AIA, The Next Decade: Key Revisions in the 2017 Suite of Contracts Lawrence M. Dudek and Jeffrey R. Appelbaum

Transcription

1 AIA, The Next Decade: Key Revisions in the 2017 Suite of Contracts Lawrence M. Dudek and Jeffrey R. Appelbaum The American Institute of Architects ( AIA ) Documents Committee has produced form construction and design contracts for over 100 years. These documents are probably the most commonly used construction form documents by real estate lawyers who prefer industry documents over their own custom forms. 1 Although additional documents are released periodically, certain documents are revised and published every 10 years. In April 2017, the AIA Documents Committee released 14 documents, including (a) updates to certain Owner-Contractor Agreements (A101, A102, A103, A104 and A105), the General Conditions (A201), the Contractor-Subcontractor Agreement (A401), Owner-Architect Agreements (B101, B102, B103, B104 and B105), the Architect-Consultant Agreement (C401) and (b) the release of a new Sustainable Projects Exhibit (E204) and an Insurance Exhibit to the A101, A102 and A103. The AIA has also announced that it will be releasing updates to additional documents in the Fall of In total, over 30 documents are expected to be updated or added as the 2017 AIA Contract Documents. It is important to note that 18 months after the 2017 version of each form is released, the 2007 versions of such forms will be retired and no longer supported for use by AIA. That said, AIA document users should prepare for and begin transitioning to the 2017 version of these documents. Moreover, during the 18-month transition period, it is important that a consistent vintage of form is used when a project requires the use of multiple AIA form documents e.g., if the Owner/Contractor Agreement is on a 2007 form, the General Conditions should also be on a 2007 form. What follows is an explanation of key changes initiated with the 2017 AIA Contract Documents. Certain AIA defined terms are used throughout this paper, including Owner, Contractor, Architect (or Design Professional ), Work, and Project, among others. As an additional reference, please note that documents showing the 2007 versions compared against the 2017 versions are available for free through the AIA Contract Documents Website Updates to the Insurance Program A. Background Insurance programs are used in part to identify and allocate risk between the parties to a construction contract. The required insurance will often be Owner-driven, with input from the other contracting party with respect to the level of coverage available through its insurance carrier(s). Overall insurance requirements are often implemented to produce maximum effective coverage with the lowest overall cost that can be derived from effective coordination of both the Owner s insurance program and the Contractor s (and the Design Professional s) insurance program. 1 Other industry forms include the ConsensusDocs, EJCDC Contract Documents, BOMA Contract Documents, DBIA Contract Documents and CMAA Contract Documents. 2

2 At times, review and negotiation of an insurance program will completed by separate advisors, with portions of the contract relating to insurance being sent to outside insurance brokers or attorneys. To accommodate efficient review, common practice in the industry has been to list insurance requirements in a separate exhibit to the contract, which facilitates ease of sharing and negotiating insurance requirements. The 2017 updates have added a separate insurance exhibit for both the A101, A102 and A103 Owner-Contractor Agreements. 3 This change is being touted as one of most significant updates included the 2017 AIA Contract Documents. The new exhibit has been designed in a manner to facilitate insurance-related discussions and to walk the parties through a checklist-style form that suggests numerous types of insurance. Not all suggested policy types will apply to a given project; on the other hand, an overly inclusive checklist may assist the parties to decide that certain insurance requirements, which may have been overlooked in the past, should be included in the insurance program. It is important to note that some insurance-related provisions are still included in the body of the Owner-Contractor Agreements and the General Conditions, so careful attention to insurance provisions in the body of these documents as well as the Insurance Exhibit will be essential to creating an effective risk management program. B. General Insurance Provisions Each of the 2007 A101, A102 and A103 Owner-Contractor Agreements included a brief stand-alone section for insurance and bonding, simply providing a blank space for inclusion of such requirements. The 2017 updates of each document now include a subsection in the miscellaneous section that requires each party to provide insurance and bonds as set forth in the referenced Insurance Exhibit. Previously, the 2007 A201 General Conditions served as the source of most insurance specifics and details. The 2017 updated AIA Contract Documents move discussion of many of these specifics and details to the Insurance Exhibit, with some items revised, while other items are completely omitted from both the Insurance Exhibits and the General Conditions. Generally, where provisions were retained but revised, the insurance sections of the 2017 A201 General Conditions and the Insurance Exhibit have been drafted to ensure greater clarity and specificity. Article 11 of the 2017 A201 General Conditions breaks insurance requirements into two discrete sections: (i) Contractor s Insurance and Bonds, and (ii) Owner s Insurance. The 2007 iteration of the A201 General Conditions similarly separated out some Owner and Contractor insurance, but other items, such as required property insurance, optional boiler/machinery insurance and optional loss of use insurance were discussed separately. The streamlined 2017 A201 General Conditions still includes discussion of property insurance, but loss of use insurance is now moved to the Insurance Exhibit and boiler/machinery insurance discussion is deleted altogether. 3 Each of the A101, A102 and A103 insurance exhibits are identical in form; therefore, all general discussion related to the insurance exhibit translates across the documents and references/citations to the Insurance Exhibit refer to the A Exhibit A, A Exhibit A and A Exhibit A. 2

3 C. Contractor s Insurance Contractor insurance requirements are merely referenced in the 2017 A201 General Conditions; all specific insurance requirements are now listed in the Insurance Exhibit. The scope and details of required insurance has been clarified, as the Insurance Exhibit lists specific insurance coverages and includes fill-ins for minimum limits. This is a departure from the 2007 A201 General Conditions, which list types of claims the Contractor is to insure against, without actually naming specific policies, and provides less direction regarding limits and names of specific policies. In contrast, the 2017 updates provide more direction on all accounts. Insurance is often an afterthought and largely ignored in the contracting process. The intent of the Insurance Exhibit is to direct the parties to more carefully consider insurance options. By listing specific insurance coverages and limits instead of simply requiring coverage for a list of claims, there is less guess-work for determining whether intended insurance coverages will be obtained. For example, instead of saying the Contractor will provide coverage for claims for injury caused by ownership, maintenance or use of a motor vehicle (A at ), the Insurance Exhibit requires Contractor to maintain an Automobile Liability policy at specific minimum limits. Insurance Exhibit at A For each policy, the parties are asked to specify minimum policy limits in the Insurance Exhibit. These limits were previously required to be specified in the 2007 Owner-Contractor Agreements, however, the limits were contractually subject to increase if required by applicable law. A at While this stipulation typically would apply only to Workers Compensation coverage, there was the potential for uncertainty and instances of noncompliant limits. The 2017 Insurance Exhibit eliminates this potential for uncertainty by removing reference to limits required by applicable law, except in the case of Worker s Compensation limits, which are expressly linked to statutory requirements. Insurance Exhibit at A In addition to the aforementioned Automobile Liability and Workers Compensation coverage, the Contractor is required to carry General Liability and Employers Liability coverage. Insurance Exhibit at A and A Also included in the Insurance Exhibit is the ability of Contractor to obtain its required Commercial General Liability and Automobile Liability through a combination of primary and excess or umbrella liability insurance. Insurance Exhibit at A i. Special Activities The Insurance Exhibit now provides requirements triggered to the extent the Work includes or involves certain activities, such as work on or near navigable waterway, operational manned or unmanned aircraft, etc. The statement of each required coverage contains blanks for insertion of policy limits, and as discussed below, questions arise as to intent if the blanks are not filled in (e.g., No required insurance? No limits?). To the extent triggered by certain activities, the following insurance is required: Jones Act, and the Longshore & Harbor Workers Compensation Act (if the Work involves hazards arising from work on or near navigable waterways, including vessels and docks). Insurance Exhibit at A.3.2.7; 3

4 ii. Professional Liability (if the Contractor is required to furnish professional services as part of the Work). Insurance Exhibit at A.3.2.8; Pollution Liability (if the Work involves transport, dissemination, use, or release of pollutants). Insurance Exhibit at A.3.2.9; Insurance for maritime liability risks associated with the operation of a vessel (if the Work requires such activities). Insurance Exhibit at A ; and Insurance for the use or operation of manned or unmanned aircraft (if the Work requires such activities). Insurance Exhibit at A Optional Coverages The parties may also select additional Contractor insurance coverages that are not automatically included via the Insurance Exhibit. Insurance Exhibit at A.3.3. The applicability of these requirements differs from those required for specifically identified activities listed above because these requirements are only triggered if the parties expressly check a box, indicating that the option has been selected. The optional insurance requirements are as follows: Property insurance of the type otherwise required by Owner in Insurance Exhibit at A.2.3). Insurance Exhibit at A ; Railroad Protective Liability Insurance. Insurance Exhibit at A ; Asbestos Abatement Liability Insurance. Insurance Exhibit at A ; Insurance for physical damage to property while it is in storage and in transit to the construction site. Insurance Exhibit at A ; Property insurance covering property owned by the Contractor and used on the Project. Insurance Exhibit at A ; and Other insurance expressly listed by the parties. Insurance Exhibit at A iii. CGL Coverage The Insurance Exhibit includes additional detail with respect to the Contractor s Commercial General Liability coverage. Certain items must be specifically covered by such policy. Insurance Exhibit at A This approach of listing required covered claims is similar to that seen in the 2007 A201 General Conditions, but the list is streamlined and explicitly addresses the Contractor s Commercial General Liability policy. Additionally, the Insurance Exhibit includes a list of claims that may not be excluded or restricted under such coverage. Insurance Exhibit at A Because many of these items may be excluded or restricted under a standard policy, the Contractor may have to eliminate exclusions or add specific endorsements to its Commercial General Liability policy to ensure required coverage has been obtained. iv. Property Insurance As mentioned above, the Insurance Exhibit provides an option for the parties to require that the Contractor obtain the property insurance otherwise required to be held by the Owner. Insurance Exhibit at A This option was available under the 2007 Contract Documents, as A at hints at the idea that the Owner s obligation to provide property insurance could be abrogated if provided for elsewhere. But, because there are no other explicit sections 4

5 providing for Contractor to take on this obligation, the requirement that the Contractor obtain property insurance instead of the Owner only applies under the 2007 Contract Documents if the parties decide to add a provision to this effect. By contrast, the 2017 Insurance Exhibit provides an express statement that Owner s obligation may be placed on the Contractor. Insurance Exhibit at A Instead of adding a provision to transfer such requirement to the Contractor, the Insurance Exhibit provides a check-the-box option that shifts a significant degree of responsibility for obtaining and maintaining such property insurance to the Contractor. Insurance Exhibit at A Adding an additional layer of direction for the parties, this check the box option provides standard exceptions whereby the Owner will retain certain property insurance responsibilities unless indicated to the contrary. If this option is selected, the Owner is relieved from, and the Contractor is required to assume, the responsibility for obtaining and maintaining property insurance, except as required by Sections A (relating to property insurance coverage after Substantial Completion) and A (relating to insurance for existing structures) of the Insurance Exhibit. Furthermore, the Contractor is required to disclose to Owner the amount of any deductible thereunder, the Owner is explicitly responsible for losses within such deductible, and the Contractor is obligated to provide the Owner with copies of the policy upon the Owner s request. Significantly, and as discussed in more detail below, unless stipulated otherwise by the parties, the Owner has more discretion for adjusting and settling any loss with the insurer and being the trustee of the proceeds of the property insurance, and any challenge by the Contractor is dealt with through the A dispute resolution process. Insurance Exhibit at A By including these check-the-box options, the need to clarify additional details with respect to the Contractor s assumption of otherwise Owner-obligations is reduced. Under the 2007 Contract Documents, such additional details must be drafted into either the Owner-Contractor Agreement or the General Conditions, neither of which provide for or prompt the inclusion of an explicit section for doing so. Hence, the 2017 Contract Documents add a degree of certainty and clarity, and reduce the potential for inadequate governing provisions with respect to the responsibilities assumed by the Contractor. For example, although it might be assumed that any property insurance requirements of the Contractor would end upon Substantial Completion, a failure to expressly state this in the 2007 Contract Documents could lead to uncertainty and dispute. Therefore, while the parties may agree to a different length of time for Contractor s property insurance obligation, at minimum, the standard Insurance Exhibit provides for a default duration. v. Policy Effective Dates All coverages are now required to be maintained until the expiration of the period for correcting Work stipulated in A at 12.2 (i.e., generally one year after the date of Substantial Completion). Insurance Exhibit at A This is a departure from the 2007 Contract Documents, which extend this requirement to completed operations coverage only, while certain other coverages are required to be maintained until after final payment. A at The revision to the timing requirements in the 2017 Contract Documents adds much needed clarity, especially considering that, previously, coverages required to be maintained until after final payment were not listed or identified, making compliance with this requirement difficult to discern. A hardline is now drawn using the timing requirements of A at 5