Part III of this three-part series compares and analyzes important contract sections in the AIA 201 (2007 and 2017 versions) and ConsensusDocs (2014 and 2017 versions), including Insurance and Indemnification and Payment. Part I covered Financial Assurances, Design Risk, Project Management and Contract Administration. Part II covered Schedule/Time, Consequential Damages/LDs, Claims and Disputes/ADR.
Insurance and Indemnification
Relevant Sections:
- 2007 & 2017 A201
- 2014 & 2017 ConsensusDocs 200: Sections 10.1; 10.
AIA:
- Pursuant to section 3.18.1, the Contractor must defend and hold harmless the Owner, the Architect, and the Architect’s consultants and agents.
- Beware of indemnifying the Architect or any design professional. Remove the reference to design professionals or limit it to that covered by commercial general liability insurance.
- The indemnification provision is pro rata – “but only to the extent caused by the negligent acts or omissions of the Contractor …”
- The indemnification provisions did not change between the 2007 and 2017 A201 documents.
- The insurance requirements did not change practically between the 2007 and 2017 documents. Section 11.1.4 of the 2007 version and Section 11.1.1 of the 2017 versionrequire the Contractor to name the Owner and the Architect as additional insureds on the Contractor’s General Liability Insurance Policy. Sections 11.1.1 and 11.1.2 of the 2007 version require the Contractor to provide Completed Operations Insurance coverage. The 2017 version does not address this coverage.
- Section 11.3 requires the Owner and Contractor to waive all rights against each other, their subcontractors, sub-subcontractors, agents, and employees, each of the other, and the Architect and the Architect’s related entities, if any, for damages cause by fire or other causes of loss to the extent covered by property insurance. It also contemplates putting the carrier on notice of the waiver. Waiver does not bar third-party lawsuits or claims for deductibles and other non-covered items. Waiver will be defined by the risks covered by the insurance and the scope of the work in the contract.
- Under this clause, contractors who would normally bear the risk of loss before project completion, may avoid that risk to the extent the builder’s risk or property insurance covers the loss.
- Many of the 2007 insurance provisions have been removed from the 2017 version and instead can be found in an exhibit to the Owner-Contractor agreement.
- The 2017 version also now requires that insurance and bonds be issued by insurers lawfully licensed to issue insurance and bonds where the Project is located. The National Association of Insurance Commissioners provides contact information for state insurance commissioners.
- The waiver of subrogation provisions remain the same.
ConsensusDocs:
- Significantly the ConsensusDocs Contract provides MUTUAL INDEMNIFICATION language (section 10.1) and only proportional indemnification responsibility.
- Additionally, ConsensusDocs 200 provides for the recovery of attorney’s fees and costs that exceed the percentage of the parties’ negligence in causing a loss.
- In addition to indemnifying negligent acts or omissions, under the 2017 version, the Contractor and Owner must indemnify one another for intentionally wrongful acts.
- In defining the scope of parties entitled to indemnification as including “Others” (defined as “other contractors, material suppliers, and persons at the worksite who are not employed by the Contractors or Subcontract”), the indemnification clause may be broader than the Constructor or Owner intends.
- Section 10.2.2 allows for combining primary and excess coverages to satisfy total limits required under the Contract.
- Section 10.2.1 sets the completed operations coverage for one year. This is similar to the A201, which requires completed operations coverage for the warranty period (typically one year) or longer if specified.
- Section 10.3.1 of the 2014 version requires that the Constructor maintain a Builder’s Risk Policy that also names subcontracts, sub-subcontractors, suppliers, and the design professional as additional insureds. The 2017 version gives the Owner the option to except the Contractor from obtaining a Policy.
- The 2017 version specifies additional loss risks above the 2014 version including coverage extension for damage to existing buildings, equipment breakdown, testing for newly installed machinery, and physical loss resulting from Terrorism.
- The 2014 version requires the Owner to be responsible for deductibles and co-insurance, while the 2017 version states that the party that is the primary cause of the Builder’s Risk Policy claim pay any deductible or coinsurance. If no Party is the primary cause of a claim, the Party who obtained and maintained the policy must pay the deductible or coinsurance.
- Section 10.3.2 requires the Builder’s Risk Policy to provide for a waiver of subrogation. Pursuant to section 10.3.3, if the Owner directs the Constructor not to obtain property insurance, the Owner may issue a deductive Interim Directive.
- Pursuant to section 10.4, the Owner may require the Constructor to purchase additional liability coverage that names the Owner as an additional insured on certain specified policies.
- Pursuant to section 10.4.1, Constructor and Subcontractor insurance is primary and non-contributory to any insurance available to the Additional Insureds.
Payment
Relevant Sections:
- 2007 & 2017 A201: Section 9
- 2014 & 2017 ConsensusDocs 200: Section 9
AIA:
- AIA 2007 & 2017 sections 9.6.2 provide that, “[t]he Contractor shall pay each Subcontractor no later than 7 days after receipt of payment from the Owner …” This is not “pay if paid” language in Massachusetts.
- AIA 2007 & 2017 sections 9.6.4 also provide that the Owner has the right to request written evidence from the Contractor that it has properly paid Subcontractors and material suppliers. If the Contactor fails to furnish this evidence within 7 days, the Owner has the right to contact the Subcontractor directly.
- Pursuant to AIA 2007 section 9.5.3 and AIA 2017 section 9.5.4, if the Contractor fails to properly pay the Subcontractors, the Architect can withhold certification for payment and, “[t]he Owner may … issue joint checks to the Contractor and any Subcontractor or material or equipment suppliers …”
ConsensusDocs:
- Both AIA and ConsensusDocs allow the Owner to withhold payment if a third party files a claim. They differ in the determination of what is sufficient security to require the eventual release of funds.
- Pursuant to section 9.3.7, the Owner may adjust or reject a payment application to the extent that the Contractor is responsible under the Agreement for third party claims involving the Contractor or reasonable evidence demonstrating that third party claims are likely to be filed unless and until the Contractor furnishes the Owner adequate security. Adequate security consists of a surety bond, letter of credit, or other collateral or commitment that would be sufficient to discharge such claims once established.
Part I covered Financial Assurances, Design Risk, Project Management and Contract Administration. Part II covered Schedule/Time, Consequential Damages/LDs, Claims and Disputes/ADR.
