Architects’ and Engineers’ Contracts 9th Annual Construction Law Conference Houston, Texas February 8 and 9, 1996 William R. Allensworth Roller and Allensworth, L.L.P. 620 Congress Avenue, Suite 200

Austin, Texas 78701 Tel (512) 708-1250 Fax (512) 708-0519

Architects’ and Engineers’ Contracts

I Introduction

The drafting of architects’ and engineers’ contracts historically has been heavily

influenced by the standard form contracts prepared by the American Institute of Architects and

the Engineers Joint Contract Documents Committee. These forms, while thoughtfully prepared

and generally oriented toward the designer and contractor, are intended for a national audience

and therefore do not reflect nuances of Texas law. Moreover, architects’ and engineers’ lack of

market power often has meant that the forms are revised to favor the interests of Owners, to the

detriment of the design community.

Occasionally, the Architect does have some ability to negotiate the terms of his or her

contract, and this outline is intended to provide some suggestions for architect-oriented changes

to the AIA Owner/Architect Agreement (B141). I have also attempted to point out some aspects

of Texas law which influence the drafting and performance of these contracts.

II Scope of Services

A. Schematic Design Phase.

The scope of services section of the AIA contract generally outlines the duties the

Architect will provide as basic services for his contract price. A frequent source of

disappointment for architects arises out of an Owner’s indecision during the schematic design

phase, which often can result in a significant amount of unanticipated -- and unpaid for -- time

spent refining the design. The following clause anticipates this problem:

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2.2.6. The Architect has included _________ (_________) man-hours for providing Basic Services during the Schematic Design Phase. To the extent additional hours are required to complete the approved schematic design

documents, the Architect shall be compensated at the rate set forth in Paragraph 11.3.2. B. Construction Phase.

The responsibility of the Architect to perform during the construction phase, including

specifically observing the construction of the project and attempting to guard the Owner against

deficiencies in construction, is dealt with in Articles 2.6.5 and 2.6.6 of the AIA contract. There,

the drafters attempted to include the Architect in the construction process in an “observation”

role, while attempting to avoid liability for failing to identify and prevent construction defects.

They were unsuccessful in this attempt. See, Hunt v. Ellisor & Tanner, 739 S.W.2d 933

(Tex.App.--Dallas, 1987, writ denied), where the clauses were interpreted as imposing a duty

upon the Architect to guard the Owner against defects in construction, and holding the Architect

liable to the Owner for failing to prevent them, notwithstanding the contract language which

purported to absolve the Architect from responsibility for the Contractor’s failure to carry out the

work in accordance with the contract documents. The decision has been followed in a number

of other jurisdictions.

This author is of the opinion that any clauses which provide for an Architect to perform

observation services during the contract administration phase of the project will offer the

potential for liability, but that the risk inherent in failing to provide these services (as, for

instance, in contracts in which the architect’s duties are limited solely to design) is even greater.

The risk can be limited, however, by spelling out in the contract the extent of the site visits that

the Architect anticipates making, and noting that if the Owner wants more visits, he should pay

for them as an additional service. In doing this, the Architect can use a clause similar to that

noted in ¶2.6.6, supra. 3

III Getting Paid

A. Lien rights

The 1995 Legislature amended the Property Code to make it much easier for

architects and engineers to secure a lien for their design work. Tex.Prop.Code §§53.021, 53.023,

and 53.053 (Vernon’s Supp. 1996). It eliminated the cumbersome requirement that the Architect

or Engineer’s contract be recorded prior to the commencement of construction, and now requires

merely that his contract be in writing and that he file a lien affidavit. This should provide a

powerful tool for an unpaid Architect or Engineer to secure payment for his services.

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A. Drawings

The AIA contract states that the Drawings and Specifications “are instruments of

the Architect’s service,” to which the Architect “retains all common law” rights. This clause is

less than crystal-clear, but the practical effect is that the Architect -- unlike an attorney -- may

have the option of holding his work product for ransom, in the event that the Owner fails timely

to pay.

A. Payment During Disputes

The corollary to the foregoing paragraph is the situation in which a dispute has

arisen between the Owner and the Architect during the project, and the Owner makes a unilateral

decision to withhold payment as an offset against the possible future damages. This, as those of

us who bill by the hour well know, is a very significant threat. The contract should address this,

making at least some of the payments unconditioned, so that the owner’s failure to pay triggers

an event of default on the part of the Owner:

7.5. The Architect shall continue to perform its obligations under this Agreement pending resolution of any dispute, and the Owner shall continue to make payments of all amounts due the Architect which are not in dispute. A. Attorney’s Fees

Surprisingly, the AIA contract does not address attorney’s fees. While

Tex.Civ.Prac. & Rem. Code §38.001 (Vernon 1986) provides that “A person may recover

reasonable attorney’s fees . . . if the claim is for . . . (8) an oral or written contract”, this does not

necessarily mean attorney’s fees for “the prevailing party”. If the parties want lawyer fees to be

so awarded, they must say so in their contract. Monday v. Cox, 881 S.W.2d 381, 386 (Tex App--

San Antonio 1994, writ denied) (defendant who prevailed in arbitration proceeding on a DTPA

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“bad faith” counterclaim for attorney’s fees entitled to his fees for defense, but not for

enforcement of his award).

A. Interest

The AIA forms present a trap for the unwary Architect, particularly one from out

of state, who is unfamiliar with the draconian consequences of violating Texas’ usury laws.

While the parties to a written contract may agree to and stipulate for a rate of interest not to

exceed 18 percent, Tex.Rev.Stat.Ann. Art. 5069-1.04 (Vernon’s 1987), it is not at all uncommon

for the architect’s contract to remain unsigned, even after construction has begun. The unwary

Architect who then invoices his client for interest on past-due sums may find himself subject to

Tex.Rev.Stat.Ann. Art. 5069-1.03 (Vernon’s 1987), with its six percent rate, commencing on the

30th day after the time when the money was due and payable. Attempts to charge in excess of

this sum, or before the statutory due date, may trigger a usury claim.

IV Shifting the Risk

The fees generated by the design team historically have been wholly inadequate to defray

the potential risks of liability inherent in the construction process. Consequently, the designer’s

contract can and should contain provisions to attempt to shift this risk to others whose financial

stakes in the project is sufficient to bear the risks. This section discusses some of the methods by

which this can sometimes be achieved.

It should be noted, at the outset, that any agreement used to exculpate a party from the

consequences of its own negligence, or to shift the risk to others, probably is subject to the

requirements of “fair notice,” Dresser Industries, Inc. v. Page Petroleum, 853 S.W.2d 505, 508

(Tex. 1993), which requires that something must appear on the face of the contract to attract the

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attention of a reasonable person when he looks at it. See, Ling and Company v. Trinity Savings

& Loan Association, 482 S.W.2d 841, 843 (Tex. 1972).

A. Limiting Liability

1 Dollar Limits

Probably the most efficient way to shift the risk is simply by limiting the

designer’s liability for it. The limitation can be to a specific dollar amount, to the designer’s fee,

to exclude consequential damages, or indeed to any other limitation that the parties can agree

upon. The limitation probably should be “reasonable and not so drastic as to remove the

incentive to perform with due care.” See Valhal Corp. v. Sullivan Associates, Inc., 44 F.3d 195

(3d Civ. 1995). A sample clause might be:

12.1. LIMITATION OF LIABILITY. In recognition of the relative risks and benefits of the Project to both the Owner and the Architect, the risks have been allocated such that the Client agrees, to the fullest extent permitted by law, to limit the liability of the Architect and his or her subconsultants to the Owner and to all construction contractors and subcontractors on the Project for any and all claims, losses, costs, damages of any nature whatsoever, or claims expenses from any cause or causes, so that the total aggregate liability of the Architect and his or her subconsultants to all those named shall not exceed $_________, or the Architect’s total fee for services rendered on this Project, whichever is greater. Such claims and causes include, but are not limited to negligence, professional errors or omissions, strict liability, breach of contract or warranty. The Owner agrees to include a clause similar to this in its contract with the General Contractor, and require the Contractor to do the same in his contracts with subcontractors or materialmen.

2 Proportionate Fault for Breach of Contract

The Plaintiff need not show the proportionate fault of each wrongdoer in a

breach of contract action, City of Austin v. Houston Lighting and Power Company, 844 S.W.2d

773, 796 (Tex.App.--Dallas, 1992, writ denied), and there is no statutory provision to limit

damages for breach of contract through a scheme of comparative fault or causation, Hunt v. 7

Ellisor and Tanner, Inc., supra at 938; White, Budd Van Ness Partnership v. Major-Gladys

Drive Joint Venture, 798 S.W.2d 805, 820 (Tex.App.--Beaumont 1990, writ dismissed). A

proposed clause which might limit liability for breach of contract in a multi-defendant situation

would be the following:

12.2. PROPORTIONATE LIABILITY. Any liability of the of the Architect

for breach of this agreement, or for any other cause of action arising out of the

breach of this agreement, shall be limited to those damages actually caused by the

Architect’s breach and shall not include any liability for damages caused by the

Contractor, the Owner, or other members of the construction team.

A. Insurance

The most obvious risk-shift measure is through insurance, but the enormous cost

of architects’ and engineers’ liability insurance -- and the huge deductibles that typically apply to

them -- make them a very unsatisfactory method of shifting the risk from themselves. A much

better method is to shift the risk from the Architect and his insurance carrier to other members of

the construction team’s insurance carriers, which can be done through the use of an “additional

insured” clause in the Owner/Architect Agreement and, through it, in the Owner/Contractor

Agreement. A typical clause might read as follows:

12.3. ADDITIONAL INSURED. To the extent possible, the Owner will include the Architect as an additional insured on all policies of insurance on this Project, and will require, in its contract with the Contractor, that the Contractor and its subcontractors include the Architect as an additional insured on all of the policies of insurance which they are required to maintain in effect on the Project.

Although the Supreme Court has refused to extend the express negligence

doctrine to additional insured provisions, see, Getty Oil Company v. Insurance Co. of North

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America, 845 S.W.2d 794 (Tex. 1992), prudence would dictate that, in light of the opinion in

Dresser Industries v. Page Petroleum, 853 S.W.2d 505 (Tex. 1993), the clause be conspicuous.

A. Indemnification

A much-attempted, but [at least in this author’s experience] seldom successful

attempt at risk shifting is the use of contractual indemnification clauses. These generally take

one of two forms: (1) Indemnification from the consequences of the negligent acts of others; and

(2) indemnification from the consequences of one’s own negligence. The statutory and common

law limitations upon the use of the latter are considerable, although the former can and is

frequently is used by some of the members of the construction team to shift risks.

1 Indemnification from the Architect’s Own Negligence

a Statutory Limitations

Tex.Civ.Prac. & Rem.Code Ann. Section 130.002 (Vernon Supp.

1996) states that:

A covenant or promise in, . . . a construction contract is void and unenforceable if the covenant or promise provides for a contractor . . .to indemnify or hold harmless a registered architect, registered engineer or . . . from liability for damage that:

(1) is caused by or results from: (A) defects in plans, designs, or specifications prepared,

approved, or used by the architect or engineer; or (B) negligence of the architect or engineer in the rendition or

conduct of professional duties called for or arising out of the construction contract and the plans, designs, or specifications that are a part of the construction contract; and

(2) arises from: (A) personal injury or death; (B) property injury; or (C) any other expense that arises from personal injury, death, or

property injury. 9

This prohibition applies only to “personal injury” and “property

injury”, which may mean that the Contractor can indemnify the Architect for economic losses

arising from the Architect’s own negligence. Nevertheless, none of the AIA forms attempt to

require the contractor to indemnify the Architect from his own negligence. See, e.g., AIA

Document A 201 (General Conditions for the Contract of Construction), ¶3.18.

b Common Law Limitations

There is no statutory prohibition against an Owner indemnifying

an Architect from his own negligence, but if it were to do so, the clause would have to meet both

the “express negligence” test from Ethyl Corp. v. Daniel Construction Company, 725 S.W.2d

705 (Tex. 1987) and the requirement that such a clause be conspicuous. Dresser Industries v.

Page Petroleum, 853 S.W.2d 505 (Tex. 1993); Ensearch v. Parker, 794 S.W.2d 2, 8 (Tex. 1990).

2 Indemnification from Others’ Negligence

Tex.Rem.Code Section 130.005 (Vernon’s Supp. 1996) specifically allows

contractors and others to indemnify the Architect from their [the contractor’s] negligence, and

the AIA General Conditions ¶3.18 attempt to do precisely that. The clause, however, apparently

is unenforceable. Cf. Fisk Electric Company v. Constructor’s & Associates, Inc., 888 S.W.2d

813 (Tex. 1994).

In Fisk, supra, an injured employee of a subcontractor filed suit against

the general contractor for negligence. The general contractor, which was the indemnitee of a

clause identical to ¶3.18, supra, brought a third-party action against the subcontractor for

contractual indemnity. The subcontractor moved for, and obtained, a summary judgment on the 10

ground that the indemnity clause did not satisfy the express negligence test announced in Ethyl

Corp. v. Daniel Construction Company, 725 S.W.2d 705 (Tex.Supp. 1987). On appeal, the

contractor admitted that the clause did not meet the express negligence test [indeed, the word

“negligence” does not appear in the clause], but argued that if a jury found that it was not

negligent, it should be entitled to recover its attorneys’ fees and expenses because it would not

then be attempting to recover for its own negligence.

The Supreme Court disagreed, and held that the success of an indemnitee

in defending the case would not make the clause enforceable, because it still did not meet the

express negligence test when it was written, rather than when subsequent events determined its

effect. Fisk, 888 S.W.2d at 815. Under this reasoning, it would be appear doubtful that ¶3.18 of

the General Conditions ever could be used to provide for the indemnity of an Architect for

expenses incurred defendaing against the Contractor’s negligence, even when the architect was

negligent.

3 Indemnification of Others from Their Own Negligence

Owners routinely attempt to have their Architects indemnify them from

the consequences of their own negligence. The clauses are of course subject to the express

negligence rule, discussed above. The conspicuousness requirement may, however, be subject to

actual notice. Cf.. Cate v. Dover Corp., 790 S.W.2d 559 (Tex.1990). Since this clause always is

the subject of negotiation, however, the Architect generally will have a difficult time arguing that

it was unaware of its inclusion.

Note: Many local governments historically have coerced their architects

and engineers to sign express negligence clauses. Last year, the Legislature ended this

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pernicious practice by declaring the provisions void, at least in cases involving personal injury or

property damage. See, Tex.Loc.Gov.Code §271.904 (Vernon’s Supp. 1996).

V Eliminating Liability

In addition to limiting liability, careful draftsmanship may be successful in eliminating it.

A. Disclaimers of Express and Implied Warranties.

The Supreme Court has refused to recognize a professional services warranty,

Melody Home Mfg. Co. v. Barnes, 741 S.W.2d 349, 354 (Tex. 1987); Dennis v. Allison, 698

S.W.2d 94 (Tex. 1985), and the clear implication of its recent decisions is that it will not do so.

See, Parkway Co. v. Woodruff, 901 S.W.2d 434, 439-40 (Tex. 1995).

While one Court of Appeals has implied a professional warranty, White Bud Van

Ness Partnership v. Major-Gladys Drive Joint Venture , 798 S.W.2d 805 (Tex.App.--Beaumont,

1990, writ dismissed for briefing violation), 811 S.W.2d 541 (Tex. 1991), all other courts of

appeal which have considered the question have refused to imply a warranty for professional

services. See, e.g., Hill v. Lopez, 858 S.W.2d 620 (Tex.App.--Amarillo, 1993, no writ); Rhodes

v. Sorokolit, 846 S.W.2d 618, 620 (Tex.App.--Fort Worth, 1993, reversed on other grounds), 889

S.W.2d 239 (Tex. 1994); Chapman v. Wilson, 826 S.W.2d 214, 217 (Tex.App.--Austin, 1992),

writ denied); Eoff v. Hal & Charlie Peterson Foundation, 811 S.W.2d 187, 196 (Tex.App.--San

Antonio, 1991, no writ); Forestpark Enterprises v. Culpepper, 754 S.W.2d 775, 779 (Tex.App.--

Fort Worth 1988, writ denied).

Express warranties, however, can still be made the subject of a claim, and until

the Supreme Court has definitively and categorically rejected implied warranties, the prudent

draftsman will include a disclaimer of them, as well. A proposed clause might read as follows:

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12.4. DISCLAIMER OF WARRANTIES. Architect does not warrant or guarantee any particular result from its services and specifically disclaims any warranties, express or implied, which may arise by statute, common law, or equity. The excluded warranties include, but are not limited to, any implied warranty that work or professional services will be performed in a good and workmanlike manner, or any express warranty, written or oral, regarding either its services or the suitability of any of the Contract Documents.

A. Deceptive Trade Practices Act

The Supreme Court has held that a disclaimer can eliminate a DTPA cause of

action brought on the basis of breach of warranty. S.W. Bell. Corp., Inc. v. FDP Corp., 811

S.W.2d 572, 576 (Tex. 1991), notwithstanding the statutory prohibition against waivers of

liability for laundry list claims. Tex.Bus. & Com.Code Ann. Art 17.42 (Vernon’s Supp. 1996).

The newly-amended Section 17.42 of the DTPA allows for a waiver by the

consumer, so long as it is conspicuous, in bold face type, identified by the heading “waiver of

consumer rights,” signed by the consumer’s lawyer, and containing the words “I waive my rights

under the Deceptive trade Practices-Consumer Protection Act, Section 17.41, et seq., Bus. &

Com. Code, a law that gives consumer’s special rights and protections. After consultation with

an attorney of my own selection, I voluntarily consent to this waiver.” This author doubts that

many Owners will sighn such a clause. Of vastly greater import, however, is the amendment to

Section 17.49, which now states that: “(c) nothing in this sub-chapter shall apply to a claim for

damages based on the rendering of professional service, the essence of which is the providing of

advice, judgment, opinion or similar professional skill.” This should have the effect of writing

the DTPA out of Owner/Architect agreements.

A. Eliminating Claimants

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1 Third-Party Beneficiaries

Paragraph 9.7 of the AIA B141 contains a clause eliminating third-party

beneficiaries, and the AIA General Conditions ¶1.1.2 repeats it. These are intended primarily to

avoid the existence of any contractual relationship between the contractor and the Architect,

without which the contractor has no contractual claim against the Architect. See, Bernard

Johnson, Inc. v. Continental Constructors, Inc., 630 S.W.2d 365 (Tex.App.--Austin, 1982, no

writ).

2 Subrogated Insurors

A common form of troublesome claims arising out of a construction

process are those of subrogated insurors, whose decision to sue is made by a person completely

remote from the construction process, much less the construction team. The Architect should

attempt to eliminate these claims by obtaining the agreement of the Owner -- and, through the

Owner, the contractor -- to waive the subrogation rights of their insurors. ¶11.3.7 of the General

Conditions is a successful attempt to do this, see Temple Eastex, Inc. v. Old Orchard Creek

Partners, Ltd., 848 S.W.2d 724, 729 (Tex.App.--Dallas, 1992, writ denied). The AIA

Owner/Architect Agreement, ¶9.4 does so, as well, but in a clause which is not conspicuous, and

which does not require the agreement of the insurance companies to the waiver. (Whether the

insurance companies’ agreement is required may be an open question under Texas law. See,

Seamless Floors v. Value Line Homes, Inc., 438 S.W.2d 598, 601-02 (Tex.App.--Ft. Worth,

1969, writ ref’d n.r.e.)). In order to remedy these potential problems, the Owner/Architect

Agreement should contain a clause similar to the following:

9.4. WAIVER OF SUBROGATION. The Owner and Architect waive all rights against each other and against the contractors, consultants, agents and employees

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of the other for damages, but only to the extent covered by property insurance during construction, except such rights as they may have to the proceeds of such insurance as set forth in the edition of AIA Document A201, General Conditions of the Contract for Construction, current as of the date of this Agreement. The Owner and Architect each shall require similar waivers from their contractors, consultants and agents, and will require them to provide their insurance policies, which shall include such waivers of subrogation by endorsement or otherwise.

3 Assignees

As in any professional relationship, it behooves the professional to

insure that his performance is gauged by the person with whom he has a personal relationship,

rather than unidentified and possibly hostile successors to that person. Consequently,

assignment of the Owner’s rights against the Architect should be subject to the Architect’s

consent. ¶9.5 of the AIA Owner/Architect Agreement requires it.

VI Closing the Courthouse

A. Limitations

The four-year statute of limitations governs actions for breach of contract.

Tex.Civ.Prac. & Rem.Code Ann. §16.004 (Vernon 1986), but this period may be shortened, by

contract, to two years. Tex.Civ.Prac. & Rem.Code Ann. §16.070 (Vernon Supp. 1996). A

clause taking advantage of this statutory authorization might be as follows:

9.3.1. LIMITATION OF ACTION. Causes of action between the parties to this agreement, including any claims for breach of contract, must be brought within two years from the day following the act or omission giving rising to the claim for breach of contract.

The Supreme Court’s recently-stated disinclination to assume the existence of a

discovery rule for actions based upon negligent design of improvements to real property may

make the contractually-agreed upon accrual date very significant, indeed. See, Trinity River

Authority v. URS Consultants, Inc., 889 S.W.2d 259, 262-63 (Tex. 1994); see, also, Computer 15

Associates International, Inc. v. Altai, Inc., 38 Tex.S.Ct.J. 740 (opinion delivered, Jun. 8, 1995).

A. Certificate of Merit

California and some other jurisdictions have adopted statutes requiring a

certificate of merit as a prerequisite to instituting malpractice litigation against architects. While

Texas has not yet adopted this salutary procedure, there does not appear to be any reason why

the parties cannot, in their contractual undertaking, agree to make it a prerequisite to any dispute

resolution. A sample clause might appear as follows:

7.1. CERTIFICATE OF MERIT. The Owner shall make no claim for professional malpractice, either directly or in a third party claim, against the Architect unless the Owner has first provided the Architect with a written certification executed by an independent design professional currently practicing in the same discipline as the Architect and licensed in the State of Texas. The certification shall: (a) contain the name and license number of the certifier; (b) specify the acts or omissions that the certifier contends is a violation of the standard of care expected of an Architect performing professional services under similar circumstances; and (c) state the basis for the certifier’s opinion that each such act or omission constitutes a violation of the standard of care. The certificate shall be provided to the Architect prior to the presentation of any claim or the institution of any arbitration or judicial proceeding against the Architect.

A. Alternative Dispute Resolution

Texas courts recent have shown a considerable bias toward alternative dispute

resolution, including specifically enforcing arbitration clauses, even where the dispute involved

extra-contractual claims. See, e.g., Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266 (Tex.

1992). Consequently, the Architect who wants to keep disputes about his performance out of

court, and in the hands of someone whose qualifications for deciding factual questions extend

beyond holding a Texas driver’s license, may want to consider requiring arbitration. On the

other hand, now that Texas courts seem to be reasserting the role of the judiciary in determining

legal questions, and particularly contract disclaimers and limitations, the Architect may be more 16

willing to take a his or her chances with the courts.

In the event that arbitration of future disputes is preferred, the parties can either

take the AIA B141 approach, and refer all claims to the American Arbitration Association, or

they can custom-tailor their arbitration agreement. The advantages of using the standard

language of reference to the AAA are that it is a form with which most construction lawyers

generally are familiar, using rules that, while cumbersome, are predictable, and because it is

relatively easy -- albeit expensive -- to trigger the arbitration process. An additional benefit is

that the AIA form of reference to the AAA has been held to be enforceable. See, Monday v. Cox,

881 S.W.2d 381 (Tex.App.--San Antonio 1994, writ denied).

On the other hand, the parties can agree at the inception of the contract upon the

use of the specific arbitrator, which can offer the advantage of having a “known quantity” before

whom all of their disputes will be decided. This proposed method is expeditious and

inexpensive. Its disadvantage is that it affords and aggrieved party a very easy means to turn

minor disputes into full-blown arbitrations. (Because of its expense, resort to going to the AAA

dissuades all but fairly serious claimants.) This concern partially can be alleviated by suggesting

mediation prior to instituting arbitration proceedings. The danger of making it a condition

precedent is illustrated in Belmont v. Lyondell Petrochemical, 896 S.W.2d 352 (Tex.App.--

Houston [1st Dist.] 1995, no writ hist.) where the court, in a hypertechnical ruling, held that the

agreement to arbitrate was conditioned upon their agreement to mediate.

If the parties want to to name a particular arbitrator, the following clauses are

suggested for use in lieu of Articles 7.1 and 7.2 of the AIA B141:

7.1. Claims, disputes or other matters in question between the parties to this agreement arising out of or relating to this agreement or breach thereof (including

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any claims for negligence, deceptive trade practices or any other claim in tort or in contract) shall be subject and decided by binding arbitration, in accordance with the construction industry arbitration rules of the American Arbitration Association, or similar rules which the parties may adopt. 7.2. In the event arbitration is necessary, _________ shall act as the arbitrator. If _____________ fails or refuses to act as arbitrator, then the parties shall mutually agree upon his or her replacement and, if the parties cannot agree on a single arbitrator, then the arbitrator shall be selected in accordance with the construction industry arbitration rules of the American Arbitration Association. 7.3. The arbitration proceedings shall be conducted in ________, Texas, or at such other place as may be selected by mutual agreement.

The remaining arbitration-related clauses in the B141 (prohibition against

joinder of non-parties and enforcement of the award) should be renumbered and retained.

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