The Q&A is part of the global guide to construction and projects. Areas covered include trends and significant deals, the main parties, procurement arrangements, transaction structures and corporate vehicles, financing projects, security and contractual protections required by funders, standard forms of contract, risk allocation, exclusion of liability, caps and force majeure. Also covered are material delays and variations, appointing and paying contractors, subcontractors, licences and consents, project insurance, labour laws, health and safety, environmental issues, corrupt business practices and bribery, bankruptcy and insolvency, public private partnerships (PPPs), dispute resolution, tax, the main construction organisations, and proposals for reform.Read More
After a decade, the AIA released new design and construction contract forms in April 2017. Some of the more notable changes to the AIA construction contract documents are summarized below.
Probably as a reflection of advancements in the use of technology in the design and construction industry, the construction forms now default to the E203-2013 Document titled Building Information Modeling and Digital Data Exhibit. The E203-2013, which is identified in the AIA construction agreement forms as a Contract Document, requires the parties to create a digital data protocol and, if building information modeling (“BIM”) is to be used, to create a BIM modeling protocol. The A-201 requires the parties to agree on the Protocols set forth in the E203-2013 for the use, transmission and exchange of digital data. The E203-2013 references two protocol forms, the G-201-2013 Project Digital Data Protocol Form and the G-202-2013 Project Building Information Modeling Protocol Form. Any reliance by the Owner or Contractor upon digital data or a building information model without the completion and incorporation of the E203-2013 is at the relying party’s sole risk.
Another new Exhibit, which may be referenced in the construction contract, is the E204 -2017, the Sustainable Projects Exhibit. This E-204 – 2017 sets forth the obligations and terms between the Owner, Architect, and Contractor for a project that seeks a sustainable objective or third-party certification of a sustainable objective or energy or environmental performance such as LEED®.
The A-201 now provides for direct communications between the Owner and the Contractor. While with the past forms all communications with the Contractor were supposed to go through the Architect, under the A201-2017, the Owner and Contractor can communicate directly, although the Architect is to be included in all communications that relate to or affect the Architect’s services or responsibilities.
The method of calculation for progress payments has been revised. For example, the calculation of progress payments on the AIA A-102 Cost Plus with a GMP contract now incorporates the allocation of contingencies under the GMP requiring any contingency for costs to be allocated in the schedule of values. The progress payment calculation under the AIA A-102 is as follows: the Contractor first provides evidence that the costs it has incurred exceed the progress payments previously received plus the current payroll minus the Contractor’s fee. Assuming the costs plus Contractor’s Fee exceed the progress payments and payroll, the actual amount approved is calculated as: a) the percentage of work completed under the GMP; b) with the addition of amounts from any equipment delivered and suitably stored at the site; plus c) the portion of Construction Change Directives that the Architect believes to be reasonably justified; and d) the Contractor’s Fee. The amount calculated is then reduced by: a) the previously paid amounts; b) any amounts for uncorrected defective work; c) any amounts that a Contractor does not intend to pay a subcontractor or supplier; and d) any amounts that the Architect is authorized to refuse to certify under the General Conditions.
The list of amounts that the Architect is authorized to refuse to certify under the General Conditions remains unchanged and includes: 1) defective work; 2) third-party claims; 3) failure to pay subcontractors or suppliers; 4) reasonable evidence that the contract cannot be completed for the unpaid contract balance; 5) damage to the Owner; 6) reasonable evidence that the Contractor will not finish on time and that the remaining unpaid balance is not sufficient to pay the actual and liquidated damages; and 7) evidence of repeated failure to carry out the Work in accordance with the Contract documents. Of course, the final listed item of reduction for progress payments in the A-102 is retainage.
A major change to the construction forms includes removal of a number of insurance provisions in the A-201 and the placement of most of the insurance requirements into a new A101 – 2017 Exhibit A Insurance and Bonds form. Exhibit A is incorporated into the A101-2017, A102-2017, and A103-2017 construction contract forms. The new insurance exhibit incorporates many of the insurance provisions previously included in the A201-2007, although the A101-2017 Exhibit A also has new insurance requirements including specifically identified additional ISO insurance forms.
The Insurance Exhibit A now specifically requires additional insurance endorsement ISO forms CG 20 10 07 04, CG 20 37 07 04, and with respect to the Architect CG 20 32 07 04. It should be noted, that unlike the previous CG 20 10 11 85 endorsement, which covered ongoing and completed operations in a single form “for liability arising out of ʻyour work’ for that insured by or for you,” the CG 20 10 07 04 form only covers liability “caused in whole or part by: 1. Your acts or omissions; or 2. The acts or omissions of those acting on your behalf in the performance of your ongoing operations for the additional insured(s). . ..” The CG 20 37 07 04 form only covers liability “caused in whole or part by “your work” . . . “performed for that additional insured and included in the products completed operations hazard.” Given the limitations stated in the specified forms as compared to forms such as the CG 20 10 11 85 form, or the more recent CG 20 10 10 01 and CG 20 37 10 01 forms, parties that are beginning to use the newly required forms for the first time should consult with their attorneys and brokers to determine whether they are in compliance with these new insurance requirements. The parties should also consult with their attorneys to determine whether under the laws applicable to the project, the required forms have minimized exposure to any potential uncovered indemnity claims and are not precluded by any statutory restrictions.
The Insurance Exhibit A requires the Owner to obtain the Builders Risk Insurance but allows the obligation to be shifted to the Contractor. The Insurance Exhibit A also provides for the parties to elect from a menu of coverages including, for example, pollution coverage, professional liability coverage, manned and unmanned aircraft coverage, and cyber security insurance.
The right to request financial information during the project has been supplemented to allow the Contractor to request financial information if the Owner fails to make payments, or if the Contractor identifies a reasonable concern regarding the Owners ability to make payment. The Owner can now also identify any such information provided as confidential and require the Contractor to maintain the confidentiality of the designated information.
Under the cost plus forms, the method in which subcontractors are selected has been changed. Rather than the Owner with the advice of the Contractor and Architect determining which subcontractors are selected after submitting bids, the Contractor now selects the subcontractors subject to the Owner’s right to object.
An additional obligation now placed upon the Contractor under the A-201 requires the Contractor to defend and indemnify the Owner from subcontractor and supplier lien claims as long as the Owner has fulfilled its payment obligations to the Contractor.
If the Contractor terminates the Contract for cause it is now entitled to reasonable overhead and profit on Work not executed. If the Owner terminates the Contract for convenience, the Contractor is now entitled to a termination fee to be set forth in the Agreement, rather than reasonable overhead and profit on Work not executed.
In conclusion, given the amount of time that has passed since 2007 when the former AIA construction forms were updated, the extent of revisions in 2017 cannot be described as sweeping changes from the prior versions. However, as noted in the summary above, there have been some significant modifications in the new forms that contractors and owners need to consider when negotiating projects in the future with the new 2017 AIA construction forms.
A recent decision by the New Jersey Supreme Court in Atalese v. U.S. Legal Servs. Grp., and subsequent opinions by New Jersey’s state and federal courts applying Atalese, strongly suggest that arbitration provisions contained in contracts relating to construction and engineering projects and services will not be enforceable under New Jersey law unless they contain clear and unambiguous language signaling that the parties are surrendering their rights to pursue their claims in court.
The Atalese Decision
In its September 2014 opinion in Atalese, the New Jersey Supreme Court reversed the rulings of the lower courts and held that an arbitration provision in a consumer contract was unenforceable because it “did not clearly and unambiguously signal to plaintiff that she was surrendering her right to pursue her statutory claims in court.” Atalese v. U.S. Legal Servs. Grp., L.P., 219 N.J. 430, 99 A.3d 306 (2014). A detailed discussion of the Supreme Court’s holding in Atalese can be found in our October 2014 Commercial Disputes Alert.
Recent Decisions Applying Atalese
In the months since Atalese, New Jersey’s state and federal courts have already cited the Supreme Court’s opinion on several occasions and, in doing so, have rejected arguments that Atalese is limited to consumer contracts and that it does not apply to contracts involving sophisticated business parties and/or parties that are represented by counsel in connection with execution of the contract. To the contrary, New Jersey’s Courts have expanded the Atalese requirement for arbitration provisions to apply to a broad variety of contracts types:
- Asset Purchase Agreements: In Rosenthal v. Rosenblatt, the Appellate Division of the New Jersey Superior Court applied Atalese to an arbitration provision contained in an asset purchase agreement for the sale of a dentistry practice. See A-3753-12T2, 2014 WL 5393243, at *4 (App. Div. Oct. 24, 2014). The court held that the arbitration provision was unenforceable because it did not contain “clear and unambiguous language that plaintiff is giving up his right to bring his claims in court or have a jury resolve the dispute,” as required by the Atalese decision, despite stating that all disputes between the parties “shall be exclusively resolved as provided herein through mediation and arbitration.” The court specifically stated that the Atalese requirement for arbitration applied even between parties engaged in sophisticated business transactions.
- Condominium Purchase Agreements: In Dispenziere v. Kushner Cos. (the first published opinion to apply Atalese), the Appellate Division held that an arbitration provision contained in purchase agreements between a condominium developer and condominium unit purchasers was not enforceable because, like the provision involved in Atalese, it was “devoid of any language that would inform unit buyers such as plaintiffs that they were waiving their right to seek relief in a court of law.” 438 N.J. Super. 11, 18 (App. Div. 2014). The Appellate Division expressly rejected the position that Atalese—which only involved causes of action pursuant to the New Jersey Consumer Fraud Act and the New Jersey Truth-in-Consumer Contract Warranty and Notice Act—is limited to claims for statutory violations and, instead, held that Atalese applies equally to common-law causes of action. The Appellate Division also rejected the argument that Atalese should not apply when the parties are represented by counsel in connection with the execution of the contract.
- Collective Bargaining Agreement: In the Appellate Division’s unpublished opinion in Kelly v. Beverage Works N.Y. Inc., the court applied Atalese to an employment discrimination case and held that an arbitration provision contained in a union employee’s collective bargain agreement (CBA) was unenforceable because the provision did not “put plaintiff on notice that he was waiving his right to try his claims in court.” L-1285-13, 2014 WL 6675261 (App. Div. Nov. 26, 2014). The Appellate Division specifically rejected the argument that Atalese applied only to “consumer service agreement[s],” explaining that it “discern[s] no reason to conclude that employees bound by a CBA should be charged with greater understanding of their rights than the average consumer.”
New Jersey’s federal courts have also applied Atalese on at least two occasions. In Guidotti v. Legal Helpers Debt Resolution, the District Court of New Jersey held that an arbitration provision contained in an agreement to provide debt-adjustment services was unenforceable because it failed to advise the plaintiff of the provision’s effect and significance, “namely, that it bars [plaintiff] from seeking court relief.” No. 11-1219, 2014 WL 6863183, *1 (D.N.J. Dec. 3, 2014). In Ricci v. Sears Hldg. Corp., the District Court cited Atalese and held that an arbitration provision in an employment agreement containing the following language was enforceable: “[This agreement to arbitrate] constitutes a waiver of [the employee’s] right to bring the current action in a court of law and, instead, requires arbitration of [the employee’s] claims.” No. 14-3136-RMB-JS, 2015 WL 333312, at *1, 5 (D.N.J. Jan. 23, 2015).
On January 21, 2015, the defendant in Atalese filed a Petition for Writ of Certiorari with the United States Supreme Court, arguing that the New Jersey Supreme Court’s decision contradicts the plain language of the Federal Arbitration Act and conflicts with the decisions of other federal and state courts. Whether the Court will grant the Petition in Atalese is questionable. The New Jersey Supreme Court framed the question in Atalese as one of purely New Jersey contract law, and the United States Supreme Court receives approximately 10,000 petitions for a writ of certiorari each year but grants only 75–80. For now, Atalese is binding precedent, and companies doing business in New Jersey should review their contracts to evaluate whether they comply with Atalese. Companies should be mindful that they may face uphill battles enforcing arbitration provisions that were routinely enforced prior to Atalese. Moreover, the opinions in Rosenthal, Dispenziere, Kelly, Guidotti, and Ricci demonstrate that courts will not limit Atalese to statutory claims, and may extend Atalese beyond consumer contracts. Companies should also be mindful that Atalese will apply in federal court when the contract is governed by New Jersey law.
By Ryan D. DeMotte, K&L Gates, Pittsburgh
Mother Nature can often be an unwelcome intruder on a construction project. Heavy rains, snow, ice, wind, extreme cold, extreme heat; there are any number of weather events that can delay a project. While parties to a construction contract cannot control the weather, they can and should anticipate the possibility of adverse weather and address it in their contracts. Prudent contract provisions addressing bad weather events can help owners and contractors minimize the disputes that can develop when rain, snow, ice, and other weather events delay the project.
A common approach is to give contractors additional time but not costs for weather delays. Many commonly-used contract forms provide for weather-based time extensions if the weather event was “abnormal, “unforeseeable,” or “not reasonably anticipated.” Thus, in order to evaluate a request for a time extension based on adverse weather, the parties must first establish the appropriate weather baseline against which to measure the weather event at issue. Was the rainfall unusually heavy during a particular month? Was the temperature colder than previous years? If the contract itself does not define the baseline weather measurement, this can often be a point of dispute between parties. Some parties may try to minimize these disputes by providing detailed provisions for baseline weather measurements in the contract in the form of 10-year averages or other objective measures. Whether or not these types of provisions are useful depends on the project and its sensitivity to weather variations.
The parties must also determine how the weather caused the delay. Did cold temperatures delay paving work? Did heavy winds or sandstorms prevent the delivery and installation of sensitive equipment? In trying to answer these types of questions, the parties may dispute whether the delays were the result of the abnormal weather or the result of other causes.
Finally, owners and contractors need to consider why certain work was being performed during the adverse weather. For example, if, through a contractor’s own early delays it is still working outdoors at a time when it initially planned to be completing the interior of a building, an owner may be able to argue that the contractor is not entitled to an extension for any weather-related delays to its outdoor work. Conversely, if a contractor’s work is delayed by the owner’s delays, it may have a strong argument for any delays it incurs as it tries to complete the work in less-than-optimal weather conditions. A contractor may also be able to claim costs if it is pushed by owner delays into bad weather.
Given the inherent uncertainty of the weather, some parties decide to build into the contract and project schedule a certain number of extra days to absorb any weather delays.
As the above issues demonstrate, owners and contractors should give careful thought to the various types of weather risks their project may face when negotiating a construction contract and creating the project schedule.