How to Improve the AIA Standard Form Contracts
Every 10 years or so the American Institute of Architects (AIA) updates and revises its standard form family of construction documents and in 2007 the AIA modified the AIA A-201 contract to add the Initial Decision Maker (IDM) as a condition precedent to mediation.
This laudable change marks an important shift, moving away from the architect as the resolver of disputes. Unfortunately, change comes slowly. The architect is the default IDM unless the parties affirmatively insert a name, other than the architect, in the contract to act as the IDM.
Nonetheless, unlike prior AIA agreements, the AIA has opened the door to the idea of someone other than the architect as the IDM and provided the contracting parties with a place to insert a name other than the architect to act as the IDM.
But the AIA could improve its model contract documents more by eliminating the architect as the IDM.
 |
| SCIASCIA |
More often than not the process is non-binding and often a condition precedent to a next level of dispute resolution.
Another important feature of a real-time process, such as IDM or a dispute resolution board (DRB), is the fact that there is no requirement for discovery. The parties merely submit the documents they believe are necessary to prove or defend their claim, often with no discovery tools whatsoever.
Hearings are often informal. Witnesses give testimony without being sworn in and often there is no formal transcript.
Maintaining Informality
To its credit, the AIA maintains the informal procedure. There are no procedures or requirement for depositions, interrogatories, or turning over of documents and e-mails. Although there are no details for a hearing or witness testimony, the IDM may request additional information from the claimant or seek a response from the other party. Also, the IDM may reach out to third parties that have “special knowledge or expertise” who may assist in rendering a decision.
While the AIA maintains the condition precedent procedure, the boilerplate AIA IDM procedure, in article 15.3.5 of A201-2007, states that “the initial decision shall be final and binding on the parties but subject to mediation and, if the parties fail to resolve their disputes through mediation, to binding dispute resolution.” (Emphasis added). The importance of this feature cannot be overstated.
A regular dilemma in construction contract drafting and risk allocation is who is going to pay for disputed work? The contractor needs to get paid to pay the subcontractors and progress the work. The owner does not want to over pay or run out of money to complete the project and pay for damaged or defective work.
An expedited, real time, decision-making process provides a solution. And since the decision is binding until further binding dispute resolution takes place, presumably arbitration or litigation, the risk of the work stopping before the project is complete is significantly reduced. This is truly a win-win situation.
How to Improve the Process
There is always room for improvement, and that means moving away from the architect as the IDM.
It is critical that the parties believe that the neutral is impartial, but this is impossible when the architect is the IDM. The architect is paid by the owner. The architect’s mistake could be the basis of the claim. There are obvious conflicts not just perceived partiality
Industry professionals who have used the IDM process in the past seven years unanimously report that the process does not work with an architect as the IDM. In one instance, the architect rubber stamped the owner’s position. In another, the architect did nothing.
When an owner or the owner’s lawyer insists on the architect as the IDM, they lose credibility in the face of the obvious conflicts.
Sophisticated owners do not want the architect as the IDM or DRB neutral. The architect should be available as a witness for either party or the IDM and certainly, since the architect is the owner’s consultant, the owner is free to get an opinion from the architect at any time.
Next, the AIA must require the IDM to make a decision.
Currently, the IDM can choose to not make a decision if the IDM lacks sufficient information or when, “in [its] sole discretion, it would be inappropriate” for the IDM to resolve the claim. This is very problematic and appears to be designed as an out for the architect who realizes either she is in a conflict situation or the decision would go against her client, and she does not want to risk not getting paid.
If the parties pay a third party to act as the IDM, the parties should require results, specifically in the form of a reasoned decision in the time required (10 days).
Payment of IDM related costs has to be dealt with head on.
Currently, it is not clear who pays the cost of the IDM. But the implication is, if the IDM is the architect, then the owner pays. So, the AIA needs to specify that the IDM fees are paid for equally by the parties. Any expert fees required by the IDM and any conference room fees should also be shared equally. The parties must feel the process is impartial and both parties should be equally motivated to not run up expenses by submitting frivolous claims. Both parties must pay equally.
There should be a format for hearings. Not all evidence can be submitted in a written claim. The IDM may want to hear from the parties or witnesses, including trade contractors. The parties may want to tell their story. And, most importantly, once the parties have had an opportunity to discuss and hear the views of the other side, the IDM may suggest a compromise and the hearing may morph into a mediation.
There should be no exception for claims that are outside the IDM purview. Currently, for unknown reasons, the AIA has excluded claims related to emergencies, insurance claims settlements, and hazardous material from the IDM jurisdiction. The IDM jurisdiction should include any claim or dispute arising out of or related to the agreement, including termination.
There is also the open question of at what point does the IDM become involved in the process. If the IDM is the architect, then obviously the architect is already involved and quite aware of the project, and possibly the contentious issues. However, if the parties choose a third party, that third party will only know what the parties have told them.
The parties may consider keeping the non-architect IDM in the loop early with copies of monthly reports or periodic site visits. Or the parties may choose, primarily for cost reasons, just to activate the IDM when an issue arises. The current AIA boilerplate defaults to the latter approach.
Selecting the Right Third-Party
The selection of the right third-party IDM is critical.
The parties must respect the opinion and judgment of the IDM. Often, just the presence of a respected third party will mitigate claims propagation since sophisticated parties will not want to burn credibility on frivolous claims at the expense of more serious claims that may develop later in the project.
As discussed above, the resounding characteristic cited when polling lawyers for desired IDM or neutral attributes is perceived impartiality. Since it is critical that the IDM possess the technical ability to understand the claims and the legal issues, the parties should consider a lawyer with an architecture or engineering background.
It is critical to have a strong IDM that keeps a good handle on administrative issues, such as enforcing deadlines, scheduling, and process. Upon selection, the parties should consider a separate three party agreement with the IDM that requires the IDM to comply with the IDM rules, especially the deadline to produce the reasoned decision.
Although there appears to have been very little use of the IDM procedure with a non-architect IDM in the past seven years, the reality is that the IDM procedure, with a non-architect IDM, is very similar to a single person DRB. The DRB process has been around for almost 30 years.
Popularity of the DRB process in the U.S. has been explosive and courts are embracing the process. Perhaps we will see an increase of the IDM process soon, as contractors have the opportunity now, in the up part of the business cycle, to insist on the non-architect IDM.
Joel Sciascia is general counsel at Pavarini McGovern LLC and an adjunct professor at New York University. He can be reached at jsciascia@pavarini.com.