United States: Changes In AIA Document A201 General Conditions For Construction Contracts

The 1987 version of AIA Document A201 has been perhaps the most popular 'general conditions' form used in construction contracts during the past ten years. The form was replaced by a new version in October 1997, although the 1987 edition still enjoys widespread use. The new 1997 form appears to be gaining similar popularity either as a starting point for drafting general conditions or as a general conditions attachment in its unmodified state.

General conditions can be thought of as the 'boilerplate' provisions of a construction contract. They are generally attached to the owner-contractor agreement form and contain such things as definitions, dispute resolution, insurance provisions and related items that will not vary much from project to project. Notwithstanding the boilerplate nature of general conditions, attorneys representing owners, developers, contractors and sureties should not assume that the new A201 general conditions language merely restates the terms set forth in the 1987 version. There are significant changes:

1. Architect's Authority. One of the most noteworthy changes removes the architect's authority to make decisions that bind the owner unless the owner expressly designates the architect as the owner's representative. This language abrogates the traditional authority of the architect. Contractors, subcontractors and materialmen usually regard the architect as the owner's agent and look to him or her for authoritative instruction. In fact, subparagraph 4.2.1 of the 1987 version provided that the architect 'will be the owner's representative.' Subparagraph 2.1.1 of the 1997 edition now requires the owner to make a written designation of a representative (which could be someone other than the architect) with express authority to bind the owner. Thus, under the new language, the architect is merely 'an owner's representative' with no authority to bind the owner unless there is some express agency added to the contract documents.

2. Financial Information. New Subparagraph 2.2.1 calls on the owner to give the contractor evidence of how the owner will finance the project. The owner has to disclose to the contractor material changes in financing arrangements. Furnishing the evidence is a condition precedent to either commencement or continuation of the work. The old version merely said the owner would provide financial information at the request of the contractor before the agreement was executed and promptly from time to time thereafter. However, provision of financial information was not a condition precedent to commencement or continuation of the contract work.

3. Reliance On Information. New Subparagraph 2.2.3 allows the contractor to rely on the accuracy of information furnished by the owner. Under the old form owners and developers disclaimed responsibility for the accuracy of information they furnished and required the contractor to investigate on its own such things as soil conditions and topographical information. Unless such disclaimers are expressed by modification or addendum, owners who use the new form will be unable to avoid claims for inaccurate or ambiguous information.

4. Design By Contractor. New Subparagraph 3.12.10 indicates that certain design services can be delegated to the contractor. It requires the contractor to provide architectural and engineering services necessary to fulfill the contractor's responsibility for construction means, methods, techniques, sequences and procedures. Thus, any detail missing from the owner or developer's architect drawings and specifications must be supplied by the contractor. The contractor must employ a licensed design professional to provide these services. This provision reflects the increasing complexity of construction projects and how they are managed.

5. Consequential Damages. A striking change in the new contract provides that the contractor and owner waive all claims against each other for consequential damages. (Subpara. 4.3.10.) Consequential damages usually mean losses that do not flow directly from an act but only from the consequences of such an act. Included in the waiver are claims for bodily injury or direct property damage. The owner expressly waives claims for lost economic value including lost rent, loss of use, lost income, lost profits, lost business, lost good will and reputation and lost productivity arising out of breaches of contract. The contractor waives claims for home office expense and overhead and lost business, good will, reputation and profit other than the profit anticipated to arise directly from the project. The wavier does not exclude claims for liquidated damages if such a provision is included in the contract.

This provision is heavily balanced in favor of the contractor. If a job is not finished on time, the owner loses the economic value of the project for the period of delay. The owner's desire is to get the project done on budget, lien free and on time. When this desire is not met, the owner often suffers far more economic value loss than the general conditions damages incurred by the contractor.

6. Mediation. Mediation is a condition precedent to arbitration or litigation in the 1997 A201. (Para. 4.5.) Mediation is to be done in accordance with construction industry mediation rules of the American Arbitration Association. Arbitration or litigation must be stayed for a period of sixty days pending mediation.

7. Hazardous Substances. New Paragraph 10.3 gives protection to the contractor for hazardous substances released on site. In the past, the requirement that the contractor comply with all applicable laws conceivably shifted the risk of site environmental compliance to the contractor for releases that occurred while it occupied the site. Additionally, an attempt in Article 10 of the old A201 form to provide environmental protection to the contractor merely limited the number of contaminants for which protection was provided. The owner now is required to employ licensed consultants to investigate any potentially hazardous substances. The owner must remediate or remove the substances and the contractor is entitled to an adjustment in time and price. This provision removes ambiguities and the danger of often unanticipated environmental liability.

8. Insurance. New Subparagraph 11.1.7 requires the contractor to supply completed operations insurance coverage. The owner's all risk or builder's risk policy must now cover earthquake, flood and windstorm damage. In the past, many of the builder's risks dispute cases have been cases excluding coverage for windstorm damage. For example, damage resulting from the proverbial visqueen blowing off the roof allowing rain water to enter the project was often argued as an excluded claim because the superceding cause of the damage was wind which was not covered, rather than water damage which was excluded from coverage. The new insurance provision may clarify risk coverage although it does not do it exceptionally well because it continues to limit causes of damage (Subparagraph 11.4.1.1). The owner must now pay deductibles in the all risk policy. The contractor arguably had responsibilities for those costs in the old contract (Subparagraph 14.4.1.3).

9. Termination For Convenience. New Paragraph 14.4 allows the owner to terminate the contract for convenience and without cause. The contractor is entitled to payment for the work performed, costs incurred due to determination and demobilization and reasonable overhead and profit on work not executed.

In conclusion, the new A 201 form is an attempt to clarify general conditions requirements that gave rise to many disputes under the 1987 version. Counsel should be alert to the 1997 changes. If they desire to use the 1997 form, counsel should consider customizing it to achieve their client's goals.