WHICH CONSTRUCTION CONTRACT IS RIGHT FOR MY PROJECT?
First I wanted to talk about the AIA (American Institute of Architects) and why to use an AIA contract to begin with.
Today I am going to go over the 5 main construction contracts from the AIA
Stipulated sum - A101
Cost plus fee with GMP (Guaranteed Max Price)- A102
Cost plus fee no GMP (Guaranteed Max Price)- A103
Residential or small commercial project - A105
Project limited scope - A107
So what is the Stipulated sum A101? This is the most common standard form of agreement between the owner and contractor. It's based on a stipulated sum or fixed price. It's typically combined with the A201 document which is the general conditions document - I am going to get more into this in the next episode. Then after that I will get into the various owner/architect agreements. So If you don't want to hear about contracts, go back and listen to some past episodes or skip to episode 16.
AIA A201™–2007, General Conditions of the Contract for Construction. The general conditions are an integral part of the contract for construction. They spell out the responsibilities, and relationships of the owner, contractor, and architect and discuss all of their rights. The 201 loops the architect into the owner/contractor agreement because the architect prepared the contract documents and performs construction phase duties. Those duties are described in detail in the general conditions. It is often called the “keystone” document because of its impact on the other various contracts between all the various parties.
So with all that general conditions talk over and be sure to check it out next week in episode 14,
the AIA 101 is suitable for large projects when you've had multiple contractors bid on the project and you are selecting one of the bidders to build the project for an agreed upon price.
Just also note that the price might and can change with change orders.
A Change Order is a written agreement that increases (or decreases) the Contract Sum, extends (or reduces) the Contract Time, or both. Some owners see Change Orders as a profit center for the Contractor. They can be either owner caused or contractor driven. This is one way to look at change orders. It's typical with most projects and even more so with renovations that there will be some form of conflict or item that is left off the drawings. These are not necessarily left off in negligence, but some unforeseen conflict.
This could be something not coordinated or something unknown at the time of design. With a change order, it's not that the price of that change would not have been in the project. It would have had to been done, but it was just not in the current bid. For example. We will look at a renovation. (column behind the wall)
Allowances are other items that can be exceeded. Its a place holder for budget purposes only. Perhaps one episode I can discuss allowances more and when you should use an allowance verse a hard number.
Just to point out a couple of items in the AIA A101 document. Article 3 emphasizes the need for coordination between commencement and substantial completion dates. An owner should consider bonus payments for early completion and liquidated damages for failure to complete on time. Just note that if unrealistic expectations are placed on the contractor and there are large liquidated damages then you will have many contractors walking away from the job. The risk would be too high for them. Or they would increase their bid by a large amount to make up for that risk.
Either way that does not help your project move forward. I much prefer to approach it as a team effort. If you need to put liquidated damages in the contract then make them realistic and base it on a number that is actual.
The next two contracts are the cost plus contracts with or without GMP. A102 and A103
This agreement is appropriate for use on large projects requiring a guaranteed maximum price, when the basis of payment is the cost of the work, plus a fee.
The AIA Document A102™–2007 is not intended for use in competitive bidding. You would use the earlier document for that the AIA101. The cost plus contract says that the total compensation to the Contractor will be for the cost of the work, plus overhead and profit It can either be equal to a lump sum price using the AIA A101 or will not exceed the Guaranteed Maximum Price (“GMP”) (AIA Document A102). However, there are provisions that enable the Contractor’s compensation to exceed the Lump Sum or GMP. The Contractor will typically include a schedule of “Clarifications and Qualifications” concerning the basis upon which it determined the Contract Sum and the Contract Time. This schedule is very important and should be carefully reviewed by the owner and architect. It creates significant openings for the Contractor to make claims for additional time and compensation. The clarification and qualifications is a change or clarification on what the contractor believes is in the drawings.
Residential or small commercial project A105
Where as the A101 needs to be used in conjunction with the A201 general conditions the A105 can be used alone. It has its own general conditions included.
This contract is a stipulated sum or fixed price contract similar to A101 but much more condensed.
The B105 is used between owner and architect when planning on using the A105 for the construction contract.
Project limited scope. A107
Like the A105 the AIA Document A107™–2007 is a stand-alone agreement with its own internal general conditions and is intended for use on construction projects of limited scope.
It is intended for use on medium-to-large sized projects where payment is based on either a stipulated sum or the cost of the work plus a fee, with or without a guaranteed maximum price. So it can be used in multiple ways, but is typically for limited scope.
A lot of these documents tie together and much like the A201 general conditions ties to the A101.
The AIA Document A107–2007 will also use A107 Exhibit A, if using a cost-plus payment method.
And the AIA Document B104™–2007, Between Owner and Architect for a Project of Limited Scope, coordinates with A107–2007.
The A107 is geared toward smaller projects. Just a few comments on the various articles in the contracts.
In Article 1 of the A107, the AIA has eliminated the space where exceptions to the contractor's scope of work used to be inserted. The parties must be sure that exceptions are listed elsewhere to avoid future disputes.
Article 2 follows the format of the A101, emphasizing the need for coordination between commencement and substantial completion dates. Article 4 now details the timing of a contractor's applications for payment and the process for progress payments and final payments. Consistent with the trend toward alternative dispute resolution, Article 9 now requires mediation as a condition precedent to arbitration. The dispute resolution mechanism is a simplified version of Paragraph 4.4 of the A201. As in the A201, an owner and contractor mutually waive consequential damages.
I wanted to provide you with another resource out there. There is a complete book that the AIA put together that goes over each section in detail if you are interested.
The American Institute of Architects Official Guide to the 2007 AIA Contract Documents
No other contracts are more widely used in the construction industry than the American Institute of Architects' standard forms. The American Institute of Architects Official Guide to the 2007 AIA Contract Documents offers unparalleled insight into the AIA's extensive portfolio of cont...
Shout out for this weeks show goes to
The AIA for putting together all of these resources. It is a wealth of knowledge and experience that helps all of our projects advance and stay on the right track.
So, just like I always do on each episode, I wanted to end with one final take away for you. Contracts are boring. They are, but they are necessary. With architecture, as with almost anything this day and age, there are a lot of moving parts. It is absolutely necessary that you have a document that clearly spells out everyones roles and sets the ground rules for how you will work through the project. I would believe that it would give an owner a great piece of mind to have all these contracts in place.
I wanted to end this episode with a quote from Sophie Kinsella:
“In the end, you have to choose whether or not to trust someone.”