AIA Document Changes for 2007
The American Institute of Architects ("AIA") has led the construction industry in adopting innovative approaches to contract drafting while adapting to the changing needs of the project participants. The AIA has listened to its constituents and will soon release its 2007 edition of AIA Document A201 General Conditions, and its coordinate agreement forms. This paper will share with you some of the revisions as reported by Howard Goldberg, counsel serving the AIA Documents Committee. A final version of the documents is currently not available.
Among the important changes expected in the 2007 edition as reported by the Documents Committee:
- Arbitration becomes optional and is not directly tied to the American Arbitration Association, ending that long standing practice within the AIA family of documents;
- The Architect's consent to join any arbitration between the Owner and the Contractor is no longer required;
- A new document, the Digital Practice Agreement, will allow transfer of intellectual property among several parties on the job, not all of whom will be in privity;
- The Owner's financial disclosures become contingent upon commencement of work and subsequent changes in the scope of the project;
- The initial decision maker for claims need not be the Architect;
- The Architect no longer has the authority to force an early and final resolution of disputes;
- The Contractor and Owner can resolve Construction Change Directive disagreements prior to the end of the job based on the professional judgment of the Architect;
- The Contractor is now required to name the Owner and the Architect as an "additional insured" on its commercial general liability policy; and,
- The contracts mandate a statute of repose or peremptive period for claims.
BINDING RESOLUTION OF CLAIMS
One of the biggest changes to the AIA Agreement forms will eliminate mandatory mediation and/or arbitration to resolve claims. That mandatory language sparked much litigation about the proper forum to resolve disputes and led to numerous pre-contract modifications of the standard language as parties tried to "opt-out" of arbitration. The 2007 edition of AIA Agreement forms will provide a choice for binding dispute resolution method by use of a check box. The form will allow the parties to select "litigation," "arbitration," or "other" (with a fill in the blank line to specify what alternative method is desired.) The documents will further provide that litigation is the default method in the event that the parties left the check boxes blank.
JOINDER OF PARTIES
Traditionally, A201 specifically precluded the consolidation of arbitration between an Architect and Owner with a related arbitration between an Owner and Contractor, that is about to change. In order to stifle criticism of the AIA Documents by those who considered the refusal of the AIA to allow such consolidation of arbitrations as overly protective of architects' interests, the 2007 Edition of A201 will contain no such preclusion. It will specifically permit consolidation of such arbitrations, assuming a common set of procedural rules and common issues of law and fact. The change was made in light of the American Arbitration Association amending its Rules since 1997 to deal more equitably with consolidated parties (by having a special "consolidation arbitrator" make decisions to ensure fairness to a subsequently consolidated party.)
DIGITAL PRACTICE AGREEMENT
The 2007 edition of the A201 will be the first national standard form to deal with the digital age. In order to acknowledge the construction industry's increased reliance on electronic communications, the Documents Committee created a new document, a Digital Practice Exhibit. This Exhibit will deal not just with hardware, software and communication and distribution issues, but also with the more complex issues, like sharing and viewing digital data on project websites, which are at the forefront of today=s project delivery approaches, integrated design and construction.
This process begins within the Article of A201 dealing with Instruments of Service and the intellectual property being created by the various participants in the project in different offices, at different times. To facilitate the transfer and use of such information, while at the same time, protecting each party's property rights in the intellectual property created by that party, the 2007 draft of the A201 provides for a series of licenses between the creator of the intellectual property and the other job participants for the eventual use of the property. Because of privity issues, the set of licenses created in A201 deals primarily with the intellectual property created by the contracting parties.
Thus, the Contractor is given a license to reproduce and use the Architect's intellectual property which the Owner is licensed (in the Owner/Architect Agreement) to allow the Contractor to use. This set of interlocking licenses adequately addresses the traditional method of project delivery, but fails to address innovative approaches to design and construction in which the process becomes integrated.
The AIA's new Digital Practice Exhibit goes one step further and allows the transfer of intellectual property between project participants with no direct contractual relationship. This Exhibit creates a new series of licenses between any two project participants so that each may use the intellectual property which is being licensed for their own purposes related to the project in question. Thus, a structural engineer can transmit (and license) a steel fabricator to use the structural drawings in the creation of the steel fabricator's shop drawings. This transfer of intellectual property can be achieved in an efficient and expeditious manner, while permitting each party to retain the property rights in their own intellectual property.
FINANCIAL DISCLOSURE
The 2007 Edition has made some significant changes to the requirements relating to Owner disclosure of financial information. These changes were in response to many Owner complaints that they were being harassed during the course of the job to furnish financial information time and time again, at the whim of the Contractor.
To solve this problem, the 2007 Edition still requires the Owner to provide evidence of financial ability to pay for the Owner's obligations under the contract; however, once that is done, the Owner need only provide such information again if any of three conditions arise: (a) the Owner has failed to pay amounts certified by the Architect when payment was due; (b) where changes to the Work materially changed the Contract Sum; or (c) where the Contractor identified a "reasonable concern" regarding the Owner's ability to pay.
This change, hopefully, provides an appropriate balance between the Contractor's right to receive adequate assurance that the Owner has the ability to pay for the Work and the Owner's right not to be required to respond to multiple requests for the same information.
RESOLUTION OF CLAIMS
The latest version of the A201 requires that the Architect act as the initial arbiter of claims between the Owner and Contractor. In some cases, the Architect's decisions became ripe fodder for litigation as the aggrieved party claimed that the Architect could not be unbiased. The drafting committee decided to take a compromise approach for the 2007 edition. In the Agreement Forms (A101, A111, A114, etc.), the Owner and Contractor will have the ability (in a fill-in-the-blank) to designate an initial decider to make all initial decisions. This does not mean that some issues will not be presented to the project Architect, particularly some which will precede the occurrence of the dispute. For example, if the Contractor observes a condition which the Contractor claims to be a changed condition, that issue will still be submitted to the Architect for a recommendation. If either party wishes to challenge the recommendation, that party may submit the issue to the Initial Decision Maker for resolution. That person may agree or disagree with the Architect but, just as in the present edition, that decision will be binding unless reversed by the person or entity that is responsible for final resolution of all disputes.
Obviously, not every project can justify the expense of retaining a separate individual to resolve disputes which may or may not ever arise on the project. In addition, educating this individual regarding the design and continued construction effort will be time consuming and expensive. Thus, it is anticipated that for most projects, the Owner and Contractor will prefer to retain the project Architect in the traditional role of initial decision maker. To facilitate this approach, the contract forms will contain a provision that, if no "initial decision maker" is separately designated in the fill in the blank, then the Architect will serve as the initial decision maker.
FAST TRACK DECISION-MAKING
In prior editions of A201, the project Architect had the opportunity to force the parties to move disputes from the initial decision to a final decision by issuing the initial decision with the additional provision that it would become "final and binding" unless a demand for arbitration were filed within thirty days from the date of the initial decision. Many question why the Architect, as opposed to the actual parties to the dispute, should make this tactical and very costly decision. Obviously, the party who felt aggrieved by the initial decision could proceed to demand mediation and/or arbitration whenever that party desired. If, however, neither party wanted to proceed immediately to court or arbitration, why should they be forced to do so by the Architect?
The 2007 Edition of A201 reacts to this criticism, by providing that either party to the initial decision (and not the Architect) could force an early final resolution of the dispute. Obviously, the party aggrieved by the initial decision still (as in earlier editions) has the right to proceed immediately. Now, the (presumably the prevailing) party can force an early resolution of the dispute by notifying the other party that the initial decision will become final and binding unless that other party demands mediation within sixty days from the date of the initial decision. By this change, either party can force an early final resolution of a dispute but they can not be forced to do so by the project Architect.
CONSTRUCTION CHANGE DIRECTIVE
New revisions to Section 7.3.8 of A201 will allow the Contractor to request payment for Work completed. It no longer will be contractually limited to "amounts not in dispute" to qualify for inclusion in the payment application. The Architect will then certify for payment the amount that the Architect believes "in the Architect's professional judgment [is] reasonably justified." Whoever disagrees may assert a claim, for ultimate determination.
This new approach of "professional judgment" as to amounts in dispute will attempt to resolve claims arising from disputed Construction Change Directives. This may discourage the disappointed party or parties from automatically filing a claim.
INSURANCE
The revisions to the 2007 Edition of A201 will require that the Contractor name the Owner and Architect as additional insureds under the Contractor's general liability policy for liability arising out of the acts or omissions of the Contractor or Subcontractors. It should be noted that the required endorsement does not require the Contractor's insurer to cover claims arising solely out the acts or omissions of the Owner or Architect. It should also be noted that the "professional liability exclusion" contained in virtually all general liability policies will still be applicable to claims against the design professionals, if such claims arise from the design professionals professional activities.
The practical effect of this approach may be to cause the indemnity provisions, with the confusing state statutory overlays, to be essentially irrelevant to future claims covered by the Contractor's liability insurance.
PEREMPTIVE PERIODS
In response to Owner's complaints that the contractually mandated statute of limitations provisions based on substantial completion in A201 were unfair, the Documents Committee completely rewrote the section, eliminating the 1997 language and substituting a contractual "statute of repose." The provision contains a 10-year "statute of repose" or peremptive period commencing at the time of substantial completion. In order to avoid the effect of the Contractor losing the benefit of a shorter state statute of repose (like in Louisiana), language was added such that state law applies if the state statute of repose is "shorter."
Written for The Legal Blueprint, 2007, Issue 2.
