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.

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