Tuesday, September 7, 2010

A.I.A. Construction Contracts: Beware

What’s wrong with A.I.A. contracts? Nothing, unless you’re a construction contractor. I’ll explain.

The A.I.A. published their first “standard” construction contract in 1888. As a construction contractor, you’ve probably seen several A.I.A. contracts. Go to the A.I.A. site and you’ll discover that A.I.A. contracts are “accepted, reliable, fair and flexible.” Fine. But here’s what the A.I.A. doesn’t explain. A.I.A. construction contracts don’t comply with either state or federal disclosure law. In most states and for most jobs, a contractor who works under an A.I.A. contract risks serious legal trouble.

Here’s why. Over the last 20+ years, nearly every state has enacted legislation that requires specific notices and disclosures in construction contracts – especially on residential and small commercial jobs. These notices are different in every state and vary with size of the job, type of work, materials used, who signs the agreement and even where the contract is signed.

Every contractor has seen these notices and disclosures: The 3-day right to cancel, lien law notices, checklists, limits on warranty claims, licensing requirements, contact numbers for the license board, bonding requirements, payment standards, arbitration disclosures, etc. The list goes on and on.

It varies by state, of course, but any contract that omits a required notice is likely to (1) be unenforceable by the contractor, (2) expose the contractor to a fine, (3) result in discipline by the license board or the attorney general, and (4) permit a court to award attorney fees if litigation is necessary. In some states, omitting a required notice is punishable by jail time. To see the construction contract notices and disclosures required in your state, go to Construction-Contract.net.

Now, how does the A.I.A. deal with these state requirements? It doesn’t. A.I.A. construction contracts ignore state and federal disclosure law. That’s your problem, at least in the eyes of the A.I.A. contracts committee. I think that’s irresponsible. Can you name a reputable vendor in a heavily regulated industry that ignores state and federal law as a matter of policy? I can’t.

Why don’t A.I.A. construction contracts comply with state and federal disclosure law? I can think of three possible reasons.

(1) The A.I.A. came first. Back in 1888, there wasn’t any consumer protection law. Every construction contract was legal under state law. A hundred years later, when states started legislating contract terms, the A.I.A. simply went on selling their contracts as though nothing had happened. That was a bad choice, in my opinion.

(2) One size fits all. The A.I.A. sells boilerplate contracts. Adapting any construction contract to the type, size and location of the work and materials used is a complex problem. The A.I.A. contracts committee elected not to get involved, probably because of my next point.

(3) The A.I.A. (American Institute of Architects) serves the interest of architects, not contractors. Neither architects nor owners have any risk from a defective contract. Only contractors suffer if an agreement fails to comply with state law.

So what should the A.I.A. do? It’s not my place to counsel the A.I.A. But I know exactly what contractors need to understand: A.I.A. construction contracts omit the notices and disclosures required on most jobs in nearly all states. Using an A.I.A. form without the right notices can make a contract unenforceable – and could even land a contractor in prison.

In short, “accepted, reliable, fair and flexible” isn’t enough. You need legal contracts.

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