AIA Revisions to Form A201: What You Need to Know for Your Next Construction Project – And Why You Need to Know It by June 2009
Real Estate Newsletter
Those who deal with construction projects should circle May 31, 2009, on their calendars. On that date, the American Institute of Architects (AIA) will officially "retire" the 1997 versions of the contract forms it revised in November 2007, including its most widely used form, the A201 (general conditions). As of June 1, the AIA will no longer sell the 1997 documents or provide support for them. In fact, the AIA's online document database is set to "freeze" the 1997 documents on that date so that no new contracts can be created using the old template and so that in-progress drafts of 1997-based contracts will be made "read-only" to prevent users from putting them into final form.
The 2007 version of A201 (A201-2007) is very different from its predecessor (A201-1997) and will substantially change how projects run. Changes in the new document include:
- The owner's, architect's and contractor's respective rights and duties;
- How claims are handled;
- When causes of action accrue;
- How disputes are resolved;
- The owner's protection from mechanic's liens; and
- The use of electronically transmitted design data.
The A201 general conditions are incorporated into almost every major AIA form contract, including the contracts between owner/architect, owner/contractor, owner/construction manager and contractor/subcontractor. Thus, the significant changes to A201 will affect almost every participant on every project in which AIA forms are used. It is therefore critical that project participants learn what has changed so they understand what they're getting into when they sign on the dotted line.
A few of the more significant changes to A201-2007 are discussed below.
In the 1997 document, the architect was designated as the initial arbiter of disputes between the owner and the contractor. The architect could approve or deny the claim wholly or in part, suggest a compromise or require the submission of additional information.
A201-2007 takes this power away from the architect. Instead, AIA A201-2007 permits the parties to designate in advance a person or entity to serve as the initial decision maker (IDM). If the parties do not specify an IDM, however, the architect is deemed to fill that role.
Additionally, in the 1997 document, the architect could force the parties either to challenge the architect's initial decision within 30 days (by filing for mediation) or else accept the decision as binding. Under the 2007 document, this power is now given to the parties.
Some commentators have questioned the practicality of A201-2007's claims handling scheme. The new document is silent as to who pays for the IDM. Moreover, the document does not explain how the IDM and architect relate to each other, that is, who trumps whom. Under A201-2007, the architect retains the power to decide whether the contractor has performed its work properly under the contract documents. If a dispute arises, it is unclear whether the IDM is to second-guess the architect or defer to him or her.
Binding Dispute Resolution
In the 2007 revisions, the AIA ended 118 years of precedent by no longer requiring binding arbitration. Now the parties may choose the method of binding dispute resolution by marking "checkboxes," which include arbitration, litigation or "other." If no box is checked, the default method is litigation.
Accrual of Causes of Action
In A201-1997, the date that a cause of action was deemed to accrue depended on whether the issue in question arose before substantial completion, after substantial completion and before the final certificate of payment, or thereafter. This led to instances in which the statute of limitations period would expire before the owner even knew a potential cause of action existed.
A201-2007 corrects this injustice by requiring that the owner and contractor commence all claims against the other relating to the contract "within the time period specified by applicable law, but in any case not more than 10 years after the date of substantial completion." With this change, owners regain the benefit of the "discovery rule," provided that claims be made within 10 years of substantial completion.
Contractor's Right to Obtain Financial Disclosures From Owner
The 1997 document gave the contractor an unconditional right at any time to request that the owner provide "reasonable evidence" of its financial arrangements to finance the project and to refuse to commence or continue work until it received that information.
Under A201-2007, the contractor's unconditional right to request such evidence is now limited to the period prior to commencement of the work. The contractor may request such evidence subsequently, but its right to do so at that later time is not unconditional; rather, it may only do so only if (1) the owner fails to make payments to the contractor as required by the contract; (2) a change in the work materially changes the contract sum; or (3) the contractor identifies, in writing, a reasonable concern regarding the owner's ability to make payment when due.
Contractor's Duty Regarding Concealed or Unknown Conditions
A201-1997 provides that the owner and contractor have a mutual obligation to give notice of concealed or unknown conditions to the other before the conditions are disturbed and in no event later than 21 days after first observing the conditions.
The 2007 revisions broaden the contractor's duty to report concealed or unknown conditions by imposing a unilateral duty to give the owner and architect notice of such conditions.
Increased Owner Protection From Mechanic's Liens
The 2007 document gives the owner an extra measure of protection against mechanic's liens. If the architect withholds certification for payment based on the contractor's failure to make payments to subcontractors or material or equipment suppliers, the owner may issue joint checks to the contractor and to any subcontractors or suppliers to whom the contractor failed to make payment for work properly performed or material or equipment suitably delivered.
In addition, under the 2007 document, the owner may request written evidence from the contractor that the contractor has paid its subcontractors and suppliers the amounts the owner paid the contractor for subcontracted work. If evidence is not provided within seven days, the 2007 document expressly authorizes the owner to contact the subcontractors to ascertain whether they have been properly paid.
Electronic Transmission of Design Data
A201-2007 contains a new provision that requires the parties to establish a protocol for electronic transmission of design data. The 1997 document was silent on issues relating to the electronic data transmission. This change reflects the reality that computerized sending and receiving of drawings, specifications, submittals and other design information is now routine.
Compared to A201-1997, A201-2007 is a brand new ballgame. As the 1997 document's May 31, 2009 retirement date approaches, it is increasingly important that companies understand the new documents to protect their interests. Before entering into any construction contract, it is recommended that project participants consult with qualified legal counsel to avoid potentially unpleasant surprises.