Reed Smith will be conducting a three-part series on these updates because of their importance to our commercial construction clients. This article is Part One of that series and focuses on the principal changes to the 2017 versions of the Owner-Contractor forms, especially the AIA forms A101-2017 (a lump sum agreement form), A102-2017 (a cost-plus agreement form), and the A201 General Conditions of Contract used with those base construction contract forms. These are the “full service” commercial contracts most often used by large commercial general contractors.

Changes to the A101 and A102 Base Contract Forms

The A101 and A102 contain many changes common to both forms. Because of the cost-plus billing method used in the A102, certain changes specific to that billing method are made.

• Contract Time Provisions: The Contract Time provisions now reflect a “menu” style approach in which the parties can select various options as to when work will officially commence (date of execution of the agreement, date of notice to proceed is issued, or another date), and a similar menu of choices exists to specify when the work will be substantially completed (based on calendar days, or an actual date), including possible interim or partial substantial milestone dates, to which liquidated damages (or early performance bonuses) may potentially be attached (A101 §§ 3.1-3.3, A102 §§ 4.1-4.3).
• Payment Provisions: The AIA touts its revised payment provisions as “simplified.” In practical terms, the payment provisions have been reorganized to initially list those items to be included in the payment applications, followed by a list of those items to be deducted, as well as detailed retainage provisions that incorporate spaces to describe any items excluded from the withholding of retainage, such as general conditions allowances and/or insurance. In terms of substantive changes, the revised AIA A101 language now requires the Owner to pay the contract amount “allocable to the work,” but references to completed percentages of the work and a schedule of values are de-emphasized (A101 § 5.1.6.1). By contrast, the A102 continues to use percentage of the work and schedule of values metrics for billing purposes (A102 § 12.1.7.1.1). Contractors are specifically instructed to omit or deduct from payment applications any amounts that the Contractor does not intend to pay to its subcontractors (A101 § 5.1.6.2.3).

The new A102 form fine-tunes some of the wording regarding which development and refinement costs are included in the Guaranteed Maximum Price (GMP), and outlines the process for making those refinements (A102 §§ 5.2.5, 5.2.6). The Owner’s approval of any costs comprising the Cost of the Work must now be in writing prior to the contractor incurring those costs (A102 § 7.1.2). The schedule of values must separately allocate the entire GMP to the various portions of the Work, including any contingency and the Contractor’s Fee; however, each individual item in the GMP schedule of values is not treated as a separate cap (A102 § 12.1.5). The Contractor is also required to submit supporting documentation when transferring contingency to other cost items (A102 § 12.1.5.3). Reflecting an overall increased awareness of the importance of insurance and self-insurance trends, self-insured and captive insurer costs are now expressly reimbursable as Costs of the Work (A102 § 7.6.1.1). Labor rates are assumed not to increase during the course of the project (A102 § 7.2.5). Additionally, a provision has been added establishing a default approach discouraging cost-plus subcontracts, but requiring any such cost-plus subcontracts to be subject to full recordkeeping and audit rights (A102 § 10.2).

• Termination Fee: The AIA now includes as a standard assumption that a contractor will be paid a termination fee in the event of termination for convenience (A101 § 7.1.1, A102 § 14.1.3).
• Electronic Notice and BIM: The new AIA documents assume increased usage of the AIA E203-2013 Building Information Modeling (BIM) and Electronic Data Exhibit, which are now assumed to be standard (A101 § 9.1.4, A102 § 16.1.4, A201, §§ 1.6 -1.8). However, Claims for additional money and time must be made in writing via certified mail or courier with proof of delivery (A201 § 1.6.2).

Changes to the A201 General Conditions

• Owner’s Financial Arrangements: In response to the financial crisis during the past decade, the 2017 General Conditions have more comprehensive requirements regarding the Owner’s duty to provide the Contractor with information concerning its ability to pay, and have provisions allowing a Contractor to refuse to proceed with the work or to suspend work if such information is not provided (A201 § 2.2.2).
• Warranties: All warranties must now be issued in the name of the Owner or be transferrable to the Owner (A201 § 3.5.2).
• Schedule Information: The Contractor is required to specify in greater detail the information to be included in schedule submittals, such as schedule milestone dates and apportionment of the work by construction activity (A201 § 3.10).
• Direct Owner Communications: Direct communications between the Owner and Contractor, as opposed to communicating through the Architect, are now authorized, although the Architect needs to be kept informed of matters affecting the Architect’s performance of services (A201 § 4.2.4).
• Changes: When a Contractor disagrees with whether a proposed change is a “minor change,” and believes that the change will affect the Contract Sum or Contract Time, the Contractor can refuse to perform the change until the matter is resolved, or a Construction Change Directive is issued.
• Progress Payment Lien Waivers: Contractors are now required to submit releases and waivers of liens along with their applications for progress payment. Contractors must also indemnify the Owner from damages caused by a lien or claim filed by a subcontractor, where the Owner has complied with its payment obligations.
• Claims: Waiver of Right to Challenge Stale Initial Determinations: A new timing mechanism is designed to prevent mediated disputes from becoming stale. If, after the Initial Decision Maker has decided a disputed matter and that matter has been mediated, either party may demand that the other party file its claim in either arbitration or litigation. If the other party does not file a claim within 60 days of the demand, then both parties waive their rights to arbitration or litigation, and the initial decision becomes final.
• Termination Fees: Where an Owner has terminated a Contractor for convenience, the Owner is now obligated to pay the Contractor for “costs attributable to termination of subcontracts” and a “termination fee” (A201 § 14.4.3).

The AIA’s New Insurance and Bonds Exhibit

Finally, one of the biggest changes to the Owner-Contractor documents is the creation of a standard and comprehensive insurance and bonds exhibit, which becomes Exhibit A to any of the full-service construction contracts. Rather than have these insurance requirements buried in Article 11 of the A201 General Conditions of the Contract, the insurance-related requirements are now segregated into a separate exhibit. This exhibit uses a check-the-box style “menu” of insurance options to detail what insurance the Owner and the Contractor will provide under the contract. Given that many practitioners often created separate insurance exhibits and required review/approval of detailed insurance requirements by corporate risk managers or insurance brokers, this revised approach reflects a growing commercial trend, and facilitates that review of insurance requirements by the insurance professionals. Please note, however, this separate insurance exhibit is only used with the “full” long-form A101, A102 and A103 construction contracts. The “short-form” AIA construction agreements, such as the A104 (formerly the A107) and the A105, continue to have the insurance requirement embedded into the body of the contract agreement.

This Client Alert highlights only some of the changes. As the above indicates, the 2017 changes in the construction contract forms are largely targeted in nature, but can result in significant consequences in certain circumstances. We will be hosting a seminar in our Pittsburgh office on the 2017 changes to the AIA Owner-Contract forms on July, 26th 2017. To find out more or to register, click here. If you have questions please reach out to Jim Doerfler, Eric Kimbel or Tania Wang; or to Mike Dingman and/or Tom Folk, who recently conducted a seminar in Washington, D.C., on the subject.

Client Alert 2017-168