If you’re a specialty contractor, you’re one of more than half a million businesses that perform specialized construction. But, your role in construction projects places you near the end of the money stream, and the contracts you sign determine how much of that money you end up with.
The American Institute of Architects (AIA) Contract Documents and ConsensusDOCS are the industry standard contracts in construction today. Here is the history, and why it’s important to know the difference.
ConsensusDOCS arrived in September 2007, following a concerted effort by many in the construction industry. The idea behind its creation was to create new model construction contract documents that would help reduce project costs, contract negotiation times, and disputes. AIA contract documents, on the other hand, have been around since the early 1900s. They were revised in 2007, and again in 2017.
A Brief History
There are various opinions about why ConsensusDOCS gained traction as an alternative to AIA standard contracts. Some believe it is because the AIA documents favor the design side. Others maintain they were left out of the AIA revision process in 2007. There are also claims that the AIA documents are fine for architects but not “friendly” to owners or contractors. Others grew tired of the disputes and costs of resolving them; they believe the disputes could be directly attributed to the wording in the AIA contract documents.
Notably, many subcontractor associations participated in bringing ConsensusDOCS into being because of long-held beliefs the AIA documents didn’t serve them well.
According to the National Subcontractors Association, there are 10 reasons subcontractors should choose ConsensusDOCS. They allocate risk fairly, allow subcontractors to see the owner’s ability to fund the project and increase the chances of getting paid shortly after the prime contractor receives payment.
Whether it’s an AIA contract or ConsensusDocs, you’d do well to pay close attention to the sections on dispute resolution when analyzing the proposed contract.
The AIA contract will use an Initial Decision Maker (IDM) for dispute resolution. By default, the IDM is the architect. Many contractors and other parties think the architect shouldn’t be responsible for handling the dispute process due to their close relationship with the owner. While you could band with other project participants and name an IDM from them, history says that doesn’t happen very often. Instead, you should opt for a neutral third party to take the role of IDM. They could be construction experts, arbitrators or others without a vested interest in the project.
In many ways, ConsensusDocs strives for cooperation and collaboration. The dispute resolution process begins by getting the parties together to hammer out a solution. If that doesn’t work, then project executives give it a try. The final step is mediation within a specified time if all other efforts come up empty. Of course, depending on your role in the dispute, a different contract is likely to deliver the best outcome for you. You should also keep in mind that there’s room for improvement in every contract so you can always amend the way disputes are handled instead of sticking with the default.
Early Retainage Release
Retainage is often a fiscal challenge for subcontractors who finish their portions of a project long before the project’s completion. The AIA contract documents require substantial completion of the project before retainage is released. Even when the owner has not complained about the quality of a subcontractor’s work, they can still hold it until the end.
ConsensusDocs allows retainage release once the owner accepts the work. Once the project is 50 percent completed, the owner can’t withhold more retainage. ConsensusDocs also prevents the owner from withholding subcontractor retainage in excess of what’s required of the prime contractor.
Even though subcontractors operate on the front lines of the project, it’s not unusual for them to be on the back lines of the distribution network. That leaves them working with outdated documents; if any mistakes stemming from not having access to the right documentation are made, subcontractors are held liable for them. ConsensusDocs relieves those risks.
While specialty contractors might sometimes not have much say over the contract type used, they do have a choice in the type of contracts they sign.
Risks of Indemnification
Regardless of what contract your next project uses, you should definitely review and consider the clauses about indemnification. Some contracts can leave you on the hook for things that are not under your control, and state laws vary widely on indemnification. Since there are many other differences between the AIA contracts and ConsensusDocs, always invest some time and money to have a construction contract reviewed by legal counsel before signing.
The construction contract is a delicate balancing act in serving multiple interests while achieving fairness. Add in the fact that construction projects are notoriously complicated and usually one-off efforts, and you have a big challenge.
While specialty contractors might sometimes not have much say over the contract type used, they do have a choice in the type of contracts they sign. Depending on their standing in the project, they might also have considerable leverage in influencing the contract and the contract provisions. Knowing the differences in contract types is key to making smarter project choices.