By: Thomas H. Welby, P.E., Esq.
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".