The article below is the first of five installments of an article from the March 2017 issue of The Practical Real Estate Lawyer discussing issues and concerns in design and construction contracts, from an owner’s perspective. Due to the length of the original article, it has been broken into five parts. The second through fifth installments will appear in upcoming posts.
This is the first of two articles that address common owner concerns in form design and construction contracts. This article deals with architectural services agreements, while the companion article (which will be published in an upcoming issue of Practical Real Estate Lawyer) focuses on construction contracts.
Representing an owner in connection with form design and construction agreements, particularly industry group produced forms (e.g., AIA, ConsensusDocs, EJCDC, etc.), raises certain challenges. This is especially true when the form agreements are voluminous (e.g., the combination of an AIA A101 and A201 is often close to 100 pages, not including exhibits), but the scope or nature of the project does not justify extensive and detailed modifications to the form agreements. Additionally, unlike many other types of contracts that we deal with in real estate, industry group produced form design and construction contracts often can only be amended using proprietary software. Unless one deals with the particular industry group’s family of form agreements with some regularity, it is often not worth the expense or time to acquire that proprietary software. However, relying on the architect or contractor to make changes to the form agreements creates its own set of schedule and quality control issues. An owner’s counsel may effectively address these challenges by preparing a stand-alone addendum that modifies and overrides the applicable form agreement, as needed. Because of the prevalent use of industry group produced form agreements in the design and construction area over the years (the AIA form agreements have been around for over 100 years), modifying these form agreements through a stand-alone addendum has become a fairly accepted practice for owners’ counsel. Having a good starting point for such an addendum provides value and quality of product for both attorneys and their clients. Using an addendum to modify industry form design and construction agreements does not eliminate the need for attorney review of the form agreements but should expedite that process. One must be cautious in reviewing the form documents, as architects and contractors will often modify initial drafts of those documents in ways which, not surprisingly, are not beneficial to the owner.
Currently, the two most common families of form design and construction agreements are the AIA (American Institute of Architects) forms and the ConsensusDocs (formerly known as AGC)(Association of General Contractors)) forms. The history of the AIA, ConsensusDocs and other industry group forms is the subject of a number of other available articles. While there are important distinctions between the AIA and ConsensusDocs forms, the most commonly used groups of forms, these two families of documents have much in common and address many issues in the design and construction process either in the same or in a very similar manner. I would caution owners’ counsel to be particularly careful with any project that uses forms from more than one form family (e.g., an AIA owner-architect agreement is used in conjunction with a ConsensusDocs owner-constructor general contractor agreement). Each family of documents is meant to be compatible with other agreements in the same family, so using documents from competing families can create problematic inconsistencies and gaps. For example, one noteworthy difference between the two main competing families of documents is that the AIA documents place significant responsibility on the architect to administer the owner-architect relationship, while the ConsensusDocs shift some of that responsibility to the owner.
This article is part of a long tradition of continuing legal education articles and seminars addressing issues with form design and construction agreements. As with any working attorney’s personal form files, I have drawn from some of my “go to” cut-and-paste language from a broad range of sources, ranging from CLE materials to articles to provisions I picked up from other attorneys on past transactions. I have modified and customized most of the language over time and crafted my own individualized patchwork quilt of provisions. While I can claim original authorship of many of these provisions (although at this point I am not sure I could identify them all), many others are evolved versions collected from an array of sources over my 25 years of practice in California and Minnesota. As with any document of this type, these provisions are a constantly evolving work in progress. Just in the course of writing this article, I have added new provisions that were not previously in my form documents. My hope is that others can use some or all of the suggested provisions in this article as additional patches to their existing forms or as a starting point for their own evolving quilt of cut-and-paste provisions.
Below is a discussion of issues that owners’ counsel often find are not adequately addressed in the form agreements for architectural services. For each issue, I provide one or more sample inserts that address some of a typical owner’s concerns. Each provision can be used either as part of an addendum or inserted directly into the body of a form agreement. While fairly comprehensive, the list below is meant as a starting point only and is not intended to be exhaustive. Many projects may have additional and/or unique issues that the owner’s counsel will need to address. The terminology in the discussion and sample inserts below (e.g., architect, owner, contractor, work, project) is generally consistent with the terminology used in the AIA family of form documents. When using other families of forms, make sure that the capitalized terms used in your addendum track with the defined terminology in the form agreement. For example, the contractor is referred to as “Contractor” in AIA documents and as “Constructor” in ConsensusDocs forms. Some of the provisions below may overlap with provisions in a particular AIA or ConsensusDocs form document and thus may not always apply. However, the provisions that may overlap with the form documents will often be necessary when dealing with an architect’s or contractor’s custom form, as those custom forms are usually significantly less detailed than the AIA or ConsensusDocs forms and often omit provisions addressing some important owner concerns.
Terminology and Priority. When using an addendum to modify a form architectural agreement, it is generally a good idea to use the same defined terms as used in the form document. Because design and construction form agreements are filled with defined terms and terms of art, maintaining consistent terminology will help avoid potential confusion created by competing terms. Avoiding redefining terms can also cut down on the bulk of an addendum. Any addendum should also make clear that where there is a conflict between the provisions of the form agreement and the addendum, the addendum prevails.
Sample Insert: Capitalized terms shall have the meanings set forth in the Form Agreement, unless otherwise defined in this Addendum. The Form Agreement, as modified by this Addendum, is collectively referred to as the “Agreement.” To the extent that any provision of this Addendum should conflict with the Form Agreement, the provisions of this Addendum shall prevail.
Coordination of Documents. One must be cautious with coordination issues when a project involves use of form agreements from different sources. For example, it is not uncommon to see a project start with an agreement for architectural services based on AIA forms but then use a ConsensusDocs form for the construction contract. Most architects push to use AIA-based forms for the architectural services agreement, and it is rare to find an architect that is interested in (or will agree to) use the owner-architect agreement included in the ConsensusDocs family. Most of the AIA owner-architect agreements include a reference to use of an AIA form of general conditions in connection with the construction contract in defining the architect’s scope of work during the construction administration portion of the project. This can put the owner in an awkward position if its contractor will not agree to use AIA-based forms. In addition, the architectural services agreement is often in place before the owner begins to vet potential contractors. To avoid being in a position where the architectural services agreement dictates the form for the construction contract and to keep the owner out of the awkward position of being caught between families of forms, it is prudent to address the potential for use of a different form of construction contract in the architectural services agreement. That issue is addressed in the first insert below. Some architects will resist this provision based on potential increased liability and/or scope of work that may arise from using non-AIA general conditions. That concern is addressed in the second and third suggested inserts below.
Sample Insert: Architect acknowledges and agrees that construction administration of the Project will follow the procedures outlined in the Construction Contract, which may not be based on the AIA A201, and Architect agrees that construction administration procedure will be deemed to be incorporated into this Agreement.
Sample Insert: To the extent that the Construction Contract would create material greater liability for Architect than Architect would incur under the A201, then Architect’s liabilities under this Agreement shall be deemed limited to those liabilities set forth in the A201, unless otherwise agreed to by the parties.
Sample Insert: To the extent that the Construction Contract, in the aggregate, requires Architect to expend more time and/or resources on construction administration than Architect would be required to expend under the A201, Architect will promptly notify Owner in advance of the incremental, additional tasks required of Architect under the Construction Contract, and Owner shall have the option to either: (a) perform such additional tasks itself (or by its construction manager), or (b) have Architect perform such tasks as Additional Services.
[To Be Continued Next Week]
Andy Jacobson is a partner in the Real Estate Group at Maslon LLP in Minneapolis, Minnesota. His practice covers a broad range of commercial real estate issues, with particular focus on commercial and retail leasing, land use and telecommunications, as well as design- and construction-related agreements. Andy is a frequent author and speaker on real estate subjects and teaches Real Estate Transactions at the University of St. Thomas School of Law. A graduate of Boalt Hall School of Law at the University of California, Berkeley, Andy is also a registered architect, having earned his Bachelors of Architecture from California Polytechnic State University, and practiced architecture prior to attending law school. Andy is a member of both the Minnesota and California bars and can be reached at email@example.com.