By: Jonathan Pray and Michael Zehner
BROWNSTEIN HYATT FARBER SCHRECK
Almost every owner, contractor or design professional involved in the construction of large residential, commercial or infrastructure projects has used one or more of the American Institute of Architects form contract documents. These contract documents, which were first introduced in 1888, have been repeatedly updated and expanded over time. Currently, more than 200 different contract documents are offered — and the most widely used forms are updated at least every 10 years by the AIA. The most recent comprehensive update occurred earlier this year.
The 2017 contract documents contain numerous changes from their 2007 predecessors. Among the most notable changes are the following:
Standard insurance provisions in owner-contractor forms. Recognizing the importance of well defined and extensively reviewed insurance provisions for large projects, the AIA shifted away from including these terms in the body of the contract and instead created a detailed exhibit for attachment to the contract documents. This change will facilitate thorough review by risk management professionals and the parties’ insurance brokers as it moves extensive insurance terms in a single and separate location, rather than burying them within the text of the full contract. Now, risk and insurance specialists can circulate the exhibit among themselves while the rest of the contract is negotiated in parallel, saving time and encouraging detailed definition of appropriate insurance requirements.
Termination fee owed to the contractor in the event of a termination for convenience. The owner of a project often has the right to unilaterally terminate the construction contract for any reason and at its own convenience. By electing to terminate for convenience, the owner typically relinquishes some of the rights it would have had if it terminated the contractor for cause. The damage to the contractor caused by a termination for convenience can be severe — lost profits are often the main complaint if the contractor is unable to shift its resources or obtain other projects on short notice. By making a negotiated termination fee standard in certain owner-contractor contracts, the AIA has provided the contractor additional protection in terminations for convenience.