Contract Change #3- Termination for Convenience in A201 (law note)

money down drainToday in the Top 10 Changes to the A201, we are discussing Termination for Convenience provisions.  (Yesterday’s post discussing contract changes dealing with commencement & completion is here).  The Termination for Convenience provision (14.4.3) has an interesting history which explains why this small, but very specific, change was made.

Termination for Convenience, an exclusive owner right, was added in the AIA contracts in 1997.  However, contractors and architects were losing the benefit of their bargains, including the fixed overhead and the fee or profit on the portion of Work which was terminated.

To alleviate that problem, in 2007, the contracts were revised to allow the contractor/architect to get payment for work executed, costs of termination, and reasonable overhead and profit on the work not executed.

As many of you know too well, Owners, in response, often completely struck through that provision, denying any overhead or profit for work not yet performed after a termination for convenience.

In the 2017 revision, the A201 (as well as the related Owner-Architect agreements), the automatic entitlement is eliminated, in favor of a fill point to prompt the parties to discuss a fair fee before the project begins.

A negotiated amount also serves to liquidate the Owner’s liability to the Contractor (lost business opportunity and overhead and profit on the Contractor’s unperformed work).  However, the fee is not necessarily designed to completely liquidate the Owner’s liability to the Contractor’s downstream parties.

To protect the Owner from downstream claims, the A401 will need to be edited and coordinated, so that the Owner’s entire liability to the Contractor, inclusive of subcontractors and suppliers, is established in the Termination fill point.

Likewise, if you utilize subconsultants in your architecture or engineering practice, be sure that your contracts are likewise modified to track your entitlement for termination expenses.

Tomorrow, Change #2, dealing with Digital Data.

Photo (c) TaxRebate.org.uk via Creative Commons.

Contract Change #4: Commencement & Completion dates in the AIA documents (law note)

We’re in the final countdown of the Top 10 Changes to the AIA A201 contracts.  [For the previous post, on Liquidated Damages, go here].

start

Today, dates of commencement & completion.  Technically, I’m cheating today, because these changes are in the related contracts, not the A201 itself, although A201 Section 8 discusses commencement & completion dates in general.  However, in the related contract documents (A101 Section 3; A102 Section 4; A103 Section 4), changes were made to encourage specificity.

There is now a check box that allows the parties to select as the Date of Commencement as one of the following:

(1) the date of the Agreement

(2) the issuance of a Notice to Proceed (NTP) by the Owner; or

(3) a different date as agreed to by the Parties.

If no box is checked, the default is the date of the Agreement.  The check box format is meant to clarify any confusion between the parties before the contract is inked.

For Substantial Completion, there is also a new check box to indicate whether such is obtained no later than a specified calendar date or within a certain number of days from commencement.  There is also a new section that addresses Substantial Completion of certain phases of the Work prior to full Completion.

Finally, a new section has been added to cross-reference the new liquidated damages fill point.

Tomorrow, change # 3 on the countdown, Termination for Convenience.

 

Photo (c) Steven Depolo via Creative Commons license.

 

Contract Change #5– Liquidated Damages (law note)

liquid damageToday, we are half-way through our series on the Top 10 Changes to the AIA A201.  (Here is yesterday’s post discussing financial notifications, Change #6, Part B]

Liquidated Damages can make or break a project.  They can either encourage efficient construction completion, or completely derail a project if there are multiple competing delays and delay claims.  They can also cost a contractor a lot of money if he doesn’t meet the timing requirements of the Project.

In the 2017 contract revision, a specific fill point has been included in all Owner-Contractor agreements (except A105) to prompt the parties to consider including a liquidated damages provision.

The details concerning calculation of the damages, and the limits (if any) to the damages are still left to the parties to negotiate.  The intent of the fill point is to bring the discussion to the forefront, rather than have the provision buried within the Contractor Time section of the contract.

There is also now a separate fill point for bonus or other incentive provisions.

Next up after the Easter break:  Change #4:  Commencement & Completion.  Stay tuned…

Photo (c) Peter Hopper via Creative Commons license.

Change #6, Part B: Financial Notice Changes in the A201 (law note)

Yesterday, we discussed Change #6, Notice Provisions, in the A201 Contract.  As promised, here is one more Notice Provision that has changed– that relating to Financial Arrangements of the Owner.

money on a bed of cash

Since 1976, the AIA Contract Documents have allowed the Contractor to require the Owner to provide evidence that the Owner has made financial arrangements to fulfill the Owner’s obligations under the Contract.  That is, the Contractor had the unfettered right to request evidence indiscriminately throughout the Project.  The Contractor also had the unilateral right to stop work if the Owner failed to provide evidence that he was financially sound when requested.  This process could lead to abuse where, for example, a contractor demanded financial evidence as a ploy to get more time and avoid liquidated damages.

In the last contract revision, in 2007, the documents were changed to only allow the Contractor the right to request evidence of adequate financing prior to the start of Construction, and thereafter only if certain conditions were met.  In the 2017 version, revisions were made for clarification, to establish deadlines for receipt of the information, and to restrict the right to stop work relating to a change in the Work.

Now, the Contractor can request financial information before construction (Section 2.2.1) and during construction (Section 2.2.2) ONLY IF (1) the Owner doesn’t make a payment when due; (2) the Contractor demonstrates a “reasonable concern” regarding the Owner’s ability to make payment when due; or (3) there is a change in the work that materially changes the Contract Sum.

If the request is made prior to start of Work, the Contractor has no duty to commence work until the evidence is provided.  If the request is made during construction, the Owner has 14 days to provide the information or the Contractor can stop the Work or, if the request is because of a change in Work, stop work on that portion of the Work affected by the change.  Of course, the Contract Time would need to be extended if the Work is delayed, and the Contract Sum would need to be increased by the amount of the Contractor’s reasonable costs of shutdown, and re-mobilization.

Since Architects are often asked to rule on whether or not a Shut Down is proper, the changes to this provision are important to keep in mind as you administer your construction contracts.

Tomorrow, we reach the half-way point of the series:  Change #5- Liquidated Damages.

Photo courtesy  401kcalculator.org.

 

 

Contract Change #6: Notice Provisions in the A201 (law note)

Today’s Contract Change is an important one having to do with Notice provisions in the AIA A201.  [For yesterday’s post discussing Change #7, click here].

handwritten Notice

Recognizing that we live and work in the electronic age, the A201 now allows written notice to be given electronically.

Written notices can be sent in person, by mail, by courier, or by electronic transmission.  (Section 1.6.1).  The default for establishing requirements for the giving of Notice (EXCEPT Notice of Claims, discussed below) is the use of AIA Document E203-2013, the Building Information Modeling and Digital Data Exhibit.  Alternatively, the parties can use a fill point in Article 12, special terms and conditions.

When establishing an Electronic notification procedure, you should make sure that there is a system in place to capture emails sent to departing employees or others that might otherwise go into the “electronic void”.

Notices of Claims (under Article 15) cannot be by electronic methods.  Instead, they need to be made by certified or registered mail, or by a courier that provides proof of delivery.  This makes sense, since Claims notices are the most important notices and can effect substantial rights, so proof of delivery is required.

There is one more Notice provision with changes, dealing with Financial Arrangements by the Owner.  Rather than write a book here, we’ll discuss those tomorrow, in Change #6, part B.  Stay tuned.

 

Photo courtesy Alpha Stock Images  via Creative Commons license.  Author: Nick Youngson.

 

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