Modifying AIA Contract Documents: Advanced

Strategies for Owners, Developers, and

Contractors

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WEDNESDAY, NOVEMBER 3, 2021

Presenting a live 90-minute webinar with interactive Q&A

Sharon M. Lewonski, Partner, Culhane Meadows, Atlanta, GA

Anthony J. Manhart, Partner, Preti Flaherty Beliveau & Pachios, Portland, ME

Kenneth E. Rubinstein, Director, Preti Flaherty Beliveau & Pachios, Boston, MA

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Understanding Project Delivery Methods

Kenneth E. RubinsteinAnthony J. Manhart

Design-Bid-Build

Pros:

• Traditional / Known

• High Transparency

• Owner Control

• Checks & Balances

Cons:

• Adversarial Approach

• Linear Design and Construction Process

• Lack of Collaboration leads to Missed Opportunities

Construction Management At Risk

Pros:• Design Assist Presents Greater

Collaboration• Less Conflict• Opportunities to Identify

Improvements and Savings• Fast Tracking Possible Through

Phased Scheduling

Cons:• Still Leaves Room for Conflict

Between CMR and Design Professional

• Premium Placed on CMR - Less Basis for Comparison of Pricing

• Added Administrative Expenses

Design-BuildPros:

• Single Point of Contact for Design and Construction

• Eliminates Conflict Between Design Professional and Contractor

• Greater Ability to Fast Track Due to Overlap Between Design and Construction

• Schedule Compression Can Result in Cost Savings

Cons:

• Owner Cedes Some Control Over Design

• Can Lead to Compromise of Quality and Detail

• Lack of Checks and Balances

Payment Structures

• Lump Sum

• Cost Plus (with no Guaranteed Maximum Price

• Cost Plus with GMP

• Open Book

The ConstructionContracts

The Design Contract

The Prime Contract

The Subcontract and the Supply

Purchase Order

•The main business of a lawyer is to take the romance, the mystery, the irony, and

the ambiguity out of everything he touches.

•Antonin Scalia

Atlanta / Austin / Boston / Chicago / Dallas / Houston / New York / Philadelphia/ Washington D.C. /Wilmington

GENERALLY…

• ** COMPLETE the AIA Forms AND attach all ‘Contract Documents’

DATE OF COMMENCEMENT (A101, Art. 3; A102, Art. 4)

§ 3.1 The date of commencement of the Work shall be:

(Check one of the following boxes.)

[ « » ] The date of this Agreement.

[ « » ] A date set forth in a notice to proceed issued by the Owner.

[ « » ] Established as follows:

(Insert a date or a means to determine the date of commencement of the Work.)

« »

If a date of commencement of the Work is not selected, then the date of commencement shall be

the date of this Agreement.

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CONTRACT SUM (A101, ART. 4; A102, ART. 5)

A101: Stipulated Sum:

The Owner shall pay the Contractor the Contract Sum, which shall be

$______________, subject to additions and deductions as provided in the

Contract Documents.

● Alternates, Allowances, Unit Prices (See GC A201, §9.1.2)

A102: Cost of the Work, + Fee, W/Guaranteed Maximum Price (GMP)

• Reimbursable = “Cost of Work” (A102, Art. 7, as supplemented by General

Conditions-G201)

• Contractor’s Fee (lump sum, %, or other)

• GMP (assumptions; conditional alternatives to the calculation; subcontractors)

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SUBSTANTIAL COMPLETION (A101, §3.3, A102, §4.3)

§ 3.2 The Contract Time shall be measured from the date of commencement of the Work.

§ 3.3 Substantial Completion § 3.3.1 Subject to adjustments of the Contract Time as provided in the Contract Documents, the

Contractor shall achieve Substantial Completion of the entire Work:

(Check one of the following boxes and complete the necessary information.)

[ « » ] Not later than « » ( « » ) calendar days from the date of commencement of the Work.

[ « » ] By the following date: « »

§ 3.3.2 Subject to adjustments of the Contract Time as provided in the Contract Documents, if

portions of the Work are to be completed prior to Substantial Completion of the entire Work, the

Contractor shall achieve Substantial Completion of such portions by the following dates:

Portion of Work Substantial Completion Date

§ 3.3.3 If the Contractor fails to achieve Substantial Completion as provided in this Section 3.3,

liquidated damages, if any, shall be assessed as set forth in Section 4.5.

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LIQUIDATED DAMAGES

Two express provisions addressing liquidated damages (A101, §§3.33, 4.5;

A102 §§4.33 &5.1.6)

“COST-SAVINGS” PROVISION

Reward vs. Punishment?

§ 4.5 Liquidated damages, if any:

(Insert terms and conditions for liquidated damages, if any.)

« »

§ 4.6 Other:

(Insert provisions for bonus or other incentives, if any, that might result in a change

to the Contract Sum.)

« »

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RETAINAGE (A101, § 5.1.7; A102, § 12.1.8)

MANY STATES HAVE LAWS GOVERNING THE AMOUNT OF RETAINAGE PERMITTED TO BE HELD

AND/OR THE PROCESS FOR RELEASE -

§ 5.1.7 Retainage § 5.1.7.1 For each progress payment made prior to Substantial Completion of the Work, the

Owner may withhold the following amount, as retainage, from the payment otherwise due:

(Insert a percentage or amount to be withheld as retainage from each Application for Payment.…

The amount of retainage may be limited by governing law.)

« »

§ 5.1.7.1.1 The following items are not subject to retainage:

(Insert any items not subject to the withholding of retainage, such as general conditions,

insurance, etc.)

« »

§ 5.1.7.2 Reduction or limitation of retainage, if any, shall be as follows:

(If the retainage established in Section 5.1.7.1 is to be modified prior to Substantial Completion

of the entire Work, including modifications for Substantial Completion of portions of the Work as

provided in Section 3.3.2, insert provisions for such modifications.)

« »

§ 5.1.7.3 Except as set forth in this Section 5.1.7.3, upon Substantial Completion of the Work, the

Contractor may submit an Application for Payment that includes the retainage withheld from

prior Applications for Payment pursuant to this Section 5.1.7. The Application for Payment

submitted at Substantial Completion shall not include retainage as follows:

(Insert any other conditions for release of retainage upon Substantial Completion.)

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ROLE OF THE ARCHITECT

● Initial Decision Maker (IDM)

(A101, §6.1; A102, §13.1 and GC A201, §15.2.2)

● Substitution of “Owner” for “Architect” in the Agreement

● Owner-Contractor communications

● Owners-Architect Agreement (AIA B101-2017 B102 and B-series docs)

§ 6.1 Initial Decision Maker

The Architect will serve as the Initial Decision Maker

pursuant to Article 15 of AIA Document A201–2017,

unless the parties appoint below another individual,

not a party to this Agreement, to serve as the Initial

Decision Maker.

(If the parties mutually agree, insert the name,

address and other contact information of the Initial

Decision Maker, if other than the Architect.)

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DISPUTE RESOLUTION PROCESS (A101, §6.2; A102, §13.2)

§ 6.2 Binding Dispute Resolution For any Claim subject to, but not resolved by, mediation pursuant to Article 15 of AIA Document

A201–2017, the method of binding dispute resolution shall be as follows:

(Check the appropriate box.)

[ « » ] Arbitration pursuant to Section 15.4 of AIA Document A201–2017

[ « » ] Litigation in a court of competent jurisdiction

[ «XX» ] Other (Specify)

« To be decided by the claiming Party if not subsequently agreed to in writing

If the Owner and Contractor do not select a method of binding dispute resolution, or do not

subsequently agree in writing to a binding dispute resolution method other than litigation, Claims

will be resolved by litigation in a court of competent jurisdiction.

18

According to the Institute …

“The general conditions are an integral part of the contract for construction for a large project and

they are incorporated by reference into the owner/contractor agreement. They set forth the rights,

responsibilities, and relationships of the owner, contractor, and architect. (… ) AIA Document

A201™–2017 is adopted by reference in owner/architect, owner/contractor, and (…) thus, it is

often called the “keystone” document.”

o Dispute Resolution ( GC A201, Art. 15)

➢Claims (§ 1);

➢Initial Decision (§2);

➢Mediation (§ 3)

➢Arbitration/Consolidation/Joinder (§ 4)

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§ 15.1.2 Time Limits on Claims

The Owner and Contractor shall commence all Claims and causes of action against the other and

arising out of or related to the Contract, whether in contract, tort, breach of warranty or otherwise, in

accordance with the requirements of the binding dispute resolution method selected in the Agreement

and within the period specified by applicable law, and the applicable statute of limitations shall

commence to run not later than the date of Substantial Completion for acts or omissions prior to, or

the date of issuance of Final Payment for acts or omissions occurring thereafter. but in any case not

more than 10 years after the date of Substantial Completion of the Work. The Owner and Contractor waive all Claims and causes of action not commenced in accordance with this Section 15.1.2

§ 15.1.3 Notice of Claims

§ 15.1.3.1 Claims by either the Owner or Contractor, where the condition giving rise to the Claim and

the resulting impact is first discovered prior to expiration of the period for correction of the Work set

forth in Section 12.2.2, shall be initiated by notice to the other party and to the Initial Decision

Maker with a copy sent to the Architect, if the Architect is not serving as the Initial Decision Maker.

Claims by either party under this Section 15.1.3.1 shall be initiated within 21 days after occurrence

of the event giving rise to such Claim or within 21 days after the claimant first recognizes the

condition giving rise to the Claim and the resulting impact, whichever is later.

§ 15.1.7 Waiver of Claims for Consequential Damages

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MEDIATION

§ 15.2.6 Either party may file for mediation of an initial decision at any time, subject to

the terms of Section 15.2.6.1. Mediation of a Claim shall be required only if both parties

consent thereto in writing.

** § 15.2.6.1 Either party may, within 30 days from the date of receipt of an initial

decision, demand in writing that the other party file for mediation. If such a demand is

made and the party receiving the demand fails to file for mediation within 30 days after

receipt thereof, then both parties waive their rights to mediate or pursue binding dispute

resolution proceedings with respect to the initial decision.

** INTENTIONALLY DELETED

21

• Termination & Suspension Rights; Remedies & Termination Fee

(A101, §7.1.1; A102, §14.1.3 and GC A201, Art. 14)

• Change Orders (GC A201, Art. 7)

• Insurance/Bonds (GC A201, Art. 11; New Ex. A)

• Indemnification (GC A201, § 3.18.1)

• Notice Provisions /Electronic Data (GC A201, §1.6)

22

Where’s the Force Majeure Provision in my AIA Contract?

§ 8.3.1 If the Contractor is delayed at any time in the commencement or progress of the Work by (1)an act or neglect of the Owner or Architect, of an employee of either, or of a Separate Contractor;(2) by changes ordered in the Work; (3) by labor disputes, fire unusual delay in deliveries,unavoidable casualties, adverse weather conditions documented in accordance with Section15.1.6.2, or other unforeseeable causes beyond the Contractor’s reasonable control; (4) by delayauthorized by the Owner pending mediation and building dispute resolution; or (5) by other causesthat the contractor asserts, and the Architect Owner determines, justify delay, then the Contract timeshall be extended for such reasonable time as Architect Owner may determine. A new outbreak orrecurrence of COVID-19, or outbreak of other widely reported, highly contagious pathogens,whether viral, bacterial or otherwise (“Pathogens”) causing a local or regional epidemic orpandemic, may be deemed a force majeure event if and to the extent that it causes delays that couldnot have reasonably been anticipated or foreseen and where the resulting delays could not have beenprevented through reasonable preparation. In such event, Contractor shall take all reasonable stepsto mitigate any resulting delay. Notwithstanding the foregoing, no adjustments to the Contract Timeshall be made: (a) unless the delayed Work is denoted as being on the critical path in theConstruction Schedule, (b) if the cause of the delay was reasonably within the control of theContractor, or those for whom it is responsible, and (c) if there is a concurrent delay or contributingcause for which Contractor would not be entitled to an extension of time.

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▪ Excuse From Performance; Equitable Remedies (Force Majeure)

▪ Managing Owner’s Expectations and Demands (e.g., advance purchases & stockpiling; price “lockdown”; shop around)

▪ Healthy Contingency in Bid, Allowances, Contractor “Change Orders”

▪ Narrow the Scope; Quantify the Risk; Communicate Up & Down The Chain

SAMPLE LANGUAGE:

Cost Escalation: In the event of significant delay or price increase of material, equipment or energy

occurring during the performance of the contract through no fault of Contractor or its subcontractors,

the contract sum, time of completion or contract requirements shall be equitably adjusted by change

order in accordance with the procedures of the contract documents. A change in price of an item of

material, equipment, or energy shall be considered significant when the price of an items increases

___% or more between the date of this contract and the date of installation. If the increase in price is

at least ___%, but less than ___%, the equitable adjustment shall be based only on the amount of increase

or decrease greater than ___%, but if the price increase is ___% or more, then the equitable adjustment

shall be based on the entire amount of the price increase. If Contractor makes a request for an equitable

adjustment to the contract price based on an increase in price, Contractor shall be required at that time to

disclose its original price that has increased.

COVID-19 CONSIDERATIONS & ADDITIONAL OWNER PROTECTIONS

Where’s the Force Majeure Provision in my AIA Contract?

§ 14.2.1 The Owner may terminate the Contract if the Contractor:

.1 repeatedly refuses or fails to supply enough properly skilled workers or proper

materials;

.2 fails to make payment to Subcontractors or suppliers in accordance with the

respective agreements between the Contractor and the Subcontractors or suppliers;

.3 repeatedly disregards applicable laws, statutes, ordinances, codes, rules and

regulations, or lawful orders of a public authority, or health and safety executive

orders, industry-specific recommendations or plans;

.4 otherwise is guilty of substantial breach of a provision of the Contract Documents.

See also,

§ 14.1.1.1 (Termination or Suspension of Work by Contractor 30-days);

§ § 14.3 and 14.4 (Termination or Suspension by Owner for Convenience)

25

§ 2.4 If the Contractor fails to correct Work that is not in accordance with the

requirements of the Contract Documents as required by Section 12.2, or, repeatedly

fails to carry out Work in accordance with the Contract Documents, or fails to perform

the Work in a safe manner and in compliance with [all applicable health and safety

requirements, orders or plans] [or][specific health and safety plan specific to the Project

Site], the Owner may issue a written order to the Contractor to stop the Work, or any

portion thereof, until the cause for such order has been eliminated; however, the right of

the Owner to stop the Work shall not give rise to a duty on the part of the Owner to

exercise this right for the benefit of the Contractor or any other person or entity, except

to the extent required by Section 6.1.3.*

*§ 6.1.3 pertains to Owner’s “Separate Contractor”

26

§ 2.5 If the Contractor defaults or neglects to carry out the Work in accordance with the Contract

Documents (including but not limited to all applicable federal, state and local health and safety

requirements and Site Safety Plan, if applicable) and fails within a ten-day period (or twenty-four

hour period for a health and safety default) after receipt of notice from the Owner to commence

and continue correction of such default or neglect with diligence and promptness, the Owner may,

without prejudice to other remedies the Owner may have, (a) correct such default or neglect and

(b) deduct or withhold the resulting costs from payment then or thereafter due the Contractor,

including without limitation, the costs for a Separate Contractor, costs for the Architect’s services

and any consulting or legal costs related to or arising from such deficiencies, default, neglect or

failure. Such action by the Owner and amounts charged to the Contractor are both subject to prior

approval of the Architect and the Architect may, pursuant to Section 9.5.1 withhold or nullify a

Certificate for Payment in whole or in part, to the extent reasonably necessary to reimburse the

Owner for the reasonable cost of correcting such deficiencies, including Owner’s expenses and

compensation for the Architect’s additional services made necessary by such default, neglect, or

failure. If current and future payments are not sufficient to cover such amounts, the Contractor

shall pay the difference to the Owner. If the Contractor disagrees with the actions of the

Owner or the Architect, or the amounts claimed as costs to the Owner, the Contractor

may file a Claim pursuant to Article 15. (…)

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§ 3.4.3 The Contractor shall enforce strict discipline and good order among the Contractor’s

employees and other persons carrying out the Work. The Contractor shall not permit employment of

unfit persons, persons not properly skilled in tasks assigned to them, or persons who within the last

two weeks have been (a) having been exposed to someone having been diagnosed with a highly

contagious pathogen, whether viral, bacterial, or otherwise, reported to have resulted, or having the

potential of resulting in, a local or regional epidemic or pandemic (“Pathogens”), including,

without limitation, a coronavirus disease (COVID-19) infection; or (b) having exhibited symptoms

of a highly infectious pathogen or disease of any known or reported epidemic, pandemic or

pathogen spread, including without limitation a persistent cough, shortness of breath, or a fever of

100.4 or higher. The Owner reserves the right to have any persons removed from the Project upon

reasonable objection.

PROPOSE ADDITIONAL § 3.4.4 In addition to all other safety requirements, Contractor shall

provide suitable and a sufficient number of safety related facilities and PPE at the site related to

protection against the spread of COVID-19 or Pathogens, including but not limited to handwashing

stations, hand sanitizer, gloves, masks, face-shields, and other equipment as Owner may reasonably

request, and full compliance with any other “Site Safety Plan” described in the Contract

Documents. Notwithstanding the foregoing, nothing herein shall be construed to delegate or relieve

Contractor from having sole and exclusive responsibility for all worksite safety.

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Sample Revisions to Owner Indemnification:

§ 3.18.1 To the fullest extent permitted by law, the Contractor shall indemnify, defend, and hold

harmless the Owner, Architect, Architect’s consultants, and the officers, directors, shareholders,

members, agents and employees of any of them from and against any and all claims, damages,

losses, fines and expenses, (including but not limited to attorneys’ fees, expert fees, arbitration fees,

court costs, investigation and settlement costs) arising out of or resulting from performance of the

Work, provided that such claim, damage, loss, or expense is attributable to bodily injury, sickness,

disease or death, or to injury to or destruction of tangible property (other than the Work itself), but

only to the extent caused by the failure to perform the Work in accordance with the Contract

Documents (including but not limited to Article 10 or Article 13.6), any negligent acts or omissions

of the Contractor, a Subcontractor, anyone directly or indirectly employed by them, or anyone for

whose acts they may be liable, regardless of whether or not such claim, damage, loss, or expense is

caused in part by a party indemnified hereunder, or any claim by any employee of Contractor, or its

lower tier subcontractors or suppliers (and their employees) based upon a claim that the project

should not have proceeded. Such obligation shall not be construed to negate, abridge, or reduce other

rights or obligations of indemnity that would otherwise exist as to a party or person described in this

Section 3.18.

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SOME ADDITIONAL OWNER/DEVELOPER ISSUES:

o § 2.31 – Contractor’s duty to cooperate with safe building practices

o §3.13 – No liability for conditions within the Project Site; control over the Project

Site;

o §3.15.1 – Cleanliness of Project Site; Owner’s Inspections

o §§ 10.1 - Contractor’s safety precautions; infection or exposure prevention measures

o § 10.3.7 – Allocation of risks for Hazardous Conditions (For avoidance of doubt,

COVID-19 shall not be considered a Hazardous Material for purposes of this § 10-.3)

30

This presentation is provided for informational purposes only and should not be considered specific legal advice on any subject matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this presentation does

not create an attorney-client relationship between you and Culhane Meadows PLLC.

Presenter

Sharon M. LewonskiPartner & Real Estate Practice Group Chair

slewonski@law.cm(678) 517-2224

https://www.culhanemeadows.com/attorney/sharon-lewonski/

III. Advanced Drafting Issues

The Power of Perspective

The Two Big Risks

What can you control?

What can you quantify?

Remove The Architects Rights §1.1.2

Change Definition of In Writing §1.6.2

Responsibility for What is Inferred §1.3

In the first provision of the agreement, theterm “work” should be defined as “thework required by the contract documentsand all work that is reasonably inferabletherefrom” and should clarify that thework “includes all labor, material,equipment, tools, supplies, scaffoldingand other facilities and services necessaryfor the proper execution and completionof the project. “

Change in Laws §3.2.3

Recognition of Errors

§3.2.4

Termination of Warranty §3.5.3

Clean Up §§ 3.15.2, 6.3

§3.15.2 After the phrase, “the Owner may do so,” add the phrase, “provided that Owner has provided Contractor with notice In Writing, and a reasonable opportunity to cure.

§6.3 After the phrase, “the Owner may,” add the words, “upon reasonable notice and an opportunity to cure.”

Indemnity §3.18 The AIA indemnity clause is very contractor friendly, allowing indemnity only for personal injury, property damage, or death, and only to the extent of the contractor’s fault.

Consequential Damage §15.1.7 Arguably waives owner’s right to collect damages other than cost of completing work.

Review of Submittals

§4.2.7In the second sentence, after the phrase, “inthe Architect’s professional judgment,” insert“provided that such duration does not exceedseven (7) days, and does not affectContractor’s planned schedule for completionof the Work.”

§5.3

The Contractor shall make available toeach proposed Subcontractor, prior tothe execution of the subcontractagreement, copies of the ContractDocuments to which the Subcontractorwill be bound, and, upon writtenrequest of the Subcontractor, identifyto the Subcontractor terms andconditions of the proposedsubcontract agreement that may beat variance with the ContractDocuments.

Payment for Subcontracted Work § 9.3.1.2

Subcontractor Payment Issues

• Owner Joint Checks §9.5.3 –Intentionally Omitted

• Contractor’s Duty to Pay Subs §9.6.2 – Intentionally Omitted

• Owner’s Right to Share Information with Subs §9.6.3 – Intentionally Omitted

• Termination for Failure to Pay Subs §14.1.2 –Intentionally Omitted

TerminationIssues §14

• Consequences of Owner’s breach (§14.1)

• Need for “repeated” failure; need for notice and opportunity to cure; (§14.2)

• Consequences of Termination or Suspension for Convenience (§§14.3, 14.4)

Notice of Claims §15.1.3.1After the phrase, “21 days after the occurrence of the event giving rise to such Claim or within 21 days after the claimant first recognizes the condition giving rise to the Claim” insert, “and resulting impact.”

IV. Qualifications and Exclusions

Review of Submittals

§4.2.7

Pricing and Schedule are based uponOwner’s issuance of a notice to proceedon or before [ ], with mobilization to thesite on or before [ ], and constructionactivities starting on or before [ ].

Contractor shall be entitled to amend anequitable adjustment to the contractsum and schedule should the start bedelayed more than 60 days.

• Helps temper expectations for parties if access or delay is a problem

• Avoids problems if delays in negotiations

Retainage – Two Aspects

FirstOwner will not withhold retainage on any overhead, profit, general conditions, or materials purchased with 30 day payment terms.

SecondOwner will release all retainage to Contractor for release to trades that complete their scope early in the schedule (prior to 50% overall project completion), upon presentation of proper documentation.

4UnexpectedDelayProvisions

1. Permits, Approvals, Inspections

The Contract Price is based upon a mutualexpectation that reasonable positions will betaken by federal, state, or local inspectors andofficials (“Authorities”), and that such Authoritiesshall act with reasonable promptness anddiligence regarding issuance of permits,approvals, certificates of occupancy, and ininterpreting applicable codes and standards.Contractor shall be entitled to a change orderadjusting the Contract Price and Schedule for anyimpact resulting from a deviation.

Usually related to inspections - examples:

• Delay

• Disagreements regarding code compliance

4UnexpectedDelayProvisions

2. Third Party Approvals

To the extent the Contract Documents mayrequire Contractor to meet any standard ofperformance to be approved by any third party(e.g., LEED), Contractor shall be deemed tohave achieved such obligation upon satisfyingthe required construction in accordance withthe standard of construction specified,notwithstanding any third party agency’srefusal to grant any such required certification.

4UnexpectedDelayProvisions

3. Utility Contract Extensions

Contractor shall be entitled to an extension ofthe Contract Schedule for any delays caused byany utility in connection with the installation,maintenance, service, and repair of all live(permanent) utility installations followingContractor’s request.

4UnexpectedDelayProvisions

4. Materials Pricing

Pricing is based upon reasonable costs in theindustry existing as of the date of the contract.Should materials prices escalate by more than10% following execution of the contract,Contractor shall be entitled to a change ordercommensurate with the resulting additionalcost.

Think Cost Escalation

Think Tariffs

Contact Information

Anthony J. ManhartConstruction Law Group

One City CenterPortland, ME 04901T. 207.791.3251E. amanhart@preti.com

Kenneth J. Rubinstein, Co-ChairConstruction Law Group

57 North Main StreetConcord, NH 03301T. 603.410.1568

60 State Street, Suite 1100Boston, MA 02019T. 617.226.3868E. krubinstein@preti.com