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Owners: Set the Foundation with a Better Design Agreement

Tim Gibbons

Posted: March 22, 2018 | Legal

Often the first contract in a construction project is the contract between the ultimate owner of the project and the lead design professional – the architect or engineer – which sets the foundation for the entire project. Architects and engineers often suggest their preferred contract be based on an industry standard contract that becomes a legally-binding plan. That might not be the best contract for an owner. Before signing a contract, consider carefully some fundamental questions.

Should an owner expect construction documents produced by the design professional to be sufficient to bid and build the work?

You might be surprised to discover that standard contracts produced by the association representing design professionals do not always include this requirement. ConsensusDocs standard contracts, which include the largest owner groups in the construction industry, explicitly require the “construction documents [to] completely describe all work necessary to bid and construct the project.” The ConsensusDocs long form (240) and short form (245) standard design professional agreements with the owner both contain such language.

The American Institute of Architect (AIA) forms don’t specifically require drawings and specifications to be fit for the purpose of building the project. AIA forms include a standard of care that the architect’s services are to be “consistent with the professional skill and care ordinarily provided by architects practicing in the same or similar locality under the same or similar circumstances.” But that standard would be required of professionals in any event. 

Should an owner expect explicit avoidance of conflicts of interest?

The ConsensusDocs 240 and 245 state directly that “conflicts of interest shall be avoided or disclosed promptly”, and further require the designer to warrant that it “has not and shall not pay nor receive any contingent fees or gratuities” that might result in preferential treatment. AIA forms are silent on this matter.

Should an owner expect regular field visits to be included as a basic service?

ConsensusDocs contracts take a practical approach to site visits: They provide blanks to quantify either a set number of visits or a frequency of visits, and require the designer to report “promptly” to the owner, in writing, after each visit. The current AIA forms have the same somewhat vague construction inspection requirements as earlier versions. The architect need only to visit the site at “intervals appropriate to the stage of construction,” to be only “generally familiar with the progress and quality” of the work, and “to determine, in general, if the Work ... when fully completed, will be in accordance with the Contract Documents.” 

Should an owner be able to use design documents on a project caught up in a dispute or for their later renovation projects?

Many owners prefer to own the intellectual property rights of design documents. For example, owners of projects incorporating proprietary equipment or spatial arrangements involving competitive advantages need to control the intellectual property rights in the design, and to allow use of the drawings and specifications for additions or modifications in the future.

ConsensusDocs provides a balanced approach for the owner to use design documents for its immediate project, and the opportunity to negotiate further rights for other projects, provided payment is made. The AIA continues to give the architect carte blanche ownership of all intellectual property in the “Instruments of Service” (Article 7 in the B101). Those protections may not serve the interests of owners.

Should an owner expect to use and transmit documents electronically?

The ConsensusDocs 200.2 Addendum and 301 contain detailed considerations for electronic transmission protocols, including precise descriptions of the types of hardware and software to be used. The 2017 AIA documents now require parties (in §1.3.1 of the B101) to use only AIA contract documents, specifically AIA E203 and AIA G202, in connection with transmission of digital information and BIM (Building Information Modeling). Otherwise, all sharing of electronic information is at the using party’s sole risk. Owners will need to eliminate this unfair risk-shifting provision if they elect to use other documents, such as ConsensusDocs, for electronic protocols.

Owners are too often confronted with disputes over construction. Rather than being potentially whipsawed in multiple disputes, owners need to be free to join all the necessary parties in a single matter, be it arbitration or litigation. ConsensusDocs provide for joinder of all parties necessary to resolve the dispute.

The AIA joinder provision continues to require the consent of some parties to be involved in arbitration. If a necessary party refuses to be involved in arbitration, owners are faced with the dilemma of having either multiple disputes or being forced to choose litigation as the only means to have all the parties in one forum.

The common denominator of failed construction projects is a lack of communication. Contracts should not just allow – but actually require – the parties to resolve disputes through positive and direct communication. ConsensusDocs adopts the current trend of requiring the parties to meet informally and attempt an amicable resolution prior to mediation or other final dispute resolution.

Instead of informal direct negotiations, AIA contract documents appoint an Initial Decision Maker (IDM), which is almost always an architect. This role has been criticized as putting architects in a difficult position, since they are employed and paid by the owner but must not show partiality in deciding claims. And a party’s failure to timely disagree with the architect’s decision may result in claims being waived. The new AIA contracts complicate the ability of a party to dispute an IDM’s decision.

In conclusion, owners should give more critical analysis in creating the contractual foundation with their design professional as the first contract on the project. ConsensusDocs provides project-centric standard design contracts; the AIA contract documents are perceived to favor design professionals’ interests. Some call them advocate’s documents instead of industry-wide standard documents. One observer has suggested that an architect proposing an AIA contract may compromise his objectivity, because it favors the architects’ interests over the owners.

About the author: Building on his first career as a licensed architect, Tim Gibbons has focused on construction law and related topics in his law practice. Currently a shareholder at Chambliss, Bahner & Stophel, P.C., Gibbons is a member of the firm’s Litigation and Business Sections, and is Chair of the Construction Group. He is also a fellow in the Construction Lawyers Society of America, as well as a member of the American Arbitration Association’s Construction Industry roster of neutrals.