CONSTRUCTION NOTES -
Revisions to the A201 Contract
When we lecture on construction
contracts, we point out that the first thing a contractor does when putting
together his bid is to look at the technical specifications for the work
he is going to do and determine the price of doing that work.
The contractor then may look at the general conditions of
the contractand the supplementary general conditions to the contract and
the special supplementary conditions to the contract. If the form is an
AIA form, the contractor generally feels that it is a form with which
he is familiar and which he really need not go over at great length. Perhaps
he looks to see if the arbitration clause or some other clause by which
he was burned in the past is left in or crossed out. That is generally
the extent of the review, particularly of a standard AIA form contract.
The technical specifications are generally written in large
print. The conditions to the contract are generally in smaller print.
We always admonish the attendees of our talks that the large print giveth,
but the small print taketh away.
The latest revision of A201 does not change that advice.
The American Institute of Architects (AIA) has recently issued
its long awaited revisions to A201, the General Conditions of the Contract
for Construction. It has also revised its form B141, Standard Form of
Between Owner and Architect.
B141 is not discussed in this article as owners are such a diverse group
and this column is devoted to the construction community.
While A201 is the standard of the industry, no one should
think that it is a completely evenly balanced document. After all, the
American Institute of Architects represents the community of architects
and probably to a lesser extent the insurers that underwrite architect's
errors and omissions coverage. There was input from the Associated General
Contractors of America into the revision of A201. There was no input to
speak of from owners.
The Big Change
The biggest change in A201
is in many ways perhaps a relief.
The Owner gives up all rights to consequential damages arising
out of or relating to the contract. This means that the owner has waived
its right to damages for loss of use of the building which is being constructed
or renovated, rental expense he incurs by reason of staying in his present
quarters, loss of income and profit because he could not open his new
facility on time, additional financing costs, loss of management or employee
Think about the implications to an owner who is doing something
as simple as opening a store in a large shopping mall. The time which
a store wants to be open in a shopping mall is from October 1 to December
31. This can make or break the profitability for a year. If you think
about a time is of the essence completion date of September 1, this would
give the store owner time to deliver inventory, set up displays, hire
personnel, prepare opening day advertising, etc.
If the contractor does not finish until October 1, there
is not only the problem that the opening will be delayed by a month and
the Christmas selling season will be shortened by a month, there is the
problem that the store owner had inventory ordered and stored somewhere,
personnel hired with a training and shake down period before business
really gets high, probably the closing of an older store in the immediate
vicinity. These are very substantial, provable, actual damages.
Under the new AIA201, the owner has waived these damages.
This is a boon for contractors but it is important that the
contractors read any version of AIA201 very carefully and read any supplemental
general conditions very carefully. As we all know, owners generally draw
the contract. Most sophisticated owners will not waive this right.
The other side of the coin is that the contractor has waived
claims for consequential damages arising out of or relating to the contract.
This waiver gives up damages for principal office expenses, loss of financing,
damage to business and reputation, loss to profits other than the anticipated
profits arising directly from the work on the contract. This could well
be a boon. It will certainly save legal fees for arguing over whether
the Eichley formula applies in a particular case. It will also do away
with the contractor's expectation that a delay by the owner will make
them rich beyond the dreams of avarice, thereby inspiring them to spend
tens of thousands of dollars on attorneys' fees trying to justify $50,000
of home office overhead for a one month delay in installing $10,000 worth
Couch White's Construction Notes publishes information of
general interest to the construction industry. It is not to be taken as
legal advice. Readers are urged to secure the advice of legal counsel
before acting on any of the information in this publication.
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