Understanding the Most Recent Revisions to Standard AIA Documents
An overview of the most recent updates to the standard requirements for construction legal documents and agreements
Widely recognized as the industry standard for legal documents, familiarity with the AIA requirements is a must for all construction attorneys and industry professionals.
Join this free digital course, taught by Attorney Greg Spaun, and ensure you’re up to date on the latest changes to standard agreements and legal docs. This course is eligible for a 1.0 CLE credit.
What we’ll cover:
- General changes to formatting and action items set out in construction agreements
- New information that needs to be included in Contractor’s Schedules
- Subcontract requirements
- When contractors can recover payment for termination
- Expanded options for insurance and bonds
Justin Gitelman (00:03):
Right. Looks like we’ve already got a few people tuning in here, so that’s pretty good. Awesome. Yup. There it is. All right. Cool. Get started then. Okay. All right. Well, good afternoon everybody. Uh, I’m Justin Gittleman with Levelset and it’s my pleasure to introduce Gregory spawn here today, who is going to be teaching this CLE on the revised AA contract documents. Uh, how are you doing a bigger agree
Greg Spaun (00:35):
I’m doing well and you not too shabby, um, late here.
Justin Gitelman (00:41):
Uh, and so, yeah, well, before we get fully started here, um, just a reminder to everyone that the recording will be sent out tomorrow. Um, and there’ll be instructions for getting COE credit. Um, but otherwise, if you have any questions for Gregory throughout this presentation, feel free to drop them in the chat anytime. Uh, there also be a Q and a section at the end, that’ll be dedicated to questions. So definitely bring any questions you’ve got there as well. And with that, I’ll just hand it off to Gregory.
Greg Spaun (01:09):
Thank you, Justin. Um, like Justin said that, uh, you know, I’m happy to take questions all along the way. Uh, so if something pops in your head, uh, again, there’s no such thing as a stupid question. Um, you know, the, the only stupid question is the one not ask, uh, because that leaves it up to your imagination and, uh, uh, like many things in a law imagination is not always a good thing. Um, my name’s Gregory spawn. I’m an attorney with the law firm of Welby Brady in green flag. We’re a New York, tri-state regional, um, you know, having offices in New York city, Albany, New Jersey, Connecticut, and, uh, practicing throughout the region. Uh, my firm focuses in the area of construction law and, uh, today’s presentation is going to be on the most recent revisions to the AIA documents, which happened back in 2017. Um, now the, uh, AA documents are promulgated by the American Institute of architects.
Greg Spaun (02:06):
Now, um, one would wonder why architects are promulgating construction documents, but, uh, the purposes are, uh, you know, keep construction documents standardized to the extent possible. Um, if anybody has seen manuscript forms of contract, um, basically a manuscript form is a homemade, uh, not quite handwritten form, but, uh, they vary widely, uh, from contract to contract. And, uh, you know, the, uh, it’s much easier for project administration, uh, project bidding and project completion, if everybody’s operating on the same page, time and time again, and while every project’s different, uh, not every contract has to be so different. Um, again, the, uh, the benefits are to make these contracts predictable and usable. Um, and because it is promulgated by the American Institute for architects, these contracts, uh, have quite a bit of involvement for the architect as project minister, administrator, uh, somewhat rice of say it’s full employment for architects, but at the end of the day, um, you know, when matters, get, start getting a little contentious, uh, it helps to have a third party to try to bring people around.
Greg Spaun (03:26):
Um, the first version of these AIA documents was over a century ago, back in 1887, and they’ve been updated periodically since, um, and, uh, starting in 1893 and, uh, going through 1966, uh, on a periodical as needed basis. And then since 1977, every 10 years on the seven year, seven year switch and the title as it were, um, but just, uh, you know, given what the changes that have happened between the 97 0 7 announced 17 documents, and quite frankly, given the pace of developments in the construction industry and technology and whatnot, um, is the AIA going to wait until 2027 to its next revision? Okay. The, uh, we’re going to be talking about principally the three most important of the AIA contract documents, the a 1 0 1, the 4 0 1 and the a 2 0 1. Um, okay. Uh, I have a question. Does it matter what year you use?
Greg Spaun (04:36):
Uh, my recommendation would be to use the most current year because it is going to be the most up-to-date, um, you know, the reason we’re doing this now for years after 2017 is because back in 2017, these were the newest, latest, and greatest, uh, documents they were just being released and like anything, uh, uh, you have your early adopters, you have your people at work. We want to get the bugs worked out and you have your later adopters. Uh, so right now you, you’re still gonna see a few 90 sevens, uh, some, you know, more oh sevens, but you’re seeing a significant number of the seventeens out there. Um, so that’s why, you know, it’s actually timelier now than when I first ran this presentation back in late 2017, because again, they were new and not many people saw them. Um, but again, my recommendation, um, you know, just the latest version keeps up of the latest developments in both, you know, construction technology, uh, you know, human interaction.
Greg Spaun (05:42):
Uh, you’ll see that when we start talking about emails and other communications within the scope contract and, uh, developments in law. So I would highly recommend the, uh, the latest, uh, year documents. Um, okay. Just getting back to the documents themselves, the a one-on-one is your general contract, your owner contractor agreement for the stipulated sum. There are other a 100 series documents, um, for instance, uh, you know, for construction management arrangements for, uh, uh, cost plus, uh, for a guaranteed maximum price, but most of the contracts out there are of the stipulated, some variety. So we’ll be dealing with that. Uh, and again, you know, the changes that have been made to the one-on-ones are flowed down through the remainder of the 100 series. So there are other similar changes. So if you, uh, if you, in your practice or in your, uh, your particular, uh, uh, outfit, your firm uses you see more of the, uh, cost plus variety or guaranteed maximum price, which are becoming more and more popular.
Greg Spaun (06:55):
Um, don’t fret, uh, that this presentation is not a waste of your time because the changes will run in parallel. Um, the a 4 0 1 is the contractor and subcontractor basic form subcontract. That again is harmonized with the one-on-one. Um, and then the H two O one is quite frankly the most litigated document in the district construction, if the general conditions to the construction contract. And it is the general conditions for both the 100 series documents and the 400 series documents. So most of you generally applicable provisions, um, are in the 2 0 1. That’s why the, uh, 4 0 1 is five or six pages. And the one-on-one is about eight or nine. Uh, the 2 0 1, you know, after changes can run upwards of 20 or 30. Um, so let, let’s start with just the general changes that it documents, um, the older versions you likes, um, this, these versions use checkboxes, um, what the check boxes do always draw your attention to a selection of ABC or whatnot that needs to be made.
Greg Spaun (08:06):
Um, blanks people, unfortunately typically leave blank, even though they shouldn’t be, you know, clearly a contractor’s gonna look okay, what’s, what’s, you know, the amount, their substantial completion, but there are a lot of other important blanks that all too often we’re left blank. So th this is a, a small change to try to remedy that. Um, and again, it’s because it’s harder to overlook important or required information. Also, importantly, there’s less legalees, these are written more in English than illegally is making it easier to understand, um, an important change is, again, this is just in the development of human interaction and how these documents are updated. Um, doesn’t require a written notice except, uh, um, for claims and, uh, modifications. I have a question about, do you have examples to share, um, these documents, you can find samples on the AIS website, um, AIA contracts.org, um, you know, in order to utilize these documents through the AIS website, you will have to have licensed to be able to modify it, upload it, and they will re download it as a, uh, uh, PDF contract and the good thing about doing it that way, as opposed to, you know, sometimes you’ll see what was clearly a draft contract.
Greg Spaun (09:31):
Nobody had a license and they signed it up. Um, if you go through the trouble of an AA license and they’re not very expensive, um, you’ll, we’ll put in your contract with your, with the agreed upon changes, you will get the, uh, um, you’ll get the document back with both the document as executed and a list of the changes that have been made from the standard AIA form. Um, this way it draws your attention to what is, uh, you know, native text as it word, what was put in there by the AIA. And what’s since been modified either by, you know, the owner contractor or subcontractor, or one of the attorneys. Um, it’s, it’s a good way to, uh, flag what you need to look at more strictly than others. Once you become familiar with these documents, um, these contracts don’t require written notice except for claims and modifications.
Greg Spaun (10:28):
And in fact, it says here it may contemplate email and text communications, but it specifically does that. That’s, um, you know, th there, there are debates as to, you know, how much of a writing is an email, how much of writing is a text message? Um, so it, it opens up that definition. Now, one of the things that’s problematic is if you have something that is, uh, not in writing, it’s worth the paper it’s written off nothing, uh, what it becomes is a, he said, she said, um, so, um, while the contract, while the ADA contracts do envision less formal, um, communication, there are some things that formality is good for. I mean, and I’m not just saying that because I’m a lawyer, I’m saying that because, you know, just generally memories may fade. Um, you know, you have a, you have a job that goes on for months or years.
Greg Spaun (11:26):
And boy, what did we agree with two back then? And before all that water under the bridge. Um, so it provides a definite point of reference. Um, and, you know, again, once things start going sideways, if it’s not in writing, it didn’t happen. And it becomes a credibility issue of, he said, she said, um, does require modifications to be in writing. So those were your change orders. They still need to be in writing. Um, but what it can set up is a situation where your contract, or you can be defaulted without a written trail. A default is not a modification. A default is not a claim claims may be the result of a default, a wrongful termination or whatnot, but once the default is lodge and the contract’s terminated, um, you know, that that’s, that’s when compliance with the contract simply tends to go by the boards.
Greg Spaun (12:19):
So this could be setting up a situation where there’s a termination and there’s no paper trail. Um, now anybody who, you know, either, you know, as an attorney or, you know, having dealt with attorneys and gone to court on a claim, uh, do you really want to be litigating the claim? That’s not in writing? Um, you know, again, it’s going to, the writing is going to set the parameters of your claim and what you’re seeking, um, and, uh, you know, whether certain things are complied with, um, so again, if you’re, if a default is in the offing, you know, ultimately it’s going to benefit both sides. Um, you know, because it’s not going to be a credibility issue. It’s going to be a clear issue from within, uh, the language of the contract. Um, getting a question about, are there acceptable alternatives to standards forms to the AIA agreements?
Greg Spaun (13:13):
Um, there are other organizations that put out standard form contracts. Um, you know, one that I can think of offhand is the AGC. So general contractors, uh, they put out the consensus documents now, they’re, they’re a, uh, uh, a fine set of documents. Um, AGC obviously is, is a, uh, an organization for general contractors threatened to name, um, and that the documents can be viewed as being, uh, you know, more friendly to your general contractor as against your owner upstream and as against your subcontractor downstream. Um, but again, you know, it all depends on what your preferences are, and you’re in the organizations that put out, uh, such standard form agreements, but by and by far and wide, the th the standard, as far as standardized contracts are still the AIA. And again, because it’s put out by a group that’s representing, you know, somebody that’s involved with the construction, but it’s not one of the parties to the construction.
Greg Spaun (14:15):
Um, you know, it’s, it’s extensively objective, and, you know, it goes a long way towards a suasion, those, uh, uh, type of, uh, issues. Um, but again, you know, there are other ones out there, um, that, you know, freedom, you might want to check it out, but again, you know, 99 times out of a hundred, um, that’s, uh, it’s going to be your AA set of documents. So what else is new? Uh, the owners take over performance of work no longer requires a change order. Uh, formerly under the older set of documents. If the owner was going to take over some work, it would have to do with the duct change order, removing that work from the contract, your scope. Um, and depending on how much of that work was removed, one might get into a situation where, um, you know, at the very least, Hey, the owner just removed all my profit, uh, or the owner just committed the Cardinal cheat contract.
Greg Spaun (15:16):
Uh, you’re doing a, uh, replacement job with three highway bridges, and you’re buying materials based on a discount of a factor of three. And all of a sudden one whole bridge gets pulled out of your contract. Then that’s a very significant change. You know, you know, the argument by the, uh, by the owner will be, oh, we only took out a third of the work. Well, again, somebody price someone here pricing is, is based on bulk requirements, um, that, you know, now if you don’t need as much materials, your price is going to go proportionately, uh, pro rent. So, you know, even though extensively the contract value should come down by a third materials, uh, on a, on a cost basis, uh, are costing more. So the value of the materials might’ve only gone down by 25%. Now, let who’s left holding that day. That that would be your contractor.
Greg Spaun (16:10):
Um, so, um, at the end of the day, you know, this is, this is something that if you’re representing a contractor, you might want to tweak, um, you know, and getting back to the fact that the architect is involved in the, with these documents and with the administration of the contract. One thing that these documents do is give the architect power to withhold approval, or even nullify retroactively a payment application that was previously approved, um, and contract language following through is that if that happens and the contractor is now overpaid, it’s required to reimburse the owner. Um, so that’s, uh, that, that’s something that, uh, you know, as you can see later, uh, you can have a fight over a pencil wreck, uh, where before, you know, the, the contract that was left, uh, you know, pretty much at the owner and architect’s mercy, um, these contracts also, and again, this is just in dealing with the evolution of society.
Greg Spaun (17:11):
They get more direct communication between the owner and the contractor without involving the architect. Again, the architect’s not on site every day, usually, but you’re, uh, you know, some rep of the owner usually is, and, you know, the contractor is, um, and these conversations are happening anyway. So why not recognize what’s happening and, and permitted under the course of the contract, as opposed to call it, you know, maybe in interference or impropriety. Um, another positive thing about these contracts is, um, you know, it, it does put a little bit of urgency that process where it never existed before, for instance, uh, you know, when a contractor or subcontractor, uh, sends a, uh, request an RFI, uh, upstream, uh, to your general contractor or your owner. Now that owner or general contractor must timely respond to that request for information, clarification and whatnot, uh, similarly, um, and this is to avoid, uh, the inevitable 11th hour back charges that always pop up when the job starts going sideways, um, upstream must promptly notify downstream.
Greg Spaun (18:23):
So your owner must notify your general contractor. Your general contractor has to notify its subcontractors properly of non-conforming work. Again, this is the prevent, the, uh, you know, the final payment rec, uh, you know, maybe the job wasn’t as profitable, uh, you know, a little more money was spent. Um, you know, then all of a sudden, uh, Hey, I’m not going to pay you the a, you know, the full amount of shaking because of ABC and the problems now, you’re, you know, you’re downstream your contractor, your subcontractor can say, oh, well, that’s nice. I’d like to see where you notified me of these and gave me my opportunity to correct failing that. You know, I’m, I’m not going to hear your arguments. Um, you know, it’s, it’s revealing it for the tactic. It usually is, uh, to try to muscle out at this count. So this promptness keeps the process moving.
Greg Spaun (19:14):
Um, because while everybody wants to get the construction done, nobody likes doing paperwork. Um, and you know, this would fall into that category. And the practical aspect is that the, uh, uh, you know, the paperwork cannot ultimately hold up the job. So keep the job moving, keep the paperwork, moving in both directions and get everything done and give people the time to protect their rights. And again, you know, notifications getting, getting back to what I said previously about, uh, an oral contract or an oral notice is only worth the paper it’s not printed on. Um, you would want to, whenever I see these AIA documents, I, I put all notices in writing, um, in both directions. Um, one it’s only fair to, um, you know, as a practical matter, if you’re negotiating with somebody, how can you ask for something you’re not willing to give?
Greg Spaun (20:05):
Um, and again, you know, it, it, it sets the boundaries that the, uh, uh, where the we’re out of bounds and where the end zones are for when you go to litigate this. Um, so that that’s something that you want to want to do. Okay. Um, okay. This is an excellent question. Um, if you think of G C you could state in RFI, how many days would be considered promptly, depending on the circumstance, um, should probably be defined by number of days in the contract promptly and timely. So vague truer words were never spoken, um, very good points. Um, and right now, because these documents are only four years old, there’s not a lot of litigation. That’s made it up to, you know, the reporting level, which are typically your appellate courts and your highest courts to set forth how 14 days is the prompt response, but 35 was not, um, or depending on if you’re dealing with a private owner versus a public owner and how bad the bureaucracy is.
Greg Spaun (21:09):
Um, so yeah, if you want a practice pointer, define it in the contract, um, yeah, again, you know, whatever the circumstances are. Um, I mean, if you’re the kind of contractor that, uh, you know, you have a limited time to do a particular task, you know, 14 days could be a third half or more of your entire duration. So 14 days is not a prompt response. Um, on the other hand, you know, if you’re dealing with, uh, you know, you’re just doing your, uh, your site work, you’re just doing your ear holes in the ground. You, you can still, you know, the 28 days might be prompt for, you know, your submittals on your, uh, on your interior fit out. So it does depend on the circumstances and you’re going to want to, uh, you know, personally, I’m thinking you would want to address that in the contract.
Greg Spaun (21:59):
Um, so again, thank you for that question. Uh, more, more, uh, more changes, consequential damages or waive, um, including those that are arising out of a termination. Now, direct damages are damages that light, like the name says directly flow from the contract fee contracts, breach, um, cost to complete repair work. Those are direct damages, um, delay that can be a direct damage. You’re consequential damage. Um, you know, by delaying the home office overhead, you know, additional insurance, uh, you know, you have a policy that’s, uh, um, you know, in effect for 12 months, and now your job’s going 14. You need the insurance to cover the other two months. Um, but consequential damages in a traditional sense, they, they they’re foreseeable at the time the contract was made, uh, the issue of consequential damages as they can steamroll very quickly. You’re working on a hotel, a hundred unit hotel, um, that, you know, for instance, just using round numbers, a hundred units at a hundred dollars a night, that’s a, um, that’s a hundred thousand dollars per night of occupancy.
Greg Spaun (23:14):
I mean, again, there are costs involved with running a hotel, but again, just use, uh, truncated numbers, um, you know, and if your hotel is delayed, you’re clearly not renting those rooms out for the period of the delay. Um, you get into lots of problems with proving it, particularly with regards to new construction. Um, how do you know that hotel would have been full, would have been fully, uh, fully involved and fully booked? Um, you know, how do you know, you know, w what the, what the revenue would have been, um, even though they’re the extent of them, uh, might not have been foreseeable. Um, okay. Uh, another question, and this is somewhat related to, uh, you know, the previous question, uh, what’s the appropriate amount of time to provide notice of conforming or defective work for back charging before losing the ability to honestly back charge.
Greg Spaun (24:05):
Um, again, you know, prompt notification non-conforming work, the word prompt has not been defined judicially, um, you know, and, and it’s going to depend on reason. And again, you know, what’s reasonable under the circumstance. Um, look, I’ll tell you just as a practical matter courts do frown on back charges, um, you know, the w the less notification there is, you know, for two reasons, one, uh, you know, a back charge at the 11th hour, deprives, the contractor have the ability to go back and fix it. Uh, you know, you have a problem with my structural steel as I’m going vertical. You know, now when I closed the building, the outside and the inside, it’s very hard, if not impossible to fix, uh, the claim problem with structural steel, um, where if the building’s open, you know, maybe I have to tear off, uh, you know, the steel for a couple of floors, tense it up, and then start going vertical again.
Greg Spaun (24:59):
Um, you know, it’s a matter of not wanting an economic waste, um, and to, you know, courts do see it for the, uh, the tactic is to, you know, basically recalled some extra money on your downstream contractors. So, you know, from, you know, legitimate bank charges, you know, the sooner, the better, um, and again, you know, all courts at the end of the day, you know, there are courts of law, but they are courts of equity. Um, and one who does equity, Chuck equity, uh, usually, um, in theory, uh, but, you know, giving the contractor the opportunity to go back and repair and fix the issues that came, came up along the job, um, you know, one that that’s the right thing to do until if it’s not responded to, you know, now you have a case of, okay, I gave you your chance. You didn’t do it within a certain time necessary.
Greg Spaun (25:54):
I gotta move my job, I’m hiring a replacement contract. Um, so again, what will these things go into it? And, uh, you know, I know I didn’t answer the question with an appropriate amount of time, as far as, you know, uh, five days, seven days, 14 days. Um, but you know, what you don’t want to do is when you’re negotiating these contracts, I would put it in, in, in one form or another, um, you know, similarly, uh, you know, in getting back to consequential damages, you know, there, there really is no notice about, uh, you know, what these damages thing. And because again, it’s so hard to prove that casino, uh, which is pretty much a license to print money, but how much money is it printing, particularly when it starts opening? Um, you know, these are the amorphous issues, and these are also the issues that typically are not covered by insurance.
Greg Spaun (26:47):
Uh, they re arise, even though they’re foreseeable, they’re not a direct result of the breach. So, um, the contract, um, you know, waves these damages this way, you’d be separately, have this fight. Um, you’re welcome. Um, okay. And, uh, you know, uh, Gilbert just returning to consequential damages, uh, you know, loss, profits, interest, financial, artificial labor, those are typically indirect results. Um, and, you know, just turning to determination for convenience, which we’ll talk about in a little while lost profits are still excluded from consequential damages for the termination for convenience. Um, the termination for convenience provisions have been modified, made better than the oh 797 versions, but, you know, there’s still things that could be improved on it. Um, and again, I think that it’s been, you know, within the past 10 minutes, you’ve gotten to third, you’ve gotten the year, the vibe for me that, uh, consequential damages is not something that you want to risk.
Greg Spaun (27:52):
Um, they’re hard to prove, but they’re also big. So again, you know, taking that, um, you know, taking that casino, uh, say they can only prove a third of, uh, what they claim was their consequential damages. The owner’s consequential damages, a third of a big number is still a really big number. And I don’t know that I would want to roll the dice on that. And for that reason, you know, I think a waiver of consequential damages is a good thing. Okay. Couple other tweaks with regards to these contracts, um, evidence of the owner’s financing, uh, you know, contracts are often entered into with a single use LLC, and you see something like address LLC. Uh, it can be pretty sure that the project site is the only asset of that entity. Uh, there’s no big pocket there. Um, it’s meant to be left to the side of the road and abandoned, um, in, in case the job goes sideways.
Greg Spaun (28:51):
Um, so given that, um, you know, it’s, it’s an attempt to limit liability. Um, contractor doesn’t want to know that it’s making the investment in, in, in its time and its effort and materials, and, you know, contractor ends up financing a job until it gets paid along the way, but this contract makes the, uh, the contractor and downstream as well. Um, it gives them the, uh, the reassurance that, uh, the owner will have the wherewithal to actually, um, finance the job. Um, under section 2.2 contractor can demand reasonable evidence that the owner can fulfill its financial obligations under the contract. Um, now people wonder why, you know, how is this a useful tool? Um, you know, when you’re entering into your general contract and, you know, it can be, but not for nothing, your general contractors should be doing due diligence on an owner before it enters into the contract, um, and investigating this, but this gives it another tool to utilize, um, by no means, is this a replacement for a general contractors, normal due diligence as to whose bank role in the job who’s behind it, um, and who’s running it and, you know, just to make sure that this person, your entity, you know, has the knowledge, the financing, the wherewithal to bring the project across the finish line.
Greg Spaun (30:18):
Um, and, you know, under the section 2.2, the contractor is under no obligation to start to work until it receive that evidence, you know, maybe a, you know, financing information or whatnot. Um, and this is actually what’s more important visa. We have general contract. Um, if a change order materially alters those contracts, the contractor can request similar financial information. Now you see the quotes around materially olders that’s because it’s not a defined term. Uh, it’s not the term hasn’t been established in the litigation as to what a material alteration of a contract is. Um, you know, look a hundred thousand dollars is a pretty big sum of money. Um, on the other hand, uh, that may be well less than 1% of your total contract value, uh, vice versa. Um, you know, the a on a smaller contract, um, you know, you may be dealing with $50,000, 50% of value, you know, 50, 50% of value is obviously a big number, but in the grand scheme of things, it’s not, it might not be as material of an alteration.
Greg Spaun (31:27):
Uh, so that that’s going to be one of those terms. It’s going to be defined in the years to come by courts and, uh, and arbitrators. Um, but right now there’s, there’s no definition. So, um, you know, where you have, uh, where you’re standing on quicksand, as it were of an amorphous term, you might want to fill it in with something a little more substantive, um, by a material alteration shall be X percent or X dollars. Whichever makes you feel more comfortable. Um, importantly, if, uh, a contractor or subcontractor is going to evoke this, it has to be done within 14 days. If it’s not, it’s waived. Uh, similarly if the, uh, contractor starts working on, I’m going to change order, it’s waived, but if the updated information is not coming, it doesn’t have to undertake the change work. Um, and again, just, this is just highlighting.
Greg Spaun (32:21):
There’s no case law yet on what a material alteration is. Um, another financing related thing, and this, this is new, and this is definitely a boon to, uh, your downstream contractors. Um, your owner, uh, your general contractor must provide section block and lot of the property and payment bond information to subcontractors and sub subcontractors. And, you know, again, they’re just going off the beaten path a little bit, and just talk about practical, uh, uh, aspects, um, get this at the beginning of the job and having the file and, you know, blame an office manager, oh, I have to have this for the file while everybody’s still in, Hey, you know, kumbaya mode, we’re all working together for the common goal. Of course, I’ll give you this information because when the job starts going sideways and the payments, uh, you know, come to a screeching halt, um, the chances of getting this information from the contractor, or from upstream grows smaller and smaller and smaller, uh, by putting this in, you know, th this provides an additional grounds for the fault, decide from the big one nonpayment.
Greg Spaun (33:31):
Um, but it’s, it’s good to be in there. And again, it’s something that, you know, if you start to see something on the horizon that, you know, maybe you’re picking up, but somebody else hasn’t picked up and you notice in your file and you don’t have the property information for filing the mechanic’s lien or payment bond information, you know, oh, I overlooked it. Here’s a section of the contract I’m entitled to it. Can you provide it so that I can, uh, put it in my file? Um, again, it’s information you want to have on here. Okay. Scheduling is always a fun subject for contractors. Uh, the prior version only required to schedule not extend past your substantial and, and final completion dates. This one contains some interim milestones, uh, commencement date, interim milestones, substantial completion, a portion of it by your activity, uh, time required for completion of each portion.
Greg Spaun (34:25):
Um, so sorry, uh, in order to you, uh, um, you know, more streamline and keep the job on a level pace, uh, what this is looking to prevent is your contractor who works in spurts. Um, contractors got a couple of jobs going, uh, you know, some, you know, where he’s got a crew, a job, a, okay, so you want a job aid to proceed. Um, then job B starts falling behind. So then he takes his crews off a job BNC, uh, throws it on job, a, brings it up to date and you know, that, that makes her big problems, big errors, you know, and it’s, um, okay. There was a question that actually more was for Justin who answered it. Um, okay. So this, this is just to keep construction proceeding their pace in a logically in orderly fashion. Um, it does take discretion out of your subcontractors in general contractor, but you know, your general contractor who himself is going to be subcontracting out, um, scopes of work wants, this is almost as much as your owner does.
Greg Spaun (35:42):
Um, now let’s, uh, minor changes in the work. Um, you know, we all know the change order. Um, but now the architect for really was able to make unilateral changes as long as they didn’t affect contract price or time. Um, contractor now has the ability to reject those changes. If it reasonably believes it will affect either price or time. Um, you know, it does set up a fight, but it’s a fight. If it’s going to be a fight, you’d rather have it at the time and on the job, then, you know, let it fester you. You want to get this resolved, um, as quickly and expeditiously as possible, and a contractor who fails to reject these changes at, at the time and, uh, proceeds waves the claim for the adjustment of either time or price. So your contract is going to want to look at these small changes to make sure they are indeed small.
Greg Spaun (36:44):
Um, you know, sometimes an architect will get a little, uh, overreach a little bit on something like this, and, uh, you know, the contractor, as far as going along to getting along, we’ll go do it. And then he’d be in the middle and determine, Hey, this is costing me a lot more money. You know, just send your notices, send, uh, in order to preserve rights at the end of the day, whether you’ll seek those rights, that’s up to you, but at least you’d be ability to do so at the end of the job is preserved. Um, warranties, this is another favorite subject, uh, they’re required to be in either in the name of the owner or transferrable to the owner. Um, it clarifies who the beneficiary of the warranty is. Um, you know, as far as contractually, I mean, you know, clearly, uh, you know, your supplier knows who the, uh, the warranty is going to run in favor of, and it’s not the mechanical contractor buying the equipment, it’s the owner who’s going to be using equip.
Greg Spaun (37:41):
Um, but, uh, one of the things that the contract still does not address is with holding of warranties in the kind of nonpayment. This is often your downstream contractors last, last little bit of leverage over an upstream contractor, or, um, you know, by, you know, various states have various windows to assert mechanics liens. Um, you know, if it was an early on item, uh, you know, the warranty could, uh, could start running or the mechanics lean time window could close. Um, and often if there’s a lack of payment, um, this is all the contractor has left sort of short of going straight to court on a breach of contract action. Um, so they’ll hold the warranties and say, oh yeah, oh, that’s cute. If you’re a, your, your, your air conditioning goes out because I am warranty, not you. Um, so the contract is still, does it address it?
Greg Spaun (38:40):
And again, it’s, it’s often the last leverage pasture contract has a new contracts clarify, um, how downstream is to indemnify upstream, hold them harmless, make them financially hold against expenses that they incurred relating to liens. Um, it clarifies that the contractor must defend indemnify the owner for claims now, not just mechanically. So a claim is a payment bond claim and other type of claim, which might be as informal as your subcontractor, sending a letter above your head to the, uh, the owner or the general contractor saying, Hey, this GC or this sub isn’t paying me well, now that, that, that alone would trigger this 9.6 0.8, um, to require that upstream, to address the claim and get rid of it. Um, but it is conditioned. And this is an addition, and it’s fair. It’s conditioned on a contractor having been paid under the old version.
Greg Spaun (39:40):
And, you know, it’s quite S and I put the super language. Um, if you asserted a mechanics lien on a project, because you weren’t getting, Hey, that contract could be read as requiring you to discharge your own mechanics lien in order to not be in breach, you know, and if you’re not getting paid, clearly, you want to preserve your rights. This just acknowledges that there’s a basic fairness that if you’re not getting paid, then you shouldn’t have to, you know, bond off in theory, your own need, but at least your own subcontractors liens, who presumably aren’t being paid because you’re not being paid. Um, and again, just getting back into claims, they must still be in writing. Um, and, uh, you know, if a claim is disputed after an architect’s initial decision, and, you know, the initial decision-maker has been in the AA contracts for eons at this point, uh, again, full employment for architects, let’s keep them busy and keep them paid.
Greg Spaun (40:39):
Um, the, uh, if the architects makes an initial decision, one side can demand, uh, the other start, the case arbitration or litigation within 60 days. Um, what this sets up is a potential waiver, because if the claim is not filed within those 60 days, it’s wait. So, you know, if the architect issues an unfavorable decision, um, the, uh, you know, and then the demand comes pay, you’ve read what the architect said. Uh, if you’re going to dispute it, you have to dispute it within 60 days. Well, the grudgingly, uh, undertakes the work, whatever else the architect decided. Um, and then at the end of the day realizes how that, that was not a wise funding for both. Well, now he’s barred from, uh, asserting that claim. So, you know, again, notices they should all be in writing and they shouldn’t pay attention to this. Isn’t just refile for the end of the job.
Greg Spaun (41:35):
This is an ongoing, it’s an organic process it’s ongoing during the entire job. Um, and claims for contract time was subject to the same claims process as claims for monetary, uh, for money damages. Um, that’s because often, you know, time is money, uh, you know, particularly when you start getting into liquidated damage and the Lakelands. So it is the same, uh, same process. Um, as far as, you know, preserving rights to claims, um, the owner or general contractor for the downstream, uh, they don’t need to specifically send a notice about, Hey, we’re making claim for liquidated damages. Uh, those are presumed to have been incurred and made claim, uh, once you’re beyond your window. Um, they’re, self-executing, um, another change that needs documents. And again, this is just in keeping up with technology, keeping up with evolution, um, it provides for digital digital data transmission.
Greg Spaun (42:38):
And, uh, basically if you follow the AAS 2013 protocol, and that’s the E 2 0 3 document, um, you are protected against, uh, um, issues with that data transmission such as, um, you know, something not being received or whatnot. Um, and you know, the E 2 0 3 or the BIM series of documents, which is building information modeling, uh, getting your subcontractors involved to try to detect and resolve clashes early on in, in the process when the clash is only on paper or in the cyber world, I can’t screen as opposed to the job site, Hey, I have to put my pipe through that duct. What’s that filling there? Um, just get nickel version of that. Um, again, it insulates contractor from liability, but only at the two or three protocols are used, um, importantly, and we’ve heard a lot about cyber attacks and other cyber crimes lately. This is only for data transmission.
Greg Spaun (43:41):
This is not any installation against hacking, uh, you know, poor, uh, security, uh, in your office, uh, digitally. Um, again, you know, w you know, you you’ve heard the president speaking, uh, you know, pretty much since he was inaugurated about wanting to do an infrastructure deal, uh, and that America’s infrastructure needs updating well, who do you think is going to build that infrastructure contractors? Um, and that infrastructure is very important and does need updating, and the plans for those updates are going to be stored on your or your client’s computers. Um, and depending on what the, uh, what the infrastructure is, um, you know, chances are some kind of a narrow do well, will not care about your ordinary highway repaving project that happens every four years, but if you’re putting up a new Tappan Zee bridge or a new Oakland bay bridge, um, they may be interested in, and the weaknesses of that structure.
Greg Spaun (44:44):
Um, so those areas are not covered. Uh, you know, again, just strengthen the presentation and getting into the practical, uh, you would be well-advised to consult it professionals about how to best secure, um, any digital documents, plans, et cetera, that you’re entrusted with because this even executing this document, won’t save you from any liability as a result of a cyber attack, which was facilitated by poor cybersecurity. Um, again, it’s only for digital transmission, it does not address cybersecurity. Um, okay. Just the next step into shop drones, um, where they contain detailed design elements and as technology progresses and, uh, things get more complicated. They often do contain detailed design elements. They must be signed and sealed by a design professional. Now, in some states that can be an employee of the contractor in other states like New York, it cannot, uh, you know, it has to be somebody separately, licensed and retained and whatnot.
Greg Spaun (45:49):
Uh, it could be, you know, subcontractor or sub-consultant by a subcontractor or contractor, but it can’t be, um, so you want to, uh, you know, make sure that these documents are signed and sealed appropriately. And you also want to make sure that that sub consultants has appropriate Eno insurance, uh, this way, when your contractor’s work is doing it itself. Um, it’s not outside the scope of its commercial general liability policy. Okay. Subcontracts, they must, must, must be in writing. Uh, the days of the handshake deal are over. Um, and for, for good reason, not only is it better practice, because again, if it’s not in writing, it didn’t happen. Uh, your typical commercial general liability insurance policy will not grant additional insurance dies unless the insuring contractor is under an obligation to name an additional insured in a written contract, no written contract, no additional insurance, and that acorn 25 form that everybody loves to give out like, uh, like so much candy.
Greg Spaun (46:55):
Um, it says on the top it’s for informational purposes only, which is legally is for, it doesn’t mean a thing. Um, nobody can be held liable for anything written on that document. That document can say you’re an additional insured, but it’s always, always, always subject to the underlying policy. And if the underlying policy contains this language, you are out of luck. So again, I can’t stress it enough. Um, it, it doesn’t have to be something complicated. You don’t have to redo Magna Carta, a purchase order will suffice provided the terms are there, but it’s gotta be in writing and executed before the accident. And again, the ACOR 25 certificate not worth the paper it’s printed on, um, negotiating period long lean times, uh, you know, for bigger projects, there is a negotiating period. Um, but there are going to be items that, uh, particularly now that the supply chains has interruptions, we’ve seen as a result of COVID, um, where you want to get a jump on your long lead time items.
Greg Spaun (47:58):
So the owner now has the power to procure them on commercially reasonable terms that are acceptable to the contractor prior to entering the contract. And then he can assign those, he or she can assign those obligations to the contractor, um, on the conditions that it negotiated. And again, this is just to get the clock running. Uh, you know, if you’re going to need some HPAC equipment that still needs to be manufactured, and there’s a nine month lead time, well, you want to make sure that, uh, you know, those items are, you know, going to be delivered reasonably close to the time they’re actually needed. Um, and the contractor, again, in order to get that benefit must accept the assignment of these long-term supply contracts, uh, schedule of values, another area of contention between your owner and your contractor and your contractor and your subcontractors, uh, downstream.
Greg Spaun (48:51):
Now must’ve been changes in the schedule values to the architect for approval, um, and they must support the change with, um, such data to substantiate its accuracy. As the architect we require, um, you know, a reasonableness element is going to be, uh, put into this, uh, the architect can’t require documents, which are clearly impossible to obtain. Um, but, um, this is the prevent contractors from front-loading their schedule, which they’re always wants to do because the owners are always want the backlog, the schedule, this is the, get something that’s going to be more or less accurate, um, payments, uh, the progress and final payment calculations are simplified. Uh, change directive amounts are included basically, uh, that that’s the uncontested portion of a, of an otherwise contestant change order. You know, you say your change orders where it’s a hundred thousand dollars year owner says it’s only where it’s 60.
Greg Spaun (49:48):
Well, the change directly to the Mt 60, that’s now included in your payment rec. Now you’re only fighting about 40. This is a benefit for downstream because now you don’t have to fight for the uncontested portion, um, give retainers procedures more detailed that it contains items which may be excluded long lead time items, storylines, et cetera, insurance, general conditions. Um, and it, it also provides releases and lien waivers must be provided with payment application. This is something that’s been done for quite some time. And now they’re just, uh, um, now they’re just, uh, um, automatically provided with the payment application. Okay. The question, if the payment process has been simplified, is there a new pay application form? Um, not specifically as of yet. Um, it, it’s more on, on the, uh, you know, the back end with the owner, as far as getting, getting it approved, getting finance and whatnot right now, it doesn’t affect the contractor, uh, uh, per se.
Greg Spaun (50:46):
It’s just a very simple, straightforward calculation. Uh, okay. Um, sorry, if I seem to start to rush this, we falling behind a little bit and I kinda need to catch up the provide, uh, uh, the rest of the, uh, uh, information. Um, it also provides a final completions delayed through no fault of the contractor. The contractor has the Lakeland. This is something that routinely gets omitted, but at least the AIA documents recognize, um, that there is such a thing as an a Lakeland. Um, now, again, getting back to what I said about pencil copy, uh, your subs can determine a GC can challenge a decent determination on a pencil copy. Um, you know, again, the sub Watson front-load at the GC wants to backload it, um, you know, in order to keep cash flow, um, you know, more favorable for it as opposed to anybody else.
Greg Spaun (51:41):
Um, now this can be put in front of the architect, um, termination payments, uh, contractor terminates. They can recover for work already executed reasonable, overhead, and profit on board, non executed, the cost attributable termination that you typically a contract will terminate for non-payment. If your upstream terminates contractor can recover payments for work properly executed and cost attributable, uh, including costs attributable to this termination and subcontracts, you have specialty subcontract supply contracts, there’s going to be a cost to, uh, determining those. Um, and now that’s something that can be recovered. Also, there’s a box for termination fee, you know, again like liquidated damages. This is something that can be done to streamline the process rather than go through machinations as to, you know, what can I improve? What can I improve? What are my costs involved? Um, you can say, oh, if we terminate, you get, you know, a hundred thousand dollars, a million dollars, whatever the fee is, depending on the size of the project.
Greg Spaun (52:44):
Um, and it prompts for the entry so that you use it, um, insurance and bonds, this used to be formerly a few paragraphs in article 11. Now it’s a separate rider with a smorgasbord of options, which, which is good. Um, first it provides for the owner obtaining a builder’s risk of property policy for the total adjusted contract. So, um, this doesn’t, it’s basically it’s, the owner is going to have to ensure the project when it’s complete through property insurance. So the owner insurance, the project, uh, through a builder’s risk property, uh, policy, which basically a CRE property insurance property insurance policy, um, obviously if the loss is determined to be the fault of the contractor, that carrier is going to go after that contractor, but in the first instance, the money comes out of the precarious pocket. Um, it requires waivers of subrogation, uh, this prevents, uh, you know, the contractor from going after a subcontractor when they’re all additional insurance on the same policy, um, which often triggers a policy exclusion, um, you know, basically, uh, the, uh, uh, the carrier who’s at re uh, you know, most, uh, you know, contractually obligated to, uh, pay the loss will pay the loss and basically eats at a cost, the right to go after others who may be, uh, uh, at fault, um, and inform prompts for options.
Greg Spaun (54:09):
I mean, you know, just going back to your, uh, your elementary, middle, and high school days, what kind of a test was easier? Was it fill in the blanks or was it multiple choice or as sometimes it’s called the rice only multiple guests. Um, if the options are there in front of you from the, for you to select from you’ll consider them because you’re reading them on the form, as opposed to have to think of something. And, you know, there’s a greater, greater ability to miss something. If the is not presented to you. Uh, you know, obviously people are going to want to get know about commercial general liability and automobile liability employers liability. It’s, it’s a component of workers’ compensation. If it’s often overlooked, um, pollutant liability, you know, you start, uh, you know, stand blessing and firing silica at a, at a structure.
Greg Spaun (54:57):
Um, that’s often excluded under your CGL policy because of the pollutant. Well, now you want to consider your pollutant liability professional services. Again, you have an engineer stamping the shop drawings, uh, that’s not construction that’s engineering services. Um, those are, uh, insured on an errors and omissions basis, not a general liability basis, uh, maritime and aviation liability. Something happens in transit, um, loss of use business, interruption, and delay. Uh, these are options you all all want to consider. Um, and it has to be enforced during the correction period. Basically, if you can be brought back to the job that fits something, the insurance has to be enforced. Um, and again, I just highlighted in a highlight again, the contract is providing professional services. Uh, it must procure appropriate errors and omissions coverage to supplement its general liability. Um, and it contains a list of prohibited policy exclusions, uh, residential exclusions on apartment construction.
Greg Spaun (55:54):
I know if you’re doing a 20 floor condominium in a big city, it seems like commercial construction, because it goes together like commercial construction, but it’s a resonance and the insurance carrier will jump on that to get out of the loss. So you don’t want the residential exclusion prior injury or prior work, um, uh, earth movement. That’s another big one, um, broad employee workers’ compensation, uh, you know, clearly, uh, you know, subcontractors going to agree to defendant the owner in upstream for any claims attributable to its work or rising out of its work. Typically 90% of the time, that’s going to be claims to its own employees. Um, they can’t be sued directly because of workers’ compensation, but they’re brought in through the indemnification third party action process, um, and carriers that put in, uh, clauses. Oh, if it’s your employee, it’s excluded from coverage because he’s covered by workers’ compensation.
Greg Spaun (56:49):
Well, if you’re the only contractor on a job, okay, great. That’s fine. But if you’ve got an obligation to identify somebody, you can’t have this in otherwise you’ve got a big old gap in coverage insured versus insured. Okay. My general, my subcontract is naming my general contractor as an additional insured on the same policy for insurance purposes. They’re both insured. So when claims start going back and forth between them, that’s a ground for the carrier to get out something else you don’t want. Subcontractor work is another, uh, another one, uh, I’ve seen roofing exclusions and height exclusions on roofing projects. Um, and this list is designed to make sure your insurance is not swift cheese. You want to make, you want to make sure that you have insurance, it’s valid, and it’s going to be able to be called on when something goes wrong. So, uh, thank you for, uh, for the presentation and for allowing me to present, uh, my apologies for speeding it up at the end, but I wanted to get it in the hour promise.
Greg Spaun (57:48):
I realized everybody’s time is valuable, um, for any attorneys that are taking this for a continuing legal education credit, uh, you’ll get an email on Friday with the course materials, and you can submit this to your local state bar for possible approval, or you can email Catherine for any questions as far as any substantive questions. Um, you know, this comes with my lifetime guarantee, as long as I’m alive, feel free to email me, and I’m happy to answer all questions. Um, and with that, I don’t see any other questions. If somebody has one and wants to type it out, I’m happy to help, happy to answer it now. Or you can send me an email or, uh, you know, again, failing that I thank you for your time. Okay. Here’s something that just popped up. Oh, you’re welcome. Um, so again, anybody that, uh, has anything else, um, I’ll take by email and again, I thank you all for your time. I’m sorry. I just got something in chat. Uh, again, you’re welcome. You’re welcome to everybody.
Justin Gitelman (58:50):
I was gonna say, it seems like just a lot of appreciation of which I want to give as well. Thank you, Gregory for generously providing your time for this great presentation today. I’m happy to help and thank you everyone who came out and, uh, tuned in live here and asked such great questions. Uh, like Greg said, there’s the Sealy instructions coming soon. There’ll also be a recording of this along with the slides provided tomorrow. Um, and you know, uh, a link to contact Gregory, but that’s, that’s his email right there. Um, and yeah, I hope you found this valuable look forward to seeing everybody here at the next ones, um, which speaking of that, you can find any upcoming cos and construction payment webinars on Levelset dot com slash webinars. Um, and with that, I guess everybody have a great day. And
Greg Spaun (59:36):
Thanks again. Thank you again. Take care everybody. Bye now.