Highlights to the 2017 Revisions to the AIA Standard Form Subcontract / AIA A401

Construction and Procurement Law News, Q4 2017

Firm Alert

Author(s)

As discussed in prior articles in this newsletter and on Bradley’s BuildSmart Blog, the American Association of Architects (AIA) recently revised many of their form agreements, including prime contract agreements, professional services agreements, and the subcontract agreement. This article highlights some of the substantive changes to the AIA A401 standard form of agreement between contractor and subcontractor (“AIA A401” or “Standard Form Subcontract”), between the 2007 and 2017 editions.

The Standard Form Subcontract adds a new section regarding professional services provided by the subcontractor. The new section makes clear that the subcontractor is not required to perform any work or activities that may be considered the practice of architecture or engineering unless specified by the subcontract documents and unless the subcontractor is licensed to provide such services. Where professional services, such as architecture or engineering, are required, the contractor must provide all performance or design criteria, and the subcontractor is entitled to “reply upon” such information or criteria provided by the contractor. The contractor, however, is entitled to “rely upon” all drawings, calculations, specifications, certifications, and other submittals prepared by the subcontractor.

The roles of the contractor and subcontractor representative on the project have been clarified and further defined. Significantly, such represent-atives have the authority to bind the contractor or subcontractor, as the case may be, with respect to all project matters requiring approval. Thus, contractors and subcontractors should choose their respective representatives wisely because they will be bound by their decisions.

If the subcontractor is entitled to terminate for default or non-payment or the subcontractor is terminated for the owner’s convenience, AIA A401 makes clear that the subcontractor may recover overhead and profit “on work not executed.” Contractors should pay careful attention to this clause and make sure they receive reciprocal damages from the owner, or modify this language to match their prime contract. Otherwise, there could be gaps in the damages recoverable for a termination, and the contractor could be left holding the bag.

The revised AIA A401 requires the contractor to “render decisions in a timely manner and in accordance with the Contractor’s construction schedule.” This is a noteworthy change because this new language implies that the subcontractor may have a basis for a change order or a claim if the contractor fails to timely notify the subcontractor about significant decisions affecting the project.

The contractor now must “promptly” notify the subcontractor of any fault or defect in the work or nonconformity with the subcontract documents. If the contractor fails to “promptly notify” the subcontractor of a fault, defect, or nonconformity, the subcontractor may have a basis for asserting a claim or change order.

Where the subcontract balance is insufficient to cover the contractor’s costs to remedy defects in the subcontractor’s work, the contractor now has the specific right to require the subcontractor to pay the additional costs incurred by the contractor to remedy the subcontractor’s work.

When the subcontractor submits shop drawings, project data, and other submittals, the subcontractor represents to the contractor that it has (i) reviewed and approved all such shop drawings, product data, and other submittals, (ii) verified field measurements and field construction criteria, and (iii) checked and coordinated the information contained within all shop drawings, product data, and other submittals. As a result of this new language, the subcontractor will be completely responsible or “own” any errors or inaccuracies in its submittals.

The subcontractor must either issue all material, equipment, or other special warranties in the name of the owner or such material, equipment, or warranties must be transferrable to the owner. This new provision is flow-down language as the contractor has a similar obligation to the owner under the AIA A201 prime contract.

To the extent of payment by contractor, the subcontractor is required to indemnify the contractor and owner from all loses or damages arising out of any lien and bond off any liens filed by the subcontractor or anyone for whom it is responsible. Contractors are required to provide this same protection to the owner under the AIA A201, and this is merely a flow-down of that requirement.

Like the AIA A201 and the other standard form documents, the AIA made several changes to the insurance section. For instance, the subcontractor must provide professional liability insurance coverage where it is required to provide professional services, and the additional insured coverage must be primary and non-contributory to the contractor’s insurance. The subcontractor is required to provide notice of cancellation or change in insurance coverage.

Other changes to the Standard Form Subcontract include the following:

  • The parties now have a menu of options for choosing the date of commencement of the subcontractor’s work and the substantial completion date;
  • The requirement that the subcontractor notify the contractor five days in advance before starting work, if there is not a notice to proceed or the contractor has not yet commenced visible work at the site, has been removed;
  • The calculation for making payments has been simplified;
  • The calculation for making the retainage payment has been expanded and allows for more in-depth retainage calculations;
  • The subcontractor is required to furnish a copy of any bonds for the project to anyone who requests and appears to be a potential beneficiary of such a bond;
  • A new notice section has been created that describes the methods to provide notice, including electronic notice, and submitting claims.

The list of revisions above does not include all of the revisions made by the AIA to the 2017 version of the Standard Form Subcontract. Instead, this article identifies some of the most significant changes. Before using the 2017 form, the user should carefully compare the 2017 revisions to the 2007 form. The AIA publishes a helpful comparison of the two documents on its website. If you have any other questions about the recent AIA revisions or drafting a contract for your particular project, please do not hesitate to contact your lawyer.