General Conditions Of The Contract For Construction From American Institute Of Architects

In this episode, construction attorney Greg Reaume tears down the AIA form 201, or the General Conditions of the Contract for Construction. The American Institute of Architects (AIA) form 201 governs countless large construction projects as lawyers often pay for the right to use their standard language. But as Greg points out, blindly incorporating the AIA’s language can cause you some real trouble, so let’s tear it down.

Questions in this Episode

1. What is the significance underlying AIA Form 201?
2. What’s the bias towards architects, and what should you keep in mind?
3. When dealing with a construction contract, what are the various relationships that occur?
4. How does a continuing work obligation affect the contractor, and what can be done?
5. How to negotiate a fair construction contract?

AIA Form 201 Used as a Template

The AIA Form 201 contains the general conditions for a number of the American Institute of Architects’ higher-level documents. These are commonly used in the private construction industry. They publish public foreign contracts that they have held for over a century. 

This collection of form documents was created by and for architects. Every ten years, they revise it. Over time, the revisions have become more and more owner- and architect-friendly. They used to be a collaborative effort in which they would bring together diverse industry organizations, gather comments, and then revise the contracts every ten years, but the pool of commentators has dwindled. 

This discussion leads us to consider how these revisions have increased the number of rights accessible to architects over time, as well as how this enhanced priority affects other contract parties.

Are Architects Being Given Too Much Priority?

To illustrate, the Concealed or Unknown Conditions clause talks about how certain changes within the project would require the approval of the architect. This is particularly highlighted in the middle of this clause.

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3.7.4

Concealed or Unknown Conditions

If the Contractor encounters conditions at the site that are (1) subsurface or otherwise concealed physical conditions that differ materially from those indicated in the Contract Documents or (2) unknown physical conditions of an unusual nature that differ materially from those ordinarily found to exist and generally recognized as inherent in construction activities of the character provided for in the Contract Documents, the Contractor shall promptly provide notice to the Owner and the Architect before conditions are disturbed and in no event later than 14 days after first observance of the conditions. The Architect will promptly investigate such conditions and, if the Architect determines that they differ materially and cause an increase or decrease in the Contractor’s cost of, or time required for, performance of any part of the Work, will recommend that an equitable adjustment be made in the Contract Sum or Contract Time, or both.

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The goal is simply to demonstrate that distinct conditions are being discussed. If a contractor bids on a project that is in a specific state, but when they arrive on-site, it is radically different from what they expected, they should be able to request a change order or make a contract modification. There is no way to adjust for the disparity. What this does is inserts the architect in the middle of everything and gives them too much priority. This is where the bias appears as the AIA is the one creating these documents. This causes the contractor to become worried about the entire project, which we’ll address next.

Contractor Being Punished: Whose Fault is it, Really?

Since the architect has been given many rights of approval, it becomes hard to understand and work with timelines. These contracts have very draconian measures for the contractor not finishing on time.

However, as you move through the process, you’ll realize that there is no consequence or incentive for the owner or architect to complete their deliverables on time. As a result, if the contractor does not complete this task within two days, he will be penalized. When you submit something to the architect, such as a submittal, how long does it take for the architect to complete it? We don’t really know. The timeline is a grey area.

The architect gets as much time as they want, and if that delays the project, the contractor gets punished for that, even though it was the architect who caused the delay. - Greg Reaume #ContractTeardown Click To Tweet

It’s also important to assess whether the owner has hired any other contractors and account for their impact on your work. There may be many people participating in the contract, as well as individuals who are not contracting parties. All of these people have the potential to influence the outcome of the entire construction project. Understanding the various individuals involved becomes useful.

How do Different Parties to Construction Contracts Crossover?

In these types of contracts, there is a contract family that has a bunch of different contract types. In 2017, there was one between the architect and the owner and another one between the contractor and the owner. And they’re supposed to interplay when you buy one. 

Now they have become more standalone documents, but typically the owner hires the contractor, and then separately the owner hires the architect. They each have their own respective contracts and scopes of work. 

A contractor usually gets to present documents to fund control. Architects usually work on the side with the owner. If that’s the case, you need to closely examine and eliminate most of the material where the architect is mentioned. Because the architect isn’t as important as the contract documents make it appear. 

Change Orders: Theory vs Reality

In theory, the way a change order affects construction work is that the architect wants to change something, talks to the owner, and a change order is then submitted in order to execute the change. For example, if the architect decides that gold leaf is required instead of ivory in a build, and the owner agrees, they can submit a change order to the contractor. However, in this example, it’s much more expensive to use gold leaf. With the change order submitted by the owner, it should change the contract’s overall price, as well as any time required to implement the change.

Time's been eaten up by the architect and owner arguing about changes, which ultimately go into the contractor’s schedule. Assign a time for how long it takes to get a change order done. -Greg Reaume #ContractTeardown Click To Tweet

In practice, what happens is the owner says they want gold leaf, and they want it now. The contractor is usually tempted to agree to make them happy. And if they ask about payment, the owner will oftentimes say “yes, of course. I’m definitely going to pay for that extra cost.” But if a change order is not submitted and appropriately applied, at the end of the project, the owner decides they don’t want to pay. “That much gold leaf looks great, but you’re going to have to sue me to get it. Here’s my suite of lawyers. Good luck.”

Delays and extensions of time is a very important clause because this is what gives the contractor the right to extend the project schedule. You should modify this clause to make any delay, an extension in time, either up to the contractor or mandatory. But make sure it’s something that takes it out of the hands of the architect and the owner.

Continuing Obligation to Work Even After Claims – What is Fair

Regardless of whether or not the claims are resolved, the contractor has a continued obligation to work on the project if there are issues. As a result, you may find yourself in a situation where you are owed money. Nobody can agree on what work has been done or how much should be paid.

As a result, the contractor may conclude they should cut their losses and leave. However, the contractor’s contract requires that they continue working. In that instance, the contractor must have the ability to terminate the contract. So you need to be careful how this clause interplays with the continuing performance clause.

The timing and notice provisions are something that you really need to take a look at in construction contracts. - Greg Reaume #ContractTeardown Click To Tweet

When there is a change directive, the contract needs to keep working. The only remedy is to file a claim knowing the uncertainty of it being resolved. If you do a strict interpretation, what’s supposed to happen is that the architect should resolve it. (Though the architect was probably part of the original problem in the first place and will likely side with the owner because they’re the initial decision-maker.)

First, be wary of who the neutral initial decision-maker is for the claims process. Second, you need to clarify during negotiation with the other attorney what actually happens if there’s a claim in the middle of the project.

Quick Tip for Negotiating Construction Contracts

When negotiating, the owner will usually have this contract first. They’ll redline it before sending it over. You can also find articles that explain how to make it even more owner-friendly. Try to avoid having to fight your way back to the base contract. It’s far better for you to align it first, send it over, and then return to neutral. 

Show Notes

THE CONTRACT: General Conditions of the Contract for Construction

THE GUEST: Greg Reaume is an attorney with Haight Brown & Bonesteel, a prominent Californian litigation firm that has been around since the 1930’s. His legal practice is focused primarily on complex construction and real estate litigation, business formation, and risk management. He also enjoys teaching and was most recently an adjunct professor for the Los Rios Community College district. You can find him on LinkedIn.

THE HOST: Mike Whelan is the author of Lawyer Forward: Finding Your Place in the Future of Law and host of the Lawyer Forward community. Learn more about his work for attorneys at www.lawyerforward.com.

If you are interested in being a guest on Contract Teardown, please email us at community@lawinsider.com.

Transcript

Greg Reaume [00:00:00] The contractor does need to have the right to terminate. 

Intro Voice [00:00:04] Welcome to the contract tear down show from The Insider, where legal experts tear down contracts from some of the most well-known companies and high profile executives around the world. 

Mike Whelan [00:00:17] In this episode, construction attorney Greg Reaume tears down the AIA form two oh one or the general conditions of the contract for construction. The American Institute of Architects, sworn to a one governances countless large construction projects as lawyers often pay for the right to use their standard language. But as Greg points out, blindly incorporating the AIA’s language can cause you some real trouble. So let’s tear it down.

Mike Whelan [00:00:44] Hey, everybody. Welcome back to the Contract Teardown show from Law Insider. I am Mike Whelen. The purpose of the show is to do what it sounds like. We take contracts, we beat them up. We’re mean mostly, but occasionally nice. I’m here with a smart friend, Greg Reaume. How are you today, Greg? 

Greg Reaume [00:01:02] I’m doing great. I’ve had my coffee and only coffee. 

Mike Whelan [00:01:06] I’ve had a little extra caffeine today. It is a Monday when we record, which is just I don’t know how Oprah does her show on Mondays. That’s what I’ve she’s just a super hero because of Mondays. Guys, today we are talking about a particular document. Let me share this with you real quick. This is the AIA document, a 201 twenty seventeen general conditions of the contract for construction. The AIA is the American Institute of Architects. This is a standard document. Tell me, Greg, why are we talking about this particular document? 

Greg Reaume [00:01:42] So we’re talking about the eight to one, because that’s the general conditions to a bunch of upper-level documents that the AIA has and the area is the American Institute of Architects. They publish foreign contracts they have for 100 years. They’re widely used in the private construction industry. And this is kind of the backbone document of that form, family call. 

Mike Whelan [00:02:04] And we’ll dig into that. But why you, Greg, why are we talking to you about this document? Tell me a bit about your background. 

Greg Reaume [00:02:12] So I’m a construction law attorney. I’ve done a lot of construction transaction work and a lot of construction litigation work. Right now I do primarily litigation. My family are all contractors. My brother builds hotels in L.A. My father did the same with residential stuff. My uncle does high end residential. I worked in a construction company for a while as general counsel, also as director of operations. Then I started my own firm doing construction transactions and construction litigation, joined a firm called MacInerney and Dillon, based out of the Bay Area of San Francisco in California. That’s all they’ve done for 70 years. And I’m actually transitioning now to a firm firm called Hape Brown Bonesteel. Same thing. It’s all going to be construction litigation. We’re doing stadiums and hotel projects and big office tower projects in San Francisco. So very familiar with these contracts. And I have a lot of strong opinions about them. So hopefully I don’t offend any of the viewers. 

Mike Whelan [00:03:16] So this is one of those things just isn’t a site where like the whole family, because they’re all in one business, they were like lawyers of the worst. I can’t stand lawyers, but now they’ve got a lawyer in the family and they just all call you all the time. Is that was that just me? 

Greg Reaume [00:03:30] So, no, no, everybody everybody calls me from my family. But my dad was it was a lawyer, too. And but I just hated law. So I went into went into construction. But yeah, I do get a lot of calls for usually not about construction. It’s I was 

Mike Whelan [00:03:45] yeah. I’d rather them call me for that than the family law stuff that is you guys are telling me way too much about your lives. OK, so we’re going to get into this document and we’re going to start with sort of a principle. We normally will end up coming back to a principle. But let’s start with a big principle. If you guys notice on this document, it says the word sample across it really big, which, you know, yes, there’s all kinds of copyright, trademark things on there. And, you know, Preston will get mad at me later for using this document. But if we go over here to to Law Insider, you’ll see essentially the exact same language. We have another document in this file document. It’s a ten Q filing with the SEC from a company called Nu Skin. And I mean copy paste, right. It is using the exact same language. So this document that is super protected is used all over the place. Talk to me about that a little bit, Greg, about the sort of standardization of this kind of document, the standard uses the reuses and how that, you know, maybe you could get somebody in trouble. 

Greg Reaume [00:04:48] Yeah, so these are copyright protected documents, it’s part of how the AIA makes money. Typically, you would download this from their software or pay 80 bucks, I think, for a single use. Or you can have like a year long subscription. They go to great pains to make it hard to cut and paste from any of these. That said, they are widely available on the Internet because they’re so they’re so widely used. So you can easily find copies and you can download them directly from their site. They have sample copies on their site. So there’s there’s absolutely no copyright infringement from using a sample. All of the construction form document families operates similarly. There’s about four big ones where you pay a fee and then you download their forms to fill them out. So in this case, it’s you know, we haven’t paid the fee. I probably have a thousand of these before in my life. I can bring it to my computer, but yeah, you can find them online as well. 

Mike Whelan [00:05:41] Yeah. And if it’s filed with the FCC, it’s not our fault. 

Mike Whelan [00:05:44] Hey, everybody, I’m Mike Whalen, I hope you’re enjoying this episode of the Contract Teardown Show real quick. I want to ask you to do me you really a quick favor. Look down below. You’ll see a discount code to join the Law Insider premium subscription. When you do that, you get access to more content like this. You’ll see webinars, daily tips on contract drafting, not to mention access to the world’s largest database of sample contracts and clauses. It will help you write better contracts faster if you want to do it. Right now, there’s a code below. So get there. Also, if you’re part of a larger team, if you’re in-house or in a law firm, just email us. We’re at sales@lawinsider.com. We’ll make sure you get a deal as well. Come join us in the community. The code is below. Let’s get back to the show. 

Mike Whelan [00:06:31] OK, so we’re going to go through this thing and we’re moving pretty quick because we’ve got a bunch of I mean, Greg really is just a complainer about the most esoteric things. This is the thing about being a lawyer. So we get really impassioned about things nobody else cares about. So we’re going to jump down to Article two about the owner down to two to evidence of the owner’s financial arrangements. What’s bugging you about this section two? 

Greg Reaume [00:06:54] Two, OK, so in general is in quick background. These this form document series is made by architects and for architects over. They revise it every ten years. So the last time they revised it was in twenty seventeen and before that in twenty seven. What you’ll notice over the years, the revisions get more and more owner friendly and architect friendly. They used to be a collaborative endeavor where they would get the various industry organizations together, get input and then revise the contracts every ten years that that pool of commentators has gotten smaller and smaller and smaller. And what you find in the more recent versions is that the contracts go to great pains to protect the owners, the billionaires who need lots of protection, and the architects who aren’t a party to the contract. So they are there. As you go through this, you’ll see the architects has no liability here. The architect has no liability there. And this guy is really getting out of a lot of stuff with the architects, not even the seiner. So getting the section to point to this is evidence of owners financial arrangements. My quick point on this is keep this in. You do need this in case you are not getting paid because you need to be able to see whether the owner has or decide whether or not you need to stop working. Had justification. 

Mike Whelan [00:08:10] You stop jump down to three seven permits, fees, notices and compliance with laws. In four, it talks about concealed or unknown conditions. Tell me what’s bugging you about this section. 

Greg Reaume [00:08:25] So this is just kind of another funny. I just want to illustrate. How about if you look at the middle of this paragraph, at least in the twenty seventeen version, it says right about the middle. It says that the architect determines that existing conditions differ materially and cause an increase or decrease in the contractors, contractors cost of work or the time required to do that. It will it will recommend that an equitable adjustment be made to the contracts or contract time. The point there is just to show that this is talking about different conditions. If a contractor bids a project that’s in a certain state and they get to the project and it’s completely different from what they did, they should have the right to issue a change order or make a difference in the contracts. No amount to get compensated for that difference. What this does and throughout is it inserts the architect in between that. So the contractor and says, hey, I have the right for a change. And then they say, well, maybe you do, maybe you don’t. But let’s let the architect decide. And it’s kind of like the architects not they’re not a party to the contract. Why are we suddenly throwing the architect? And you’ll see that throughout. I just thought that this is a good illustration of that. I want to cross that out. If you’re negotiating these contracts. 

Mike Whelan [00:09:35] Speaking of esoteric and nobody cares, I was going to make a reference to The Matrix and the architect concordant Lee. We’re going to move down to three, ten down in three, ten point two. We’re talking contractors, construction and submittal schedules point to what’s bugging you about this area promptly after being awarded the contract and thereafter is necessary to maintain occurrence of middle schedule, et cetera. What’s bugging you about this area? 

Greg Reaume [00:10:05] Another general point here, this contract talks about how the art you will submit in a construction project, you’re going to submit many things to the architect and the owner for approval. Now, these contracts have very draconian measures for the contractor not finishing on time. The schedule is very strict as liquidated damages. There’s all kinds of stuff like that. But what you’ll notice as you go through is there is no penalty or no incentive for the owner or the architect to turn around their deliverables on time. So the contractor doesn’t do this in two days penalty. If they if you submit something to the to the architect, like a submittal. How long does the architect have to finish that? Well, it’s a. Like a reasonable time, we don’t we don’t really know. The architect gets just as much time as they want, and if that delays the overall project schedule, who gets punished for that in here? It’s the contractor who gets punished for that, even though it was the architect who caused the delay. So if you’re drafting this, make sure that you tack on a defined number of days for the architect to complete their process. And if you don’t, it’s going to be open to a reasonable amount of time. And that could have very negative impacts on the contractors schedule down the line. 

Mike Whelan [00:11:14] Hmm, three 14 talks about cutting and patching. Three, 14, two. What about this one? 

Greg Reaume [00:11:22] And that’s just a quick one. All I would add to that is sometimes in these contracts, you get the owner having another separate contractor that they put in. If you get a separate contractor coming in there, make sure that you account for them impacting your work. As I always say, not a not a big point. 

Mike Whelan [00:11:41] Yeah. And I I want to pause and ask you a bit about the background on this document. I’m going down to four to where it talks about the architect and the administration of the contract. Step me back for just a second. And you mentioned this a couple of times. Tell me about the relationships of the parties to this contract. So you’ve got AIA, which is an architecture, an architect, friendly organization, obviously. And then the parties to the contract are the contractor and and who like you, it seems like you’ve underlined this idea that the architects not actually part of this a couple of times where this where this bias is sort of coming up and how it relates to to four point two. 

Greg Reaume [00:12:21] Yeah, so and so there is the contract family has a bunch of different contract types. They have one between the architect and the owner and another one between the contractor and the owner. And they’re supposed to interplay when you when you buy one. It used to be it’s a little bit better now in the 2017 version, if you buy a contract between the owner and the contractor. Used to be that that would reference the owner and architect contract so that you also have to buy that so that they were all interlocking. They’ve kind of separated them out more. So you can they are more standalone documents, but typically the contractor hired the owner, hires the contractor, and then separately the owner hires the architect. They each have their own respective contracts and scopes of work. And so there’s what you can see in here in the Section four. Is there still a lot of crossover? So there’s this whole section about the architect. What I would say about this Article four is just double check the reality of this with how your projects work. So if you read through this, what it has is everything goes to the architect, the architect, the architect gives in, OK, and then things move forward. And so that that’s not really how, at least in my experience, a lot of private construction projects work. Typically, it’s a lot more that the contractor submitting things to fund control or directly to the owner of the owners representatives and then the architects on the side. And if that’s how your construction project works, you should really look at this article for and just remove a lot of the stuff where the architect is inserted because the architect isn’t as relevant as it would appear by the according to the contract documents. 

Mike Whelan [00:14:02] So might be relevant in the bundle. But in this particular document, think of it separately. Am I getting that right? 

Greg Reaume [00:14:09] Exactly. That’s that’s exactly right. Yeah. 

Mike Whelan [00:14:12] OK, so jump it down to Article seven. This is always the issue is changes in the work. Talk to me about this section, how they’re dealing with change orders. Do you like the approach that they’re using for changes in the work? 

Greg Reaume [00:14:26] No. So you should definitely folks definitely be negotiating this hard. And I can tell you that typically. Let me give you a general overview. In theory, the way that changes work on a construction project is things are going along. A change needs to happen because the architects saw the project half completed, went to the owner and says, I don’t like that this is elephant ivory. We should really have gold leaf. And the owner says, oh, yes, that’s a much better idea. Let’s make this gold leaf. And then they go back to the contractor and the contractor says, well, I bid elephant ivory. It was five dollars a pound. Gold leaf is twenty dollars a pound. So I’m going to need a change order to do that. In theory, what should happen is the owner should say, OK, great, here’s a change order. I sign it, I gave it to you. That modifies the total price of the contract. Now it’s more and you have more time. Go ahead and do the work. In practice. What happens is the owner says, I want gold leaf, do it now. And the contractor says, OK, I’ll do it. I’m just trying to make you happy and get things done. Are you going to pay me and. Oh yeah, for sure. I’ve got millions of dollars. Definitely going to pay you. Turns out at the end of the project, uniformally the owner decides, you know, I just don’t want to pay. That much gold leaf, it looks great, but you’re going to have to sue me to get it. Here’s my suite of lawyers. Good luck. And so that so that first that first we are doing in the theoretical ways, is that the typical change order process? The second one is what’s called a change directive, construction construction change directive. So you kind of want to be very careful around the construction of construction change directive language that’s in this Section seven point three. Just make sure that when you go through it, us sign it, you can cross it all out great. But if not, make sure that us sign a schedule impact towards the turnaround time for that actually and the change order section. In other words, when this process happens, typically what what happens is that the contractor will submit an estimate, a change to the owner and the architect and say, OK, your change for gold leaf is going to cost you an extra ten thousand dollars. Do you approve that before I begin work? And the owner and the architect are supposed to review that and say, yes, well, the time to review that change never gets accounted for. So you might submit it to them. And then the owner says, oh, I didn’t realize it was going to be this much. Money starts arguing with the architect. Now, a month has has has gone by and the contractor has not been able to work on this project because the architect and the owner are still arguing about the change. Well, if you look in here, there’s no there’s no way to account for the time that’s been eaten up by that that’s going into the contractors schedule. So make sure that you assign a time for that type of negotiation at a time for how long it takes to get a changeover done. That’s one thing. Another thing that’s extremely important is all of these sections say if you begin work without the owner signing the change order, then you’re not going to get paid for it. So one might think that if the owner says, hey, I want to have gold leaf here, not an ivory tusk, go do it. And emails that write that the owner has made a contract to pay for that, not the case everywhere. And here they go in great pains to say if the owner doesn’t sign it, you’re not going to get paid. So in real life, on a construction project, what happens is the owner says, go do it, I’m going to pay you. Never signs anything. And then there’s a big fight at the end. So make sure that what I always try and do is I try and get out that signature requirement. I read like that and say if you issue a change order, you can send it over. But a written change order is all that we need, not a signed change or that’s a big difference. 

Mike Whelan [00:18:14] Yeah. How to say I work in casino related litigation without saying I work in casino related litigation. Change it from ivory to gold leaf jumping down to eight point three one. Speaking of changes, eight three deals with delays and extensions of time. What about eight three one is bugging you there. 

Greg Reaume [00:18:38] So this one, what what folks will notice here is that this is a very important clause because this is what gives the contractor the right to extend the project schedule critically important. If there’s liquidated damages, you’ll notice that the last sentence, it says the architect determines how much time the contractor needs to finish something. So the architect who doesn’t build anything, the contractor says, OK, we need to install this steel truss system that wasn’t accounted for in the plans. It’s a change. It’s going to take us an extra month. That’s what our steel subcontractor is saying. And then this clause throws it to the architect to decide, well, you know, I don’t think a month is really necessary. The owner says, we need a week. You’re going to get a week. Shouldn’t be like that. You should modify this clause to make any delay, an extension in time, either up to the contractor or mandatory. But but something that that takes it out of the hands of the architect and the owner. It’s a little bit more objective. 

Mike Whelan [00:19:42] We’ve just got a few more points to get through for you guys. We’re going to jump down to Article nine, talks about payments and completion. This is a pretty robust section, actually. Unlike others, we’re getting into multiple pages. What about this section is bugging you? 

Greg Reaume [00:19:59] It’s exactly that, getting into multiple pages. So what you might just just think about it like it’s Article nine here. God, this is like 

Mike Whelan [00:20:08] five pages, 

Greg Reaume [00:20:10] five pages, all about it. Payment. I mean, here’s payment like the work’s done. Payment money. Why would there be five pages? 

Mike Whelan [00:20:21] And you’re an optimistic lawyer. You’re pretty optimistic for an attorney, right? 

Greg Reaume [00:20:25] Right. I can assure you the contractor did not write five pages of things that need to happen before they get paid. Right. So this is five pages of why you won’t get paid if you’re a contractor, you shouldn’t get paid. So if you’re if you’re an attorney for the contractor, just take a good look at all of the reasons why the contractor shouldn’t get paid and get. Many of them, as you can, and just try and make it make it simple, you know, if you do the work on 

Mike Whelan [00:20:49] Section nine, pay me enough money, jump it down to Article 14. We are getting into the termination or suspension of the contract, I’m assuming, with these big projects. I mean, here’s a place where it should be five pages, right? Like it should be really hard to kill these deals. What do you like? And not like about 14. 

Greg Reaume [00:21:17] So this is you know, there’s not too much that’s bad about this, this comes from personal experience where I’ve had and I can’t remember where it is in here. I think it might be right below. But if there are problems on the on the project, there is a continuing obligation of the contractor to work on the project, regardless of whether or not those claims are resolved. So you might find yourself stuck in a situation where you haven’t been paid. Nobody agrees on what work’s been done or how much payment there should be. And so the contractor might be like, well, I need to just cut my losses here and leave. I’ve got other jobs lining up. But you’re stuck because the contract says you have to continue to work. So in that case, the contractor does need to have the right to terminate. And so you’ve got to you’ve got to be careful how this clause interplays with that continuing performance clause, which I’ll point out later, because I think it’s in Article 15 and you have to be careful about Article fourteen point four point three. That’s in the twenty seventeen version, because in a typical contract, typically in contract law, someone terminates without any reason. Then they owe the other party the profit they were going to make. And the reason for that, at least in my mind, is that it’s an opportunity cost. This person got into a deal thinking they were going to get a certain amount of profit, and in doing so, they let other deals on the table. Right. So if you kind of get the work out of them and then terminate their contract and try not to give them profit, they could have taken other jobs during that time. So the last article, their limits, what the contractor can recover if they are terminated for convenience to a set amount of things always put in, either just eliminate that and do it by the common law, which which gives you the right to profit or add profit back in or at a good fee in there. So just something to be aware of. 

Mike Whelan [00:23:06] Yeah. And wrapping up down in 15 gets into claims and disputes. I mean, you’ve got from what you mentioned, that you’ve got to keep going, getting all the way down to mediation and arbitration. A lot of ways that these decisions won’t be made and will take a long time. What about, what about 15 is bugging you? 

Greg Reaume [00:23:24] So this whole article just took a long look at this because it’s all about claims and disputes and nobody knows how these things work on the construction project site between the owner and the contractor and the architect. None of them read this. Right. So there’s an elaborate claims and disputes scheme set out here. Nobody ever pays attention to it. Basically, people to start suing each other. And but what’s critical is that is, so far as I can tell, because it doesn’t make a lot of sense. And I’ve actually brought this up on AIA forums, but have been able to get an answer from their attorneys. It seems to me that the model is let’s say there’s a claim. So like going back to that change or a thing that we talked about a while ago, you know, the owner says, I want gold leaf. And the contractor says, well, how much are we going to pay me in the end? Says, Either we’ll figure it out later or I’m going to pay you two dollars. The contractor says, well, that’s not fair. And the owner says, continuing performance, you better just get to work. Here’s a change directive. So the contractor has to work. Well, now, the remedy for the contractor and that situation is to submit a claim. So then that’s what this article is about to. The contractor submits a claim and it’s unclear as to when that claim gets resolved in these documents. If you if you do a strict interpretation, I guess what’s supposed to happen is right then the architect is supposed to pop up and say, I’m going to resolve this, even though the architect was probably part of the original problem anyways and is definitely going to side with the owner because they’re supposedly the initial decision maker. So you want to first be wary of who the neutral initial decision maker is for the claims process. Second, you want to clarify with the other attorney while you’re negotiating this, what actually happens if there’s a claim in the middle of the project? Because if you’ve got a 20 story high rise being constructed, you’re halfway through and there’s a big blowout about something like gold leaf and steel truss. You’re not going to be able to it’s not practical to stop the project team to go through this claims process that they outlined here and resolve that. And neither is it practical to have this claims process going along the side of the project while it’s being constructed and not impact the schedule or not take away from the contractor and the owners personnel to have a little court trial on the side. So it’s just as screwed up in my opinion system that they’ve got here. So just in general, take a look at it and make sure that it makes sense for the pragmatics of the situation. But in particular, take notice of a couple of things. Fifteen point one point three says notice of claims throughout this document and this gets worse if the owner negotiates the document first red lines and heads and sends it over to you to look at, there will be a myriad of ways for the contractor to lose the right to make a claim at all. So typically, you know, if in that situation with the gold leaf, what’ll happen is the owner will say, they get to work, the contractor does. Now, according to this section, if the contractor does not then make a claim within a certain amount of time for that, for the ability to make a claim really or for that money, then they’ve lost that right entirely at the end. And in order to make a claim the correct way not to do that, to make it in the right time frame, but they have to notify the owner in just the right way. So if you see on this fifteen point one point three notice of claims, this reference is another section, I believe, or actually that the definition doesn’t in the first part, fifteen point one point one reference is article one point, and this is quite different between twenty seven and twenty seventeen editions of How to Give Notice. So you have to give notice to be a certified mail for a claim. So it’s very important that you strike all of that and you say, look, I notice is given by email. That’s it. Like everybody knows what’s going on. The only reason that you would have these multiple steps in there is just to try and get the contractor to in the in the hustle and bustle of work and trying to get things done to lose the right to the claim. Right. So you don’t want to have a certified mail. You want to have by email something that’s practical and owners will fight that. And without reason, you know, I had a guy tell me, like, well, I just need to know if there’s a claim coming. And I’m like, yeah, well, they email you for that. Well, I need to know by paper. And I’m like, let’s 

Mike Whelan [00:27:48] where’s the green? How can I know reinsert the carrier pigeon clause to get it right. 

Greg Reaume [00:27:55] Exactly. Exactly. So it’s a mixture. And I would say the most important thing of that is that is that notice provision that the timing and notice provisions are something that you really need to take a look at. 

Mike Whelan [00:28:08] Yeah, yeah. And I you know, as we get as we wrap this up, I’m always thinking about general principles and how we can take this example and apply it to other situations. This is really reminding me of these sort of bundled documents that you see out in the world for realtors like how sales you see this in vehicle sales, like where one entity will create a bundle of documents and then everybody will be like, oh, you’ve already got forms. Let’s jump on that. But it seems like, man, you really got to revisit the priorities and interests of whoever created that thing. 

Greg Reaume [00:28:44] Totally. Absolutely. I mean, there’s a heavy hand in who created them. Biasing towards that group, I will say, is as a shameless plug, although it doesn’t benefit me personally. But in twenty seven, because for so many years, the AIA had been driving changes in favor of the owner and architect against the contractor, a bunch of industry industry groups broke off of that kind of collaborative contract creation group and formed their own group, and that’s called consensus docs. So consensus tends to be a much fairer allocation of risk between those parties. There’s not like the architect just randomly inserted in here and protected in all these ways. And it’s not unreasonable. The consensus stocks contracts are in no way unreasonable towards owners. They’re just a fair way of looking at things. So I would check those out. If folks are looking for something, but what you typically find is that owners will want to use these. They’ll push to push these folks. And one of the thing I’ll say about techniques for negotiating these things is that the owner will have this contract. They will redline it and then send it over. And you can find articles on the Internet that will say how to make this even more owner friendly. So you get these things that are you’re fighting uphill just to get it back to the base contract. So it’s much better for you to align it first, send it over and then you can kind of come back to neutral, 

Mike Whelan [00:30:13] getting back to something that was already probably unfavorable. Well, this is an interesting you know, it’s an interesting example of a broader principle about how these things are created and the fact that we all just sort of use them. Right. And we create this culture to the point that you’re seeing it on Law Insider like left. And we did a search for the language in this document. You could see it in all kinds of filings because people are just sort of copy paste in this language. So an interesting example, Greg, if people want to reach out to you to learn more about what you do to get your insights on construction litigation, what’s the best way for them to reach you? 

Greg Reaume [00:30:50] Good question. I would actually say my my phone is the best way. That’s and I’ll just throw my number out there. I don’t know how safe that is worldwide on the Internet. 

Mike Whelan [00:30:57] What could go wrong? Sure. 

Greg Reaume [00:31:00] I get spam calls. It doesn’t matter. It’s two one three nine two six one five one six. And I say that because I’m transitioning firms that don’t have my new email setup, but also I’m easy to find on LinkedIn is a common way to connect with me. I post construction law articles on there a lot, so it’s a good way to put it and maybe 

Mike Whelan [00:31:21] we’ll share the LinkedIn link online and not the phone number, though, if you guys need any kind of loans, if you’ve got one of those raising money for medical procedures or, you know, Greg’s phone number, Venmo. And for those of you watching, we appreciate you hanging out for the contract tear down show. If you want to be a guest on the contract tear show. Email us at community@lawinsider.com. And if you go to Lawnsider.com/resources, you’ll see the documents will create a robust resource and tip sheet for this conversation. Greg, we appreciate you. Have a nice day and we’ll see you guys next time. 

Greg Reaume [00:31:59] Great. Thank you.