By Joshua N. Kutch
If you have ever reviewed a construction contract, it is likely you have come across the contracts prepared by the American Institute of Architects. The AIA has published standard form agreements since 1888. With nearly 200 contracts and forms, AIA contract documents have emerged as the industry standard for managing transactions and relationships involved in construction and design projects. To maintain its status as the industry standard, AIA reviews and updates its core set of contract documents and forms every 10 years. In mid-April, the AIA released the following new documents (collectively, the “2017 documents”):
A101-2017 Standard Form of Agreement Between Owner and Contractor where the basis of payment is a Stipulated Sum;
A102-2017 Standard Form of Agreement Between Owner and Contractor where the basis of payment is the Cost of the Work Plus a Fee with a Guaranteed Maximum Price;
A103-2017 Standard Form of Agreement Between Owner and Contractor where the basis of payment is the Cost of the Work Plus a Fee without a Guaranteed Maximum Price;
A104-2017 Standard Abbreviated Form of Agreement Between Owner and Contractor;
A105-2017 Standard Short Form of Agreement Between Owner and Contractor;
A201-2017 General Conditions of the Contract for Construction;
A401-2017 Standard Form of Agreement Between Contractor and Subcontractor;
B101-2017 Standard Form of Agreement Between Owner and Architect;
B102-2017 Standard Form of Agreement Between Owner and Architect without a Predefined Scope of Architect’s Services;
B103-2017 Standard Form of Agreement Between Owner and Architect for a Complex Project;
B104-2017 Standard Abbreviated Form of Agreement Between Owner and Architect;
B105-2017 Standard Short Form of Agreement Between Owner and Architect;
C401-2017 Standard Form of Agreement Between Architect and Consultant;
E204-2017 Sustainable Projects Exhibit.
The most significant revisions to the 2017 documents are the creation of the Insurance and Bonds Exhibit and the E204-2017 Sustainable Projects Exhibit. Each of these new exhibits will be addressed separately below.
New Insurance and Bonds Exhibit
The construction insurance industry is constantly fluctuating and the number of available insurance products continues to expand. The result is an increasingly complex insurance market for construction project participants to navigate. In response to these developments, the AIA undertook an extensive examination of its insurance and bond requirements for its 2017 documents and developed the new Insurance and Bonds Exhibit. The new Insurance and Bonds Exhibit is to be used with the A101-2017, A102-2017 and A103-2017, and read in conjunction with the revised Article 11 (Insurance and Bonds) of A201-2017. Requiring parties to the AIA contracts to obtain insurance is not a new concept; however, the 2017 documents have increased the role that insurance is likely to play in the contract formation process. The parties will now likely consider insurance as a risk-management strategy in much greater detail.
Required coverages vs. optional coverages
The new Insurance and Bonds Exhibit distinguishes between required coverages and optional coverages. Included in the required coverages are those that would commonly be procured on all construction projects. Coverages that the owner must purchase and maintain include general liability coverage and property insurance on a builder’s all-risk policy. However, the parties may select the option of having the contractor provide the required property insurance. The limit for the property insurance must be no less than the initial contract sum, plus the value of subsequent modifications and labor performed and materials or equipment supplied by others. In other words, the property insurance must be sufficient to cover the total value of the project on a replacement cost basis. In addition, if the work involves remodeling an existing structure or constructing an addition to an existing structure, the owner must purchase and maintain all-risks property insurance on a replacement cost basis, protecting the existing structure against direct physical loss or damages.
The contractor must purchase and maintain the following coverages: (a) commercial general liability; (b) auto liability; (c) workers’ compensation; (d) employer’s liability; and (e) other coverages based on the type of project. The other coverages based on the type of project are as follows:
if the work involves hazards arising from work on or near navigable waterways, Jones Act and Longshore & Harbor Workers’ Compensation Act coverage;
if the contractor is required to furnish professional services, professional liability insurance;
if the work involves the transport, dissemination, use or release of pollutants, pollution liability insurance;
if the work requires the operation of a vessel, insurance for maritime liability; and
if the work requires use or operation of manned or unmanned aircraft, insurance to cover such activities.
Pursuant to Section A.3.2.1, the contractor must maintain the required insurance until the expiration of the period for correction of the work, which is defined in Section 12.2.2 of A201-2017 as within one year after the date of substantial completion of the work. This one-year correction period is extended with respect to portions of the work first performed after substantial completion; however, it is not extended for corrective work performed during the correction period.
Sections A.2.4 through A.2.5 provide a list of optional coverages for the parties to consider that the owner purchase and maintain, including (a) loss of use, business interruption and delay in completion insurance; (b) ordinance or law insurance; (c) expediting cost insurance; (d) extra expense insurance; (e) civil authority insurance; (f) ingress/egress insurance; (g) soft costs insurance; and (h) cybersecurity insurance. Section A.3.3.2 provides a list of optional coverages for the parties to consider that the contractor purchase and maintain, including (a) railroad protective liability insurance; (b) asbestos abatement liability insurance; (c) insurance for physical damage to property while it is in storage and in transit to the construction site on an all-risks completed value form; and (d) property insurance on an all-risks completed value form, covering property owned by the contractor and used on the project.
This new Insurance and Bonds Exhibit prompts the parties to consider additional insurance coverages that might be warranted, depending on the nature of the project and particular risks that might be encountered. Each of these coverages should be discussed with an insurance adviser and selected based on specific project needs.
Article 11 of A201-2017
Although the specific and substantive terms regarding the insurance requirements between the owner and contractor are set forth in the Insurance and Bonds Exhibit, Article 11 of A201-2017 still includes some important insurance-related terms. Among the revisions to Article 11 of A201-2017 is the removal of the requirement that the contractor provide certificates of insurance with an obligation on the part of the insurer to notify the owner of an impending lapse in insurance. That provision was ultimately removed from the certificates of insurance issued by most insurers and, therefore, it had to be eliminated from the A201 as a requirement. Accordingly, A201-2017 now requires that the owner and contractor, as opposed to the insurers, each provide the other with notice of an impending or actual cancellation or expiration of insurance coverage. In addition, provisions were added to protect the interests of the contractor and subcontractors if the owner fails to purchase any of the insurance required by the contract documents.
Article 11 also contains broad waivers of subrogation for damages covered by fire or other causes of loss to the extent those losses are covered by property insurance required by the agreement or other property insurance applicable to the project, including property insurance the owner might have under policies that are separate from those insuring the project. It is particularly important to discuss these waivers with insurers to make sure the waivers are not prohibited by the insured’s policy.
New E204-2017 Sustainable Projects Exhibit
Owners have become increasingly concerned about the impact on the environment of their construction projects and the subsequent energy efficiency in maintaining the construction after completion of the project. In response to these concerns, the AIA created the new E204-2017 Sustainable Projects Exhibit. This exhibit provides for the establishment of the owner’s goal of incorporating sustainable measures into the design, construction, maintenance and operations of the project to achieve a sustainability certification or other benefit to the environment, to enhance the health and well-being of building occupants, or to improve energy efficiency. The exhibit sets forth the roles and responsibilities for each of the project participants to achieve this goal. Once the owner determines that the project will involve this sustainable objective, the E204-2017 is incorporated into the owner-architect and owner-contractor agreements, and incorporated as appropriate into any other project agreements.
The new Insurance and Bonds Exhibit and E204-2017 Sustainable Projects Exhibit will provide new mechanisms for the parties to construction and design projects to better meet their insurance and environmental concerns. These exhibits will ultimately make it easier for owners and contractors to identify what is available for the project. However, with more options available, the parties must carefully consider the ramifications that may attend each of these options.•
Mr. Kutch is an attorney with Frost Brown Todd LLC in Indianapolis. He focuses his practice on construction and surety law. The opinions expressed in this article are those of the author.