Highlights: The American Institute of Architects (AIA) recently released the long anticipated revisions to their form contract documents. This marks the first revision to the AIA documents in 10 years. Key changes include a complete overhaul of the dispute resolution procedures. Why are the changes such a big deal? Why were the changes made? How will the changes affect the dispute resolution process? This article, a special edition of Holman, Gillis and Shevelow on Contract Documents, answers these questions and compares the A201-1997 dispute resolution process with the new process provided in the A201-2007 General Conditions document.
So what is the big deal about the new contract documents?
With over one million contract documents sold on an annual basis, the AIA’s form construction documents are likely the most widely used contract documents in the construction industry. The AIA family of documents is also among the oldest set of contract document forms in the industry; the first set of documents was released in August of 1888 as a collaboration between the American Institute of Architects (AIA), the Western Association of Architects, and the National Association of Builders.
During this time, many of the AIA documents have been battle tested in courts of law around the country as they have been central to numerous lawsuits and other claims. As a result of so much litigation, a body of law has developed that interprets many provisions of the contract documents. In fact, a book is published each year with a review of the court cases that have analyzed and interpreted the AIA documents. For these reasons, the AIA documents serve as the baseline documents on many construction projects both within the United States and around the world.
What exactly is the AIA?
Started in 1857, the AIA is a private non-profit agency based out of Washington, D.C. As the name implies, the AIA is a trade association for architects focused on creating excellence in design and livability of the nation’s buildings and communities. The AIA first released its flagship document, the “General Conditions of the Contract for Construction,” in 1911.
What is included in the AIA family of documents?
Over 40 documents are included in the AIA family of documents. Generally speaking, they can be broken down into four main categories:
- A-Series: documents between owners and contractors (including design builders and construction managers as contractors);
- B-Series: documents between owners and design professionals and construction managers as agents of the owners;
- C-Series: documents between architects and consultants; and
- G-Series: ancillary agreements such as those for geotechnical services.
The AIA family of documents also includes forms for change orders, surety bonds, payment applications, and substantial completion certificates.
The AIA views these documents as a family of related documents, and there are many internal cross references from one document to another. For example, Section 5.1 of the A101 Owner-Contractor Agreement, which discusses payment, contains a cross reference to Article 9 of the A201 General Conditions, which also discusses payment.
Modifications to one of these sections and not the other can lead to confusion and possibly claims and disputes between the parties. For this reason, modifications to the AIA documents should be done only after consultation with an attorney familiar with construction law.
Who exactly is responsible for this latest update to the AIA documents?
This most recent edition of the AIA documents was prepared by a twenty-eight member panel of volunteers called the Documents Committee. Given the name of the organization, it should come as no surprise that all twenty-eight members were architects. The architects did not completely isolate themselves on an island; they considered hundreds of comments from representatives of the construction industry. The committee was also assisted by legal and insurance counsel.
In years past, the AIA worked closely with the Associated General Contractors (AGC) to produce the documents. However, the AGC chose not to endorse this most recent edition of the AIA documents.
Why the rift? Some cite the AGC’s endorsement of the new “Consensus Documents,” which are supposed to represent the combined effort of construction owners, contractors, and design professionals to establish form documents that account for the interest of all participants on a construction project.
What is new for 2007?
Among the notable changes are the dispute resolution provisions contained in the A201 General Conditions document. Prior versions of the AIA General Conditions included a multiple-step process for resolving disputes, beginning with a decision from the architect, followed by mediation, and then arbitration, with litigation occurring only if permitted by law. That is, of course, unless the process is otherwise modified in the document. Each step has been modified in the new document.
Claims by owners or contractors no longer must be submitted to the architect for an initial decision. The AIA instead follows a recent trend in alternative dispute resolution, incorporating the concept of an initial decision maker (IDM). The IDM can be a panel of one or more individuals. These individuals are not employees of the owner, architect, or contractor. IDMs are tasked with the duty of resolving disputes as they are presented by either the owner or the contractor.
The IDM process prevents the architect from being caught in the middle of a battle between the owner and contractor. The AIA also saw this as a way to resolve the natural conflict of interest that arises when the architect is asked to resolve an issue for or against the owner while, at the same time, drawing compensation from the very same owner. The A201-2007 does not prescribe a form of compensation for the IDM; however, the IDM would presumably be paid by both the owner and contractor.
The Ohio Department of Transportation already uses this model. For some ODOT projects, there is a Dispute Resolution Board (DRB). The DRB visits the project on a periodic basis and becomes familiar with the project. It is then in a position to make an informed decision on claims if they arise on the job.
The architect is the default IDM in the A201-2007, if the parties do not designate someone else to serve as the IDM. This provision, nonetheless, has not been warmly received by architects around the country. In particular, architects view this as diluting their leadership roles on the project. The AIA decided to keep this change in the new documents despite dissent from within the membership.
The AIA also added a new wrinkle to the mediation process. Mediation is nothing more than a non-binding negotiation between the parties that is facilitated by a neutral third party. Under the old version of the General Conditions, the architect had to add certain magic language to its decision in order to trigger a 30-day notice period. Specifically, the architect had to state that its decision was “final but subject to mediation and arbitration.” This triggered a 30-day period within which the parties had to make a demand for arbitration or the architect’s decision became final and binding.
Under the A201-2007, the architect no longer has to include the magic language in its decision. Instead, either party may demand that the other file for mediation. If the other party does not file for mediation within 60 days after the demand, the IDM’s decision becomes final and binding. The purpose of this provision is to bring finality to the IDM’s decision. In theory, this would then prevent contractors (or owners) from lying in the weeds and waiting to file for meditation or litigation long after the project is over.
The AIA also deleted the mandatory arbitration requirement. Arbitration involves a panel of one or more independent, third-party decision makers who decide upon claims after receiving evidence presented to them by each party. Unlike mediation, arbitration is binding and can be overturned by a court only upon proving that the arbitrator’s decision was arbitrary and capricious (a very high standard of proof). (For more on overturning an arbitration award see the ADR Corner in issues 64, 66-69, and 71-73 of brickerconstructionlaw. com.) For this reason, arbitration decisions have the same effect as a decision from a court of law.
In the past, the AIA General Conditions document called for the arbitration process to be managed by an organization called the American Arbitration Association (AAA). The AAA would manage the paperwork between the parties, oversee the arbitrator selection process, and address logistical issues such as the venue for the arbitration and communications to and from the arbitrators.
To carry out this process, the AAA charges a fee (as much as $14,000). This fee does not include the hourly rates for the individual arbitrators, which can be $400 per hour or higher. Compare this to average court filing fees of approximately $200. When coupled with attorney fees and the cost for staff time, arbitration can be a surprisingly expensive endeavor.
In addition, arbitrators are not always attorneys, and it is quite possible to receive an arbitration decision that does not conform with the law. For these reasons, the arbitration provisions found in the old AIA General Conditions document were routinely stricken by parties using the AIA documents. The AIA took note of this practice and has now made arbitration optional at the discretion of the parties.
With arbitration optional, litigation then becomes the default dispute resolution procedure, following a decision from the IDM and mediation.
To the extent that the parties elect to arbitrate, the AIA A201-2007 allows arbitrations to be consolidated into a single proceeding. The AIA A201-1997 prohibited joining arbitration claims by the owner against the architect with claims against the contractor. Therefore, it was possible for an owner to be forced to participate in multiple arbitrations – one arbitration with the contractor and another with the architect, even when both arbitrations arose out of the same set of facts.
In addition to added expenses noted above, allowing multiple arbitration proceedings also left open the possibility of having conflicting outcomes in each arbitration. The new process allows owners, contractors, and architects to join all necessary parties into a single arbitration proceeding. This effectively lowers the cost, simplifies the proceedings, and provides for one result that is binding on all parties.
The AIA revises some or all of the form contract documents approximately every 10 years. With this latest edition, the AIA hoped to react to industry trends and recent court decisions. Despite these revisions, owners and contractors should always review their contracts with their respective attorneys. When appropriate, form contracts such as the AIA documents should be customized to fit the relationship of the contracting parties, customary practices, the project, and local laws.
Future editions of brickerconstructionlaw.com will review other changes included in the A201-2007 edition of the General Conditions document.