CONSTRUCTION NOTES - Issue #3

                                          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 Agreement

   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 productivity.

   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 of cabinets.

   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.

    We believe that good communication is a two-way street and we encourage you to give us your reactions to Construction Notes. If you have any thoughts that you would like to share with us or if you have suggestions as to what you would like to see addressed in future newsletters, contact on of the attorneys in our construction group.

                      Leslie F. Couch   lcouch@couchwhite.com

                      Joel M. Howard, III    jhoward@couchwhite.com

                      Michael B. Mager   mmager@couchwhite.com

                      James J. Barriere   jbarriere@couchwhite.com

                      David G. Anderson   danderson@couchwhite.com

or by mail or telephone at 540 Broadway, Albany, New York 12207, phone
                      (518) 426-4600, fax (518) 426-0376

Copyright © 1999-2000 Chilstead Associates