constructionattorneyblog

Limitation of Liability in new AIA Document

One of the new 2007 AIA documents is B103 -- Owner-Architect Agreement for a Large or Complex Project. This document differs from the flagship owner-architect agreement, B101, in that the owner is expected to hire cost and scheduling consultants, and it also anticipates that the project will be done as phased or fast-track construction in most cases. However, one of the more interesting provisions in this document that does not show up in the other new 2007 owner-architect agreements is a limitation of liability provision. Here it is:

§ 8.1.3 The Architect shall indemnify and hold the Owner and the Owner’s officers and employees harmless from and against damages, losses and judgments arising from claims by third parties, including reasonable attorneys’ fees and expenses recoverable under applicable law, but only to the extent they are caused by the negligent acts or omissions of the Architect, its employees and its consultants in the performance of professional services under this Agreement. The Architect’s duty to indemnify the Owner under this provision shall be limited to the available proceeds of insurance coverage.

Note that this paragraph starts out as an "indemnification" of the owner by the architect. This seems to be very pro-owner and is something that we would normally strike from any contract proposed by an owner. The indemnification, however, is limited to the negligent acts or omissions of those for whom the architect is responsible. This is not an expansion of the architect's liability as the architect would be responsible for such acts or omissions in the absence of such language.

The more interesting part of this paragraph is the last sentence wherein the architect's liability under this paragraph is limited to the available insurance proceeds. Owners should be aware that such a limit may be somewhat illusory, since most of the professional liability policies are of the "declining balance" variety, wherein the costs of defense, notably attorneys fees, reduce the available limits as a case progresses. Also, if another claim is made against the architect's policy in the same policy period, both matters would erode the available limits.

To offset this problem, B103 permits the owner to require the architect to carry additional insurance (at the owner's expense). See Section 11.8.1.8 of B103. If the owner invokes this option, the owner should require, and pay for, insurance that extends several years after completion of the project, otherwise the architect will revert to the prior policy limits at the conclusion of the project and latent defects not discovered until later will not be subject to the greater insurance limits expected by the owner.

A final interesting question is whether the architect may be liable to the owner for errors or omissions outside of this indemnification paragraph. If so, the limitation of liability will not protect the architect to the extent that it may appear on first reading this provision since the limitation covers only the architect's duty to indemnify the owner under "this provision." Presumably, the answer is that any claims by the owner for an error or omission by the architect, employees of the architect, or consultants to the architect are subject to this paragraph. If there is a claim by the owner that is not a "negligent act or omission," the limitation may not apply. We await a court's determination of this issue.

AIA plans change to Statute of Limitations provisions

The AIA is planning to release a revised version of the major  AIA documents (General Conditions, Owner-Architect agreements, etc.) this fall. For a number of months, draft versions have been distributed to various groups for comment. It appears that the AIA, in an apparent effort to make the documents more owner-friendly, will be drastically revising the provisions relating to the state of limitations.

In the current version of A201 (Section 13.7), as well as B141 and B151, the documents set the accrual date of the applicable statute of limitations as the date of Substantial Completion. This means that, whether or not a problem has been discovered, the statute of limitations starts on that date and terminates on a date certain, depending on what that state's laws are. Without this provision, most states have a statute of repose and "discovery" rules that permit a party to "discover" a latent defect years after substantial completion and the statute of limitations doesn't even begin to run until this discovery. This means that the architect and contractor are open to a lawsuit by an owner many years after the project is completed.

With the latest draft of A201, this provision is completely removed, making this decidedly unfriendly for contractors. Likewise, the latest draft of one of the new owner-architect agreements substantially alters this provision, resulting in a substantial increase in the time that the architect is exposed to liability.

This is not some idle exercise. A number of lawsuits have been won at an early stage by architects and contractors based on this statute of limitations language in the AIA documents, even though the owner argued that there was a latent defect that was not discoverable until much later. The proposed changes will make dismissal of such lawsuits much more difficult.

It is, of course, possible that the AIA will change their position before the documents are formally published later in 2007. This is unlikely to occur unless architects and contractors make it known to the AIA that they are unhappy with this change.

Kelo Song

The Supreme Court's taking decision in Kelo has generated much discussion, including this rather creative song: HLS Federalist Society | Ex Parte - -.

Mechanics Lien held invalid because Architect not Licensed

Design professionals need to be careful that they have complied with applicable licensing statutes. An illustration of this is the case of G.M. Fedorchak v Chicago Title Land Trust Co, (Ill.App.3 Dist. Jan 7, 2005). The owner hired an out of state architectural firm for a project. When the owner failed to pay the bills, the architectural firm foreclosed on its mechanics lien. The owner moved to dismiss on the grounds that the architectural firm was not properly licensed.

Illinois requires an architectural firm to be registered with the state (with few exceptions) and for the person in charge of the architecture to hold an Illinois license. In this case, the firm was not registered and neither of the father and son owners of the firm held active Illinois licenses at the time the contract was formed. The court held that this resulted in the contract being void which, in turn, rendered the mechanics lien invalid.

New AIA Design-Build Documents

The American Institute of Architects released its long-awaited revised Design-Build documents in late March, 2005. These constitute a major revision to the prior design-build documents that did not receive much use in the industry. This article will give a brief overview of these new documents.

Unlike the prior AIA documents which had a two-part format for the design-build process, these documents have one series of agreements among the various parties. The format contemplates a Design-Build entity that contracts directly with an Owner (see fig. 1). The Design-Builder has separate contracts with the Architect and with the Contractor. Another document is for a contract between the owner and a consultant, presumably an architect, who will draft the project criteria. This project criteria is similar to a program, but could be much more involved, and may include very specific requirements for the Design-Builder to meet.

These documents allow for a great deal of flexibility. For example, Exhibit B to Document A142, the Design/Builder - Contractor Agreement, discusses preconstruction services to be provided by the Contractor. There are essentially two blank spaces for the parties to identify what, if any, such services will be provided, and how much the Contractor will be paid for these services. Other exhibits to the four main documents have similar flexibility. Either the contractor or the architect can take the lead position with these documents, although in most cases, a separate legal entity will occupy the position of "Design-Builder."

People familiar with AIA documents will quickly recognize 90% of the language used, as it comes primarily from the most recent A201 and B141 documents. This will help when one realizes that these documents form a stack at least an inch thick! For those not familiar with AIA documents, these documents and exhibits will present a daunting amount of paper.

There are a number of interesting provisions in these documents. For the first time, arbitration is an optional provision, as opposed to being an integral part of the dispute resolution scheme of the documents. With prior AIA documents you had to make a conscious determination to remove arbitration from the documents if you wanted to avoid arbitration. Now, the opposite is true: you have to indicate that you want to be bound by arbitration. If you fail to mark the proper box on these documents, then the default of litigation is utilized for future disputes in the place of arbitration.

In the traditional method of construction, the architect provides the owner with a check and balance against the contractor. Prior AIA documents had the architect as a "neutral" who initially tries to resolve disputes between the owner and contractor. Here, the architect is a consultant to the same "team" that includes the contractor. The owner thus has no such protection. As a way to assist the owner, these documents allow for the assignment of a "neutral" who is someone other than the project architect.

For these design-build documents, the AIA has also used some new terms. For instance, the old forms used the term "Contract Documents" while the Owner - Design/Builder Agreement (A141) replaces that term with "Design-Build Documents." The "Contract Documents" term remains in the A142. The term "General Conditions" is replaced with "Terms and Conditions," which are exhibits to two of the forms.

These are the documents and their exhibits:

• AIA Document A141 - 2004 – Standard Form of Agreement Between Owner and Design Builder
• AIA Document A141 - 2004 – Exhibit A – Terms and Conditions
• AIA Document A141 - 2004 – Exhibit B – Determination of the Cost of the Work
• AIA Document A141 - 2004 – Exhibit C - Insurance and Bonds
• AIA Document A142 - 2004 - Standard Form of Agreement Between Design Builder and Contractor
• AIA Document A142 - 2004 - Exhibit A – Terms and Conditions
• AIA Document A142 - 2004 - Exhibit B – Preconstruction Services
• AIA Document A142 - 2004 - Exhibit C – Contractor’s Scope of Work
• AIA Document A142 - 2004 - Exhibit D – Determination of the Cost of the Work
• AIA Document A142 - 2004 - Exhibit E – Insurance and Bonds
• AIA Document B142 - 2004 – Standard Form of Agreement between Owner and Consultant
• AIA Document B142 - 2004 – Exhibit A – Initial Information
• AIA Document B142 - 2004 – Exhibit B – Consultant’s Services
• AIA Document B143 - 2004 – Standard Form of Agreement Between Design Builder and Architect
• AIA Document B143 - 2004 – Exhibit A – Initial Information
• AIA Document B143 - 2004 – Exhibit B – Architect’s Services

Initial reviews of these documents have been very positive. It remains to be seen whether the construction industry adopts these documents for widespread use.

Illinois architect designs buildings after death!

This article appeared in the Chicago Tribune on May 3, 2005:

Emil L. Larson would have been 104 years old in 2001, so state regulators found it unlikely when drawings for new construction were submitted that year with his name on them.

On paper, Larson had been a prolific architect into his 90s and 100s--his name or seal was on 28 projects, from new houses and six-flats to commercial space.

In fact, Larson had died in 1993 at the age of 96 in Arizona, where he had lived for about 25 years. But the buildings kept coming because someone else was using his name, architectural license and stamp to submit drawings, according to state documents.

John Pavlovich, 67, of Lake Forest, a draftsman who allegedly appropriated his former boss' professional identity, was hit with a $250,000 state fine, the largest against an individual that Department of Financial and Professional Regulation officials could recall Monday.

The alleged scheme was uncovered in 2001 and has been working its way through regulators and hearing rooms ever since.

"The story was very sad, I thought," said Steven Weiss, an architect who testified in 2003 that Pavlovich's drawings required the stamp of a licensed architect. "This guy didn't have any other way to make a living other than doing this."

When suspicious investigators stopped by Pavlovich's Lake Forest office, Pavlovich explained that Larson was away on vacation, according to a recent report on the matter.

When the inspectors came back a second time, Pavlovich said Larson was in Mexico and wanted to retire. In 2001, he turned over Larson's seal and license, according to the state.

Pavlovich's attorney is fighting the allegations and the fine, saying the state is being excessive and the buildings are sound.

Pavlovich was employed by Larson in the late 1960s or early 1970s, according to state documents.

Between October 1996, when Pavlovich allegedly renewed Larson's license, and June 2001, when state officials became suspicious, Pavlovich allegedly drew up plans for 28 projects.

He apparently used designs crafted by his onetime boss. "The buildings structurally were recycled plans Larson had actually designed, primarily from the '50s and '60s," said Susan Hofer, spokeswoman for the Department of Professional Regulation.

"Larson designed a lot of buildings and Pavlovich was basically redoing the facades and the exteriors. The plans themselves were structurally sound because they had been done by a real architect."

The Chicago Building Department approved all of the plans submitted by Pavlovich for the 28 structures, Hofer said.

Welcome to our weblog

Sabo & Zahn has entered the 21st century! This weblog will cover issues relating to construction, including the following:

• architectural legal issues, including licensing matters
• mechanics liens
• copyright issues, including Architectural Works Copyright matters
• contacts, including AIA contracts
• negotiating
• liability matters
• anything else that interests us

We will also announce seminars on these topics that we will be giving. These will allow attendees to comply with CEU requirements, as we are a registered AIA Provider.

We hope that you will find this site informative. For more information about us, visit our website at http://www.sabozahn.com