The American Institute of Architects has issued its regular 10-year update to its design-bid-build form construction contracts. As part of the marketing plan to sell the new documents, the AIA has announced that the revisions to the payment language in the contract simplified the agreement. A more careful review of the changes to the payment provisions, however, suggests that while the clause may be easier to read, the substance of the clause is largely unchanged.
Article 4 simply moves language around and labels subsections better. Section 4.2 on alternates, by way of example, is deleted and replaced under a separate heading labeled as alternates. Allowances, unit prices, and liquidated damages are also given separate subsections followed by simple fill-in-the-blank lists.
In Article 5, the section pertaining to the evaluation of the contractor’s application for payment to the schedule of values has gained some clarity. The 2007 version of this language had a tendency to cause confusion between the schedule and the schedule of values – which construction industry experts of all kinds know are different things.
Progress payments are to be made based on the contract sum allocable to completed work using the schedule of values as a way to allocate the costs of labor and materials incorporated into the project, suitably stored and approved materials on site, and construction change directives approved by the architect. This last part is interesting in two significant ways: (1) it gives the architect substantial power in the payment process and (2) it makes no mention of change orders (as opposed to change directives).
The next section allows for each progress payment to be reduced by the amounts previously paid by the owner, amounts previously withheld and/or not certified by the architect for improper or incomplete work which remains unaddressed, any amount that the contractor “does not intend to pay a subcontractor”, amounts relating to the cost to correct newly discovered defective work, and retainage. While most of this is not new conceptually, the ability to withhold a portion of the payment due to an “intention” not to pay a subcontractor allegedly formalizes protection for the owner from mechanic’s liens and bond claims. It seems likely that unintended consequences will result from this change though. The intent is a very difficult thing to assess, it injects a subjectivity into the analysis that will cause unneeded conflict, and it gives too much power to owners.
As it relates to retainage, the language has been simplified to call for a percentage that can be withheld in each application for payment. In a positive development, there are new sections which specifically provide for certain things to be excluded from the application of retainage and which can be used to set out milestones that would trigger reductions in retainage.
As it relates to final payment, the new base contract language provides that retainage can be billed for at Substantial Completion unless specific language is inserted to state otherwise. Moreover, if Final Completion is “materially delayed” through no fault of the contractor, the new language provides for additional payments. The remainder of the final payment language is largely unchanged.
While the AIA is not incorrect in stating that the changes to the payment clauses simplify the contract, some of the nuanced adjustments are both far from simple and have potentially large implications. Be aware of the changes to this section and carefully consider how these impact your risk exposures as it relates to payment on your next project before using this new form.
In the next installment, we will cover the changes to the insurance and indemnity clauses.
If you have any questions on this or other construction issues, please contact me at
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