Volume 43, Issue 2 - February 2008

A New Age of Consensus?  
Alignment Shattered 
by New Contract Documents

by Donald W. Gregory

“Can’t we all just get along?”—Rodney King
These frustrated words issued as a result of riots in L.A. may also have some application to the construction industry. For too long, the industry has been driven by conflict that begins when the owner puts one-sided contract documents out for bid, the contractor sends a subcontract at least, if not more, one-sided to the subcontractor and so forth, all the way down the construction “food chain.” While trade association forms have traditionally been less onerous than proprietary contract forms, each group publishing the form has had its own member’s best interests in mind, and often little else. This was the situation in the industry when many of the major construction trade associations, including groups as diverse as the Associated General Contractors (AGC) and the American Subcontractors Association (ASA), got together with other associations (representing owner, contractor, surety and subcontractor interests) in a collaborative process that culminated in the ConsensusDOCS published in 2007.

The ConsensusDOCS offer an alternative to unfair risk-shifting and reflect best practices and appropriate risk allocation. The ConsensusDOCS family of documents offers more than 70 documents dealing with:

  • General Contracting (200 Series);

  • Collaborative Documents (300 Series);

  • Design-Build (400 Series);

  • Construction Manager at Risk (500 Series); 

  • Subcontracting (700 Series); and

  • Project Management (800 Series).

They have been endorsed by more than two dozen of the leading construction associations in this country. 

Misalignment
It is exciting to have so many diverse groups agreeing to fair documents reflecting best practices, not the lowest common denominator or simply a form that protects its own members at the expense of others.

The ConsensusDOC 750 Subcontract contains these key elements:

  • The glazing subcontractor is entitled to payment within seven days after the contractor is paid. “Pay when paid” is key; 

  • When the glazing subcontractor is not paid in a timely manner, the subcontractor may stop work;

  • Conflicts between documents are construed in favor of the glazing subcontract’s terms;• Indemnification is limited to the glazing subcontractor’s negligence;

  • Review of plans/specs does not imply constructability;

  • Unconditional lien waivers are prohibited;

  • Ds are limited to the glazing subcontractor’s actual responsibility;• Arbitration must take place where the project is located;

  • The glazing subcontractor is not required to indemnify the contractor’s willful and repeated safety violations; and• Additional insureds are not mandated.

The Additional Insured Insertion
Largely out of a concern about the “additional insured” mandate inserted for the first time in the 2007 edition of the AIA A401 Subcontract, ASA decided not to endorse the newly issued edition of AIA’s Subcontract. Subcontractors believe that it is inequitable to force a subcontractor (and its insurance carrier) to bear a loss (and higher premiums) when a contractor or owner causes a loss.

Hopefully, the ConsensusDOCS issue in a new era of collaboration and consensus to a challenging industry, by encouraging all to manage the risk they control in a cooperative way with all members of the construction team. The ConsensusDOCS are an important tool available to advance the cause.

More information concerning ConsensusDOCS can be found at www.consensusdocs.org

What Happened to the Consensus?
The latest contract document from the American Institute of Architects (AIA) A401-2007, the Standard Form of Agreement Between Contractor and Subcontractor, stipulate that the subcontractor must name the owner, architect, contractor and others as “additional insureds” in its commercial general liability insurance policy (its relative, A201-2007, General Conditions of the Contract for Construction, names the owner, the architect and the architect’s consultants as additional insureds for the contractor). This was one of the main points attorney James P. Laurie III focused on during a webinar in December 2007 about the changes to this cycle of documents. 

The American Subcontractors Association (ASA) hosted Laurie’s webinar, “Straight Talk: Bidding and Negotiating the AIA A401-2007 Terms and Conditions,” to inform subcontractors about the major changes in the updated AIA documents widely used by the construction industry. Among the changes is AIA’s decision to delete project management protective liability insurance and instead substitute it with a practice “that has become common in the industry, naming the owner, architect and the architect’s consultants as additional insureds under the contractor’s general liability policy,” according to a news release from AIA.

Laurie says that the new stipulation makes Article 13 on insurance and bonds “one of the most talked about issues and the deal breaker for AIA.” According to ASA, which has chosen not to endorse the updated document in part because of this stipulation, the change will increase subcontractors’ insurance costs due to claims made by additional insureds, shift more risk to contractors and subcontractors and result in more exposure to claims and loss. This practice is one reason that the Associated General Contractors of America (AGC) also voted not to endorse the A201-2007, for the first time in 50 years. 

Laurie notes that the “additional insured” requirement for comprehensive general liability coverage (CGL) makes the glazing subcontractor responsible for providing indemnity not required by the indemnity clause. He adds that losses paid by the policy on behalf of additional insureds affects the rates of the subcontractor, and terms are included in A201 at section 11.1.4. Laurie recommends not signing the new A401 without consulating an insurance professional as it will require a professional’s review to ensure that contractually required coverage is provided by the subcontractor’s policy.

However, Laurie noted, “Just because it’s in the standard form doesn’t mean you have to live with it.” 

Look Out for That Change: A201 and A401
During the December 2007 webinar “Straight Talk: Bidding and Negotiating the AIA A401-2007 Terms and Conditions,” hosted by the American Subcontractors Association (ASA), attorney James P. Laurie III highlighted some of the changes made to A401-2007, the Standard Form of Agreement Between Contractor and Subcontractor. By association Laurie pointed out changes to A201-2007, General Conditions of the Contract for Construction, which Laurie referred to as the backbone of A401 as it is referenced throughout the document.

  • Contract Documents: The first page of A401 says that contract documents have already been made available to the subcontractor, meaning, “If you’re not careful, you’re swearing on the first page that you got it.” Laurie stressed that glazing subcontractors should be aware of any additional documentation or modifications to existing documentation and should ask to be provided with all of the materials. “When someone hands you the 401 and someone hands you a copy of the 201 and someone hands you the prime contract, write to them and say ‘Are there any modifications? Are there any other documents?’“ Laurie said. 

  • Prime Contract Modifications: The A401 clause 1.1 is one of the most important clauses in the contract, as it calls into the subcontract several additional documents, says Laurie. Among them is the agreement between the contractor and subcontractor; the prime contract, which includes the agreement between the owner and general contractor and any documents noted there; any modifications issued to the prime contract; documents listed in Article 16 of A401 (which includes any additional documents added by the parties, as well as A201-2007); and any modifications to the subcontract. Among the additional documents that should be added, Laurie said, is the subcontractor’s scope of work. 

  • The Pass Down: According to Laurie, the gist of the “pass down” clause in Article 2 is obligation. “You’re obligated to the contractor as the contractor is obligated to the owner,” he says. He stressed that the terms incorporated must be reviewed and understood. Among those terms are references to A201; one in particular he pointed out was the contractor’s Notice of Claims deadline in A201 section 15.1.2, 21 days after occurrence, and a glazing subcontractor’s deadline for making a claim being “not less than two days before contractor’s deadline for making a claim.” As Laurie pointed out, A401 doesn’t mention claims or the deadline for the contractors. For that, subcontractors must be familiar with A201. He added, “Now deadlines are actually a reasonable period of time to make a discovery and get something out.”

  • Services Provided Clause: Laurie called Article 3.1 on the services provided by the contractor “a significant improvement because it specifies what your expectations will be.” Clause 3.1.2 entitles subcontractors to certain expectations about their working conditions, but doesn’t spell out what those might be. “In your scope of work you should refer back to 3.1.2—whatever conditions that you need, you should go ahead and write those into your scope of work letter and refer to that clause.” 

  • Mediation: As discussed in Article 6, using American Arbitration Association (AAA) is mandatory prior to any claim proceeding—unless otherwise specified. “AAA isn’t necessary if you don’t want it to be that way,” Laurie said. However, “If you don’t write it in then you do have to do the mediation with AAA.” Laurie also noted that Clause 6.2 on binding dispute resolution now offers a choice of arbitration, litigation or other. If no box is checked, litigation is the default. “I like other,” Laurie said. “I like other a lot.” Other could be a hybrid of arbitration and litigation or simply mean that it isn’t necessary to use AAA for arbitration.

  • Sum Total: Laurie stressed the importance of verifying the subcontract sum noted in Article 10. “I am shocked every time I get something that has an amount from an old draft,” he said.

Donald W. Gregory of Kegler, Brown, Hill and Ritter in Columbus, Ohio, is general counsel for the American Subcontractors Association. He can be reached at dgregory@keglerbrown.com.


USG
© Copyright 2008 Key Communications Inc. All rights reserved.
No reproduction of any type without expressed written permission.