Changes to Contractor/Subcontractor Agreement Can Have Profound Effect on Roofers

Whether they like them or not, most subcontractors and contractors have used American Institute of Architects (AIA) standard form contract documents at some point in their careers. Several options exist for those wanting to utilize standard form documents, like ConsensusDocs, Design-Build Institute of America, and the Engineers Joint Contract Documents Committee forms. However, the AIA, being founded in 1857 and having published standard form construction contracts for more than 100 years, is the most established of these organizations, and its form contracts are still the most prevalent and most commonly used forms for commercial construction projects in the United States.

The AIA updates its forms every 10 years and completed its most recent revision in late April 2017. The updates included revisions to several forms in its A-Series (Owner/Contractor Agreements), including its widely used General Conditions (AIA Form A201) and its standard Contractor/Subcontractor Agreement, AIA A401. While these are only a few of the AIA’s updates, these changes may be particularly pertinent to subcontractors and those working in the roofing construction industry. Some highlights of the 2017 updates to A401 follow here.

Designated Representatives and Notices

Both the Contractor and Subcontractor are now required to designate (in the space provided in Section 14.2) an individual who will serve as each party’s “representative” for the project. This requirement is set forth in Section 3 for the Contractor and Section 4 for the Subcontractor. Parties are permitted to change their designated representative only if they provide 10 days’ notice. This is significant for both parties because the updated form requires that notices — for example, notices of a party’s potential claim arising from the subcontract — must be made in writing and are valid only if served upon the designated representative. The new form allows notices to be made via e-email or other electronic means only if an electronic method is set forth in Section 14.4.3. Parties should remember not only to designate a point person who is prepared to serve as a project representative and an email address for notices, but they should also ensure that the other party has done the same. Failure to do so could result in notices not being made by the proper means and to the proper individual — which in turn could result in parties waiving potential claims.

New Contractor Responsibilities — With Limitations

Although it has long been a standard practice (both on AIA projects and elsewhere) for the Contractor to include the prime contract as an exhibit to the subcontract, the updated form takes this a step further and requires the prime contract to be attached to the subcontract as “Exhibit A.” If Subcontractors hold Contractors to this requirement, Subcontractors will be able to review all of the contract documents with greater ease before signing.

Furthermore, Section 3 requires Contractors to “render decisions in a timely manner and in accordance with the Contractor’s construction schedule” and to “promptly notify the Subcontractor of any fault or defect in the Work under this Subcontract or nonconformity with the Subcontract documents.” However, in Sections 3.4.4 and 3.4.5, the phrase “written notice” has been changed simply to “notice” with respect to the Contractor’s requirement to notify the Subcontractor of defective work as a prerequisite of finding the Subcontractor to be in default. Section 14 still clearly states that all “notices” must be made in writing to the designated representative. This change could result in debate over what Contractors must do in order to notify Subcontractors of defective work before they avail themselves of remedies for breach, such as withholding subcontract payments.

Contractors also now have additional duties to provide Subcontractors information they may need in order to preserve their lien rights. Section 3.3.6 previously required Contractors to provide Subcontractors “a correct statement of the record legal title to the property … and the Owner’s interest therein.” The revised A401 now requires the Contractor to request this information from the Owner if the Contractor does not have it and give the Subcontractor the information upon receipt; a corresponding section in AIA A201 requires the Owner to provide it to the Contractor.

New Subcontractor Duties and Concerns

The above requirement to submit lien information is perhaps balanced by revised Section 11.1.10, which provides Contractors additional rights to indemnification from certain lien claims. “If Contractor has paid Subcontractor in accordance with the Agreement, Subcontractor must defend and indemnify the Contractor and Owner from liens and claims from lower tier subcontractors and suppliers, including being required to bond off liens,” the new form states.

Another noteworthy change concerns alternates — alternatives to a base bid that provide for a change in the level of quality, or scope of the work specified in the base bid. Alternates provide the owner with the option to modify the project by accepting or rejecting the alternate. The newly revised A401 contains a new section, 10.2.2, which allows the parties to list alternates that the Contractor can accept after execution of the agreement. Subcontractors should consider carefully whether it is wise to include alternates under this section.

Payment and Retainage

Finally, subcontractors and contractors alike should familiarize themselves with the newly revised Section 11, which concerns progress payments. Sections 11.1.7.1 and 11.1.7.2 break down the calculation of progress payments into separate subsections for additions, deletions, and retainage. This includes additions for construction change directives and deletions to allow for defective work remaining uncorrected (assuming that Contractor has duly notified the Subcontractor of the issue). Other portions of A401 allow for additions and deletions in these scenarios, but they are often conditioned on the owner’s approval and other factors. It remains to be seen whether this section could change normal progress billing procedures.

Section 11.7.2 opens the door to retainage options other than the typical arrangement (where the Contractor simply withholds the amount the Owner is withholding). Newly added subsections allow the parties to designate items that are not subject to retainage, as well as set forth an arrangement for reduced or limited retainage. This new section (11.1.8.2) could be a helpful avenue for early finishing trades to propose release of retainage upon 50 percent completion of the project as opposed to substantial completion — or even a way for parties to negotiate the retainage percentage down.

The above are just a few highlights of changes to AIA Form A401. For additional information or questions, visit www.aiacontracts.org or email Caroline Trautman at ctrautman@andersonandjones.com.

 

This article is not intended to give, and should not be relied upon for, legal advice. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.

About Caroline Trautman

Caroline Trautman is an attorney with Anderson Jones PLLC, Raleigh, N.C. She assists clients with construction litigation, contractual drafting and disputes, collections, lien and bond claims, licensing issues and other matters affecting businesses.

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