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May
2006

AIA Form Agreements: Are They Fair to Owners?

Real Estate & Construction Advisor & Alert

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PUBLISHED ON: May 1, 2006

When a real property owner retains an architect or contractor to perform work related to its property, the owner is often presented with a “standard” form agreement drafted by the American Institute of Architects (AIA). This is usually accompanied by reassurances that the “independently drafted” agreement is well-known, widely used and addresses both parties’ interests fairly. Understandably, this sounds appealing to many owners looking to start their projects as soon as possible, and the agreement is eventually signed after a quick review, without revision. However, upon a closer look, owners will discover that they are at a distinct disadvantage under the standard agreement.

AIA form agreements are not as impartial and balanced as they may appear. First, the AIA is an organization that, according to its website, represents “the professional interests of America’s architects,” and the form agreements reflect such interests. In addition, AIA form agreements have been subject to numerous revisions since the first forms were introduced, and each revision has shifted the balance away from owners and towards architects and contractors. This continuing shift is partly due to the Association of General Contractors collaborating with the AIA in preparing several form agreements. As expected, this has resulted in form agreements that tend to favor the architect and contractor over the owner, as will be demonstrated by the two examples below.

Examples of Imbalance:

  1. AIA Document A107, the “Abbreviated Standard Form of Agreement Between Owner and Contractor for Construction Projects of a Limited Scope,” is the form agreement most frequently entered into by owners and contractors for smaller projects. A key clause in document A107 addresses progress payments made to the contractor during its performance of the work. The subject section is short and simple – contractor submits payment application, application is reviewed by architect, and contractor is paid (with interest on late payments, of course). But the process is not that simple, and so this section’s deficiencies arise not necessarily from what is included, but instead from what is missing. For example, the owner should also receive conditional releases from subcontractors with each application, so that the owner is protected against improper liens that may be filed against its property by unpaid or otherwise disgruntled subcontractors.

    Also conspicuously absent from this section is any mention of “retainage.” Retainage is an amount withheld from each payment to the contractor for the purpose of providing security for later costs chargeable to the contractor. Recovery of retainage is a very strong incentive for a contractor to perform the work properly, and is an essential tool to ensure that improper work is corrected and the project is finished. Retainage is an almost universally accepted industry norm, and its absence from document A107 speaks volumes concerning the interests being protected by the form agreement.
  2. AIA Document B141 is the “Standard Form of Agreement Between Owner and Architect.” It also requires substantial revision in order to protect the owner’s interests. One of the most important clauses in document B141 deals with “additional services” performed by the architect. When additional services are performed, the architect receives extra compensation in addition to the agreed-upon fixed fee. Accordingly, additional services should include only those unusual or unanticipated services that the architect may be required to perform over and above those “basic services” required for every project. While this is a straight-forward goal, document B141 has deviated from that goal. Several categories of architectural services that should be included in the architect’s base fee are instead listed as additional services, thus entitling the architect to extra compensation, and placing unanticipated strains on the owner’s budget.

One such service that document B141 improperly characterizes as an additional service is the architect’s analysis of the owner’s programming needs for the project. Such analysis is essential to make certain that the architect’s design conforms to the owner’s needs. Numerous other design responsibilities traditionally regarded as basic services have been recharacterized to the owner’s detriment. Each must be scrutinized by an owner to ensure that the owner’s expectations are reflected in the ultimate design of the project.

What to Do?

So what can an owner do to make sure that its interests are adequately protected? If an owner is presented with an AIA form and chooses to use it, such forms must be amended to level the playing field. A better solution, however, is for an owner to utilize its own manuscript agreement. Manuscript agreements allow owners to avoid uphill negotiations, and can be tailored to the owner’s particular needs and circumstances. Anderson Kill & Olick has attorneys with extensive experience in both AIA and manuscript construction agreements.