Choosing the right contract form is essential to ensure that a contractor’s rights are protected. While the AIA Contract Documents have long been the default standard form for commercial construction, the ConsensusDocs forms are fast becoming a reasonable option.
While both sets of documents offer contract forms that work for various delivery systems and payment structures, the two families of documents allocate risk in very different ways, which can make a tremendous difference should a dispute arise. This article compares some of the differences between the AIA A201-2017, which serves as the general conditions appended to most (but not all) AIA contracts, and the ConsensusDocs 200 contract, which primarily addresses the contractual relationship between an owner contracting with a Constructor for a given project.
Owner Financial Information
Contractors and construction managers typically want assurance that they will get paid for the time and effort they exert on the project. While the AIA 201 allows for a contractor, upon written request, to obtain “reasonable evidence” at the start of the project that the owner can satisfy its financial obligations, the contractor’s ability to obtain additional financial information during the course of the project is limited to triggering events such as the owner’s failure to make a payment or material changes in the Contract Sum. As a result, the contractor can be kept in the dark regarding an owner’s deteriorating financial situation until it is too late.
In contrast to the AIA, with ConsensusDocs 200, a contractor may obtain project financing information before and after the commencement of work upon written request. The obligation of the owner to provide this financial information is treated as a condition precedent to the contractor commencing or continuing work on the project. The ConsensusDocs also place the burden on the owner to notify the contractor before any material changes in the project funding occurs. This should give the contractor some notice of potential financing issues before they are irreversible.
Indemnification
The ConsensusDocs contract also allows more favorable indemnity language than the AIA contract includes. While the AIA 201 language is not bad, limiting the indemnity obligation to claims of personal injury, property damage or death, and limits the indemnity to the extent of the contractor’s fault, the ConsensusDocs 200 goes a step further, making the indemnification language reciprocal. The owner is required to indemnify the contractor for bodily injury and property damage in the same way that the contractor is required to do so for the owner. The benefit of reciprocity is that it incentivizes both the owner and the contractor to maintain a safe and clean worksite, and makes it easier for the contractor to receive equal and fair treatment.
Change Orders
Perhaps the single biggest difference between the ConsensusDocs and the AIA is the change order process. Under the AIA 201, the architect plays a significant role in the change order process. Before a change order is approved, it must be agreed upon by the owner, contractor and the architect. Even construction change directives issued by the owner (changes issued without the contractor’s assent) must be agreed to by the architect. In contrast, the ConsensusDocs 200 eliminates the architect’s role completely from the change order process.
Another very important difference between the AIA and ConsensusDocs is how they deal with pending changes where the owner and contractor have not yet reached an agreement with respect to the cost impact of the proposed change required by the owner. Under the AIA, the architect is designated as the decisionmaker to make an interim determination as to the amount the contractor should be paid for a construction change directive from the owner pending a final determination of the change order price. Contractors are generally skeptical of the architect’s “impartiality” in such a situation given the nature of the architect’s relationship with the owner.
The ConsensusDocs adopts a different approach. In a situation where the owner has issued a unilateral change (called an Interim Directed Change under the ConsensusDocs rather than a construction change directive under the AIA), the owner is obligated to pay the contractor 50% of the estimated cost to complete the change work. This gives the contractor tremendous leverage and allows the contractor to receive some of the disputed funds while the matter remains unsettled.
Dispute Resolution
The AIA approach to dispute resolution can be characterized as fast and formal. The AIA A201 requires written notice of the dispute to the other party within 21 days. This notice is then supposed to go the Initial Decision Maker identified in the contract (the default is the architect). The Initial Decision Maker has 30 days to render a decision before the parties may proceed with mediation. The parties are required to mediate disputes as a condition precedent to binding dispute resolution.
By contrast, the ConsensusDocs 200 seeks to achieve resolution through a menu of informal channels before binding dispute resolution. The ConsensusDocs requires the parties to first engage in good faith discussions between the parties’ representatives regarding the disputed issue. If those discussions do not resolve the issue within five business days, then senior executives of the parties are required to meet in an effort to resolve the issue. If the dispute remains unresolved after 15 days, then the parties are required to submit the dispute to the dispute mitigation and dispute resolution procedures selected in the contract.
One of the options is to select a project neutral or dispute review board, which would then issue non-binding findings. It would be only at this point in the process that the parties could proceed to mediation and binding dispute resolution if the mediation was unsuccessful. Perhaps most importantly, while the AIA contract requires both parties to bear their own legal fees, the ConsensusDocs contract employs a “loser pays” approach allowing the prevailing party to recover attorneys’ fees. While this approach increases both parties’ litigation risk equally, it has more impact on Owners who now have a strong disincentive to withhold money without good reason.
Generally speaking, the ConsensusDocs family of contract documents offers contractors a more favorable a risk allocation the AIA contracts. As these contracts are accepted with increasing regularity, this can present a tremendous opportunity for contractors seeking fairer terms for their owner contracts.
