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AIA B101™ – 2017 Owner-Architect Agreement, What Has Changed Since 2007?

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By on Aug 1, 2017 in All Topics, Contracts, Newsletters |

© 2017, by J. Kent Holland

Introduction

The American Institute of Architects (AIA), on April 27, issued the 2017 update to the AIA B101™ “Standard Form of Agreement Between Owner and Architect.”  There are a number of tweaks, refinements, improvements – and even a few significant changes.  Eighteen months from the date AIA published the 2017 document, the license to use the current 2007 edition will terminate.  This is not a major revision.  But from a design professional’s point of view, there are a number of improvements that will make it worthwhile to begin using this new form sooner rather than later.

An easy way to quickly see the changes is to download from the AIA website the “2007/2017 Comparative,” which is a redline showing what has been added and what has been deleted. In this article, we highlight and explain some of the key changes, including:

Architect represents that it is either licensed in the jurisdiction where the project is located, or in the alternative, “shall cause its services to be performed by appropriately licensed design professionals.”   But see the discussion below as to whether an unlicensed firm can meet state licensing requirements by having licensed individuals perform the professional services (§2.1).

  • The insurance section of the agreement has been beefed up to include a more detailed description of insurance in the B101, and there is a new detailed insurance and bond exhibit that can be attached to the owner/contractor agreements such as A201 (Document A102 – 2017 Exhibit A). And insurance is required to be maintained by the Architect for a minimum of one year following Substantial Completion (§2.5);
  • New sustainable project exhibit (AIA E 204™-2017). Sustainable project services can be added as a Supplemental Service under Section 4.1. This exhibit eliminates the need to have a sustainable project version of each contract document. The requirement that the architect discuss with the owner the feasibility of incorporating environmentally responsible design approaches has been deleted basic Agreement from (§3.2.3), but a requirement that the architect consider sustainable design alternatives is added (§3.2.5.1);
  • Reviewing contractor requests for substitutions will be paid for as an additional service (§3.5.2.3 and 3.5.3.3);
  • Additional Services identified at the time of agreement now are called Supplemental Services in contrast to Additional Services that arise during project performance (§4.1.);
  • Changing previously prepared Instruments of Service due to official interpretations of codes that are contrary to the requirements existing will be paid for as additional service (§4.2.1);
  • Owner must include the architect in all communications with the contractor that relate to or affect the architect’s services or professional responsibilities, and must notify the architect of the substance of any communications with the contractor that “relate to the project” (§5.12);
  • Re-design with no compensation is no longer required if bids exceeded the budget due to changes in market conditions that could not have been reasonably anticipated (§6.7);
  • Owner’s license to use the Instruments of Service is no longer created upon execution of the agreement. The license will instead only be granted after the owner complies with all contract requirements, including payment of the architect’s fees (§7.3);
  • Termination expenses will no longer be paid as part of a termination for convenience, but there will instead be a termination fee that is established in advance as part of the agreement (§9.7);
  • Allowing the Owner to assign the agreement is made expressly conditional upon payment to the architect of all amounts due prior to the assignment (§10.3).
  • Progress payment provisions are clarified for situations when compensation is made on a percentage of completion basis (§11.6); and

These changes, as well as numerous others, are addressed in greater detail in the balance of this paper. To make it easier to follow the changes we quote the contract language, put a strike-out line through wording that has been deleted from the Agreement, and underline wording that has been added.  Following the quoted text, we provide comments on that provision.

 Article 1 – Initial Information for the Project

 This is almost entirely new. The section deletes the previous reference to an “optional Exhibit A, Initial Information,” and instead inserts all the relevant information directly into the agreement.

This includes:

  • Owner’s program for the project (§1.1.1);
  • Project’s physical characteristics (§1.1.2);
  • Owner’s budget (§1.1.3);
  • Anticipated design and construction milestone dates (§1.1.4);
  • Description of procurement and delivery method for the project (§1.1.5);
  • Sustainable Project objective, if any (§1.1.6);
  • Names of Owner representatives (§1.1.7);
  • Names of consultants and contractors retained by owner (§1.1.9)
  • Architect’s representatives (§1.1.10);
  • Subconsultants to be retained by Architect (§1.1.11);
  • Acknowledgment that budget will be adjusted to accommodate material changes in Initial Information (§1.2);
  • Protocols governing transmission and use of Instruments of Service — including the use of BIM (§1.3);
  • Disclaimer of liability when others rely on BIM without agreement to protocols (§1.3.1).

One reason given for including this information directly in the agreement, instead of what was previously an exhibit, is that it will be front and center and will result in more individuals actually reading the information and becoming knowledgeable about the content.   This serves the purpose of improving upon communication, which is certainly a vital element of good risk management and project management.

Article 2 – Architect’s Responsibilities

 2.1 – The architect shall provide the professional services as set forth in this Agreement. The Architect represents that it is properly licensed in the jurisdiction where the Project is located to provide the services required by this Agreement, or shall cause such services to be performed by appropriately licensed design professionals.

Comment:  The new sentence might cause some confusion. In order to provide architectural services in a given state, a firm must generally be licensed in that state.  An unlicensed firm cannot generally meet the state licensing requirements merely by having licensed individuals perform the services. This wording likely anticipates a situation where the architect is indeed licensed to perform architectural services, but is also subcontracting to various engineering firms to provide engineering services that the architect itself is not licensed to perform.  In that case, it makes sense to require each of the engineering subconsultants to be “appropriately licensed.”

2.5—The Architect shall maintain the following insurance for the duration until termination of this Agreement. If any of the requirements set forth below exceed are in addition to the types and limits the Architect normally maintains, the Owner shall reimburse pay the Architect for any additional cost: as set forth in Section 11.9.

Comment 1: The “termination” of the Agreement is defined as being one year from the date of Substantial Completion.  The term “duration” of the Agreement might have been a somewhat subjective period of time dependent upon, for example, all outstanding issues being resolved and final payment being made.  Substantial Completion, however, is a defined and objective point in time, and that in turn sets the end date for maintaining insurance.

Comment 2: At article 11.9, the Agreement sets out the specific additional coverages the Architect is required to obtain, and for which the “Owner shall reimburse the Architect.”  It is not clear why the word “reimburse” in §2.5 was changed to “pay” since the operative term in §11.9 is still “reimburse.”  Adding the word “pay” does not appear to be a substantive change or give the Architect any advantage.

Comment 3: Section 2.5 previously included this parenthetical: “(Identify types and limits of insurance coverage, and other insurance requirements applicable to the Agreement, if any.)”  That has been replaced with a more detailed description of the insurance that is required.  The section is sufficiently descriptive that once the blanks are filled in with the desired coverage amounts, it might be deemed adequate by some firms without further addition of an insurance attachment. However, the attachment will be useful for providing more detailed requirements specific to the project or contract.

Of particular note are the following new insurance subsections:

2.5.3 The Architect may achieve the required limits of coverage for Commercial General Liability and Automobile Liability through a combination of primary and excess or umbrella liability insurance, provided such primary and excess or umbrella insurance policies result in the same or greater coverage as the coverages required under Sections 2.5.1 and 2.5.2, and in no event shall any excess or umbrella liability insurance provide narrower coverage than the primary policy. The excess policy shall not require the exhaustion of the underlying limits only through the actual payment of the underling insurers.

 2.5.7 To the fullest extent permitted by law, the Architect shall cause the primary and excess or umbrella policies for Commercial Liability and Automobile Liability to include the Owner as an additional insured for claims caused in whole or in part by the Architect’s negligent acts or omissions. The additional insured coverage shall be primary and non-contributory to any of the Owner’s insurance policies and shall apply to both ongoing and completed operations.

Comment: Insurance professionals will note the significance of the provision permitting limits to be met by a combination of the primary and umbrella policies so long as the coverage of the umbrella is as broad as the primary policy   It is also noteworthy that the additional insured coverage is for claims caused in whole or in part of the Architect’s negligence and that it must include both ongoing and completed operations.  Not all additional insured endorsements that are readily available from carriers include completed operations.  This means the Architect and insurance broker will need to pay special attention to the language contained in their additional insured endorsements to determine that the requirements of the contract are being met.

Article 3 – Scope of Architect’s Basic Services

 3.1.2 The Architect shall coordinate its services with those services provided by the Owner and the Owner’s consultants. The Architect shall be entitled to rely on, and shall not be responsible for, the accuracy and, completeness, and timeliness of, services and information furnished by the Owner and the Owner’s consultants.  The Architect shall provide prompt written notice to the owner if the Architect becomes aware of any error, omission, or inconsistency in such services or information.”

Comment: The new wording may protect the Architect against a client arguing that the architect should not have relied on information provided by the Owner without first double checking it for accuracy.  It may also protect against an argument that the Architect should have otherwise determined that the necessary information was provided in a timely manner by the owner.  The new language also makes clear that the architect takes no responsibility for the completeness or accuracy of that information provided by the owner or others retained by the owner.

3.1.4 The Architect shall not be responsible for an Owner’s directive or substitution, or for the Owner’s acceptance of non-conforming Work, made or given without the Architect’s written approval.

Comment 1: Under the 2007 edition of the B101™, architects obtained protection against claims where the owner made directives or substitutions contrary to the recommendations of the architect or that were done without the architect’s approval.  With this new 2017 edition, this protection has been further expanded to include damages arising out of an owner’s acceptance of non-conforming construction work. If the Owner accepts non-conforming work without the architect’s written approval, the architect has no responsibility for problems resulting from that non-conforming work.

Comment 2: Only written acceptance is deemed adequate to constitute acceptance. Approval must be “written.”  This avoids owners arguing that they obtained consent of the architect in a manner that can’t be easily proved or disproved, such as verbally, a nod of the head, or subtle acquiescence of some kind.  It must be written or it doesn’t count as approval.

3.2.3 The Architect shall present its preliminary evaluation to the Owner and shall discuss with the Owner alternative approaches to design and construction of the Project, including the feasibility of incorporating environmentally responsible design approaches. The Architect shall reach an understanding with the Owner regarding the requirements of the Project.

Comment:  This removes the affirmative obligation the Architect had to raise and discuss environmentally responsible design approaches with the Owner.  But it appears to be more cosmetic than substantive in that §3.2.5.1 remains in the Agreement and it requires the Architect to consider “sustainable design alternatives” in lieu of what used to be the required “environmentally responsible design alternatives.” See the section below.

3.2.5.1 The Architect shall consider environmentally responsible sustainable design alternatives, such as material choices and building orientation, together with other considerations based on program and aesthetics, in developing a design that is consistent with the Owner’s program, schedule and budget for the Cost of the Work, The Owner may obtain other environmentally responsible more advanced sustainable design services as a Supplemental Service under Article Section 4.1.1.

Comment:  This change in terminology from “environmentally responsible” to “sustainable” creates a clearer and more objectively defined term.  “Sustainable” design is defined in the Sustainable Design Attachment (AIA Document E204™-2017) and listed as a Supplemental Service if it is to be included by the Architect.

3.3.2 The Architect shall update the estimate of the Cost of the Work prepared in accordance with Section 6.3.

Comment: The addition of the reference to section 6.3 here sets forth how the estimate is to be prepared. That section states if the Owner requires “a detailed estimate of the Cost of the Work,” the Architect will provide the estimate as a Supplemental Service in Section 4.1.1.  Note that this same requirement to update the estimate for the Cost of Work prepared in accordance with Section 6.3 is repeated at Section 3.4.4.

3.4.   Construction Phase Services

 3.4.1 The Construction Documents shall consist of Drawings and Specifications setting forth in detail the quality levels and performance criteria of materials and systems and other requirements for the construction of the Work.

Comment:  Architects might consider deleting the performance criteria wording that has been added as shown in the underlining.  Or perhaps add “if required” after the words “and performance criteria.”  The above sentence is the second sentence of a fairly long paragraph that is not quoted in its entirety.  What has been added to the sentence is that the Construction Documents are required to set forth “performance criteria.”   In view of the fact that many sets of plans and specifications set forth prescriptive design details instead of performance requirements, the Architect should consider whether it is appropriate under the circumstances of the Project to reference “performance criteria” in this paragraph. The Architect can  exercise its professional discretion to specify design or performance criteria as it deems most appropriate in its professional opinion regardless of whether this section of the contract specifically requires performance specifications.  Note that later in the contract there is another section that again makes reference to performance criteria.  Since that section already addresses the use of performance specifications, it does not seem necessary to include it here in section 3.4.1.

3.5 BIDDING OR NEGOTAITON PHASE SERVICES Procure Phase Services

3.5.2.2 The Architect shall assist the Owner in bidding the Project by:

.1 procuring facilitating the reproduction distribution of Bidding Documents for distribution to prospective bidders;

.2 distributing the Bidding Documents to prospective bidders, requesting their return upon completion of the bidding process, and maintaining a log of distribution and retrieval and of the amounts of deposits, if any, received from and returned to the prospective bidders;

Comment:  This change seems to recognize the electronic age we have entered into where Bidding Documents are no longer printed and distributed (at least not by the Architect), but are instead more commonly provided to potential bidders by the Owner through other means, such as electronically or via a website.  A similar change is made for negotiated procurement in section 3.5.3.2.1.

3.5.2.3 The If the Bidding Documents permit substitutions, upon the Owner’s written authorization, the Architect shall, as an Additional Service, consider requests for substitutions, if the Bidding Documents permit substitutions and shall and prepare and distribute addenda identifying approved substitutions to all prospective bidders.

Comment:  The substantive change here is that the Architect is to be paid as an “Additional Service” for considering requests for substitutions during the bidding phase.

3.5.3.2.3 The Architect shall assist the Owner in obtaining proposals by preparing responses to questions from prospective contractors and providing clarifications and interpretations of the Proposal Documents to the prospective contractors in the form of addenda;

Comment:  This is newly stated item of service that is expressly included within the Basic Services. But even before this addition, Architects were routinely providing this service anyway.  This appears to clarify that this service is expected and required, and that the Architect doesn’t get paid for this as an Additional Service.

3.6.2 Evaluations of the Work

3.6.2.1 The Architect shall visit the site …. and promptly report to the Owner (1) known deviations from the Contract Documents, (2) known deviations from the most recent construction schedule submitted by the Contractor, and (3) defects and deficiencies observed in the Work.

Comment:  The paragraph has been changed by adding the word “promptly,” and by adding the words “known deviations” a second time. The words, “known deviations” in the 2007 version of the B101 were grammatically applied to both the Contract Documents and the most recent construction schedule. In this author’s opinion, this belt-and-suspenders change was unnecessary.  In addition to making the paragraph clunky, this could draw more attention to the benefit that the Architect had already been receiving under the existing contract language.

3.6.4 Submittals

3.6.4.2 “… The Architect’s review shall not constitute approval of safety precautions or, unless otherwise specifically stated by the Architect, of any construction means, methods, techniques, sequences or procedures.”

Comment:  The deletion of the words “unless otherwise specifically stated by the Architect” clarifies that under no circumstances is the Architect taking on responsibility for the contractor’s means and methods.  No option is being provided whereby the Agreement can specify that the Architect will be responsible for the contractor’s means and methods.

3.6.4.3 If the Contract Documents specifically require the Contractor to provide professional design services or certifications by a design professional related to systems, materials, or equipment, the Architect shall specify the appropriate performance and design criteria that such services must satisfy. The Architect shall review and take appropriate action on Shop Drawings and other submittals related to the Work designated or certified by the Contractor’s design professional retained by, provided the Contractor that submittals bear such professional’s seal and signature when submitted to the Architect. The Architect’s review shall be for the limited purpose of checking for conformance with information given and the design concept expressed in the Contract Documents. The Architect shall be entitled to rely upon, and shall not be responsible for, the adequacy, and accuracy and completeness of the services, certifications, and approvals performed or provided by such design professionals.

Comment:  The sentence added to the end of this section clarifies the intent of this section, namely, that the Architect may rely on the certifications and approvals of the Contractor’s design professionals and is in no way itself responsible for the adequacy, accuracy and completeness of the same.  This was the same understanding under the 2007 edition of this section.  But to the extent there was any question about it, this new language should certainly prevent a court from imposing greater responsibility or liability on the Architect than intended by the Agreement.

3.6.6 Project Completion

3.6.6.1 The Architect shall:

.4 issue a final Certificate for Payment based upon a final inspection indicating that, to the best of the Architect’s knowledge, information, and belief, the Work complies with the requirements of the Contract Documents.

Comment:  This new language clarifies that there is no express or implied warranty by the Architect concerning compliance of the contractor’s work with the Contract Documents.  The words “best of the Architect’s knowledge, information, and belief” are often used as a concise way to hedge on what is being certified.  This avoids the potential for having someone argue that the certification is a warranty.  It is advisable that the Architect use this same type of language for other types of certifications as well.

Article 4 – Supplemental and Additional Services

4.1 Additional Supplemental Services

4.1.1 The services listed below are not included in Basic Services but may be required for the Project. The Architect shall provide the listed Additional Supplemental Services only if specifically designated in the table below as the Architect’s responsibility, and the Owner shall compensate the Architect as provided in Section 11.2. Unless otherwise specifically addressed in this Agreement, if neither the Owner nor the Architect is designated, the parties agree that the listed Supplemental Service is not being provided for the Project.

(Designate the Additional Architect’s Supplemental Services and the Owner’s Supplemental Services required for the Project by indicating whether the Architect or owner shall be responsible for providing the identified Supplemental Service. Insert a description of the Supplemental Services in Section 45.1.2 below or attach the description of services as an exhibit to this Agreement.)  

Comment:  Services that were deemed Additional Services in the 2007 edition are now broken into two distinct categories: Additional Services and Supplemental Services. The latter are not included in Basic Services, but the parties at time of contracting recognize that Supplemental Services will be required for the project.  Additional Services are those services that may be added later as the need arises.  This article 4.1.1 requires that the parties designate which Supplemental Services are to be provided by the Architect for additional compensation, and which are to be provided by the Owner.

Section 4.1.3 states that if the Owner identifies a Sustainable Objective in Article 1, then a Supplemental Service for sustainability will be assigned to the Architect, using AIA Document E204™ -2017, and the Architect will be compensated as provided in Section 11.2.

4.2 3 Architect’s Additional Services

Additional Services include:

4.3.2.1.2 Services necessitated by the Owner’s request for extensive environmentally responsible design alternatives, such as unique system design, in depth material research, energy modeling, or LEED certification enactment or revision of codes, laws, or regulations, including changing or editing previously prepared Instruments of Service;

4.2.1.3 Changing or editing previously prepared Instruments of Service necessitated by the enactment or revision of codes, laws or regulations or official interpretations of applicable codes, laws, or regulations that are either (a) contrary to specific interpretations by the applicable authorities having jurisdiction made prior to the issuance of the building permit, or (b) contrary to requirements of the Instruments of Service when those Instruments of Services were prepared in accordance with the applicable standard of care;

Comment:  Services necessitated by changes in code were previously addressed in section 4.2.1.3.  Those services now have been moved up to section 4.2.1.2 and an entirely new provision for Additional Services is added to 4.2.1.3 to account for services required because of code interpretations by applicable authorities having jurisdiction. An example: a Fire Marshal who interprets the fire code requirements in a manner contrary to the requirements generally understood to apply by a design professional when exercising the generally accepted standard of care. It is one thing to have to make changes because codes change after contract award.  It is quite another to have to make changes because a code official interprets the code differently than the reasonable interpretation of the design professional who exercised the appropriate standard of care.  This new provision addresses that problem.

Article 5 – Owner’s Responsibilities

5.10 12 Except as otherwise provided in this Agreement, or when direct communications have been specially authorized, the Owner shall endeavor to communicate The Owner shall include the Architect in all communications with the Contractor and that relate to or affect the Architect’s consultants through the architect about matters arising out of or relating to the Contract Documents services or professional responsibilities. The Owner shall promptly notify the Architect of the substance of any direct communications that may affect the Architect’s services. between the Owner and the Contractor otherwise relating to the Project. Communications by and with the Architect’s consultants shall be through the Architect.

Comment:  This greatly expands the Owner’s duty to include the Architect in communications with the contractor where the communication relates to or affects the architect’s services or responsibilities.  The “endeavor to communicate” wording has been replaced with an absolute requirement that the Owner include the Architect in all communications with the Contractor that relate to the Architect’s services or responsibilities.  In addition, a new requirement is added that the Owner must notify the Architect of the substance of its communications with the contractor in any manner “relating to the Project.”  This means that the Owner cannot have a substantive communication with the contractor concerning the project without advising the Architect.  The final sentence added to this paragraph requires that the Owner have no direct communications with subconsultants but instead always communicates through the Architect.

Article 6 – Cost of Work

6.1 …. The Cost of the Work also includes the reasonable value of labor, materials, and equipment, donated to or otherwise furnished by, the Owner. The Cost of the Work does not include the compensation of the Architect, Architect.

Comment:  These are new items that are added to the definition of Cost of the Work.

6.3 …. If the Owner requests detailed cost estimating services, the Architect shall provide such services as an Additional Service under Article 4. requires a detailed estimate of the cost of the Work, the Architect shall provide such an estimate, if identified as the Architect’s responsibility in Section 4.1.1., as a Supplemental Service.

 Comment:  This provision seems to create a more objectively determined duty to provide an estimate of the Cost of the Work rather than the more subjective “cost estimating services.”  And it becomes a “Supplemental Service” agreed upon at the time of the contract for which the Architect is to be separately compensated.

6.7 If the Owner chooses to proceed under Section 6.6.4, the Architect, without additional compensation, Architect shall modify the Construction Documents as necessary to comply with the Owner’s budget for the Cost of the Work at the conclusion of the Construction Documents Phase Services, or the budget as adjusted under Section 6.6.1. The If the Owner requires the Architect to modify the Construction Documents because the lowest bona fide bid or negotiated proposal exceeds the Owner’s budget for the Cost of the Work due to market conditions the Architect cannot reasonably anticipate, the Owner shall compensate the Architect for the modifications as an Additional Service pursuant to Section 11.3; otherwise the Architect’s services for modifying the Construction Documents shall be without additional compensation. In any event, the Architect’s modification of the Construction Documents shall be the limit of the Architect’s responsibility under this Article 6.

Comment:  The Architect is no longer required to redesign for free when the construction budget is exceeded due to unanticipated market conditions that cause the bids or proposals to be higher than reasonably expected.   The clause maintains the limitation on the Architect’s responsibility for redesign by stating, “In any event, the Architect’s modification of the Construction Documents shall be the limit of the Architect’s responsibility under this Article 6.”  The change is significant because, even though the 2007 edition clause established the redesign service as the limit on the Architect’s responsibilities, the cost incurred by the Architect in redesigning large, complex projects could be quite substantial.  The logical question always was: If the redesign was caused by market conditions beyond the Architect’s control, why should the Architect be responsible to provide redesign services without compensation.  This change cures that problem.

7.3 Upon execution of this Agreement, the The Architect grants to the Owner a nonexclusive license to use the Architect’s Instruments of Service solely and exclusively for purposes of constructing using, maintaining, altering and adding to the Project, provided that the Owner substantially performs its obligations, obligations under this Agreement, including prompt payment of all sums when due, under this Agreement. due pursuant to Article 9 and Article 11.

Comment:  This subtle change means that the license to the documents is no longer granted to the Owner immediately “upon execution of the agreement.”  It is granted only after the Owner has paid the Architect.  This change corrects a problem that arose in litigation where Owners that fired their architect and then gave the Instruments of Service to a follow-on architect were arguing that even if the original Architect had not been paid, the license to the Instruments of Service was already granted and could not be rescinded.  They were successfully arguing that the Architect could not sue for copyright infringement against either the Owner or new Architect.  This new language clarifies that the Owner gets no rights to the Instruments of Service until the Architect has been paid.  This is a powerful clause.

Article 9 – Termination or Suspension

 9.6 In the event of termination not the fault of the Architect, the Architect shall be compensated If the Owner terminates this Agreement for its convenience pursuant to Section 9.5, or the Architect terminates this Agreement pursuant to Section 9.3, the Owner shall compensate the Architect for services performed prior to termination, together with Reimbursable Expense then due and all Termination Expenses as defined in Section 9.7. Reimbursable Expenses incurred, and costs attributable to termination, including the costs attributable to the Architect’s termination of consultant agreements.

9.7 Termination Expenses are in addition to compensation for the Architect’s services and include expenses directly attributable to termination for which the Architect is not otherwise compensated plus an amount for the Architect’s anticipated profit on the value of the services not performed by the Architect. In addition to any amounts paid under Section 9.6, if the Owner terminates this Agreement for its convenience pursuant to Section 9.5, or the Architect terminate this Agreement pursuant to Section 9.4, the Owner shall pay to the Architect the following fees:

.1   Termination Fee:

.2 Licensing Fee if the Owner intends to continue using the Architect’s Instruments of Service:

Comment:  The defined term “Termination Expenses” has been eliminated.  This is significant because the term “Termination Expenses” included “anticipated profit on the value of the services not performed by the Architect.”  The requirement in the 2007 edition of B101 that the owner pay anticipated profit as part of a termination for convenience settlement was somewhat unique in the construction industry. Paying anticipated profits are rarely, if ever, included as part of termination for convenience settlements.  In fact, one vital purpose of a normal termination for convenience clause is to relieve the Owner of having to pay anticipated profits in the event that the project needs to be cancelled or the contract otherwise needs to be terminated. This change, therefore, brings the AIA B101™ more into line with other contract forms and the industry standard.

Note, however, that a new term, “Termination Fee,” has been added to the clause. The “Termination Fee”, if any, is to be established when the parties enter into the contract.  The parties are certainly free to include anticipated profit and anything else they agree to in that “Termination Fee.” So instead of doing a calculation of “Termination Expenses” after the contract has been terminated, the parties now will agree during contract negotiation to establish a “Termination Fee.”

It will be interesting to see whether project owners actually agree to set a “Termination Fee” and, if so, whether it will continue to include something for anticipated profit on services that are not performed by the Architect. The idea of a pre-established “Termination Fee” is a new concept that may be difficult for Owners to accept.

Note that payment of a “Licensing Fee” for use of the Instruments is added to the termination section of the Agreement. It has, therefore, been deleted where it used to appear at article 11.9 under Compensation.

9.8 Except as otherwise expressly provided herein, the Agreement shall terminate one year from the date of Substantial Completion.  

Comment:  This new provision creates an objectively determined date for termination of the Agreement – being one year after Substantial Completion.  This impacts the insurance requirements of the contract which state that the Architect must maintain insurance until termination of the Agreement, in contrast to the B101™ – 2007 edition that stated insurance had to be maintained throughout the “duration of the Agreement” – which could have been a more subjective determination, and may have been a shorter amount of time.

Article 10 – Miscellaneous Provisions

10.3 … Owner may assign this Agreement to a lender providing financing for the Project if the Lender agrees to assume the Owner’s rights and obligations under this Agreement, including any payments due to the Architect by the Owner prior to the assignment.

Comment:  This change clarifies that there can be no assignment to the Lender unless the Lender agrees to pay all outstanding amounts that were due before the default on the loan and assignment to the Lender. It is surprising how many lender consent forms don’t expressly require the Lender to pay amounts owed by the Owner before the assignment.  This new language resolves that issue.

10.8 If the Architect or Owner receives information specifically designated by the other party as “confidential” or “business proprietary,” the receiving party shall keep such information strictly confidential and shall not disclose it to any other person except (1) its employees, (2) those who need to known the content of such information in order to perform services or construction solely and exclusively for the Project, or (3) its consultants and contractors whose contracts include similar restrictions on the use of confidential information as set forth in Section 10.8.1. This Section 10.8 shall survive the termination of this Agreement.

10.8.1 The receiving party may disclose “confidential” or “business proprietary” information after 7 days’ notice to the other party, when required by law, arbitrator’s order, or court order, including a subpoena or other form of compulsory legal process issued by a court or governmental entity, or to the extent such information is reasonably necessary for the receiving party to defend itself in any dispute. The receiving party may also disclose such information to its employees, consultants, or contractors in order to perform services or work solely and exclusively for the Project, provided those employees, consultants and contractors are subject to the restrictions on the disclosure and use of such information as set forth in this section 10.8.

Comment:  The substantive and important change in this section is that new language in 10.8.1 expressly allows the Architect to disclose the confidential information when required to do so by law or if required in order for it to defend itself in any dispute.   There have been instances where project owners forbid the architect from disclosing confidential information (for example, the discovery of ongoing pollution) even where state law or regulations required the Architect to report it a regulatory agency.  This provision permits the Architect to report confidential information as legally required even if the Owner does not want it reported.  The seven-day advance notice requirement, however, is a reasonable compromise that will enable the client to consider what options it may have to legally object to the disclosure.  Or, if the disclosure is being done pursuant to response to a subpoena, the provision gives the Owner an opportunity to attempt to quash the subpoena

10.9 The invalidity of any provision of the Agreement shall not invalidate the Agreement or its remaining provisions. If it is determined that any provision of the Agreement violates any law, or is otherwise invalid or unenforceable, then that provision shall be revised to the extent necessary to make that provision legal and enforceable. In such case the Agreement shall be construed, to the fullest extent permitted by law, to give effect to the parties’ intentions and purposes in executing the Agreement.

Comment:  This is a classic “savings” clause. It means that if a court finds a provision of the Agreement to be void or unenforceable, the court is to nevertheless enforce the balance of the terms and conditions of the Agreement.  In addition, if a provision such as a limitation of liability clause that was added to the Agreement contains terms that violate a state statute, the court is to apply the clause to the maximum extent permitted by law instead of throwing out the entire clause – in other words, revise the clause to delete the offending term but then enforce the clause once that offending term is removed, so as to give effect to the parties’ intentions.

Article 11 – Compensation

11.6 When compensation identified in Section 11.1 is on a percentage basis, progress payments for each phase of Basic Services shall be calculated by multiplying the percentages identified in this Article by the Owner’s most recent budget for the Cost of the Work, Compensation paid in previous progress payments shall not be adjusted based on subsequent updates to the Owner’s budget for the Cost of the Work.

Comment:  This new compensation provision clarifies that, when overall compensation is on a percentage basis, progress payment calculations will be based on the current budget for the Cost of the Work.  Payments previously made are not to be subsequently adjusted based on changes to the Owner’s budget.

11.9 Architect’s Insurance. If the types and limits of coverage required in Section 2.5 are in addition to the types and limits the Architect normally maintains, the Owner shall pay the Architect for the additional costs incurred by the Architect for the additional coverages as set forth below:

(Insert the additional coverages the Architect is required to obtain in order to satisfy the requirements set forth in Section 2.5, and for which the Owner shall reimburse the Architect.)

Comment:  This revision makes it clear what exact insurance policies and limits are deemed to be “in addition to the types and limits” normally maintained, and it obligates the Owner to reimburse the Architect for its additional premium costs

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* J. Kent Holland is a construction lawyer with Construction Risk Counsel, PLLC, located in Virginia, representing design professionals, contractors and project owners. He is founder and president of ConstructionRisk, LLC, which provides consulting services to owners, design professionals, contractors and attorneys on construction projects; risk management advice concerning insurance coverage; and guidance to those procuring insurance. Mr. Holland publishes an online construction risk management library (ConstructionRisk.com) and a risk management/legal newsletter (ConstructionRisk Report). He is a frequent speaker for groups such as the American Bar Association and the International Risk Management Institute. He has also written several books, including two published with a/e ProNet: Risk Management for Design Professionals in a World of Change (2010) and Risk Management & Contract Guide for Design Professionals (2006).