Associated Owners and Developers Issue a New Standard Owner Agreement

The most commonly used building construction documents in the United States are the American Institute of Architect (“AIA”) documents.  These AIA contracts trace their roots back to 1888 when a group of AIA architects and a predecessor organization the Associated General Contractors of America (“AGC”) got together in New York and agreed upon a standard owner-contractor contract form.

The AIA documents in recent years have come under criticism from both owners and contractors. Owners criticize the documents because few owners are generally at the table when the AIA standard forms are updated between architects and contractors. Owners complain that the AIA documents protect the architect’s interest and place too much risk on the owner. Contractors urge that the AIA forms protect the architect and place too much risk on the contractors. In 2007, for the first time – although, the form has been updated every ten years for over one hundred years – the AGC refused to endorse the AIA documents and instead issued its own family of contract documents called the “ConsensusDocs.”

Now, an association of construction owner executives (representing DuPont Co., Inc., Intel, Home Depot, and other major corporations) has published a standard form of agreement for owners and general contractors that “remedies inequities in documents published by the American Institute of Architects.” The Associated Owners and Developers (“AOD”) document combines, in a single form, the same provisions covered by AIA’s standard form for contractors and owners and AIA’s standard form of general conditions.  Instead of having two documents (the contract and general conditions), the AOD has combined them into a single document.

One of the AOD’s document’s key provisions is the option to waive consequential damages, such as lost profits when the building is not ready in time. Under the AIA and AGC ConsensusDocs, consequential damages are mutually waived. Although this, on the surface, “seems fair,” AOD insists that in reality most of the damages and owner suits are consequential ones, such as loss of use, rental expenses and lost profits. With the mutual waiver, the owner loses significantly more than the contractor does.

Another AOD provision prevents architects who are terminated on a project from simply walking away with the plans. Under the AOD documents, the owner does not lose the right to use the plans if the architect is terminated for any reason, including the architect’s own default. The AOD document grants the owner a limited irrevocable license in the contract documents, but allows the architect to seek damages in the event that the owner breaches the licensing agreement and provides the architect lien rights to recoup losses.

Another key distinction between the AOD document and the AGC ConsensusDocs is that, under the ConsensusDocs, a contractor is compensated if a force majeure event occurs, such as adverse unusual weather (acts of God). The AOD document absolves the owner from any costs and only requires that the contractor be given more time for a force majeure event. Not unexpectedly, the AGC’s Senior Counsel and Associate Executive Director for Services, Mr. Mark McCallum, indicated that he found the AOD document to be “unbalanced” and stated that “wise contractors won’t get involved if they see this or will put in contingencies” for the risks shifted to the contractor in the AOD form. A lawyer for AOD quipped, “If AGC liked it, I would be worried.”

Reference: ENR Construction News.

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