Five Key Changes in the 2017 AIA A201 General Conditions for Construction Contracts

The standard form contract documents developed and published by the American Institute of Architects (“AIA”) are a fundamental part of the construction industry landscape that have been widely used for more than a century.  Importantly, in 2017, the AIA Documents Committee released updated versions of the A201 family of documents governing the design-bid-build project delivery model.  This included an updated version of the A201 General Conditions of the Contract for Construction (the “A201-2017”), which is one of most important documents in the AIA family, as it contains provisions that ripple across the related contract documents, including the various forms of Owner-Contractor agreements (A101, A102, etc.), Owner-Architect agreements (B101, B103, etc.) and the Subcontractor agreement (A401).

Given the importance of the General Conditions, it is critical for owners, contractors, architects and other construction project participants to understand the key changes in the new A201-2017 General Conditions so that they understand the effect on their rights and obligations on the project.  This blog is intended to provide a high level overview of certain of the key changes.  There are a number of other changes to the 2017 AIA A201 General Conditions, which may be reviewed in detail in publicly available comparison documents at the AIA website.^[1]

1. Section 1.6: Notice

Section 1.6 of the 2017 A201 General Conditions addresses the manner in which notice must be provided to the other party to the contract.  In recognition of the realities of modern electronic communication, Section 1.6.1 expressly provides that notice can be provided by electronic transmission, if a method for electronic transmission is set forth in the Agreement.  This allows the parties to establish that email or some other form of electronic transmission can be used for proper notice by specifically indicating it in a fill-in-the-blank provision in each of the 2017 Owner-Contractor Agreements.^[2]

An important caveat to this is that the new Section 1.6.2 expressly provides that, unlike other types of notice under the contract, Notices of Claim as provided in Section 15.1.3 must be in writing and will not be deemed properly provided unless delivered by certified or registered mail, or by courier providing proof of delivery.  Thus, notwithstanding that electronic transmission is acceptable for most types of notices, Notices of Claims can only be made by formal written notice delivered in a manner providing for traditional proof of delivery.  Unless changed by agreement of the parties, this is an important and key distinction of which project participants need to be aware to ensure that they timely and properly provide Notices of Claim, particularly in the modern era of largely electronic communication on projects.  Another key point to note about the new Section 1.6.2 is that it would not permit a Notice of Claim made by hand delivery on the project site to be effective notice, since there would be no proof of delivery.  Therefore, to the extent hand delivery is an acceptable method of notice for the parties, it should be added to this Section 1.6.2 as a proper form of transmission for a Notice of Claim.

2. Sections 1.7 and 1.8: Technology and Digital Data

Due to the critical importance of technology and digital data in the modern construction industry, the A201-2017 now expressly requires at Section 1.7 that the parties “shall” agree upon protocols governing the transmission and use of information and documentation in digital form.  Section 1.7 also requires the use of the AIA E203-2013, Building Information Modeling and Digital Data Exhibit, to establish the protocols for the development, use, transmission and exchange of digital data on construction projects, including building information modeling (BIM).  The 2017 Owner-Contractor and Owner-Architect Agreements (except A105 and B105, the short form agreements) each require the E203-2013 to be an exhibit comprising a part of the agreement.^[3]

The new Section 1.8 in the A201-2017 makes clear the importance of the parties agreeing to BIM protocols up front as required by Section 1.7 by providing that any use of, or reliance on, all or any portion of a BIM without agreement to the protocols and having those protocols set forth in the E203-2013 Exhibit and the G202-2013, Project Building Information Modeling Protocol Form, shall be at the using party’s sole risk and without liability to any other project participants.

3. Section 3.7.4: Concealed or Unknown Conditions

Section 3.7.4 governing differing site conditions was largely left untouched in the A201-2017 expect for one important provision.  The outside time limit for the Contractor to notify the Owner and the Architect of a differing site condition was reduced from 21 days down to 14 days.  The purpose of prompt notice of a differing site condition is to allow the Owner and Architect sufficient time to assess the situation and make decisions as to how to proceed in a timely manner, and this purpose is certainly served by the reduction to the time limit for notice.  However, the time limit for the Contractor to give notice was reduced by a third, and the result may be that potentially more meritorious claims may be impeded or barred by timeliness issues due to the shorter deadline.  Contractors will need to be cautious and ready to quickly give notice at the first instance of even a potential for a differing site condition in order to ensure that the ability to make a claim is preserved.  Subcontractors also need to be aware of this change, as the timing requirements of the prime contract are often flowed down to the subcontracts.

4. Section 11: Insurance and the Insurance Exhibit

One of the most substantial changes in the A201-2017 was to Article 11 related to insurance and bonds.  For the first time, the AIA created an Insurance and Bonds Exhibit A to function as an exhibit incorporated into the Owner-Contractor agreements.^[4]  This Insurance and Bonds Exhibit (“Insurance Exhibit”) replaces much of the former language in Article 11, resulting in a substantial revision to Article 11 of the A201-2017.  The creation of the Insurance Exhibit is largely a positive development because it addresses the various insurance coverages and limits in significantly more detail than the prior Article 11, and includes prompts for the parties to consider and make choices about a multitude of necessary and potentially necessary coverage lines.  Having these provisions as part of an exhibit, separate from the body of the A201, also facilitates the parties being able to provide the Insurance Exhibit to their insurance advisors and brokers for evaluation and completion, as well as to subcontractors to whom the insurance requirements may likely be flowed down to in subcontracts.

The Insurance Exhibit has a heavy focus on builder’s risk and general liability insurance.^[5]  With respect to builder’s risk, it requires the Owner to purchase and maintain property insurance written on a builder’s risk “all-risks” completed value or equivalent policy form sufficient to cover the total value of the entire project on a replacement cost basis.  The builder’s risk insurance is required to be maintained until Substantial Completion, and thereafter continued or replaced with coverage for the total value of the project through the end of the Contractor’s one-year period for correction of the Work.  The Insurance Exhibit also provides that if the Work involves remodeling an existing structure or constructing an addition to an existing structure, the property insurance must also cover the existing structure against direct physical loss or damage on a replacement cost basis.  The Exhibit provides that the Owner is responsible for all loss not covered because of a deductible or retention.

The Insurance Exhibit also requires the Contractor to purchase and maintain a number of different lines of insurance, including commercial general liability, automobile liability, workers’ compensation, and employer’s liability.  Other lines, such as professional liability, pollution liability and maritime liability are required to be maintained by the Contractor if the work involves those potential hazards.  Unlike with the prior Article 11 in the A201-2017, for most of these different lines, the Insurance Exhibit includes blanks for the parties to fill in with the specific required policy limits per occurrence and in the aggregate for each type of required coverage.

The Insurance Exhibit also identifies certain exclusions or restrictions that may not be included as part of the commercial general liability policy, including, among others: (1) claims by one insured against another insured; (2) claims for property damage to the Contractor’s work arising out of the products-completed operations hazard where the damaged Work or the Work out of which the damage arises was performed by a Subcontractor; (3) claims for indemnity under Section 3.18 of the A201 arising out of injury to employees of the insured; (4) claims related to residential, multifamily or other habitational projects, if the Work is to be performed on such a project; (5) claims where the work involves such hazards, such as roofing, exterior insulation finish systems (EIFS), earth subsidence, or explosion, collapse and underground hazards.

The Insurance Exhibit also provides that the Contractor may achieve the required coverage limits for commercial general liability and automobile liability through a combination of primary and excess or umbrella liability coverage.  However, the excess or umbrella liability insurance may not provide narrower coverage than the primary policy, and the excess policy is not permitted to require the exhaustion of the underlying limits only through actual payment by the underlying insurers.

5. Section 14.4.3: Termination for Convenience

The A201-2017 also makes a significant change to the Owner’s payment obligations in the case of the Owner’s decision to terminate the Contractor for convenience.  In the A201-2007, the Owner had the right to terminate for the Contractor for convenience, but in such case, the Contractor was entitled to receive payment for Work executed, and costs incurred by reason of the termination, along with reasonable overhead and profit on the Work not executed.  A related provision in the A401-2007 subcontractor agreement entitled subcontractors to the same relief in the case of a termination for convenience.

In the A201-2017, Section 14.4.3 removes the Contractor’s right to recover for lost anticipated overhead and profit on Work not executed, and instead substitutes a termination fee to be negotiated by the parties and identified in a fill-in-the-blank section in the Owner-Contractor agreement. If the parties do not negotiate a termination fee at the time of contract execution, the default would be that the Owner would not have to pay the Contractor anything for lost anticipated overhead and profit.  Surprisingly, the AIA did not flow down the language in the prime agreement to the AIA A401-2017 standard subcontract, so if the flow down language is not aligned, the Contractor could potentially be left obligated to pay its subcontractor overhead and profit on Work not performed without the right to receive the same from the Owner, which is situation to be avoided.

[1] The AIA comparison of the 2007 AIA A201 General Conditions to the new 2017 AIA A201 General Conditions is available at https://www.aiacontracts.org/resources/79876-a201-2017-vs-a201-2007-general-conditions

[2] Alternatively, the default for establishing the requirements for giving notice in electronic format will be through the use of AIA Document E203-2013, Building Information Modeling and Digital Data Exhibit (discussed in more detail below), which requires the parties to designate the manner of electronic transmission for notice.

[3] See, e.g., the A101-2017 at Section 9.1.4.

[4] See, e.g., Section 9.1.2 of the A101-2017 Agreement.

[5] This blog is intended to highlight some of the key provisions of the Insurance Exhibit, and not to comprehensively address every provision of the Exhibit.  Parties are encouraged to review the Insurance Exhibit in its entirety with their legal counsel and insurance advisor with respect to use of the Insurance Exhibit with any particular project contract.