This is the second in a series of three articles about the 1996 Edition of the AIA’s Design/Build Standard Forms of Agreement. The first article contains an overview and discusses the Owner-Design/Builder Agreement, AIA Document A191. This second article discusses the Design/Builder-Architect Agreement, AIA Document B901. The third article discusses the Design/Builder-Contractor Agreement, AIA Document A491.
This article is an abridged version of Federal Publications’ May 1997 Construction Briefings entitled “A User’s Guide to the 1996 AIA Design/Build Standard Forms of Agreement” copyright 1997 by Federal Publications, Incorporated, written by Messrs. Donohue and Scott. A complementary copy of this Construction Briefing may be obtained by contacting our Firm. Subscriptions to Construction Briefings are available from Federal Publications, Incorporated, 1120 20th Street, NW, Washington, D.C. 20036, telephone (800) 922-4330, and on the Internet from Federal Publications’ Website at http://www.fedpub.com.
B901 - Standard Form of Agreement between Design/Builder and Architect
Unless the Design/Builder is a licensed Architect, the Design/Builder must delegate the design work to an Architect. AIA Document B901, Standard Form of Agreement between Design/Builder and Architect, 1996 Edition, is a form by which the Design/Builder may subcontract with an Architect for design of the Project. The role of such an Architect is the most significant area of difference between Design/Build contracting and traditional contracting.
In this agreement, the Design/Builder delegates to the Architect the responsibility for design that the Design/Builder has undertaken in the agreement between the Owner and Design/Builder. The Design/Builder-Architect Agreement contains very similar provisions to the Design/Builder-Owner Agreement. It contains two agreements: a Part 1 Agreement for preparation of a preliminary design, budget and schedule, and a Part 2 Agreement for preparation of final design documents and construction documents, and also optional, more extensive, site representation during construction.
The Design/Builder has undertaken responsibility to the Owner for the Project design and construction in the Owner-Design/Builder Agreement, and is the only party with a contractual relationship with the Owner. The Design/Builder replaces the Owner as the Architect’s client. Thus, the Design/Builder has obligations to the Architect, and the Architect’s obligations are to the Design/Builder.
Part 1 Agreement - Preliminary Design, Budget and Schedule
• Architect’s Duties
The Part 1 Agreement says that the Architect’s services are performed in the interest of the Design/Builder. See ¶ 1.1.1, “Basic Services.” The Design/Builder’s work product under its Part 1 Agreement with the Owner is a Proposal for the design and construction of the Project. The Architect’s work product under the Part 1 Agreement with the Design/Builder is the design portion of that Proposal.
The Architect reviews the Owner’s program with the Design/Builder, provides a preliminary evaluation, and discusses alternate approaches with the Design/Builder and Contractor (if any). See ¶¶ 1.1.2, 1.1.3 and 1.1.4. One major benefit of Design/Build contracting is this team approach that includes the designer and builder at each stage of project planning.
The Architect produces in the Part 1 Agreement a set of Concept Design Documents illustrating the Project components, and upon the Design/Builder’s approval, prepares Preliminary Design Documents. See ¶¶ 1.1.5 and 1.1.6. The Architect is not required to do anything, which, in the Architect’s opinion, would violate any applicable law. See Part 1 Agreement, ¶ 1.1.7; Part 2 Agreement, ¶ 1.1.5. Optional Additional Services that may be ordered include revisions inconsistent with the Design/Builder’s prior approvals or subsequent revisions of applicable codes and regulations. See Part 1 Agreement, ¶ 1.2.2; Part 2 Agreement ¶ 1.3.3.
• Design Liability Insurance
The Design/Builder is responsible to the Owner for the design even when the Architect creates the design. The Design/Builder should consider adding a requirement that the Architect obtain liability insurance that covers the Design/Builder for its vicarious liability to the Owner for the Architect’s negligence. The Design/Builder is contractually responsible to the Owner for the design, and could possibly be liable to others for injuries caused by defective design. When an Architect as a subcontractor creates the design, only the Architect can obtain liability insurance to cover the design.
The Architect’s existing policy may provide coverage for the Architect, but the policy may not cover the Design/Builder for its vicarious liability for the Architect’s design. To cover the Design/Builder, the Architect may have to purchase a “project specific” policy with a provision extending coverage to the Design/Builder. The cost of such a project specific policy could be significant in relation to the Architect’s total fee. Thus, the parties should address this insurance issue before they sign their contracts.
• Design/Builder’s Duties
The Design/Builder is the Architect’s client and thus has the same responsibilities that the Owner normally has to the Architect. The Part 1 Agreement thus gives the Design/Builder the same responsibilities to the Architect as the Owner has to the Design/Builder in Part 1 of the Owner-Design/Builder Agreement. Article 2, “Design/Builder” similar to A191, Owner-Design/Builder Agreement, Part 1, Article 2, “Owner.” The Design/Builder is basically responsible for providing all the information, decisions and approvals necessary for the Architect’s work. The Design/Builder must provide information concerning the Owner’s program and requirements, site surveys and subsurface information if required, and full disclosure of prior tests, surveys and environmental studies. See ¶¶ 2.2 through 2.5 and 2.8. The Part 1 Agreement also says that the Architect has no responsibility for the work of the Design/Builder’s engineering or other consultants, and that the Design/Builder shall indemnify the Architect for claims arising from the work of the Design/Builder’s other consultants. See ¶ 2.10.
The time and schedule for the Project are set by the Owner, and are reflected in the Owner-Design/Builder Agreement. That overall schedule for the Project dictates the time for the Architect’s performance, and it should be reflected in Paragraph 10.1 of the Part 1 Agreement. Within that time, Article 4 provides that “the Architect’s services shall be performed as is consistent with professional skill and care and orderly progress of the Project.” See ¶ 4.1. It also says that the Architect shall submit a schedule for approval by the Design/Builder. Article 4 provides that the Architect shall not exceed that time limit “except for reasonable cause.” See ¶ 4.1. You should consider adding definite schedule milestones and definite criteria for allowing the Architect additional time.
• Payments to the Architect
The amount of the Architect’s compensation is stated in Articles 5 and 9 of the Part 1 Agreement. They provide for an initial payment, subsequent monthly Progress Payments, payments for Additional Services and Reimbursable Expenses, and for interest on late payments. See ¶¶ 5.1 through 5.4; 9.1.1 through 9.1.3; 9.2 through 9.5. It is interesting that there is no due-date for payment to the Architect, in contrast to the 10-day period for payments to the Design/Builder and 20 day period for payments to the Contractor. See B901, Owner-Design/Builder Agreement, Part 1, ¶ 5.1.2 (Owner pays Design/Builder within 10 days of Application for Payment); A491, Design/Builder-Contractor Agreement, Part 1, ¶ 5.3 (Design/Builder pays Contractor within 20 days of Application for Payment). The Architect, therefore, should see to it that a due-date is specified in Article 9 or elsewhere.
According to Article 5, usual Reimbursable Expenses include project related travel expenses, reproduction, artwork and models. However, a very large and important Reimbursable Expense is the cost of any additional professional liability insurance coverage or limits over that normally maintained by the Architect, professional liability insurance or coverage for the Design/Builder’s vicarious liability to the Owner for the design of the Architect. See ¶ 5.4.6. Such coverage can be a very significant expense in relation to the Architect’s fee. Thus, the parties should address the cost and availability to the necessary insurance coverage and decide how it shall be paid for.
Part 2 Agreement - Final Design and Construction Services
The Part 2 Agreement covers the final design and construction phase of the Project, as does the Part 2 Agreement in the Owner-Design/Builder Contract. The Architect’s Basic Services in the Part 2 Agreement are divided into Design Services and Services for Administration of the Construction Contract. See ¶¶ 1.1 and 1.2.
• Architect’s Basic Services-Design
The Architect’s design services in the Part 2 Agreement are to take the Preliminary Design Documents in the Design/Builder’s Proposal as approved by the Owner, and to prepare a final design, specifications and drawings, and construction documents to be used for construction of the Project. See ¶ 1.1, “Basic Services - Design,” ¶¶ 1.1.1. and 1.1.2. This corresponds with the Design/Builder’s obligations in the Part 2 Agreement of the Owner-Design/Builder Agreement to prepare final design and construction documents.
• Architect’s Basic Services-Construction
With respect to construction of the Project, the Part 2 Agreement says that the Architect will provide Contract Administration Services as set forth in AIA Document A201, “General Conditions of the Contract,” unless otherwise modified in the Part 2 Agreement. See ¶ 1.2, “Basic Services - Administration of the Construction of the Contract.” You would be well advised to be more specific about the Architect’s construction contract administration duties, for several reasons. First, AIA’s General Conditions of the Contract of Construction is not otherwise applicable to the Design/Builder-Architect Agreement, and it is not a part of the contract as such. Secondly, the general reference to the entire AIA General Conditions could be more specific. Presumably, the references are to Article 4, “Administration of the Contract,” Paragraph 4.1, “Architect,” and Paragraph 4.2, “Architect’s Administration of the Contract,” in the 1987 Edition of the AIA General Conditions. It may be that the generality of this reference in the Design/Builder-Architect Agreement simply reflects the fact that the AIA’s General Conditions are revised periodically, and thus cannot be cited by specific Paragraph numbers at any given time.
The Architect is a subcontractor to the Design/Builder and has no direct relationship with the Owner. An Architectural subcontractor’s role during construction of a Design/Build project may be substantially different from the Architect’s role during construction of a traditional project in which the Architect is the Owner’s representative. In traditional construction, where the Owner is the Architect’s client, the Architect serves as the Owner’s eyes and ears during construction, to monitor the Contractor’s work, to see that work is performed according to contract requirements, to check on progress of the work, and to recommend the amount of payments to be made by the Owner to the Contractor. See AIA Document A201, “General Conditions,” (1987 Edition), Article 4, “Administration of the Contract,” ¶¶ 4.1 “Architect,” and 4.2, “Architect’s Administration of Contract.” When the Design/Builder is the Architect’s client, the need for this type of Architect’s services may be diminished.
The Architect’s construction services include visiting the site at intervals appropriate to the construction or as otherwise agreed by the Design/Builder and the Architect. See ¶ 1.2.2. The Architect’s inspection duties may be specified in Paragraph 10.2 of the Part 2 Agreement, in which the parties may specifically list additional Basic Services. The Architect must always have access to the construction. The Architect has no control over the construction means or methods, and the Architect’s recommendations regarding construction must be forwarded through the Design/Builder.
The Architect reviews and approves the Contractor’s Applications for Payment. The Architect has authority to reject non-conforming work, and has review authority over submittals and shop drawings. The Architect has the authority to inspect the work, and has authority to interpret the Construction Documents. See ¶¶ 1.2.3-1.2.13. The Architect also makes the initial decisions on all claims and disputes between the Design/Builder and the Contractor, subject to the mediation and arbitration provisions. See ¶¶ 1.2.14 and 1.2.15 and Article 6, “Dispute Resolution - Mediation and Arbitration.”
The Part 2 Agreement also lists potential Additional Services by the Architect, which are not required unless the parties specifically provide for them. See ¶ 1.3, “Additional Services,” ¶¶ 1.3.2-1.3.6. Additional Services may be specified in Paragraph 10.2 and compensation for them may be specified in Paragraph 9.2. The potential Additional Services listed in Paragraph 1.3 include an on-site representative of the Architect, revisions in drawings and specifications due to changes by the Design/Builder or changes in applicable codes and laws, and consulting concerning additional work to replace construction damage by fire or completion of work after default of the construction contractor. See ¶¶ 1.3.2-1.3.8. Other potential Additional Services concern extensive involvement in claims, including evaluation of claims and participation in arbitration or other proceedings. See ¶ 1.3.9 and 1.3.10. The remaining Additional Services concern performance of additional functions by the Architect, including preparing separate bid packages for separate construction contractors, coordination of separate contractors and consultants, detailed cost estimates, inventories, ownership and operating costs, interior design services, tenant services, evaluations and appraisals, equipment utilization and other services. See ¶¶ 1.3.11 through 1.3.23.
• Design/Builder’s Duties
The Architect’s client is the Design/Builder, rather than the Owner. As such, the Design/Builder’s responsibilities to the Architect are essentially the same responsibilities the Owner has to the Design/Builder in the Owner-Design/Builder Agreement. The Design/Builder’s duties therefore are to make decisions promptly, and to furnish site information and subsurface and other tests as necessary. See ¶¶ 2.1, 2.2, 2.3 and 2.5. The Design/Builder is required to notify the Architect promptly if defects in construction or construction documents are found. See ¶ 2.6. In addition, the Design/Builder is required to furnish services of other consultants requested by the Architect, including “all legal accounting and insurance counseling services.” See ¶¶ 2.7 and 2.8.
The overall time for performance of the Part 2 Agreement is stated in Article 10, Paragraph 10.1. This should be the same period as set in the Owner-Design/Builder Agreement. See A191, Part 2 Agreement, Owner-Design/Builder Agreement, ¶ 14.1. Upon request of the Design/Builder, Article 4 requires the Architect to produce a detailed schedule breakdown within that period. See ¶ 4.1. Once established, the Architect or Design/Builder shall not exceed the time limits “except for reasonable cause.” See ¶ 4.1. Again, the agreement does not clearly specify the consequences of delay caused by the Architect, nor does it define the reasonable causes for delay. These should be clarified by additional language in Article 10. It is not prudent to have vague or ambiguous provisions concerning consequences of delay by an architectural subcontractor, especially if the Owner-Design/Builder Agreement imposes liquidated damages or other consequences for delay.
• Payments for the Architect
Article 9 provides a space to express the Architect’s compensation for Basic Services, Additional Services, Reimbursable Expenses, and the interest rate applicable to late payments. See ¶¶ 9.1, 9.2, 9.3 and 9.5. Article 9, Paragraph 9.6 also provides that the Architect’s compensation shall be “equitably adjusted” if the Project or the Architect’s services are “changed materially.” Again, additional clarity to these provisions would diminish the potential for disputes over the Architect’s compensation.
Article 5 of the Part 2 Agreement provides for an initial payment and monthly Progress Payments for Basic Services, Additional Services and Reimbursable Expenses. See ¶¶ 5.1 and 5.2. The Reimbursable Expenses specified in Paragraph 5.4 are the same as those specified the Part 1 Agreement. No due date or period is stated for payments to the Architect. You probably should state such a period in Article 9 for clarity, as in the Part 1 Agreement.
• Other Provisions
The remaining provisions in the Part 2 Agreement mirror those in the Part 1 Agreement. Article 6 provides for mandatory mediation under the American Arbitration Association rules, followed by binding arbitration if requested by the party. Article 7, “Miscellaneous Provisions,” mirrors that in the Part 1 Agreement.
Article 8, “Termination of Agreement,” contains the same seven-day written notice provisions for termination for breach by either party. See ¶ 8.2. If the Design/Builder suspends the Project for more than 30 days, the Architect is entitled to additional compensation. See ¶ 8.3. If the Project is suspended for more than 90 consecutive days or is abandoned by the Design/Builder, the Architect may terminate the agreement by giving written notice. See ¶ 8.4. If the Project is permanently abandoned, the Design/Builder may terminate the Agreement on seven days written notice to the Architect. See ¶ 8.4. If the Design/Builder fails to timely pay the Architect, the Architect may suspend performance on seven days written notice. See ¶ 8.6.
The AIA Design/Build Standard Forms of Agreement provide a great starting point for negotiation of an agreement for your specific project. The Design/Builder-Architect Agreement form addresses many risks common to design/build projects that you might otherwise fail to address. Please pay special attention to the insurance issues raised in this article, as the Architect’s standard policy may not cover the Design/Builder’s design responsibility. Before you complete your contractual arrangements, it is important to review the other Design/Build Agreements discussed in the other two articles in this series-the Standard Form of Agreement between Owner and Design/Builder, and the Standard Form of Agreement between Design/Builder and Contractor. These agreement forms must have complementary terms in order properly to assign risks and responsibilities among the parties. We hope this article is helpful to parties undertaking Design/Build projects.
— Daniel J. Donohue and John Randall Scott, Esquire, Counsel, ICF/Kaiser International, Incorporated, Fairfax, Virginia
Copyright © 1997 Kilcullen, Wilson & Kilcullen. All rights reserved.