “Standard AIA Contract”.

Green Building Requirements

Written by WB&G on . Posted in Important News.

Environmental concerns have significantly impacted the face of today’s construction industry. As recently as thirty years ago such concerns may have invoked little more than thoughts of rain at the jobsite. Today however, such concerns are truly business concerns, of which a prudent contractor, supplier, owner, and their attorney, must be aware. From land use restrictions and disposal mandates, to tax credits and insurance coverage, the environmentally-related considerations affecting today’s business environment are numerous and continuously evolving.

This article addresses the recently evolving impact of environmental concerns on building requirements. Specifically, this article addresses so-called “green building” requirements.

Though passing familiarity with the term “green building” is presumed, an exact definition for the term is not. Accordingly, for the purposes of this article, green building is the claimed practice of: 1. increasing the efficiency with which buildings and their sites use and obtain energy, water, and materials; and, 2. reducing building impacts on human health and the environment, through better siting, design, construction, operation, maintenance, and removal.

Proponents argue that the practice of green building leads to such benefits as reduced operating costs (by using less energy and water), improved public and occupant health (due to improved indoor air quality), and reduced environmental impacts (by utilizing less natural resources, lessening storm water runoff and lessening the “heat-islands” associated with urban environments).

Surely, few readers of this article will disagree that the above human and environmental byproducts of green building, if realized, are indeed benefits to the community. Equally as sure however, is that the actions necessary to realize the claimed benefits will not be collectively taken unless: 1. mandatory or, 2. such actions improve a business’ profitability.

First addressing profitability, while implementation of certain green building designs or materials may increase total project cost by one to seven percent (1-7%), the technological advances incorporated by way of green building have proven to strengthen a business’ bottom line. In fact, a recent study conducted for the State of California concluded that, on average, green buildings deliver a return on investment ten times the additional costs associated with green building. Accordingly, from advances in energy efficiency to cost reductions associated with recycling, it is inevitable that the implementation of certain green building techniques will benefit contractors, suppliers and owners. Increasingly however, regardless of profitability, the implementation of green building techniques by a contractor, supplier and even owner, will not be voluntary, but rather mandatory.

An example of the shift toward mandatory green building is Local Law of the City of New York for the Year 2005 No. 86, also known as the “LEED Law” or “Local Law 86”, which takes effect on January 1, 2007. Under Local Law 86, New York City’s capital projects, as well as private capital projects receiving city funding, must meet certain green building standards contained in the United States Green Building Council’s Leadership in Energy and Environmental Design (“LEED”) standards.

Local Law 86 will apply to those capital improvement projects which involve the construction and/or rehabilitation of a building where the total anticipated costs of the improvement exceed $2 million; installation or replacement of a boiler or HVAC system projects which exceed $2 million; installation or replacement of lighting systems projects which exceed $1 million; and, installation or replacement of plumbing systems projects which exceed $500,000.00.

With regard to private sector projects, Local Law 86 will apply where the project receives a minimum of $10 million or fifty percent (50%) of the estimated project cost from the City treasury.

Considering the anticipated $12 billion effect on construction of Local Law 86 over the City’s ten-year capital plan, it is clear that the Local Law 86 will have a major impact in promoting green design and building techniques throughout New York’s construction industry. Moreover, it is equally clear that Local Law 86 will competitively favor those contractors, suppliers and owners familiar with the LEED standards.

Accordingly, for those attorneys with clients who are contractors, suppliers and/or owners, familiarity with the LEED standards is necessary. Under the standards, four levels of certification exist, described as either “Certified”, “Silver”, “Gold” or “Platinum.” The rating level is determined by the number of points the project receives under a checklist developed by the U.S. Green Building Counsel. In order to achieve a “Certified” rating, a project must score between 26-32 points; for Silver, between 33-38 points; for Gold, 39-51 points; and for Platinum, between 52-69 points.

The points are linked to such categories as “Sustainability”, “Water Efficiency”, “Energy and Atmosphere”, “Materials and Resources”, “Indoor Environmental Quality” and “Innovation and Design Process.” While the ultimate receipt of certification is the responsibility of the project architect, engineer or other LEED specialist assigned to the project, clearly, the contractor or supplier who can provide a “greener” service and/or product is in the best position to outperform the competition.

Those contractors, suppliers and owners outside of New York City believing that the LEED standards will not affect them should reconsider. Numerous municipalities have either already enacted green building requirements, or are in the process of enacting such requirements. Examples of municipalities that have adopted LEED, or have otherwise required that city-owned buildings be built according to green building criteria, include Atlanta, Austin, Boston, Boulder, Chicago, Dallas, Los Angeles, Portland (Oregon), San Diego, San Francisco, San Jose, and Seattle. Clearly, a trend has been established.

Accordingly, green buildings, and the related LEED standards developed by the United States Green Building Council, are topics which all contractors, suppliers, owners and their attorneys should be aware if they wish to remain commercially competitive.i Office of the Federal Environmental Executive, The Federal Commitment to Green Building: Experiences and Expectations, §V Defining Green Building (2006).

ii Greg Kats, The Costs and Financial Benefits of Green Buildings – A Report to California’s Sustainable Building Task Force, viii (2003); United Stated Green Building Counsel, Building Momentum – National Trends and Prospectus for High-Performance Green Buildings, 1 (November, 2002).

iii Greg Kats, The Costs and Financial Benefits of Green Buildings – A Report to California’s Sustainable Building Task Force, ix (2003); Local Laws of the City of New York No. 86, ¬ß1 (2005).

iv A copy of Local Law 86 can be found athttp://www.nyc.gov/html/dob/downloads/pdf/ll_86of2005.pdf

v Local Laws of the City of New York No. 86, §1 (2005).

vi See “Rating Systems” at www.usgbc.org