What is an AIA design-build contract?
AIA design-build contracts are construction contracts that incorporate design and construction services into a single agreement between the owner and the design-builder. This streamlined approach combines all aspects of the construction process, enabling improved collaboration and communication between the parties. Rather than having separate agreements with an architect and a general contractor, the owner enters into a single agreement with the design-builder to perform both services.
These types of design-build contracts are presented in AIA form as two contracts: the first form is a contract between the owner and owner/constructor and the second form is a related sub-subcontract, where the owner/constructor is creating a contract with a subcontractor. The AIA form used to create a contract between the owner and owner/constructor is AIA Document A141-2019 – Standard Form of Agreement Between Owner and Design Builder as Constructor , where the owner enters into the contract with the design-builder during the preconstruction phase of a construction project, but in this contract, the design-builder agrees to perform the construction services as the constructor in accordance with the Contract Documents. Under AIA Document A141-2019, the owner and design-builder must agree to a stipulated sum or guaranteed maximum price as the price for their services. The second AIA form, A102-2017 – Standard Form of Agreement Between Owner and Contractor, is a construction subcontract, where the owner/constructor creates a contract with a subcontractor in order to establish a working relationship between the owner/constructor and subcontractor.
Elements of AIA design-build contracts
AIA Contract Documents offer three forms of the design-build delivery method: Alliance, Integrated Project Delivery (IPD), and Construction Manager as Advisor (CMa). Each of these standard form documents is available in both a Contractor edition and a Subcontractor edition. We will discuss each form briefly, but we start with the basic components of AIA design-build contracts.
The basic AIA design-build contract consists of
- The parties (including the designation of the specific entity to which the architect is to direct communications concerning administration of the contract.)
- Scope of work
- The contract sum
- The means for changing the contract sum and schedule and establishing and adjusting the contract time
- The parties’ rights to terminate the contract or suspend the Work
- The contractual terms required by applicable law
- Additional rights and obligations that are unique to the specific contract form
More specifically, component 2, the scope of Work, defines what the Design-Builder will provide under the contract. The scope of the Work should be consistent with the contract sum. For example, the contract may assign responsibility for the coordination of various contractors and subcontractors to the Design-Builder or separate it from the scope of the Design-Builder in a manner similar to CM at Risk.
Each AIA design-build contract allows the owner to further define the scope of work through supplements that modify A201 and A201M General Conditions of Contract for Construction. The traditional approach to defining the scope in the contract and setting allowances in the contract documents is generally not appropriate here.
The scope of work is subject to change through mutually-executed modifications. The Designer and Construction Manager are also subject to the obligations of the General Conditions for their network, but these contracts are tailored to fit. As with all contract documents, the design-build contracts should be read and understood as a single agreement.
Benefits of AIA design-build contracts
Design-build is fast becoming a popular project delivery method in the construction industry. It affords clients and contractors with a number of advantages including cost-effectiveness, streamlined communication, and increased collaboration.
The primary advantages of design-build contracts can be grouped into two categories: benefits to clients and benefits to contractors.
With traditional project delivery methods, owners enter into separate contracts with designers and builders. In contrast, design-builders establish a single contract with clients. In many states, the AIA contracts already provide owners with a single point of contact. This feature streamlines communication and provides clients with accountability. Clients only have one party to blame if any issues arise. Additionally, having a single party to communicate with can expedite dispute resolution.
The AIA has worked to standardize the AIA design-build family of contracts. Standardization minimizes misunderstandings and miscommunication between clients and contractors. This is especially important when the parties enter into a long-term contractual relationship, such as one involving a design-build bridging contract. Throughout the bridging phase, architects may interact with clients and contractors. Having a standardized contract in place will facilitate communication between those parties and eliminate uncertainty about contractual obligations.
AIA contracts are designed to minimize disputes between clients and contractors. However, if a dispute does arise, the AIA’s design-build contracts allow for alternative dispute resolution (ADR). The ADR provisions of AIA Contracts change depending on project size and complexity. On smaller projects, AIA contracts for projects that are $1 million or less in size allow the client and the contractor to select the forum for resolution if a dispute arises. The contractor may choose to resolve the dispute through arbitration or mediation. For projects larger than $1 million, AIA contracts provide a stepped approach to dispute resolution. Once again, the AIA requires clients and contractors to have a single agreement. Under a single agreement dispute resolution, a claim must normally be submitted to the initial decision maker (IDM) prior to arbitration.
Under the design-build system, clients will pay only for the contract price for the work completed (subject to other terms in the contract). Clients avoid the risk of paying for design errors, inefficiencies, or overruns. In addition, clients under the design-build system will almost always pay a fixed price. Fixed price contracts are more predictable than other contractual price agreements. They also eliminate projects’ susceptibility to rapidly escalating costs.
Common pitfalls and how to avoid them
An issue that arises periodically will be contractual provisions that are mechanisms that operate to the Owner’s (or Contractor’s) detriment. Sometimes they may not be correct, but an Owner may allow them because of a belief that they are not that important. However, if one looks closely at the specifics of a provision such as this, the issue becomes significantly worse. And, a Contractor may not look at the provisions of a Contract in detail (sometimes an unfortunate necessity, say during a Bidding process) and may not discover a problem until later. A careful review by all parties is therefore essential.
A frequent example of this is where the AIA A201 or AIA A102 provides for the Architect or Engineer to make decisions about whether a Contractor is entitled to payment on a construction contract, and those decisions are not binding upon the Owner. The problem is that the Architect or Engineer makes a decision about the facts and circumstances even though the Owner may not agree with or may not like a given claim or request from a Contractor. Then, the Architect’s or Engineer’s ruling becomes final and conclusive, thereby constituting the basis for making a decision that may not be valid, and may be legally unenforceable. This is particularly problematic when the Architect or Engineer decides that the Owner should now have to pay more money to the Contractor than was originally intended (for instance, because a changed condition exists, or because there was an unforeseen circumstance). As with many other issues, the impact of these particular provisions does not come to light until a problem occurs, and then the parties are forced to grapple with doing whatever is necessary to get the matter straightened out.
In examining the specific example of the AIA A201 or AIA A102, the best way to handle a scenario like this is to modify the contract documents (the Owners and Contractors both have options for modifying contract forms) to provide that the decisions of the Architect or Engineer on payment issues are binding, rather than having that result be "final and conclusive." That same solution works for all of the contract provisions in the AIA forms that may be non-binding, when in fact it would make sense to have them be binding instead. This may not necessarily be the case for all contractual provisions, however.
Getting back to the issue of the Architect’s or Engineer’s decisions on payments, the best way to handle these situations and to avoid a crisis when contracts are executed is to review them in detail (which is sort of American for determining what Contract Provisions truly mean). For AIA Forms, this may take two or three hours of attention for comments providing input on why acceptable language should be included, and should not be altered. It is a good idea to spend some time on this type of review because the changes can result in eliminating problems like these altogether, allowing trust to exist between the parties by virtue of the fact that the forms are balanced, and allowing at least a good faith attempt to understand the AIA forms prior to the contract being entered into.
Negotiating AIA design-build contracts
One of the smart and pragmatic approaches to negotiating the AIA form is to use a word processor’s "tracking changes" function and to mark up the document with a different color for each party. This way, you will have a clear record of the changes and the counter proposals. However, under California law a written contract is not executed, the law simply assumes that a contract was agreed to and that the parties intend to incorporate any pre-printed form as well as such negotiated and executed modifications. If the negotiation goes south and the parties do end up executing the contract, it is always helpful to have the entire contract in one document, with all the parties’ commentaries removed. Otherwise , there could be some confusion regarding what the final deal actually is.
In any negotiation, two things need to happen. You, as the party to cover damages, are going to have to take on some risks. But, you should also receive something in return. Examples of things you can seek in return for taking on certain risks include: An absolute upper limit for total costs and/or fees; the right to terminate for convenience; or a true insurance waiver (meaning that you are actually released from liability for negligent or non-negligent accidents). When negotiating an AIA contract, every party needs to decide what tradeoffs they are willing to make and effectively communicate those goals to the other parties.
AIA design-build contracts versus traditional build contracts
AIA design-build contracts offer a different approach to the design and construction process than traditional models. With a traditional model, which is similar to construction manager at-risk (CM at-risk) or construction management/advisor (CM/advisor) contracts, the owner contracts separately with the designers and the contractor. In this model, the owner is heavily involved in coordinating all three parties. As a result, scheduling can be cumbersome, and changes requiring additional time and cost may be required due to coordination issues. In addition, some owners complain that they do not receive the best pricing or quality with the traditional model, because of the additional links in the contractual chain and fragmented information that can occur. Under a traditional model, the architects provide a complete set of documents to the owner before design is in final form. Comments from the owner and other contractors are incorporated into the documents to create the final bid documents, which the contractor then uses to obtain bids from the subcontractors. This process can lead to a pricing disconnect, as subcontractors do not get the benefit of feedback and quantity assessments of the design team. When using AIA design-build contracts, the owner typically contracts with a single entity that will provide a guarantee of price and schedule for both the design and construction. In addition, the design-build contract may require the design-builder to provide a schedule for design and construction in a way that is most effective for the project. For example, in a design-build contract, the owner may not receive submittals every month. Instead, the design-builder might use submittals to make decisions about design as it is being created to incorporate means and methods in a more contemporaneous manner, rather than under a traditional design-bid-build approach — where submittals may flood the owner’s in-box every month or so, requiring review by multiple stakeholders. A design-build approach can ease some of the burden on the owner and help foster a better relationship with the design-builder. After agreeing to the terms of the contract, each party knows the other’s obligations and no longer has to worry about coordinating the contract. This will free up the owner’s time to focus on other matters that may have been set aside when all of the responsibility rested solely on the owner. The design-builder will also have greater control over the schedule. Instead of contracting with two different entities, the owner will only have to contract with one. This can reduce the burden on the contracting process and the number of change order/personnel time to handle payment disputes or at the very least consolidate the burden under one organized entity. Also, having the design-builder oversee the entire project may better facilitate an incentive program. Because the design-build contract closely integrates the design and construction phases, there are many situations where certain efficiencies can promote cost savings that benefit both the owner and design-builder. Like everything else, a design-build approach does have limitations. It also requires the owner to reorganize its approach to contracting and the construction process. AIA design-build contracts typically can only be used for more simple or typical projects. These contracts are difficult to use for more complex and cost-competitive projects that ordinarily would result in substantial price reductions. In those cases, the AIA suggests that owners consider multi-prime delivery systems and CM at-risk contracts (with or without a guaranteed maximum price) or CM/advisor contracts. In addition, design-build contracts should be used for projects where there is a set scope and budget. When the project has undefined scope and flexibility, using design-build contracts may be more risk than it is worth for the owner. Besides these drawbacks, contracting using AIA design-build contracts provides the owner the main benefit of being able to manage the project as a whole rather than micromanaging the each component of the project.
Conclusion: Is an AIA design-build contract right for you?
If you’ve made it this far, you’ve learned the basics of a design-build project delivery model and AIA design-build contracts. In this article, we’ve covered the responsibilities of the Design-Builder and Owner under the AIA provisions as well as how work on an AIA design-build project is typically organized.
My hope with this article has been to give you enough information to decide whether or not an AIA design-build contract is appropriate for your upcoming project. Here’s a brief recap of things that might be important in thinking through this decision, which we discussed throughout the article: If you fit one or more of the descriptions above, an AIA design-build contract may be worth considering . But this is really just scratching the surface on the various contractual options available to Owners and Contractors. If you’re in the design-build world (or thinking about getting into it), diving deeper into the AIA A141-2014 may be worth your time. And if you could use a little help visualizing the design-build contract world, Michael Peterson at Newforma has created a handy dandy flowchart of the different relationships and contracts in the design-build process that’s worth a look.