March 26, 2009

A new challenger to AIA documents

After an intensive three-year effort, a consortium of owners, contractors and trade groups joined together and have published what they consider to be contract documents based on best practices and proper risk allocation, for the benefit of the construction industry at large. The result is a new family of construction documents entitled ConsensusDOCS, where “DOCS” stands for designers, owners, contractors and sureties.

ConsensusDOCS is endorsed by 22 construction organizations — including the Associated General Contractors of America, Associated Builders and Contractors and National Electrical Contractors Association — that represent a wide selection of industry members, from developers to owners to general contractors to subcontractors.

Despite the wide consensus represented by these national trade organizations, proponents of the long-standing contract documents published by the American Institute of Architects argue that the oft-revised AIA documents are more than sufficient and there is no need for another family of construction documents. For the reasons below, we disagree with that conclusion.

The owner is in charge

Unlike the AIA documents which automatically elevate the architect as the go-to party for all construction contracts, ConsensusDOCS mandates meaningful and direct communications between the owner and the general contractor.

Rather than making the architect the default entity providing professional (and expensive) services and the middleman and/or referee, ConsensusDOCS retains that power with the owner, who is often the one with the greatest incentive to see the project run smoothly. And to the extent the owner wishes to empower the architect or a construction manager to serve in that primary role, only simple revisions are required to the documents to make that happen, as is the case with AIA documents if the owner wishes to reduce the architect’s role.

Anecdotally, and particularly when neither ConsensusDOCS nor AIA documents are used, it has been lamented over and over by owners and contractors (usually post expensive mediation or litigation) that had there been better communication between the primary parties during the project, disputes could have been avoided or at least substantially reduced.

The drafters of ConsensusDOCS recognized this issue and sought to rectify this shortcoming of the AIA documents.

As remarked last September in Chicago by lawyers Larry D. Harris and Brian M. Perlberg at the American Bar Association Forum on the Construction Industry: “The ConsensusDOCS emphasize dispute avoidance and communication before problems become intractable. ...If successful, the effort may go a long way to cutting down the mountain of modified standard paperwork that has bogged down many projects and chocked courts, arbitrators, mediators and disputes review boards. This has the potential of being something really big, if given a chance.”

All that said, it should not be concluded that the AIA family of documents is somehow outdated or past its prime. Indeed, AIA documents are vetted and revised regularly and have a solid history of judicial and non?judicial interpretation. ConsensusDOCS, however, do provide owners, developers, attorneys and other project participants with a widely accepted alternative for the design and delivery of construction projects.

AIA document comparison

The following is a brief comparison of certain and material provisions with the two sets of documents.

Document ownership

ConsensusDOCS provides the owner with greater ownership and usage rights with regard to design documents and stresses the need of the owner to determine the appropriate documents to be given to the contractor in order for the contractor to successfully complete the work.

Financial information

In contrast to AIA documents (AIA A201-2007), the owner is only obligated to provide the contractor with financial information relating to the project, but not about the overall general financial situation of the owner.

Contractor reporting

Consistent with the revised language in AIA A201-1997, the reporting requirements for contractors in the ConsensusDOCS is now much more onerous than in the past. Specifically, the contractor is obligated to now report not only errors it discovers in the design documents, but also any error or omission that is made known to the contractor. The contractor’s failure to report such errors leaves the contractor open to compensate the owner for all resulting losses.

Liquidated damages

In contrast to the unilateral setting of liquidated damages by either the owner or the contractor, ConsensusDOCS provides the parties with an opportunity and procedure by which to negotiate “reasonable” damages at the time of contracting. Further, the intent of the ConsensusDOCS is to view the negotiation of liquidated damages as a way of advancing the project, i.e., providing a financial incentive to the contractor to accelerate the work early in the project when the contractor’s ability to do so is at its highest.

Termination

• Termination by contractor. Both sets of documents allow the contractor to terminate the work as a result of the owner’s breaches, but ConsensusDOCS provides a broader basis for doing so and allows the contractor to recover profit from work NOT performed.

• Termination for cause. While there are only minor differences in what constitutes a “for cause” termination, there are major differences in the procedures for addressing the same. Specifically, in ConsensusDOCS, the owner can act unilaterally without the need for third-party certification and, in addition, requires two (not one) notices to the contractor, with an opportunity to cure, over a 21-day (versus seven) period.

• Termination for convenience. While the AIA documents provide that the contractor is entitled to recover “reasonable overhead and profit” on work not yet undertaken, there is no guideline provided as to what is “reasonable.” In contrast, ConsensusDOCS provides a procedure by which the parties agree what the “reasonable” premium will be in advance at the time of contracting. Such procedure is seen as a better way by which the owner and contractor can balance their respective risks and interests.

Consequential damages

In contrast to the AIA documents, which provide for a mutual waiver of any and all consequential damages, ConsensusDOCS provides a more limited waiver of such damages. Detractors of ConsensusDOCS believe that limiting the waiver leaves the door open for additional and complex claims that may not be covered by insurance and, accordingly, increase litigation costs. Drafters of the ConsensusDOCS, however, believe that — as with the negotiable termination elements set forth above — this “limited” waiver allows the parties to better understand their respective risks and interests.

The AIA family of documents is an excellent and well?interpreted set of documents. However, the new ConsensusDOCS is more than worthy of serious consideration by all project participants, particularly owners and developers. As with any product, having alternatives is a good thing for the consumers of that product.

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Joe Straus heads Bullivant’s Development Services practice, serving construction and real estate clients across the firm’s six West Coast offices. Janet Kim Lin represents clients in complex contract disputes with a focus in the construction and the sustainable building industries. She is one of the first LEED attorneys in the U.S. Tim Calderbank has represented public and private parties in matters relating to contract drafting and negotiation, real estate development, homeowner association documents, construction defect claims, licensing and registration bid disputes, and lien and bond claims.

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