Commercial Law
Jul. 19, 2002
Construction Lawyers Must Protect Interests of Owners
Forum Column - By James Acret - In preparing bid packages, architects are encouraged by the American Institute of Architects to use standard forms drafted and marketed by the institute. A property owner who employs an architect to design a project naturally expects that the architect will endeavor to protect the interests of the owner.
By James Acret
In preparing bid packages, architects are encouraged by the American Institute of Architects to use standard forms drafted and marketed by the institute. A property owner who employs an architect to design a project naturally expects that the architect will endeavor to protect the interests of the owner.
When the architect's and the project owner's interests collide, however, the forms safeguard the interests of the architect and forego the interests of the owner. Construction project lawyers should therefore be aware of how these clauses work and modify them when necessary.
Documents drafted and marketed by the American Institute of Architects betray the interests of the project owner. The heart of the institute's construction contract documents is document number A201-1997, the "general conditions of the contract for construction," a 46-page opus that, according to its index, covers everything from acceptance of nonconforming work to written notice requirements.
Designed by and for architects, these general conditions allow architects to escape arbitration. One clause provides that the architect will decide claims made by the owner against the contractor and vice versa, including claims alleging an architect's error or omission. A decision by the architect is a condition precedent to arbitration or litigation. If the owner disagrees with the architect's decision, the owner must demand arbitration within 30 days or the architect's decision becomes final.
This may put the owner in the uncomfortable position of pursuing an arbitration proceeding against the contractor while the job is in progress. Worse, the architect is exempt from being joined as a party to the arbitration proceedings. Document B141-1997, the standard form of agreement between architect and owner, also prohibits joinder of the contractor in arbitration proceedings between owner and architect.
The exclusion of the architect from proceedings against the contractor can have a devastating effect on the owner's case. A contractor usually responds to claims by asserting that the architect's drawings or specifications were inadequate or misleading and that the architect did not live up to professional responsibilities in processing change orders, reviewing submissions, processing payment requests and responding to requests for information. An owner naturally would seek to join the architect in the proceedings in order to claim indemnity. Instead, under the institute's scheme, the architect is only a witness, not a party.
If an award is made against the owner because of the architect's wrongdoing, the owner will be forced to start a separate arbitration proceeding against the architect. In this proceeding, the contractor will not be a party; therefore, the owner will have to call the contractor as a witness against the architect. This is not an easy sequel to the vigorous battle with the contractor in the first arbitration proceeding.
Perhaps the most important interest a project owner should protect is the requirement that the construction project be delivered on time. That interest is sacrificed under the institute's documents because the owner gives up the right to recover damages for delay.
In Article 4.3.10, the contractor and the owner waive claims against each other for consequential damages, which includes damages for delay. Why should the institute's documents prevent an owner from recovering delay damages from a contractor? Because it relieves the architect of responsibility to indemnify the contractor.
Let's suppose that the completion of a construction contract is delayed and the owner makes a claim against the contractor for the reasonable rental value of the project during the period of delay. If the contractor shows that the delay was caused by inadequate drawings and claims damages for delay against the owner, the result could be judgment against the architect. But since both owner and contractor have waived claims for delay, the architect is exempt from the risk.
Nor can an owner pursue a delay claim directly against the architect. Under the standard form of agreement between owner and architect, the architect and owner waive consequential damages against each other.
Unfortunately for unsuspecting project owners, when the interests of the project owner conflict with the interests of the project architect, the architect's interests are protected while the owner's interests are sacrificed. It is the job of the lawyers involved to modify the appropriate forms in order to prevent such an injustice.
James Acret is of-counsel to Thelen Reid & Priest in Los Angeles.
Columnist
For reprint rights or to order a copy of your photo:
Email
Jeremy_Ellis@dailyjournal.com
for prices.
Direct dial: 213-229-5424
Send a letter to the editor:
Email: letters@dailyjournal.com